-----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, INDdiqKiWUycgaXzq+1Z3K3yOX8kFn1KDoEXJ+qhyS90w1N5ZDobiTt/LMgwidKH eYZ48Hw56NCGWmbIsGsC7A== 0000950144-00-004117.txt : 20000331 0000950144-00-004117.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950144-00-004117 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000102 FILED AS OF DATE: 20000330 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: 0103 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13956 FILM NUMBER: 585230 BUSINESS ADDRESS: STREET 1: 5605 CARNEGIE BLVD STREET 2: STE 500 CITY: CHARLOTTE STATE: NC ZIP: 28209 BUSINESS PHONE: 7044425100 MAIL ADDRESS: STREET 1: 5605 CARNEGIE BLVD STREET 2: SUITE 500 CITY: CHARLOTTE STATE: NC ZIP: 28209 10-K405 1 PERSONNEL GROUP OF AMERICA 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K ----------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _____________ Commission file number 001-13956 PERSONNEL GROUP OF AMERICA, INC. (Exact name of registrant as specified in its charter) Delaware 56-1930691 ------------------------------- ------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5605 Carnegie Blvd., Suite 500 Charlotte, North Carolina 28209 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (704) 442-5100 -------------------------------------------------- (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.01 par value ---------------------------- (Title of Class) ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 24, 2000, computed by reference to the closing sale price on such date, was $154,913,750. (For purposes of calculating this amount only, all directors and executive officers are treated as affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.) As of the same date, 24,675,752 shares of Common Stock, $.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's Annual Report to Stockholders for the fiscal year ended January 2, 2000 (the "Annual Report") furnished to the Commission pursuant to Rule 14a-3(b) and definitive Proxy Statement pertaining to the 2000 Annual Meeting of Shareholders ("the Proxy Statement") filed with the Commission pursuant to Regulation 14A are incorporated herein by reference into Parts II and IV, and Part III, respectively. ================================================================================ 2 PART I. ITEM 1. BUSINESS Personnel Group of America, Inc. (the "Company"), is a leading provider of information technology and commercial staffing services to businesses, professional and governmental organizations. The Company is organized into two Divisions, the Information Technology Services Division ("IT Services") and the Commercial Staffing Services Division ("Commercial Staffing"), and operates in strategic markets throughout the United States. The Company's services include information technology consulting, temporary staffing, placement of full time employees, on-site management of temporary employees and training and testing of temporary and permanent workers. At February 29, 2000, the Company operated through a network of 144 Company-operated offices located in major metropolitan areas throughout the United States. IT Services offers information technology professionals on a temporary basis and consulting services in a range of computer-related disciplines. Commercial Staffing offers a wide variety of temporary office and clerical, and finance and accounting services, to more than 10,000 organizations nationwide. This division also provides light technical and light industrial services to its customers, but these services typically account for less than 20% of the division's total revenues. Each division also offers permanent placement services in a range of specialties. For the year ended January 2, 2000, IT Services and Commercial Staffing represented approximately 64% and 36%, respectively, of the Company's total revenues. The Company endeavors to protect its intellectual property rights and has obtained registrations in the United States of certain of the trademarks, trade names and service marks that appear in this report. INFORMATION TECHNOLOGY SERVICES DIVISION IT Services provides information technology professionals on a temporary basis and consulting services through 43 offices in 21 states and the District of Columbia at February 29, 2000. IT Services had approximately 3,800 consultants on assignment at February 29, 2000, of which approximately 1,500 (or 40%) were salaried employees. Of the balance (60% of the total), approximately 1,500 consultants were hourly employees and 800 were independent contractors. IT Services was created in 1996 following the acquisition by the Company of five companies in the information technology services business. IT Services provides skilled personnel, such as web developers and consultants, programmers, systems designers, software engineers, LAN administrators, systems integrators, helpdesk staff and other technology specialists, to a wide variety of clients, typically on an as needed time and materials basis. A number of IT Services' offices have developed technological specialties, and have entered into alliances with packaged software and systems vendors and other technology partners to provide services necessary to install and maintain their partners' technologies. Many of the division's offices also have rapidly expanding ecommerce practices, and are providing software engineering, web design, applications development and strategic internet consulting services both to clients who are themselves seeking to web enable their enterprises and to a growing number of internet infrastructure companies. IT Services' staffing services include providing individuals or teams of computer professionals to corporations and other organizations that need assistance with project management, analysis, systems design, programming, maintenance, testing and special technologies for short-term and long-term information technology projects. The division's service offerings encompass a wide variety of tasks, ranging from management of all aspects of a project or the implementation of turnkey systems to the fulfillment of temporary staffing needs for technology projects. 2 3 Selected offices in IT Services also provide complementary or stand-alone consulting services in the information technology area, typically on a time and materials basis. For example, certain offices work with clients, chief executive officers and other executives interested in alternatives to outsourcing their internal information technology organization, as well as implementing complex systems integration solutions, and offer a range of consulting services, including systems development projects and client/server networks that span mainframe, mid-range and desktop systems. These services are provided at the client's site or at off-site development centers. The Company intends to continue expanding the consulting services component of the IT Services service offerings as part of its strategy to offer a full range of IT services to its clients. 3 4 Operations IT Services markets its services to regional and local accounts on a decentralized basis. The following table sets forth information at February 29, 2000 on the brand names, markets, numbers of offices and dates founded of the IT Services companies:
NUMBER OF DATE NAME MARKETS OFFICES FOUNDED ---- ------- --------- ------- Advanced Business Consultants Kansas City, KS 1 1986 BAL Associates Silicon Valley, CA 2 1989 Orlando, FL BEST Consulting Seattle, WA 11 1990 Portland and Salem, OR Salt Lake City, UT Boise, ID Palm Springs and Sacramento, CA Phoenix, AZ Minneapolis, MN Las Vegas and Reno, NV Denver, CO Chicago, IL Broughton Systems Richmond, VA 3 1980 Careers Denver, CO 1 1969 Command Technologies Denver, CO 1 1978 Computer Resources Group San Francisco, 4 1972 Sacramento and Walnut Creek, CA Salt Lake City, UT DRACS/SSC Atlanta, GA 2 1989 Birmingham, AL Gentry Oakland, CA 1 1974 IMA Plus Jacksonville, FL 1 1987 IMS Consulting Irvine, CA 1 1980 InfoTech Contract Services Waltham, MA 2 1993 Atlanta, GA Keiter Stephens Computer Services Richmond, VA 1 1994 Lloyd-Ritter Consulting Silicon Valley, CA 1 1980 Paladin Consulting Dallas, TX 1 1984 RealTime Consulting Dallas, TX 2 1991 Kansas City, KS Trilogy Consulting Chicago, IL 4 1982 Kalamazoo, MI Princeton, NJ Silicon Valley, CA Vital Computer Services New York, NY 4 1970 Livingston, NJ Washington, DC Miami, FL
4 5 Sales and Marketing IT Services has developed a sales and marketing strategy that focuses on both regional and local accounts, and is implemented in a decentralized manner through its various branch locations. At the regional level, IT Services has attained preferred vendor status under multiple local brand names at a number of large clients. These accounts are typically targeted by a local IT Services company with a presence in a specific market, and then are sold on the basis of the strength of the IT Services' geographic presence in multiple markets. Local accounts are targeted and sold by account managers at the branch offices, permitting IT Services to capitalize on the brand names of the companies in IT Services and the local expertise and established relationships of its branch office employees. Such accounts are solicited through personal sales presentations, telephone marketing, direct mail solicitation, referrals from clients and other companies in IT Services and Commercial Staffing and advertising in a variety of local and national media. These advertisements appear in the Yellow Pages, newspapers and trade publications. Local employees are also encouraged to be active in civic organizations and industry trade groups to facilitate the development of new customer relationships. The information technology services business is affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower IT revenues and lower operating margins in the fourth quarter of each year. COMMERCIAL STAFFING DIVISION At February 29, 2000, Commercial Staffing operated through 101 offices in 14 states and the District of Columbia. Commercial Staffing provides temporary personnel who perform general office and administrative services, word processing and desktop publishing, office automation, records management, production/assembly/distribution, telemarketing, finance, accounting and other staffing services. Certain of Commercial Staffing's offices also provide full-time placement and payrolling services. Payrolling services entail employment by Commercial Staffing of individuals recruited by a customer on a fee basis. 5 6 Operations Commercial Staffing markets its staffing services to local and regional clients through its network of offices across the United States. The following table sets forth information at February 29, 2000, on the brand names, markets, numbers of offices and dates founded of the Commercial Staffing companies:
NUMBER OF DATE NAME MARKETS OFFICES(1) FOUNDED ---- ------- ---------- ------- Abar Staffing San Francisco Bay Area, CA 3 1954 Allegheny Personnel Pittsburgh, PA 5 1972 Ann Wells Personnel Silicon Valley, CA 1 1980 Creative Staffing Charlotte, NC 10 1972 Denver Staffing Denver, CO 3 1978 FirstWord Staffing Services Dallas, TX 8 1978 Fox Staffing Resources Richmond and Charlottesville, VA 5 1978 Washington, DC Jeffrey Staffing Group Boston, MA 11 1971 Warwick, RI Profile Temporaries Loop Area of Chicago, IL 1 1979 Sloan Staffing Services New York, NY 1 1962 Temp Connection Long Island, NY 2 1982 Secaucus, New Jersey The Temporary Connection Houston, Dallas, Austin, TX 7 1983 TempWorld Atlanta, GA 11 1980 Birmingham, AL Thomas Staffing Los Angeles/Orange County, CA 21 1969 Riverside/San Bernardino, CA San Diego, CA West Personnel Service North and West Suburban Chicago, IL 8 1954 Word Processing Professionals New York, NY 2 1982 Word Processors Personnel Services Atlanta, GA 2 1978
- --------------- (1) Does not include vendor-on-premises locations at customer sites. Commercial Staffing strives to satisfy the needs of its customers by providing customized services, such as on-site workforce management and full-time placement services. The flexibility of Commercial Staffing'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. 6 7 To meet the growing demand in the staffing services business for on-site management capability, Commercial Staffing offers SourcePLUS, its customized on-site temporary personnel management system. SourcePLUS places an experienced staffing service manager at the client facility to provide complete staffing support, customized to meet client-specific needs. This program facilitates client use of temporary personnel and allows the client to outsource a portion of its personnel responsibility to Commercial Staffing's on-site representative, who gathers and records requests for temporary jobs from client department heads and then fulfills client requirements. These Commercial Staffing representatives can also access Commercial Staffing's systems through on-site personal computers. Commercial Staffing's full-time placement services provide traditional staff selection and recruiting services to its clients. In addition to recruiting employees through referrals, Commercial Staffing places advertisements in local newspapers to recruit employees for specific positions at client companies. Commercial Staffing utilizes its expertise and selection methods to evaluate the applicant's credentials. If the applicant receives and accepts a full-time position at the client, Commercial Staffing charges the employer a one-time fee, generally based on the annual salary of the employee. To maintain a consistent quality standard for all its temporary employees, Commercial Staffing uses a comprehensive automated system to screen and evaluate potential temporary personnel, make proper assignments and review a temporary employee's performance. Commercial Staffing uses the QuestPLUS System to integrate the results of their skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. Commercial Staffing also provides uniform training to all of its employees in sales, customer service and leadership skills. Sales and Marketing Commercial Staffing has implemented a business development program to target potential customers with temporary staffing needs and to maintain and expand existing customer relationships. The marketing efforts of Commercial Staffing are decentralized and capitalize on long-standing business relationships with the clients of Commercial Staffing's companies and their established brand names, which have been in use for 20 years on average. Commercial Staffing obtains new clients primarily through personal sales presentations and referrals from other clients of Commercial Staffing and IT Services 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. Commercial Staffing devotes the majority of its selling efforts to the local and regional operations of a wide variety of businesses (including a number of Fortune 500 companies) and to other potential customers that it has identified as consistent users of temporary staffing services. Local and regional accounts are characterized by shorter sales cycles and higher gross margins. Commercial Staffing generally does not seek lower margin national account agreements, but does provide services to a wide variety of customers with national and international businesses. Bids for large user accounts and the provision of services to clients with multiple location requirements are coordinated at the Company's headquarters. The commercial staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second half of each calendar year is more heavily affected, as companies tend to increase their use of temporary personnel during this period. While the commercial staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations and the diversity of the services it provides (including its emphasis on high-end white collar clerical workers) may partially mitigate the adverse effects of economic cycles in a single industry or geographic region. 7 8 RECRUITING AND RETENTION OF CONSULTANTS AND TEMPORARY EMPLOYEES The Company recruits its Commercial Staffing temporary associates and IT Services consultants through a decentralized recruiting program that primarily utilizes local and national advertisements and the Internet. In addition, the Company has succeeded in recruiting qualified employees through referrals from its existing labor force. To encourage further referrals, most of the companies in IT Services and Commercial Staffing pay referral fees to employees responsible for attracting new recruits. The Company interviews, tests, checks references and evaluates the skills of applicants for temporary employment, utilizing systems and procedures developed and enhanced over the years. Commercial Staffing employs temporary associates on an as needed basis dependent upon client demand. These temporary associates are paid only for time they actually work. In an effort to attract a broad spectrum of qualified employees, the Company offers a wide variety of employment options and training programs. The Company emphasizes the utilization of salaried full-time status for its consultants with the payment of annual salaries irrespective of assignment. In addition, IT Services operates a number of formal and informal training programs to provide its consultants with access to and training in new software applications and a diverse mix of mainframe, client/server and other computer technologies. The Company believes that these training initiatives have improved consultant recruitment and retention, increased the technical skills of IT Services' personnel and resulted in better service for IT Services' clients. The Company provides competitive compensation packages and comprehensive benefits for all of its temporary associates and IT Services consultants. Most of the temporary associates and IT Services consultants are eligible for the Company's 401(k) matching plans and employee stock purchase plan. ORGANIZATIONAL STRUCTURE The Company operates through a network of decentralized Company-operated offices. Each 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 operating company presidents, 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 primarily based on the incremental year-to-year increase in the profitability of their operations and is designed to motivate them to maximize the growth and profitability of their offices. AUTOMATED OPERATING SYSTEMS Commercial Staffing uses a number of automated systems to allow it to quickly and effectively measure the skills of the temporary employee candidates that make themselves available and to match skills with client requests. The ProficiencyPLUS program is designed to test specific computer-related skills by allowing the candidate to operate in the actual software program environment. The QuestPLUS system integrates the results of the Company's skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. This system also allows the Company to track the performance of its temporary employees and provide quality reports to customers that document the level of the Company's performance. The Company utilizes branch paybill systems for Commercial Staffing. The paybill processing system provides payroll processing and customer invoicing. Installation of this system began in the second quarter of 1996 and has been completed in all of the Division companies. 