-----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, IJCVuRnJVHeybDknn5eGokap7qiHWOtUVdZtmYyv2YYXQZzmvCZnzqxHmlav72pv E2uCtfAL28Mke0pp7zQCdA== 0000950144-97-001960.txt : 19970303 0000950144-97-001960.hdr.sgml : 19970303 ACCESSION NUMBER: 0000950144-97-001960 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970228 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERSONNEL GROUP OF AMERICA INC CENTRAL INDEX KEY: 0000948850 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 561930691 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-13956 FILM NUMBER: 97548707 BUSINESS ADDRESS: STREET 1: 6302 FAIRVIEW RAOD STREET 2: SUITE 201 CITY: CHARLOTTE STATE: NC ZIP: 28210-3236 BUSINESS PHONE: 7044425100 10-K405 1 PERSONNEL GROUP OF AMERICA, INC. 10-K 12/29/96 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 (FEE REQUIRED) For the fiscal year ended December 29, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) 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 incorporation or organization) (I.R.S. Employer Identification No.) 6302 Fairview Road, Suite, 201 Charlotte, North Carolina 28210 - -------------------------------------------------------------- ------------------------------------ (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, $.10 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 February 14, 1997, computed by reference to the closing sale price on such date, was $291,578,193. (For purposes of calculating this amount only, all directors, executive officers and greater than 10% shareholders of the registrant are treated as affiliates.) As of the same date, 12,074,355 shares of Common Stock, $.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive Proxy Statement pertaining to the 1997 Annual Meeting of Shareholders ("the Proxy Statement") filed with the Commission pursuant to Regulation 14A are incorporated herein by reference into Part III. ================================================================================ 2 PART I. ITEM 1. BUSINESS Personnel Group of America, Inc. (the "Company"), is a leading provider of personnel staffing services to businesses, professional and governmental organizations. The Company is organized into three Divisions, Commercial Staffing, Information Technology and Health Care Services, and operates in strategic markets throughout the United States. The Company's staffing services include temporary staffing, placement of full time employees, on-site management of temporary employees, training and testing of temporary and permanent workers and information technology consulting. At February 14, 1997, the Company operated through a network of 141 Company-operated, 34 franchised and 17 licensed offices in 37 states and the District of Columbia. Each of the Company's offices does business under established brand names, most of which have been continuously in use for more than 16 years. The Commercial Staffing Division offers a wide variety of temporary office and clerical 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 25% of the division's total revenues. The Information Technology Division offers information technology professionals and consulting services in a range of computer-related disciplines. The Health Care Services Division provides health care personnel to supplement the staffing needs of hospitals, nursing homes and other health care facilities and home health care services and related products to individuals. For the year ended December 29, 1996 on a pro forma basis, the Commercial Staffing, Information Technology and Health Care Services Divisions represented approximately 43%, 30% and 27%of the Company's total revenues, respectively. The Company reviews acquisition opportunities in the ordinary course of business and completed the acquisition of nine companies in eight transactions in 1996. Four of the companies acquired in 1996 are in the commercial staffing business and five are in the information technology business. These companies had pro forma revenues of approximately $180.0 million in 1996. The Health Care Services Division also converted six franchised offices in 1996 (which had pro forma 1996 revenues of approximately $16.8 million) into Company-operated branches. Since December 29, 1996, the Company has completed the acquisitions of Word Processing Professionals, Inc. ("Word Processing Professionals") in New York, New York and Energetix, Inc. ("Energetix") in Chicago, Illinois. Word Processing Professionals, acquired on January 3, 1997, provides word processing and desktop publishing services to professional services firms and financial institutions in mid-town Manhattan. Energetix, acquired on February 3, 1997, provides information technology staffing services to a variety of clients in the Chicagoland area. These companies had combined revenues in excess of $13.0 million in 1996. 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. COMMERCIAL STAFFING DIVISION At February 14, 1997, the Company operated its Commercial Staffing Division ("Commercial Staffing") through 73 offices. 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 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. 1 3 Operations Commercial Staffing markets its staffing services to local and regional clients through its network of offices across the United States. 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, most of which have been in use for more than 16 years. The following table sets forth information at February 14, 1997 on the names, markets, number of offices and dates founded of Commercial Staffing's brands:
NUMBER OF DATE NAME MARKETS OFFICES(1) FOUNDED ---- ------- ---------- ------- Abar Staffing San Francisco Bay Area, CA 6 1954 Allegheny Personnel (2) Pittsburgh, PA 4 1972 Denver Temporaries (2) Denver, CO 2 1978 FirstWord Staffing Services Dallas, TX 7 1978 Judith Fox Staffing Companies (2) Richmond and Charlottesville, VA 3 1978 New York, NY Profile Temporaries (2) Loop Area of Chicago, IL 1 1979 Staffinders Personnel Houston, TX 3 1983 Temp Connection New York and Long Island, NY 2 1982 TempWorld Atlanta, GA 15 1980 Birmingham, AL Washington, DC 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 6 1954 Word Processing Professionals(3) New York, NY 1 1982 Word Processors Personnel Services Atlanta, GA 2 1978 - ---------------
(1) Does not include vendor-on-premises locations at customer sites. (2) Allegheny and Profile were acquired by the Company in March 1996, Judith Fox was acquired in May 1996 and Denver Temporaries was acquired in July 1996. (3) Word Processing Professionals was acquired by the Company in January 1997. 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. 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 services manager at the client facility to provide complete staffing support. This program facilitates client use of temporary personnel and allows the client to outsource a portion of its personnel responsibility to 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. 2 4 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. In order 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. 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. Commercial Staffing obtains new clients primarily through personal sales presentations and referrals from other clients of the Commercial Staffing and the Information Technology Division 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 any national account agreements, but does provide services to a wide variety of customers with national and international businesses. Bids for large user accounts and the provision of services to clients with multiple location requirements are coordinated at the Company's headquarters. The commercial staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second half of the calendar year is more heavily affected, as companies tend to increase their use of temporary personnel during this period. While the commercial staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations and the diversity of the services it provides (including its emphasis on high-end white collar clerical workers) generally mitigates the adverse effects of economic cycles in a single industry or geographic region. INFORMATION TECHNOLOGY DIVISION The Company's Information Technology Division (the "IT Division") provides information technology professionals and consulting services through 19 offices in 13 states. The IT Division employed approximately 1,750 consultants at February 14, 1997, of which approximately 50% were salaried employees and 50% were hourly. The IT Division was created in 1996 following the acquisition by the Company of five companies in the information technology services business. The IT Division provides skilled personnel, such as programmers, systems designers, LAN administrators, systems integrators, helpdesk staff and other technology specialists, to a wide variety of clients, typically on an as-needed time and materials basis. The IT Division's staffing services include providing individuals or teams of computer professionals to corporations and other organizations that need assistance with project management, analysis, systems design, programming, maintenance, testing and special technologies for short-term and long-term information technology projects. These services encompass a wide variety of tasks, ranging from management of all aspects of project 3 5 management services or the implementation of turnkey systems to the fulfillment of temporary staffing needs for technology projects. The IT Division also provides information technology outsourcing services for long-term information technology projects. Selected offices in the IT Division also provide complementary or stand-alone consulting services in the information technology area, again typically on a time and materials basis. For example, BEST Consulting's NewTec division works with clients, chief executive officers and other executives interested in alternatives to outsourcing their internal information technology organization, as well as implementing complex systems integration solutions, and offers a broad range of consulting services, including systems development projects and client/server networks that span mainframe, mid-range and desktop systems. These services are provided at the client's site or at NewTec's off-site development center. Other IT Division companies also provide consulting services to supplement their staffing services offerings. Operations The following table sets forth information at February 14, 1997 on the names, markets, number of offices, dates formed and dates acquired of the IT Division companies:
NUMBER OF DATE DATE NAME MARKETS OFFICES FORMED ACQUIRED ---- ------- ------- ------ -------- BEST Consulting Seattle and Olympic WA 10 1990 Sept. 1996 Portland, OR Salt Lake City, UT Boise, ID Sacramento, CA Phoenix, AZ Minneapolis, MN Las Vegas and Reno, NE Broughton Systems Richmond, VA 1 1981 July 1996 Command Technologies Denver, CO 1 1978 July 1996 Computer Resources Group San Francisco, 4 1972 June 1996 Sacramento and Santa Clara, CA Salt Lake City, UT Energetix Chicago, IL 1 1988 Feb. 1997 Software Service Corp. Atlanta, GA 2 1990 Sept. 1996 Birmingham, AL
Sales and Marketing The IT Division has developed a sales and marketing strategy that focuses on both regional and local accounts, and is implemented in a decentralized manner through its various branch locations. Accounts are targeted by account managers at the branch offices permitting the IT Division to capitalize on the brand names of the companies in the IT Division and the local expertise and established relationships of its branch office employees. Such accounts are solicited through personal sales presentations, telephone marketing, direct mail solicitation, referrals from clients and other companies in the IT and Commercial Staffing Divisions and advertising in a variety of local and national media. These advertisements appear in the Yellow Pages, newspapers and trade publications. Local employees are also encouraged to be active in civic organizations and industry trade groups to facilitate the development of new customer relationships. 4 6 HEALTH CARE SERVICES DIVISION The Company's Health Care Services Division ("Nursefinders") operates under one brand name and provides health care staffing services through 49 Company-operated, 34 franchised and 17 licensed locations at February 14, 1997. Nursefinders provides home care services to individuals and health care personnel for supplemental staffing to hospitals, nursing homes and other health care institutions. The Company believes that Nursefinders is one of the largest national providers of home nursing care services in terms of revenue and number of offices. The Company also believes Nursefinders is the largest provider of supplemental staffing services to health care institutions. Nursefinders provides a wide range of licensed and trained personnel such as registered nurses and licensed practical/vocational nurses, nursing assistants and technicians, certified aides and companions. Registered nurses and licensed practical/vocational nurses perform skilled procedures for patients in the home or in an institutional setting, including nursing assessment and evaluation, medication administration, infusion therapy, complex therapeutic treatments and case management. Nursing assistants and technicians perform personal care and simple procedures for patients in institutional staffing settings. Home health and personal care aides provide basic personal care, feeding, dressing and assisting with activities of daily living to the homebound patient. Companions assist home care patients with meal preparation, shopping and other light housekeeping tasks. Institutional staffing and home care services are also provided by physical, occupational, speech and respiratory therapists and medical social workers. For the year ended December 29, 1996, approximately 66% of Nursefinders' revenues were derived from providing home health care services, with the balance derived from health care staffing services provided to hospitals and other institutions and from franchise fees. Operations The Nursefinders brand name has been in use for more than 18 years, and Nursefinders is recognized as a leading provider of home health care staffing and related services. Nursefinders' local managers have the flexibility of determining staff selection, compensation, business mix, marketing and pricing, which allows each Nursefinders office to respond to local competitive conditions. Most health care staffing services are purchased at the local level, and Nursefinders' established reputation has resulted in ongoing referrals in the communities it serves. Nursefinders maintains and monitors compliance with precise quality assurance standards for all of its Company-operated, franchised and licensed offices. The Company believes these policies and procedures comply with all local, state and federal regulations for hiring criteria, training programs and patient care delivery systems. Nursefinders has applied for, and has received for certain locations, accreditation for Company-operated, franchised and licensed offices by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO"). JCAHO is the recognized national accrediting authority for health care services, and by participating in the voluntary accreditation program, Nursefinders is able to better compete in the health care staffing market. JCAHO has determined that Nursefinders' policies meet JCAHO standards and began the compliance survey stage of the accreditation review during 1995. Nursefinders believes that in the provision of home health care the caregiver is the critical factor in (i) providing and assuring the quality of care, (ii) coordinating the effective utilization of all home health care services and products, and (iii) determining the frequency and level of patient health care intervention. Nursefinders monitors its home care services through close supervision and evaluation of patient care outcomes. Specific criteria are used in accepting and discharging patients so that Nursefinders can assure that patient needs are met in the home setting. Clinical documentation used in home care patient records meet professional standards of practice, and quarterly record reviews are performed by health care professionals to validate the quality and appropriateness of care. 5 7 With managed care organizations focusing on cost containment, an increasing number of patients are being transferred from hospitals to lower cost care settings. Consequently, patients with increasingly complex needs are receiving care in their homes, and the number of patients requiring multiple services in the home is also increasing significantly. In order to meet this need, Nursefinders developed the SingleSource program, in which Nursefinders contracts with other providers of health care products and services to provide the full continuum of home health care needs. These services include skilled and non-skilled nursing care, IV therapy, respiratory, physical, occupational and speech therapies, home medical equipment and medical supplies. Nursefinders pays its personnel and subcontractors while billing third party payors at pre-negotiated rates. The Company believes that Nursefinders' ability to manage all aspects of home health care as a single source or full service provider with access to and supervision of home health care personnel positions it as a provider of choice with managed care organizations. Managed care and insurance companies are increasingly focusing their attention on disease states that are expensive to treat because of long hospital stays. Nursefinders has developed disease-specific early intervention programs to monitor, and reduce the need for hospitalization of, patients with diabetes, cancer, cardiovascular conditions and asthma. Nursefinders also is developing specialty programs to further address the desire of managed care organizations to reduce costs for psychiatric and pediatric care. In the midst of the changing health care legislative and regulatory environment, Nursefinders believes that participation in the Medicare program remains important. The trend towards home health care services has resulted in an increase in the portion of health care revenues being remitted through Medicare and Medicaid. Additionally, Nursefinders believes Medicare certification serves as a widely recognized indicator of quality and standing in local communities and is, therefore, important in obtaining desirable business from physicians, managed care organizations and certain other referral sources. At February 14, 1997, Nursefinders provided Medicare and Medicaid services through its Company-operated network of 28 Medicare- or Medicaid-certified locations. Additionally, six licensed offices and eight franchised offices are Medicare- and , in some cases, Medicaid-certified. For the year ended December 29, 1996, approximately 32%, 36% and 32% of Nursefinders' revenues were derived from private pay and other sources, the Medicare and Medicaid programs and supplemental staffing services, respectively. Nursefinders locations that are not certified cannot participate in the Medicare and Medicaid programs and instead derive all their revenues from supplemental staffing, private pay and other sources. Sales and Marketing Home health care staffing services are generally purchased at the local level, either by case managers on behalf of private insurers or by private individuals through referrals from physicians, health maintenance organizations or hospital discharge planners. Nursefinders' marketing efforts for health care services principally involve direct sales presentations to contract administrators, utilization review nurses, medical directors and case managers for managed health care programs, government agencies, social service agencies, physicians and their staffs, hospital discharge planners, nursing home supervisors, insurance company representatives and employers with self-funded employee health benefit programs. Nursefinders also advertises in local and national media, including the Yellow Pages, newspapers, magazines and trade publications. Nursefinders has longstanding relationships with clients from whom it receives referrals and with governmental social service agencies with which Nursefinders conducts business under non-exclusive contracts that generally are renewable automatically from year to year. 6 8 RECRUITING OF TEMPORARY EMPLOYEES The Company recruits its temporary employees and IT Division consultants through a recruiting program that primarily utilizes local and national advertisements. In addition, the Company has succeeded in recruiting qualified employees through referrals from its existing labor force. To encourage further referrals, certain of the companies in Commercial Staffing and IT Divisions have initiated policies whereby they pay referral fees to employees responsible for attracting new recruits. The Company interviews, tests, checks references and evaluates the skills of applicants for temporary employment, utilizing systems and procedures developed and enhanced over the years by the Company. Additionally, Nursefinders verifies that all of its health care providers maintain current licenses. In Commercial Staffing and at Nursefinders, temporary employees are employed by the Company on an as needed basis dependent upon client demand. These temporary employees are paid only for time they actually work. In the IT Division, the demand for technology consultants significantly exceeds supply. In an effort to attract a wide spectrum of employees, the Company offers a wide variety of employment options and training programs. The Company emphasizes the utilization of salaried full-time status for its consultants with the payment of annual salaries irrespective of assignment. In addition, the IT Division operates a number of formal and informal training programs to provide its consultants with access to and training in new software applications and a diverse mix of mainframe, client/server and personal computer technologies. The Company believes that these training initiatives have improved employee recruitment and retention, increased the technical skills of the IT Division's personnel and resulted in better service for the IT Division's clients. ORGANIZATIONAL STRUCTURE The Company utilizes a combination of Company-operated and, at Nursefinders, franchised and licensed offices based on the characteristics of the particular market and the nature of services that the Company markets. At Nursefinders, the Company focuses its licensing and franchising activities in smaller and mid-sized markets. In larger markets, the Company employs a Company-operated branch strategy to permit existing supervisory, advertising, and administration expenses to be spread over a larger number of offices in close proximity. The Company believes that its franchise and license network is a benefit to Nursefinders because its franchises and licenses provide the Company with a substantial local market presence. The franchise and license network also provides Nursefinders with royalty and license fee income. Company-operated Offices Each Company-operated office reports to a manager who is responsible for day-to-day operations and the profitability of the office. Depending on, among other things, the number of Company-operated offices in a region, branch managers may report to regional managers, division vice presidents or division presidents. Branch and regional managers are given a high level of autonomy in making decisions about the operation of their principal region. The compensation of branch and regional managers includes bonuses generally based on the incremental year-to-year increase in profitability and is designed to motivate them to maximize the growth and profitability of their offices. Franchised Offices Prior to 1990, Nursefinders offered franchises for Nursefinders offices. Nursefinders has experienced a low turnover rate in its franchise operations, with an average tenure of franchise ownership of nine years and approximately 50% of franchisees operating more than one franchise. At February 14, 1997, Nursefinders' 12 franchisees operated 34 franchised offices. Nursefinders grants each franchisee the exclusive right to establish an office and provide Nursefinders' products and services within a designated geographic area using the Nursefinders trade names, service marks, advertising materials, sales programs, manuals and forms. Franchisees receive training from 7 9 Nursefinders, attend seminars, participate in marketing programs and utilize Nursefinders' sales literature. Nursefinders requires its franchisees to follow the basic procedures and standards established for its branch and licensed offices. Nursefinders assists its franchisees in obtaining business from its national and regional accounts. Nursefinders also makes available to each franchised office software used by its branch offices to assist in maintaining availability listings on temporary employees, scheduling employees, maintaining licensure and other information required by health care providers, and facilitating the payroll and billing functions. Franchisees operate their businesses autonomously within the framework of Nursefinders' policies and standards, and recruit, employ and pay their own employees. Each franchisee is responsible for screening and recruiting qualified temporary personnel, as well as obtaining clients. Nursefinders receives a royalty equal to 5% of each franchisee's sales. Franchisees pay Nursefinders an initial non-recurring franchise fee of $19,600 partially to cover screening, training and other start-up costs incurred by Nursefinders in establishing a franchised office. Franchise agreements are generally for a term of five years, but are cancelable by the franchisee upon specified prior notice, and renew at the option of the franchisee for successive five-year periods thereafter. Nursefinders may terminate a franchise if the franchisee fails to meet Nursefinders' standards or otherwise breaches the franchise agreement. In recent periods, termination of franchise agreements has not had a material adverse impact on the Company, but there can be no assurance that such terminations in future periods will not have a material adverse effect on Nursefinders' and the Company's results of operations, financial condition or business prospects. Licensed Offices In 1990, Nursefinders began granting licenses instead of franchises because it believed that the reduced capital requirements of a licensed office would be more attractive to a larger number of potential licensees and because it believed that the license arrangement afforded it better control over the quality of patient care. At February 14, 1997, the Company had 11 licensees operating 17 licensed offices. Licensees operate their businesses autonomously within the framework of Nursefinders' policies and standards, and recruit, employ and pay their own permanent employees. Licensees must maintain their own insurance coverage for the licensed office and its permanent employees, including workers' compensation, general liability and automobile liability insurance coverage. Licensees enjoy all the benefits afforded to franchisees. In addition, under the license agreements, Nursefinders employs all temporary employees, pays all payroll costs of employing the temporary employees, including workers' compensation and liability insurance and fidelity bonds, bills the customers and owns the receivables (with recourse to the licensee). The customers of the licensed operation belong to Nursefinders. Nursefinders records as revenues the amounts billed to clients of licensees, and the costs of wages and related benefits are recorded by Nursefinders as costs of services (the difference between revenues and cost of services being gross profit). Nursefinders remits monthly to licensees the gross profit of the licensed office less the sum of 7% of gross revenues, uncollectible receivables and certain other expenses of each licensed office. Licensees pay Nursefinders an initial non-recurring license fee of $19,600 partially to cover screening, training and other start-up costs incurred by Nursefinders in establishing a licensed office. License agreements are generally for a term of ten years and renew at the option of the licensee for successive five-year periods thereafter. Nursefinders may terminate a license if the licensee fails to meet Nursefinders' standards or otherwise breaches the agreement. To date, termination of license agreements has not had a material effect on the Company, but there can be no assurance that such terminations in future periods will not have a material adverse effect on Nursefinders' and the Company's results of operations, financial condition or business prospects. 