AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 2001
REGISTRATION NO. 333-64914
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
CROSS COUNTRY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7363 13-4066229
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification Number)
Classification Code Number)
6551 PARK OF COMMERCE BLVD, N.W.
SUITE 200
BOCA RATON, FL 33487
(561) 998-2232
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JOSEPH A. BOSHART
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CROSS COUNTRY, INC.
6551 PARK OF COMMERCE BLVD, N.W.
SUITE 200
BOCA RATON, FL 33487
(561) 998-2232
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
JULIE M. ALLEN, ESQ. MICHAEL W. BLAIR, ESQ.
PROSKAUER ROSE LLP STEVEN J. SLUTZKY, ESQ.
1585 BROADWAY DEBEVOISE & PLIMPTON
NEW YORK, NEW YORK 10036-8299 875 THIRD AVENUE
(212) 969-3000 NEW YORK, NEW YORK 10022
(212) 909-6000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM PROPOSED
AGGREGATE MAXIMUM
TITLE OF EACH CLASS OF NUMBER OF SHARES OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
Common Stock, par value $.0001 per share.... 8,984,375 $17.00 $152,734,375 $38,184(2)
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) A fee of $35,938 was paid in connection with filing this Form S-1. The
balance of the fee is being paid in connection herewith.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 23, 2001
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
7,812,500 SHARES
[LOGO]
CROSS COUNTRY, INC.
COMMON STOCK
------------------
This is Cross Country, Inc.'s initial public offering. We are selling all of
the shares.
We expect the public offering price to be between $15.00 and $17.00 per
share. Currently, no public market exists for the shares. After pricing of the
offering, we expect that the shares will be quoted on the Nasdaq National Market
under the symbol CCRN.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
------------------------
PER SHARE TOTAL
--------- --------
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Cross Country, Inc............ $ $
The underwriters may also purchase up to an additional 1,171,875 shares from
us at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2001.
------------------------
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
SUNTRUST ROBINSON HUMPHREY
CIBC WORLD MARKETS
------------------------
The date of this prospectus is , 2001.
[DESCRIPTION OF ARTWORK: DEPICTION OF PATIENT AND HEALTHCARE PERSONNEL]
[DESCRIPTION OF ARTWORK: MAP OF THE UNITED STATES DEPICTING CLIENT LOCATIONS]
TABLE OF CONTENTS
PAGE
--------
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Special Note Regarding Forward-Looking Statements........... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial and Other Data.............. 18
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business of Cross Country, Inc.............................. 37
Management.................................................. 46
Related Party Transactions.................................. 51
Principal Stockholders...................................... 52
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 57
United States Federal Tax Considerations for Non-United
States Holders............................................ 59
Underwriting................................................ 62
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 66
------------------------
You should rely on only the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date of
the front cover of this prospectus or other date stated in this prospectus. Our
business, financial condition, results of operations and prospects may have
changed since that date.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING IN OUR COMMON
STOCK DISCUSSED UNDER RISK FACTORS AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES. UNLESS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THE
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A 5.80135 FOR 1
STOCK SPLIT.
CROSS COUNTRY, INC.
We are the largest provider of healthcare staffing services in the United
States based on revenue. Approximately 80% of our revenue is derived from travel
nurse staffing services. We also provide staffing of clinical research
professionals and allied healthcare professionals such as radiology technicians,
rehabilitation therapists and respiratory therapists. Our staffing operations
are complemented by other human capital management services, including search
and recruitment, consulting, education and training and resource management
services. Our active client base includes over 2,500 hospitals, pharmaceutical
companies and other healthcare providers across all 50 states. Our fees are paid
directly by our clients rather than by government or other third-party payors.
We are well positioned to take advantage of current industry dynamics, including
the growing shortage of nurses in the United States, the growing demand for
healthcare services and the trend among healthcare providers toward outsourcing
staffing services. For the year ended December 31, 2000, our revenue and EBITDA,
pro forma for the acquisitions of ClinForce, Inc. and Heritage Professional
Education, LLC, were $407.7 million and $50.7 million, respectively.
INDUSTRY DYNAMICS
The STAFFING INDUSTRY REPORT, an independent staffing industry publication,
estimates that the healthcare segment of the temporary staffing market generated
$7.2 billion in revenue in 2000 and that this segment will grow 18% to
$8.5 billion in 2001.