8 9 The Company has also installed common financial and human resources systems in over 45% of its IT Services offices. Installation of these systems in the existing companies began in the second quarter of 1998 and is expected to continue through the year 2000. COMPETITION The United States staffing services market is highly competitive and highly fragmented, with more than 15,000 offices competing in the industry, and has limited barriers to entry. However, the commercial staffing and information technology services industries have undergone significant consolidation. A number of publicly owned companies specializing in professional staffing services in the United States have greater marketing, financial and other resources than the Company. In the temporary staffing industry, competition generally is limited to firms with offices located within a customer's particular local market. In most major markets, commercial staffing competitors generally include many of the publicly traded companies and, in addition, numerous regional and local full-service and specialized temporary service agencies, some of which may operate only in a single market. Competitors for information technology services include local IT staffing and consulting firms, large, multi-service staffing and consulting firms and the consulting affiliates of large accounting firms. Since many clients contract for their staffing services locally, competition varies from market to market. In most areas, no single company has a dominant share of the market. Many client companies use more than one staffing services company, and it is common for large clients to use several staffing services companies at the same time. However, in recent years there has been a significant increase in the number of large customers consolidating their temporary staffing purchases with a single supplier or with a smaller number of preferred vendors. 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 services primarily from the Company. The competitive factors in obtaining and retaining clients include an understanding of clients' specific job requirements, the ability to provide appropriately skilled temporary personnel at the local level in a timely manner, the monitoring of quality of job performance and the price of services. The primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages and responsiveness to work schedules and the number of hours of work available. Management believes that it is highly competitive in these areas due to its focus on local markets and the autonomy given to its local management. REGULATION 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 temporary 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 (other than independent contractors). Therefore, such firms are governed by laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, anti-discrimination and workers' compensation. 9 10 TRADEMARKS The Company maintains a number of trademarks, tradenames, service marks and other intellectual property rights, and licenses certain other proprietary rights in connection with its businesses. The Company is not currently aware of any infringing uses or other conditions that would materially and adversely affect its use of its proprietary rights. EMPLOYEES At February 29, 2000, the Company had approximately 1,350 permanent administrative employees. Additionally, approximately 3,000 of the information technology consultants in IT Services were full-time salaried or hourly employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relationships with its employees are good. ITEM 2. PROPERTIES Generally, the Company's offices are leased under leases of relatively moderate duration (typically three to five years, with options to extend) containing customary terms and conditions. IT Services and Commercial Staffing offices are typically in high quality office or industrial buildings, and occasionally in retail buildings, and the Company's headquarters facilities and regional offices are in similar facilities. ITEM 3. LEGAL PROCEEDINGS From time to time the Company is involved in certain disputes and litigation relating to claims arising out of its operations in the ordinary course of business. Further, the Company periodically is subject to government audits and inspections. In the opinion of the Company's management, matters presently pending will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 10 11 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The information required by this Item is included in the Company's Annual Report under the caption "Market for Registrant's Common Equity and Related Shareholder Matters," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item is included in the Company's Annual Report under the caption "Selected Financial Data," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item is included in the Company's Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this Item is included in the Company's Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations--Market Risk Disclosures," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item is included in the Company's Annual Report under the captions "Report of Independent Accountants", "Consolidated Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements of Shareholders' Equity", "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company has no disagreements on accounting or financial disclosure matters with its independent public accountants to report under this Item 9. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information contained in the Proxy Statement in the first paragraph under the caption "Election of Directors--Nominees," and under the caption "Election of Directors--Officers and Directors," is incorporated herein by reference in response to this Item 10. 11 12 ITEM 11. EXECUTIVE COMPENSATION. Information contained in the Proxy Statement under the captions "Election of Directors--Director Compensation" and "Executive Compensation" is incorporated herein by reference in response to this Item 11. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information contained in the Proxy Statement under the caption "Securities Ownership of Certain Beneficial Owners and Management" is incorporated by reference herein in response to this Item 12. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company has no relationships or transactions to report under this Item 13. PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. a. Documents filed as part of this Report (1) The following Report of Independent Public Accountants and financial statements of the Company are contained in Item 8 above: CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Public Accountants Consolidated Balance Sheets as of January 2, 2000 and January 3, 1999 Consolidated Statements of Income for the years ended January 2, 2000, January 3, 1999 and December 28, 1997 Consolidated Statements of Shareholders' Equity for the years ended January 2, 2000, January 3, 1999 and December 28, 1997 Consolidated Statements of Cash Flows for the years ended January 2, 2000, January 3, 1999 and December 28, 1997 Notes to Consolidated Financial Statements (2) No financial statement schedules are filed as part of this Report. All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included elsewhere in the notes to the financial statements referred to above. (3) Exhibits: The Exhibits to this Report on Form 10-K are listed in the accompanying Exhibit Index. b. Reports on Form 8-K The Company filed no Current Reports on Form 8-K during the fourth quarter of 1999. 12 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2000. PERSONNEL GROUP of AMERICA, INC. By: /s/ James C. Hunt ------------------------------ James C. Hunt President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities indicated on March 28, 2000. Signature /s/ Kevin P. Egan Chairman of the Board - --------------------------- Kevin P. Egan /s/ James C. Hunt President, Chief Operating Officer and - --------------------------- Director James C. Hunt /s/ Ken R. Bramlett, Jr. Senior Vice President, Chief Financial - --------------------------- Officer and Director Ken R. Bramlett, Jr. /s/ J. Roger King Director - --------------------------- J. Roger King Director - --------------------------- James V. Napier /s/ William J. Simione, Jr. Director - --------------------------- William J. Simione, Jr. /s/ Janice L. Scites Director - --------------------------- Janice L. Scites 13 14 EXHIBIT INDEX
FILED HEREWITH (*) NON-APPLICABLE (NA) OR INCORPORATED BY REFERENCE FROM COMPANY REG. PREVIOUS NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT - ------ ----------- ------ ------ 3.1 Restated Certificate of Incorporation of 3.1 333-31863 the Company, as amended 3.2 Amended and Restated Bylaws of the Company 3.2 33-95228 4.0 Specimen Stock Certificate 4.0 33-95228 4.1 Rights Agreement between the Company and 1 0-27792 First Union National Bank (as successor trustee) 4.2 Indenture between the Company and First 4.2 333-31863 Union National Bank, as Trustee 4.3 Form of Note Certificate for 5-3/4% 4.3 333-31863 Convertible Subordinates Notes 10.1+ 1995 Equity Participation Plan, as amended 10.1 333-31863 10.2+ Amended and Restated Management Incentive 10.2 10-K for year Compensation Plan ended 1/3/99 10.3+ Employee Stock Purchase Plan, as amended * 10.4#+ Director and Officer Indemnification 10.3 10-K for year Agreement of James V. Napier ended 12/31/95 10.5+ Employment Agreement between the Company 10.9 10-Q for quarter and Edward P. Drudge, Jr. ended 9/30/95 10.6+ Amendment No. 1 to Employment Agreement 10.6 10-K for year ended between the Company and Edward P. Drudge, 12/28/97 Jr. 10.7+ Supplemental Retirement Plan for Edward * P. Drudge, Jr. 10.8+ Form of Retirement Agreement between the * Company and Edward P. Drudge, Jr.
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FILED HEREWITH (*) NON-APPLICABLE (NA) OR INCORPORATED BY REFERENCE FROM PREVIOUS COMPANY REG. NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT - ------ ----------- ------ ------ 10.9+ Employment Agreement between the Company 10.10 10-K for year ended and James C. Hunt 12/29/96 10.10+ Employment Agreement between the Company 10.13 10-K for year ended and Ken R. Bramlett, Jr. 12/29/96 10.11+ Employment Agreement between the Company 10.9 10-K for year ended and Michael H. Barker 1/3/99 10.12 Amended and Restated Non-Qualified 10.16 10-K for year ended Profit-Sharing Plan 12/29/96 10.13+ Director's Non-Qualified Deferred Fee Plan 10.12 10-K for year ended 12/28/97 10.14 Amended and Restated Credit Agreement 10.15 333-31863 among the Company and its subsidiaries, the Lenders party thereto and NationsBank, N.A., as agent 10.15 Amendment No. 1 to Amended and Restated 10.14 10-Q for quarter Credit Agreement among the Company and ended 3/29/98 its Subsidiaries, The Lenders party thereto and NationsBank, N.A., as Agent 10.16 Stock Purchase Agreement for the sale of 1 8-K dated 12/26/97 Nursefinders between PFI Corp., Nursefinders, Inc., and Nursefinder Acquisition Corp. 10.17 Registration Rights Agreement between the 10.17 333-31863 Company and the Initial Purchasers 12.1 Statement regarding computation of ratio * of earnings to fixed charges 13.1 Those portions of the Annual Report * incorporated by reference in Parts II, Items 5, 6, 7, 7A and 8 and Part IV, Item 14(a)(1) of this report 21.1 Subsidiaries of the Company *
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FILED HEREWITH (*) NON-APPLICABLE (NA) OR INCORPORATED BY REFERENCE FROM PREVIOUS COMPANY REG. NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT - ------ ----------- ------ ------ 23.1 Consent of PricewaterhouseCoopers LLP * 27.1 Financial Data Schedule *
# This Exhibit is substantially identical to Director and Officer Indemnification Agreements (i) of the same date between the Company and the following individuals: Kevin P. Egan, J. Roger King, and William Simione, Jr.; (ii) dated April 17, 1998 between the Company and each of James C. Hunt and Ken R. Bramlett, Jr.; and (iii) dated August 9, 1999 between the Company and Jancie L. Scites. + Management Contract or Compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission. EX-10.3 2 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED 1 EXHIBIT 10.3 2 PERSONNEL GROUP OF AMERICA, INC. EMPLOYEE STOCK PURCHASE PLAN ARTICLE I INTRODUCTION Sec. 1.01 Statement of Purpose. The purpose of the Personnel Group of America, Inc. Employee Stock Purchase Plan is to provide eligible employees of the Company and its Subsidiaries, who wish to become stockholders, an opportunity to purchase common stock of the Company. The Board of Directors of the Company believes that employee participation in ownership will be to the mutual benefit of both the employees and the Company. Sec. 1.02 Internal Revenue Code Considerations. The Plan is intended to constitute an "employee stock purchase plan" within the meaning of section 423 of the Internal Revenue Code of 1986, as amended. ARTICLE II DEFINITIONS Sec. 2.01 "Board" means the Board of Directors of the Company. Sec. 2.02 "Code" means the Internal Revenue Code of 1986, as amended. Sec. 2.03 "Company" means Personnel Group of America, Inc., a Delaware corporation. Sec. 2.04 "Compensation" means the total remuneration paid, during the period of reference, to an Employee by the Company or a Subsidiary, including regular salary or wages, overtime payments, bonuses, commissions and vacation pay, to which has been added (a) any elective deferral amounts by which the Employee has had his current remuneration reduced for the purposes of funding a contribution to any plan sponsored by the Company and satisfying the requirements of section 401(k) of the Code, and (b) any amounts by which the Employee's compensation has been reduced pursuant to a compensation reduction agreement between the Employee and the Company for the purpose of funding benefits through any cafeteria plan sponsored by the Company meeting the requirements of section 125 of the Code. There shall be excluded from "Compensation" for the purposes of the Plan, whether or not reportable as income by the Employee, expense reimbursements of all types, payments in lieu of expenses, the Company contributions to any qualified retirement plan or other program of deferred compensation (except as provided above), the Company contributions to Social Security or worker's compensation, the costs paid by the Company in connection with fringe 3 benefits and relocation, including gross-ups, and any amounts accrued for the benefit of Employee, but not paid, during the period of reference. Sec. 2.05 "Compensation Committee" means the Compensation Committee of the Board. Sec. 2.06 "Continuous Service" means the period of time during which the Employee has been employed by the Company or a Subsidiary and during which there has been no interruption of Employee's employment by the Company. For this purpose, periods during which an Employee is on Temporary Inactive Status shall not be considered to be interruptions of Continuous Service. If determined by the Compensation Committee, periods of service with an entity prior to its becoming a Subsidiary shall be taken into account. Sec. 2.07 "Effective Date" shall mean July 1, 1997 if, within 12 months of that date, the Plan is or has been approved at a meeting of the stockholders of the Company by the affirmative vote of the holders of the majority of the outstanding Stock of the Company. Sec. 2.08 "Eligible Employee" means each person who: (a) is an Employee whose customary employment is for more than 20 hours per week and more than 5 months in any calendar year; (b) is an Employee on the Effective Date, or otherwise has completed at least 180 days of Continuous Service; and (c) is not deemed for purposes of section 423 (b) (3) of the Code to own capital stock possessing 5% or more of the total combined voting power or value of all classes of capital stock of the Company. Sec. 2.09 "Employee" means each person employed by the Company or a Subsidiary. Sec. 2.10 "Exercise Date" means the last day of each Purchase Period. Sec. 2.11 "Market Value" means, with respect to Stock, the fair market value of such Stock, determined by such methods or procedures as shall be established from time to time by the Compensation Committee; provided, however, that if the Stock is listed on a national securities exchange or quoted in an interdealer quotation system, the Market Value of such Stock on a given date shall be based upon the last sales price or, if unavailable, the average of the closing bid and asked prices per share of the Stock on such date (or, if there was no trading or quotation in the Stock on such date, on the next preceding date on which there was trading or quotation) as provided by one of such organizations. 2 4 Sec. 2.12 "Offering" means the offering of shares of Stock under the Plan. Sec. 2.13 "Offering Date" means the first business day of each July, October, January and April during which the Plan is in effect, or such dates as may otherwise be specified by the Compensation Committee. Sec. 2.14 "Participant" means each Eligible Employee who elects to participate in the Plan. Sec. 2.15 "Plan" means the Personnel Group of America, Inc. Employee Stock Purchase Plan, as the same is set forth herein and as may hereafter be amended. Sec. 2.16 "Purchase Agreement" means the document prescribed by the Compensation Committee pursuant to which an Eligible Employee has enrolled to be a Participant. Sec. 2.17 "Purchase Period" means the period beginning on an Offering Date and ending on the business day preceding the next following Offering Date. Sec. 2.18 "Purchase Price" means such term as it is defined in Section 4.03 hereof. Sec. 2.19 "Stock" means the common stock, $.01 par value, of the Company. Sec. 2.20 "Stock Purchase Account" means a noninterest bearing account consisting of all amounts withheld from an Employee's Compensation (or otherwise paid into the Plan) for the purpose of purchasing shares of Stock for such employee under the Plan, reduced by all amounts applied to the purchase of Stock for such Employee under the Plan. Sec. 2.21 "Subsidiary" shall mean a corporation described in section 424(f) of the Code that has, with the permission of the Board, adopted the Plan. Sec. 2.22 "Temporary Inactive Status" shall describe the status of a former hourly Employee whose employment was terminated upon completion of an assignment for the Company or a Subsidiary, for so long as such former Employee (i) remains available for future assignments with the Company or a Subsidiary, (ii) has not, directly or indirectly, accepted an assignment from or a position with an entity unaffiliated with the Company and its Subsidiaries, and (iii) otherwise remains in good standing with the Company and its Subsidiaries. 3 5 ARTICLE III ADMISSION TO PARTICIPATION Sec. 3.01 Initial Participation. Any Eligible Employee may elect to be a Participant and may become a Participant by executing and filing with the Compensation Committee a Purchase Agreement at such time in advance and on such forms as prescribed by the Compensation Committee. The effective date of an Eligible Employee's participation shall be the Offering Date next following the date on which the Compensation Committee receives from the Eligible Employee a properly executed and timely filed Purchase Agreement. Participation in the Plan will continue automatically from one Purchase Period to another unless notice to the contrary is given pursuant to Section 3.02. Sec. 3.02 Voluntary Discontinuance of Participation. Any Participant may voluntarily withdraw from the Plan by filing a Notice of Withdrawal with the Compensation Committee at such time in advance as the Compensation Committee may specify. Upon such withdrawal, there shall be paid to the Participant the amount, if any, standing to his credit in his Stock Purchase Account. Sec. 3.03 Involuntary Discontinuance of Participation. If a Participant ceases to be an Eligible Employee, the entire amount, if any, standing to the Participant's credit in his Stock Purchase Account shall be refunded to him. Notwithstanding the foregoing, should a Participant cease to be an Eligible Employee by reason of acquiring Temporary Inactive Status, such Participant may continue to participate through the end of the Purchase Period during which such status was acquired with respect to payroll deductions attributable to the portion of the Purchase Period prior to the time such status was acquired. Sec. 3.04 Readmission to Participation. Any Eligible Employee who has previously been a Participant, who has discontinued participation, and who wishes to be reinstated as a Participant may again become a Participant for any subsequent Purchase Period by executing and filing with the Compensation Committee, at such time in advance as the Compensation Committee shall determine, a new Purchase Agreement on forms provided by the Compensation Committee. Reinstatement to Participant status shall be effective no earlier than the Offering Date that occurs six months following the Exercise Date for the Purchase Period in which the Eligible Employee discontinued participation. 