-----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, ROvGhJDNYP0G/twlHs/w1B+mDLAskFj6W5n/mVTdfOo+mkom/f1G1qukymZZTpN6 J/6BpG2gT2YHXPE6QgfPIQ== 0000950144-99-004076.txt : 19990406 0000950144-99-004076.hdr.sgml : 19990406 ACCESSION NUMBER: 0000950144-99-004076 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19990103 FILED AS OF DATE: 19990405 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: SEC FILE NUMBER: 001-13956 FILM NUMBER: 99587536 BUSINESS ADDRESS: STREET 1: 6302 FAIRVIEW RD STREET 2: STE 201 CITY: CHARLOTTE STATE: NC ZIP: 28210-3236 BUSINESS PHONE: 7044425100 MAIL ADDRESS: STREET 1: 6302 FAIRVIEW ROAD STREET 2: SUITE 201 CITY: CHARLOTTE STATE: NC ZIP: 28210-3236 10-K405 1 PERSONNEL GROUP OF AMERICA FORM 10-K405 1 =============================================================================== - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K ----------------- (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _____________ Commission file number 001-13956 ------------- PERSONNEL GROUP OF AMERICA, INC. (Exact name of registrant as specified in its charter) Delaware 56-1930691 ---------------------------------------------------------- -------------------------------------- (State or other jurisdiction of 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, $.01 par value ----------------------------------- (Title of Class) ------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 25, 1999, computed by reference to the closing sale price on such date, was $206,838,537. (For purposes of calculating this amount only, all directors, executive officers and selected other corporate and division officers are treated as affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.) As of the same date, 32,906,966 shares of Common Stock, $.01 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Registrant's Annual Report to Stockholders for the fiscal year ended January 3, 1999 (the "Annual Report") furnished to the Commission pursuant to Rule 14a-3(b) and definitive Proxy Statement pertaining to the 1999 Annual Meeting of Shareholders ("the Proxy Statement") filed with the Commission pursuant to Regulation 14A are incorporated herein by reference into Parts II and IV, and Part III, respectively. - ------------------------------------------------------------------------------- =============================================================================== 2 PART I. ITEM 1. BUSINESS Personnel Group of America, Inc. (the "Company"), is a leading provider of information technology and commercial staffing services to businesses, professional and governmental organizations. The Company is organized into two Divisions, Information Technology Services (the "IT Division") and Commercial Staffing ("Commercial Staffing"), 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 17, 1999, the Company operated through a network of 146 Company-operated offices in 25 states and the District of Columbia. Each of the Company's offices does business under established brand names, which have been continuously in use for more than 17 years on average. The IT Division offers information technology professionals on a temporary basis and consulting services in a range of computer-related disciplines. Commercial Staffing offers a wide variety of temporary office and clerical, and finance and accounting services, to more than 10,000 organizations nationwide. This division also provides light technical and light industrial services to its customers, but these services typically account for approximately 20% of the division's total revenues. For the year ended January 3, 1999 on a pro forma basis, the IT Division and Commercial Staffing represented approximately 61% and 39%, respectively, of the Company's total revenues. The Company reviews acquisition opportunities in the ordinary course of business and completed the acquisition of 15 companies in 1998. Ten of the companies acquired in 1998 are in the information technology services business and five are in the commercial staffing business. These companies had combined pro forma revenues of $259.5 million in 1998. On December 26, 1997, the Company completed the sale of its healthcare division for $65.25 million. With the sale of the healthcare division, the Company freed substantial economic and management resources that it has reallocated to its faster growing and more profitable IT and Commercial Staffing Divisions. 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. 2 3 INFORMATION TECHNOLOGY SERVICES DIVISION The IT Division provides information technology professionals on a temporary basis and consulting services through 46 offices in 22 states and the District of Columbia at February 17, 1999. The IT Division had approximately 4,600 consultants on assignment at February 17, 1999, of which approximately 2,000 (or 43%) were salaried employees. Of the balance (57% of the total), approximately 1,900 consultants were hourly employees and 700 were independent contractors. 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, software engineers, LAN administrators, systems integrators, helpdesk staff and other technology specialists, to a wide variety of clients, typically on an as-needed time and materials basis. The 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. A number of the division's operating companies also provide Year 2000 staffing services, although these services are typically provided to clients with whom the Company has other, larger relationships and comprise only a small portion of the IT Division's revenues. The division's service offerings encompass a wide variety of tasks, ranging from management of all aspects of a project or the implementation of turnkey systems to the fulfillment of temporary staffing needs for technology projects. Selected offices in the IT Division also provide complementary or stand-alone consulting services in the information technology area, typically on a time and materials basis. For example, certain offices work with clients, chief executive officers and other executives interested in alternatives to outsourcing their internal information technology organization, as well as implementing complex systems integration solutions, and offer a range of consulting services, including systems development projects and client/server networks that span mainframe, mid-range and desktop systems. These services are provided at the client's site or at off-site development centers. The Company intends to continue expanding the consulting services component of the IT Division service offerings as part of its strategy to offer a full range of IT services to its clients. 3 4 Operations The IT Division markets its services to regional and local accounts on a decentralized basis. The following table sets forth information at February 17, 1999 on the brand names, markets, numbers of offices, dates formed and dates acquired of the IT Division companies:
NUMBER OF DATE DATE NAME MARKETS OFFICES FORMED ACQUIRED ---- ------- --------- ------ -------- Advanced Business Consultants Kansas City, KS 1 1986 Feb. 1998 BAL Associates Silicon Valley, CA 2 1989 Dec. 1997 Orlando, FL BEST Consulting Seattle, WA 11 1990 Sept. 1996 Portland, OR Salem, OR Salt Lake City, UT Boise, ID Sacramento, CA Phoenix, AZ Minneapolis, MN Las Vegas and Reno, NV Denver, CO Broughton Systems Richmond, VA 2 1980 July 1996 Research Triangle Park, NC Careers Denver, CO 2 1969 July 1996 Houston, TX 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 DRACS/SSC Atlanta, GA 2 1989 Sept. 1997 Birmingham, AL Energetix Chicago, IL 1 1988 Feb. 1997 Gentry Oakland, CA 1 1974 July 1998 IMA Plus Jacksonville, FL 1 1987 Mar. 1998 IMS Consulting Irvine, CA 1 1980 June 1998 InfoTech Contract Services Waltham, MA 2 1993 Nov. 1998 Atlanta, GA Keiter Stephens Computer Services Richmond, VA 1 1994 Sept. 1998 Lipson Conroy Services Silicon Valley, CA 1 1992 Apr. 1997 Lloyd-Ritter Consulting Silicon Valley, CA 1 1980 Apr. 1997 Paladin Consulting Dallas, TX 1 1984 Aug. 1998 RealTime Consulting Dallas, TX 2 1991 Nov. 1998 Kansas City, KS Trilogy Consulting Chicago, IL 5 1982 Apr. 1998 Kalamazoo, MI Princeton, NJ Silicon Valley, CA Research Triangle Park, NC Vital Computer Services New York, NY 4 1970 June 1997 Livingston, NJ Washington, DC Miami, FL
4 5 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. At the regional level, the IT Division has attained preferred vendor status under multiple local brand names at a number of large clients. These accounts are typically targeted by a local IT Division company with a presence in a specific market, and then are sold on the basis of the strength of the IT Division's geographic presence in multiple markets. Local accounts are targeted and sold 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 Division and Commercial Staffing and advertising in a variety of local and national media. These advertisements appear in the Yellow Pages, newspapers and trade publications. Local employees are also encouraged to be active in civic organizations and industry trade groups to facilitate the development of new customer relationships. The information technology services business is affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower IT revenues and lower operating margins in the fourth quarter of each year. COMMERCIAL STAFFING DIVISION At February 17, 1999, the Commercial Staffing Division operated through 100 offices in 14 states and the District of Columbia. Commercial Staffing provides temporary personnel who perform general office and administrative services, word processing and desktop publishing, office automation, records management, production/assembly/distribution, telemarketing, finance, accounting and other staffing services. Certain of Commercial Staffing's offices also provide full-time placement and payrolling services. Payrolling services entail employment by Commercial Staffing of individuals recruited by a customer on a fee basis. 5 6 Operations Commercial Staffing markets its staffing services to local and regional clients through its network of offices across the United States. The following table sets forth information at February 17, 1999, on the names, markets, numbers of offices and dates founded of the Commercial Staffing companies:
NUMBER OF DATE NAME MARKETS OFFICES(1) FOUNDED ---- ------- ---------- ------- Abar Staffing San Francisco Bay Area, CA 4 1954 Allegheny Personnel Pittsburgh, PA 4 1972 Ann Wells Personnel (2) Silicon Valley, CA 1 1980 Creative Corporate Staffing (2) Charlotte, NC 10 1972 Denver Temporaries Denver, CO 2 1978 FirstWord Staffing Services Dallas, TX 7 1978 Jeffrey Staffing Group Boston, MA 10 1971 Judith Fox Staffing Companies Richmond and Charlottesville, VA New York, NY 3 1978 Profile Temporaries Loop Area of Chicago, IL 1 1979 Sloan Staffing Services (2) New York, NY 1 1962 Staffinders Personnel Houston, TX 4 1983 Temp Connection New York and Long Island, NY 3 1982 The Temporary Connection (2) Houston, Dallas, Austin, TX 6 TempWorld Atlanta, GA 14 1980 Birmingham, AL Washington, DC Thomas Staffing Los Angeles/Orange County, CA 20 1969 Riverside/San Bernardino, CA San Diego, CA West Personnel Service North and West Suburban Chicago, IL 7 1954 Word Processing Professionals 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) Ann Wells Personnel and Creative Corporate Staffing (the combination of Creative Temporaries and Corporate Staffing) were acquired by the Company in January 1998; The Temporary Connection was acquired in March 1998; and Sloan Staffing Services was acquired in May 1998. Commercial Staffing strives to satisfy the needs of its customers by providing customized services, such as on-site workforce management and full-time placement services. The flexibility of Commercial Staffing's decentralized organization allows it to tailor its operations to meet local client requirements. For example, certain clients are provided with customized billings, utilization reports and safety awareness and training programs. 6 7 To meet the growing demand in the staffing services business for on-site management capability, Commercial Staffing offers SourcePLUS, its customized on-site temporary personnel management system. SourcePLUS places an experienced staffing service manager at the client facility to provide complete staffing support, customized to meet client-specific needs. This program facilitates client use of temporary personnel and allows the client to outsource a portion of its personnel responsibility to Commercial Staffing's on-site representative, who gathers and records requests for temporary jobs from client department heads and then fulfills client requirements. These Commercial Staffing representatives can also access Commercial Staffing's systems through on-site personal computers. Commercial Staffing's full-time placement services provide traditional staff selection and recruiting services to its clients. In addition to recruiting employees through referrals, Commercial Staffing places advertisements in local newspapers to recruit employees for specific positions at client companies. Commercial Staffing utilizes its expertise and selection methods to evaluate the applicant's credentials. If the applicant receives and accepts a full-time position at the client, Commercial Staffing charges the employer a one-time fee, generally based on the annual salary of the employee. 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. Commercial Staffing also provides uniform training to all of its employees in sales, customer service and leadership skills. Sales and Marketing Commercial Staffing has implemented a business development program to target potential customers with temporary staffing needs and to maintain and expand existing customer relationships. The marketing efforts of Commercial Staffing are decentralized and capitalize on long-standing business relationships with the clients of the Commercial Staffing's companies and their established brand names, which have been in use for more than 20 years on average. Commercial Staffing obtains new clients primarily through personal sales presentations and referrals from other clients of the Commercial Staffing and IT Divisions and supports its sales efforts with telemarketing, direct mail solicitation and advertising in a variety of local and national media, including the Yellow Pages, newspapers, magazines and trade publications. Commercial Staffing devotes the majority of its selling efforts to the local and regional operations of a wide variety of businesses (including a number of Fortune 500 companies) and to other potential customers that it has identified as consistent users of temporary staffing services. Local and regional accounts are characterized by shorter sales cycles and higher gross margins. Commercial Staffing generally does not seek lower margin national account agreements, but does provide services to a wide variety of customers with national and international businesses. Bids for large user accounts and the provision of services to clients with multiple location requirements are coordinated at the Company's headquarters. The commercial staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second half of each calendar year is more heavily affected, as companies tend to increase their use of temporary personnel during this period. While the commercial staffing industry is cyclical, the Company believes that the broad geographic coverage of its operations and the diversity of the services it provides (including its emphasis on high-end white collar clerical workers) may partially mitigate the adverse effects of economic cycles in a single industry or geographic region. 