Several trends are driving demand for our healthcare staffing services,
including:
- A growing shortage of registered nurses throughout the country. A recent
study published in the JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION
projects that by 2020, the nationwide registered nurse workforce will be
nearly 20% below projected requirements.
- Increasing demand for healthcare services as a result of the aging of the
baby boomers and technological advances in healthcare treatment methods
which attract a greater number of patients with complex medical conditions
requiring a higher intensity of care.
- Greater use of temporary staffing by healthcare providers to manage
seasonal fluctuations in demand for their services. The use of temporary
personnel enables providers to vary their staffing levels to match these
changes in demand while avoiding the more costly alternative of hiring
permanent staff.
OUR COMPETITIVE STRENGTHS
Our competitive strengths include:
- LEADER IN THE RAPIDLY GROWING NURSE STAFFING INDUSTRY. We have operated in
the travel nurse staffing industry since the 1970s and have the leading
brand name, based on revenue. Our Cross Country TravCorps brand is well
recognized among leading healthcare providers and professionals. We
believe that through our relationships with existing travel nurse staffing
clients, we are positioned to market complementary services, including
staffing of clinical trials and
1
allied health professionals, search and recruitment, consulting, and
education and training to our existing client base.
- STRONG AND DIVERSE CLIENT RELATIONSHIPS. We provide staffing solutions to
an active client base of over 2,500 hospitals, pharmaceutical companies
and other healthcare providers across all 50 states. We do not rely on any
geographic region or client for a significant portion of our revenue. No
single client accounted for more than 3% of our revenue in 2000. In 2000,
we worked with over 75% of the nation's top hospitals, as identified by
U.S. NEWS AND WORLD REPORT. We provide temporary staffing to our clients
through assignments that typically have terms of 13 weeks or longer. Our
fees are paid directly by our clients rather than by government or other
third-party payors.
- LEADER IN RECRUITING AND EMPLOYEE RETENTION. We are a leader in the
recruitment and retention of highly qualified healthcare professionals. We
recruit healthcare professionals from all 50 states and Canada. In 2000,
we received approximately 28,000 requests for applications from potential
field employees and approximately 12,500 completed applications were added
to our database. Employee referrals generate a majority of our new
candidates. We believe we offer appealing assignments, competitive
compensation packages, attractive housing options and other valuable
benefits. Historically, approximately 70% of our nurses have accepted new
assignments with us within 35 days of completion of previous assignments.
In 2000, we were recognized by WORKING MOTHER MAGAZINE as a top 100
national employer of working mothers.
- SCALABLE AND EFFICIENT OPERATING STRUCTURE. We have an efficient
centralized operating structure that includes a database of more than
146,000 nurses and other healthcare professionals who have completed job
applications with us. Our size and centralized structure provide us with
operating efficiencies in key areas such as recruiting, advertising,
marketing, training, housing and insurance benefits. Our fully integrated
proprietary information system enables us to manage virtually all aspects
of our travel staffing operations. This system is designed to accommodate
significant future growth of our business.
- STRONG MANAGEMENT TEAM WITH EXTENSIVE HEALTHCARE STAFFING AND ACQUISITION
EXPERIENCE. Our management team, which averages 15 years of experience in
the healthcare industry, has played a key role in the development of the
travel nurse staffing industry. Our management team has consistently
demonstrated the ability to successfully identify and integrate strategic
acquisitions.
GROWTH STRATEGY
We intend to continue to grow our business by:
- ENHANCING OUR ABILITY TO FILL UNMET DEMAND FOR OUR TRAVEL STAFFING
SERVICES. There is substantial unmet demand for our travel staffing
services. We are striving to meet a greater portion of this demand by
recruiting additional healthcare personnel. Our recruitment strategy for
nurses and other healthcare professionals is focused on:
- increasing referrals from existing field employees by providing them with
superior service;
- expanding our advertising presence to reach more nursing professionals;
- using the internet to accelerate the recruitment-to-placement cycle;
- increasing the number of staff dedicated to the recruitment of new
nurses; and
- developing Assignment America, our recruitment program for
foreign-trained nurses residing abroad.