8 10 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. Nursefinders utilizes a similar automated operating system. The software used in the QuestPLUS system is owned by the Company's former parent. The Company has entered into an agreement to use the software for a monthly fee of approximately $13,600 through September 1997, with an option to extend for an additional year. During this period, the Company intends to replace the software with comparable software developed in connection with the implementation of the Company's new branch operating and paybill systems described below. The Company has entered into an agreement with a software company for new branch operating and paybill systems for Commercial Staffing, which will integrate the results of the Company's skills testing with personal attributes and work history and automatically match available candidates with customer requirements. The paybill processing system will provide payroll processing and customer invoicing. This new system will enhance the QuestPLUS system that is now utilized. Installation of the new system began in the second quarter of 1996 and is expected to be completed by the end of 1997. In the IT Division, the Company has entered into an agreement with a software company for a new branch operating system for the existing information technology companies. Installation of this new system is expected to begin in the first quarter of 1997 and be completed for the existing IT Division companies in 1998. 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, information technology staffing and health care staffing industries have been undergoing significant consolidation. The largest publicly owned companies specializing in personnel staffing services in the United States are Manpower Inc., Kelly Services, Inc., Adecco, Inc., The Olsten Corporation, AccuStaff, Incorporated, Interim Services Inc. and Norrell Corporation, all of which have greater marketing, financial and other resources than the Company. In the temporary staffing industry, competition generally is limited to firms with offices located within a customer's particular local market. In most major markets, competitors generally include many of the publicly traded companies and, in addition, numerous regional and local full-service and specialized temporary service agencies and health care providers, some of which may operate only in a single market. Since many clients contract for their staffing services locally, competition varies from market to market. In most areas, no single company has a dominant share of the market. Many client companies use more than one staffing services company, and it is common for large clients to use several staffing services companies at the same time. However, in recent years, there has been a significant increase in the number of large customers consolidating their temporary staffing purchases with a single supplier or with a small number of firms. The trend to consolidate temporary staffing purchases has in some cases made it more difficult for the Company to gain business from potential customers who have already contracted to fill their staffing needs with competitors of the Company. In other cases, the Company has been able to increase the volume of business with certain customers who choose to purchase staffing primarily from the Company. 9 11 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. 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. The Company's Health Care Services Division is subject to extensive government regulation under federal, state and local law, including licensing requirements, certificate of need requirements, Medicare and Medicaid certification requirements, reimbursement requirements, periodic examinations by government agencies, federal and state anti-fraud, anti-abuse and anti-kickback statutes and regulations, and federal and state laws prohibiting physician ownership or compensation arrangements with home health care agencies to which they refer patients for home health care services. Health care providers are also subject to extensive documentation requirements of government agencies and industry participants, such as insurance companies and managed care companies. The federal Medicare program in particular has come under renewed pressure recently to reduce costs. Legislative and administrative responses to these pressures have focused to date on the implementation of reductions in permitted allocations of general and administrative expenses as reimbursable shared costs under the Medicare program and on lower reimbursable cost limits generally. New HCFA instructions implemented in 1996 relating to the allocation of administrative costs could restrict the allocation of certain previously reimbursable shared costs under the program going forward. Additionally, the President's proposed fiscal year 1998 federal budget submitted to Congress in February 1997 could have the effect of further lowering reimbursable cost limits for home health agencies that are Medicare providers. These and other regulations could affect the ability of the Company to collect its fees for services provided. There can be no assurance that the Company will be able to continue to obtain or maintain the required governmental approvals or licenses, obtain reimbursement for its services or avoid compliance or other problems under applicable laws and regulations, or that changes in applicable laws or regulations will not have an adverse effect on its results of operations. Home health care providers are subject to certificate of need laws in 22 jurisdictions. Some jurisdictions require home health care service providers to have a certificate of need in order to be licensed to provide home health care services, including Medicare and Medicaid services, and other jurisdictions require a certificate of need only to provide Medicare home health care services. Certificate of need laws restrict the types of care that may be provided and can limit or eliminate a provider's ability to provide certain services, including home health care services, to establish or expand operations and to act as a Medicare or Medicaid provider. The process of obtaining a certificate of need can be costly and time consuming. The Company currently has no certificates of need, but offers certain services not restricted by certificate of need laws in some states which require certificates of need. Some states in which the Company does business are not currently granting additional certificates of need. Accordingly, such laws may render it more difficult for the Company to, or preclude the Company from, expanding the geographic scope of its home health care services. New York State requires the approval by the Public Health Council of the New York State Department of Health ("NYPHC") of any change in "the controlling person" of an operator of a licensed 10 12 health care services agency (an "LHCSA") or any transfer, assignment or other disposition of the stock or voting rights thereunder which results in the change of ownership or control of more than 10% of the stock or voting rights thereunder of the LHCSA. "Controlling person" includes a person who either directly or indirectly possesses the ability to direct or cause the direction of the actions, management or policies of a person, whether through the ownership of voting securities or voting rights by contract or otherwise, and includes a parent corporation that possesses or will possess the ability to direct or cause the direction of the actions, management or policies of the LHCSA corporation that is the licensed home health care agency. Control of an entity is presumed to exist if any person directly or indirectly owns, controls or holds the power to vote 10% or more of the voting securities of such entity. A person seeking to become a controlling person of an operator of an LHCSA must file an application for prior approval from NYPHC. The Company has one office in New York State which is an LHCSA and which is Medicaid certified. Such office accounted for less than 2% of the Company's revenues for the year ended December 29, 1996. If any person should become the owner or holder, or acquire control, of the right to vote 10% or more of the Common Stock of the Company, such person could not exercise control of the Company's LHCSA until such ownership, control or holding has been approved by the NYPHC. The Company is also subject to various federal and state laws relating to franchising, principally the Federal Trade Commission's franchise rules and state franchise registration, disclosure, and relationship laws and state business opportunity laws. TRADEMARKS The Company maintains a number of trademarks, tradenames, service marks and other intangible rights, and licenses certain other proprietary rights in connection with its businesses. Certain proprietary rights relating to the Company's three divisions, including the tradenames Nursefinders and TempWorld, are licensed from the Company's former parent corporation pursuant to perpetual licenses, subject to the former parent corporation's right to require the Company to purchase these rights at a predetermined price. The Company's former parent has advised the Company that it intends to require the Company to purchase such rights. The Company is not currently aware of any infringing uses or other conditions that would materially and adversely affect its use of its proprietary rights. EMPLOYEES At February 14, 1997, the Company had approximately 1,100 permanent administrative employees, of whom 74 were Nursefinders billable staff who rendered temporary services to patients, and approximately 1,750 information technology consultants in the IT Division. During 1996, the Company and its licensees placed over 50,000 temporary employees with clients. 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. The Commercial Staffing and IT Division offices are typically in high quality office or industrial buildings, and occasionally in retail buildings, the Company's headquarters facilities and regional offices are in similar facilities. Nursefinders offices are typically in medical office buildings or parks. 11 13 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 in the aggregate have a material adverse effect on the Company's results of operation 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. 12 14 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. Since September 26, 1995, the Company's common stock, $.01 par value (the "Common Stock"), has been listed on the New York Stock Exchange under the symbol "PGA." As of February 14, 1997, there were approximately 4,670 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 has paid no cash dividends on its Common Stock with respect to earnings subsequent to the consummation of the Company's initial public offering in September 1995. Its policy has been to retain earnings for use in its business. In addition, the Company's credit agreement with its lenders 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 reported high and low sales prices for the Company's common stock during the periods indicated as reported on the New York Stock Exchange:
1996 HIGH LOW CLOSE - ---- ---- --- ----- First Quarter 20 13 18-1/4 Second Quarter 26-1/4 18-3/8 24-5/8 Third Quarter 26 19-7/8 26 Fourth Quarter 29-1/8 19-3/8 24-1/8
1995 - ---- First Quarter Not traded Second Quarter Not traded Third Quarter 14-1/8 14 Fourth Quarter 15 11
The last reported sales price on February 14, 1997 was $24.25. 13 15 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected consolidated financial data for the Company as of and for each of the years ended December 1996, 1995, 1994, 1993 and 1992. The consolidated financial data as of and for each of such years are derived from the consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent public accountants. The consolidated financial statements include assets and liabilities at historical amounts from the consolidated financial statements of the Company's former parent, and other adjustments intended to reflect the revenues and expenses the Company would have reported had the enterprise been combined prior to the beginning of the earliest period presented. The results of operations for all periods are not necessarily indicative of the results which would have been obtained had the Company been independent in all periods. The data set forth below 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 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- RESULTS OF OPERATIONS Revenues $ 366,545 $251,055 $211,867 $172,478 $151,388 Direct costs of services 263,277 178,966 155,987 126,286 109,707 Other operating expenses 81,987 59,675 48,920 41,576 41,129 Income before income taxes 19,849 12,414 6,960 4,616 552 Provision for income taxes 8,332 5,305 3,061 2,080 462 Net income $ 11,517 $ 7,109 $ 3,899 $ 2,536 $ 90 ========== ======== ======== ======== ======== Net income per share $ 1.13 -- -- -- -- ========== ======== ======== ======== ======== Pro forma net income per share(1) $ -- $ 0.89 $ 0.49 ========== ======== ======== Weighted average shares 10,216 8,000 8,000 outstanding FINANCIAL POSITION AT YEAR-END Working capital $ 36,712 $ 28,969 $ 26,440 $ 21,331 $ 14,190 Total assets 314,327 102,623 90,984 84,333 79,395 Short-and long-term debt 85,722 -- -- -- -- Shareholders' equity 183,257 75,986 68,438 64,257 58,987 - --------------------------
(1) Pro forma net income per share has been computed assuming the 8,000,000 shares issued in the Company's initial public offering in September 1995 were outstanding throughout 1995 and 1994. 14 16 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 notes thereto included elsewhere in this document. The Company's fiscal year ends on the Sunday nearest to December 31 and the fiscal quarters end on the Sunday nearest to the end of the respective calendar quarters. The Company operates within one industry segment and is organized into three Divisions: the Commercial Staffing Division, which provides a wide variety of temporary office and clerical staffing services; the Information Technology Division, which provides information technology staffing and consulting services in a range of computer-related disciplines; and the Health Care Services Division, which, through Company operated, franchised and licensed offices, provides home health care services and supplemental staffing for health care facilities. At December 29, 1996, the Commercial Staffing Division was comprised of 12 companies, the Information Technology Division was comprised of five companies and the Health Care Services Division operated under the Nursefinders brand. The following table sets forth the number and nature of the Company's offices at the end of the years indicated and at February 14, 1997:
FEBRUARY 14, 1997 1996 1995 1994 ---- ---- ---- ---- Commercial staffing offices 73 74 58 57 Information technology offices 19 18 -- -- Company operated Nursefinders offices 49 50 48 47 Licensed Nursefinders offices 17 17 10 4 Franchised Nursefinders offices 34 33 40 48 --- --- --- --- Total offices 192 192 156 156
The Company recognizes as revenues the amounts billed to clients of licensed Nursefinders offices. In these cases, the temporary workers are the Company's employees and all costs of employing the temporary workers are the responsibility of the Company and are included in direct cost of services. The Company remits monthly to its licensees the gross profits of each licensed office less 7% of gross revenues, uncollectable receivables and certain other expenses of the licensed office. The Company does not recognize revenues from its franchised Nursefinders offices other than a 5% royalty on the gross revenues of each franchised office. The Company has not actively marketed new licenses or franchises in recent periods and, accordingly, franchise and license fees have not been material. However, the Company views its franchises and licenses as an important part of the health care services business, because the program allows Nursefinders to operate in areas that might not otherwise meet the Company's criteria for a Company operated office, allows a further spreading of fixed costs over additional revenues, and is believed to yield a fair profit for the Company services provided to the licensees and franchisees. The Company completed its initial public offering (the "IPO") in September 1995. Prior to the IPO , the Company was an indirect wholly owned subsidiary of Adia, S.A., a Swiss corporation ("Adia"). The Company was organized by Adia to facilitate the IPO. As a result of the IPO, in which Adia sold its entire ownership interest in the Company, the Company became an independent public company. The Company did not receive any of the proceeds of the sale of its shares by Adia in the IPO. 15 17 In June 1996, the Company issued 4,025,000 shares of its common stock in a second underwritten public offering (the "Secondary Offering"), which raised approximately $95.6 million of net proceeds for the Company. The net proceeds of the Secondary Offering were used to repay outstanding borrowings under the Company's revolving credit facility and to fund several recent acquisitions. In 1996, the Company acquired four commercial staffing companies and five information technology companies. The combined revenues of these nine companies were approximately $180.0 million in 1996. Also in 1996, the Company converted six former Nursefinders franchised offices, which had combined 1996 revenues of approximately $16.8 million, to Company operated offices by acquiring the applicable franchises. Had the Company owned each of these nine acquired companies and six converted franchises at January 1, 1996, the Company's pro forma 1996 revenues would have been approximately $464.6 million and 43%, 30% and 27% of such revenues would have come from Commercial Staffing, Information Technology and Health Care Services, respectively. Since December 29, 1996, the Company has completed the acquisitions of Word Processing Professionals, Inc. ("Word Processing Professionals") in New York, New York and Energetix, Inc. ("Energetix") in Chicago, Illinois. Word Processing Professionals, acquired on January 3, 1997, provides word processing and desktop publishing services to professional services firms and financial institutions in mid-town Manhattan. Energetix, acquired on February 3, 1997, provides information technology staffing services to a variety of clients in the Chicagoland area. These companies had combined revenues in excess of $13.0 million in 1996. Each of the Company's acquisitions to date has been accounted for using the purchase method of accounting, and has been included in the following discussion as applicable since the respective date of acquisition. In the future, the Company's revenues and expenses may be significantly affected by the number and timing of the opening or acquisition of additional offices or businesses. The timing of such expansion activities also can affect period-to-period comparisons of the Company's results of operations. 16 18 OVERVIEW The following table summarizes certain income statement information for the Company for the years ended December 1996, 1995 and 1994:
Percent of Percent of Percent of 1996 revenues 1995 revenues 1994 revenues ---- -------- ---- -------- ---- -------- (dollars in thousands) Revenues: Commercial Staffing $188,136 51.4% $143,243 57.1% $125,822 59.4% Information Technology Services 55,472 15.1 -- -- -- -- Health Care Services (including franchise fees) 122,937 33.5 107,812 42.9 86,045 40.6 -------- ----- -------- ----- -------- ----- Total revenues 366,545 100.0 251,055 100.0 211,867 100.0 -------- ----- -------- ----- -------- ----- Direct cost of services 263,277 71.8 178,966 71.3 155,987 73.6 Selling, general and administrative 68,329 18.7 51,592 20.5 42,842 20.2 Depreciation and amortization 5,969 1.6 3,665 1.5 4,391 2.1 License fees 7,689 2.1 4,418 1.8 1,687 0.8 -------- ----- -------- ----- -------- ----- Total expenses 345,264 94.2 238,641 95.1 204,907 96.7 -------- ----- -------- ----- -------- ----- Operating income 21,281 5.8 12,414 4.9 6,960 3.3 Interest expense 1,432 -- -- -- -- -- -------- ----- -------- ----- -------- ----- Income before income taxes 19,849 5.4 12,414 4.9 6,960 3.3 Income tax expense 8,332 2.3 5,305 2.1 3,061 1.5 -------- ----- -------- ----- -------- ----- Net income $ 11,517 3.1% $ 7,109 2.8% $ 3,899 1.8% ======== ===== ======== ===== ======== =====
The staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second six months of each calendar year is more heavily affected as companies tend to increase their use of temporary personnel during this period. While the staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations, and its emphasis on high-end clerical staffing and information technology staffing and consulting, mitigate the adverse effects of economic cycles in a single industry or geographic region. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 29, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995 REVENUES Total revenues increased 46.0% to $366.5 million in 1996 from $251.1 million in 1995. Commercial Staffing Division revenue grew 31.3%, primarily as the result of the contribution of revenues from the four commercial staffing companies acquired by the Company in 1996, internal growth attributable to increases in billable hours and billing rates and an improved service mix. During this period, the Health Care Services Division experienced a 14.0% increase in revenues (including franchise fees), primarily as a result of the 17 19 revenues added by the Division from the six franchised office conversions completed in 1996, increases in home health care visits and billable hours and increased billing rates and franchise fees. All of the Information Technology Division's revenues were acquired in 1996. DIRECT COST OF SERVICES Direct costs, consisting of payroll and related expenses of temporary workers, increased 47.1% to $263.3 million from $179.0 million in 1995. Direct cost of services as a percentage of revenue increased slightly to 71.8% from 71.3% during 1995. This increase reflected the continuing effects of the reclassification beginning in the fourth quarter of 1995 of certain non-billable administrative costs in the Health Care Services Division related to the Medicare program as direct cost of services, offset by increases in billing rates and an improved service mix and the positive effects of the Company's expansion into the higher margin information technology services sector. OTHER OPERATING EXPENSES Other operating expenses, consisting of selling, general and administrative expenses, depreciation and amortization expense and license fees, increased 37.4% to $82.0 million in 1996 from $59.7 million in 1995. As a percentage of revenues, selling, general and administrative expenses decreased to 18.7% in 1996 from 20.5% for 1995 primarily as the result of the reclassification of non-billable administrative cost related to the Medicare program as discussed above and the spreading of these expenses over a larger revenue base. Depreciation and amortization expense recognized during 1996 increased to 1.6% of revenues from 1.5% of revenues for 1995 primarily due to the acquisitions completed during 1996. License fees increased by 74.0% to $7.7 million due primarily to an increase in the number of licensed offices during the year. INTEREST EXPENSE Interest expense increased to $1.4 million in 1996 as the Company borrowed funds under its revolving credit facility and from certain owner-sellers at various times during the year primarily to finance acquisitions. See "Liquidity and Capital Resources." Prior to March 1996, the Company had not borrowed any funds under the revolving credit facility, and interest expense had been immaterial. INCOME TAX EXPENSE The effective tax rate decreased to 42.0% in 1996 from 42.7% for 1995. This decrease was due to reductions in nondeductible amortization expense related to pretax income and in state income taxes attributable to changes in the Company's business mix geographically among the states. Although the Company's effective tax rate has historically been higher than the U.S. federal statutory rate of 35.0% primarily due to this nondeductible amortization expense, the Company expects that its effective tax rate will continue to decline gradually as this nondeductible amortization expense declines. NET INCOME Net income increased 62.0% to $11.5 million in 1996 (or 3.1% of revenue) from $7.1 million (2.8% of revenue) in 1995 due to the factors discussed above. 18 20 YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 25, 1994 REVENUES Total revenues increased 18.5% to $251.1 million in 1995 from $211.9 million in 1994. Commercial Staffing Division revenue grew 13.8%, primarily as the result of increases in billable hours and billing rates and an improved service mix. During this period, the Health Care Services Division experienced a 25.3% increase in revenues (including franchise fees), primarily as a result of increases in home health care visits and billable hours and increased billing rates and franchise fees. DIRECT COST OF SERVICES Direct costs, consisting of payroll and related expenses of temporary workers, increased 14.7% to $179.0 million in 1995 from $156.0 million in 1994. Direct cost of services as a percentage of revenue decreased to 71.3% during 1995 from 73.6% during 1994. This decline reflected faster growth in the Health Care Services Division during the period, which typically has higher gross margins, and increases in billing rates and an improved service mix. OTHER OPERATING EXPENSES Other operating expenses, consisting of selling, general, and administrative expenses, depreciation and amortization expenses and license fees, increased 22.0% to $59.7 million in 1995 from $48.9 million in 1994. Selling, general and administrative expenses for 1995 as a percentage of total revenues did not significantly change compared with 1994. Depreciation and amortization expense recognized during 1995 decreased to 1.5% of revenues from 2.1% of revenues for 1994 primarily due to the completion of the amortization of certain intangibles as of December 25, 1994, and increased revenues from licensed Nursefinders' offices. This increase in license fees included $0.8 million related to new licensed offices and $1.1 million related to existing licensed locations. INCOME TAX EXPENSE The effective tax rate decreased to 42.7% for 1995 from 44.0% for 1994. This decrease was due to a reduction in nondeductible intangible amortization expense relative to pretax income for the period. The Company's effective tax rate was higher than the U.S. federal statutory rate of 35.0% primarily due to the nondeductibility for tax purposes of certain of the Company's intangible amortization expense. NET INCOME Net income increased 82.3% to $7.1 million (2.8% of revenue) in 1995 from $3.9 million (1.8% of revenue) in 1994 due to the factors discussed above. 