7 8 RECRUITING AND RETENTION OF TEMPORARY EMPLOYEES The Company recruits its temporary employees and IT Division consultants through a decentralized recruiting program that primarily utilizes local and national advertisements and the Internet. In addition, the Company has succeeded in recruiting qualified employees through referrals from its existing labor force. To encourage further referrals, certain of the companies in the IT Division and Commercial Staffing pay referral fees to employees responsible for attracting new recruits. The Company interviews, tests, checks references and evaluates the skills of applicants for temporary employment, utilizing systems and procedures developed and enhanced over the years. Commercial Staffing employs temporary associates on an as needed basis dependent upon client demand. These temporary employees are paid only for time they actually work. In the IT Division, the demand for technology consultants exceeded supply in 1998. In an effort to attract a broad spectrum of qualified employees, the Company offers a wide variety of employment options and training programs. The Company emphasizes the utilization of salaried full-time status for its consultants with the payment of annual salaries irrespective of assignment. In addition, 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 consultant recruitment and retention, increased the technical skills of the IT Division's personnel and resulted in better service for the IT Division's clients. The Company provides competitive compensation packages and comprehensive benefits for all of its temporary associates and IT Division consultants. Most of the temporary associates and IT Division consultants are eligible for the Company's 401(k) matching plans and employee stock purchase plan. ORGANIZATIONAL STRUCTURE The Company operates through a network of decentralized Company-operated offices. Each Company-operated office reports to a manager who is responsible for day-to-day operations and the profitability of the office. Depending on, among other things, the number of Company-operated offices in a region, branch managers may report to operating company presidents, regional managers, division vice presidents or division presidents. Branch and regional managers are given a high level of autonomy in making decisions about the operation of their principal region. The compensation of branch and regional managers includes bonuses primarily based on the incremental year-to-year increase in the profitability of their operations and is designed to motivate them to maximize the growth and profitability of their offices. AUTOMATED OPERATING SYSTEMS Commercial Staffing uses a number of automated systems to allow it to quickly and effectively measure the skills of the temporary employee candidates that make themselves available and to match skills with client requests. The ProficiencyPLUS program is designed to test specific computer-related skills by allowing the candidate to operate in the actual software program environment. The QuestPLUS system integrates the results of the Company's skills testing with personal attributes and work history and automatically matches available candidates with customer requirements. This system also allows the Company to track the performance of its temporary employees and provide quality reports to customers that document the level of the Company's performance. 8 9 The Company utilizes branch paybill systems for Commercial Staffing. The paybill processing system provides payroll processing and customer invoicing. Installation of this system began in the second quarter of 1996 and has been completed in all of the Division companies that were part of the Company in September 1995, when the Company went public. Installation of this system in the acquired companies will continue through 1999. In the IT Division, the Company entered into an agreement with a software company for a new branch operating system for the information technology companies. Installation of this new system began in the first quarter of 1997 and has been completed in over 50% of the Division's existing offices. The Company expects that its other existing companies will install this system during 1999. The Company has also entered into an agreement with a software company to install financial and human resources systems for its information technology companies. Installation of these systems in the existing companies began in the second quarter of 1998 and is expected to continue through the year 2000. COMPETITION The United States staffing services market is highly competitive and highly fragmented, with more than 15,000 offices competing in the industry, and has limited barriers to entry. However, the commercial staffing and information technology services industries have been undergoing significant consolidation. A number of publicly owned companies specializing in professional staffing services in the United States have greater marketing, financial and other resources than the Company. In the temporary staffing industry, competition generally is limited to firms with offices located within a customer's particular local market. In most major markets, commercial staffing competitors generally include many of the publicly traded companies and, in addition, numerous regional and local full-service and specialized temporary service agencies, some of which may operate only in a single market. Competitors for information technology services include local IT staffing firms, large, multi-service staffing firms and large accounting firms. Since many clients contract for their staffing services locally, competition varies from market to market. In most areas, no single company has a dominant share of the market. Many client companies use more than one staffing services company, and it is common for large clients to use several staffing services companies at the same time. However, in recent years there has been a significant increase in the number of large customers consolidating their temporary staffing purchases with a single supplier or with a smaller number of preferred vendors. The trend to consolidate temporary staffing purchases has in some cases made it more difficult for the Company to gain business from potential customers who have already contracted to fill their staffing needs with competitors of the Company. In other cases, the Company has been able to increase the volume of business with certain customers who choose to purchase staffing primarily from the Company. The competitive factors in obtaining and retaining clients include an understanding of clients' specific job requirements, the ability to provide appropriately skilled temporary personnel at the local level in a timely manner, the monitoring of quality of job performance and the price of services. The primary competitive factors in obtaining qualified candidates for temporary employment assignments are wages and responsiveness to work schedules and the number of hours of work available. Management believes that it is highly competitive in these areas due to its focus on local markets and the autonomy given to its local management. 9 10 REGULATION Temporary employment service firms are generally subject to one or more of the following types of government regulation: (i) regulation of the employer/employee relationship between a firm and its temporary employees; (ii) registration, licensing, record keeping and reporting requirements; and (iii) substantive limitations on its operations. Staffing services firms are the legal employers of their temporary workers (other than independent contractors). Therefore, such firms are governed by laws regulating the employer/employee relationship, such as tax withholding or reporting, social security or retirement, anti-discrimination and workers' compensation. TRADEMARKS The Company maintains a number of trademarks, tradenames, service marks and other intellectual property rights, and licenses certain other proprietary rights in connection with its businesses. The Company is not currently aware of any infringing uses or other conditions that would materially and adversely affect its use of its proprietary rights. EMPLOYEES At February 17, 1999, the Company had approximately 1,500 permanent administrative employees. Additionally, approximately 3,900 of the information technology consultants in the IT Division were full-time salaried or hourly employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes that its relationships with its employees are good. ITEM 2. PROPERTIES Generally, the Company's offices are leased under leases of relatively moderate duration (typically three to five years, with options to extend) containing customary terms and conditions. The IT Division and Commercial Staffing offices are typically in high quality office or industrial buildings, and occasionally in retail buildings, and the Company's headquarters facilities and regional offices are in similar facilities. ITEM 3. LEGAL PROCEEDINGS From time to time the Company is involved in certain disputes and litigation relating to claims arising out of its operations in the ordinary course of business. Further, the Company periodically is subject to government audits and inspections. In the opinion of the Company's management, matters presently pending will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 10 11 PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The information required by this Item is included in the Company's Annual Report under the caption "Market and Dividend Information," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA. The information required by this Item is included in the Company's Annual Report under the caption "Selected Financial Data," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this Item is included in the Company's Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this Item is included in the Company's Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk Disclosures," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this Item is included in the Company's Annual Report under the captions "Consolidated Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements of Shareholders' Equity", "Consolidated Statements of Cash Flows", "Notes to Consolidated Financial Statements" and "Report of Independent Accountants," which information is set forth in Exhibit 13.1 to this Form 10-K and is hereby incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company previously disclosed the following information in a Current Report on Form 8-K filed March 21, 1997 (the "Report"): As the result of hiring a new Chief Financial Officer, Mr. James Hunt, who has a family relationship with a partner in the Greensboro, North Carolina office of Arthur Andersen LLP ("Arthur Andersen"), which had served as the Company's independent public accountants since 1995, the Company received a letter from Arthur Andersen dated March 17, 1997 indicating that it would decline to stand for reappointment as the Company's independent public accountants for the current fiscal year. The reports of Arthur Andersen on the Company's financial statements for the fiscal years ended December 31, 1995 and December 29, 1996 contained no adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. 11 12 In connection with the audits of the Company's financial statements for each of the fiscal years ended December 31, 1995 and December 29, 1996, and in the subsequent interim period, there were no disagreements with Arthur Andersen on matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures which, if not resolved to the satisfaction of Arthur Andersen, would have caused Arthur Andersen to make reference to such matter in its report. The Company furnished Arthur Andersen with a copy of the foregoing disclosure and in response thereto, Arthur Andersen furnished the Company with a letter dated March 21, 1997, addressed to the Securities and Exchange Commission, indicating no disagreement with the foregoing statements. The Report also stated that the Company's Board of Directors, upon the recommendation of the Audit Committee, engaged PricewaterhouseCoopers LLP as of March 17, 1997 as the Company's independent public accountants for its fiscal year ending December 28, 1997. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information contained in the Proxy Statement in the first paragraph under the caption "Election of Directors--Nominees," and under the caption "Election of Directors--Officers and Directors," is incorporated herein by reference in response to this Item 10. 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. None. 12 13 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. a. Documents filed as part of this Report (1) The following 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 January 3, 1999 and December 28, 1997 Consolidated Statements of Income for the years ended January 3, 1999, December 28, 1997 and December 29, 1996 Consolidated Statements of Shareholders' Equity for the years ended January 3, 1999, December 28, 1997 and December 29, 1996 Consolidated Statements of Cash Flows for the years ended January 3, 1999, December 28, 1997 and December 29, 1996 Notes to Consolidated Financial Statements (2) No financial statement schedules are filed as part of this Report. All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included elsewhere in the notes to the financial statements referred to above. (3) Exhibits: The Exhibits to this Report on Form 10-K are listed in the accompanying Exhibit Index. b. Reports on Form 8-K The Company filed no Current Reports on Form 8-K during the fourth quarter of 1998. 13 14 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 April 5, 1999. 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 April 5, 1999.
Signature ---------- /s/ Edward P. Drudge, Jr. Chairman, Chief Executive Officer and Director - ------------------------------------ Edward P. Drudge, Jr. /s/ James C. Hunt Senior Vice President, Chief Financial Officer and - ------------------------------------ Director James C. Hunt /s/ Ken R. Bramlett, Jr. Senior Vice President, General Counsel and Director - ------------------------------------ Ken R. Bramlett, Jr. 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.