- INCREASING OUR MARKET PRESENCE IN THE PER DIEM STAFFING MARKET. We intend
to use our existing brand recognition, client relationships and database
of nurses who have expressed an interest in
2
temporary assignments to expand our per diem services to the acute care
hospital market. While we have not historically had a significant presence
in per diem staffing services, we believe that this market presents a
substantial growth opportunity.
- EXPANDING THE RANGE OF SERVICES WE OFFER OUR CLIENTS. We plan to utilize
our relationships with existing travel staffing clients to more
effectively market complementary services, including staffing of clinical
trials and allied health professionals, search and recruitment,
consulting, and education and training.
- ACQUIRING COMPLEMENTARY BUSINESSES. We intend to continue to evaluate
opportunities to acquire complementary businesses to strengthen and
broaden our market presence.
- INCREASING OPERATING EFFICIENCIES. We seek to increase our operating
margins by increasing the productivity of our administrative personnel,
using our purchasing power to achieve greater savings in key areas such as
housing and benefits and continuing to invest in our information systems.
RECENT DEVELOPMENTS
In May 2001, we acquired Gill/Balsano Consulting, L.L.C., or Gill/Balsano, a
management consulting firm focused on the rehabilitation services sector. In
March 2001, we acquired ClinForce, Inc., or ClinForce, the clinical trials
staffing subsidiary of Edgewater Technology, Inc. The acquisitions of
Gill/Balsano and ClinForce broaden the range of services we provide to include
rehabilitation services, consulting and clinical research staffing. These
acquisitions complement our healthcare staffing business by increasing the
opportunities we provide our healthcare professionals.
RISK FACTORS
For a discussion of the risks we face, see "Risk Factors," including those
under the captions "Currently we are unable to recruit enough nurses to meet our
clients' demands for our nurse staffing services, limiting the potential growth
of our staffing business," "The costs of attracting and retaining qualified
nurses and other healthcare personnel may rise more than we anticipate" and "Our
costs of providing housing for nurses and other healthcare personnel may be
higher than we anticipate and, as a result, our margins could decline." In
addition, we operate in a highly competitive industry, with limited barriers to
entry.
------------------------
In July 1999, an affiliate of Charterhouse Group International, Inc., or
Charterhouse, and certain members of management acquired the assets of Cross
Country Staffing, a Delaware partnership, our predecessor, from W. R. Grace &
Co. In December 1999, we acquired TravCorps Corporation, or TravCorps, which was
owned by investment funds managed by Morgan Stanley Private Equity and certain
members of TravCorps' management.
We were incorporated in Delaware in 1999. Our principal executive offices
are located at 6551 Park of Commerce Blvd, N.W., Suite 200, Boca Raton, FL
33487. Our telephone number at that address is (561) 998-2232. Our World Wide
Web site address is www.crosscountry.com. Our website address is included in
this prospectus as an inactive textual reference only. The information in our
website is not intended to be incorporated into this prospectus by reference and
should not be considered a part of this prospectus.
3
THE OFFERING
Common stock offered by Cross Country, Inc........... 7,812,500 shares
Common stock outstanding after the offering.......... 31,019,059 shares
Use of proceeds...................................... We estimate that our net proceeds from this
offering will be approximately
$114.8 million. We intend to use these
proceeds as follows:
- approximately $75.2 million to repay
indebtedness outstanding under our credit
facility; and
- approximately $39.5 million to redeem all of
our senior subordinated notes and pay a
redemption premium. The required redemption
premium is $1.5 million.
Nasdaq National Market symbol........................ CCRN
The number of shares outstanding after the offering excludes 4,398,000
shares reserved for issuance under our stock option plans, of which options to
purchase 3,268,521 shares at a weighted average exercise price of $12.48 have
been granted.
4
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The summary consolidated financial data for the five-month period July 30,
1999 to December 31, 1999 and for the year ended December 31, 2000 are derived
from the audited consolidated financial statements of Cross Country, Inc., or
Cross Country, included elsewhere in this prospectus. The summary financial data
for the year ended December 31, 1998 and for the seven-month period January 1,
1999 to July 29, 1999 were derived from the audited financial statements of
Cross Country Staffing, our predecessor company, included elsewhere in this
prospectus.
The data for the six month periods ended June 30, 2000 and 2001 are derived
from our unaudited consolidated financial statements included elsewhere in this
prospectus. The unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, which we consider
necessary for a fair presentation of our financial position and results of
operations for these periods. Operating results for the six months ended
June 30, 2001 are not necessarily indicative of the results that may be expected
for the entire year ending December 31, 2001.