4 6 ARTICLE IV STOCK PURCHASE Sec. 4.01 Reservation of Shares. There shall be 500,000 shares of Stock reserved for the Plan, subject to adjustment in accordance with the antidilution provisions hereinafter set forth. Except as provided in Section 5.02 hereof, the aggregate number of shares that may be purchased under the Plan shall not exceed the number of shares reserved for the Plan. Sec. 4.02 Limitation on Shares Available. The maximum number of shares of Stock that may be purchased for each Participant on an Exercise Date is the lower of (a) the number of shares of Stock that can be purchased by applying the full balance of his Stock Purchase Account to such purchase of shares at the Price (as hereinafter determined), or (b) the Participant's proportionate part of the maximum number of whole shares of Stock available within the limitation established by the maximum aggregate number of such shares reserved for the Plan, as stated in Section 4.01 hereof. Notwithstanding the foregoing, if any person entitled to purchase shares pursuant to any offering hereunder would be deemed for the purposes of section 423(b) (3) of the Code to own stock (including any number of shares that such person would be entitled to purchase hereunder) possessing 5% or more of the total combined voting power or value of all classes of capital stock of Company, the maximum number of shares that such person shall be entitled to purchase pursuant to the Plan shall be reduced to that number which, when added to the number of shares of Stock that such person is so deemed to own (excluding any number of shares that such person would be entitled to purchase hereunder), is one less than such 5%. Any portion of a Participant's Stock Purchase Account that cannot be applied by reason of the foregoing limitation shall remain in the Participant's Stock Purchase Account for application to the purchase of Stock on the next Offering Date (unless withdrawn before that Offering Date). Sec. 4.03 Purchase Price of Shares. The Purchase Price per share of the Stock sold to Participants pursuant to any Offering shall be the sum of (a) 85% of the Market Value of such share on the Offering Date on which such Offering commences or on the Exercise Date on which such Offering expires, whichever is lower, and (b) any transfer, excise or similar tax imposed on the transaction pursuant to which such share of Stock is purchased. If the Exercise Date with respect to the purchase of Stock is a day on which the Stock is selling ex-dividend but is on or before the record date for such dividend, then for Plan purposes the Purchase Price per share will be increased by an amount equal to the dividend per share. In no event shall the Purchase Price be less than the par value of the Stock. Sec. 4.04 Exercise of Purchase Privilege. (a) Subject to the provisions of Section 4.02 above, if on the date of the last paycheck of a Participant issued prior to any Exercise Date there is a bank credit 5 7 in the Participant's Stock Purchase Account, there shall be purchased for the Participant at the Purchase Price of the Purchase Period that expires on such Exercise Date the largest number of whole shares of Stock as can be purchased with the entire amount standing to the Participant's credit in his Stock Purchase Account on such paycheck issue date. Each such purchase shall be deemed to have occurred on the Exercise Date occurring at the close of the Offering for which the purchase was made. (b) Any amount remaining in the Stock Purchase Account on the Exercise Date after the purchase of the maximum number of whole shares shall remain in the Stock Purchase Account to the credit of the Participant and be applied to purchase additional shares of Stock on subsequent Exercise Dates. (c) Notwithstanding anything contained herein to the contrary, a Participant may not during any calendar year purchase shares of Stock having an aggregate Market Value, determined at the time of each Offering Date during such calendar year, of more than $25,000. Sec. 4.05 Establishment of Stock Purchase Account. Each Participant shall authorize payroll deductions from Compensation for the purposes of funding his Stock Purchase Account. In the Purchase Agreement, each Participant shall authorize a deduction from each payment of his Compensation during a Purchase Period, which deduction shall be not less than 1% nor more than 7% of the gross amount of such payment, subject to Section 4.04 (c). Subject to Section 3.02, a Participant may not reduce or increase his payroll deduction rate during any Purchase Period. However, a Participant may change the deduction to any permissible level for any subsequent Offering by filing notice thereof at such time preceding the Offering Date on which such subsequent Offering commences as the Compensation Committee shall determine. Sec. 4.06 Payment for Stock. The Purchase Price for all shares of Stock purchased by a Participant under the Plan shall be paid out of the Participant's Stock Purchase Account. As of each Exercise Date, the entire amount standing to the credit of each Participant in his Stock Purchase Account on the date of the last paycheck issued to the Participant prior to the Exercise Date in the Purchase Period that expires on such Exercise Date shall be charged with the aggregate Purchase Price of the shares of Stock purchased by such Participant on the Exercise Date. No interest shall be paid or payable with respect to any amount held in the Participant's Stock Purchase Account. Sec. 4.07 Share Ownership; Issuance of Certificates. (a) The shares purchased by a Participant on an Exercise Date shall, for all purposes, be deemed to have been issued and/or sold at the close of business on such Exercise Date. Prior to that time, none of the rights or privileges of a stockholder of the Company shall inure to the Participant with respect to such 6 8 shares. All the shares of Stock purchased under the Plan shall be delivered by the Company in a manner as determined by the Compensation Committee. (b) The Compensation Committee, in its sole discretion, may determine that the shares of Stock shall be delivered by the Company (i) by issuing and delivering to the Participant a certificate for the number of whole shares of Stock purchased by such Participant on an Exercise Date or during a calendar year, or (ii) by issuing and delivering a certificate or certificates for the number of shares of Stock purchased by all Participants on an Exercise Date or during a calendar year to a member firm of the New York Stock Exchange which is also a member of the National Association of Securities Dealers, as selected by the Compensation Committee from time to time, which shares shall be maintained by such member firm in separate brokerage accounts of each participant, or (iii) by issuing and delivering a certificate or certificates for the number of shares of Stock purchased by all Participants on an Exercise Date or during the calendar year to a bank or trust company or affiliate thereof, as selected by the Compensation Committee from time to time, which shares shall be maintained by such bank or trust company or affiliate in separate accounts for each Participant or, if he designates on his Stock Purchase Agreement, in his name jointly with his spouse, with right of survivorship. A Participant who is a resident of a jurisdiction that does not recognize such joint tenancy may have a certificate or account in his name as tenant in common with his spouse, without right of survivorship. Such designation may be changed by filing a notice thereof signed by the Participant and his spouse. Such spouse shall be bound by all of the terms and conditions of the Plan as if such spouse were a Participant. Sec. 4.08 Restrictions on Resale. Stock acquired under the Plan may not be sold or otherwise disposed of for at least six months after the Exercise Date on which the shares were acquired, except in the case of death or disability. Any Stock certificates delivered to a Participant prior to the expiration of such six-month period shall contain a legend to reflect such restriction. ARTICLE V SPECIAL ADJUSTMENTS Sec. 5.01 Shares Unavailable. If, on any Exercise Date, the aggregate funds available for the purchase of Stock would purchase a number of shares in excess of the number of shares then available for purchase under the Plan, the following events shall occur: (a) The number of shares that would otherwise be purchased by each Participant shall be proportionately reduced on the Exercise Date in order to eliminate such excess; 7 9 (b) The Plan shall automatically terminate immediately after the Exercise Date as of which the supply of available shares is exhausted; and (c) Any amount remaining in the Stock Purchase Account of each of the Participants shall be repaid to such Participants. Sec. 5.02 Antidilution Provisions. The aggregate number of shares of Stock reserved for purchase under the Plan, as hereinabove provided, and the calculation of the Purchase Price per share may be appropriately adjusted to reflect any increase or decease in the number of issued shares of Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend, or other increase or decrease in such shares, if effected without receipt of consideration by the Company. Any such adjustment shall be made by the Compensation Committee acting with the consent of, and subject to the approval of, the Board. Sec. 5.03 Effect of Certain Transactions. Subject to any required action by the stockholders, if the Company shall be the surviving or resulting corporation in any merger or consolidation, or if the Company shall be merged for the purpose of changing the jurisdiction of its incorporation, any Offering hereunder shall pertain to and apply to the shares of stock of the Company or the survivor. However, in the event of a dissolution or liquidation of the Company, or of a merger or consolidation in which the Company is not the surviving or resulting corporation, the Plan and any Offering hereunder shall terminate upon the effective date of such dissolution, liquidation, merger or consolidation, and the balance then standing to the credit of each Participant in his Stock Purchase Account shall be returned to him. ARTICLE VI MISCELLANEOUS Sec. 6.01 Nonalienation. The right to purchase shares of Stock under the Plan is personal to the Participant, is exercisable only by the Participant during his lifetime except as hereinafter set forth, and may not be assigned or otherwise transferred by the Participant. Notwithstanding the foregoing, there shall be delivered to the executor, administrator or other personal representative of a deceased Participant such shares of Stock and such residual balance as may remain in the Participant's Stock Purchase Account as of the date the Participant's death occurs. However, such representative shall be bound by the terms and conditions of the Plan as if such representative were a Participant. Sec. 6.02 Administrative Costs. The Company shall pay all Administrative expenses associated with the operation of the Plan. No Administrative charges shall be levied against the Stock Purchase Accounts of the Participants. Sec. 6.03 Collection of Taxes. The Company shall be entitled to require any Participant to remit, through payroll withholding or otherwise, any tax that it determines it is so 8 10 obligated to collect with respect to the issuance of Stock hereunder, or the subsequent sale or disposition of such Stock, and the Compensation Committee shall institute such mechanisms as shall insure the collection of such taxes. Sec. 6.04 Compensation Committee. The Compensation Committee shall have the authority and power to administer the Plan and to make, adopt, construe and enforce rules and regulations not inconsistent with the provisions of the Plan. The Compensation Committee shall adopt and prescribe the contents of all forms required in connection with the administration of the Plan, including, but not limited to the Purchase Agreement, payroll withholding authorizations, withdrawal documents and all other notices required hereunder. The Compensation Committee shall have the fullest discretion permissible under law in the discharge of its duties. The Compensation Committee's interpretations and decisions in respect of the Plan, the rules and regulations pursuant to which it is operated, and the rights of Participants hereunder shall be final and conclusive. Sec. 6.05 Amendment of the Plan. The Board may amend the Plan without the consent of stockholders or Participants, except that any such action shall be subject to the approval of the Company's stockholders at or before the next annual meeting of stockholders for which the record date is after such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit other such changes to the Plan to stockholders for approval; provided, however, that, without the consent of an affected Participant, no such action may materially impair the rights of such Participant under any award theretofore granted to him. Sec. 6.06 Termination of the Plan. The Plan shall continue in effect unless terminated pursuant to action by the Board, which shall have the right to terminate the Plan at any time without prior notice to any Participant and without liability to any Participant. Upon the termination of the Plan, the balance, if any, then standing to the credit of each Participant in his Stock Purchase Account shall be refunded to him. Sec. 6.07 Repurchase of Stock. The Company shall not be required to purchase or repurchase from any Participant any of the shares of Stock that the Participant acquired under the Plan. Sec. 6.08 Notice. A Purchase Agreement and any notice that a Participant files pursuant to the Plan shall be on the form prescribed by the Compensation Committee and shall be effective only when received by the Compensation Committee. Sec. 6.09 Government Regulation. The Company's obligation to sell and to deliver the Stock under the Plan is at all times subject to all approvals of any governmental authority required in connection with the authorization, issuance, sale or delivery of such Stock. 9 11 Sec. 6.10 Headings, Captions, Gender. The headings and captions herein are for convenience of reference only and shall not be considered as part of the text. The masculine shall include the feminine, and vice versa. Sec. 6.11 Severability of Provisions; Prevailing Law. The provisions of the Plan shall be deemed severable. In the event any such provision is determined to be unlawful or unenforceable by a court of competent jurisdiction or by reason of a change in an applicable statute, the Plan shall continue to exist as though such provision had never been included therein (or, in the case of a change in an applicable statute, had been deleted as of the date of such change). The Plan shall be governed by the laws of the State of Delaware, to the extent such laws are not in conflict with, or superseded by, federal law. 10 12 AMENDMENT NO. 1 TO THE PERSONNEL GROUP OF AMERICA, INC. EMPLOYEE STOCK PURHASE PLAN 1. Purpose The purpose of this Amendment No. 1 (this "Amendment") to the Personnel Group of America, Inc. Employee Stock Purchase Plan, as amended (the "Plan"), is to increase shares of Stock reserved for purchase under the Plan from 1,000,000 shares to 2,000,000 shares. Terms not otherwise defined herein shall have the meanings given them in the Plan. 2. Effective Date The effective date of this Amendment shall be April 1, 2000, subject to approval of this Amendment by the Company's shareholders at the Company's 2000 Annual Meeting of Shareholders. 3. Amendment The Plan is amended by deleting Section 4.01 in its entirety and restating it as follows: "Sec. 4.01 Reservation of Shares. There shall be 2,000,000 shares of Stock reserved for the Plan, subject to adjustment in accordance with the antidilution provisions hereinafter set forth. Except as provided in Section 5.02 hereof, the aggregate number of shares that may be purchased under the Plan shall not exceed the number of shares reserved for the Plan." EX-10.7 3 SUPPLEMENTAL RETIREMENT PLAN/DRUDGE 1 EXHIBIT 10.7 2 PERSONNEL GROUP OF AMERICA, INC. SUPPLEMENTAL RETIREMENT PLAN FOR EDWARD P. DRUDGE, JR. EFFECTIVE JANUARY 1, 1999 3 SECTION I DEFINITIONS 1.01 "Committee" means the Compensation Committee of the Board of Directors of the Company, which has been given authority by the Board of Directors to administer this Plan. 1.02 "Company" means Personnel Group of America, Inc., a Delaware corporation. 1.03 "Control" or "Change of Control" means a change in ownership of more than 50% of the common stock of the Company, any sale of all or substantially all of the assets of the Company to any other person, entity or group, or any merger or consolidation transaction involving the Company in which the Company is not the surviving entity. 1.04 "Early Retirement Date" means the date on which the Participant reaches age 61. 1.05 "Normal Retirement Date" means the date on which the Participant reaches age 65. 1.06 "Participant" means Edward P. Drudge, Jr., Chairman and Chief Executive Officer of the Company as of the date hereof. Mr. Drudge is the sole Participant in this Plan. 1.07 "Plan" means the Personnel Group of America, Inc. Supplemental Retirement Plan for Edward P. Drudge, Jr. 1.08 "Postponed Retirement Date" means the date on which Participant's employment with the Company or an affiliate ceases, but only if Participant continues to be employed by the Company or an affiliate after his Normal Retirement Date. 1.09 "Surviving Spouse" means the legally married spouse of the Participant, if any, on the Participant's date of death. 4 SECTION II ELIGIBILITY FOR BENEFITS 2.01 Eligibility Dates: Except as otherwise provided herein, the Participant shall become eligible to receive a benefit under this Plan on the occurrence of one or more of the following events (without duplication): (a) The Participant's retirement on or after his Early Retirement Date, but prior to his Normal Retirement Date; or (b) The Participant's retirement on his Normal Retirement Date; or (c) The Participant's retirement on his Postponed Retirement Date; or (d) The Participant's death; or (e) The Participant's complete disability as determined by the Committee; or (f) A Change of Control. 2.02 Limitations on Eligibility: Notwithstanding anything to the contrary contained herein, if the Participant: (a) engages in competition with the Company or any of its affiliates (without prior authorization given by the Committee in writing) in violation of the terms of any employment agreement the Participant has with the Company or its affiliates, (b) is discharged from his employment with the Company or an affiliate for cause as provided in any employment agreement the Participant has with the Company or any of its affiliates, or (c) otherwise performs acts of willful malfeasance or gross negligence as determined by the Committee in a matter of material importance to the Company; then, in any such case, the eligibility for any benefit hereunder or the payment of any benefit thereafter payable hereunder to the Participant or the Participant's Surviving Spouse may, at the discretion of the Committee, be forfeited and the Company will have no further obligation hereunder to such Participant or Surviving Spouse after any such determination. 