14 15 EXHIBIT INDEX
FILED HEREWITH (*) NON-APPLICABLE (NA) OR INCORPORATED BY REFERENCE FROM COMPANY REG. PREVIOUS NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT ------- ----------- ------------------- ----------- 3.1 Restated Certificate of Incorporation of 3.1 333-31863 the Company, as amended 3.2 Amended and Restated Bylaws of the Company 3.2 33-95228 4.0 Specimen Stock Certificate 4.0 33-95228 4.1 Rights Agreement between the Company and 1 0-27792 First Union National Bank (as successor trustee) 4.2 Indenture between the Company and First 4.2 333-31863 Union National Bank, as Trustee 4.3 Form of Note Certificate for 5-3/4% 4.3 333-31863 Convertible Subordinates Notes 10.1+ 1995 Equity Participation Plan, as amended 10.1 333-31863 10.2+ Amended and Restated Management Incentive * Compensation Plan 10.3+ Employee Stock Purchase Plan 10.3 333-31863 10.4#+ Director and Officer Indemnification 10.3 10-K for year Agreement of James V. Napier ended 12/31/95 10.5+ Employment Agreement between the Company 10.9 10-Q for quarter and Edward P. Drudge, Jr. ended 9/30/95 10.6+ Amendment No. 1 to Employment Agreement 10.6 10-K for year ended between the Company and Edward P. Drudge, 12/28/97 Jr. 10.7+ Employment Agreement between the Company 10.10 10-K for year ended and James C. Hunt 12/29/96 10.8+ Employment Agreement between the Company 10.13 10-K for year ended and Ken R. Bramlett, Jr. 12/29/96 10.9+ Employment Agreement between the Company * and Michael H. Barker
16
FILED HEREWITH (*) NON-APPLICABLE (NA) OR INCORPORATED BY REFERENCE FROM COMPANY REG. PREVIOUS NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT ------- ----------- ------------------- ----------- 10.10+ Employment Agreement between the Company * and William T. McCarthy 10.11+ Employment Agreement between the Company * and Donald E. Kierson 10.12 Indemnification Agreement between the 10.14 10-Q for quarter Company and Adia Delaware ended 9/30/95 10.13 Tax-Sharing Agreement between the 10.15 10-Q for quarter Company, Adia Delaware and Adia California ended 9/30/95 10.14 Amended and Restated Non-Qualified 10.16 10-K for year ended Profit-Sharing Plan 12/29/96 10.15+ Director's Non-Qualified Deferred Fee Plan 10.12 10-K for year ended 12/28/97 10.16 Amended and Restated Credit Agreement 10.15 333-31863 among the Company and its subsidiaries, the Lenders party thereto and NationsBank, N.A., as agent 10.17 Amendment No. 1 to Amended and Restated 10.14 10-Q for quarter Credit Agreement among the Company and ended 3/29/98 its Subsidiaries, The Lenders party thereto and NationsBank, N.A., as Agent 10.18 Asset Purchase Agreement between the 2 8-K dated 9/30/96 Company and Business Enterprise Systems and Technology, Inc. (BEST Consulting) 10.18 Stock Purchase Agreement for the sale of 1 8-K dated 12/26/97 Nursefinders between PFI Corp., Nursefinders, Inc., and Nursefinder Acquisition Corp. 10.20 Registration Rights Agreement between the 10.17 333-31863 Company and the Initial Purchasers
17
FILED HEREWITH (*) NON-APPLICABLE (NA) OR INCORPORATED BY REFERENCE FROM COMPANY REG. PREVIOUS NO. EXHIBIT EXHIBIT OR NUMBER DESCRIPTION NUMBER REPORT ------- ----------- ------------------- ----------- 12.1 Statement regarding computation of ratio * of earnings to fixed charges 13.1 Those portions of the Annual Report * incorporated by reference in Parts II, Items 5, 6, 7, 7A and 8 and Part IV, Item 14(a)(1) of this report 16.1 Letter from Arthur Andersen LLP 16 8-K dated 3/17/97 21.1 Subsidiaries of the Company * 23.1 Consent of Arthur Andersen LLP * 23.2 Consent of PricewaterhouseCoopers LLP * 23.3 Report of Arthur Andersen LLP * 27.1 Financial Data Schedule (For SEC use only) *
# This Exhibit is substantially identical to Director and Officer Indemnification Agreements (i) of the same date between the Company and the following individuals: Edward P. Drudge, Jr., Kevin P. Egan, J. Roger King, and William Simione, Jr.; and (ii) dated April 17, 1998 between the Company and each of James C. Hunt and Ken R. Bramlett, Jr. + Management Contract or Compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission. EX-10.2 2 AMENDED/RESTATED MANAGEMENT INCENTIVE PLAN 1 EXHIBIT 10.2 PERSONNEL GROUP OF AMERICA, INC. AMENDED AND RESTATED MANAGEMENT INCENTIVE COMPENSATION PLAN 1. PURPOSE AND DESIGN This Management Incentive Compensation Plan (the "Plan") is intended to provide an incentive for superior work and to motivate all employees of Personnel Group of America, Inc. ("PGA," and together with its subsidiaries, "the Company") and its subsidiaries toward even higher achievement and business results, to tie their goals and interests to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified employees. The Plan is designed to ensure that the bonuses paid hereunder to Section 162(m) Employees (as defined below) are deductible without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations and interpretations promulgated thereunder (the "Code"). 2. ELIGIBLE EMPLOYEES The Plan Committee (as defined below) shall determine and designate, from time to time, from among all employees of the Company (the "Eligible Employees") those persons who may receive bonuses under the Plan, and thereby become participants in the Plan ("Participants"). Certain of such Participants who are or may be "covered employees" as defined in Section 162(m)(3) of the Code may be designated as "Section 162(m) Employees," and those Participants who are not Section 162(m) Employees shall hereinafter be referred to as "Non-Section 162(m) Employees." In making these selections, the Plan Committee shall consider any and all factors it deems relevant, including the individual's functions, responsibilities, value of services to the Company and past and potential contributions to the Company's profitability and sound growth. 3. THE PLAN COMMITTEE The "Plan Committee" shall consist of one or more persons who are appointed by the Board of Directors of PGA to administer all or portions of the Plan. The Plan Committee shall have the sole discretion and authority to administer and interpret the Plan. 4. BONUSES (a) An Eligible Employee may receive a bonus payment hereunder based upon the attainment of performance objectives established by the Plan Committee and related to one or more of the following corporate business criteria: pre-tax income, operating income, cash flow, earnings per share, return on equity, return on invested capital or assets, cost reductions and savings, return on revenues, collections of accounts receivable or productivity. Within the first 90 days of each fiscal year (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Plan Committee shall select the Participants for such fiscal year. Designation of an Eligible Employee as a Participant for a fiscal year shall not, however, in any manner entitle such Participant to receive a bonus award under the Plan for such fiscal year. The entitlement of any Participant to payment of a bonus award for such fiscal year shall be decided solely in accordance with the provisions of this Plan. All of the bonus awards issued under the Plan to Section 162(m) Employees are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. (b) Within the first 90 days of each fiscal year (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Plan Committee shall calculate each Participant's base salary for the fiscal year then beginning. The base salary for any fiscal year shall be the Participant's base salary as of the first day of such fiscal year. Once the base salary is determined for any fiscal year, the base salary will not change for that fiscal year. (c) Within the first 90 days of each fiscal year (or, if longer, within the maximum period allowed under Section 162(m) of the Code), the Plan Committee shall establish in writing for such fiscal year: (i) the specific performance goals for such fiscal year for each Participant; and 2 (ii) a bonus matrix detailing the bonus award for each Participant in this Plan if the performance goals for such individual are attained. The amount of a Participant's bonus award for any fiscal year will be calculated from the bonus formula for such fiscal year, which bonus formula shall be the product of the Participant's base salary and the percentage derived from the bonus matrix. (d) The form of bonus awards shall be determined as follows: (i) Each Participant in the Plan shall have the right to elect to receive up to fifty (50%) percent of the Participant's bonus award for a fiscal year in fully vested stock options in lieu of cash. Such election must be made by notice to the Company given by no later than the last business day of the fiscal year to which such award relates. Such notice shall set forth the percentage of the Participant's bonus award the Participant elects to receive in fully vested stock options, and such notice shall be binding on the Participant and irrevocable after the date given. Bonus awards elected by a Participant to be paid in stock options shall be paid as follows. The percentage specified in the notice referred to above shall be converted into a number of fully vested stock options using the Black-Scholes option pricing method or a derivative thereof as calculated by the Plan Committee, with such calculation being done as of the last business day of the fiscal year for which such bonus award is otherwise payable. The Company will issue that number of fully vested stock options to the Participant. All stock options issued hereunder will be granted under the Company's 1995 Equity Participation Plan, and will be granted thereunder as of the last business day of the fiscal year for which such bonus award is otherwise payable. (ii) The portion of a Participant's bonus award not paid in stock options pursuant to clause (i) above shall be paid in cash on or prior to March 1 in the year succeeding the fiscal year for which such bonus award is payable. (e) No bonuses shall be paid to Section 162(m) Employees under the Plan unless and until the Plan Committee makes a certification in writing with respect to the attainment of the objective performance standards as required by Code Section 162(m). Although the Plan Committee may in its sole discretion reduce the bonus payable to a Section 162(m) Employee, the Plan Committee shall have not discretion to increase the amount of a Section 162(m) Employee's bonus. (f) The Plan Committee shall have the discretion to apply or not apply the foregoing provisions to bonuses payable to Non-Section 162(m) Employees. (g) The payment of a bonus to a Participant with respect to a bonus period shall be conditioned upon the Participant's employment by the Company on the last day of the performance period; provided, however, that the Plan Committee may make exceptions to this requirement, in its sole discretion, in the case of a Participant's retirement, death or disability. (h) Notwithstanding any provision contained in this Plan to the contrary, the maximum bonus award payable to any Participant for any bonus period shall be equal to the lesser of 250% of the Participant's base salary with respect to such bonus period or $1,250,000. 5. AMENDMENT AND TERMINATION PGA reserves the right to amend or terminate this Plan at any time in its sole discretion. Any amendments to the Plan shall require stockholder approval only to the extent required by applicable laws, regulations or stock exchange requirements. EX-10.9 3 EMPLOYMENT AGREEMENT/BARKER 1 EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 19th day of January 1998, by and between Personnel Group of America, Inc., a Delaware corporation (the "Company"), and Michael H. Barker ("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 19th day of January 1998, 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 Term of 2 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 January 18, 1999; 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 defined 3 4 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 will or 6 7 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE COMPANY MICHAEL H. BARKER PERSONNEL GROUP OF AMERICA, INC. By: /s/ Michael H. Barker By: /s/ Edward P. Drudge, Jr. ------------------------- ---------------------------- Name: Edward P. Drudge, Jr. Title: President, Commercial Title: Chairman and CEO Staffing Division Address: 3629 Ashley States Marietta, GA 30067 10 EX-10.10 4 EMPLOYMENT AGREEMENT/MCCARTHY 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 18th day of September 1998, by and between Personnel Group of America, Inc., a Delaware corporation (the "Company"), and William T. McCarthy ("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 28th day of September 1998, which date shall be referred to herein as the "Effective Date." 2. Position and Duties. (a) The Company hereby employs Executive as the President of the Company's Information Technology Services 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 three hundred thousand dollars ($300,000) 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. 1 2 (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.") (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 short- 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. (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 and 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 28, 1999; 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 2 3 below), Executive shall be entitled to continue 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 first anniversary of such effective date of termination (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 Charlotte, North Carolina metropolitan area; and (iii) the occurrence of a "Change in Control" as defined below. 3 4 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 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: 4 5 i) fraud, misappropriation, embezzlement, or other act of material misconduct against the Company or any of its subsidiaries or 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 Company 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. (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 Other than for Good Reason. 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 under this paragraph (d). 5 6 (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. 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, or cause or attempt to cause others to disclose or use, 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 one (1) year thereafter, Executive shall not in any manner or capacity (e.g., as a principal, partner, officer, director, shareholder, employee or otherwise) engage in, work for or otherwise participate in any activity which is competitive with the Company, its subsidiaries and affiliates in the business of providing information technology staffing, consulting or permanent placement services (the "IT Business"); provided, however, that (i) 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, (ii) 6 7 Executive may work or serve as a consultant to, or otherwise provide advice or assistance as an agent for, any person or entity in the IT Business (subject to Executive's obligations as set forth in Section 6(a) above), and such services shall also not be a violation of this Agreement and (iii) the Executive may, in any manner or capacity (e.g. as a principal, partner, officer, director, shareholder, employee or otherwise) engage in, work for, or otherwise participate in the business of providing strategic information technology consulting services with any corporation, corporate division or other corporate entity (subject to Executive's obligations as set forth in Section 6(a) above), and such services shall also not be a violation of this Agreement. For purposes of this Agreement, the term "strategic information technology consulting services" shall mean enterprise-wide information technology consulting services for design and deployment of information technology systems and business process solutions for diverse areas, such as customer service, order processing, billing and logistics. Strategic information technology consulting services are to be distinguished, without limitation, from applications development, information technology staffing and development, systems and network integration, information technology outsourcing and supplemental information technology services related to any of the foregoing. 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, its subsidiaries and affiliates to carry out any such activity. It is further expressly agreed that the Company may 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 could by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction. The provisions of Section 6(b) shall be limited in scope and effective only within the following geographical areas: (i) The cities in which the Company, its subsidiaries and affiliates are now or shall then be operating an office in the IT Business; (ii) The counties in which any of the cities set forth in clause (i) are located; (iii) The counties set forth in clause (ii) and a 100-mile radius outside the boundary limits of each such county; and (iv) The states in which each of the cities set forth in clause (i) are located; and (v) The United States of America. (c) During the Term of Employment and for two (2) years thereafter, Executive shall not, solicit, or cause or attempt to cause others to solicit, customers or suppliers of the Company or any of its subsidiaries or affiliates, to divert their business to any competitor of the Company or any of its subsidiaries or affiliates. 