19 21 LIQUIDITY AND CAPITAL RESOURCES The Company's principal uses of cash are to finance receivables and fund acquisitions and capital expenditures. As of December 29, 1996, receivables for the Commercial Staffing Division, the Information Technology Division and the Health Care Services Division remained outstanding an average of 50, 52 and 68 days, respectively, after billing. Health care receivables are generally paid by insurance companies and governmental agencies and therefore tend to be outstanding longer than commercial receivables. In the aggregate, days sales outstanding were 57 at December 29, 1996. The Company's primary capital expenditure requirements relate to acquisitions. During 1996, the Company made cash payments and issued notes aggregating approximately $179.0 million for acquisitions of existing businesses and for the conversion of six franchised Nursefinders offices to Company operated offices. In addition, subsequent to December 29, 1996, the Company has made post-closing payments to former shareholders of $5.9 million. The Company is also obligated under certain acquisition agreements to repay seller notes during the next three years of approximately $17.2 million and to make contingent earnout payments to former shareholders of acquired companies. The Company anticipates that the cash generated by the operations of the acquired companies will provide a substantial part of the capital required to fund the seller notes and earnout payments. The Company is actively seeking acquisition opportunities and management believes that the Company will continue to make acquisitions as attractive opportunities become available. The Company intends to seek additional capital as necessary to fund other potential acquisitions through one or more funding sources that may include borrowings under the Credit Facility described below or offerings of debt or equity securities of the Company. In addition, the Company regularly evaluates its asset base and business mix and could elect to make changes in order to take advantage of attractive acquisition opportunities. Cash flow from operations, to the extent available, may also be used to fund a portion of these expenditures. The Company also expects to spend approximately one percent (1%) of its revenues during 1997 on capital expenditures not directly related to acquisitions. The Company plans to open six offices in the Commercial Staffing Division in 1997. Start-up costs related to the opening of the new branches vary, but are expected to approximately $100,000 per branch. Costs for furniture, fixtures and equipment are capitalized and depreciated, and other start-up costs are expensed as incurred. New Company operated and licensed offices impose additional working capital requirements on the Company. Cash flow provided by operating activities decreased to $7.2 million in 1996 from $10.5 million for 1995, primarily as the result of higher working capital requirements relating to the Company's revenue growth. Cash used for investing activities increased to $164.0 million in 1996, from $0.1 million in 1995, reflecting the Company's acquisitions and additions to property and equipment. Cash flows from financing activities during the same period approximated $157.6 million, primarily reflecting the net proceeds from the issuance of 4,025,000 shares of the Company's common stock in the Secondary Offering completed in June 1996 and net borrowings under the Credit Facility described below. The Company has a bank loan agreement providing for a three-year $125.0 million revolving line of credit (the "Credit Facility"). As of December 29, 1996, approximately $67.3 million had been borrowed under the Credit Facility (most of which was borrowed to consummate the BEST Consulting and SSC acquisitions) and approximately $2.8 million had been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation programs. Borrowings under the Credit Facility bear interest, payable quarterly, at a rate equal to LIBOR plus a percentage corresponding to the Company's consolidated leverage ratio, as defined, or the agents' base rate, as defined, at the Company's option. At December 29, 1996, the majority of the Company's borrowings under this facility bore interest at approximately 7.0% (or LIBOR plus 1.35%). The Credit Facility is secured by pledges of the stock of the Company's subsidiaries and contains customary covenants such as the maintenance of certain financial ratios, minimum net worth and working capital requirements and a restriction on the payment of cash dividends on common stock. The Credit Facility also limits borrowing availability for acquisition-related purposes. 20 22 The Company believes that cash flow from operations, the current borrowing capacity under the existing Credit Facility and other available financing alternatives will be adequate to meet its presently anticipated needs for working capital, capital expenditures and acquisitions. INFLATION The effects of inflation on the Company's operation were not significant during 1996. FORWARD-LOOKING INFORMATION Information or statements contained in this report, other than historical information, should be considered forward-looking in nature and are subject to various risks and uncertainties. For instance, the Company's strategies and expectations involve risks of competition, changing market conditions, changes in laws and regulations affecting the Company's industries and numerous other factors discussed in this report and the Company's other filings with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those set forth in any such forward-looking information or statements. 21 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Personnel Group of America, Inc.: We have audited the accompanying consolidated balance sheets of Personnel Group of America, Inc. and subsidiaries (a Delaware corporation) as of December 29, 1996, and December 31, 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 29, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Personnel Group of America, Inc. and subsidiaries as of December 29, 1996, and December 31, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Arthur Andersen LLP Charlotte, North Carolina, February 7, 1997. 22 24 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS -- DECEMBER 29, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS 1996 1995 ------ --------- ---------- CURRENT ASSETS: Cash and cash equivalents $ 6,087 $ 5,273 Accounts receivable, net of allowance for doubtful accounts of $1,068 and $514 in 1996 and 1995, respectively, Prepaid expenses and other current assets 67,849 36,727 Deferred income taxes 3,359 1,889 Total current assets 3,512 3,347 --------- ---------- 80,807 47,236 Property and equipment, net 7,845 3,602 Excess of cost over fair value of net assets acquired, net 219,928 50,091 Other intangibles, net 3,815 1,056 Other assets 1,932 638 --------- ---------- Total assets $ 314,327 $ 102,623 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 6,847 $ -- Accounts payable 2,877 222 Accrued liabilities 33,593 16,269 Income taxes payable 778 1,776 Total current liabilities --------- ---------- 44,095 18,267 Long-term debt 78,875 -- Deferred income taxes 8,100 8,370 Total liabilities --------- ---------- 131,070 26,637 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; shares authorized 5,000; no shares issued and outstanding -- -- Common stock, $.01 par value; shares authorized 20,000; 12,034 and 8,000 shares issued and outstanding in 1996 and 1995, 120 80 respectively Additional paid-in capital 169,273 73,559 Retained earnings 13,864 2,347 --------- ---------- Total shareholders' equity 183,257 75,986 --------- ---------- Total liabilities and shareholders' equity $ 314,327 $ 102,623 ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 23 25 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995 1994 -------- -------- -------- REVENUES $366,545 $251,055 $211,867 -------- -------- -------- OPERATING EXPENSES: Direct costs of services 263,277 178,966 155,987 Selling, general and administrative 68,329 51,592 42,842 Depreciation and amortization 5,969 3,665 4,391 License fees 7,689 4,418 1,687 -------- -------- ------- Total operating expenses 345,264 238,641 204,907 OPERATING INCOME 21,281 12,414 6,960 INTEREST EXPENSE 1,432 -- -- -------- -------- ------- INCOME BEFORE INCOME TAXES 19,849 12,414 6,960 PROVISION FOR INCOME TAXES 8,332 5,305 3,061 -------- -------- ------- NET INCOME $ 11,517 $ 7,109 $ 3,899 ======== ======== ======= NET INCOME PER SHARE $ 1.13 $ -- $ -- PRO FORMA NET INCOME PER SHARE $ -- $ .89 $ .49 ======== ======== ======= WEIGHTED AVERAGE SHARES OUTSTANDING 10,216 8,000 8,000
The accompanying notes are an integral part of these consolidated financial statements. 24 26 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995 (IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL ----------------------- PAID-IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS NET ASSETS EQUITY --------- --------- --------- --------- --------- --------- BALANCE, January 2, 1994 -- $ -- $ -- -- $ 64,257 $ 64,257 Capital contributions, net -- -- -- -- 282 282 Net income -- -- -- -- 3,899 3,899 BALANCE, January 1, 1995 -- $ -- $ -- -- $ 68,438 $ 68,438 Cash distributions -- -- -- -- (7,351) (7,351) Contributions of assets -- -- -- -- 7,790 7,790 Net income -- -- -- 2,347 4,762 7,109 Reclassification of net assets as of September 30, 1995 8,000 80 73,559 -- (73,639) -- --------- --------- --------- --------- --------- --------- BALANCE, December 31, 1995 8,000 $ 80 $ 73,559 $ 2,347 -- $ 75,986 Issuance of common stock 4,025 40 95,589 -- -- 95,629 Exercises of stock options 9 -- 125 -- -- 125 Net income -- -- -- 11,517 -- 11,517 --------- --------- --------- --------- --------- --------- BALANCE, December 29, 1996 12,034 $ 120 $ 169,273 $ 13,864 -- $ 183,257 ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 25 27 PERSONNEL GROUP OF AMERICA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 29, 1996, DECEMBER 31, 1995 AND JANUARY 1, 1995 (IN THOUSANDS)
1996 1995 1994 --------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,517 $ 7,109 $ 3,899 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 5,969 3,665 4,391 Deferred income taxes, net (435) (140) (469) Changes in assets and liabilities: Accounts receivable (11,749) (3,547) (7,322) Prepaid expenses and other current assets (158) (531) (272) Other assets (1,155) (384) 57 Accounts payable and accrued liabilities 4,266 2,585 2,740 Income taxes payable (1,026) 1,776 -- --------- -------- ------- Net cash provided by operating activities 7,229 10,553 3,024 --------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (3,793) (840) (3,251) Acquisitions, net of cash acquired (160,177) -- -- --------- -------- ------- Net cash used in investing activities (163,970) (840) (3,251) --------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 95,629 -- -- Proceeds from exercise of stock options 125 -- -- Repayments under credit facility (30,775) -- -- Borrowings under credit facility 98,100 -- -- Repayments of acquired debt (5,524) -- -- Contributions from (distributions to) Adia, net -- (7,351) 282 --------- -------- ------- Net cash provided by (used in) financing 157,555 (7,351) 282 activities --------- -------- ------- Net increase in cash and cash equivalents 814 2,342 55 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,273 2,931 2,876 CASH AND CASH EQUIVALENTS AT END OF YEAR --------- -------- ------- $ 6,087 $ 5,273 $ 2,931 ========= ======== ======= SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments during the period for- Income taxes $ 9,617 $ 3,737 $ 3,530 Interest $ 1,307 $ -- $ --
The accompanying notes are an integral part of these consolidated financial statements. 26 28 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 Personnel Group of America, Inc. and its subsidiaries (collectively, the "Company") completed its initial public offering (the "IPO") in September 1995. Prior to the IPO, the Company was an indirect wholly owned subsidiary of Adia, S.A., a Swiss corporation ("Adia"). The Company was organized by Adia to facilitate the IPO. In the Company's formation and organization, Adia transferred to the Company the subsidiaries and divisions that it had previously owned (and that now comprise the Company's Health Care Services Division and a portion of the Commercial Staffing Division) in exchange for common stock. The financial statements of the Company are presented on an historical cost basis, and all significant intercompany transactions have been eliminated. As a result of the IPO, in which Adia sold its entire ownership interest in the Company, the Company became an independent public company. The Company did not receive any of the proceeds of the sale of its shares by Adia in the IPO. NATURE OF OPERATIONS The Company operates through a network of Company-operated, franchised and licensed offices. The Company's business is organized into three Divisions: the Commercial Staffing Division, which provides temporary office, clerical and light industrial and light technical services; the Information Technology Division, which provides information technology staffing and consulting services in a range of computer-related disciplines; and the Health Care Services Division, which provides health care personnel for home health care services and institutional staff augmentation. At December 29, 1996, the Commercial Staffing Division was comprised of twelve companies, the Information Technology Division was comprised of five companies and the Health Care Services Division operated under the Nursefinders name. The Health Care Services Division is subject to extensive federal, state and local laws and government regulations, including licensing requirements, certificate of need requirements to be a Medicare provider in some states, periodic examinations by government agencies, and federal and state antifraud, anti-abuse and anti-kickback statutes and regulations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: RECOGNITION OF REVENUE Other than for the items described below, revenues are recognized upon the performance of services. Nursefinders' franchise-related revenues are recognized pursuant to the specific terms of two different types of agreements (herein referred to as "Franchise Agreements" and "License Agreements"). For Franchise Agreements, the Company provides general training, operating, site selection and marketing programs, administration of insurance and payroll tax obligations and assistance in tax planning and legal matters. In exchange for these services, the Company recognizes franchise royalty revenue generally based on 5% of the franchisees' patient and staffing services revenue. Revenue is recognized upon performance of patient or staffing service by the franchisee. 27 29 Existing Franchise Agreements have a five-year term. Under Franchise Agreements, the Company recognized revenue of $2,825, $3,702 and $3,345 in 1996, 1995 and 1994, respectively. In addition, included in 1995 revenues is a $405 gain on the cancellation of the Cleveland franchise agreement. For License Agreements, in addition to the services described above, the Company employs and pays individuals to perform services for the licensees' customers, invoices customers, maintains professional liability insurance and supports the training, office administration, systems and marketing needs of the licensee. All revenues and expenses generated by the licensee, therefore, belong to the Company and are included in the Company's revenues and expenses. The Company is primarily liable for operating expenses. The Company pays the licensee a license fee, based on gross margin for temporary services less 7% of revenues, adjusted for uncollectible receivables and certain other expenses. Gross margin is the difference between the amounts billed to clients less direct cost of services consisting of direct labor, payroll taxes, insurance and benefits for temporary employees. License fees are included in other operating expenses. License Agreements generally have a 10-year term. Initial agreement fees under both Franchise and License Agreements are recognized currently as income. These fees are not material. Medicare revenues are recognized at an amount equivalent to allowable costs as defined by the Medicare program. Medicare reimbursable costs are limited by aggregate cost limits and by disallowance of certain costs not directly resulting from patient care services such as promotion and advertising. The Company believes it has not exceeded the aggregate cost limits and believes adequate provisions have been made for any potential disallowances as a result of future audits. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives (generally three to seven years). Leasehold improvements are stated at cost and amortized over the shorter of the lease term or the useful life of the improvements. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES The Company's businesses were initially acquired from unrelated third parties in exchange for cash and other consideration. Excess of cost over fair value of net assets acquired resulting from such acquisitions have been recorded on the books of the Company at historical cost and is amortized on a straight-line basis over 40 years. In January 1995, Adia acquired all of the remaining outstanding shares of a majority-owned subsidiary. This acquisition resulted in additional excess of cost over fair value of net assets acquired being recorded by Adia. The Company recorded its pro rata share ($7,191) of this excess. Accumulated amortization of excess of cost over fair value of net assets acquired amounted to $16,131 and $12,941 at December 29, 1996 and December 31, 1995, respectively. Other intangibles consist primarily of client and employee lists and covenants not to compete. The Company evaluates the recoverability of its investment in excess of cost over fair value of net assets acquired and other intangibles in relation to anticipated future cash flows on an undiscounted basis. Based on this assessment, the Company expects its investment in excess of cost over fair value 28 30 of net assets acquired and other intangibles to be fully recovered. INCOME TAXES Deferred tax assets and liabilities are recorded for the expected tax consequences of temporary differences arising between the tax bases of assets and liabilities and their reported amounts in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The Company's operating results through September 29, 1995 were included in Adia's consolidated federal income tax return and combined state tax returns filed in various states. The Company has filed its own consolidated federal income tax return and various state returns for the periods ending after September 29, 1995. The income tax provision is calculated on a separate company basis for all years presented. NET INCOME PER SHARE Net income per share has been provided only for periods or quarters subsequent to the IPO (see Note 15). Pro forma net income per share for all other periods provided is presented assuming that the weighted average number of shares outstanding equals the 8,000,000 shares sold by Adia in the IPO. The impact of stock options on net income per share is not material for any of the periods presented. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These affect the reported amounts of assets, the liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. 3. ACQUISITIONS During 1996, the Company acquired the following businesses in eight separate transactions:
NAME OF BUSINESS TYPE OF BUSINESS DATE ACQUIRED - ---------------- ---------------- ------------- Profile Temporary Services Commercial Staffing March 1996 Allegheny Personnel Services Commercial Staffing March 1996 Judith Fox Staffing Companies Commercial Staffing May 1996 Computer Resources Group Information Technology June 1996 Broughton Systems Information Technology July 1996 Denver Temporary Services Commercial Staffing July 1996 Command Technologies Information Technology July 1996 BEST Consulting Information Technology September 1996 Software Service Corp. Information Technology September 1996
In addition, the Company converted six formerly franchised Nursefinders' officers to Company-operated branches in 1996 (one each in January, March and April and three in July). The acquisitions and the franchise conversions are collectively referred to hereinafter as the "Transactions" and the acquired businesses and converted franchised offices are collectively referred to hereinafter as the 29 31 "Acquired Companies." The Acquired Companies had combined annual revenues in 1996 of approximately $197,000. The Company has paid approximately $179,000 in cash and notes to consummate the Transactions (which included direct acquisition costs but excluded contingent earnout payments associated with certain of the Transactions). In addition, subsequent to December 29, 1996, the Company made postclosing payments to former shareholders of $5,882. Certain of the acquisitions provide for additional purchase price consideration upon attainment of certain earnings targets for various periods during the next three years. Any additional consideration will be recorded as additional purchase price when paid and will increase the amount of excess of cost over fair value of net assets acquired. All of the Transactions have been accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of the entities acquired, based on preliminary allocations, were recorded at their estimated fair values at the dates of the acquisitions and the results of operations of the Acquired Companies have been included in the Company's consolidated results of operations from the dates of the respective acquisitions. Final allocation of the purchase price may result in adjustments to the amounts previously recorded as excess of cost over fair market value of net assets acquired. The excess of cost over the estimated fair value of the net assets acquired is being amortized on a straight-line basis over 40 years. The following table presents the Company's pro forma consolidated results of operations for 1996 and 1995, as if the Transactions had occurred on January 1, 1995:
1996 1995 ---- ---- Revenues $464,554 $413,419 Net income 12,421 8,766 Net income per share $ 1.22 $ 1.10 ======== ======== Weighted average shares outstanding 10,216 8,000 ======== ========
Since December 29, 1996, the Company has completed the acquisitions of Word Processing Professionals, Inc. ("Word Processing Professionals") in New York, New York and Energetix, Inc. ("Energetix") in Chicago, Illinois. Word Processing Professionals, acquired on January 3, 1997, provides word processing and desktop publishing services to professional services firms and financial institutions in mid-town Manhattan. Energetix, acquired on February 3, 1997, provides information technology staffing services to a variety of clients in the Chicagoland area. These companies had combined revenues in excess of $13.0 million in 1996. The Company funded the acquisitions of Word Processing Professionals and Energetix primarily through borrowings under the Credit Facility (see Note 11). 30 32 4. ACCOUNTS RECEIVABLE: Accounts receivable consisted of the following at December 29, 1996 and December 31, 1995:
1996 1995 ---- ---- Trade accounts receivable $ 61,549 $ 28,190 Medicare/Medicaid, net of contractual allowances 6,712 6,725 Other 656 2,326 -------- -------- 68,917 37,241 Less-Allowance for doubtful accounts (1,068) (514) -------- -------- $ 67,849 $ 36,727 ======== ========
The following table sets forth further information on the Company's allowance for doubtful accounts:
BALANCE AT CHARGED TO BALANCE BEGINNING OF COSTS AND AT END OF YEAR ENDED OF PERIOD EXPENSES DEDUCTIONS PERIOD - ---------- --------- -------- ---------- ------ December 29, 1996 $514 $1,627 $(1,073) $1,068 December 31, 1995 547 906 (939) 514 January 1, 1995 697 599 (749) 547 ==== ====== ======= ======
5. PROPERTY AND EQUIPMENT, NET: Property and equipment, net, consisted of the following at December 29, 1996 and December 31, 1995:
1996 1995 -------- -------- Purchased software and computer equipment $ 7,709 $ 3,249 Furniture and other equipment 7,012 5,602 Leasehold improvements 818 659 -------- -------- 15,539 9,510 Less - Accumulated depreciation (7,694) (5,908) -------- -------- $ 7,845 $ 3,602 ======== ========
31 33 6. OTHER INTANGIBLE ASSETS: Other intangible assets consisted of the following at December 29, 1996 and December 31, 1995:
USEFUL LIVES 1996 1995 ------------- -------- -------- Covenants not to compete 4 to 5 years $ 3,091 $ 4,686 Client and employee lists 5 years 1,265 5,641 Franchise agreements 10 years 100 1,665 Other 5 years 443 881 -------- ------- 4,899 12,873 Less - Accumulated amortization (1,084) (11,817) -------- ------- $ 3,815 $ 1,056 ======== =======
7. ACCRUED LIABILITIES: Accrued liabilities consisted of the following at December 29, 1996 and December 31, 1995:
1996 1995 -------- -------- Accrued wages and benefits $ 15,852 $ 8,062 Accrued workers' compensation benefits 5,461 5,381 Post-closing payments to former shareholders 5,882 -- Other 6,398 2,826 -------- -------- $ 33,593 $ 16,269 ======== ========
8. 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 401(k) profit sharing plans as required by the terms of such plans). Contributions charged to operating expenses were $810, $706 and $470 for the years ended December 29, 1996, December 31, 1995 and January 1, 1995, respectively. The Company does not provide postretirement health care and life insurance benefits to retired employees or postemployment benefits to terminated employees. 9. CAPITAL STOCK AND STOCK OPTIONS: In June 1996, the Company issued 4,025,000 shares of its common stock in an underwritten public offering (the "Secondary Offering"), which raised $95,629 for the Company, net of offering expenses. The proceeds from the Secondary Offering were used to repay outstanding borrowings under the Company's revolving credit facility (see Note 11) and fund several recent acquisitions (see Note 3). The Company's Board of Directors adopted its 1995 Equity Participation Plan (the "Incentive Plan") to attract and retain officers, key employees, consultants and directors. An aggregate of 1,200,000 shares of common stock was authorized for issuance upon exercise of options, stock 32 34 appreciation rights, and other awards, or as restricted or deferred stock awards under the Incentive Plan. Incentive stock options may be granted only to employees and, when granted, have an exercise price equal to at least 100% of fair market value of common stock on the grant date and a term not longer than 10 years. In addition, nonemployee directors (including the directors who administer the plan) are eligible to receive nondiscretionary grants of nonqualified stock options ("NQSOs") under the Incentive Plan pursuant to a formula. 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. A summary of stock option activity follows:
WEIGHTED SHARES AVERAGE UNDER PRICE OPTION PER SHARE ------- ------- Outstanding, January 1, 1995 -- $ -- Granted in 1995 432,705 13.85 ------- ------- Outstanding, December 31, 1995 432,705 13.85 Granted in 1996 420,648 25.31 Exercised 9,310 13.38 Expired 24,090 14.61 ------- ------- Outstanding, December 29, 1996 819,953 $ 20.29 ======= ======= Exerciseable, December 31, 1995 111,541 $ 13.85 ======= ======= Exerciseable, December 29, 1996 263,556 $ 17.85 ======= =======
Pursuant to the requirements of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), the following disclosures are presented to reflect the Company's pro forma net income for the years ended December 31, 1996 and 1995 as if the fair value method of accounting prescribed by SFAS 123 had been used. In preparing these disclosures, the Company has determined the value of all options granted during 1996 and 1995 using the minimum value method, as discussed in SFAS 123, and based on the following weighted average assumptions used for grants:
1996 1995 ---- ---- Risk-free interest rate 6.9% 6.7% Expected dividend yield 0.0% 0.0% Expected life 5 years 5 years
33 35 Using these assumptions, the fair value of the stock options granted in 1996 and 1995 was approximately $4,920 and $2,744, respectively. Had compensation expense been determined consistent with SFAS 123, utilizing the assumptions above and the straight-line amortization method over the vesting period, the Company's net income would have been reduced to the following pro forma amounts:
1996 1995 ---- ---- Net income, as reported $11,517 $7,109 Net income per share, as reported 1.13 0.89 Pro forma net income 9,922 6,400 Pro forma net income per share $ 0.97 $ 0.80 ======= ======
On February 6, 1996, the Board of Directors of the Company declared a dividend of one nonvoting preferred share purchase right (a "Right") for each outstanding share of common stock. The dividend was paid on February 27, 1996, to the shareholders of record on that date. In the event of an acquisition, or the announcement of an acquisition, by a party of a beneficial interest of at least 15% of the Company's common stock, each right would become exercisable (the "Distribution Date"). Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company at a price of $95.00 per one one-hundredth of a share of Preferred Stock, subject to adjustment. In addition, each Right entitles the right holder to certain other rights as specified in the Company's rights agreement. The Rights are not exercisable until Distribution Date. The Rights will expire on February 6, 2006 (the "Final Expiration Date"), unless the Final Expiration Date is extended or unless the Rights are earlier redeemed or exchanged by the Company. 10. MANAGEMENT FEES: Prior to the IPO, Adia and its affiliates provided certain services and paid certain expenses for the Company in exchange for a management fee. These services included accounting, billing and collections, legal and other selling, general and administrative expenses. Management of the Company negotiated with Adia's management to determine the appropriate fee charged based on the approximate cost of the services provided and the expenses paid by Adia on behalf of the Company. All transactions between the Company and Adia were reflected in the consolidated financial statements. Management fees paid to Adia for the nine month period ended September 1995 and the year ended January 1, 1995 were $426 and $582, respectively. In addition, the Company had cash clearing transactions with Adia primarily for dividends, estimated tax payments, management fees and workers' compensation expenses that were recorded in an intercompany account. Following the IPO, Adia agreed to provide certain services to the Company pursuant to various written agreements on terms and at prices as set forth in such agreements. Fees paid to Adia for services following the IPO were not material. 34 36 11. LONG-TERM DEBT: Long-term debt consisted of the following at December 29, 1996:
1996 ---- $125,000 revolving credit facility due September 30, 1999 $67,325 Notes payable to sellers of the Acquired Companies 17,225 Other notes payable 1,172 ------- 85,722 Less current portion 6,847 ------- $78,875 =======
During 1996, the Company entered into a new revolving credit agreement with a bank. This agreement was subsequently amended on December 12, 1996 in connection with the syndication of the loans. Under the terms of the amended and restated credit agreement, the Company now has available a $125,000 revolving credit facility (the "Credit Facility"). During 1996, the maximum aggregate outstanding borrowing under the Credit Facility was $67,325 and the average outstanding balance during the 197 days during the year in which the Company had borrowings was $37,800. In addition, approximately $2,800 of the Credit Facility has been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation program. The daily weighted average interest rate under the Credit Facility was 6.8% and a commitment fee of 3/8% of the unused line was charged during 1996. At February 7, 1997, the amount available for borrowing under the Credit Facility was approximately $30,000. 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 majority of the Company's borrowings under the Credit Facility bore interest at an average rate of 7.0% at December 29, 1996. The Credit Facility is secured by pledges of stock of the Company's subsidiaries and contains customary covenants such as the maintenance of certain financial ratios, minimum net worth and working capital requirements and a restriction on the payment of cash dividends on common stock. The Credit Facility also limits borrowing availability for acquisition-related purposes. At December 29, 1996, the Company was in compliance with the covenants contained in the Credit Facility. The Company issued notes payable in connection with certain of the Transactions. These notes are due in varying installments and carry variable interest rates ranging from 6.6% to 6.9% at December 29, 1996. Scheduled maturities of long-term debt at December 29, 1996 are as follows: 1997 $ 6,847 1998 6,241 1999 72,634 ------- $85,722 =======
35 37 12. INCOME TAXES: The provision for income taxes for the years ended December 29, 1996, December 31, 1995 and January 1, 1995 consisted of the following:
1996 1995 1994 ---- ---- ---- Current provision $8,767 $5,445 $3,530 Deferred benefit (435) (140) (469) ------ ------ ------ Total $8,332 $5,305 $3,061 ====== ====== ======
The reconciliation of the effective tax rate is as follows:
1996 1995 1994 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 4.8 5.0 4.3 Effect of nondeductible amortization and other 2.2 2.7 4.7 ---- ---- ---- Total 42.0% 42.7% 44.0% ==== ==== ====
The components of the Company's net deferred tax assets and liabilities were as follows at December 29, 1996 and December 31, 1995:
1996 1995 ---- ---- Deferred tax liability - Excess of cost over fair value of net assets acquired $8,100 $8,370 ------ ------ Deferred tax assets- Accrued workers' compensation 2,237 2,614 Allowance for doubtful accounts and other 1,275 733 ------ ------ 3,512 3,347 ------ ------ Net deferred tax liability $4,588 $5,023 ====== ======
In certain of the Company's acquisitions, the Company was able to deduct currently, for tax purposes, certain amounts representing purchase price paid in excess of book value of recorded assets and liabilities. For financial reporting purposes, this was recorded as excess of cost over fair value of net assets acquired with a corresponding deferred tax liability related to this timing difference. TAX-SHARING AGREEMENT Generally, Adia is liable for income taxes of the Company for any taxable period that ends on or before September 29, 1995, and the Company is liable for income taxes for any period beginning after September 29, 1995. 36 38 13. FINANCIAL INSTRUMENTS: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates the book value at December 29, 1996, 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 approximate the book value at December 29, 1996, because of the variable rate associated with the borrowings. CONCENTRATION OF CREDIT RISK The Company maintains cash and cash equivalents with various financial institutions. Credit risk with respect to accounts receivable is dispersed due to the nature of the business, the large number of customers and the diversity of industries serviced. The Company performs credit evaluations of its customers. 14. 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: 1997 $ 4,335 1998 3,260 1999 2,232 2000 1,270 2001 and thereafter 1,152 ------- $12,249 =======
Total rent expense under operating leases amounted to $4,280, $3,151 and $2,991 for the years ended December 29, 1996, December 31, 1995, and January 1, 1995, respectively. INSURANCE The Company maintains a self-insurance program for workers' compensation and medical and dental claims. The Company accrues liabilities under this program based on the loss and loss adjustment expenses as estimated by an outside administrator. At December 29, 1996, the Company had a standby letter of credit with a bank in connection with a portion of its workers' compensation program. The Company is subject to claims and legal actions by patients and customers in the ordinary course of business. The Company maintains professional liability insurance for losses. 37 39 MEDICARE COST-REIMBURSEMENT PROGRAM Final determination of amounts earned under the Medicare cost-reimbursement program are subject to review and audit by appropriate governmental authorities or their agents. In the opinion of management, adequate provision has been made for any adjustments that could result from future Medicare audits. For the years ended December 29, 1996, December 31, 1995, and January 1, 1995, 9%, 13% and 12% of the Company's revenues, respectively, were derived from the Medicare program. The Medicare program is subject to statutory and regulatory changes, retroactive and prospective rate adjustments and administrative rulings and funding restrictions, all of which could have the effect of limiting or reducing reimbursement levels for the Company's services. EMPLOYMENT AGREEMENTS The Company has agreements with several executive officers 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 The Company and Adia entered into an indemnification agreement in connection with the IPO, whereby the Company agreed to indemnify Adia against certain expenses or losses incurred by Adia arising from the conduct of the Company's business. 15. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following table sets forth quarterly financial information for each quarter in the years ended December 29, 1996 and December 31, 1995:
1996 ----------------------------- ------- FIRST SECOND THIRD FOURTH ------- ------- ------- -------- Revenues $66,873 $77,867 $99,302 $122,503 Operating expenses 64,282 73,728 93,308 113,946 Net income 1,490 2,250 3,575 4,202 Net income per share $ 0.19 $ 0.26 $ 0.30 $ 0.35 ======= ======= ======= ========
1995 -------------------------------------- FIRST SECOND THIRD FOURTH ------- ------- ------- -------- Revenues $59,512 $61,260 $63,855 $ 66,428 Operating expenses 57,675 58,194 60,462 62,310 Net income 1,065 1,700 1,997 2,347 Net income per share -- -- -- 0.29 Pro forma net income per share $ 0.13 $ 0.21 $ 0.25 $ -- ======= ======= ======= ========
38 40 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--Directors and Executive Officers," is incorporated herein by reference in response to this Item 10. 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. Information contained in the Proxy Statement under the caption "Certain Transactions" is incorporated herein by reference in response to this Item 13. 39 41 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 financial statements of the Company and the Report of Independent Public Accountants are contained in Item 8 above: CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Public Accountants Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 Consolidated Statements of Income for the years ended December 29, 1996, December 31, 1995 and January 1, 1995 Consolidated Statements of Shareholders' Equity for the years ended December 29, 1996, December 31, 1995 and January 1, 1995 Consolidated Statements of Cash Flows for the years ended December 29, 1996, December 31, 1995 and January 1, 1995 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 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 the following Current Reports on Form 8-K during the fourth quarter of 1996: 40 42 Form 8-K, dated September 30, 1996, to report under Item 2, "Acquisition or Disposition of Assets," the completion of the acquisition of BEST Consulting (the "BEST 8-K"). Form 8-K/A, dated November 7, 1996, amending the previously filed BEST 8-K to include certain pro forma financial information relating to the BEST Consulting acquisition under Item 7, "Financial Statements." 41 43 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 February 26, 1997. PERSONNEL GROUP of AMERICA, INC. By: /s/ Edward P. Drudge, Jr. ----------------------------------- Edward P. Drudge, Jr. Chairman and Chief Executive 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 February 26, 1997.
Signature --------- /s/ Edward P. Drudge, Jr. Chairman, Chief Executive Officer and Director - ----------------------------------- Edward P. Drudge, Jr. /s/ Ken R. Bramlett, Jr. Chief Financial Officer and Senior Vice President - ----------------------------------- Ken R. Bramlett, Jr. /s/ Kevin P. Egan Director - ----------------------------------- Kevin P. Egan /s/ J. Roger King Director - ----------------------------------- J. Roger King /s/ James V. Napier Director - ----------------------------------- James V. Napier /s/ William J. Simione, Jr. Director - ----------------------------------- William J. Simione, Jr.
44 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 Amended and Restated Certificate of 3.1 33-95228 Incorporation of the Company 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 The First National Bank of Boston 10.1+ 1995 Equity Participation Plan 10.1 10-Q for quarter ended 9/30/95 10.2+ Management Incentive Compensation Plan 10.2 10-Q for quarter ended 9/30/95 10.3+# Director and Officer Indemnification 10.3 10-K for year Agreement of James V. Napier ended 12/31/95 10.4 License Agreement between Adia Services, 10.4 10-Q for quarter Inc., a California corporation ("Adia ended 9/30/95 California") and StaffPLUS, Inc. 10.5 License Agreement between Adia Services, 10.5 10-Q for quarter Inc., a Delaware corporation ("Adia ended 9/30/95 Delaware") and Nursefinders, Inc. 10.6 Administrative Services Agreement between 10.6 10-Q for quarter the Company and Adia California ended 9/30/95 10.7 Paybill Services Agreement between the 10.7 10-Q for quarter Company and Adia California ended 9/30/95 10.8 Software License Agreement between the 10.8 10-Q for quarter Company and Adia California ended 9/30/95 10.9+ Employment Agreement between the Company 10.9 10-Q for quarter and Edward P. Drudge, Jr. ended 9/30/95
45
FILED HEREWITH (*), NON- APPLICABLE (NA) OR INCORPORATED BY REFEREMCE FROM COMPANY REG. PREVIOUS NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT - ------- ----------- -------- ------ 10.10+ Employment Agreement between the Company * and James C. Hunt 10.11+ Employment Agreement between Adia 10.13 33-95228 Delaware, PFI Corp. and Richard L. Peranton 10.12+ Employment Agreement between the Company * and Peter R. Sollenne 10.13+ Employment Agreement between the Company * and Ken R. Bramlett, Jr. 10.14 Indemnification Agreement between the 10.14 10-Q for quarter Company and Adia Delaware ended 9/30/95 10.15 Tax-Sharing Agreement between the 10.15 10-Q for quarter Company, Adia Delaware and Adia California ended 9/30/95 10.16 Amended and Restated Non-Qualified * Profit-Sharing Plan 10.17 Loan Agreement between the Company and 10.17 10-Q for quarter NationsBank, N.A., as agent ended 9/29/96 10.18 Amendment No. 1 to Loan Agreement between * the Company and NationsBank, N.A., as agent 10.19 Asset Purchase Agreement between the 10.19 333-04573 Company and Judith Fox Staffing Companies 10.20 Asset Purchase Agreement between the 10.2 333-04573 Company and Computer Resources Group
46
FILED HEREWITH (*), NON- APPLICABLE (NA) OR INCORPORATED BY REFEREMCE FROM COMPANY REG. PREVIOUS NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT - ------- ----------- -------- ------ 10.21 Asset Purchase Agreement between the 2 8-K dated 9/30/96 Company and Business Enterprise Systems and Technology, Inc. (BEST Consulting) 21.01 Subsidiaries of the Company * 23.01 Consent of Arthur Andersen LLP in * connection with the Company's Registration Statement on Form S-8 27.01 Financial data schedule (for SEC filing * purposes only)
+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. #This Exhibit is substantially identical to Director and Officer Indemnification Agreements of the same date between the Company and the following individuals: Edward P. Drudge, Jr., Richard L. Peranton, Kevin P. Egan, J. Roger King, and William Simione, Jr. EX-10.10 2 EMPLOYMENT AGREEMENT-- JAMES HUNT 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 2nd day of January 1997, by and between Personnel Group of America, Inc., a Delaware corporation (the "Company"), and James C. Hunt ("Executive"). W I T N E S S E T H: WHEREAS, Executive and the Company deem it to be in their respective best interests to enter into an agreement providing for the Company's employment of Executive pursuant to the terms herein stated; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, it is hereby agreed as follows: 1. Effective Date. This Agreement shall be effective as of the 2nd day of January 1997, which date shall be referred to herein as the "Effective Date". 2. Position and Duties. (a) The Company hereby employs Executive: (i) as a Senior Vice President from the date hereof until the day after the Company's 1996 Form 10-K and Annual Report are filed with the SEC; and (ii) thereafter through the end of the "Term of Employment" (as herein defined below) as its Chief Financial Officer and Treasurer. In these capacities, Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such offices and positions and to such other services of a senior executive nature as may be reasonably requested by the Board of Directors (the "Board") of the Company, which may include services for one or more subsidiaries or affiliates of the Company. Prior to becoming Chief Financial Officer and Treasurer as provided in clause (ii) above, the parties acknowledge and agree that Executive will have no supervisory or management responsibility over the Company's financial or accounting functions. Additionally, the Executive will have no responsibility or involvement in connection with the 1996 year-end audit process. Executive shall in his capacity as an employee of the Company be responsible to and obey the reasonable and lawful directives of the Board. (b) Executive shall devote his full time and attention to his duties hereunder, except for sick leave, reasonable vacations, and excused leaves of absence as more particularly provided herein. Executive shall use his best efforts during the Term of Employment to protect, encourage, and promote the interests of the Company. 1 2 3. Compensation. (a) Base Salary. The Company shall pay to Executive during the Term of Employment a minimum salary at the rate of two hundred twenty-five thousand dollars ($225,000) per calendar year and agrees that such salary shall be reviewed at least annually. Such salary shall be subject to discretionary annual increases as determined by the Board of Directors. Such salary shall be payable in accordance with the Company's normal payroll procedures. (Executive's annual salary, as set forth above or as it may be increased from time to time as set forth herein, shall be referred to hereinafter as "Base Salary.") At no time during the Term of Employment shall Executive's Base Salary be decreased from the amount of Base Salary then in effect. (b) Performance Bonus. In addition to the compensation otherwise payable to Executive pursuant to this Agreement, Executive shall be eligible to receive an annual bonus ("Bonus") pursuant to a performance bonus plan (the "Bonus Plan") as set forth in the Executive's Offer Letter from the Company dated December 16, 1996. 4. Benefits. During the Term of Employment: (a) Executive shall be eligible to participate in any and all life, health and long-term disability insurance programs, pension and retirement programs, stock option and other incentive compensation programs, and other fringe benefit programs made available to senior executive employees of the Company from time to time, and Executive shall be entitled to receive such other fringe benefits as may be granted to him from time to time by the Company's Board of Directors. (b) Executive shall be allowed twenty-eight days of personal time off (PTO) with pay per calendar year and leaves of absence with pay on the same basis as other senior executive employees of the Company. (c) The Company shall reimburse Executive for reasonable business expenses incurred in performing Executive's duties and promoting the business of the Company, including, but not limited to, reasonable entertainment expenses, travel and lodging expenses, following presentation of documentation in accordance with the Company's business expense reimbursement policies. (d) Executive shall be added as an additional named insured under all liability insurance policies now in force or hereafter obtained covering any officer or director of the Company in his or her capacity as an officer or director. Company shall indemnify Executive in his capacity as an officer or director and hold him harmless from any cost, expense or liability arising out of or relating to any acts or decisions made by him on behalf of or in the course of performing services for the Company (to the maximum extent provided by the Company's Bylaws and applicable law). 2 3 (e) Executive shall also be allowed such other benefits as contained in the Executive's Offer Letter from the Company dated December 16, 1996. 5. Term; Termination of Employment. As used herein, the phrase "Term of Employment" shall mean the period commencing on the Effective Date and ending on December 31, 1997; provided, however, that as of the expiration date of each of (i) the initial Term of Employment and (ii) if applicable, any Renewal Period (as defined below), the Term of Employment shall automatically be extended for a one (1) year period (each a "Renewal Period") unless either the Company or Executive provides six (6) months' notice to the contrary. Notwithstanding the foregoing, the Term of Employment shall expire on the first to occur of the following: (a) Termination by the Company Without Cause or By Executive With Good Reason. Notwithstanding anything to the contrary in this Agreement, whether express or implied, the Company may, at any time, terminate Executive's employment for any reason other than Cause (as defined below) by giving Executive at least 60 days' prior written notice of the effective date of termination. In the event Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason (as defined below), Executive shall be entitled to receive (y) his Base Salary as he would have received such amounts during the period commencing on the effective date of such termination and ending on the second anniversary thereof (the "Salary Continuation Period"), as if Executive were still employed hereunder during the Salary Continuation Period; and (z) if it has not previously been paid to Executive, any Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination. In addition, all of Executive's stock options with respect to the Company's stock shall become immediately and fully exercisable. During the Salary Continuation Period, Executive and his spouse and dependents shall be entitled to continue to be covered by all group medical, health and accident insurance or other such health care arrangements in which Executive was a participant as of the date of such termination, at the same coverage level and on the same terms and conditions which applied immediately prior to the date of Executive's termination of employment, until Executive obtains alternative comparable coverage under another group plan, which coverage does not contain any pre-existing condition exclusions or limitations; provided, however, that if, as the result of the termination of Executive's employment, Executive and/or his otherwise eligible dependents or beneficiaries shall become ineligible for benefits under any one or more of the Company's benefit plans, the Company shall continue to provide Executive and his eligible dependents or beneficiaries, through other means, with benefits at a level at least equivalent to the level of benefits for which Executive and his dependents and beneficiaries were eligible under such plans immediately prior to the date of Executive's termination of employment. At the termination of the benefits coverage under the preceding sentence, Executive and his spouse and dependents shall be entitled to continuation coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended, Sections 601-608 of the Employee Retirement Income Security Act of 1974, as amended, and under any other 3 4 applicable law, to the extent required by such laws, as if Executive had terminated employment with the Company on the date such benefits coverage terminates. For purposes of this Agreement, "Good Reason" shall mean, without the express written consent of Executive, the occurrence of any of the following events unless such events are fully corrected within 30 days following written notification by Executive to the Company that he intends to terminate his employment hereunder for one of the reasons set forth below: (i) a material breach by the Company of any material provision of this Agreement, including, but not limited to, the assignment to Executive of any duties inconsistent with Executive's position in the Company or an adverse alteration in the nature or status of Executive's responsibilities; (ii) the Company's requiring the Executive to be based anywhere other than the metropolitan area where he currently works and resides; and (iii) the occurrence of a "Change in Control" as defined below. For purposes of this Agreement a "Change in Control" shall mean an event as a result of which: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company; (ii) the Company consolidates with, or merges with or into another corporation or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any corporation consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding voting stock of the Company is changed into or exchanged for (x) voting stock of the surviving or transferee corporation or (y) cash, securities (whether or not including voting stock) or other property, and (B) the holders of the voting stock of the Company immediately prior to such transaction own, directly or indirectly, not less than 50% of the voting power of the voting stock of the surviving corporation immediately after such transaction; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of the Company (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of the Company then in office; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation, provided, however, that a Change in Control shall not include any going private or leveraged buy-out transaction which is sponsored by Executive or in which Executive 4 