5 SECTION III AMOUNT AND FORM OF BENEFIT 3.01 Amount of Benefit: (a) Following the occurrence of any of the events specified in Sections 2.01(b) through (f) above, the benefit payable under this Plan will be $250,000 per year and such benefit will be payable as provided below. (b) Following the Participant's retirement on or after his Early Retirement Date, but prior to his Normal Retirement Date, as specified in Section 2.01(a) above, the annual benefit payable under this Plan will be as set forth below: Early Retirement Annual Age Benefit ---------- -------- 61 $ 50,000 62 100,000 63 150,000 64 200,000 The benefit payable under this Section 3.01(b) will also be payable as set forth below. 3.02 Form of Benefit: Any benefit provided under this Plan will be payable on a joint and 50% survivor basis if Participant is married at the time that a benefit is first payable hereunder, and on a life only basis if Participant is not married at the time that a benefit is first payable hereunder. 6 SECTION IV PAYMENT OF BENEFITS 4.01 Commencement of Benefits: Except as otherwise provided in Section 2.02 above, any benefit payable under this Plan will commence on the first day of the month following the date that Participant becomes eligible to receive a benefit and will be paid in equally monthly installments on the first day of each succeeding month at the annual rate provided for in this Plan. 4.02 Termination of Benefits: The last benefit payment will be on the first day of the month following the month in which the Participant dies, if the Participant is single at the time a benefit is first payable hereunder, or on the first day of the month following the month in which the Surviving Spouse dies or the Participant dies, whichever is later, if Participant is married at the time a benefit is first payable hereunder; provided, however, that in no event shall any benefit be payable under this Plan (whether to the Participant or a Surviving Spouse, if any) for more than 180 months. SECTION V MISCELLANEOUS 5.01 Amendment or Termination of Plan: The Committee may, in its sole discretion, terminate or amend this Plan at any time or from time to time, in whole or in part. 5.02 Employment Rights: Nothing contained in this Plan will confer upon the Participant the right to be retained in the service of the Company, nor will this Plan interfere with the right of the Company to discharge or otherwise deal with the Participant without regard to the existence of this Plan. This Plan is intended to supplement, and not conflict with, the terms of any employment agreement that the Participant may have at any time with the Company or its affiliates. 5.03 Funding: This Plan is unfunded, and the Company will make Plan benefit payments solely on a current disbursement basis out of general assets. Notwithstanding the foregoing, the Company may purchase annuities or other insurance products from a licensed insurance carrier from time to time upon the recommendation of the Committee. 5.04 Assignment or Alienation: To the maximum extent permitted by law, no benefit under this Plan shall be assignable or subject in any manner to alienation, sale or transfer of any kind. 7 5.05 Administration: The Company is the named fiduciary for the Plan. The Committee, acting on behalf of the Company, has the discretionary authority and responsibility to interpret and construe this Plan. The Committee may adopt rules and regulations to assist it in the administration of the Plan. 5.06 Governing Law: This Plan is established under, and will be construed according to, the laws of the State of North Carolina, except as provided otherwise by ERISA. 5.07 Restriction Against Establishment of Trust: Nothing contained in this Plan and no action taken pursuant to the provisions of this Plan shall authorize or create or be construed as authorizing or creating a trust of any kind. In any event, it is the intent of the Company that this Plan constitutes an unfunded plan of deferred compensation. 5.08 Tax Treatment: Any deferred compensation payable under this Plan shall not be deemed salary or other compensation and shall not be included in a Participant's taxable income nor deductible by the Company under federal or state law until actually received by the Participant. For this reason, any rights, powers, privileges or duties in connection with the establishment and administration of the Plan shall not be effective if and to the extent that the same, if effective, would result in the compensation deferred under this Plan being subject to taxation before actual receipt by the Participant. Accordingly, all provisions of this Plan shall be subordinate to this requirement and any interpretations or constructions to be given to this Plan shall be made in such a manner as to carry out this intention. IN WITNESS WHEREOF, the foregoing Plan having been duly approved and adopted by the Compensation Committee of the Board of Directors of the Company, the Company has caused this Plan to be duly executed in its name and on its behalf by an officer duly authorized on this 10th day of October, 1999. (Corporate Seal) ATTEST PERSONNEL GROUP OF AMERICA, INC. /s/ Ken R. Bramlett, Jr. By: /s/ James C. Hunt - ----------------------- ------------------------------ Secretary Title: Senior Vice President - Chief Financial Officer EX-10.8 4 FORM OF RETIREMENT AGREEMENT/DRUDGE 1 EXHIBIT 10.8 2 FORM OF RETIREMENT AGREEMENT This RETIREMENT AGREEMENT (this "Agreement or this "Retirement Agreement") is made and entered into as of the 13th day of February 2000, by and between PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation with its principal place of business in Charlotte, North Carolina, ("the Company"), and EDWARD P. DRUDGE, JR. ("Employee"). STATEMENT OF PURPOSE Employee has served as an officer, director and employee of the Company. Employee desires to retire and resign from all of his current positions with the Company, and Company has agreed to accept Employee's retirement and resignation, on the terms and conditions set forth below. AGREEMENT NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the Company and Employee hereby agree as follows: 1. Date of Termination. Employee hereby retires and resigns from all executive positions and capacities with the Company and/or the Company's subsidiaries, including without limitation as an officer and director of the Company and the Company's subsidiaries, and the Company hereby accepts all such resignations, and all such resignations are deemed to be effective, as of February 13, 2000 (the "Retirement Date"). From the Retirement Date through April 13, 2000 (the "Employment Termination Date"), Employee shall be deemed, for purposes of salary and certain other benefits expressly provided herein, a non-executive employee of the Company, entitled to certain benefits expressly provided herein. Employee hereby resigns his employment with the Company and the Company's subsidiaries in all capacities, effective as of the Employment Termination Date. 2. Consulting; Term; Duties. For the period beginning as of the Employment Termination Date and continuing through April 13, 2002 (the "Consulting Period"), Employee will act as a consultant and general advisor to the Company and its subsidiaries on all matters pertaining to the business conducted by the Company and to the retention of selected employees and the goodwill and business of the customers and suppliers of the Company and its subsidiaries. Employee will use his best efforts to maintain the goodwill of the customers and suppliers of the Company and its subsidiaries and to provide for a smooth and orderly transition of power and responsibility to Employee's successor as selected by the Company. Employee will be available to perform services hereunder on an as needed basis upon the reasonable request of the Company. 3. Retirement Payments and Other Benefits. Subject to Employee's full compliance with the terms of this Agreement, including the conditions set forth below, Employee shall be entitled to the following benefits: 3 (a) Salary Continuation. The Company shall continue to pay the current base salary of Employee ($385,000 per year) from the Retirement Date through the end of the Consulting Period. These salary continuation payments shall be payable at times and in accord with the regular payroll practices of the Company with respect to its executive officers. All such payments shall be subject to, and reduced by, any applicable federal and state withholding taxes and other charges for health and other benefits as applicable. (b) Stock Options. All outstanding options to purchase the Company's common stock that have been granted to Employee prior to the Retirement Date and are summarized on Exhibit A attached hereto (collectively, the "Options") shall continue to be outstanding and shall continue to vest and become exercisable in accordance with their respective stated vesting schedules from the Retirement Date throughout the Consulting Period. Employee shall be entitled to exercise such Options, according to the terms thereof, to the extent then vested as of the end of the Consulting Period, at any time prior to the 90th day following the end of the Consulting Period (the "Option Expiration Date"). After the Option Expiration Date, all unexercised Options held by Employee shall expire. (c) SERP Benefit. Effective on the last day of the Consulting Period, Employee shall be entitled to an annual benefit under that certain Supplemental Retirement Plan for Edward P. Drudge, Jr., effective as of January 1, 1999 (the "SERP"), as if Employee's retirement had occurred on the last day of the Consulting Period, which benefit would be $150,000 annually, payable in accordance with the terms of the SERP, for a period of 15 years following the end of the Consulting Period; provided, however, that notwithstanding the terms of the SERP, Employee and the Company agree as follows: (1) in no event will the maximum benefit payable to Employee under the SERP exceed $150,000 per year; (2) in the event Employee becomes entitled to a benefit under the SERP because of, or upon the occurrence of, a Change of Control (as defined in the SERP), the amount of such benefit will be $150,000 per year (irrespective of when such Change of Control occurs); and (3) the term "employment agreement" in subsection (a) of Section 2.02 of the SERP, which provides that Employee's benefit may be forfeited in the event Employee engages in competition with the Company in violation of his employment agreement, shall be deemed to mean and include this Agreement. The Company and Employee agree that the SERP is hereby amended if, and to the extent, necessary to give effect to this Agreement. (d) Company Property. Employee agrees that, on or prior to April 13, 2000, he will purchase from the Company, at book value as set forth on Exhibit B, attached hereto (or exchange, in the manner set forth in Exhibit B), all Company property set forth on Exhibit B hereto. Employee may continue to use his Company-issued cellular phone for business-related purposes through April 13, 2000, and shall return such phone to the Company immediately after April 13, 2000. (e) Company Car. From the Retirement Date through May 9, 2000, Employee shall be entitled to receive a $1,200 monthly car allowance, which will be payable towards existing lease payments on the Employee's leased Mercedes S500 Sedan. As of May 9, 2000, Employee shall either (i) return such vehicle to the Company for surrender in accordance with the terms of 2 4 such lease or (ii) purchase such vehicle upon payment by Employee of the residual value and all other fees and expenses required for purchase and payoff under the terms of such lease. (f) Health Care Benefits. From and after the Retirement Date, Employee and his spouse and dependents shall be entitled to continue to be covered by the Company's group health, dental and life insurance provided to the Company's executive employees, at the same coverage level and on the same terms and conditions as in effect on the Retirement Date or as available upon any amendment of such insurance plans applicable to all executive employees of the Company (including without limitation, Employee's payment of his portion of applicable premiums), until the earlier of (i) such time as Employee obtains alternative comparable coverage under another group plan, which coverage does not contain any pre-existing condition exclusions or limitations, or (ii) the end of the Consulting Period. Upon the termination of the benefits coverage under the preceding sentence, Employee and his spouse and dependents shall be entitled to obtain, at Employee's sole cost and expense, continuation coverage under the Company's health insurance plan pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended, and under any other applicable law, to the extent required by such laws, as if Employee had terminated employment with the Company on the date such benefits coverage terminates. Employee agrees to cooperate with the Company in discharging its obligations hereunder and, in that connection, to execute any required forms or applications, and to submit required underwriting information, should they be required by any insurer hereunder. (g) Other Benefits. Except as expressly set forth herein, after the Retirement Date, Employee shall not have the right to participate in or receive any other benefit under any employee benefit plan of the Company, any fringe benefit plan of the Company, or any other plan, policy or arrangement of the Company providing benefits or perquisites to employees of the Company generally or individually. Specifically, without limitation, Employee shall not be entitled to payment of any cash bonus, any payment for accrued but unused vacation time or paid time off or any continuation of Company-paid country club or dining club membership fees or dues, and Employee shall not be allowed to continue to participate in the Company's Employee Stock Purchase Plan; provided, however, that the following benefits will continue from the Retirement Date through, and terminate effective as of, April 13, 2000: the Company will continue payment of Employee's existing Carmel Country Club dues and Tower Club dues (including a pro-rated amount of such dues for April 2000). EMPLOYEE ACKNOWLEDGES AND AGREES THAT THE COMPANY'S OBLIGATION TO PROVIDE ALL BENEFITS AND PAYMENTS TO EMPLOYEE PURSUANT TO THIS AGREEMENT IS EXPRESSLY CONDITIONED UPON EMPLOYEE'S COMPLIANCE IN FULL WITH ALL OF EMPLOYEE'S OBLIGATIONS HEREUNDER, AND THAT ANY FAILURE OF EMPLOYEE TO COMPLY IN FULL WITH ALL SUCH OBLIGATIONS WILL CONSTITUTE A MATERIAL BREACH OF THIS AGREEMENT, WILL RELEASE THE COMPANY FROM ANY FURTHER OBLIGATION TO PROVIDE ANY SUCH BENEFITS AND PAYMENTS. 4. Return of Company Property. All records, files, lists, including computer generated lists, drawings, notes, notebooks, letters, handbooks, blueprints, manuals, sketches, 3 5 specifications, formulas, financial documents, sales and business plans, customer lists, lists of customer contacts, pricing information, computers, software, cellular phones, credit cards, keys, equipment and similar items relating to the Company's business, together with any other property of the Company or property which the Employee received in the course of Employee's employment with the Company (except as may be purchased by Employee pursuant to Section 3 hereof), shall be returned to the Company immediately after the Retirement Date (or, in the case of Company property with respect to which Employee's usage or benefit has been extended under the terms of Section 3, hereof, immediately upon the termination of such benefit continuation period). Employee further represents that Employee will not copy or cause to be copied, print out or cause to be printed out any software, documents or other materials originating with or belonging to the Company. Employee will cease usage of all Company credit cards as of the Retirement Date, and the Company may deactivate or cancel all such account or access numbers pertaining to any Company credit cards in Employee's possession as of the Retirement Date. 5. Confidentiality and Nondisparagement. Employee agrees not to make any statement, written or oral (including but not limited to any media source), regarding any of the following subjects without the prior approval of the Board of Directors of the Company: (a) any of the circumstances leading up to or surrounding Employee's retirement or resignation from the Company; or (b) the terms of this Agreement. Furthermore, Employee, for the good and valuable consideration furnished herein, agrees not to disparage, bring into disrepute or make any negative statement concerning the Company or any of its employees, officers or directors or make any other statement that would disrupt, impair or affect adversely the reputation, business interests, or profitability of the Company, or its employees, officers or directors, or place the Company or such individuals in any negative light. Any breach of this Agreement by Employee shall constitute a material breach of this Agreement, and shall permit the Company to cease all payments to Employee hereunder. 6. Release. As consideration for the payments to be made by the Company to Employee pursuant to Section 3 hereof, Employee agrees for Employee and for Employee's heirs, executors, administrators and assigns, to release and forever discharge the Company and all of its parent and subsidiary corporations, together with each of their respective agents, officers, employees, directors and attorneys, from and to waive any and all rights with respect to all manner of claims, actions, causes of action, suits, judgments, rights, demands, debts, damages, or accountings of whatever nature, legal, equitable or administrative, whether the same are now known or unknown, which Employee ever had, now has or may claim to have, upon or by reason of the occurrence of any matter, cause or thing whatsoever up to the date of this Agreement, including without limitation: (i) any claim whatsoever (whether under federal or state statutory or common law) arising from or relating to Employee's employment or changes in Employee's employment relationship with the Company, including Employee's retirement, separation, termination or resignation therefrom, (ii) all claims and rights for additional compensation or benefits of whatever nature; (iii) any claim for breach of contract, implied or express, impairment of economic opportunity, intentional or negligent infliction of emotional distress, wage or benefit claim, prima facie tort, defamation, libel, slander, negligent termination, wrongful discharge, or any other tort, whether intentional or negligent; (iv) all claims and rights under Title VII of the Civil Rights Act of 4 6 1964, the Civil Rights Acts of 1866, 1871, or 1991, the Age Discrimination in Employment Act, the Employee Retirement Income Security Act, the Americans With Disabilities Act of 1993, the Family and Medical Leave Act, all as amended, or any other federal, state, county or municipal statute or ordinance relating to any condition of employment or employment discrimination; and (v) all claims under any employment agreement between Employee and the Company; provided, however, that this release shall not (i) include any claims relating to the obligations of the Company under this Agreement or (ii) operate to release Employee's ownership of any common stock or, to the extent provided herein, options to acquire common stock of the Company. 7. Acknowledgement of Waiver of Rights. Employee acknowledges that Employee's waiver of rights and claims under this Agreement includes a waiver of rights and claims under the Federal Age Discrimination in Employment Act of 1967, as amended, and that such waiver and the waiver and release of all other rights and claims contemplated by the release set forth in Section 6 above are made knowingly and voluntarily. Employee acknowledges that he has been given a period of at least twenty-one (21) days to consider the provisions of the release stated above, and to consult with Employee's attorney, accountant, tax advisor, spouse or other persons prior to making a decision to sign this Agreement. Employee further acknowledges that the Company has not pressured or coerced Employee to execute this Agreement prior to the expiration of 21 days from the date it was furnished to Employee and that any decision to execute this Agreement prior to such time has been made freely and voluntarily. Employee certifies that the Company has advised Employee in writing to consult with an attorney regarding the legal consequences of the execution of this Agreement. 