The pro forma as adjusted consolidated statement of operations for the year
ended December 31, 2000 and the six months ended June 30, 2001 are pro forma for
the Heritage Professional Education, LLC, or Heritage, and ClinForce
acquisitions and as adjusted for the offering and expected use of proceeds as if
these events had occurred on January 1, 2000. The as adjusted consolidated
balance sheet data as of June 30, 2001 are as adjusted for the offering and
expected use of proceeds as if these events had occurred on June 30, 2001.
The summary data below should be read in conjunction with the consolidated
financial statements and related notes of Cross Country, Inc., Cross Country
Staffing, TravCorps Corporation and Subsidiary, ClinForce, Heritage, the "Pro
Forma Condensed Consolidated Statement of Operations" and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Use of Proceeds" and other financial information included
elsewhere in this prospectus.
5
YEAR ENDED
PREDECESSOR(A) DECEMBER 31,
------------------------- -------------------------
PERIOD
FROM PERIOD FROM
JANUARY 1 JULY 30 PRO
YEAR ENDED THROUGH THROUGH FORMA
DECEMBER 31, JULY 29, DECEMBER 31, AS ADJUSTED
1998 1999 1999(B) 2000 2000(C)
------------ ---------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Revenue from
services............ $ 158,592 $ 106,047 $ 87,727 $ 367,690 $ 407,733
Operating expenses:
Direct operating
expenses.......... 121,951 80,187 68,036 273,095 298,159
Selling, general and
administrative
expenses(e)....... 19,070 12,688 9,257 49,027 58,356
Bad debt expense.... 722 157 511 433 543
Depreciation........ 264 212 155 1,324 1,459
Amortization........ 859 496 4,422 13,701 15,270
Non-recurring
indirect
transaction
costs(f).......... -- -- -- 1,289 1,289
---------- ---------- ----------- ----------- ----------
Total operating
expenses........ 142,866 93,740 82,381 338,869 375,076
---------- ---------- ----------- ----------- ----------
Income from
operations.......... 15,726 12,307 5,346 28,821 32,657
Other expenses:
Interest expense,
net............... 850 230 4,821 15,435 4,404
Other expenses...... 183 190 -- -- --
---------- ---------- ----------- ----------- ----------
Income before income
taxes and
discontinued
operations........ 14,693 11,887 525 13,386 28,253
Income tax
expense(g)........ -- -- 672 6,730 12,489
---------- ---------- ----------- ----------- ----------
Income (loss) before
discontinued
operations........ 14,693 11,887 (147) 6,656 15,764
Discontinued
operations:
Loss from
discontinued
operations, net of
income taxes(h)... -- -- (195) (1,604) --
Loss on
disposal(h)....... -- -- -- (454) --
---------- ---------- ----------- ----------- ----------
Net income (loss)... $ 14,693 $ 11,887 $ (342) $ 4,598 $ 15,764
========== ========== =========== =========== ==========
Basic and diluted
income (loss) per
common share(i):
Income (loss) before
discontinued
operations........ $ (.01) $ .29
Discontinued
operations........ (.01) (.09)
----------- -----------
Net income (loss)... $ (.02) $ .20
=========== ===========
Weighted-average
number of shares
outstanding:
Basic and
diluted......... 15,291,749 23,205,388
SIX MONTHS
ENDED JUNE 30,
---------------------------------------
PRO
FORMA
AS ADJUSTED
2000 2001 2001(D)
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT
OF OPERATIONS DATA
Revenue from
services............ $ 177,650 $ 222,707 $ 230,400
Operating expenses:
Direct operating
expenses.......... 131,870 167,099 172,449
Selling, general and
administrative
expenses(e)....... 24,229 31,511 33,117
Bad debt expense.... 464 862 862
Depreciation........ 610 1,163 1,198
Amortization........ 7,317 7,495 7,768
Non-recurring
indirect
transaction
costs(f).......... 433 -- --
----------- ----------- ----------
Total operating
expenses........ 164,923 208,130 215,394
----------- ----------- ----------
Income from