5 acquires an equity interest materially in excess of his equity interest in the Company immediately prior to such transaction (each of the events described in (i), (ii), (iii) or (iv) above, as provided otherwise by the preceding clause being referred to herein as a "Change in Control"). (b) Termination for Cause. The Company shall have the right to terminate Executive's employment at any time for Cause by giving Executive written notice of the effective date of termination (which effective date may, except as otherwise provided below, be the date of such notice). If the Company terminates Executive's employment for Cause, Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination and the Company shall have no further obligation hereunder from and after the effective date of termination and the Company shall have all other rights and remedies available under this or any other agreement and at law or in equity. For purposes of this Agreement only, Cause shall mean: (i) fraud, misappropriation, embezzlement, or other act of material misconduct against the Company or any of its affiliates; (ii) substantial and willful failure to perform specific and lawful directives of the Board, as reasonably determined by the Board; (iii) willful and knowing violation of any rules or regulations of any governmental or regulatory body, which is materially injurious to the financial condition of the Company; or (iv) conviction of or plea of guilty or nolo contendere to a felony; provided, however, that with regard to subparagraph (ii) above, Executive may not be terminated for Cause unless and until the Board has given him reasonable written notice of its intended actions and specifically describing the alleged events, activities or omissions giving rise thereto and with respect to those events, activities or omissions for which a cure is possible, a reasonable opportunity to cure such breach; and provided further, however, that for purposes of determining whether any such Cause is present, no act or failure to act by Executive shall be considered "willful" if done or omitted to be done by Executive in good faith and in the reasonable belief that such act or omission was in the best interest of the Company and/or required by applicable law. 5 6 (c) Termination on Account of Death. In the event of Executive's death while in the employ of the Company, his employment hereunder shall terminate on the date of his death and Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination. In addition, any other benefits payable on behalf of Executive shall be determined under the Company's insurance and other compensation and benefit plans and programs then in effect in accordance with the terms of such programs. (d) Voluntary Termination by Executive. In the event that Executive's employment with the Company is voluntarily terminated by Executive other than for Good Reason, Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination, and the Company shall have no further obligation hereunder from and after the effective date of termination and the Company shall have all other rights and remedies available under this Agreement or any other agreement and at law or in equity. Executive shall give the Company at least 30 days' advance written notice of his intention to terminate his employment hereunder. (e) Termination on Account of Disability. To the extent not prohibited by The Americans With Disabilities Act of 1990 or the North Carolina Handicapped Persons Protection Act if, as a result of Executive's incapacity due to physical or mental illness (as determined in good faith by a physician acceptable to the Company and Executive), Executive shall have been absent from the full-time performance of his duties with the Company for 120 consecutive days during any twelve (12) month period or if a physician acceptable to the Company advises the Company that it is likely that Executive will be unable to return to the full-time performance of his duties for 120 consecutive days during the succeeding twelve (12) month period, his employment may be terminated for "Disability." During any period that Executive fails to perform his full-time duties with the Company as a result of incapacity due to physical or mental illness, he shall continue to receive his Base Salary, Bonus and other benefits provided hereunder, together with all compensation payable to him under the Company's disability plan or program or other similar plan during such period, until Executive's employment hereunder is terminated pursuant to this Section 5(e). Thereafter, Executive's benefits shall be determined under the Company's retirement, insurance, and other compensation and benefit plans and programs then in effect, in accordance with the terms of such programs. 6 7 6. Confidential Information, Non-Solicitation and Non-Competition. (a) During the Term of Employment and for two (2) years thereafter, Executive 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 Executive 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. Executive 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. Upon the termination of his employment for any reason whatsoever, Executive shall promptly deliver to the Company all documents, computer tapes and disks (and all copies thereof) containing any Confidential Information. (b) During the Term of Employment and for two (2) years thereafter, Executive shall not, directly or indirectly in any manner or capacity (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 any activity which is competitive with the business of the Company, in any geographic area in which the Company is now or shall then be doing business, including without limitation, those geographic areas set forth on Exhibit A hereto. Executive 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 6 if such activity were carried out by Executive and, in particular, Executive agrees that he will not induce any employee of the Company to carry out any such activity; provided, however, that the "beneficial ownership" by Executive, 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 Exchange Act, 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 Executive 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 Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Executive from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. (c) During the Term of Employment and for two (2) years thereafter, Executive 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. 7 8 (d) Executive 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. Executive 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 will be acquired by him because of his business position with the Company. Executive agrees that, during the Term of Employment, and for a period of two (2) years thereafter, 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 6 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) Executive acknowledges that he was informed of the time, territory, scope and other essential requirements of the restrictions in this Section 6 when he agreed to become employed with the Company under the terms set forth in this Agreement, and Executive further acknowledges that he has received sufficient and valuable consideration for his agreement to such restrictions. 7. No Offset - No Mitigation. Executive shall not be required to mitigate damages under this Agreement by seeking other comparable employment. The amount of any payment or benefit provided for in this Agreement, including welfare benefits, shall not be reduced by any compensation or benefits earned by or provided to him as the result of employment by another employer, except as provided otherwise in Section 5(a) with respect to health and insurance benefits provided during the Salary Continuation Period. 8. Designated Beneficiary. In the event of the death of Executive while in the employ of the Company, or at any time thereafter during which amounts remain payable to Executive under Section 5, such payments (other than the right to continuation of welfare benefits) shall thereafter be made to such person or persons as Executive may specifically designate (successively or contingently) to receive payments under this Agreement following Executive's death by filing a written beneficiary designation with the Company during Executive's lifetime. Such beneficiary designation shall be in such form as may be prescribed by the Company and may be amended from time to time or may be revoked by Executive pursuant to written instruments filed with the Company during his lifetime. Beneficiaries designated by Executive may be any natural or legal person or persons, including a fiduciary, such as a trustee or a trust or the legal representative of an estate. Unless otherwise provided 8 9 by the beneficiary designation filed by Executive, if all of the persons so designated die before Executive on the occurrence of a contingency not contemplated in such beneficiary designation, then the amounts payable under this Agreement shall be paid to Executive's estate. 9. Taxes. All payments to be made to Executive under this Agreement will be subject to any applicable withholding of federal, state and local income and employment taxes. 10. Miscellaneous. This Agreement shall also be subject to the following miscellaneous considerations: (a) Executive and the Company each represent and warrant to the other that he or it has the authorization, power and right to deliver, execute, and fully perform his or its obligations under this Agreement in accordance with its terms. (b) Except as set forth in Executive's Offer Letter from the Company dated December 16, 1996, this Agreement contains a complete statement of all the arrangements between the parties with respect to Executive's employment by the Company; this Agreement supersedes all prior and existing negotiations and agreements between the parties concerning Executive's employment other than the Offer Letter; and this Agreement can only be changed or modified pursuant to a written instrument duly executed by each of the parties hereto. (c) If any provision of this Agreement or any portion thereof is declared invalid, illegal, or incapable of being enforced by any court of competent jurisdiction, the remainder of such provisions and all of the remaining provisions of this Agreement shall continue in full force and effect. (d) This Agreement shall be governed by and construed in accordance with the internal laws of the State of North Carolina, except to the extent governed by federal law. (e) The Company may assign this Agreement to any direct or indirect subsidiary or parent of the Company or joint venture in which the Company has an interest, or any successor (whether by merger, consolidation, purchase or otherwise) to all or substantially all of the stock, assets or business of the Company and this Agreement shall be binding upon and inure to the benefit of such successors and assigns. Except as expressly provided herein, Executive may not sell, transfer, assign, or pledge any of his rights or interests pursuant to this Agreement. (f) Any rights of Executive hereunder shall be in addition to any rights Executive may otherwise have under benefit plans, agreements, or arrangements of the Company to which he is a party or in which he is a participant, including, but not limited to, any Company-sponsored employee benefit plans. Provisions of this Agreement shall not in any way abrogate Executive's rights under such other plans, agreements, or arrangements. 9 10 (g) For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the named Executive at the address set forth below under his signature; provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (h) Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (i) Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (j) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Resolution of Disputes. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the City of Charlotte, North Carolina in accordance with the rules of the American Arbitration Association then in effect. The Company and Executive hereby agree that the arbitrator will not have the authority to award punitive damages, damages for emotional distress or any other damages that are not contractual in nature. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 6, and Executive consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond except to the extent otherwise required by applicable law. The expense of such arbitration shall be borne by the Company. 12. Attorneys' Fees. Should either party hereto or their successors retain counsel for the purpose of enforcing, or preventing the breach of, any provision hereof, including, but not limited to, by instituting any action or proceeding in arbitration or a court to enforce any provision hereof or to enjoin a breach of any provision of this Agreement, or for a declaration of such party's rights or obligations under the Agreement, or for any other remedy, whether in arbitration or in a court of law, then the successful party shall be entitled to be reimbursed by the other party for all costs and expenses incurred thereby, including, but 10 11 not limited to, reasonable fees and expenses of attorneys and expert witnesses, including costs of appeal. If such successful party shall recover judgment in any such action or proceeding, such costs, expenses and fees may be included in and as part of such judgment. The successful party shall be the party who is entitled to recover his costs of suit, whether or not the suit proceeds to final judgment. If no costs are awarded, the successful party shall be determined by the arbitrator or court, as the case may be. 11 12 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE COMPANY PERSONNEL GROUP OF AMERICA, INC. /s/ James C. Hunt By: /s/ Edward P. Drudge, Jr. - --------------------------- ------------------------------- JAMES C. HUNT Name: Edward P. Drudge, Jr. Title: Chairman of the Board and Chief Executive Officer Address: 3518 Bellevue Lane Charlotte, NC 28226 12 EX-10.12 3 EMPLOYMENT AGREEMENT-- PETER SOLLENNE 1 EXHIBIT 10.12 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 1st day of October 1996, by and between Personnel Group of America, Inc., a Delaware corporation (the "Company"), and Peter Sollenne ("Executive"). W I T N E S S E T H: WHEREAS, Executive and the Company deem it to be in their respective best interests to enter into an agreement providing for the Company's employment of Executive pursuant to the terms herein stated; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, it is hereby agreed as follows: 1. Effective Date. This Agreement shall be effective as of the 1st day of October 1996, which date shall be referred to herein as the "Effective Date". 2. Position and Duties. (a) The Company hereby employs Executive as its President of Commercial Staffing Division commencing as of the Effective Date for the "Term of Employment" (as herein defined below). In this capacity, Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such offices and position and to such other services of a senior executive nature as may be reasonably requested by the Chairman and Chief Executive Officer of the Company which may include services for one or more subsidiaries or affiliates of the Company. Executive shall in his capacity as an employee and officer of the Company be responsible to and obey the reasonable and lawful directives of the Chief Executive Officer. (b) Executive shall devote his full time and attention to such duties, except for sick leave, reasonable vacations, and excused leaves of absence as more particularly provided herein. Executive shall use his best efforts during the Term of Employment to protect, encourage, and promote the interests of the Company. 3. Compensation. (a) Base Salary. The Company shall pay to Executive during the Term of Employment a minimum salary at the rate of two hundred thousand dollars ($200,000) per calendar year and agrees that such salary shall be reviewed at least annually. Such salary shall be subject to discretionary annual increases as determined by the Board of Directors. Such salary shall be payable in accordance with the Company's normal payroll procedures. (Executive's annual salary, as set forth above or as it may be increased from time to time as set forth herein, shall be referred to hereinafter as "Base Salary.") At no time during the 2 Term of Employment shall Executive's Base Salary be decreased from the amount of Base Salary then in effect. (b) Performance Bonus. In addition to the compensation otherwise payable to Executive pursuant to this Agreement, Executive shall be eligible to receive an annual bonus ("Bonus") pursuant to a performance bonus plan (the "Bonus Plan") which shall be established by the Company for its senior executive officers and which shall provide for bonus compensation to be payable based upon the financial and other performance of the Company and its senior executives. 4. Benefits. During the Term of Employment: (a) Executive shall be eligible to participate in any life, health and long-term disability insurance programs, pension and retirement programs, stock option and other incentive compensation programs, and other fringe benefit programs made available to senior executive employees of the Company from time to time, and Executive shall be entitled to receive such other fringe benefits as may be granted to his from time to time by the Company. (b) Executive shall be allowed 28 days of paid time off (PTO) per calendar year and leaves of absence with pay on the same basis as other senior executive employees of the Company. (c) The Company shall reimburse Executive for reasonable business expenses incurred in performing Executive's duties and promoting the business of the Company, including, but not limited to, reasonable entertainment expenses, travel and lodging expenses, following presentation of documentation in accordance with the Company's business expense reimbursement policies. 5. Term; Termination of Employment. As used herein, the phrase "Term of Employment" shall mean the period commencing on the Effective Date and ending on September 30, 1997; provided, however, that as of the expiration date of each of (i) the initial Term of Employment and (ii) if applicable, any Renewal Period (as defined below), the Term of Employment shall automatically be extended for a one (1) year period (each a "Renewal Period") unless either the Company or Executive provides six (6) months' notice to the contrary. Notwithstanding the foregoing, the Term of Employment shall expire on the first to occur of the following: (a) Termination by the Company Without Cause or By Executive With Good Reason. Notwithstanding anything to the contrary in this Agreement, whether express or implied, the Company may, at any time, terminate Executive's employment for any reason other than Cause (as defined below) by giving Executive at least 60 days' prior written notice of the effective date of termination. In the event Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason (as defined below), Executive shall be entitled to receive (y) his Base Salary as he would have received 2 3 such amounts during the period commencing on the effective date of such termination and ending on the First Anniversary thereof (the "Salary Continuation Period"), as if Executive were still employed hereunder during the Salary Continuation Period; and (z) if it has not previously been paid to Executive, any Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination. In addition, all of Executive's stock options with respect to the Company's stock shall become immediately and fully exercisable. During the Salary Continuation Period, Executive and his spouse and dependents shall be entitled to continue to be covered by all group medical, health and accident insurance or other such health care arrangements in which Executive was a participant as of the date of such termination, at the same coverage level and on the same terms and conditions which applied immediately prior to the date of Executive's termination of employment, until Executive obtains alternative comparable coverage under another group plan, which coverage does not contain any pre-existing condition exclusions or limitations; provided, however, that if, as the result of the termination of Executive's employment, Executive and/or his otherwise eligible dependents or beneficiaries shall become ineligible for benefits under any one or more of the Company's benefit plans, the Company shall continue to provide Executive and his eligible dependents or beneficiaries, through other means, with benefits at a level at least equivalent to the level of benefits for which Executive and his dependents and beneficiaries were eligible under such plans immediately prior to the date of Executive's termination of employment. At the termination of the benefits coverage under the preceding sentence, Executive and his spouse and dependents shall be entitled to continuation coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended, Sections 601-608 of the Employee Retirement Income Security Act of 1974, as amended, and under any other applicable law, to the extent required by such laws, as if Executive had terminated employment with the Company on the date such benefits coverage terminates. For purposes of this Agreement, "Good Reason" shall mean, without the express written consent of Executive, the occurrence of any of the following events unless such events are fully corrected within 30 days following written notification by Executive to the Company that he intends to terminate his employment hereunder for one of the reasons set forth below: (i) a material breach by the Company of any material provision of this Agreement, including, but not limited to, the assignment to Executive of any duties inconsistent with Executive's position in the Company or an adverse alteration in the nature or status of Executive's responsibilities; (ii) the Company's requiring the Executive to be based anywhere other than the metropolitan area where he currently works and resides; and (iii) the occurrence of a "Change in Control" as defined below. For purposes of this Agreement a "Change in Control" shall mean an event as a result of which: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), is or becomes the "beneficial owner" (as 3 4 defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company; (ii) the Company consolidates with, or merges with or into another corporation or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any corporation consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding voting stock of the Company is changed into or exchanged for (x) voting stock of the surviving or transferee corporation or (y) cash, securities (whether or not including voting stock) or other property, and (B) the holders of the voting stock of the Company immediately prior to such transaction own, directly or indirectly, not less than 50% of the voting power of the voting stock of the surviving corporation immediately after such transaction; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of the Company (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of the Company then in office; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation, provided, however, that a Change in Control shall not include any going private or leveraged buy-out transaction which is sponsored by Executive or in which Executive acquires an equity interest materially in excess of his equity interest in the Company immediately prior to such transaction (each of the events described in (i), (ii), (iii) or (iv) above, as provided otherwise by the preceding clause being referred to herein as a "Change in Control"). (b) Termination for Cause. The Company shall have the right to terminate Executive's employment at any time for Cause by giving Executive written notice of the effective date of termination (which effective date may, except as otherwise provided below, be the date of such notice). If the Company terminates Executive's employment for Cause, Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination and the Company shall have no further obligation hereunder from and after the effective date of termination and the Company shall have all other rights and remedies available under this or any other agreement and at law or in equity. For purposes of this Agreement only, Cause shall mean: i) fraud, misappropriation, embezzlement, or other act of material misconduct against the Company or any of its affiliates; 4 5 ii) substantial and willful failure to perform specific and lawful directives of the Board, as reasonably determined by the Board; iii) willful and knowing violation of any rules or regulations of any governmental or regulatory body, which is materially injurious to the financial condition of the Company; or iv) conviction of or plea of guilty or nolo contendere to a felony; provided, however, that with regard to subparagraph (ii) above, Executive may not be terminated for Cause unless and until the Company has given his reasonable written notice of its intended actions and specifically describing the alleged events, activities or omissions giving rise thereto and with respect to those events, activities or omissions for which a cure is possible, a reasonable opportunity to cure such breach; and provided further, however, that for purposes of determining whether any such Cause is present, no act or failure to act by Executive shall be considered "willful" if done or omitted to be done by Executive in good faith and in the reasonable belief that such act or omission was in the best interest of the Company and/or required by applicable law. (c) Termination on Account of Death. In the event of Executive's death while in the employ of the Company, his employment hereunder shall terminate on the date of his death and Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination. In addition, any other benefits payable on behalf of Executive shall be determined under the Company's insurance and other compensation and benefit plans and programs then in effect in accordance with the terms of such programs. (d) Voluntary Termination by Executive. In the event that Executive's employment with the Company is voluntarily terminated by Executive other than for Good Reason, Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination, and the Company shall have no further obligation hereunder from and after the effective date of termination and the Company shall have all other rights and remedies available under this Agreement or any other agreement and at law or in equity. Executive shall give the Company at least 60 days' advance written notice of his intention to terminate his employment hereunder. (e) Termination on Account of Disability. To the extent not prohibited by The Americans With Disabilities Act of 1990 or the North Carolina Handicapped Persons Protection Act if, as a result of Executive's incapacity due to physical or mental illness (as determined in good faith by a physician acceptable to the Company and Executive), Executive shall have been absent from the full-time performance of his duties with the Company for 120 consecutive days during any twelve (12) month period or if a physician acceptable to the 5 6 Company advises the Company that it is likely that Executive will be unable to return to the full-time performance of his duties for 120 consecutive days during the succeeding twelve (12) month period, his employment may be terminated for "Disability." During any period that Executive fails to perform his full-time duties with the Company as a result of incapacity due to physical or mental illness, he shall continue to receive his Base Salary, Bonus and other benefits provided hereunder, together with all compensation payable to his under the Company's disability plan or program or other similar plan during such period, until Executive's employment hereunder is terminated pursuant to this Section 5(e). Thereafter, Executive's benefits shall be determined under the Company's retirement, insurance, and other compensation and benefit plans and programs then in effect, in accordance with the terms of such programs. 