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 solicit or recruit, or cause or attempt others to solicit or recruit, any employee of the Company or any of its subsidiaries or affiliates 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 or any of its subsidiaries or affiliates 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. The parties intend the above restrictions on competition to be completely, severable and independent, and any invalidity or unenforceability of any one or more of such restrictions shall not render invalid or unenforceable any one or more of the other restrictions. (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 this Agreement, 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 8 9 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 specifically set forth herein, and except for that certain offer letter dated September 11, 1998 signed by Executive and the Company (the terms of which are incorporated herein by reference), 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 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. 9 10 (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 below; provided that all notices to the Company shall be directed to the attention of the Board of Directors of the Company, with a copy to the Chief Executive Officer, at the address set forth under the Company's signature below, 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. 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 10 11 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 each party shall bear its own costs and expenses incurred thereby, including fees and expenses of attorneys and expert witnesses and costs of appeal. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE COMPANY WILLIAM T. McCARTHY PERSONNEL GROUP OF AMERICA, INC. By: /s/ William T. McCarthy By: /s/ Ken R. Bramlett, Jr. ----------------------------------- --------------------------------- Name: Ken R. Bramlett, Jr. Title: President, Information Title: Senior Vice President and Technology Services Division General Counsel Address: Address: 3407 White Eagle Drive 6302 Fairview Road, Suite 201 Naperville, IL 60564 Charlotte, NC 28210 11 EX-10.11 5 EMPLOYMENT AGREEMENT/KIERSON 1 EXHIBIT 10.11 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into this 4th day of January 1999, by and between Personnel Group of America, Inc., a Delaware corporation (the "Company"), and Don Kierson ("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 4th day of January 1999, which date shall be referred to herein as the "Effective Date." 2. Position and Duties. (a) The Company hereby employs Executive as its Chief Information Officer 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 office 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 fifty-five thousand dollars ($155,000) 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 Compensation Committee of the Board of Directors. Such salary shall be payable in accordance with the Company's normal payroll procedures. (Executive's annual salary, as set 1 2 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"), which shall be established by the Company for designated 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. The Bonus Plan for each calendar year during the Term of Employment shall be established at the beginning of the calendar year. Executive shall not be entitled to any Bonus for any calendar year if he is not employed under this Agreement on the last business day of such calendar year. 4. Benefits. During the Term of Employment: (a) Executive shall be eligible to participate in any life, health and long-term disability insurance 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. Executive shall also be entitled to participate in such retirement programs, including pension and 401(k) plans, as may be offered by the Company from time to time in its discretion to other similarly situated employees of 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 and 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 January 3; 2000; 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 an additional 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: 2 3 (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 first anniversary of such effective date of termination (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 health 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 health 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; 3 4 (ii) the Company's requiring the Executive to be based anywhere other than the metropolitan area where he currently works and resides (provided that Company and Executive agree that Executive shall relocate to the Charlotte metropolitan area within a mutually agreeable time frame after the date hereof); 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 acquires an equity interest materially in excess of his equity interest in the Company immediately prior to or in connection with 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 4 5 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 subsidiaries or affiliates; ii) substantial and willful failure to perform specific and lawful directives of the Chief Executive Officer or the Board of Directors, 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 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. (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 5 6 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 under this paragraph (d). (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 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 12-month period, his employment may be terminated by the Company 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. 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, but not limited to, any proprietary knowledge, trade secrets, data, formulae, information, and client, customer and employee lists and all papers, resumes, records (including computer records) and other 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, 6 7 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 that is competitive with the business of the Company, its subsidiaries and affiliates in providing flexible staffing, information technology consulting or permanent placement services (the "Business"); provided, however, that (i) 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 and (ii) Executive may work or serve as a consultant to, or otherwise provide advice or assistance as an agent for, any person or entity in the Business (subject to Executive's obligations as set forth in Section 6(a) above), and such services shall also not be a violation of this Agreement. 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, its subsidiaries and affiliates to carry out any such activity. 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. The provisions of Section 6(b) shall be limited in scope and effective only within the following geographical areas: i) The cities in which the Company, its subsidiaries and affiliates are now or shall then, as of the date of termination of Executive's employment, be operating an office in the Business; ii) The counties in which any of the cities set forth in clause (i) are located; iii) The counties set forth in clause (ii) and a 100-mile radius outside the boundary limits of each such county; iv) The states in which each of the cities set forth in clause (i) are located; and v) The United States of America. (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. The parties intend the above restrictions on competition to be completely severable and independent, and any invalidity or unenforceability of any one or more of such restrictions shall not render invalid or unenforceable anyone or more of the other restrictions. (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 8 9 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, 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 otherwise set forth herein and in any offer letter previously signed by Executive and the Company, 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, without regard to conflicts of law issues. (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, however, that all notices to the Company shall be directed to the attention of the Board of Directors 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 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 10 11 reimbursed by the other party for all reasonable 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 reasonable 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. EXECUTIVE COMPANY DON KIERSON PERSONNEL GROUP OF AMERICA, INC. By: /s/ Don Kierson By: /s/ Edward P. Drudge, Jr. -------------------------------- --------------------------------- Name: Edward P. Drudge, Jr. Title: Chief Information Officer Title: Chairman and CEO Address: - -------------------- - -------------------- 11 EX-12.1 6 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1
1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Fixed Charges: Interest Expense including Amortization of debt issuance costs -- 159 1,155 6,951 12,491 Interest on Rent Expense (1/3) 484 551 820 1,359 2,463 ----- ----- ------ ------ ------ Total Fixed Charges 484 710 1,975 8,310 14,954 Income before Taxes 4,950 7,612 14,299 30,800 53,757 Fixed Charges 484 710 1,975 8,310 14,954 ----- ----- ------ ------ ------ Income before Fixed Charges 5,434 8,322 16,274 39,110 68,711 Ratio of Earnings to Fixed Charges 11.2 11.7 8.2 4.7 4.6
EX-13.1 7 PORTIONS OF ANNUAL REPORT 1 EXHIBIT 13.1 SELECTED FINANCIAL DATA (in thousands, except per share data)
Fiscal Years Ended 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS Revenues $ 783,925 $475,620 $243,608 $143,243 $125,822 Operating income 66,248 37,751 15,454 7,771 4,950 Net income from continuing operations 31,017 17,790 8,304 4,330 2,769 Net income $ 31,017 $ 20,202 $ 11,517 $ 7,109 $ 3,899 Net income per diluted share (1) Income from continuing operations $ 0.96 $ 0.71 $ 0.41 $ 0.27(2) -- Income from discontinued operations -- 0.09 0.16 .17(2) -- Net income $ 0.96 $ 0.80 $ 0.56 $ 0.44(2) -- Weighted average diluted shares outstanding 36,752 28,078 20,432 16,000 -- FINANCIAL POSITION AT YEAR-END Working capital $ 84,151 $ 69,090 $ 26,558 $ 17,719 $ 11,792 Total assets 708,890 451,309 293,575 83,441 74,584 Short- and long-term debt 235,406 152,540 85,147 -- -- Shareholders' equity 394,630 205,076 183,257 75,986 68,438 FINANCIAL PERFORMANCE Revenue growth 64.8% 95.2% 70.1% 13.8% 17.2% Operating income margin 8.5% 7.9% 6.3% 5.4% 3.9% Net income growth (3) 53.5% 75.4% 62.0% 82.3% 53.7% Net income per diluted share growth (3) 35.2% 73.2% 51.9% -- --
- -------------------------- (1) All share data has been restated to reflect the two-for-one stock split declared by the Company's Board of Directors on March 5, 1998. (2) Net income per share in 1995 has been computed assuming the 16,000,000 shares issued in the Company's initial public offering in September 1995 were outstanding throughout 1995. (3) From continuing operations. TEN 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes appearing elsewhere in this report. The Company's fiscal year ends on the Sunday nearest to December 31 and the fiscal quarters end on the Sunday nearest to the end of the respective calendar quarters. The Company is organized into two Divisions: the Information Technology Services Division, which provides information technology staffing and consulting services in a range of computer-related disciplines; and the Commercial Staffing Division, which provides a wide variety of temporary office, clerical, light technical and light industrial staffing services. At January 3, 1999, the Information Technology Division was comprised of 20 companies and the Commercial Staffing Division was comprised of 24 companies. The following table sets forth the number and nature of the Company's offices at the end of the years indicated and at February 17, 1999:
February 17, 1999 1998 1997 1996 - ------------------------------------------------------------------------------ Information technology services 46 47 30 18 Commercial staffing 100 100 82 74 ---------------------------------------- Total offices 146 147 112 92
In May 1998, the Company completed an offering of 7.0 million shares of common stock. The net proceeds of approximately $133.3 million from this offering were used to repay indebtedness under the Company's $200.0 million revolving credit facility (the "Credit Facility"). Also during 1998, the Company acquired 10 information technology services companies and five commercial staffing companies. The combined revenues of these 15 companies were approximately $259.5 million in 1998. Had the Company owned each of the acquired companies discussed above at the beginning of fiscal 1998, the Company's pro forma 1998 revenues would have been approximately $889.0 million, and 61% and 39% of such revenues would have come from Information Technology Services and Commercial Staffing, respectively. On December 26, 1997, the Company completed the sale of its healthcare division, for $65.25 million. With the sale of the healthcare division, the Company completed a transformation that began in 1996 when the Company made a strategic commitment to enter the high growth, high margin information technology services business. The gain on the sale of the healthcare division was not material. As a result of the sale, the healthcare division has been reflected as a discontinued operation in the Company's financial statements for all periods presented. In June and July 1997, the Company completed a private placement of $115.0 million of 5-3/4% Convertible Subordinated Notes due 2004 (the "Notes"). The net proceeds of the Notes were approximately $111.8 million and were used to repay indebtedness under the Credit Facility and retire a separate $10.0 million line of credit. In June 1996, the Company issued 8,050,000 shares of its common stock in an 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 Credit Facility and to fund several acquisitions. Each of the Company's acquisitions has been accounted for using the purchase method of accounting, and has been included in the following discussions as applicable since the respective dates of acquisition. The Company allocates the excess of cost over the fair value of the net tangible assets first to identifiable intangible assets, if any, and then to goodwill. The Company believes that buying market leading companies and then allowing them to maintain their separate identities and independence preserves the goodwill for an unlimited period. Although the Company believes that goodwill has an unlimited life, the Company amortizes such costs on a straight-line basis over 40 years. Intangible assets represented 76.2% of total assets and 136.8% of total shareholders' equity at January 3, 1999. The Company periodically evaluates the recoverability of its investment in excess of cost over fair value of net assets acquired and other intangibles in relation to anticipated future cash flows on an undiscounted basis. Based on this assessment, the Company expects its investments in intangible assets to be fully recovered. 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 operations. The information technology services business is affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower IT revenues and lower operating margins in the fourth quarter of each year. The commercial staffing business is subject to the seasonal impact of summer and holiday employment trends. Typically, the second six months of each calendar year 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, its emphasis ELEVEN 3 on high-end clerical staffing and its rapid expansion into the less cyclical information technology staffing and consulting sector may partially mitigate the adverse effects of economic cycles in a single industry or geographic region. OUTLOOK This outlook section contains a number of forward-looking statements, all of which are based on current expectations. This section should be read in conjunction with "Forward-Looking Information" below. Actual results may differ materially. PGA's fourth quarter 1998 earnings marked the 14th consecutive quarter in which the Company has met or exceeded consensus earnings per share expectations and the 10th consecutive quarter in which net income from continuing operations exceeded the same quarter in the prior year by more than 50%. In March 1999, however, the Company announced that earnings for the first quarter of 1999 would be below expectations as the result of a shortfall in Commercial Staffing revenues and a decline in IT Division gross margin percentages caused by lower than expected consultant utilization rates in January and February. Although the Company believes that its businesses are fundamentally sound and remains committed to its operating model and growth strategy, as a result of the slow start in 1999, the Company also announced that it was lowering its financial goals for 1999 and reduced its expectations for 1999 earnings per share. In light of the lower expectations, the Company announced that it was implementing contingency plans to reduce costs and maximize profits. Although IT Division gross margin percentage increased in March as the result of corrective actions taken to restore utilization rates to historical levels, there can be no assurance that the increased gross margin percentage will be sustainable for the balance of 1999. Additionally, there can be no assurance that Commercial Staffing revenue growth will improve significantly short-term. The persistence of either of these conditions could have an adverse effect on the Company's financial condition and results of operations in 1999, and that effect could be material. In addition to the conditions described in the Company's first quarter pre-announcement, management currently expects IT Division and Commercial Staffing internal growth for 1999 in the ranges of 13% to 17% and mid-single digits, respectively. These revenue growth expectations are down from 1998 growth rates for the Company, but management believes that expected 1999 growth rates are at or above expected industry growth rates for the Company's sectors. Demand for the Company's services remains strong generally, and management believes that the Company can continue to meet its long-term financial goals notwithstanding the lowered expectations for internal revenue growth and the short-term impact of the conditions reported in its first quarter 1999 earnings pre-announcement. OVERVIEW The following table summarizes certain income statement information for the Company for the years ended January 3, 1999, December 28, 1997 and December 29, 1996 (dollars in thousands):