8. Governing Law and Forum Selection. Employee agrees that any claim against the Company or any of its affiliates or their employees arising out of or relating in any way to this Agreement or to Employee's employment with the Company shall be brought exclusively in the Superior Court of Mecklenburg County, North Carolina, or the United States District Court for the Western District of North Carolina, and in no other forum. Employee hereby irrevocably consents to the personal and subject matter jurisdiction of these courts for the purpose of adjudicating any claims subject to this forum selection clause. Employee also agrees that any dispute of any kind arising out of or relating to this Agreement or to Employee's employment (including without limitation any claim released herein by Employee) shall at the Company's sole election or demand be submitted to final, conclusive and binding arbitration before and according to the rules then prevailing of the American Arbitration Association in Mecklenburg County, North Carolina, which election or demand may be made by the Company at any time prior to the last day to answer and/or respond to a summons and/or complaint or counterclaim made by Employee. The results of any such arbitration proceeding shall be final and binding both upon the Company and upon Employee, and shall be subject to judicial confirmation as provided by the Federal Arbitration Act and/or the terms of Chapter 1, Article 45A of the North Carolina General Statutes, which are incorporated herein by reference. 9. Entire Agreement. This Agreement contains the entire agreement between the Company and Employee and supersedes all prior agreements relating to the subject matter hereof or otherwise, specifically including, without limitation, that certain Employment Agreement dated as of September 29, 1995 (as amended), between the Company and Employee and any stock option 5 7 agreements relating to the Options between Employee and the Company, all of which are hereby expressly terminated, and may be changed only by a writing signed by the parties hereto. Any and all prior representations, statements and discussions regarding the subject matter of this Retirement Agreement have been merged into and replaced by the terms of this Retirement Agreement. 10. Further Conditions. The obligations of the Company set forth in this Agreement, including specifically in Section 3 hereof, are conditional upon Employee's execution and full ratification of this Agreement, including the release set forth herein, no later than twenty-one (21) days following the date on which this Agreement is submitted to Employee, as well as upon Employee's failure to revoke the same following the expiration of seven days following such execution. In the event that Employee fails to execute this Agreement within such 21-day period or revokes the execution thereof within seven days following such execution thereof, the Company's obligations hereunder shall be null and void. 11. Severability. If any of the provisions set forth in this Agreement shall be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein; provided, however, that this provision shall not affect Employee's ability to ratify any provision of this Agreement. 12. Confidential Information, Non-Solicitation and Non-Competition. (a) From the date hereof through and including February 13, 2004, Employee shall not, except as may be required to perform his duties hereunder or as required by applicable law, disclose to others or use, whether directly or indirectly, any Confidential Information regarding the Company. "Confidential Information" shall mean information about the Company, its subsidiaries and affiliates, and their respective clients and customers that is not available to the general public and that was learned by Employee in the course of his employment by the Company, including (without limitation) any proprietary knowledge, trade secrets, data, formulae, information, and client and customer lists and all papers, resumes, records (including computer records) and the documents containing such Confidential Information. Employee acknowledges that such Confidential Information is specialized, unique in nature and of great value to the Company, and that such information gives the Company a competitive advantage. (b) From the date hereof through and including February 13, 2004, Employee shall not, directly or indirectly (e.g., as an advisor, principal, agent, partner, officer, director, shareholder, employee, member of any association or otherwise) engage in, work for, consult, provide advice or assistance or otherwise participate in a business that provides commercial staffing, commercial permanent placement, information technology consulting, information technology staffing or information technology permanent placement services in the following geographic areas: (i) each and every city in which the Company (which, for purposes of this Section 12, shall mean and include the Company and its subsidiaries and affiliates) has an office or place of business as of the Retirement Date; (ii) each and every county in which each of the cities described in Section 12(b)(i) above is located; (iii) a 50-mile radius outside the boundary limits of each city described in Section 12(b)(i) above; and (iv) a 50-mile radius outside the boundary limits 6 8 of each county described in Section 12(b)(ii) above. Employee further agrees that during such period he will not assist or encourage any other person in carrying out any activity that would be prohibited by the foregoing provisions of this Section 12 if such activity were carried out by Employee and, in particular, Employee agrees that he will not induce any employee of the Company to carry out any such activity; provided, however, that the "beneficial ownership" by Employee, either individually or as a member of a "group," as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, of not more than five percent (5%) of the voting stock of any publicly held corporation shall not be a violation of this Agreement. It is further expressly agreed that the Company will or would suffer irreparable injury if Employee were to compete with the Company or any subsidiary or affiliate of the Company in violation of this Agreement and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and Employee further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Employee from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. (c) From the date hereof through and including February 13, 2004, Employee shall not, directly or indirectly, influence or attempt to influence customers or suppliers of the Company or any of its subsidiaries or affiliates, to divert their business to any competitor of the Company. (d) Employee recognizes that he will possess confidential information about other employees of the Company relating to their education, experience, skills, abilities, compensation and benefits, and interpersonal relationships with customers of the Company. Employee recognizes that the information he will possess about these other employees is not generally known, is of substantial value to the Company in developing its business and in securing and retaining customers, and was acquired by him because of his business position with the Company. Employee agrees that, from the date hereof through and including February 13, 2004, he will not, directly or indirectly, solicit or recruit any employee of the Company for the purpose of being employed by him or by any competitor of the Company on whose behalf he is acting as an agent, representative or employee and that he will not convey any such confidential information or trade secrets about other employees of the Company to any other person. (e) If it is determined by a court of competent jurisdiction in any state that any restriction in this Section 12 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is the intention of the parties that such restriction may be modified or amended by the court to render it enforceable to the maximum extent permitted by the law of that state. (f) Employee acknowledges that he has been informed of the time, territory, scope and other essential requirements of the restrictions in this Section 12 in connection with this Agreement, and Employee further acknowledges that he has received sufficient and valuable consideration for his agreement to such restrictions. 7 9 13. Voluntary Agreement. Employee hereby represents that Employee has carefully read and completely understands the provisions of this Agreement and that Employee has entered into this Agreement voluntarily and without any coercion whatsoever, and in order to receive certain benefits not otherwise owed to Employee by the Company. Employee represents that he has been advised of his right to secure counsel to assist in his reviewing this Agreement, that he has retained counsel so to advise him, that he has had sufficient time to review carefully each of the provisions hereto with his counsel, and that his execution hereof is the product of his own free will and volition. 14. Assistance and Cooperation. Employee agrees to cooperate with and provide assistance to the Company and its legal counsel in connection with any litigation (including arbitration or administrative hearings) or investigation affecting the Company, in which, in the reasonable judgment of the Company's counsel, Employee's assistance or cooperation is needed. Employee shall, when requested by the Company, provide testimony or other assistance and shall travel at the Company's request in order to fulfill this obligation; provided, however, that, in connection with such litigation or investigation, the Company shall attempt to accommodate Employee's schedule, shall provide him with reasonable notice in advance of the times in which his cooperation or assistance is needed, and shall reimburse Employee for any reasonable expenses incurred in connection with such matters. In addition, during the time he is receiving the payments set forth in Section 3 herein, Employee agrees to cooperate fully with the Company on all matters relating to his employment and the conduct of the Company's business. This obligation to cooperate, however, shall not be considered to prohibit or restrict other employment by the Employee, except as is set forth in Section 12 herein. [Signatures on Following Page] 8 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, or caused this Agreement to be duly executed by their authorized representatives as of the day and year first above written. COMPANY: [CORPORATE SEAL] PERSONNEL GROUP OF AMERICA, INC. Attest: By: __________________________________ Position: ____________________________ ______________________________ ____________________ Secretary EMPLOYEE: _______________________________ (SEAL) WITNESS: Edward P. Drudge, Jr. ______________________________ 9 11 EXHIBIT A OPTIONEE STATEMENT PERSONNEL GROUP OF AMERICA, INC. EXERCISABLE AS OF 3/27/2000 EDWARD P. DRUDGE 6717 WYNFAIRE LANE CHARLOTTE, NC 28210 SSN ###-##-####
GRANT EXPIRATION GRANT OPTIONS OPTION OPTIONS OPTIONS DATE DATE PLAN ID TYPE GRANTED PRICE OUTSTANDING VESTED - ----- ---------- ------- ----- ------- ------ ----------- ------- 9/25/1995 9/25/2005 Non-Qualified 357,144 $7.0000 357,144 357,144 CURRENT 9/26/1996 9/26/2006 Non-Qualified 440,000 $12.4700 440,000 352,000 CURRENT 88,000 ON 9/26/2000 1/2/1997 1/2/2007 Non-Qualified 103,634 $11.5900 103,634 103,634 CURRENT 9/26/1997 9/26/2007 Incentive 23,696 $16.8750 23,696 11,848 CURRENT 5,924 ON 9/26/2000 5,924 ON 9/26/2001 9/26/1997 9/26/2007 Non-Qualified 76,304 $16.8750 76,304 38,152 CURRENT 19,076 ON 9/26/2000 19,076 ON 9/26/2001 12/31/1997 12/31/2007 Incentive 6,236 $16.0313 6,236 6,236 CURRENT 12/31/1997 12/31/2007 Non-Qualified 72,680 $16.0313 72,680 72,680 CURRENT 9/28/1998 9/28/2008 Incentive 100,000 $12.2500 100,000 25,000 CURRENT 25,000 ON 9/28/2000 25,000 ON 9/28/2001 25,000 ON 9/28/2002 12/31/1998 12/31/2008 Incentive 17,114 $17.5313 17,114 17,114 CURRENT 9/28/1999 9/28/2009 Incentive 25,000 $5.3100 25,000 0 CURRENT 6,250 ON 9/28/2000 6,250 ON 9/28/2001 6,250 ON 9/28/2000 6,250 ON 9/28/2003 12/8/1999 12/8/2009 Incentive 25,000 $9.0000 25,000 0 CURRENT 6,250 ON 12/8/2000 6,250 ON 12/8/2001 6,250 ON 12/8/2002 6,250 ON 12/8/2003 TOTALS 1,246,808 1,246,808 983,808
10 12 EXHIBIT B COMPANY PROPERTY Property Book Value -------- ---------- *IBM 600 laptop computer $ 3,198.00 *Battery $ 216.00 *A/C Adaptor $ 65.00 *Docking Station $ 868.00 *Mouse and Keyboard $ 108.00 *Laser Printer $ 659.00 *Monitor $ 1,074.00 *Chair $ 818.00 *Employee and the Company agree that these items may, collectively, be exchanged by Employee in an even exchange with the Company for Employee's existing membership and all related rights in the Charlotte Motor Speedway's Speedway Club. 11 EX-12.1 5 STATEMENT OF COMP OF RATIOS 1 EXHIBIT 12.1
1995 1996 1997 1998 1999 ------ ------- ------- ------- ------- FIXED CHARGES: Interest Expense including Amortization of debt issuance costs $ 159 $ 1,155 $ 6,951 $12,491 $16,447 Interest on Rent Expense (1/3) 551 820 1,359 2,463 3,419 ------ ------- ------- ------- ------- Total Fixed Charges 710 1,975 8,310 14,954 19,866 EARNINGS: Income before Taxes 7,612 14,299 30,800 53,757 51,830 Fixed Charges 710 1,975 8,310 14,954 19,866 ------ ------- ------- ------- ------- Income before Fixed Charges 8,322 16,274 39,110 68,711 71,696 RATIO OF EARNINGS TO FIXED CHARGES 11.7 8.2 4.7 4.6 3.6
EX-13.1 6 PORTIONS OF ANNUAL REPORT 1 EXHIBIT 13.1 PART II EXHIBITS FOR ITEMS 5 THROUGH 8 2 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock, $.01 par value (the "Common Stock"), is listed on the New York Stock Exchange under the symbol "PGA." As of February 29, 2000, there were approximately 6,183 shareholders based on the number of holders of record and an estimate of the number of individual participants represented by securities position listings. The Company's policy has been to retain earnings for use in its business and, accordingly, it has not historically paid cash dividends on the Common Stock. In addition, the Company's Credit Facility currently restricts the payment of dividends, subject to certain terms contained therein. In the future, the Company's Board of Directors will determine whether to pay cash dividends based on conditions then existing, including the Company's earnings, financial condition, capital requirements, financing arrangements and any other factors deemed relevant by the Board of Directors. The following table sets forth the high, low and closing sales prices for the Common Stock as reported on the New York Stock Exchange during the periods indicated:
HIGH LOW CLOSE ---- --- ----- 1999 ---- First Quarter $ 18 9/16 $ 5 7/8 $ 7 3/16 Second Quarter 11 5/8 6 13/16 9 15/16 Third Quarter 10 5/8 4 15/16 6 1/4 Fourth Quarter 11 11/16 6 10 1/4 1998 ---- First Quarter $ 23 3/8 $ 15 $ 22 3/8 Second Quarter 23 3/8 17 17 1/6 Third Quarter 20 3/4 11 12 15/16 Fourth Quarter 17 1/2 8 5/8 17 1/2 1997 ---- First Quarter $ 13 5/8 $9 13/16 $ 9 13/16 Second Quarter 15 7/8 8 5/8 14 13/32 Third Quarter 18 1/32 14 1/2 17 1/8 Fourth Quarter 19 3/32 14 5/8 16 1/2
The last reported sales price on March 24, 2000 was $6.31. 1 3 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data for the Company as of and for each of years 1999, 1998, 1997, 1996 and 1995. The consolidated financial data as of and for years ended 1999, 1998 and 1997 are derived from consolidated financial statements of the Company that have been audited by PricewaterhouseCoopers LLP, independent public accountants. The consolidated financial data as of and for years 1996 and 1995 are derived from consolidated financial statements of the Company that were audited by other auditors. All of such data should be read in conjunction with the financial statements and other financial information, including Management's Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this report. (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- RESULTS OF OPERATIONS Revenues $918,437 $783,925 $475,620 $243,608 $143,243 Operating income 68,277 66,248 37,751 15,454 7,771 Net income from continuing operations 29,753 31,017 17,790 8,304 4,330 Net income $ 29,753 $ 31,017 $ 20,202 $ 11,517 $ 7,109 Net income per diluted share (1): Income from continuing operations $ 0.99 $ 0.96 $ 0.71 $ 0.41 $ 0.27(2) Income from discontinued operations, net -- -- 0.09 0.16 0.17(2) -------- -------- -------- -------- -------- Net Income $ 0.99 $ 0.96 $ 0.80 $ 0.56 $ 0.44(2) ======== ======== ======== ======== ======== Diluted weighted average shares outstanding 34,299 36,752 28,078 20,432 16,000 FINANCIAL POSITION AT YEAR-END Working capital $ 86,787 $ 84,151 $ 69,090 $ 26,558 $ 17,719 Total assets 735,350 708,890 451,309 293,575 83,441 Short- and long-term debt 254,351 235,406 152,540 85,147 -- Shareholders' equity 369,843 394,630 205,076 183,257 75,986
- -------------------------- (1) All share data has been restated to reflect the two-for-one stock split declared by the Company's Board of Directors on March 5, 1998. (2) Net income per share in 1995 has been computed assuming the 16,000,000 shares issued in the Company's initial public offering in September 1995 were outstanding throughout the year. 2 4 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes appearing elsewhere in this report. The Company's fiscal years end on the Sunday nearest to each December 31 and its fiscal quarters end on the Sunday nearest to the end of each calendar quarter. The Company is organized into two Divisions: the Information Technology Services Division ("IT Services"), which provides information technology staffing and consulting services in a range of computer-related disciplines, and the Commercial Staffing Services Division ("Commercial Staffing"), which provides a variety of temporary office, clerical, accounting and finance, light technical and light industrial staffing services. Approximately 64% of the Company's 1999 revenues came from IT Services and 36% came from Commercial Staffing. The following table sets forth the number and nature of the Company's offices by Division at the end of the years indicated and at February 29, 2000:
FEBRUARY 29, 2000 1999 1998 1997 ----- ----- ----- ----- IT Services 43 43 47 30 Commercial Staffing 101 101 100 82 ----- ----- ----- ----- Total offices 144 144 147 112