6. Confidential Information, Non-Solicitation and Non-Competition. (a) During the Term of Employment and for two (2) years thereafter, Executive 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 Executive 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. Executive 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. Upon the termination of his employment for any reason whatsoever, Executive shall promptly deliver to the Company all documents, computer tapes and disks (and all copies thereof) containing any Confidential Information. (b) During the Term of Employment and for two (2) years thereafter, Executive shall not, directly or indirectly in any manner or capacity (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 any activity which is competitive with the business of the Company, in any geographic area in which the Company is now or shall then be doing business, including without limitation, those geographic areas set forth on Exhibit A hereto. Executive 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 6 if such activity were carried out by Executive and, in particular, Executive agrees that he will not induce any employee of the Company to carry out any such activity; provided, however, that the "beneficial ownership" by Executive, 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 Exchange Act, 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 6 7 will or would suffer irreparable injury if Executive 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 Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Executive from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. (c) During the Term of Employment and for two (2) years thereafter, Executive 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) Executive 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. Executive 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 will be acquired by his because of his business position with the Company. Executive agrees that, during the Term of Employment, and for a period of two (2) years thereafter, he will not, directly or indirectly, solicit or recruit any employee of the Company for the purpose of being employed by his 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 6 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) Executive acknowledges that he was informed of the time, territory, scope and other essential requirements of the restrictions in this Section 6 when he agreed to become employed with the Company under the terms set forth in this Agreement, and Executive further acknowledges that he has received sufficient and valuable consideration for his agreement to such restrictions. 7. No Offset - No Mitigation. Executive shall not be required to mitigate damages under this Agreement by seeking other comparable employment. The amount of any payment or benefit provided for in this Agreement, including welfare benefits, shall not be reduced by any compensation or benefits earned by or provided to him as the result of employment by another employer, except as provided otherwise in Section 5(a) with respect to health and insurance benefits provided during the Salary Continuation Period. 7 8 8. Designated Beneficiary. In the event of the death of Executive while in the employ of the Company, or at any time thereafter during which amounts remain payable to Executive under Section 5, such payments (other than the right to continuation of welfare benefits) shall thereafter be made to such person or persons as Executive may specifically designate (successively or contingently) to receive payments under this Agreement following Executive's death by filing a written beneficiary designation with the Company during Executive's lifetime. Such beneficiary designation shall be in such form as may be prescribed by the Company and may be amended from time to time or may be revoked by Executive pursuant to written instruments filed with the Company during his lifetime. Beneficiaries designated by Executive may be any natural or legal person or persons, including a fiduciary, such as a trustee or a trust or the legal representative of an estate. Unless otherwise provided by the beneficiary designation filed by Executive, if all of the persons so designated die before Executive on the occurrence of a contingency not contemplated in such beneficiary designation, then the amounts payable under this Agreement shall be paid to Executive's estate. 9. Taxes. All payments to be made to Executive under this Agreement will be subject to any applicable withholding of federal, state and local income and employment taxes. 10. Miscellaneous. This Agreement shall also be subject to the following miscellaneous considerations: (a) Executive and the Company each represent and warrant to the other that he or it has the authorization, power and right to deliver, execute, and fully perform his or its obligations under this Agreement in accordance with its terms. (b) This Agreement contains a complete statement of all the arrangements between the parties with respect to Executive's employment by the Company; this Agreement supersedes all prior and existing negotiations and agreements between the parties concerning Executive's employment; and this Agreement can only be changed or modified pursuant to a written instrument duly executed by each of the parties hereto. (c) If any provision of this Agreement or any portion thereof is declared invalid, illegal, or incapable of being enforced by any court of competent jurisdiction, the remainder of such provisions and all of the remaining provisions of this Agreement shall continue in full force and effect. (d) This Agreement shall be governed by and construed in accordance with the internal laws of the State of North Carolina, except to the extent governed by federal law. (e) The Company may assign this Agreement to any direct or indirect subsidiary or parent of the Company or joint venture in which the Company has an interest, or any successor (whether by merger, consolidation, purchase or otherwise) to all or substantially all of the stock, assets or business of the Company and this Agreement shall be binding upon 8 9 and inure to the benefit of such successors and assigns. Except as expressly provided herein, Executive may not sell, transfer, assign, or pledge any of his rights or interests pursuant to this Agreement. (f) Any rights of Executive hereunder shall be in addition to any rights Executive may otherwise have under benefit plans, agreements, or arrangements of the Company to which he is a party or in which he is a participant, including, but not limited to, any Company-sponsored employee benefit plans. Provisions of this Agreement shall not in any way abrogate Executive's rights under such other plans, agreements, or arrangements. (g) For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the named Executive at the address set forth below under his signature; provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Chief Executive Officer of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (h) Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (i) Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (j) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Resolution of Disputes. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the City of Charlotte, North Carolina in accordance with the rules of the American Arbitration Association then in effect. The Company and Executive hereby agree that the arbitrator will not have the authority to award punitive damages, damages for emotional distress or any other damages that are not contractual in nature. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 6, and Executive consents that such restraining order or injunction may be granted without the neces- 9 10 sity of the Company's posting any bond except to the extent otherwise required by applicable law. The expense of such arbitration shall be borne by the Company. 12. Attorneys' Fees. Should either party hereto or their successors retain counsel for the purpose of enforcing, or preventing the breach of, any provision hereof, including, but not limited to, by instituting any action or proceeding in arbitration or a court to enforce any provision hereof or to enjoin a breach of any provision of this Agreement, or for a declaration of such party's rights or obligations under the Agreement, or for any other remedy, whether in arbitration or in a court of law, then the successful party shall be entitled to be reimbursed by the other party for all costs and expenses incurred thereby, including, but not limited to, reasonable fees and expenses of attorneys and expert witnesses, including costs of appeal. If such successful party shall recover judgment in any such action or proceeding, such costs, expenses and fees may be included in and as part of such judgment. The successful party shall be the party who is entitled to recover his costs of suit, whether or not the suit proceeds to final judgment. If no costs are awarded, the successful party shall be determined by the arbitrator or court, as the case may be. 10 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE COMPANY PETER SOLLENNE PERSONNEL GROUP OF AMERICA, INC. By: /s/ Peter R. Sollenne By: /s/ Edward P. Drudge, Jr. --------------------------------- ------------------------------- Title: President, Commercial Name: Edward P. Drudge, Jr. Staffing Division Title: Chairman of the Board and Chief Executive Officer Address: 3450 Deer Ridge Drive Danville, CA 94506 11 EX-10.13 4 EMPLOYMENT AGREEMENT-- KEN BRAMLETT 1 EXHIBIT 10.13 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 7th day of October 1996, by and between Personnel Group of America, Inc., a Delaware corporation (the "Company"), and Kenneth R. Bramlett, Jr. ("Executive"). W I T N E S S E T H: WHEREAS, Executive and the Company deem it to be in their respective best interests to enter into an agreement providing for the Company's employment of Executive pursuant to the terms herein stated; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, it is hereby agreed as follows: 1. Effective Date. This Agreement shall be effective as of the 7th day of October 1996, which date shall be referred to herein as the "Effective Date". 2. Position and Duties. (a) The Company hereby employs Executive as its Senior Vice President of Administration and General Counsel commencing as of the Effective Date for the "Term of Employment" (as herein defined below). In this capacity, Executive shall devote his best efforts and his full business time and attention to the performance of the services customarily incident to such offices and position and to such other services of a senior executive nature as may be reasonably requested by the Chairman and Chief Executive Officer of the Company which may include services for one or more subsidiaries or affiliates of the Company. Executive shall in his capacity as an employee and officer of the Company be responsible to and obey the reasonable and lawful directives of the Chief Executive Officer. (b) Executive shall devote his full time and attention to such duties, except for sick leave, reasonable vacations, and excused leaves of absence as more particularly provided herein. Executive shall use his best efforts during the Term of Employment to protect, encourage, and promote the interests of the Company. 3. Compensation. (a) Base Salary. The Company shall pay to Executive during the Term of Employment a minimum salary at the rate of one hundred sixty-five thousand ($165,000) per calendar year and agrees that such salary shall be reviewed at least annually. Such salary shall be subject to discretionary annual increases as determined by the Board of Directors. Such salary shall be payable in accordance with the Company's normal payroll procedures. (Executive's annual salary, as set forth above or as it may be increased from time to time as set forth herein, shall be referred to hereinafter as "Base Salary.") At no time during the 2 Term of Employment shall Executive's Base Salary be decreased from the amount of Base Salary then in effect. (b) Performance Bonus. In addition to the compensation otherwise payable to Executive pursuant to this Agreement, Executive shall be eligible to receive an annual bonus ("Bonus") pursuant to a performance bonus plan (the "Bonus Plan") which shall be established by the Company for its senior executive officers and which shall provide for bonus compensation to be payable based upon the financial and other performance of the Company and its senior executives. 4. Benefits. During the Term of Employment: (a) Executive shall be eligible to participate in any life, health and long-term disability insurance programs, pension and retirement programs, stock option and other incentive compensation programs, and other fringe benefit programs made available to senior executive employees of the Company from time to time, and Executive shall be entitled to receive such other fringe benefits as may be granted to his from time to time by the Company. (b) Executive shall be allowed 28 days of paid time off (PTO) per calendar year and leaves of absence with pay on the same basis as other senior executive employees of the Company. (c) The Company shall reimburse Executive for reasonable business expenses incurred in performing Executive's duties and promoting the business of the Company, including, but not limited to, reasonable entertainment expenses, travel and lodging expenses, following presentation of documentation in accordance with the Company's business expense reimbursement policies. 5. Term; Termination of Employment. As used herein, the phrase "Term of Employment" shall mean the period commencing on the Effective Date and ending on September 30, 1997; provided, however, that as of the expiration date of each of (i) the initial Term of Employment and (ii) if applicable, any Renewal Period (as defined below), the Term of Employment shall automatically be extended for a one (1) year period (each a "Renewal Period") unless either the Company or Executive provides six (6) months' notice to the contrary. Notwithstanding the foregoing, the Term of Employment shall expire on the first to occur of the following: (a) Termination by the Company Without Cause or By Executive With Good Reason. Notwithstanding anything to the contrary in this Agreement, whether express or implied, the Company may, at any time, terminate Executive's employment for any reason other than Cause (as defined below) by giving Executive at least 60 days' prior written notice of the effective date of termination. In the event Executive's employment hereunder is terminated by the Company other than for Cause or by Executive for Good Reason (as defined below), Executive shall be entitled to receive (y) his Base Salary as he would have received 2 3 such amounts during the period commencing on the effective date of such termination and ending on the First Anniversary thereof (the "Salary Continuation Period"), as if Executive were still employed hereunder during the Salary Continuation Period; and (z) if it has not previously been paid to Executive, any Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination. In addition, all of Executive's stock options with respect to the Company's stock shall become immediately and fully exercisable. During the Salary Continuation Period, Executive and his spouse and dependents shall be entitled to continue to be covered by all group medical, health and accident insurance or other such health care arrangements in which Executive was a participant as of the date of such termination, at the same coverage level and on the same terms and conditions which applied immediately prior to the date of Executive's termination of employment, until Executive obtains alternative comparable coverage under another group plan, which coverage does not contain any pre-existing condition exclusions or limitations; provided, however, that if, as the result of the termination of Executive's employment, Executive and/or his otherwise eligible dependents or beneficiaries shall become ineligible for benefits under any one or more of the Company's benefit plans, the Company shall continue to provide Executive and his eligible dependents or beneficiaries, through other means, with benefits at a level at least equivalent to the level of benefits for which Executive and his dependents and beneficiaries were eligible under such plans immediately prior to the date of Executive's termination of employment. At the termination of the benefits coverage under the preceding sentence, Executive and his spouse and dependents shall be entitled to continuation coverage pursuant to Section 4980B of the Internal Revenue Code of 1986, as amended, Sections 601-608 of the Employee Retirement Income Security Act of 1974, as amended, and under any other applicable law, to the extent required by such laws, as if Executive had terminated employment with the Company on the date such benefits coverage terminates. For purposes of this Agreement, "Good Reason" shall mean, without the express written consent of Executive, the occurrence of any of the following events unless such events are fully corrected within 30 days following written notification by Executive to the Company that he intends to terminate his employment hereunder for one of the reasons set forth below: (i) a material breach by the Company of any material provision of this Agreement, including, but not limited to, the assignment to Executive of any duties inconsistent with Executive's position in the Company or an adverse alteration in the nature or status of Executive's responsibilities; (ii) the Company's requiring the Executive to be based anywhere other than the metropolitan area where he currently works and resides; and (iii) the occurrence of a "Change in Control" as defined below. For purposes of this Agreement a "Change in Control" shall mean an event as a result of which: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")), is or becomes the "beneficial owner" (as 3 4 defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the voting stock of the Company; (ii) the Company consolidates with, or merges with or into another corporation or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any corporation consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding voting stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (A) the outstanding voting stock of the Company is changed into or exchanged for (x) voting stock of the surviving or transferee corporation or (y) cash, securities (whether or not including voting stock) or other property, and (B) the holders of the voting stock of the Company immediately prior to such transaction own, directly or indirectly, not less than 50% of the voting power of the voting stock of the surviving corporation immediately after such transaction; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of the Company (together with any new directors whose election by such Board or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of the Company then in office; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation, provided, however, that a Change in Control shall not include any going private or leveraged buy-out transaction which is sponsored by Executive or in which Executive acquires an equity interest materially in excess of his equity interest in the Company immediately prior to such transaction (each of the events described in (i), (ii), (iii) or (iv) above, as provided otherwise by the preceding clause being referred to herein as a "Change in Control"). (b) Termination for Cause. The Company shall have the right to terminate Executive's employment at any time for Cause by giving Executive written notice of the effective date of termination (which effective date may, except as otherwise provided below, be the date of such notice). If the Company terminates Executive's employment for Cause, Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination and the Company shall have no further obligation hereunder from and after the effective date of termination and the Company shall have all other rights and remedies available under this or any other agreement and at law or in equity. For purposes of this Agreement only, Cause shall mean: i) fraud, misappropriation, embezzlement, or other act of material misconduct against the Company or any of its affiliates; 4 5 ii) substantial and willful failure to perform specific and lawful directives of the Board, as reasonably determined by the Board; iii) willful and knowing violation of any rules or regulations of any governmental or regulatory body, which is materially injurious to the financial condition of the Company; or iv) conviction of or plea of guilty or nolo contendere to a felony; provided, however, that with regard to subparagraph (ii) above, Executive may not be terminated for Cause unless and until the Company has given his reasonable written notice of its intended actions and specifically describing the alleged events, activities or omissions giving rise thereto and with respect to those events, activities or omissions for which a cure is possible, a reasonable opportunity to cure such breach; and provided further, however, that for purposes of determining whether any such Cause is present, no act or failure to act by Executive shall be considered "willful" if done or omitted to be done by Executive in good faith and in the reasonable belief that such act or omission was in the best interest of the Company and/or required by applicable law. (c) Termination on Account of Death. In the event of Executive's death while in the employ of the Company, his employment hereunder shall terminate on the date of his death and Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination. In addition, any other benefits payable on behalf of Executive shall be determined under the Company's insurance and other compensation and benefit plans and programs then in effect in accordance with the terms of such programs. (d) Voluntary Termination by Executive. In the event that Executive's employment with the Company is voluntarily terminated by Executive other than for Good Reason, Executive shall be paid his unpaid Base Salary through the date of termination and the amount of any unpaid Bonus to which Executive had become entitled under the Bonus Plan prior to the effective date of such termination, and the Company shall have no further obligation hereunder from and after the effective date of termination and the Company shall have all other rights and remedies available under this Agreement or any other agreement and at law or in equity. Executive shall give the Company at least 60 days' advance written notice of his intention to terminate his employment hereunder. (e) Termination on Account of Disability. To the extent not prohibited by The Americans With Disabilities Act of 1990 or the North Carolina Handicapped Persons Protection Act if, as a result of Executive's incapacity due to physical or mental illness (as determined in good faith by a physician acceptable to the Company and Executive), Executive shall have been absent from the full-time performance of his duties with the Company for 120 consecutive days during any twelve (12) month period or if a physician acceptable to the 5 6 Company advises the Company that it is likely that Executive will be unable to return to the full-time performance of his duties for 120 consecutive days during the succeeding twelve (12) month period, his employment may be terminated for "Disability." During any period that Executive fails to perform his full-time duties with the Company as a result of incapacity due to physical or mental illness, he shall continue to receive his Base Salary, Bonus and other benefits provided hereunder, together with all compensation payable to his under the Company's disability plan or program or other similar plan during such period, until Executive's employment hereunder is terminated pursuant to this Section 5(e). Thereafter, Executive's benefits shall be determined under the Company's retirement, insurance, and other compensation and benefit plans and programs then in effect, in accordance with the terms of such programs. 6. Confidential Information, Non-Solicitation and Non-Competition. (a) During the Term of Employment and for two (2) years thereafter, Executive 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 Executive 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. Executive 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. Upon the termination of his employment for any reason whatsoever, Executive shall promptly deliver to the Company all documents, computer tapes and disks (and all copies thereof) containing any Confidential Information. (b) During the Term of Employment and for two (2) years thereafter, Executive shall not, directly or indirectly in any manner or capacity (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 any activity which is competitive with the business of the Company, in any geographic area in which the Company is now or shall then be doing business, including without limitation, those geographic areas set forth on Exhibit A hereto. Executive 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 6 if such activity were carried out by Executive and, in particular, Executive agrees that he will not induce any employee of the Company to carry out any such activity; provided, however, that the "beneficial ownership" by Executive, 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 Exchange Act, 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 6 7 will or would suffer irreparable injury if Executive 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 Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Executive from competing with the Company or any subsidiary or affiliate of the Company in violation of this Agreement. (c) During the Term of Employment and for two (2) years thereafter, Executive 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) Executive 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. Executive 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 will be acquired by his because of his business position with the Company. Executive agrees that, during the Term of Employment, and for a period of two (2) years thereafter, he will not, directly or indirectly, solicit or recruit any employee of the Company for the purpose of being employed by his 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 6 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) Executive acknowledges that he was informed of the time, territory, scope and other essential requirements of the restrictions in this Section 6 when he agreed to become employed with the Company under the terms set forth in this Agreement, and Executive further acknowledges that he has received sufficient and valuable consideration for his agreement to such restrictions. 