operations.......... 12,727 14,577 15,006
Other expenses:
Interest expense,
net............... 7,738 8,532 3,336
Other expenses...... -- -- --
----------- ----------- ----------
Income before income
taxes and
discontinued
operations........ 4,989 6,045 11,670
Income tax
expense(g)........ 2,509 2,827 4,993
----------- ----------- ----------
Income (loss) before
discontinued
operations........ 2,480 3,218 6,677
Discontinued
operations:
Loss from
discontinued
operations, net of
income taxes(h)... (688) -- --
Loss on
disposal(h)....... -- (544) --
----------- ----------- ----------
Net income (loss)... $ 1,792 $ 2,674 $ 6,677
=========== =========== ==========
Basic and diluted
income (loss) per
common share(i):
Income (loss) before
discontinued
operations........ $ .11 $ .14
Discontinued
operations........ (.03) (.02)
----------- -----------
Net income (loss)... $ .08 $ .12
=========== ===========
Weighted-average
number of shares
outstanding:
Basic and
diluted......... 23,205,388 23,205,586
6
YEAR ENDED SIX MONTHS
PREDECESSOR(A) DECEMBER 31, ENDED JUNE 30,
------------------------- ------------------------ -------------------------------------
PERIOD
FROM PERIOD FROM
JANUARY 1 JULY 30 PRO PRO
YEAR ENDED THROUGH THROUGH FORMA FORMA
DECEMBER 31, JULY 29, DECEMBER 31, AS ADJUSTED AS ADJUSTED
1998 1999 1999(B) 2000 2000(C) 2000 2001 2001(D)
------------ ---------- ------------ ---------- ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OTHER OPERATING DATA
EBITDA(j)............. $ 16,849 $ 13,015 $ 9,923 $ 45,135 $ 50,675 $ 21,087 $ 23,235 $ 23,972
EBITDA as a % of
revenue............. 10.6% 12.3% 11.3% 12.3% 12.4% 11.9% 10.4% 10.4%
FTE's(k).............. 2,264 2,466 2,789 4,167 4,452 4,195 4,509 4,647
Weeks worked(l)....... 117,728 73,980 61,358 216,684 231,504 109,070 117,234 120,822
Average contract
revenue per
week(m)............. $ 1,347 $ 1,429 $ 1,417 $ 1,616 $ 1,638 $ 1,532 $ 1,751 $ 1,763
Net cash flow provided
by (used in)
operating
activities.......... $ 14,434 $ 12,178 $ 6,301 $ 10,397 $ 10,513 $ 12,984
Net cash flow provided
by (used in)
investing
activities.......... $ (977) $ (202) $ 1,380 $ (9,584) $ (746) $ (36,284)
Net cash flow provided
by (used in)
financing
activities.......... $ (13,458) $ (11,977) $ (3,111) $ (5,641) $ (13,423) $ 23,300
AS OF JUNE 30, 2001
----------------------------
ACTUAL AS ADJUSTED(N)
---------- ---------------
(DOLLARS IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA
Working capital............................................. $ 30,505 $ 30,505
Cash and cash equivalents................................... -- --
Total assets................................................ 350,783 344,138
Total debt.................................................. 183,650 71,893
Stockholders' equity........................................ $ 125,116 $ 234,853
- ------------------------------
(a) On July 29, 1999, we acquired the assets of Cross Country Staffing which,
for accounting and reporting purposes, is our predecessor. Financial data
for periods prior to July 30, 1999 is that of Cross Country Staffing.
(b) Includes TravCorps results from December 16, 1999, the date of its
acquisition, through December 31, 1999.
(c) Reflects the following adjustments as if the offering and the Heritage and
ClinForce acquisitions had occurred on January 1, 2000:
- additional amortization expense of $0.9 million related to $35.4 million
of goodwill and other intangibles acquired in the Heritage and ClinForce
acquisitions;
- a reduction in interest expense of $11.0 million as a result of the
repayment of $35.5 million of senior subordinated debt (12.00% interest
rate) and $77.3 million of borrowings outstanding under our credit
facility using the weighted average rate in effect during the year ended
December 31, 2000 (9.74%); and
- additional income tax expense of $4.5 million as a result of the above
adjustments.