After the end of the fourth quarter of 1999, the Company's Chief Executive Officer retired from his positions as an officer, employee and director of the Company. The Company will incur a non-recurring expense of approximately $1.5 million in the first quarter of 2000 relating to severance and other benefits for the departed executive. In May 1998, the Company completed an offering of 7.0 million shares of Common Stock. The net proceeds from this offering of approximately $133.3 million were used to repay indebtedness under the Company's $200.0 million revolving credit facility (the "Credit Facility"). Also in 1998, the Company acquired ten information technology services companies and five commercial staffing companies. The combined revenues of these 15 companies were approximately $259.5 million in 1998 and $280.2 million in 1999. Each of the Company's acquisitions, including its 1998 acquisitions, has been accounted for using the purchase method of accounting. The Company allocates the excess of cost over the fair value of the net tangible assets first to identifiable intangible assets, if any, and then to goodwill. Although the Company believes that goodwill has an unlimited life, the Company amortizes such costs on a straight-line basis over 40 years. Intangible assets represented 76.2% of total assets and 151.4% of total shareholders' equity at January 2, 2000. The Company periodically 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 investments in intangible assets to be fully recovered. Although the Company's acquisition program was much less active in 1999 than in previous years, the Company intends to continue evaluating acquisition opportunities in the normal course of its business. The Company's revenues and expenses may be significantly affected by the number and timing of the opening or acquisition of additional offices or businesses. The timing of such expansion activities also can affect period- 3 5 to-period comparisons of the Company's results of operations. On December 26, 1997, the Company completed the sale of its healthcare division for $65.3 million. With the sale of the healthcare division, the Company completed a transformation that began in 1996 when the Company made a strategic commitment to enter the high growth, high margin information technology services business. The gain on the sale of the healthcare division was not material. As a result of the sale, the healthcare division was reflected as a discontinued operation in the Company's financial statements for all periods presented. In June and July 1997, the Company completed a private placement of $115.0 million of 5-3/4% Convertible Subordinated Notes (the "Convertible Notes"). The net proceeds from this private placement were approximately $111.8 million and were used to repay indebtedness under the Credit Facility and to retire a separate $10.0 million line of credit. The information technology services business is affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower IT revenues and lower operating margins in the fourth quarter of each year. The commercial staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second six months of each calendar year are more heavily affected as companies tend to increase their use of temporary personnel during this period. While the commercial staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations, its emphasis on high-end clerical staffing, and its rapid expansion into the less cyclical information technology staffing and consulting sectors, may partially mitigate the adverse effects of economic cycles in a single industry or geographic region. 4 6 OVERVIEW The following table summarizes certain income statement information for the Company for years 1999, 1998 and 1997: (DOLLARS IN THOUSANDS)
1999 1998 1997 --------------------- --------------------- --------------------- REVENUES: IT Services $584,032 63.6% $445,485 56.8% $249,749 52.5% Commercial Staffing 334,405 36.4% 338,440 43.2% 225,871 47.5% -------- ----- -------- ----- -------- ----- TOTAL REVENUES 918,437 100.0% 783,925 100.0% 475,620 100.0% DIRECT COSTS OF SERVICES 656,918 71.5% 564,711 72.0% 349,616 73.5% -------- ----- -------- ----- -------- ----- GROSS PROFIT 261,519 28.5% 219,214 28.0% 126,004 26.5% OPERATING EXPENSES: Selling, general and administrative 171,950 18.8% 136,937 17.5% 79,216 16.7% Depreciation and amortization 21,292 2.3% 16,029 2.0% 9,037 1.9% -------- ----- -------- ----- -------- ----- TOTAL OPERATING EXPENSES 193,242 21.1% 152,966 19.5% 88,253 18.6% OPERATING INCOME 68,277 7.4% 66,248 8.5% 37,751 7.9% INTEREST EXPENSE 16,447 1.8% 12,491 1.6% 6,951 1.5% -------- ----- -------- ----- -------- ----- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 51,830 5.6% 53,757 6.9% 30,800 6.5% PROVISION FOR INCOME TAXES 22,077 2.4% 22,740 2.9% 13,010 2.7% -------- ----- -------- ----- -------- ----- INCOME FROM CONTINUING OPERATIONS 29,753 3.2% 31,017 4.0% 17,790 3.7% -------- ----- -------- DISCONTINUED OPERATIONS: Income from discontinued operations, net of taxes -- N/A -- N/A 2,323 0.5% Gain on disposal of discontinued operations, net of taxes -- N/A -- N/A 89 0.0% -------- ----- -------- ----- -------- ----- DISCONTINUED OPERATIONS, NET -- N/A -- N/A 2,412 0.5% NET INCOME $ 29,753 3.2% $ 31,017 4.0% $ 20,202 4.2% ======== ===== ======== ===== ======== =====
5 7 RESULTS OF OPERATIONS YEAR ENDED JANUARY 2, 2000 VERSUS YEAR ENDED JANUARY 3, 1999 REVENUES Total revenues increased 17.2% to $918.4 million in 1999 from $783.9 million in 1998. IT Services revenue grew 31.1% primarily as the result of acquisitions that the Company completed in 1998 and internal growth of 8.1% in 1999. IT Services internal growth in 1999 was lower than in prior years, and lower than the Company's expectations, primarily as the result of lower utilization of IT services generally and the resulting billable headcount reduction during the second half of 1999 related to the year 2000 phenomenon. The Company expects these demand issues to continue through the first half of 2000. Commercial Staffing revenues in 1999 were slightly below 1998 due primarily to the impact of certain non-recurring revenues in the second half of 1998 and the elimination of certain low margin Commercial Staffing business late in that year. Same store sales declined 4.6% in 1999 over 1998. DIRECT COSTS OF SERVICES AND GROSS PROFIT Direct costs, consisting of payroll and related expenses of consultants and temporary workers, increased 16.3% to $656.9 million in 1999. Gross profit as a percentage of revenue increased 50 basis points to 28.5% from 28.0% during 1998. This increase in gross profit percentage reflected the Company's continued expansion into the higher margin sectors of the information technology staffing and consulting business and the continuing strength of its high margin permanent placement business. IT Services revenues represented 64% of total revenues in 1999, up from 57% in 1998. Although pay rate increases in 1999 were generally passed on to the Company's customers through higher bill rates, there can be no assurance that the Company will be able to pass on pay rate increases to its customers in the future. OPERATING EXPENSES Operating expenses, consisting of selling, general and administrative expenses and depreciation and amortization expense, increased 26.3% to $193.2 million in 1999 from $153.0 million in 1998. As a percentage of revenues, selling, general and administrative expenses increased to 18.8% in 1999 from 17.5% in 1998. This increase was caused by continuing investments in management personnel and management systems, the continuing business mix shift into information technology services, and several acquisitions in 1998 of companies that provided information technology and permanent placement services. Both of these lines of business typically carry higher gross margins, as well as higher selling, general and administrative expenses as a percentage of sales. In addition, depreciation and amortization expense increased to 2.3% of revenues in 1999 from 2.0% in 1998 due to increased amortization expense resulting from the acquisitions completed by the Company in 1998 and recent investments in management information systems. INTEREST EXPENSE Interest expense increased to $16.4 million in 1999 from $12.5 million in 1998 as the Company borrowed additional funds to finance its share repurchase programs. See "Liquidity and Capital Resources." 6 8 INCOME TAX EXPENSE The effective tax rate increased to 42.6% in 1999 from 42.3% in 1998 primarily because nondeductible amortization expense related to acquisitions increased during the year as a percentage of the Company's pretax income. The Company's effective tax rate has historically been higher than the U.S. federal statutory rate of 35% primarily due to state income taxes and nondeductible amortization expense. NET INCOME Income from continuing operations decreased 4.1% to $29.8 million in 1999 (or 3.2% of revenue) from $31.0 million (4.0% of revenue) in 1998 due to the factors discussed above. YEAR ENDED JANUARY 3, 1999 VERSUS YEAR ENDED DECEMBER 28, 1997 REVENUES Total revenues increased 64.8% to $783.9 million in 1998 from $475.6 million in 1997. IT Services revenue grew 78.4% as the Company continued its aggressive acquisition program and experienced strong internal growth as same store sales grew 20.9% in 1998 over 1997. Commercial Staffing revenues grew 49.8% as the result of the contribution of revenues from the commercial staffing companies acquired by the Company in 1997 and 1998 and strong same store sales growth. Commercial Staffing same store sales growth was approximately 11.3% in 1998 over 1997. High internal growth rates were due to the continued strong demand for information technology services, a significant new project in Commercial Staffing and the increasing acceptance by businesses and other organizations of the use of a contingent workforce. DIRECT COSTS OF SERVICES AND GROSS PROFIT Direct costs, consisting of payroll and related expenses of consultants and temporary workers, increased 61.5% to $564.7 million in 1998. Gross profit as a percentage of revenue increased 150 basis points to 28.0% from 26.5% during 1997. This increase in gross profit as a percentage of revenue reflected the Company's continued expansion into the higher margin information technology staffing and consulting sectors and the acquisition of several companies that provide high margin permanent placement services. IT Services revenues represented 57% of total revenues in 1998, up from 53% in 1997. Pay rate increases were generally passed on to the Company's customers through higher bill rates. OPERATING EXPENSES Operating expenses, consisting of selling, general and administrative expenses and depreciation and amortization expense, increased 73.3% to $153.0 million in 1998 from $88.3 million in 1997. As a percentage of revenues, selling, general and administrative expenses increased to 17.5% in 1998 from 16.7% in 1997. This increase was caused by investments in management personnel and management systems, the continued business mix shift into information technology services, and several acquisitions of companies that provided information technology and permanent placement services. Both of these lines of business typically carry higher gross margins as well as higher selling, general and administrative expenses as a percentage of sales. In addition, depreciation and amortization expense increased to 2.0% of revenues in 1998 from 1.9% in 1997 due to increased amortization expense resulting from the acquisitions completed by the Company. INTEREST EXPENSE Interest expense increased to $12.5 million in 1998 from $7.0 million in 1997 as the Company continued to borrow funds to finance its acquisition strategy. See "Liquidity and Capital Resources." 7 9 INCOME TAX EXPENSE The effective tax rate increased to 42.3% in 1998 from 42.2% in 1997. This increase was due to additions in the amount of nondeductible amortization expense related to acquisitions in relation to pretax income. The Company's effective tax rate has historically been higher than the U.S. federal statutory rate of 35% primarily due to state income taxes and nondeductible amortization expense. INCOME FROM CONTINUING OPERATIONS Income from continuing operations increased 74.4% to $31.0 million in 1998 (or 4.0% of revenue) from $17.8 million (3.7% of revenue) in 1997 due to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash are from operations and borrowings under the Credit Facility. The Company's principal uses of cash are to fund working capital, capital expenditures and share repurchases under the Company's share buyback programs. Prior to 1999, the Company had also used substantial cash to fund its acquisition program. The Company's acquisition activity declined substantially in 1999, however, and the use of cash for acquisitions declined accordingly. For 1999, cash provided by operating activities increased to $71.7 million primarily as the result of reduced working capital needs associated with slower growth during the year. As of January 2, 2000, receivables for IT Services and Commercial Staffing remained outstanding an average of 55 and 46 days, respectively, after billing. In the aggregate, days sales outstanding were 51 and 52 days at January 2, 2000 and January 3, 1999, respectively. Cash used for investing activities decreased to $30.1 million in 1999 from $241.1 million in 1999 primarily as a result of the Company's decreased acquisition activity in 1999. As of January 2, 2000, the Company was obligated to make certain contingent earnout payments to former owners of acquired businesses. Earn-out payments made during 1999 were approximately $32.0 million in the aggregate (including $16.6 million in payments made on January 3, 2000). Earnout payments based on earnings for periods ending after December 31, 1999 and beyond are contingent on the future performance of such acquired businesses, and thus the actual amount cannot be determined at this time. The Company estimates, based on certain assumptions as to future performance of such acquired businesses, that aggregate earnout payments may be in the range of $14.0 million to $22.0 million in 2000 (excluding the January 3, 2000 payments). There can be no assurance, however, that the future performance of the acquired businesses will be consistent with the assumptions used in establishing the foregoing estimates, or that the actual amounts of any earnout payments will not differ materially from the estimates set forth herein. The Company began a project in 1998 to replace the financial and human resource systems for its IT Services companies. Installation of these systems for the remaining companies is expected to continue through the end of the year 2000. The Company expects to spend one to one and one-half percent of its 2000 revenues on management information systems and other capital expenditures not directly related to acquisitions, including the project to replace the financial and human resource systems discussed above. There can be no assurance that there will not be unanticipated costs or delays associated with these installations or that the systems will operate as expected. As of February 29, 2000, over 45% of the IT Services offices have been converted to this common system. 8 10 The Credit Facility is a five-year, $200.0 million revolving line of credit due June 2002. As of March 24, 2000, $152.0 million of borrowings were outstanding under the Credit Facility and approximately $4.9 million had been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation programs. At March 24, 2000, the amount available for borrowing under the Credit Facility was approximately $43.1 million. The daily weighted average interest rate under the Credit Facility was 6.2% during 1999. The Company repurchased approximately 8.2 million shares of its Common Stock in 1999 at an aggregate purchase price of $60.0 million. Share repurchases made under these programs were made from time to time in accordance with applicable securities regulations in open market or privately negotiated transactions. All share repurchases in 1999 were financed with cash from operations and borrowings under the Credit Facility and all repurchased shares have been held in PGA's treasury and are available for resale and for general corporate purposes. Between January 2, 2000 and March 24, 2000, the Company repurchased an additional .8 million shares for an aggregate purchase price of $5.7 million. As of March 24, 2000, the Company had authorization from its Board of Directors to repurchase an additional $16.2 million of Common Stock. The Company believes that cash flow from operations and borrowing capacity under the Credit Facility will be adequate to meet its presently anticipated needs for working capital, capital expenditures, and share repurchases. In the event that significant acquisition activity resumed short-term, the Company would likely be required to seek additional sources of capital, such as an expansion of the Credit Facility or one or more offerings of additional debt or equity securities of the Company. There can be no assurance, however, that other alternative sources will be available on favorable terms. YEAR 2000 COMPLIANCE The Company uses software and related information technologies and systems throughout its business that could be affected by the failure to correctly interpret and process dates after 1999. Accordingly, the Company attempted to identify and assess its areas of risk related to the year 2000 issue. The Company experienced no disruptions to its business as the result of the change to calendar year 2000 and believes, based on its experience and upon representations from certain of its software vendors, that its key computer systems and related software are substantially year 2000 compliant. IT Services has performed work for clients to assist them in modifying their computer systems and software to make them year 2000 compliant, although this type of work did not represent a significant portion of IT Services' services. Generally, this work is performed under the direction and supervision of the client, and the Company seeks to limit its liability contractually. Additionally, the Company maintains errors and omissions insurance to protect against these risks. Although to date the Company is unaware of any claims from its clients based on its work on year 2000 projects, there can be no assurance that the Company will not incur liabilities or experience other problems in the future related to the year 2000 issue or that any such liabilities or problems will not be material 9 11 ITEM 7A. MARKET RISK DISCLOSURES The Company's outstanding debt under the Credit Facility at January 2, 2000, was $138.0 million. Interest on borrowings under the Credit Facility is based on LIBOR plus a variable margin. Based on the outstanding balance at January 2, 2000, a change of 1% in the interest rate would cause a change in interest expense of approximately $1.4 million on an annual basis. In June and July 1997, the Company issued $115.0 million of the Notes. The fair value of the Notes at January 2, 2000 was $93.3 million as compared to the carrying value of $115.0 million. FORWARD-LOOKING INFORMATION This report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain various "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, 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 may identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results, performance or financial condition may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on the Company's actual results, performance or financial condition are fluctuations in the economy, the degree and nature of competition, demand for the Company's services, including the impact of changes in utilization rates, changes in laws and regulations affecting the Company's business, the Company's ability to complete acquisitions and integrate the operations of acquired businesses, to recruit and place temporary professionals, to expand into new markets, and to maintain profit margins in the face of pricing pressures and wage inflation and other matters discussed in this report and the Company's other filings with the Securities and Exchange Commission. 10 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Personnel Group of America, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Personnel Group of America, Inc. and subsidiaries (collectively, the "Company") at January 2, 2000 and January 3, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 2000, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for the opinion expressed above. Charlotte, North Carolina February 2, 2000, except for Notes 11 and 18, for which the date is March 10, 2000. 11 13 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- JANUARY 2, 2000 AND JANUARY 3, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,752 $ 962 Accounts receivable, net of allowance for doubtful accounts of $2,690 and $2,031 in 1999 and 1998, respectively 125,968 129,761 Prepaid expenses and other current assets 5,690 6,967 Deferred income taxes 6,594 5,149 Notes receivable from sale of discontinued operation 885 885 --------- --------- Total current assets 144,889 143,724 Property and equipment, net 25,776 20,290 Intangible assets, net 560,113 539,977 Other assets 4,572 4,899 --------- --------- Total assets $ 735,350 $ 708,890 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 956 $ 9,150 Accounts payable 8,535 5,310 Accrued liabilities 47,859 42,604 Income taxes payable 752 2,509 --------- --------- Total current liabilities 58,102 59,573 Long-term debt 253,395 226,256 Other long-term liabilities 54,010 28,431 --------- --------- Total liabilities 365,507 314,260 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; shares authorized 5,000; no shares issued and outstanding -- -- Common stock, $.01 par value; shares authorized 95,000; 33,065 and 32,929 shares issued and outstanding in 1999 and 1998, respectively 331 329 Additional paid-in capital 330,237 329,383 Retained earnings 94,836 65,083 Deferred compensation (61) (165) --------- --------- Less common stock held in treasury at cost - 425,343 394,630 7,587 shares at January 2, 2000 (55,500) -- --------- --------- Total shareholders' equity 369,843 394,630 --------- --------- Total liabilities and shareholders' equity $ 735,350 $ 708,890 ========= =========