7. No Offset - No Mitigation. Executive shall not be required to mitigate damages under this Agreement by seeking other comparable employment. The amount of any payment or benefit provided for in this Agreement, including welfare benefits, shall not be reduced by any compensation or benefits earned by or provided to him as the result of employment by another employer, except as provided otherwise in Section 5(a) with respect to health and insurance benefits provided during the Salary Continuation Period. 7 8 8. Designated Beneficiary. In the event of the death of Executive while in the employ of the Company, or at any time thereafter during which amounts remain payable to Executive under Section 5, such payments (other than the right to continuation of welfare benefits) shall thereafter be made to such person or persons as Executive may specifically designate (successively or contingently) to receive payments under this Agreement following Executive's death by filing a written beneficiary designation with the Company during Executive's lifetime. Such beneficiary designation shall be in such form as may be prescribed by the Company and may be amended from time to time or may be revoked by Executive pursuant to written instruments filed with the Company during his lifetime. Beneficiaries designated by Executive may be any natural or legal person or persons, including a fiduciary, such as a trustee or a trust or the legal representative of an estate. Unless otherwise provided by the beneficiary designation filed by Executive, if all of the persons so designated die before Executive on the occurrence of a contingency not contemplated in such beneficiary designation, then the amounts payable under this Agreement shall be paid to Executive's estate. 9. Taxes. All payments to be made to Executive under this Agreement will be subject to any applicable withholding of federal, state and local income and employment taxes. 10. Miscellaneous. This Agreement shall also be subject to the following miscellaneous considerations: (a) Executive and the Company each represent and warrant to the other that he or it has the authorization, power and right to deliver, execute, and fully perform his or its obligations under this Agreement in accordance with its terms. (b) Except as set forth in the Offer Letter, which is intended to supplement this Agreement, this Agreement contains a complete statement of all the arrangements between the parties with respect to Executive's employment by the Company; this Agreement supersedes all prior and existing negotiations and agreements between the parties concerning Executive's employment; and this Agreement can only be changed or modified pursuant to a written instrument duly executed by each of the parties hereto. (c) If any provision of this Agreement or any portion thereof is declared invalid, illegal, or incapable of being enforced by any court of competent jurisdiction, the remainder of such provisions and all of the remaining provisions of this Agreement shall continue in full force and effect. (d) This Agreement shall be governed by and construed in accordance with the internal laws of the State of North Carolina, except to the extent governed by federal law. (e) The Company may assign this Agreement to any direct or indirect subsidiary or parent of the Company or joint venture in which the Company has an interest, or any successor (whether by merger, consolidation, purchase or otherwise) to all or substantially 8 9 all of the stock, assets or business of the Company and this Agreement shall be binding upon and inure to the benefit of such successors and assigns. Except as expressly provided herein, Executive may not sell, transfer, assign, or pledge any of his rights or interests pursuant to this Agreement. (f) Any rights of Executive hereunder shall be in addition to any rights Executive may otherwise have under benefit plans, agreements, or arrangements of the Company to which he is a party or in which he is a participant, including, but not limited to, any Company-sponsored employee benefit plans. Provisions of this Agreement shall not in any way abrogate Executive's rights under such other plans, agreements, or arrangements. (g) For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the named Executive at the address set forth below under his signature; provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Chief Executive Officer of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (h) Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. (i) Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times. (j) This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. Resolution of Disputes. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the City of Charlotte, North Carolina in accordance with the rules of the American Arbitration Association then in effect. The Company and Executive hereby agree that the arbitrator will not have the authority to award punitive damages, damages for emotional distress or any other damages that are not contractual in nature. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 6, and Executive consents that such restraining order or injunction may be granted without the neces- 9 10 sity of the Company's posting any bond except to the extent otherwise required by applicable law. The expense of such arbitration shall be borne by the Company. 12. Attorneys' Fees. Should either party hereto or their successors retain counsel for the purpose of enforcing, or preventing the breach of, any provision hereof, including, but not limited to, by instituting any action or proceeding in arbitration or a court to enforce any provision hereof or to enjoin a breach of any provision of this Agreement, or for a declaration of such party's rights or obligations under the Agreement, or for any other remedy, whether in arbitration or in a court of law, then the successful party shall be entitled to be reimbursed by the other party for all costs and expenses incurred thereby, including, but not limited to, reasonable fees and expenses of attorneys and expert witnesses, including costs of appeal. If such successful party shall recover judgment in any such action or proceeding, such costs, expenses and fees may be included in and as part of such judgment. The successful party shall be the party who is entitled to recover his costs of suit, whether or not the suit proceeds to final judgment. If no costs are awarded, the successful party shall be determined by the arbitrator or court, as the case may be. 10 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE COMPANY KENNETH R. BRAMLETT, JR. PERSONNEL GROUP OF AMERICA, INC. By: /s/ Kenneth R. Bramlett, Jr. By: /s/ Edward P. Drudge, Jr. --------------------------------- -------------------------------- Title: Senior Vice President Name: Edward P. Drudge, Jr. Title: Chairman of the Board and Chief Executive Officer Address: 307 Hunter Lane Charlotte, NC 28211 11 EX-10.16 5 AMENDED & RESTATED NON QUALIFIED PROFIT SHARING 1 EXHIBIT 10.16 PERSONNEL GROUP OF AMERICA, INC. NON-QUALIFIED PROFIT SHARING PLAN AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996 2 TABLE OF CONTENTS ARTICLE I. INTRODUCTION AND PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1. Establishment of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Purpose of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1. Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2. Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3. Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.4. Basic Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.5. Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.6. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.7. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.8. Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.9. Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.11. Controlled Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.12. Disability or Disabled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.13. Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.14. Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.15. Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.16. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.17. Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.18. Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.19. Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.20. Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.21. Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.22. Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.23. Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.24. Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.25. Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.26. Vested Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.27. Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE IV. COMPANY ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1. Non-qualified Profit Sharing Allocation . . . . . . . . . . . . . . . . . . . . . . 4 4.2. Eligibility to Receive an Allocation . . . . . . . . . . . . . . . . . . . . . . . 5 4.3. Unpaid Leaves of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.4. Suspended Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-i- 3 4.5. Cessation of Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE V. ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.1. Establishment of Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.2. Bookkeeping Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5.3. Valuation of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE VI. VESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.1. Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.2. Forfeiture Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.3. Reallocation of Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE VII. PAYMENT OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.1. Method of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.2. Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.3. Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.4. Payment to Minors or Legal Incompetents . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE VIII. PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8.1. Adoption and Administration of the Plan . . . . . . . . . . . . . . . . . . . . . . 8 8.2. Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8.3. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 8.4. Impartiality of Committee Members . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE IX. CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE X. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.1. No Funding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.2. Non-alienation of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.3. Limitation of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.4. Captions and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.5. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-ii- 4 ARTICLE I. INTRODUCTION AND PURPOSE 1.1. Establishment of the Plan. Effective August 15, 1995, Personnel Group of America, Inc. (the "Company") assumed the Plan sponsorship and a portion of the obligations and liabilities for certain participating employers in the ADIA Services, Inc. Nonqualified Profit Sharing Plan, as in effect on January 1, 1995. This amendment and restatement of the Plan is effective as of January 1, 1996. 1.2. Purpose of the Plan. The Company intends to maintain the Plan primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, within the meaning of ERISA Section 401(a)(1). The Plan will be interpreted in a manner that comports with these intentions. ARTICLE II. DEFINITIONS Definitions are contained in this Article and throughout other Sections of the Plan. The location of a definition is for convenience only and should not be given any significance. A word or term defined in this Article (or in any other Article) will have the same meaning throughout the Plan unless the context clearly requires a different meaning. Whenever referred to in this Plan, the following capitalized terms shall have the meanings set forth below except where otherwise provided. As used in the Plan, the masculine, feminine and neuter genders and the singular and plural numbers shall each be deemed to include the other or others. 2.1. "Account" means a Participant's Non-qualified Profit Sharing Account established pursuant to Section 5.1. 2.2. "Affiliate" means any corporation, partnership or other organization which, during any period of employment of a Participant, was at least 50% controlled by the Company or any member of the Controlled Group of which the Company is a member. 2.3. "Beneficiary" means the person(s) designated pursuant to Section 7.3 to receive benefits in the event of the Participant's death. 2.4. "Basic Plan" means the ADIA 401(k)/Profit Sharing Plan I and its successor plan the Personnel Group of America, Inc. 401(k) Plan. 2.5. "Board" means the Board of Directors of Personnel Group of America, Inc. 5 2.6. "Change of Control" means a change in ownership of more than 50% of the stock of a participating Employer. If, because of a Change of Control, one or more of the participating Employers are no longer members of the Controlled Group of which the Company is a member, a Change of Control is not triggered for the remaining participating Employers. For the purpose of this Section, the provisions of Code Section 318 concerning the constructive ownership of stock do not apply. Notwithstanding the foregoing provisions of this Section, a Change of Control will not be deemed to have occurred solely because of the acquisition of securities of a participating Employer's direct parent by an employee benefit plan maintained by the Company for its Employees. 2.7. "Code" means the internal Revenue Code of 1986 as amended. 2.8. "Committee" means the Compensation Committee of the Board. 2.9. "Company" means Personnel Group of America, Inc. The Company will be the "plan administrator" under ERISA. 2.10. "Compensation" means the earnings paid to a Participant by an Employer during a Plan Year as reported on Internal Revenue Service Form W-2, including any amounts not includible in the Participant's Form W-2 by reason of a salary reduction arrangement with an Employer under Code Section 125, 401(k), 402(e)(3), 402(h) or 403(b) which if paid would have been Compensation. However, Compensation does not include director's fees, reimbursement of expenses, severance and other payments at or following termination of employment, and other amounts as determined by the Committee on a uniform basis. 2.11. "Controlled Group" means any two or more corporations, trades, or businesses which constitute a controlled group or an affiliated service group of which the Company is a member, or are under common control with the Company, within the meaning of Code Section 414(b), (c), (m), or (o), but only for the period during which such relationship exists. 2.12. "Disability or Disabled" has the same meaning as under the Company's long term disability plan. 2.13. "Eligible Employee" means an Employee who satisfies both of the following requirements: (a) a full-time salaried Employee identified by the Committee as eligible to participate in the Plan for a Plan Year. The group of Eligible Employees for any Plan Year will be limited to, and may be more restrictive than, the group of Employees who are members of a select group of management or highly compensated employees (within the meaning of ERISA Section 401(a)(1)). An -2- 6 employee's eligibility to participate in the Plan for a given Plan Year does not guarantee continued eligibility to participate in any future Plan Year; and (b) an Employee who is excluded from participating in the Basic Plan because of being a highly compensated employee, as defined by Code Section 414(q) and the regulations thereunder. 2.14. "Employee" means a common law employee of an Employer. 2.15. "Employer" means the Company and any other Affiliate which by the action of its directors has adopted the Plan with the Company's consent; and any successors of such entities. 2.16. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.17. "Hardship" means an unforeseeable and unanticipated emergency which is caused by an event beyond the control of the Participant or Beneficiary, and which would result in severe financial hardship to the Participant or Beneficiary if a distribution is not permitted. Hardship conditions will be evaluated in accordance with the terms of Treasury Regulations Section 1.457-2(h)(4). The Committee will have the sole discretion to determine whether a Hardship condition exists and the Committee's decision will be final. A Participant or Beneficiary must submit a written request for a Hardship to the Committee on such form and in such manner as the Committee prescribes, and must certify as to the Hardship condition and the severe financial need. The Committee will have sole discretion to determine whether a Hardship exists and to determine the appropriate action, if any. 2.18. "Hour of Service" means an hour of service as defined in the Basic Plan. 2.19. "Interest Rate" means the interest rate credited to a Participant's Account under Article V. Interest shall be credited as of each Valuation Date. Initially, the Interest Rate shall equal the guaranteed long-term interest rate in effect as of the Valuation Date under the Basic Plan. However, the Committee, in its sole discretion, may decide to change the basis for determining the Interest Rate. The revised Interest Rate shall apply to calendar quarters commencing after the Committee adopts a revised Interest Rate policy. 2.20. "Participant" means an Employee (a) who has satisfied the requirements to participate under Article III or (b) an individual who continues to have an Account balance greater than zero. -3- 7 2.21. "Plan" means the Personnel Group of America, Inc. Non-qualified Profit Sharing Plan as set forth herein and as amended from time to time. 2.22. "Plan Year" means the calendar year. 2.23. "Spouse" means the person to whom the Participant is married on the date of his death. 2.24. "Termination of Employment" means any voluntary or involuntary termination of employment (including by reason of death or Disability) with an Employer or successor Employer. 2.25. "Valuation Date" means the last business day of each calendar quarter or other date specified by the Committee pursuant to Section 5.3. 2.26. "Vested Percentage" means the nonforfeitable percentage of a Participant's Account determined under Article VI. 2.27. "Year of Service" means a year of service for vesting purposes as defined in the Basic Plan. In addition, the Committee shall have the discretion to grant past service credit to any Participant recruited in the middle of his career. ARTICLE III. ELIGIBILITY 3.1. Eligibility. An Employee shall become a Participant on the date after he becomes an Eligible Employee, has attained age 21 and has completed one Year of Service. ARTICLE IV. COMPANY ALLOCATIONS 4.1. Non-qualified Profit Sharing Allocation. The Company may, in its discretion, make a Non-qualified Profit Sharing Allocation for any Plan Year. Such amount shall be allocated according to a formula as specified by the Committee. If no formula is specified, then the total Company allocation shall be allocated to each Participant eligible to be credited with an allocation in the proportion which such Participant's compensation for the Plan Year bears to the compensation for such year of all such Participants. -4- 8 4.2. Eligibility to Receive an Allocation. A Participant is eligible to receive a Company allocation and a share of any forfeitures allocated for the Plan Year provided that he has: (a) completed 1,000 Hours of Service during the Plan Year; and (b) is an active Employee on December 31 of the Plan Year. 4.3. Unpaid Leaves of Absence. If a Participant is granted an unpaid leave of absence, there will be no Company Allocations during the period of leave. 4.4. Suspended Participants. A Participant shall become a suspended Participant for any Plan Year in which he does not qualify for a Company allocation under Section 4.2. 4.5. Cessation of Participation. A Participant shall continue participation until such time as the full value of the Vested Percentage of the Participant's Account has been distributed pursuant to Article VII or forfeited pursuant to Article VI. ARTICLE V. ACCOUNTS 5.1. Establishment of Account. In lieu of paying the Participant Compensation equal to the Non-qualified Profit Sharing Allocation, the Company shall credit such amount during the first calendar quarter following the end of the Plan Year to an account in the name of the Participant (the "Non-qualified Profit Sharing Account"). 5.2. Bookkeeping Accounts. Accounts will be primarily for accounting purposes and will not restrict the operation of the Plan or require separate earmarked assets to be allocated to any account on behalf of any Participant. The establishment of an Account will not give any Participant the right to receive any asset held by the Company in connection with the Plan or otherwise. 5.3. Valuation of Accounts. The Company shall value each Participant's Account each Valuation Date as follows: (a) first, Account balances will be debited with distributions or forfeitures; (b) next, Account balances will be credited with investment gains or losses, determined by the Interest Rate; (c) next, any Company allocations or forfeitures will be added to the balance of the Participant's Account. -5- 9 The Committee may, in its sole discretion, change the Valuation Date, provided, however, Accounts shall be valued on at least one day in each Plan Year. ARTICLE VI. VESTING 6.1. Vesting. Subject to the limitations of Section 6.2, a Participant has a fully vested right to the amounts allocated to the Participant's Account in accordance with the following schedule:
Years of Service Vested Percentage ---------------- ----------------- Less than 3 years 0% 3 but less than 4 years 20% 4 but less than 5 years 40% 5 but less than 6 years 60% 6 but less than 7 years 80% 7 or more years 100%
In addition, the amounts allocated to a Participant's Account shall be fully vested upon his death while employed. 6.2. Forfeiture Provisions. Notwithstanding Section 6.1 and any Plan provision to the contrary, at the discretion of the Committee, a Participant's Account remains subject to forfeiture if: (a) he is discharged for cause or performs an act of willful malfeasance or gross negligence in a matter of material importance to the Company; or (b) for the twelve-month period following his Termination of Employment he engages in competition with the Company (without prior written authorization by the Committee) to the extent such non-compete provision is permitted under ERISA. 6.3. Reallocation of Forfeitures. If pursuant to Section 6.2, the Committee determines that a Participant forfeits his Account balance or if at Termination of Employment a Participant has a Vested Percentage less than 100%, the forfeitable and unvested portion of his Account shall be reallocated to the remaining Participants as of the allocation date at the end of the Plan Year in which the forfeiture occurs in accordance with Article IV. A Participant is eligible to receive a portion of reallocated forfeitures only if he is eligible for a Company allocation for such Plan Year. -6- 10 ARTICLE VII. PAYMENT OF ACCOUNTS 7.1. Method of Distribution. Unless otherwise expressly provided by the Committee, any distribution from a Participant's Account will be paid in cash and in a single lump sum payment. 7.2. Distribution. (a) Termination of Employment. A Participant shall be entitled to receive the Vested Percentage of his Account on the one-year anniversary of his Termination of Employment. The Committee shall value the Vested Percentage of the Participant's Account on the Valuation Date coinciding with or immediately preceding the distribution date. (b) Distribution Because of Death. If a Termination of Employment is because of a Participant's death, his Beneficiary shall be entitled to receive 100% of his Account valued as of the Valuation Date coinciding with or immediately preceding the date of death. (c) Distribution in the Event of Hardship. Prior to a distribution under paragraphs (a) or (b) payment of a portion of a Participant's Account may be made in the event of Hardship, as defined in Section 2.17. The amount of any Hardship distribution will not exceed the amount required to meet the Hardship, including any taxes or penalties due on the distribution, or the vested amount credited to the Participant's Account. (d) Unpaid Leaves of Absence. If a Participant is granted an unpaid leave of absence and the Participant does not return to active employment within the twelve-month period following his last date of active employment, in the Committee's discretion it may deem that a Termination of Employment has occurred for purposes of a distribution under the Plan. If the Committee deems that a Termination of Employment has occurred, the Participant shall be entitled to the Vested Percentage of his Account in accordance with paragraph (a) above. 7.3. Beneficiary Designation. (a) A Participant may designate by written notice delivered to the Committee a Beneficiary (or Beneficiaries) to receive all or a portion of the amount of the Participant's Account in case of the Participant's death. A Beneficiary designation may be revoked by the Participant at any time by written notice delivered to the Committee. -7- 11 (b) If a Beneficiary has not been designated, cannot be located or the Beneficiary does not survive the Participant, payment of the Participant's death benefit will be made to the Participant's surviving Spouse or, if none, to the Participant's estate. 7.4. Payment to Minors or Legal Incompetents. (a) If any Beneficiary is a minor or is physically or mentally incapable of giving a valid receipt for any payment due him and no legal representative has been appointed, the Committee may, in its discretion, direct payment to any person or institution maintaining the Beneficiary. If the Beneficiary has a legal representative, payment shall be made to the legal representative. (b) In the event of a dispute as to whom distribution is to be made under this Section, payment may be made to a court of proper jurisdiction, with final distribution to be determined by such court. (c) Any payment made in accordance with the provisions of this Section shall completely discharge any liability for the making of such payment under the provisions of the Plan. ARTICLE VIII. PLAN ADMINISTRATION 8.1. Adoption and Administration of the Plan. (a) This Plan shall be adopted by the Board. The Company will be the "plan administrator" under ERISA. The Company's responsibilities as plan administrator, under the Plan and under law, shall be carried out by or under the supervision of the Compensation Committee. The Compensation Committee's actions shall be actions on behalf of the plan administrator and not on behalf of itself or of its individual members. (b) The Committee shall have the sole authority, in its discretion, to adopt, amend and rescind such rules and regulations as it deems advisable in the administration of the Plan, to construe and interpret the Plan, the rules and regulations, and Plan forms, and to make all other determinations and interpretations of the Plan. All decisions, determinations and interpretations of the Committee will be binding on all interested parties. The Committee may delegate in writing its responsibilities as it sees fit. -8- 12 8.2. Amendment and Termination. This Plan may be amended in any way or may be terminated, in whole or in part, at any time, in the discretion of the Board. However, no amendment, suspension or termination of the Plan will affect a Participant's right or the right of a Beneficiary, to receive the benefits such Participant has accrued prior to or as of the effective date of such amendment or termination. 