1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- Revenues: Information technology services $445,485 56.8% $249,749 52.5% $ 55,472 22.8% Commercial staffing 338,440 43.2% 225,871 47.5% 188,136 77.2% ----------------------------------------------------------------- Total revenues 783,925 100.0% 475,620 100.0% 243,608 100.0% Direct cost of services 564,711 72.0% 349,616 73.5% 186,338 76.5% ----------------------------------------------------------------- Gross profit 219,214 28.0% 126,004 26.5% 57,270 23.5% Selling, general and administrative 136,937 17.5% 79,216 16.7% 38,454 15.8% Depreciation and amortization 16,029 2.0% 9,037 1.9% 3,362 1.4% ----------------------------------------------------------------- Total operating expenses 152,966 19.5% 88,253 18.6% 41,816 17.2% Operating income 66,248 8.5% 37,751 7.9% 15,454 6.3% Interest expense 12,491 1.6% 6,951 1.5% 1,155 0.5% ----------------------------------------------------------------- Income from continuing operations before income taxes 53,757 6.9% 30,800 6.5% 14,299 5.9% Provision for income taxes 22,740 2.9% 13,010 2.7% 5,995 2.5% ----------------------------------------------------------------- Income from continuing operations 31,017 4.0% 17,790 3.7% 8,304 3.4% Income from discontinued operations, net of taxes -- N/A 2,412 0.5% 3,213 1.3% ----------------------------------------------------------------- Net income $ 31,017 4.0% $ 20,202 4.2% $ 11,517 4.7% =================================================================
RESULTS OF OPERATIONS YEAR ENDED JANUARY 3, 1999, VERSUS YEAR ENDED DECEMBER 28, 1997 REVENUES Total revenues increased 64.8% to $783.9 million in 1998 from $475.6 million in 1997. Information Technology Services revenue grew 78.4% as the Company continued its aggressive acquisition program and experienced strong internal growth as same store sales grew 20.9% in 1998 over 1997. Commercial Staffing Division revenue grew 49.8% as the result of the contribution of revenues from the commercial staffing companies acquired by the Company in 1997 and 1998 and strong same store sales growth. Commercial Staffing same store sales growth was approximately 11.3% in 1998 over 1997. High internal growth rates were due primarily to the continued strong demand for TWELVE 4 information technology services and a significant new customer relationship in the Commercial Staffing Division. Demand for the Company's services remains strong, but management does not expect 1999 internal growth rates to remain at 1998 levels. DIRECT COST OF SERVICES AND GROSS PROFIT Direct costs, consisting of payroll and related expenses of consultants and temporary workers, increased 61.5% to $564.7 million in 1998. Gross profit as a percentage of revenue increased 150 basis points to 28.0% from 26.5% during 1997. This increase in gross profit as a percentage of revenue reflected the Company's continued expansion into the higher margin information technology staffing and consulting sectors and the acquisition of several companies that provide high margin permanent placement services. Information Technology Services revenues represented 57% of total revenues in 1998, up from 53% in 1997. Although pay rate increases in 1998 were generally passed on to the Company's customers through higher bill rates, there can be no assurances that the Company will be able to pass on pay rate increases to its customers in the future. OPERATING EXPENSES Operating expenses, consisting of selling, general and administrative expenses and depreciation and amortization expense, increased 73.3% to $153.0 million in 1998 from $88.3 million in 1997. As a percentage of revenues, selling, general and administrative expenses increased to 17.5% in 1998 from 16.7% in 1997. This increase was caused by investments in management personnel and management systems, the continued business mix shift to IT services, and several recent acquisitions of companies that provide information technology and permanent placement services. Both of these lines of business typically carry higher gross margins, as well as higher selling, general and administrative expenses as a percentage of sales, than Commercial Staffing. In addition, depreciation and amortization expense increased to 2.0% of revenues in 1998 from 1.9% in 1997 due to increased amortization expense resulting from the acquisitions completed by the Company. INTEREST EXPENSE Interest expense increased to $12.5 million in 1998 from $7.0 million in 1997 as the Company continued to borrow funds to finance its acquisition strategy. See "Liquidity and Capital Resources." INCOME TAX EXPENSE The effective tax rate increased to 42.3% in 1998 from 42.2% in 1997. This increase was due to higher nondeductible amortization expense from acquisitions in relation to pretax income. The Company's effective tax rate has historically been higher than the U.S. federal statutory rate of 35% primarily due to state income taxes and nondeductible amortization expense. INCOME FROM CONTINUING OPERATIONS Income from continuing operations increased 74.4% to $31.0 million in 1998 (or 4.0% of revenue) from $17.8 million (3.7% of revenue) in 1997 due to the factors discussed above. YEAR ENDED DECEMBER 28, 1997, VERSUS YEAR ENDED DECEMBER 29, 1996 REVENUES Total revenues increased 95.2% to $475.6 million in 1997 from $243.6 million in 1996. Information Technology Services revenue grew 350.2% as the Company continued its aggressive acquisition program with six IT acquisitions in 1997. In addition, the Company experienced strong internal growth, as on a proforma basis, Information Technology Services revenues grew 34.7% in 1997 over 1996. Commercial Staffing Division revenue grew 20.1%, as the result of the contribution of revenues from the four commercial staffing companies acquired by the Company in 1997 and as a result of proforma internal growth of 9.0% in 1997 over 1996. High internal growth rates were due to the continued strong demand for IT services and the increasing acceptance by businesses and other organizations in the use of a contingent workforce. DIRECT COST OF SERVICES AND GROSS PROFIT Direct costs, consisting of payroll and related expenses of consultants and temporary workers, increased 87.6% to $349.6 million from $186.3 million in 1996. Gross margin as a percentage of revenue increased 300 basis points to 26.5% from 23.5% during 1996. This increase reflected the Company's continued expansion into the higher margin information technology staffing and consulting sectors. Information Technology Services revenues represented 52.5% of total revenues in 1997, up from 22.8% in 1996. Gross profit margins in the Information Technology and Commercial Staffing divisions remained consistent with 1996 margins as pay rate pressures were generally passed on through higher bill rates. OPERATING EXPENSES Operating expenses, consisting of selling, general and administrative expenses and depreciation and amortization expense, increased 111.1% to $88.3 million in 1997 from $41.8 million in 1996. As a percentage of revenues, selling, general and administrative expenses increased to 16.7% in 1997 from 15.8% for 1996 primarily due to higher selling, general and administrative costs in the Information Technology Division as compared to the Commercial Staffing Division. Depreciation and amortization expense recognized during 1997 increased to 1.9% of revenues from 1.4% of revenues for 1996 primarily due to the acquisitions completed during 1997 and throughout 1996. THIRTEEN 5 INTEREST EXPENSE Interest expense increased to $7.0 million in 1997 as the Company borrowed funds to continue its aggressive acquisition strategy. The Company completed in June and July 1997 a private placement of $115.0 million of the Notes. In addition, the Company continued to borrow funds under its Credit Facility and from certain owner-sellers of acquired businesses to finance acquisitions. Borrowings for acquisitions were minimized in 1996 due to the proceeds received from the June 1996 Equity Offering. See "Liquidity and Capital Resources." INCOME TAX EXPENSE The effective tax rate increased slightly to 42.2% in 1997 from 41.9% for 1996. This increase was due to additional nondeductible amortization expense in 1997 in relation to pretax income, as well as an increase in state income taxes attributable to changes in the Company's business mix geographically among the states. The Company's effective tax rate has historically been higher than the U.S. federal statutory rate of 35.0% primarily due to state income taxes and nondeductible amortization expense. INCOME FROM CONTINUING OPERATIONS Income from continuing operations increased 114.2% to $17.8 million in 1997 (or 3.7% of revenue) from $8.3 million (3.4% of revenue) in 1996 due to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash are from operations, borrowings under its Credit Facility and proceeds of public equity and debt offerings. The Company's principal uses of cash are to finance working capital and to fund acquisitions and capital expenditures. For the year ending January 3, 1999, cash provided by operating activities increased to $28.9 million, primarily as a result of higher earnings before depreciation and amortization in 1998, offset by increases in receivables reflecting the growth in the volume of business over the prior year. As of January 3, 1999, receivables for the Information Technology Services Division and the Commercial Staffing Division remained outstanding an average of 57 and 46 days, respectively, after billing. In the aggregate, days sales outstanding were 52 and 48 days at January 3, 1999 and December 28, 1997, respectively. The increase in days sales outstanding is primarily the result of the ongoing business mix shift into IT services. Cash used for investing activities increased to $241.1 million in 1998 from $91.0 million in 1997 primarily as a result of $259.1 million of cash used for acquisitions, including contingent earnout payments, in 1998, up from $115.7 million in 1997. Cash generated from financing activities increased to $212.5 million in 1998 from $63.1 million in 1997, primarily as a result of the net proceeds of $133.3 million received in connection with the issuance of 7.0 million shares of Common Stock in May 1998 and from additional borrowings under the Credit Facility. As of January 3, 1999, the Company was obligated under certain acquisition agreements to repay seller notes during the next two years of $8.4 million in the aggregate and to make contingent earnout payments of $9.5 million to former owners of acquired businesses in connection with the performance of such businesses in 1998. Earnout payments based on earnings for periods ending after December 31, 1998 and beyond are contingent on the future performance of such acquired businesses, and thus the actual amount cannot be determined until such date. The Company estimates, based on certain assumptions as to future performance of such acquired businesses, that aggregate earnout payments may be in the range of $6.0 million to $14.0 million for 1999, $15.0 million to $30.0 million for the year 2000, and $8.0 million to $15.0 million for 2001. There can be no assurance, however, that the future performance of the acquired businesses will be consistent with the assumptions used in establishing the foregoing estimates, or that the actual amounts of any earnout payments will not differ materially from the estimates set forth herein. The Company expects to spend approximately one percent of its annual revenues in 1999 on management information systems and other capital expenditures not directly related to acquisitions. The Company recently initiated a project to replace the financial and human resource systems for its information technology companies. Installation of these systems for the existing companies is expected to continue through the year 2000. There can be no assurance that there will not be unanticipated costs or delays associated with these installations or that the systems will operate as expected. On October 6, 1998, the Company's Board of Directors authorized a share repurchase program, which was subsequently expanded, covering up to $52.0 million of its outstanding shares of common stock in the aggregate (including shares previously purchased under the program). Share repurchases made under this program will be made from time to time in accordance with applicable securities regulations in open market or privately negotiated transactions. As of January 3, 1999, the Company had made no repurchases under this program. As of March 25, 1999, the Company had purchased 3.6 million shares of Common Stock in the aggregate for a purchase price of $25.6 million. The purchases were made in the open market and were financed with borrowings under the Credit Facility. The repurchased shares will be held in the Company's treasury and will be available for resale and for general corporate purposes. Any additional purchases will also be financed through the Credit Facility. FOURTEEN 6 The Credit Facility is a five-year $200.0 million revolving line of credit due June 2002. As of March 25, 1999, $120.0 million of borrowings were outstanding under the Credit Facility and approximately $6.1 million had been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation programs. At March 25, 1999, the amount available for borrowing under the credit facility was approximately $73.9 million. An additional $7.9 million will be borrowed under the Credit Facility to pay for shares acquired as of March 25, 1999. In 1998, the weighted average interest rate under the Credit Facility was 7.0%. The Company believes that cash flow from operations, borrowing capacity under its Credit Facility and other available financing alternatives, including offerings of debt or equity securities of the Company will be adequate to meet its presently anticipated needs for working capital, capital expenditures, acquisitions, and share repurchases. There can be no assurance, however, that other alternative sources will be available on favorable terms. New Accounting Pronouncements. The Company will adopt SOP98-1, Accounting for the Costs of Computer Software Developed for Internal Use, which requires the capitalization of certain costs related to the development of software for internal use in fiscal year 1999. The Company believes the adoption of this standard will not have a material impact on its financial results. Year 2000 Compliance. The Company initiated a project in 1998 to replace the financial and human resource systems for its existing information technology companies. In addition, the Company expects to complete the installation of branch payroll and billing systems at its existing commercial staffing companies during 1999. Management believes that these new systems are year 2000 compliant based on representations from the software vendors. The Company also believes that its other key computer systems and related software, including systems used at corporate headquarters are substantially year 2000 compliant. An assessment to determine what modifications are necessary to other systems is underway. The Company expects to complete this assessment and make any necessary modifications by the end of the third quarter of 1999. As of January 3, 1999, approximately $0.4 million has been expensed related to the assessment and remediation of year 2000 issues. The Company estimates the total expense will be between $1.0 million and $1.2 million. In addition, the Company is assessing the year 2000 preparedness of its vendors and customers. To date, no significant concerns have been identified. However, there can be no assurance that no year 2000 problems or expenses will arise with the Company's computer systems, software or equipment or in the computer systems, software or equipment of the Company's vendors and customers. Upon completion of discussions with the Company's vendors and customers, the Company will assess the need for contingency plans in the case of failure of computer systems and software of either the Company or its vendors and customers. Due to the Company's dependence upon, and its current uncertainty with, the year 2000 compliance of certain government agencies, third-party suppliers, vendors and customers with whom the Company deals, the Company is unable to determine at this time its most reasonably likely worst case scenario. While costs related to the lack of year 2000 compliance by third parties, business interruptions, litigation and other liabilities related to year 2000 issues could materially and adversely affect the Company's business, results of operations and financial condition, the Company expects its internal year 2000 compliance efforts to reduce significantly the Company's level of uncertainty about the impact of year 2000 issues. The Company's Information Technology Services Division performs work for clients to assist them in modifying their computer systems and software to make them year 2000 compliant, although this type of work does not represent a significant portion of the Division's services. Generally, this work is performed under the direction and supervision of the client and the Company seeks to limit its liability contractually. Additionally, the Company maintains errors and omissions insurance to protect against these risks. Although the Company does not believe that it will incur material liabilities to clients for its work on their year 2000 projects, there can be no assurance that the Company will not incur liabilities or that liabilities, if any, will not be material. MARKET RISK DISCLOSURES The Company's outstanding debt under the Credit Facility at January 3, 1999, was $110.0 million. Interest on borrowings under the Credit Facility is based on LIBOR plus a variable margin. Based on the outstanding balance at January 3, 1999, a change of 1% in the interest rate would cause a change in interest expense of approximately $1.1 million on an annual basis. In early June and July 1997, the Company issued $115.0 million of the Notes. The fair value of the Notes at January 3, 1999, was $133.0 million, as compared to the carrying value of $115.0 million. FORWARD-LOOKING INFORMATION This report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain various "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, that are based on management's belief and assumptions, as well as information currently available to management. When used in this document, the words "anticipate," "believe," "estimate," "expect" and similar expressions may identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual results, performance or financial condition may vary materially from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on the Company's actual results, performance or financial condition are fluctuations in the economy, the degree and nature of competition, demand for the Company's services, including the impact of changes in utilization rates and unexpected changes in demand attributable to the Year 2000 phenomenon, changes in laws and regulations affecting the Company's business, the Company's ability to complete acquisitions and integrate the operations of acquired businesses, to recruit and place temporary professionals, to expand into new markets, and to maintain profit margins in the face of pricing pressures and wage inflation and other matters discussed in this report and the Company's other filings with the Securities and Exchange Commission. FIFTEEN 7 CONSOLIDATED BALANCE SHEETS January 3, 1999, and December 28, 1997 (in thousands, except per share data)