The accompanying notes are an integral part of these balance sheets. 12 14 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 -------- -------- -------- REVENUES $918,437 $783,925 $475,620 DIRECT COSTS OF SERVICES 656,918 564,711 349,616 -------- -------- -------- GROSS PROFIT 261,519 219,214 126,004 OPERATING EXPENSES: Selling, general and administrative 171,950 136,937 79,216 Depreciation and amortization 21,292 16,029 9,037 -------- -------- -------- TOTAL OPERATING EXPENSES 193,242 152,966 88,253 OPERATING INCOME 68,277 66,248 37,751 INTEREST EXPENSE 16,447 12,491 6,951 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 51,830 53,757 30,800 PROVISION FOR INCOME TAXES 22,077 22,740 13,010 -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 29,753 31,017 17,790 -------- -------- -------- DISCONTINUED OPERATIONS: Income from discontinued operations, net of taxes -- -- 2,323 Gain on disposal of discontinued operations, net of taxes -- -- 89 -------- -------- -------- Discontinued operations, net of taxes -- -- 2,412 -------- -------- -------- NET INCOME $ 29,753 $ 31,017 $ 20,202 ======== ======== ======== NET INCOME PER BASIC SHARE: Income from continuing operations $ 1.07 $ 1.05 $ 0.74 Income from discontinued operations, net of taxes -- -- 0.10 -------- -------- -------- NET INCOME PER BASIC SHARE $ 1.07 $ 1.05 $ 0.83 ======== ======== ======== NET INCOME PER DILUTED SHARE: Income from continuing operations $ 0.99 $ 0.96 $ 0.71 Income from discontinued operations, net of taxes -- -- 0.09 -------- -------- -------- NET INCOME PER DILUTED SHARE $ 0.99 $ 0.96 $ 0.80 ======== ======== ======== WEIGHTED BASIC AVERAGE SHARES OUTSTANDING 27,680 29,600 24,204 WEIGHTED DILUTED AVERAGE SHARES OUTSTANDING 34,299 36,752 28,078
The accompanying notes are an integral part of these statements. 13 15 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN THOUSANDS)
COMMON STOCK ADDITIONAL COMMON STOCK TOTAL --------------- PAID-IN RETAINED DEFERRED HELD IN SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TREASURY EQUITY ------ ------- ---------- -------- ------------ ------------ ------------- BALANCE, December 29, 1996 12,034 $ 120 $169,273 $ 13,864 $ -- $ -- $183,257 Exercises of stock options 95 1 1,570 -- -- -- 1,571 Issuance of restricted stock 10 -- 316 -- (316) -- -- Amortization of deferred compensation -- -- -- -- 46 -- 46 Net income -- -- -- 20,202 -- -- 20,202 Two-for-one stock split 12,139 121 (121) -- -- -- -- ------ ------- -------- -------- --------- -------- -------- BALANCE, December 28, 1997 24,278 $ 242 $171,038 $ 34,066 $ (270) $ -- $205,076 ------ ------- -------- -------- --------- -------- -------- Issuance of common stock 7,000 70 133,230 -- -- -- 133,300 Stock issued for acquisitions 1,368 14 22,160 -- -- -- 22,174 Stock issued for employee stock purchase plan and exercises of stock options 283 3 2,955 -- -- -- 2,958 Amortization of deferred compensation -- -- -- -- 105 -- 105 Net income -- -- -- 31,017 -- -- 31,017 ------ ------- -------- -------- --------- -------- -------- BALANCE, January 3, 1999 32,929 $ 329 $329,383 $ 65,083 $ (165) $ -- $394,630 ------ ------- -------- -------- --------- -------- -------- Stock issued for acquisitions 24 -- 605 -- -- 539 1,144 Repurchase of common stock -- -- -- -- -- (60,025) (60,025) Stock issued for employee stock purchase plan and exercises of stock options 112 2 249 -- -- 3,986 4,237 Amortization of deferred compensation -- -- -- -- 104 -- 104 Net income -- -- -- 29,753 -- -- 29,753 ------ ------- -------- -------- --------- -------- -------- BALANCE, January 2, 2000 33,065 $ 331 $330,237 $ 94,836 $ (61) $(55,500) $369,843 ====== ======= ======== ======== ========= ======== ========
The accompanying notes are an integral part of these statements. 14 16 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 2, 2000, JANUARY 3, 1999 AND DECEMBER 28, 1997 (IN THOUSANDS)
1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 29,753 $ 31,017 $ 17,790 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 21,292 16,029 9,037 Deferred income taxes, net 8,105 5,822 3,083 Changes in assets and liabilities: Accounts receivable 5,019 (21,248) (14,684) Prepaid assets and other, net 1,468 (2,597) (430) Accounts payable and accrued liabilities 7,833 (297) 9,238 Income taxes payable (1,763) 216 (597) --------- --------- --------- Net cash provided by operating activities 71,707 28,942 23,437 CASH FLOWS FROM INVESTING ACTIVITIES: Cash used in acquisitions, net of cash acquired (18,715) (259,057) (115,663) Net cash provided by discontinued operations -- 28,012 29,812 Purchase of property and equipment, net (11,368) (10,028) (5,162) --------- --------- --------- Net cash used in investing activities (30,083) (241,073) (91,013) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net -- 133,300 -- Proceeds from convertible subordinated notes issuance, net -- -- 111,750 Repayments under credit facility (59,500) (222,450) (190,632) Borrowings under credit facility 87,500 308,450 147,307 Repurchases of common stock (59,971) -- -- Proceeds from employee stock purchase plan and stock option exercises 4,237 3,066 1,617 Repayments of seller notes and acquired indebtedness (9,100) (9,915) (6,935) --------- --------- --------- Net cash provided by (used in) financing activities (36,834) 212,451 63,107 --------- --------- --------- Net increase (decrease) in cash and cash equivalents 4,790 320 (4,469) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 962 642 5,111 ========= ========= ========= CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,752 $ 962 $ 642 ========= ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments during the period for-- Income taxes $ 15,241 $ 17,523 $ 10,888 Interest $ 12,673 $ 11,969 $ 5,042 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Accrued acquisition related earnout payments $ 27,445 $ 13,392 $ 41,084 Accrued repurchases of common stock $ 54 $ -- $ --
The accompanying notes are an integral part of these statements. 15 17 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. ORGANIZATION AND NATURE OF OPERATIONS: BASIS OF PRESENTATION The consolidated financial statements include the accounts of Personnel Group of America, Inc. and its subsidiaries (collectively, the "Company"). All significant intercompany transactions have been eliminated. The Company's fiscal years ended January 2, 2000, January 3, 1999 and December 28, 1997 are referred to in these financial statements as years 1999, 1998 and 1997, respectively. NATURE OF OPERATIONS The Company is organized into two Divisions: the Information Technology Services Division ("IT Services"), which provides information technology staffing and consulting services in a range of computer-related disciplines, and the Commercial Staffing Services Division ("Commercial Staffing"), which provides a variety of temporary office, clerical, accounting and finance, light technical and light industrial staffing services. All of the IT Services and Commercial Staffing branch offices are Company owned. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: REVENUE RECOGNITION The Company recognizes revenue at the time its services are performed. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives (generally three to seven years). Computer software costs consist of costs to purchase and develop software. The Company capitalizes internally developed software costs based on a project-by-project analysis of each project's significance to the Company and its estimated useful life. The majority of capitalized software costs are depreciated on a straight-line basis over a period of six years. In 1999, the Company implemented Statement of Position (SOP) 98-1, "Accounting For the Costs of Computer Software Developed For or Obtained For Internal Use." SOP 98-1 requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. In 1999, the Company made certain changes in its capitalization policy to conform to SOP 98-1, the impact of which was not material to its results of operations or financial position. Leasehold improvements are stated at cost and amortized over the shorter of the lease term or the useful life of the improvements. 16 18 INTANGIBLE ASSETS The Company's businesses have been acquired from unrelated third parties for cash and other consideration. Excess of cost over fair value of net assets acquired resulting from such acquisitions has been recorded at historical cost and is being amortized on a straight-line basis over 40 years. Other intangible assets consist mainly of covenants not to compete. Total intangible assets and accumulated amortization of intangible assets were $598,803 and $38,690 at January 2, 2000, respectively, and $563,309 and $23,332 at January 3, 1999, respectively. Amortization expense for 1999, 1998 and 1997 was $15,358, $11,986 and $6,494, respectively. The Company periodically evaluates the recoverability of its investment in excess of cost over fair value of net assets acquired and other intangibles in relation to anticipated future cash flows on an undiscounted basis. Based on this assessment, the Company expects its investment in excess of cost over fair value of net assets acquired and other intangibles to be fully recovered. INCOME TAXES Deferred tax assets and liabilities are recorded for the expected tax consequences of temporary differences arising between the tax bases of assets and liabilities and their reported amounts in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SEGMENT REPORTING Segment reporting is based upon a management approach which designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The Company uses two reportable segments: IT Services and Commercial Staffing. 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 estimates include the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from management's estimates. 3. ACQUISITIONS During 1998, the Company acquired 10 IT Services companies and five Commercial Staffing companies. These acquisitions are collectively referred to hereinafter as the "Transactions" and the acquired businesses are collectively referred to hereinafter as the "Acquired Companies." The Acquired Companies had combined annual revenues of approximately $259,500 in 1998 and $280,201 in 1999. The Company paid approximately $220,000 in cash, and issued common stock valued at $22,174 as of the acquisition date, to close the Transactions (which included direct acquisition costs but excluded contingent earnout payments associated with certain of the Transactions). Certain of the Company's acquisitions (including a number of the Transactions) provided for additional purchase price consideration upon attainment of certain specified targets for various periods after closing of the acquisition. The Company paid $32,048 (including two payments made on January 3, 2000) and $35,985 in contingent consideration in 1999 and 1998, respectively. As of January 2, 2000, the Company also had accrued $11,591 (excluding the January 3, 2000, payments) for the payment of 17 19 additional contingent consideration in 2000, based on 1999 earnings. Earnout payments for periods ending after December 31, 1999 and beyond are contingent on the future performance of such acquired businesses and thus the actual amount cannot be determined at this time. All consideration is recorded as additional purchase price when earned and increases the amount of excess of cost over fair value of net assets acquired. All of the Company's acquisitions (including the Transactions) have been accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of the entities acquired, based on preliminary allocations, were recorded at their estimated fair values at the dates of the acquisitions and the results of operations of all acquired companies have been included in the Company's consolidated results of operations from the dates of the respective acquisitions. Final allocation of the purchase price with respect to an acquisition may result in adjustments to the amounts previously recorded as excess of cost over fair market value of net assets acquired. The excess of cost over the estimated fair value of the net assets acquired is amortized on a straight-line basis over 40 years. The following table presents the Company's pro forma consolidated results of operations for 1998, as if each of the Transactions had occurred on December 28, 1997: 1998 -------- Revenues $889,016 Net income from continuing operations 33,548 Net income per diluted share $ 1.01 ======== Diluted weighted average shares outstanding 37,348 ======== During 1999, three of the Company's operating units acquired certain assets to enhance their existing businesses. The aggregate purchase price for these assets was approximately $4,743 (excluding contingent earnout payments). The impact on revenues and net income from these transactions was not significant. 4. DISCONTINUED OPERATIONS: On December 26, 1997, the Company completed the sale of its Healthcare Division for $65,250. The assets, liabilities, results of operations and cash flows of the Healthcare Division were segregated and reported as discontinued operations for all periods presented, and previously reported results were restated. The sale of the Healthcare Division resulted in a gain of $89. During 1997, the Company allocated $2,217 of interest expense to the discontinued operation based on the ratio of net assets of the discontinued operation to the total net assets of the consolidated Company. No other corporate overhead expenses were allocated to the discontinued operation. Summary operating results of the discontinued operation in 1997 were as follows: 1997 -------- Revenues $133,442 Total expenses 129,438 -------- Income before income taxes 4,004 Provision for income taxes 1,681 -------- Net income $ 2,323 ======== 18 20 5. ACCOUNTS RECEIVABLE: Accounts receivable consisted of the following at January 2, 2000 and January 3, 1999: 1999 1998 --------- --------- Trade accounts receivable $ 128,658 $ 131,792 Less - Allowance for doubtful accounts (2,690) (2,031) --------- --------- $ 125,968 $ 129,761 ========= ========= The following table sets forth further information on the Company's allowance for doubtful accounts:
BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND AT END YEAR ENDED OF PERIOD EXPENSES DEDUCTIONS OF PERIOD ---------- ---------- ---------- ---------- --------- January 2, 2000 $ 2,031 $ 5,536 $ (4,877) $2,690 January 3, 1999 1,063 3,261 (2,293) 2,031 December 28, 1997 519 1,138 (594) 1,063
6. PROPERTY AND EQUIPMENT, NET: Property and equipment, net, consisted of the following at January 2, 2000 and January 3, 1999: 1999 1998 -------- -------- Software and computer equipment $ 29,916 $ 20,943 Furniture and other equipment 6,463 5,777 Leasehold improvements 2,725 1,680 -------- -------- 39,104 28,400 Less - Accumulated depreciation (13,328) (8,110) -------- -------- $ 25,776 $ 20,290 ======== ======== 7. LONG-TERM DEBT: Long-term debt at January 2, 2000 and January 3, 1999 was as follows:
1999 1998 -------- -------- 5-3/4% Convertible Subordinated Notes due July 2004 $115,000 $115,000 $200,000 revolving credit facility due June 2002 138,000 110,000 Notes payable to sellers of acquired companies and other 1,351 10,406 -------- -------- 254,351 235,406 Less current portion 956 9,150 -------- -------- $253,395 $226,256 ======== ========
The Company's 5-3/4% Convertible Subordinated Notes are due July 2004 (the "Notes"). Interest on the Notes is payable semi-annually. The Notes are convertible into Common Stock of the Company at any time before maturity at an initial conversion price of $17.81 per share. The Notes are not redeemable prior to July 2000. Thereafter, the Company may redeem the Notes initially at 103.29% and at decreasing prices thereafter to 100% at maturity, in each case together with accrued 19 21 interest. The Notes are subordinated to all present and future senior indebtedness of the Company (as defined), including indebtedness under the Company's $200,000 revolving credit facility (the "Credit Facility"). Borrowings under the Credit Facility bear interest, at a rate equal to LIBOR plus a percentage corresponding to the Company's consolidated leverage ratio, as defined, or the agent's base rate, as defined, at the Company's option. The Credit Facility is collateralized by pledges of stock of the Company's subsidiaries and contains customary covenants such as the maintenance of certain financial ratios, minimum net worth and working capital requirements and a restriction on the payment of cash dividends on common stock. The Credit Facility also limits borrowing availability for acquisition-related purposes. During 1999, the maximum aggregate outstanding borrowing under the Credit Facility was $157,000 and the average outstanding balance during the year was $135,900. In addition, approximately $5,500 of the Credit Facility has been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation program. The daily weighted average interest rate under the Credit Facility was 6.2% during 1999. The weighted average interest rate of the Company's borrowings under the Credit Facility was 7.2% at January 2, 2000. At January 2, 2000, the amount available for borrowing under the Credit Facility was approximately $56,500. Scheduled maturities of long-term debt at January 2, 2000 were as follows: 2000 $ 956 2001 395 2002 138,000 2003 -- 2004 115,000 -------- $254,351 ======== 20 22 8. ACCRUED LIABILITIES: Accrued liabilities consisted of the following at January 2, 2000 and January 3, 1999: 1999 1998 ------- ------- Accrued wages and benefits $34,194 $34,621 Accrued interest 5,289 460 Accrued workers' compensation benefits 2,664 1,700 Other 5,712 5,823 ------- ------- $47,859 $42,604 ======= ======= 9. OTHER LONG-TERM LIABILITIES: Other long-term liabilities consisted of the following at January 2, 2000 and January 3, 1999: 1999 1998 ------- ------- Amounts due sellers of acquired businesses $28,195 $12,709 Deferred tax liabilities 21,476 11,926 Workers' compensation reserves and other 4,339 3,796 ------- ------- $54,010 $28,431 ======= ======= 10. EMPLOYEE BENEFIT PLANS: The Company has 401(k) profit sharing and nonqualified profit sharing plans, which cover substantially all of its employees. Company contributions or allocations are made on a discretionary basis for these plans (except for matching contributions made to certain 401(k) profit sharing plans as required by the terms of such plans). Contributions charged to operating expenses were $3,329, $1,989 and $523 in 1999, 1998 and 1997, respectively. The Company does not provide postretirement health care and life insurance benefits to retired employees or postemployment benefits to terminated employees. During 1999, the Company established a Supplemental Employee Retirement Plan ("SERP") for its Chief Executive Officer. The benefit payable under the SERP is dependent upon years of service. As of January 2, 2000, the Company had accrued approximately $855 for this Plan. 11. CAPITAL STOCK AND STOCK OPTIONS: The Company repurchased 8,202,500 shares of its Common Stock at an aggregate purchase price of $60,025 in 1999 under two separate repurchase programs. Share repurchases under these programs were made from time to time in accordance with applicable securities regulations in open market or privately negotiated transactions. All share repurchases in 1999 were financed with cash from operations and borrowings under the Credit Facility, and all repurchased shares have been held in the Company's treasury and are available for resale and for general corporate purposes. Between January 2, 2000 and March 10, 2000, the Company repurchased an additional 340,000 shares at an aggregate purchase price of $2,760. As of March 10, 2000, the Company had authorization from its Board of Directors to repurchase an additional $19,158 of Common Stock. 