8.3. Indemnification. The Company will indemnify and hold harmless any of its employees, officers, directors or members of the Committee who have responsibilities with respect to the Plan from and against any and all losses, claims, damages, expenses and liabilities (including reasonable attorneys' fees and amounts paid, with the approval of the Board, in settlement of any claim) arising out of or resulting from the implementation of a duty, act or decision with respect to the Plan, so long as such duty, act or decision does not involve gross negligence or willful misconduct on the part of any such individual. 8.4. Impartiality of Committee Members. Committee members who are Participants will abstain from voting on any Plan amendment or on any administrative matters that relate primarily to themselves or that would cause them to be in constructive receipt of amounts credited to their Accounts. The Chief Executive Officer of the Company will identify three or more individuals to serve as a temporary replacement of the Committee members in the event that all three members must abstain from voting. 8.5. Change of Control. In the event of a Change of Control, the Company shall fully fund all vested Plan Accounts with cash or other liquid assets. In the Committee's discretion, it can establish a revocable rabbi trust to hold the assets. If such Change of Control occurs, the trust will become an irrevocable rabbi trust, the value of all vested Accounts shall be immediately paid to or on behalf of all Participants and Beneficiaries, and the Plan shall be discontinued. If the Change of Control does not occur, at such time as the Company determines it to be no longer likely and imminent, the Company may recover the assets that it deposited in the revocable rabbi trust. ARTICLE IX. CLAIMS PROCEDURE 9.1. A person with an interest in the Plan shall have the right to file a claim for benefits under the Plan and to appeal any denial of a claim for benefits. Any request for a Plan benefit or to clarify the claimant's rights to future benefits under the terms of the Plan shall be considered to be a claim. 9.2. A claim for benefits will be considered as having been made when submitted in writing by the claimant (or by such claimant's authorized representative) to the Committee. No particular form is required for the claim, but the written claim must -9- 13 identify the name of the claimant and describe generally the benefit to which the claimant believes he is entitled. The claim may be delivered personally during normal business hours or mailed to the Committee. 9.3. The Committee will determine whether, or to what extent, the claim may be allowed or denied under the terms of the Plan. If the claim is wholly or partially denied, the claimant shall be so informed by written notice within 90 days after the day the claim is submitted unless special circumstances require an extension of time for processing the claim. If such an extension of time for processing is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period. Such extension may not exceed an additional 90 days from the end of the initial 90-day period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the final decision. If notice of denial of a claim (in whole or in part) is not furnished within the initial 90-day period after the claim is submitted (or, if applicable, the extended 90-day period), the claimant shall consider that his claim has been denied just as if he had received actual notice of denial. 9.4. The notice informing the claimant that his claim has been wholly or partially denied shall be written in a manner calculated to be understood by the claimant and shall include: (1) The specific reason(s) for the denial. (2) Specific reference to pertinent Plan provisions on which the denial is based. (3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary. (4) Appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review. 9.5. If the claim is wholly or partially denied, the claimant (or his authorized representative) may file an appeal of the denied claim with the Committee requesting that the claim be reviewed. The Committee shall conduct a full and fair review of each appealed claim and its denial. Unless the Committee notifies the claimant that due to the nature of the benefit and other attendant circumstances he is entitled to a greater period of time within which to submit his request for review of a denied claim, the claimant shall have 60 days after he (or his authorized representative) receives written notice of denial of his claim within which such request must be submitted to the Committee. 9.6. The request for review of a denied claim must be made in writing. In connection with making such request, the claimant or his authorized representative may: (1) Review pertinent documents. -10- 14 (2) Submit issues and comments in writing. 9.7. The decision of the Committee regarding the appeal shall be promptly given to the claimant in writing and shall normally be given no later than 60 days following the receipt of the request for review. However, if special circumstances (for example, if the Committee decides to hold a hearing on the appeal) require a further extension of time for processing, the decision shall be rendered as soon as possible, but no later than 120 days after receipt of the request for review. However, if the Committee holds regularly scheduled meetings at least quarterly, a decision on review shall be made by no later than the date of the meeting which immediately follows the Plan's receipt of a request for review, unless the request is filed within 30 days preceding the date of such meeting. In such case, a decision may be made by no later than the date of the second meeting following the Plan's receipt of the request for review. If special circumstances (for example, if the Committee decides to hold a hearing on the appeal) require a further extension of time for processing, the decision shall be rendered as soon as possible, but no later than the third meeting following the Plan's receipt of the request for review. If special circumstances require that the decision will be made beyond the initial time for furnishing the decision, written notice of the extension shall be furnished to the claimant (or his authorized representative) prior to the commencement of the extension. The decision on review shall be in writing and shall be furnished to the claimant or to his authorized representative within the appropriate time for the decision. If a decision on review is not furnished within the appropriate time, the claim shall be deemed to have been denied on appeal. 9.8. The Committee may, in its sole discretion, decide to hold a hearing if it determines that a hearing is necessary or appropriate in order to make a full and fair review of the appealed claim. 9.9. The decision on review shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. 9.10. A person must exhaust his rights to file a claim and to request a review of the denial of his claim before bringing any civil action to recover benefits due to him under the terms of the Plan, to enforce his rights under the terms of the Plan, or to clarify his rights to future benefits under the terms of the Plan. 9.11. The Committee shall exercise its responsibility and authority under this claims procedure as a fiduciary and, in such capacity, shall have the discretionary authority and responsibility (1) to interpret and construe the Plan and any rules or regulations under the Plan, (2) to determine the eligibility of Employees to participate in the Plan, and the rights of Participants to receive benefits under the Plan, and (3) to make factual determinations in connection with any of the foregoing. -11- 15 ARTICLE X. MISCELLANEOUS 10.1. No Funding Obligation. The amounts credited to a Participant's Account are not held in a trust or escrow account and are not secured by any specific assets of an Employer. This Plan shall not be construed to require an Employer to fund any of the benefits provided hereunder nor to establish a trust for such purpose. The Company may make such arrangements as it desires to provide for the payment of benefits. Neither the Participant, any Beneficiary nor the Participant's estate shall have any rights against an Employer with respect to any portion of the Participant's Account except as a general unsecured creditor of the Employer. No Participant has an interest in his Account until the Participant actually receives payment. 10.2. Non-alienation of Benefits. No benefit under this Plan may be sold, assigned, transferred, conveyed, hypothecated, encumbered, anticipated, or otherwise disposed of, and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by a Participant, be in any manner subject to the debts, contracts, liabilities, engagements, or torts of such Participant. However, the Committee will honor a court order regarding the payment of alimony or other support payments, or the establishment of community property or other marital property rights, to the extent required by law. 10.3. Limitation of Rights. Nothing in this Plan shall be construed to limit in any way the right of an Employer to terminate an Employee's employment at any time for any reason whatsoever with or without cause; nor shall it be evidence of any agreement or understanding, express or implied, that the Employer (a) will employ an Employee in any particular position, (b) will ensure participation in any incentive programs, or (c) will grant any awards from such programs. 10.4. Captions and Headings. The captions and headings in this Plan are for convenience only and shall not in any way affect the meaning or interpretation of the Plan. 10.5. Applicable Law. This Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of North Carolina except as otherwise provided in ERISA. PERSONNEL GROUP OF AMERICA, INC. By: /s/ Edward P. Drudge, Jr. -------------------------------- Title: Chairman and CEO ------------------------------ Date: 1 January 1996 ------------------------------ -12- EX-10.18 6 AMENDMENT NO. 1 TO CREDIT AGREEMENT 1 EXHIBIT 10.18 AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment No. 1"), dated as of December 18, 1996, is entered into by and among PERSONNEL GROUP OF AMERICA, INC. (the "Borrower"), CERTAIN SUBSIDIARIES OF THE BORROWER IDENTIFIED ON THE SIGNATURES PAGES HERETO (the "Guarantors"), NATIONSBANK, N.A. (the "Existing Lender"), THE PERSONS IDENTIFIED AS A "NEW LENDER" ON THE SIGNATURE PAGES HERETO (the "New Lenders" and, together with the Existing Lender, the "Lenders") and NATIONSBANK, N.A., as agent for the Lenders (in such capacity, the "Agent"). RECITALS WHEREAS, the Borrower, the Guarantors, the Existing Lender and the Agent entered into that certain Credit Agreement dated as of September 30, 1996 (the "Existing Credit Agreement"); WHEREAS, the parties hereto have agreed to amend the Existing Credit Agreement as set forth herein; NOW, THEREFORE, in consideration of the agreements herein contained, the parties hereby agree as follows: PART I DEFINITIONS SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the context otherwise requires, the following terms used in this Amendment No. 1, including its preamble and recitals, have the following meanings: "Amended Credit Agreement" means the Existing Credit Agreement as amended hereby. "Amendment No. 1 Effective Date" is defined in Subpart 3.1. SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment No. 1, including its preamble and recitals, have the meanings provided in the Amended Credit Agreement. 1 2 PART II AMENDMENTS TO EXISTING CREDIT AGREEMENT Effective on (and subject to the occurrence of) the Amendment No. 1 Effective Date, the Existing Credit Agreement is hereby amended in accordance with this Part II. Except as so amended, the Existing Credit Agreement and all other Credit Documents shall continue in full force and effect. SUBPART 2.1. Amendment to Section 1.1. The definition of "Borrower's Obligations" set forth in Section 1.1 of the Existing Credit Agreement is amended in its entirety to read as follows: "Borrower's Obligations" means, without duplication, (i) all of the obligations of the Borrower to the Lenders (including the Issuing Lender) and the Agent, whenever arising, under the Credit Agreement, the Notes or any of the other Credit Documents (including, but not limited to, any interest accruing after the occurrence of a Bankruptcy Event with respect to the Borrower, regardless of whether such interest is an allowed claim under the Bankruptcy Code) and (ii) all liabilities and obligations, whenever arising, owing from the Borrower to any Lender, or any Affiliate of a Lender, arising under any Hedging Agreement. SUBPART 2.2. Amendment to Section 2.1(a). Section 2.1(a) of the Existing Credit Agreement is amended in its entirety to read as follows: 2.1 Loans. (a) Commitment. Subject to the terms and conditions hereof and in reliance upon the representations and warranties set forth herein, each Lender severally agrees to make available to the Borrower such Lender's Commitment Percentage of revolving credit loans requested by the Borrower in Dollars ("Loans") from time to time from the Closing Date until the Termination Date, or such earlier date as the Commitments shall have been terminated as provided herein for the purposes hereinafter set forth; provided, however, that the sum of the aggregate principal amount of outstanding Loans shall not exceed ONE HUNDRED TWENTY-FIVE MILLION DOLLARS ($125,000,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 3.4, the "Committed Amount") ; provided, further, (i) with regard to each Lender individually, such Lender's outstanding Loans shall not exceed such Lender's Commitment Percentage of the Committed Amount, and (ii) with regard to the Lenders collectively, the aggregate principal amount of outstanding Loans plus LOC Obligations outstanding shall not exceed the Committed Amount. Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof; provided, however, that (x) during the Initial Interest Rate Period, all Eurodollar Loans shall have an Interest 2 3 Period of one (1) month and (y) no more than 7 Eurodollar Loans shall be outstanding hereunder at any time. For purposes hereof, Eurodollar Loans with different Interest Periods shall be considered as separate Eurodollar Loans, even if they begin on the same date, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of the existing Interest Periods to constitute a new Eurodollar Loan with a single Interest Period. Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof. SUBPART 2.3. Amendments to Schedule 2.1(a). Schedule 2.1(a) of the Existing Credit Agreement is hereby deleted in its entirety and a new schedule in the form of Schedule 2.1(a) attached hereto is substituted therefor. PART III ASSIGNMENTS AND ASSUMPTIONS The Existing Lender hereby sells and assigns, without recourse, to the New Lenders, and the New Lenders hereby purchase and assume, without recourse, from the Existing Lender, effective as of the Amendment No. 1 Effective Date, such interests in the Existing Lender's rights and obligations under the Existing Credit Agreement (including, without limitation, the Commitments of the Existing Lender on the Amendment No. 1 Effective Date and the Loans and LOC Obligations which are outstanding on the Amendment No. 1 Effective Date) as shall be necessary in order to give effect to the reallocations of the Committed Amounts and Commitment Percentages effected by the amendments to the Existing Credit Agreement pursuant to Part II. The Existing Lender and each of the New Lenders hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 11.3(b) of the Amended Credit Agreement. From and after the Amendment No. 1 Effective Date (i) each of the New Lenders shall be a party to and be bound by the provisions of the Amended Credit Agreement and, to the extent of the interests assigned hereby, have the rights and obligations of a Lender thereunder and under the other Credit Documents and (ii) the Existing Lender shall, to the extent of the interests assigned hereby, relinquish its rights and be released from its obligations under the Existing Credit Agreement. The Agent shall record in the register referred to in Section 11.3(c) of the Amended Credit Agreement on the Amendment No. 1 Effective Date the information relating to the assignments and assumptions effected pursuant to this Part III. The Agent hereby agrees (i) that no transfer fee shall be payable under Section 11.3(b) of the Existing Credit Agreement or otherwise in connection with the assignments effected pursuant to this Part III and (ii) to pay to each New Lender its portion of the Upfront Fee as separately agreed to by the Agent and such New Lender. 3 4 PART IV CONDITIONS TO EFFECTIVENESS SUBPART 4.1. Amendment No. 1 Effective Date. This Amendment No. 1 shall be and become effective as of the date hereof (the "Amendment No. 1 Effective Date") when all of the conditions set forth in this Subpart 4.1 shall have been satisfied, and thereafter this Amendment No. 1 shall be known, and may be referred to, as "Amendment No. 1." SUBPART 4.1.1. Execution of Counterparts of Amendment. The Agent shall have received executed counterparts (or other evidence of execution, including facsimile signatures, satisfactory to the Agent) of this Amendment No. 1, which collectively shall have been duly executed on behalf of each of the Borrower, the Guarantors, the Lenders and the Agent. SUBPART 4.1.2. Execution of Notes. The Agent shall have received an appropriate original Note for each Lender (but, in the case of the new Note to the Existing Lender, with notation thereon that it is given in substitution for and replacement of the original Note or any replacement notes thereof). SUBPART 4.1.3. Corporate Authority. The Agent shall have received all documents it may reasonably request relating to the corporate or other necessary authority for the execution, delivery and performance of this Amendment No. 1. SUBPART 4.1.4. Other Documents. The Agent shall have received such other documents as the Agent, the Lender or counsel to the Agent may reasonably request. PART V MISCELLANEOUS SUBPART 5.1. Cross-References. References in this Amendment No. 1 to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment No. 1. SUBPART 5.2. Instrument Pursuant to Existing Credit Agreement. This Amendment No. 1 is a Credit Document executed pursuant to the Existing Credit Agreement and shall (unless otherwise expressly indicated therein) be construed, administered and applied in accordance with the terms and provisions of the Existing Credit Agreement. SUBPART 5.3. References in Other Credit Documents. At such time as this Amendment No. 1 shall become effective pursuant to the terms of Subpart 3.1, all references in the Credit Documents to the "Credit Agreement" shall be deemed to refer to the Amended Credit Agreement. SUBPART 5.4. Representations and Warranties. Each Credit Party hereby represents and warrants that (i) each Credit Party that is party to this Amendment No. 1: (a) has the requisite corporate power and authority to execute, deliver and perform this Amendment No. 1, as 4 5 applicable and (b) is duly authorized to, and has been authorized by all necessary corporate action, to execute, deliver and perform this Amendment No. 1, (ii) the Borrower has no claims, counterclaims, offsets, or defenses to the Credit Documents and the performance of its obligations thereunder, or if the Borrower has any such claims, counterclaims, offsets, or defenses to the Credit Documents or any transaction related to the Credit Documents, the same are hereby waived, relinquished and released in consideration of the Lender's execution and delivery of this Amendment No. 1, (iii) the representations and warranties contained in Section 6 of the Existing Credit Agreement are, subject to the limitations set forth therein, true and correct in all material respects on and as of the date hereof as though made on and as of such date (except for those which expressly relate to an earlier date) and (iv) no Default or Event of Default exists under the Existing Credit Agreement on and as of the date hereof or will occur as a result of the transactions contemplated hereby. SUBPART 5.5. Liens. The Borrower and the Guarantors, as applicable, affirm the liens and security interests created and granted in the Credit Documents and agree that this Amendment No. 1 shall in no manner adversely effect or impair such liens and security interest. SUBPART 5.6. Acknowledgement of Guarantors. The Guarantors acknowledge and consent to all of the terms and conditions of this Amendment No. 1 and agree that this Amendment No. 1 and all documents executed in connection herewith do not operate to reduce or discharge the Guarantors' obligations under the Amended Credit Agreement or the other Credit Documents. The Guarantors further acknowledge and agree that the Guarantors have no claims, counterclaims, offsets, or defenses to the Credit Documents and the performance of the Guarantors' obligations thereunder or if the Guarantors did have any such claims, counterclaims, offsets or defenses to the Credit Documents or any transaction related to the Credit Documents, the same are hereby waived, relinquished and released in consideration of the Lenders' execution and delivery of this Amendment No. 1. SUBPART 5.7. No Other Changes. Except as expressly modified and amended in this Amendment No. 1, all the terms, provisions and conditions of the Credit Documents shall remain unchanged. SUBPART 5.8. Counterparts. This Amendment No. 1 may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SUBPART 5.9. Entirety. This Amendment No. 1, the Amended Credit Agreement and the other Credit Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof. These Credit Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. 5 6 SUBPART 5.10. Governing Law. THIS AMENDMENT NO. 1 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. SUBPART 5.11. Successors and Assigns. This Amendment No. 1 shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. [Signatures to Follow] 6 7 This Amendment No. 1 is executed as of the day and year first written above. BORROWER: PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation By: /s/ Ken Bramlett ---------------------------------- Name: Ken Bramlett ------------------------------------ Title: Senior Vice President ----------------------------------- GUARANTORS: STAFFPLUS, INC., a Delaware corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- THOMAS STAFFING SERVICES, INC., a California corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- PFI CORP., a Delaware corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- NURSEFINDERS, INC., a Texas corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- [Guarantor Signatures Continue] S-1 8 NF SERVICES, INC., a New York corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- B.C.P., INC., a Hawaii corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- PROFILE TEMPORARY SERVICES, INC., an Illinois corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- INFOTECH SERVICES, INC., a North Carolina corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- BROUGHTON SYSTEMS, INC., a Virginia corporation By: /s/ Ken Bramlett -------------------------------------- Name: Ken Bramlett ------------------------------------ Title: Vice President ----------------------------------- S-2 9 EXISTING LENDER: NATIONSBANK, N.A., individually in its capacity as a Lender and in its capacity as Agent By: /s/ Mark D. Halmrast -------------------------------------- Name: Mark D. Halmrast ------------------------------------ Title: Vice President ----------------------------------- NEW LENDERS: BANK OF AMERICA, ILLINOIS By: /s/ Richard E. Bryson -------------------------------------- Name: Richard E. Bryson ------------------------------------ Title: Managing Director ----------------------------------- BANQUE PARIBAS By: /s/ Duane P. Helkowski -------------------------------------- Name: Duane P. Helkowski ------------------------------------ Title: Assistant Vice President ----------------------------------- By: /s/ John J. McCormick, III -------------------------------------- Name: John J. McCormick, III ------------------------------------ Title: Vice President ----------------------------------- COMERICA BANK By: /s/ Tamara J. Gurne -------------------------------------- Name: Tamara J. Gurne ------------------------------------ Title: Account Officer ----------------------------------- CREDIT LYONNAIS ATLANTA AGENCY By: /s/ David M. Cawrse -------------------------------------- Name: David M. Cawrse ------------------------------------ Title: Vice President ----------------------------------- [Lender Signatures Continue] S-3 10 THE FIRST NATIONAL BANK OF CHICAGO By: /s/ William J. Oleferchik -------------------------------------- Name: William J. Oleferchik ------------------------------------ Title: Authorized Agent ----------------------------------- PNC BANK, NATIONAL ASSOCIATION By: /s/ Robert J. Mitchell, Jr. -------------------------------------- Name: Robert J. Mitchell, Jr. ------------------------------------ Title: Vice President ----------------------------------- UNITED STATES NATIONAL BANK OF OREGON By: /s/ J. Stephen Mitchell -------------------------------------- Name: J. Stephen Mitchell ------------------------------------ Title: Vice President ----------------------------------- S-4 EX-21.01 7 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.01 SUBSIDIARIES OF PERSONNEL GROUP OF AMERICA, INC.
State of Subsidiary Incorporation Does Business As - ---------- ------------- ---------------- B.C.P., Inc. Hawaii Nursefinders of Hawaii, Inc. Nursefinders, Inc. Texas Nursefinders NF Services, Inc. New York Nursefinders PFI, Inc. Delaware Nursefinders, through its wholly-owned subsidiary Nursefinders StaffPLUS, Inc. Delaware Abar Staffing, Allegheny Personnel Services, Denver Temp, Judith Fox Staffing, FirstWord Staffing Services, Profile Temporaries, Staffinders Personnel, Temp Connection, TempWorld, West Personnel and Word Processing Personnel Services (WPPS) Thomas Staffing Services, Inc. California Thomas Staffing InfoTech Services, Inc. North Carolina InfoStaff (Utah and California), BEST Consulting, Computer Resources Group, Command Technologies, Energetix and Software Service Corporation Broughton Systems, Inc. Virginia Broughton Systems Word Processing Professionals New York Word Processing Professionals
EX-23.01 8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.01 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report, included in this Form 10-K, into Personnel Group of America, Inc.'s previously filed registration statement on Form S-8 (File No. 333-1954). /s/ Arthur Andersen LLP Charlotte, North Carolina, February 28, 1997. EX-27.01 9 FINANCIAL DATA SCHEDULE ( FOR SEC USE ONLY )
5 This schedule contains summary financial information extracted from the consolidated financial statements of Personnel Group of America, Inc. for the year ended December 29, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-29-1996 JAN-01-1996 DEC-29-1996 6,087 0 68,917 (1,068) 0 80,807 15,539 (7,694) 314,327 44,095 78,875 0 0 120 183,137 314,327 366,545 366,545 263,277 270,966 5,969 0 1,432 19,849 8,332 11,517 0 0 0 11,517 1.13 1.13
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