1998 1997 - --------------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 962 $ 642 Accounts receivable, net of allowance for doubtful accounts of $2,031 and $1,063 in 1998 and 1997, respectively 129,761 77,869 Prepaid expenses and other current assets 6,967 1,674 Deferred income taxes 5,149 4,165 Notes receivable from sale of discontinued operation 885 36,276 ------------------------- Total current assets 143,724 120,626 Property and equipment, net 20,290 9,162 Intangible assets, net 539,977 316,413 Other assets 4,899 5,108 ------------------------- Total assets $ 708,890 $ 451,309 ========================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 9,150 $ 7,490 Accounts payable 5,310 2,200 Accrued wages, benefits and other 42,604 32,321 Income taxes payable 2,509 9,525 ------------------------- Total current liabilities 59,573 51,536 Long-term debt 226,256 145,050 Other long-term liabilities 28,431 49,647 ------------------------- Total liabilities 314,260 246,233 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; shares authorized 5,000; no shares issued and outstanding -- -- Common stock, $.01 par value; shares authorized 95,000; 32,929 and 24,278 shares issued and outstanding in 1998 and 1997, respectively 329 242 Additional paid-in capital 329,383 171,038 Retained earnings 65,083 34,066 Deferred compensation (165) (270) ------------------------- Total shareholders' equity 394,630 205,076 ------------------------- Total liabilities and shareholders' equity $ 708,890 $ 451,309 =========================
The accompanying notes are an integral part of these balance sheets. SIXTEEN 8 CONSOLIDATED STATEMENTS OF INCOME For the Years Ended January 3, 1999, December 28, 1997, and December 29, 1996 (in thousands, except per share data)
1998 1997 1996 - ------------------------------------------------------------------------------------------------------- REVENUES $783,925 $475,620 $243,608 DIRECT COST OF SERVICES 564,711 349,616 186,338 ------------------------------------ GROSS PROFIT 219,214 126,004 57,270 SELLING, GENERAL AND ADMINISTRATIVE 136,937 79,216 38,454 DEPRECIATION AND AMORTIZATION 16,029 9,037 3,362 ------------------------------------ OPERATING INCOME 66,248 37,751 15,454 INTEREST EXPENSE 12,491 6,951 1,155 ------------------------------------ INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 53,757 30,800 14,299 PROVISION FOR INCOME TAXES 22,740 13,010 5,995 ------------------------------------ INCOME FROM CONTINUING OPERATIONS 31,017 17,790 8,304 ------------------------------------ DISCONTINUED OPERATIONS: Income from discontinued operations, net of taxes -- 2,323 3,213 Gain on disposal of discontinued operations, net of taxes -- 89 -- ------------------------------------ Total discontinued operations -- 2,412 3,213 ------------------------------------ NET INCOME $ 31,017 $ 20,202 $ 11,517 ==================================== NET INCOME PER BASIC SHARE: Income from continuing operations $ 1.05 $ 0.74 $ 0.41 Income from discontinued operations, net of taxes -- 0.10 0.16 ------------------------------------ NET INCOME PER BASIC SHARE $ 1.05 $ 0.83 $ 0.56 ==================================== NET INCOME PER DILUTED SHARE Income from continuing operations $ 0.96 $ 0.71 $ 0.41 Income from discontinued operations, net of taxes -- 0.09 0.16 ------------------------------------ NET INCOME PER DILUTED SHARE $ 0.96 $ 0.80 $ 0.56 ==================================== WEIGHTED AVERAGE BASIC SHARES OUTSTANDING 29,600 24,204 20,432 WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 36,752 28,078 20,432
The accompanying notes are an integral part of these statements. SEVENTEEN 9 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended January 3, 1999, December 28, 1997, and December 29, 1996 (in thousands)
Additional Total Common Stock Paid-In Retained Deferred Shareholders' Shares Amount Capital Earnings Compensation Equity - --------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 1995 8,000 $ 80 $ 73,559 $ 2,347 -- $ 75,986 ======================================================================= Issuance of common stock 4,025 40 95,589 -- -- 95,589 Exercises of stock options 9 -- 125 -- -- 125 Net income -- -- -- 11,517 -- 11,517 ----------------------------------------------------------------------- BALANCE, December 29, 1996 12,034 $120 $ 169,273 $13,864 -- $183,257 ======================================================================= Exercises of stock options 95 1 1,570 -- -- 1,571 Issuance of restricted stock 10 -- 316 -- (316) -- Amortization of deferred compensation -- -- -- -- 46 46 Net income -- -- -- 20,202 -- 20,202 Two-for-one stock split 12,139 121 (121) -- -- -- ----------------------------------------------------------------------- BALANCE, December 28, 1997 24,278 $242 $ 171,038 $34,066 $(270) $205,076 ======================================================================= Issuance of common stock 7,000 70 133,230 -- -- 133,300 Stock issued for acquisitions 1,368 14 22,160 -- -- 22,174 Stock issued for employee stock purchase plan and exercises of stock options 283 3 2,955 -- -- 2,958 Amortization of deferred compensation -- -- -- -- 105 105 Net income -- -- -- 31,017 -- 31,017 ----------------------------------------------------------------------- Balance, January 3, 1999 32,929 $329 $ 329,383 $65,083 $(165) $394,630 =======================================================================
The accompanying notes are an integral part of these statements. EIGHTEEN 10 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended January 3, 1999, December 28, 1997, and December 29, 1996 (in thousands)
1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 31,017 $ 17,790 $ 8,304 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,029 9,037 3,362 Deferred income taxes, net 5,822 3,083 (286) Changes in assets and liabilities: Accounts receivable (21,248) (14,684) (8,890) Prepaid assets and other, net (2,597) (430) (83) Accounts payable and accrued liabilities (297) 9,238 6,091 Income taxes payable 216 (597) (1,026) ----------------------------------------- Net cash provided by operating activities 28,942 23,437 7,472 CASH FLOWS FROM INVESTING ACTIVITIES: Cash used in acquisitions, net of cash acquired (259,057) (115,663) (155,837) Net cash provided (used) by discontinued operations 28,012 29,812 (5,535) Purchase of property and equipment, net (10,028) (5,162) (3,239) ----------------------------------------- Net cash used in investing activities (241,073) (91,013) (164,611) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net 133,300 -- 95,629 Proceeds from convertible subordinated notes issuance, net -- 111,750 -- Repayments under Credit Facility (222,450) (190,632) (30,775) Borrowings under Credit Facility 308,450 147,307 98,100 Proceeds from employee stock purchase plan and exercise of stock options 3,066 1,617 125 Repayments of seller notes and acquired indebtedness (9,915) (6,935) (5,524) ----------------------------------------- Net cash provided by financing activities 212,451 63,107 157,555 ----------------------------------------- Net increase (decrease) in cash and cash equivalents 320 (4,469) 416 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 642 $ 5,111 $ 4,695 ========================================= CASH AND CASH EQUIVALENTS AT END OF YEAR $ 962 $ 642 $ 5,111 ========================================= SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments during the period for: Income taxes $ 17,523 $ 10,888 $ 9,617 Interest $ 11,969 $ 5,042 $ 1,307
The accompanying notes are an integral part of these statements. NINETEEN 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 1. ORGANIZATION AND NATURE OF OPERATIONS: BASIS OF PRESENTATION The consolidated financial statements include the accounts of Personnel Group of America, Inc. and subsidiaries (collectively, the "Company"). All significant intercompany transactions have been eliminated. The Company's fiscal years ended January 3, 1999, December 28, 1997, and December 29, 1996 are referred to herein as 1998, 1997 and 1996, respectively. NATURE OF OPERATIONS The Company operates through a network of Company-operated offices. The Company is organized into two Divisions: the Information Technology Services Division, which provides information technology staffing and consulting services in a range of computer-related disciplines; and the Commercial Staffing Division, which provides temporary office, clerical and light industrial and light technical services. At January 3, 1999, the Information Technology Services Division was comprised of 20 companies and the Commercial Staffing Division was comprised of 24 companies. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: REVENUE RECOGNITION The Company recognizes revenue at the time services are performed. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciated on a straight-line basis over their estimated useful lives (generally three to seven years). Leasehold improvements are stated at cost and amortized over the shorter of the lease term or the useful life of the improvements. INTANGIBLE ASSETS The Company's businesses were acquired from unrelated third parties in exchange for cash and other consideration. 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. Other intangible assets consist mainly of covenants not to compete. Accumulated amortization of intangible assets was $23,332 at January 3, 1999, and $11,346 at December 28, 1997. Amortization expense for fiscal years 1998, 1997 and 1996 was $11,986, $6,494 and $2,266, respectively. The Company periodically evaluates the recoverability of its investment in excess of cost over fair value of net assets acquired and other intangibles in relation to anticipated future cash flows on an undiscounted basis. Based on this assessment, the Company expects its investment in excess of cost over fair value of net assets acquired and other intangibles to be fully recovered. INCOME TAXES Deferred tax assets and liabilities are recorded for the expected tax consequences of temporary differences arising between the tax bases of assets and liabilities and their reported amounts in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. TWENTY 12 3. ACQUISITIONS: During 1998, the Company acquired the following businesses in 15 separate transactions:
Name of Business Type of Business Date Acquired - ------------------------------------------------------------------------------- Ann Wells Personnel Services Commercial Staffing January 1998 Corporate Staffing Commercial Staffing January 1998 Creative Temporaries Commercial Staffing January 1998 Advanced Business Consultants Information Technology February 1998 IMA Plus Information Technology March 1998 The Temporary Connection Commercial Staffing March 1998 Trilogy Consulting Information Technology April 1998 Sloan Staffing Services Commercial Staffing May 1998 Careers Information Technology June 1998 IMS Consulting, Inc. Information Technology June 1998 Gentry, Inc. Information Technology July 1998 PALADIN Consulting Information Technology August 1998 Keiter Stephens Computer Services Information Technology September 1998 InfoTech Contract Services Information Technology November 1998 RealTime Consulting Information Technology November 1998 During 1997, the Company acquired the following businesses in seven separate transactions: Name of Business Type of Business Date Acquired - -------------------------------------------------------------------------------- Word Processing Professionals Commercial Staffing January 1997 Energetix Information Technology February 1997 Lipson Conroy Services Information Technology April 1997 Lloyd Ritter Consulting Information Technology April 1997 Vital Computer Services International Information Technology June 1997 DRACS Consulting Group Information Technology September 1997 Jeffrey Staffing Group* Commercial Staffing September 1997 BAL Associates Information Technology December 1997
* Includes Franklin Pierce, Scott Wayne and Integrity Technical Services These acquisitions are collectively referred to hereinafter as the "Transactions" and the acquired businesses are collectively referred to hereinafter as the "Acquired Companies." The companies acquired in 1998 had combined annual revenues of approximately $259,500 in 1998. In 1998 and 1997, the Company paid approximately $220,000 and $112,500, respectively, in cash and notes to consummate the Transactions (which included direct acquisition costs but excluded contingent earnout payments associated with certain of the Transactions). In addition, certain sellers of the acquired companies received common stock of the Company valued at $22,174, as of the acquisition date. Certain of the acquisitions provide for additional purchase price consideration upon attainment of certain earnings targets for various periods during the next three years. The Company paid $35,985 and $3,421 in contingent consideration in 1998 and 1997, respectively. The Company has recorded $9,466 of contingent consideration to be paid in 1999, relating to 1998 earnings. Contingent earnout payments based on periods ending after December 31, 1998, and beyond are contingent on the future performance of such acquired businesses and thus the actual amount cannot be determined until such date. Any additional consideration will be recorded as additional purchase price when earned and will increase the amount of excess of cost over fair value of net assets acquired. All of the Transactions have been accounted for using the purchase method of accounting. Accordingly, the assets and liabilities of the entities acquired, based on preliminary allocations, were recorded at their estimated fair values at the dates of the acquisitions and the results of operations of the Acquired Companies have been included in the Company's consolidated results of operations from the dates of the respective acquisitions. Final allocation of the purchase price may result in adjustments to the amounts previously recorded as excess of cost over fair market value of net assets acquired. TWENTY-ONE 13 The following table presents the Company's pro forma consolidated results of operations for 1998 and 1997, as if the Transactions had occurred on December 30, 1996:
1998 1997 - ------------------------------------------------------------------------------- Revenues $889,016 $767,175 Net income from continuing operations 33,54 22,706 Net income per diluted share $ 1.01 $ 0.85 Weighted average diluted shares outstanding 37,348 29,442
4. DISCONTINUED OPERATIONS: On December 26, 1997, the Company completed the sale of its Healthcare Division to Nursefinders Acquisition Corp. (the "Purchaser"), a corporation organized by Atlantic Medical Management, L.L.C. and CIBC Capital Partners, for $65,250. The assets, liabilities, results of operations and cash flows of the Healthcare Division have been segregated and reported as discontinued operations for all periods presented, and previously reported results have been restated. The sale of Nursefinders resulted in a gain of $89. The total proceeds received in connection with the sale were used to repay outstanding borrowings under the Credit Facility (See Note 11). During 1997 and 1996, the Company allocated interest expense to the discontinued operation based on the ratio of net assets of the discontinued operation to the total net assets of the consolidated Company. Interest expense allocated in 1997 and 1996 was $2,217 and $445, respectively. No other corporate overhead expenses have been allocated to the discontinued operation.