21 23 In May 1998, the Company completed an offering of 7,000,000 shares of Common Stock. The net proceeds from this offering of $133,300 were used to repay indebtedness under the Credit Facility (see Note 7). In March 1998, the Board of Directors authorized a two-for-one split of Common Stock, which was effected in the form of a 100% stock dividend paid to shareholders of record on March 16, 1998. The par value remained at $0.01 per share. The split has been reflected in shareholders' equity by reclassifying from additional paid-in capital to Common Stock the par value of the additional shares arising from the split. All references in the accompanying consolidated financial statements to the number of common shares, except shares authorized, and to per share amounts have been restated to reflect the stock split. The Company's Board of Directors adopted the 1997 Employee Stock Purchase Plan (The "Stock Purchase Plan") for the purpose of encouraging employee participation in the ownership of the Company. Under the Stock Purchase Plan, employees may elect to have payroll deductions made to purchase the stock at a discount. At the end of each quarterly purchase period, each participant's payroll deductions are used to acquire Common Stock of the Company at a price equal to 85% of the market value on either the first or last day of the quarterly purchase period, whichever is lower. During 1999 and 1998, 542,280 and 234,889 shares, respectively, of Common Stock were issued under the Stock Purchase Plan. An additional 222,831 shares were reserved for issuance under the Stock Purchase Plan at January 2, 2000. In 1997, the Company issued each outside member of the Board of Directors at the time a deferred share grant of 2,500 shares of Common Stock, for a total of 10,000 shares. These grants vest ratably over a three-year period, and will be fully vested in 2000. The non-vested portion of each deferred share grant is included as deferred compensation on the Company's Statements of Shareholders' Equity. The Company's Board of Directors adopted its 1995 Equity Participation Plan (the "Stock Option Plan") to attract and retain officers, key employees, consultants and directors. The Stock Option Plan has reserved for issuance 15% of the Common Stock issued and outstanding, as defined, from time to time. The Stock Option Plan allows for the issuance of options, stock appreciation rights, restricted or deferred stock awards and other awards. 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. As of January 2, 2000, 1,314,588 shares were reserved for issuance under the stock option plan. In addition, nonemployee directors (including the directors who administer the Stock Option Plan) are eligible to receive nondiscretionary grants of nonqualified stock options ("NQSOs") under the Stock Option Plan pursuant to a formula specified in the Plan. The NQSOs granted to nonemployee directors are fully vested and exercisable upon grant, and the term of each such option is 10 years. NQSOs may also be granted to an employee or consultant for any term specified by the compensation committee of the Board and will provide for the right to purchase Common Stock at a specified price which, except with respect to NQSOs intended to qualify as performance-based compensation, may be less than fair market value on the date of grant (but not less than par value), and may become exercisable (at the discretion of the compensation committee) in one or more installments after the grant date. 22 24 A summary of stock option activity follows: WEIGHTED SHARES AVERAGE UNDER PRICE OPTION PER SHARE --------- --------- Outstanding, December 29, 1996 1,639,906 $10.15 Granted in 1997 867,792 15.50 Exercised 190,196 8.26 Canceled 121,950 10.32 --------- ------ Outstanding, December 28, 1997 2,195,552 $12.20 ========= ====== Granted in 1998 1,181,416 13.74 Exercised 128,448 7.64 Canceled 125,235 14.60 --------- ------ Outstanding, January 3, 1999 3,123,285 $12.87 ========= ====== Granted in 1999 563,667 6.91 Exercised 34,157 10.54 Canceled 177,490 13.87 --------- ------ Outstanding, January 2, 2000 3,475,305 $11.88 ========= ====== Exercisable, December 28, 1997 870,982 $ 9.98 ========= ====== Exercisable, January 3, 1999 1,382,873 $12.09 ========= ====== Exercisable, January 2, 2000 1,961,394 $12.25 ========= ====== The following table summarizes options outstanding and options exercisable as of January 2, 2000, and the related weighted average remaining contractual life (years) and weighted average exercise price: OPTIONS OUTSTANDING Weighted Average Weighted Number Remaining Average Range of exercise prices Outstanding Contractual Life Exercise Price - ------------------------ ----------- ---------------- -------------- $5.31 - $8.00 841,829 7.6 $ 6.22 $8.01 - $12.00 523,998 7.9 10.97 $12.01 - $18.00 1,785,403 7.9 13.50 $18.01 - $23.08 324,075 8.0 19.13 --------- ------ ------ 3,475,305 7.8 $11.88 ========= ====== ====== 23 25 OPTIONS EXERCISABLE Weighted Number Average Range of exercise prices Exercisable Exercise Price - ------------------------ ----------- -------------- $5.31 - $8.00 457,104 $ 6.97 $8.01 - $12.00 368,698 11.51 $12.01 - $18.00 949,869 13.70 $18.01 - $23.08 185,723 19.25 --------- ------ 1,961,394 $12.25 ========= ====== The weighted average fair value at date of grant for options granted during 1999, 1998 and 1997 was $7.09, $13.73, and $15.50 per option, respectively. Pursuant to the requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," the following disclosures are presented to reflect the Company's pro forma net income for 1999, 1998 and 1997 as if the fair value method of accounting prescribed by SFAS 123 had been used. In preparing these disclosures, the Company has determined the value of all stock options granted using the Black-Scholes model, as discussed in SFAS 123, and based on the following weighted average assumptions used for grants: 1999 1998 1997 ---- ---- ---- Risk-free interest rate 5.8% 5.3% 6.1% Expected dividend yield 0.0% 0.0% 0.0% Expected life 5 years 5 years 5 years Expected volatility 56.1% 40.0% 40.4% The fair value of the stock options granted and Stock Purchase Plan issuances in 1999, 1998 and 1997 was approximately $3,652, $8,268 and $5,976, respectively. Had compensation expense been determined consistent with SFAS 123, utilizing the assumptions set forth above and the straight-line amortization method over the vesting period, the Company's net income would have been reduced to the following pro forma amounts:
1999 1998 1997 ---- ---- ---- Net income, as reported $ 29,753 $ 31,017 $ 20,202 Net income per diluted share, as reported 0.99 0.96 0.80 ========== ========== ========== Pro forma net income 26,140 28,209 18,720 Pro forma net income per diluted share $ 0.89 $ 0.88 $ 0.75 ========== ========== ==========
On February 6, 1996, the Company declared a dividend of one nonvoting preferred share purchase right (a "Right") for each outstanding share of Common Stock. This dividend was paid on February 27, 1996, to the shareholders of record on that date. In the event of an acquisition, or the announcement of an acquisition, by a party of a beneficial interest of at least 15% of the 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 at a price of $95.00 per one 24 26 one-hundredth of a share of Preferred Stock, subject to adjustment. In addition, each Right entitles the right holder to certain other rights as specified in the Company's rights agreement. The Rights are not exercisable prior to a 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. 12. INCOME TAXES: The provision for income taxes for 1999, 1998 and 1997 consisted of the following:
1999 1998 1997 ------- ------- ------- Current provision Federal $11,191 $13,324 $ 8,863 State 2,781 2,902 2,183 ------- ------- ------- Total current provision 13,972 16,226 11,046 Deferred provision Federal 6,492 5,349 1,576 State 1,613 1,165 388 ------- ------- ------- Total deferred provision 8,105 6,514 1,964 Total $22,077 $22,740 $13,010 ======= ======= =======
The reconciliation of the effective tax rate is as follows: 1999 1998 1997 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 4.8 4.9 5.4 Effect of nondeductible amortization and other 2.8 2.4 1.8 ---- ---- ---- Total 42.6% 42.3% 42.2% ==== ==== ==== The components of the Company's net deferred tax assets and liabilities were as follows at January 2, 2000, and January 3, 1999:
1999 1998 ------- ------- Deferred tax liability - Excess of cost over fair value of net assets acquired $17,417 $ 9,300 Excess tax over book depreciation of fixed assets 3,476 1,847 Other deferred tax liabilities 583 779 ------- ------- 21,476 11,926 ------- ------- Deferred tax assets- Accrued workers' compensation and other 2,149 2,203 Allowance for doubtful accounts 762 753 Accrued benefits 976 1,292 Other 2,707 901 ------- ------- 6,594 5,149 ------- ------- Net deferred tax liability $14,882 $ 6,777 ======= =======
25 27 13. NET INCOME PER SHARE The computation of basic net income per share was based on the weighted average number of shares of Common Stock outstanding. The computation of diluted net income per share was based on the weighted average shares of Common Stock and Common Stock equivalents outstanding and also assumed the conversion of the Company's Notes. The following tables reconcile net income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of 1999, 1998 and 1997 (share amounts in thousands):
1999 1998 1997 ------- ------- ------- BASIC EARNINGS PER SHARE: Net income $29,753 $31,017 $20,202 ======= ======= ======= Weighted average common shares outstanding 27,680 29,600 24,204 Basic earnings per share $ 1.07 $ 1.05 $ 0.83 ======= ======= ======= DILUTED EARNINGS PER SHARE Net income $29,753 $31,017 $20,202 Add: Interest expense on Convertible Notes, net of tax 4,257 4,257 2,217 ------- ------- ------- Diluted net income $34,010 $35,274 $22,419 Weighted average common shares outstanding 27,680 29,600 24,204 Add: Dilutive employee stock options 163 695 502 Add: Assumed conversion of Convertible Notes 6,456 6,456 3,372 ------- ------- ------- Diluted weighted average common shares outstanding 34,299 36,752 28,078 Diluted earnings per share $ 0.99 $ 0.96 $ 0.80 ======= ======= =======
Stock options to purchase 2,519,976, 378,400 and 537,900 shares of Common Stock were outstanding for 1999, 1998 and 1997, respectively, but were excluded from the computation of net income per diluted share because their effect was antidilutive. 14. FINANCIAL INSTRUMENTS: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximated the book value at January 2, 2000, due to the short-term nature of these instruments. The fair value of the Company's borrowings under the Credit Facility and other long-term debt approximated the book value at January 2, 2000, because of the variable rate associated with the borrowings. The Notes had a fair value of $93,294 and $133,009 at January 2, 2000, and January 3, 1999, respectively, as compared to the carrying value of $115,000. 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, 26 28 the large number of customers and the diversity of industries serviced. The Company performs credit evaluations of its customers. 15. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance and maintenance costs. Operating leases for facilities are usually renewable at the Company's option and include escalation clauses linked to inflation. Future minimum annual rentals for the next five years are as follows: 2000 $9,950 2001 8,259 2002 6,410 2003 4,727 2004 3,241 Thereafter 5,788 ------- $38,375 ======= Total rent expense under operating leases amounted to $10,257, $7,397 and $4,078 for 1999, 1998 and 1997, respectively. INSURANCE The Company maintains a self-insurance program for workers' compensation and medical and dental claims. The Company accrues liabilities under the workers' compensation program based on the loss and loss adjustment expenses as estimated by an outside administrator. At January 2, 2000, the Company had standby letters of credit with a bank in connection with a portion of its workers' compensation program. The Company is subject to claims and legal actions in the ordinary course of business. The Company maintains professional liability insurance for losses. EMPLOYMENT AGREEMENTS The Company has agreements with several executive officers providing for cash compensation and other benefits in the event that a change in control of the Company occurs. LEGAL PROCEEDINGS The Company is involved in various legal actions and claims. In the opinion of management, after considering appropriate legal advice, the future resolutions of all actions and claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. INDEMNIFICATION Pursuant to the Company's agreement to sell its healthcare division in 1997, the Company agreed to indemnify the Purchaser against certain expenses or losses incurred by the Purchaser. Management believes that future claims made by the Purchaser will not have a material impact on the Company's financial position or results of operations. 27 29 16. SEGMENT INFORMATION: The Company is organized in two segments: the Information Technology Services Division and the Commercial Staffing Services Division. IT Services provides technical staffing, training and information technology consulting services. Commercial Staffing provides temporary staffing services, placement of full-time employees and on-site management of temporary employees. The Company evaluates segment performance based on income from operations before corporate expenses, amortization of intangible assets, interest and income taxes. Because of the Company's substantial intangible assets, management does not consider total assets by segment an important management tool and, accordingly, the Company does not report this information separately. The table below presents segment information for IT Services and Commercial Staffing for 1999, 1998 and 1997: OPERATING RESULTS
1999 1998 1997 -------- -------- -------- Total revenues IT Services $584,032 $445,485 $249,749 Commercial Staffing 334,405 338,440 225,871 -------- -------- -------- Total revenues 918,437 783,925 475,620 Operating Income IT Services 66,329 51,581 29,787 Commercial Staffing 31,557 33,573 19,667 -------- -------- -------- Total operating income 97,886 85,154 49,454 Corporate expenses 14,251 6,920 5,209 Amortization of intangible assets 15,358 11,986 6,494 Interest expense 16,447 12,491 6,951 -------- -------- -------- Income before income taxes $ 51,830 $ 53,757 $ 30,800 ======== ======== ======== OTHER FINANCIAL INFORMATION Accounts receivable, net IT Services $ 81,990 $ 84,999 $ 44,860 Commercial Staffing 43,602 44,226 33,009 Corporate 376 536 -- -------- -------- -------- Total accounts receivable, net $125,968 $129,761 $ 77,869 ======== ======== ========
28 30 17. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following table sets forth quarterly financial information for each quarter in 1999 and 1998:
1999 -------------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Revenues $229,638 $234,826 $233,215 $220,758 Operating income 16,031 18,533 17,952 15,761 Net income 7,133 8,201 8,020 6,399 Diluted net income per share $ 0.21 $ 0.28 $ 0.28 $ 0.23 ======== ======== ======== ======== 1998 -------------------------------------------------- FIRST SECOND THIRD FOURTH -------- -------- -------- -------- Revenues $154,837 $190,291 $211,807 $226,990 Operating income 11,607 15,821 18,784 20,038 Net income 5,262 6,920 9,238 9,597 Diluted net income per share $ 0.20 $ 0.23 $ 0.26 $ 0.27 ======== ======== ======== ========
18. SUBSEQUENT EVENTS In connection with the retirement of the Company's Chief Executive Officer in February 2000, the Company has agreed to provide certain severance, retirement and other benefits to such officer. The total pre-tax cost to the Company of this arrangement (reduced by amounts that the Company had previously accrued for retirement benefits for this officer) will be approximately $1.5 million and will be recorded in the first quarter of 2000. 29 EX-21.1 7 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF PERSONNEL GROUP OF AMERICA, INC.
State of Subsidiary Incorporation Does Business As - ---------- ------------- ---------------- PFI Corp Delaware N/A; PFI serves as a Delaware holding company NF Services, Inc. * New York Nursefinders StaffPLUS, Inc. Delaware Abar Staffing, Allegheny Personnel Services, Ann Wells Personnel, Denver Staffing, Fox Staffing Resources, FirstWord Staffing Services, Franklin-Pierce Temporaries, Integrity Technical Services, Profile Temporaries, Scott-Wayne Staffing, Scott- Wayne Temporaries, Sloan Staffing Services, Temp Connection, The Temporary Connection, TempWorld, West Personnel and Word Processing Personnel Services Word Processing Professionals, Inc. New York Word Processing Professionals Franklin-Pierce Associates, Inc. Massachusetts Franklin Pierce Associates Scott Wayne Associates, Inc. Massachusetts Scott Wayne Associates Creative Corporate Staffing, Inc. North Carolina Creative Staffing Gentry, Inc. California Gentry IMS Consulting, Inc. North Carolina IMS Consulting InfoTech Services, Inc. North Carolina InfoStaff (Utah and California), BEST Consulting, Broughton Systems, Careers, DRACS/SSC, Computer Resources Group, Command Technologies, IMA Plus, Keiter Stephens Computer Services, Trilogy Consulting and Vital Computer Services InfoTech Contract Services, Inc. Massachusetts InfoTech Contract Services Lloyd-Ritter Consulting, Inc. California Lloyd Ritter Consulting BAL Associates, Inc. California BAL Associates Advanced Business Consultants, Inc. Missouri Advanced Business Consultants PALADIN Consulting, Inc. Texas PALADIN Consulting RealTime Consulting, Inc. Texas RealTime Consulting
* The stock of NF Services, Inc. (which operates Nursefinders' sole New York branch) has been placed in escrow pending approval by the New York Department of Health of the Nursefinders sale transaction (which was completed in December 1997). Upon approval by the New York Department of Health, the stock of NF Services, Inc. will be transferred to Nursefinders' buyer. EX-23.1 8 CONSENT OF PRICEWATERHOUSECOOPERS 1 EXHIBIT 23.1 Consent of Independent Public Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-19541 and 333-39361) and Form S-3 (File No. 333-31863) of Personnel Group of America, Inc. of our report dated February 2, 2000, except for Note 11 and Note 18, for which the date is March 10, 2000, relating to the financial statements, which appears in the Annual Report to Shareholders, which is included as Exhibit 13.1 in this annual report on Form 10-K. PricewaterhouseCoopers LLP Charlotte, North Carolina March 29, 2000 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PERSONNEL GROUP OF AMERICA, INC. FOR THE FISCAL YEAR ENDED JANUARY 2, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-02-2000 JAN-04-1999 JAN-02-2000 5,752 0 128,658 (2,690) 0 144,889 39,104 (13,328) 735,350 58,102 253,395 0 0 331 369,512 735,350 918,437 918,437 656,918 828,868 21,292 0 16,447 51,830 22,077 29,753 0 0 0 29,753 1.07 0.99
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