Summary operating results of the discontinued operation were as follows: 1997 1996 - ------------------------------------------------------------------------------- Revenues $133,442 $122,937 Total expenses 129,438 117,387 ---------------------- Income before income taxes 4,004 5,550 Provision for income taxes 1,681 2,337 ---------------------- Net income $ 2,323 $ 3,213 ======================
5. ACCOUNTS RECEIVABLE: Accounts receivable consisted of the following at January 3, 1999 and December 28, 1997:
1998 1997 - ------------------------------------------------------------------------------- Trade accounts receivable $ 131,792 $ 78,932 Less - Allowance for doubtful accounts (2,031) (1,063) ------------------------ $ 129,761 $ 77,869 ========================
The following table sets forth further information on the Company's allowance for doubtful accounts:
Balance at Charged to Balance Beginning Costs and at End Year Ended of Period Expenses Deductions of Period - ------------------------------------------------------------------- January 3, 1999 $1,063 $1,601 $(633) $2,031 December 28, 1997 519 1,138 (594) 1,063 December 29, 1996 332 899 (712) 519
TWENTY-TWO 14 6. PROPERTY AND EQUIPMENT, NET: Property and equipment, net, consisted of the following at January 3, 1999, and December 28, 1997:
1998 1997 - ------------------------------------------------------------ Software and computer equipment $ 20,943 $ 9,504 Furniture and other equipment 5,777 3,145 Leasehold improvements 1,680 589 ----------------------- 28,400 13,238 Less - Accumulated depreciation (8,110) (4,076) ----------------------- $ 20,290 $ 9,162 =======================
7. ACCRUED WAGES, BENEFITS AND OTHER: Accrued liabilities consisted of the following at January 3, 1999, and December 28, 1997:
1998 1997 - ---------------------------------------------------------------- Accrued wages and benefits $34,621 $19,544 Accrued interest 460 4,073 Accrued workers' compensation benefits 1,700 1,616 Other 5,823 7,088 -------------------- $42,604 $32,321 ====================
8. OTHER LONG-TERM LIABILITIES: Other long-term liabilities consisted of the following at January 3, 1999, and December 28, 1997:
1998 1997 - -------------------------------------------------------------------- Amounts due sellers of acquired businesses $12,709 $41,084 Deferred tax liabilities 11,926 4,428 Workers' compensation reserves and other 3,796 4,135 -------------------- $28,431 $49,647 ====================
The amounts due sellers of acquired businesses are mainly for contingent purchase price consideration based upon the results of 1998. Of the amounts due at January 3, 1999, $10,876 is due in 1999, and will be refinanced with borrowings under the Credit Facility (see Note 11). 9. EMPLOYEE BENEFIT PLANS: The Company has 401(k) profit sharing and nonqualified profit sharing plans, which cover substantially all of its employees. Company contributions or allocations are made on a discretionary basis for these plans (except for matching contributions made to certain 401(k) profit sharing plans as required by the terms of such plans). Contributions charged to operating expenses were $1,889, $523 and $492 for the years ended January 3, 1999, December 28, 1997, and December 29, 1996, respectively. The Company does not provide postretirement health care and life insurance benefits to retired employees or postemployment benefits to terminated employees. 10. CAPITAL STOCK AND STOCK OPTIONS (in thousands, except share and per share data): On October 6, 1998, the Company's Board of Directors authorized a share repurchase program covering up to 12.5% of its then outstanding shares of common stock. Share repurchases made under this program will be made from time to time in accordance with applicable securities regulations in open market or privately negotiated transactions. As of January 3, 1999, the Company had made no repurchases under this program. In March 1999, the Company's Board of Directors authorized an expansion of its share repurchase program to allow for repurchases of common stock not to exceed $52,000 in the aggregate (including repurchases made prior to the expansion of the program). As of March 25, 1999, the Company has purchased an aggregate of 3.6 million shares of common stock for a purchase price of $25,562. The purchases were made in the open market and were financed through the Company's Credit Facility. The repurchased shares will be held in PGA's treasury and will be available for resale and for general corporate purposes. TWENTY-THREE 15 In May 1998, the Company completed an offering of 7.0 million shares of common stock. The net proceeds of $133,300 were used to repay indebtedness under the Company's Credit Facility (see Note 11). On March 5, 1998, the Board of Directors authorized a two-for-one split of common stock to be effected in the form of a 100% stock dividend payable to shareholders of record on March 16, 1998. The par value remained at $0.01 per share. Shareholders' equity has been restated by reclassifying from additional paid-in capital to common stock the par value of the additional shares arising from the split. All references in the accompanying consolidated financial statements to the number of common shares, except shares authorized, and to per share amounts have been restated to reflect the stock split. In June 1996, the Company issued 8,050,000 shares of its common stock in an underwritten public offering (the "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 Credit Facility and to fund several acquisitions. The Company's Board of Directors adopted its 1995 Equity Participation Plan (the "Incentive Plan") to attract and retain officers, key employees, consultants and directors. The Incentive Plan has reserved for issuance 15% of the common stock issued and outstanding from time to time. The Incentive Plan allows for the issuance of options, stock 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. The Company's Board of Directors adopted the 1997 Employee Stock Purchase Plan (the "Stock Purchase Plan") for the purpose of encouraging employee participation in the ownership of the Company. Under the Stock Purchase Plan, employees may elect to have payroll deductions made to purchase the stock at a discount. At the end of each quarterly purchase period, each participant's payroll deductions are used to acquire common stock of the Company at a price equal to 85% of the market value on either the first or last day of the quarterly purchase period, whichever is lower. At January 3, 1999, 234,889 shares of common stock had been issued and an additional 765,111 were reserved for issuance under the Stock Purchase Plan. In 1997, the Company issued each outside member of the Board of Directors a deferred share grant of 2,500 shares of common stock, for a total of 10,000 shares. The shares will vest ratably over a three-year period. The non-vested portion of the deferred share grant is included as deferred compensation on the Company's Statement of Shareholders' Equity. TWENTY-FOUR 16 A summary of stock option activity follows:
Weighted Shares Average Under Price Per Option Share - -------------------------------------------------------------- Outstanding, December 31, 1995 865,410 $ 6.93 Granted in 1996 841,296 12.66 Exercised 18,620 6.69 Canceled 48,180 7.31 ---------- --------- Outstanding, December 29, 1996 1,639,906 $ 10.15 ========== ========= Granted in 1997 867,792 15.50 Exercised 190,196 8.26 Canceled 121,950 10.32 ---------- --------- Outstanding, December 28, 1997 2,195,552 $ 12.20 ========== ========= Granted in 1998 1,181,416 13.74 Exercised 128,448 7.64 Canceled 125,235 14.60 ---------- --------- Outstanding, January 3, 1999 $3,123,285 $ 12.87 ========== ========= Exerciseable, December 29, 1996 527,112 $ 8.93 ========== ========= Exerciseable, December 28, 1997 870,982 $ 9.98 ========== ========= Exerciseable, January 3, 1999 1,382,873 $ 12.09 ========== =========
The exercise prices of options outstanding at January 3, 1999, ranged from $6.69 to $23.08. The weighted average remaining life of options outstanding at January 3, 1999, was 8.3 years. Pursuant to the requirements of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), the following disclosures are presented to reflect the Company's pro forma net income for the three years ended January 3, 1999, December 28, 1997, and December 29, 1996, as if the fair value method of accounting prescribed by SFAS 123 had been used. In preparing these disclosures, the Company has determined the value of all options granted using the minimum value method, as discussed in SFAS 123, and based on the following weighted average assumptions used for grants: 1998 1997 1996 - ----------------------------------------------------------------- Risk-free interest rate 5.3% 6.1% 6.9% Expected dividend yield 0.0% 0.0% 0.0% Expected life 5 years 5 years 5 years Using these assumptions, the fair value of the stock options granted and Stock Purchase Plan issuances in 1998, 1997 and 1996 was approximately $8,268, $5,976 and $4,920, 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:
1998 1997 1996 - ----------------------------------------------------------------------------------------- Net income, as reported $ 31,017 $ 20,202 $ 11,517 Net income per diluted share, as reported 0.96 0.80 0.56 Pro forma net income 28,209 18,720 9,922 Pro forma net income per diluted share $ 0.88 $ 0.75 $ 0.49
TWENTY-FIVE 17 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. 11. LONG-TERM DEBT: Long-term debt consisted of the following at January 3, 1999, and December 28, 1997:
1998 1997 - ------------------------------------------------------------------------------------- 5-3/4% Convertible Subordinated Notes due July 2004 $115,000 $ 115,000 $200,000 revolving credit facility due June 2002 110,000 24,000 Notes payable to sellers of acquired companies and other 10,406 13,540 -------- --------- 235,406 152,540 Less current portion 9,150 (7,490) -------- --------- $226,256 $ 145,050 ======== =========
In June and July 1997, the Company completed a private placement of $115,000 of 5-3/4% Convertible Subordinated Notes due July 2004 (the "Notes"). The net proceeds of approximately $111,750 were used to repay a substantial portion of outstanding indebtedness under the Credit Facility and permanently repay outstanding indebtedness under a separate $10,000 line of credit. Interest on the Notes is payable semi-annually, commencing January 1998. The Notes are convertible into common stock of the Company at any time before maturity at an initial conversion price of $17.81 per share. The Notes are not redeemable prior to July 2000. Thereafter, the Company may redeem the Notes initially at 103.29% and at decreasing prices thereafter to 100% at maturity, in each case together with accrued interest. The Notes are subordinated to all present and future senior indebtedness of the Company (as defined), including indebtedness under the Credit Facility. Concurrent with the issuance of the Notes, the Credit Facility was amended and restated. The term of the Credit Facility was extended to June 2002. Borrowings under the Credit Facility bear interest, at a rate equal to LIBOR plus a percentage corresponding to the Company's consolidated leverage ratio, as defined, or the agent's base rate, as defined, at the Company's option. The Credit Facility is secured by pledges of stock of the Company's subsidiaries and contains customary covenants such as the maintenance of certain financial ratios, minimum net worth and working capital requirements and a restriction on the payment of cash dividends on common stock. The Credit Facility also limits borrowing availability for acquisition-related purposes. At January 3, 1999, the Company was in compliance with the covenants contained in the Credit Facility. During 1998, the maximum aggregate outstanding borrowing under the Credit Facility was $169,000 and the average outstanding balance during the year was $67,188. In addition, approximately $6,125 of the Credit Facility has been used for the issuance of undrawn letters of credit to secure the Company's workers' compensation program. The daily weighted average interest rate under the Credit Facility was 7.0% during 1998. The weighted average interest rate of the Company's borrowings under the Credit Facility was 6.5% at January 3, 1999. At February 4, 1999, the amount available for borrowing under the Credit Facility was approximately $89,875. The Company has also issued notes payable in connection with certain acquisitions. These notes are due in varying installments and bear interest at 6.8% at January 3, 1999. TWENTY-SIX 18 Scheduled maturities of long-term debt at January 3, 1999, are as follows:
1999 $ 9,150 2000 1,256 2001 -- 2002 110,000 2003 and thereafter 115,000 -------- $235,406 =========
12. INCOME TAXES: The provision for income taxes for the years ended January 3, 1999, December 28, 1997, and December 29, 1996 consisted of the following:
1998 1997 1996 - ---------------------------------------------------------------------------------- Current provision Federal $13,324 $ 8,863 $ 5,119 State 2,902 2,183 1,162 --------------------------------- Total current provision 16,226 11,046 6,281 Deferred provision (benefit) Federal 5,349 1,576 (233) State 1,165 388 (53) --------------------------------- Total deferred provision (benefit) 6,514 1,964 (286) --------------------------------- Total $22,740 $13,010 $ 5,995 =================================
The reconciliation of the effective tax rate is as follows:
1998 1997 1996 - -------------------------------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State taxes, net of federal benefit 4.9 5.4 5.0 Effect of nondeductible amortization and other 2.4 1.8 1.9 ------------------------------- Total 42.3% 42.2% 41.9% ===============================
The components of the Company's net deferred tax assets and liabilities were as follows at January 3, 1999, and December 28, 1997:
1998 1997 - ------------------------------------------------------------------------------------------------------- Deferred tax liability - Excess of cost over fair value of net assets acquired $ 9,300 $3,883 Excess tax over book depreciation of fixed assets 1,847 305 Other deferred tax liabilities 779 240 ------------------- 11,926 4,428 ------------------- Deferred tax assets - Accrued workers' compensation and other 2,203 2,698 Allowance for doubtful accounts 753 425 Accrued benefits 1,292 456 Other 901 586 ------------------- 5,149 4,165 ------------------- Net deferred tax liability $ 6,777 $ 263 ====================
13. NET INCOME PER SHARE: In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS 128 simplifies the calculation of earnings per share ("EPS") primarily by removing common stock equivalents from consideration in calculating basic EPS. TWENTY-SEVEN 19 The computation of basic net income per share was based on the weighted average number of shares of common stock outstanding. The computation of diluted net income per share was based on the weighted average number of common stock and common stock equivalents outstanding and also assumed the conversion of the Company's Convertible Notes in 1998 and 1997. In 1996, the computation of both basic and diluted net income per share have been retroactively restated in accordance with FAS 128. In accordance with FAS 128, the following tables reconcile net income and weighted average shares outstanding to the amounts used to calculate basic and diluted earnings per share for each of the three years ended January 3, 1999, December 28, 1997, and December 29, 1996, (amounts in thousands, except per share amounts):
1998 1997 1996 - -------------------------------------------------------------------------------------------------- EARNINGS PER BASIC SHARE: Net income $31,017 $20,202 $11,517 ================================= Weighted average shares outstanding 29,600 24,204 20,432 Earnings per basic share $ 1.05 $ 0.83 $ 0.56 ================================= EARNINGS PER DILUTED SHARE Net income $31,017 $20,202 $11,517 Add: Interest expense on Convertible Notes, net of tax 4,257 2,217 -- --------------------------------- Diluted net income $35,274 $22,419 $11,517 Weighted average shares outstanding 29,600 24,204 20,432 Add: Dilutive employee stock options 695 502 -- Add: Assumed conversion of Convertible Notes 6,456 3,372 -- --------------------------------- Weighted average diluted shares outstanding 36,752 28,078 20,432 Earnings per diluted share $ 0.96 $ 0.80 $ 0.56 =================================
14. FINANCIAL INSTRUMENTS: FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates the book value at January 3, 1999, 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 January 3, 1999, because of the variable rate associated with the borrowings. The Convertible Notes had a fair value of $133,009 and $129,231 at January 3, 1999 and December 28, 1997, respectively, as compared to the carrying value of $115,000. CONCENTRATION OF CREDIT RISK The Company maintains cash and cash equivalents with various financial institutions. Credit risk with respect to accounts receivable is dispersed due to the nature of the business, the large number of customers and the diversity of industries serviced. The Company performs credit evaluations of its customers. 15. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company leases facilities under operating leases, certain of which require it to pay property taxes, insurance and maintenance costs. Operating leases for facilities are usually renewable at the Company's option and include escalation clauses linked to inflation. TWENTY-EIGHT 20 Future minimum annual rentals for the next five years are as follows:
1999 $ 9,035 2000 8,423 2001 6,849 2002 5,170 2003 and thereafter 10,034 $39,511
Total rent expense under operating leases amounted to $7,397, $4,078 and $2,461 for the years ended January 3, 1999, December 28, 1997, and December 29, 1996, respectively. INSURANCE The Company maintains a self-insurance program for workers' compensation and medical and dental claims. The Company accrues liabilities under the workers' compensation program based on the loss and loss adjustment expenses as estimated by an outside administrator. At January 3, 1999, the Company had standby letters of credit with a bank in connection with a portion of its workers' compensation program. The Company is subject to claims and legal actions by customers in the ordinary course of business. The Company maintains professional liability insurance for losses. EMPLOYMENT AGREEMENTS The Company has agreements with several executive and other officers providing for cash compensation and other benefits in the event that a change in control of the Company occurs. LEGAL PROCEEDINGS The Company is involved in various legal actions and claims. In the opinion of management, after considering appropriate legal advice, the future resolutions of all actions and claims will not have a material adverse effect on the Company's consolidated financial position or results of operations. INDEMNIFICATION Pursuant to the agreement to sell the healthcare division, the Company agreed to indemnify the Purchaser against certain expenses or losses incurred by the Purchaser. Management believes that future claims made by the Purchaser should not have a material impact on the Company's financial position or results of operations. 16. SEGMENT INFORMATION: In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 supersedes SFAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. The adoption of SFAS 131 did not affect results of operations or financial position. The accounting policies of the segments are the same as those described in footnote 2, "Summary of Significant Accounting Policies." The Company is organized in two segments: the Information Technology Services Division (the "IT Division") and the Commercial Staffing Division (the "Commercial Staffing"). The IT Division provides technical staffing, training and information technology consulting services. Commercial Staffing provides temporary staffing services, placement of full-time employees and on-site management of temporary employees. The Company evaluates segment performance based on income from operations before corporate expenses, amortization of intangible assets, interest and income taxes. TWENTY-NINE 21 The table below presents information about reported segments for the years ending January 3, 1999, December 28, 1997, and December 29, 1996: Operating Results
1998 1997 1996 - ---------------------------------------------------------------------------- Total revenues IT Division $445,485 $249,749 $ 55,472 Commercial Staffing 338,440 225,871 188,136 ------------------------------------ Total revenue 783,925 475,620 243,608 ------------------------------------ Operating income IT Division 51,581 29,787 6,848 Commercial Staffing 33,573 19,667 14,037 ------------------------------------ Total operating income 85,154 49,454 20,885 Corporate expenses 6,920 5,209 3,165 Amortization of intangible assets 11,986 6,494 2,266 Interest expense 12,491 6,951 1,155 ------------------------------------ Income before income taxes $ 53,757 $ 30,800 $ 14,299 ====================================
The Company does not report total assets by segment. The following table sets forth identifiable assets by segment at January 3, 1999, December 28, 1998, and December 29, 1996:
1998 1997 1996 - --------------------------------------------------------------------------- Accounts receivable, net IT Division $ 84,999 $44,860 $20,913 Commercial Staffing 44,226 33,009 25,306 Corporate 536 -- -- ---------------------------------- Total accounts receivable, net $129,761 $77,869 $46,219 ==================================
17. Summary of Quarterly Financial Information (Unaudited): The following table sets forth quarterly financial information for each quarter in the years ended January 3, 1999, and December 28, 1997:
1998 -------------------------------------------------- First Second Third Fourth - ------------------------------------------------------------------------------------ Revenues $154,837 $190,291 $211,807 $226,990 Operating income 11,607 15,821 18,784 20,038 Net income 5,262 6,920 9,238 9,597 Net income per diluted share $ 0.20 $ 0.23 $ 0.26 $ 0.27 ==================================================
1997 ------------------------------------------------- First Second Third Fourth - --------------------------------------------------------------------------------------------- Revenues $94,161 $113,205 $128,994 $139,261 Operating income 6,081 8,410 10,698 12,562 Net income from continuing operations 2,769 3,854 5,130 6,037 Net income 3,461 4,449 5,764 6,528 Net income per diluted share Income from continuing operations $ 0.11 $ 0.15 $ 0.20 $ 0.23 Income from discontinued operations 0.03 0.02 0.02 0.01 ------------------------------------------------- Net income $ 0.14 $ 0.18 $ 0.22 $ 0.24 =================================================
THIRTY 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Personnel Group of America, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Personnel Group of America, Inc. and subsidiaries (the "Company") at January 3, 1999 and December 28, 1997, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The financial statements of the Company for the year ended December 29, 1996 was audited by other independent accountants whose report dated February 7, 1997, except for Note 4, for which the date is December 26, 1997 and except for Note 10 for which the date is March 5, 1998, expressed an unqualified opinion on those statements. /s/ PricewaterhouseCoopers LLP Charlotte, North Carolina February 4, 1999, except for Note 10, for which the date is March 25, 1999. THIRTY-ONE 23 CORPORATE DATA MARKET AND DIVIDEND INFORMATION The common stock of Personnel Group of America, Inc. is listed on The New York Stock Exchange (NYSE) under the symbol PGA. As of February 15, 1999, the Company had approximately 8,700 stockholders based on the number of holders of record and an estimate of the number of individual participants represented by securities position listings. The following table sets forth the high, low and closing sales prices for PGA's common stock as reported by the NYSE for the periods indicated:
High Low Close - ----------------------------------------------------------- 1998 FIRST QUARTER $23 3/8 $ 15 $ 22 3/8 SECOND QUARTER 23 3/8 17 17 1/6 THIRD QUARTER 20 3/4 11 12 15/16 FOURTH QUARTER 17 1/2 8 5/8 17 1/2 1997 First Quarter $13 5/8 $ 9 13/16 $ 9 13/16 Second Quarter 15 7/8 8 5/8 14 13/32 Third Quarter 18 1/32 14 1/2 17 1/8 Fourth Quarter 19 3/32 14 5/8 16 1/2
PGA has never paid a dividend on its common stock. The Company presently intends to retain its earnings to finance the growth and development of its business and does not expect to pay cash dividends in the foreseeable future. EX-21.1 8 SUBSIDIARIES 1 EXHIBIT 21.1 SUBSIDIARIES OF PERSONNEL GROUP OF AMERICA, INC.
State of Subsidiary Incorporation Does Business As - ---------- ------------- ---------------- PFI Corp Delaware N/A; PFI serves as a Delaware holding company NF Services, Inc. * New York Nursefinders StaffPLUS, Inc. Delaware Abar Staffing, Allegheny Personnel Services, Ann Wells Personnel, Denver Temp, Judith Fox Staffing, FirstWord Staffing Services, Franklin-Pierce Temporaries, Integrity Technical Services, Profile Temporaries, Scott-Wayne Staffing, Scott- Wayne Temporaries, Sloan Staffing Services, Staffinders Personnel, Temp Connection, The Temporary Connection, TempWorld, West Personnel and Word Processing Personnel Services Word Processing Professionals, Inc. New York Word Processing Professionals Franklin-Pierce Associates, Inc. Massachusetts Franklin Pierce Associates Scott Wayne Associates, Inc. Massachusetts Scott Wayne Associates Creative Corporate Staffing, Inc. North Carolina Creative Corporate Staffing Gentry, Inc. California Gentry IMS Consulting, Inc. North Carolina IMS Consulting InfoTech Services, Inc. North Carolina InfoStaff (Utah and California), BEST Consulting, Broughton Systems, Careers, DRACSSC, Computer Resources Group, Command Technologies, Energetix, IMA Plus, Keiter Stephens Computer Services, Lipson Conroy Services, Trilogy Consulting and Vital Computer Services InfoTech Contract Services, Inc. Massachusetts InfoTech Contract Services Lloyd-Ritter Consulting, Inc. California Lloyd Ritter Consulting BAL Associates, Inc. California BAL Associates Advanced Business Consultants, Inc. Missouri Advanced Business Consultants PALADIN Consulting, Inc. Texas PALADIN Consulting RealTime Consulting, Inc. Texas RealTime Consulting
* The stock of NF Services, Inc. (which operates Nursefinders' sole New York branch) has been placed in escrow pending approval by the New York Department of Health of the Nursefinders sale transaction (which was completed in December 1997). Upon approval by the New York Department of Health, the stock of NF Services, Inc. will be transferred to Nursefinders' buyer. EX-23.1 9 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report on the consolidated statements of income, shareholders' equity and cash flows for the year ended December 29 ,1996 included in this Form 10-K into Personnel Group of America, Inc.'s previously filed registration statements on Form S-8 (File No. 333-19541 and 333-39361) and Form S-3 (File No. 333-31863). /s/ Arthur Andersen LLP Charlotte, North Carolina, April 5, 1999. EX-23.2 10 CONSENT OF PRICEWATERHOUSECOOPERS 1 EXHIBIT 23.2 Consent of Independent Public Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-19541 and 333-39361) and Form S-3 (File No. 333-31863) of Personnel Group of America, Inc. of our report dated February 4, 1999, except for Note 10, for which the date is March 25, 1999 relating to the financial statements, which appears in the Annual Report to Shareholders, which is included as Exhibit 13.1 in this annual report on Form 10-K. /s/ PricewaterhouseCoopers LLP Charlotte, North Carolina April 5, 1999 EX-23.3 11 REPORT OF ARTHUR ANDERSEN 1 EXHIBIT 23.3 Report of Independent Public Accountants To the Board of Directors and Shareholders of Personnel Group of America, Inc. We have audited the consolidated statements of income, shareholders' equity and cash flows of Personnel Group of America, Inc. and subsidiaries (a Delaware corporation) for the year 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of the operations and the cash flows of Personnel Group of America, Inc. and subsidiaries for the year ended December 29, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Charlotte, North Carolina, February 7, 1997, except for Note 4, for which the date is December 26, 1997 and except for Note 10, for which the date is March 5, 1998. EX-27.1 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PERSONNEL GROUP OF AMERICA, INC. FOR THE FISCAL YEAR ENDED JANUARY 3, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-03-1999 DEC-29-1997 JAN-03-1999 962 0 131,792 (2,031) 0 143,724 28,400 (8,110) 708,890 59,573 226,256 0 0 329 394,301 708,809 783,925 783,925 564,711 701,648 16,029 0 12,491 53,757 22,740 31,017 0 0 0 31,017 1.05 0.96
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