(d) Reflects the following adjustments as if the offering and the Heritage and
ClinForce acquisitions had occurred on January 1, 2000:
- additional amortization expense for the six months ended June 30, 2001 of
$0.2 million related to $35.4 million of goodwill and other intangibles
acquired in the Heritage and ClinForce acquisitions;
- a reduction in interest expense for the six months ended June 30, 2001 of
$5.4 million as a result of the repayment of $37.7 million of senior
subordinated debt (12.0% interest rate) and $75.2 million of borrowings
outstanding under our credit facility using the weighted average interest
rate in effect during the six months ended June 30, 2001 (9.17%); and
- additional income tax expense for the six months ended June 30, 2001 of
$2.0 million as a result of the above adjustments.
(e) Includes expenses related to a discontinued management incentive
compensation plan of $2.1 million and $2.7 million for the seven-month
period January 1-July 29, 1999 and the year ended December 31, 1998,
respectively. The management incentive compensation plan was discontinued on
July 30, 1999.
(f) Non-recurring indirect transaction costs consist of non-capitalizable
transition bonuses and integration costs related to the TravCorps
acquisition.
7
(g) Prior to July 30, 1999, our predecessor, Cross Country Staffing, operated as
a partnership under the applicable provisions of the Internal Revenue Code,
and, accordingly, income related to the operations of Cross Country Staffing
was taxed directly to its partners.
(h) Reflects the operating results of HospitalHub, Inc., which began operations
in 1999. We completed the divestiture of HospitalHub, Inc. during the second
quarter of 2001.
(i) The financial data contained herein for periods prior to July 30, 1999, is
that of our predecessor, Cross Country Staffing, a partnership, for which
share and per share amounts were not applicable.
(j) We define EBITDA as income before interest, income taxes, depreciation,
amortization and non-recurring indirect transaction costs. EBITDA should not
be considered a measure of financial performance under generally accepted
accounting principles. Items excluded from EBITDA are significant components
in understanding and assessing financial performance. EBITDA is a key
measure used by management to evaluate our operations and provide useful
information to investors. EBITDA should not be considered in isolation or as
an alternative to net income, cash flows generated by operations, investing
or financing activities, or other financial statement data presented in the
consolidated financial statements as indicators of financial performance or
liquidity. Because EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(k) FTE's represent the average number of contract staffing personnel on a
full-time equivalent basis.
(l) Weeks worked is calculated by multiplying the FTE's by the number of weeks
during the respective period.
(m) Average contract revenue per week is calculated by dividing the revenue
received under our staffing contracts by the number of weeks worked during
the respective period.
(n) Reflects the following adjustments as if the offering had occurred on
June 30, 2001:
- increase in stockholders' equity of $114.8 million from the offering.
- repayment of $37.7 million of senior subordinated debt, plus a
$1.5 million redemption premium, and repayment of $75.2 million of
borrowings outstanding under our credit facility and includes the effects
of the redemption premium and the write-off of $6.6 million of debt
issuance costs, net of taxes.
8
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
CURRENTLY WE ARE UNABLE TO RECRUIT ENOUGH NURSES TO MEET OUR CLIENTS' DEMANDS
FOR OUR NURSE STAFFING SERVICES, LIMITING THE POTENTIAL GROWTH OF OUR STAFFING
BUSINESS.
We rely significantly on our ability to attract, develop and retain nurses
and other healthcare personnel who possess the skills, experience and, as
required, licensure necessary to meet the specified requirements of our
healthcare staffing clients. We compete for healthcare staffing personnel with
other temporary healthcare staffing companies, as well as actual and potential
clients, some of which seek to fill positions with either regular or temporary
employees. Currently, there is a shortage of qualified nurses in most areas of
the United States and competition for nursing personnel is increasing. At this
time we do not have enough nurses to meet our clients' demands for our nurse
staffing services. This shortage of nurses limits our ability to grow our
staffing business. Furthermore, we believe that the aging of the existing nurse
population and declining enrollments in nursing schools will further exacerbate
the existing nurse shortage.
THE COSTS OF ATTRACTING AND RETAINING QUALIFIED NURSES AND OTHER HEALTHCARE
PERSONNEL MAY RISE MORE THAN WE ANTICIPATE.
We compete with other healthcare staffing companies for qualified nurses and
other healthcare personnel. Because there is currently a shortage of qualified
healthcare personnel, competition for these employees is intense. To induce
healthcare personnel to sign on with them, our competitors may increase hourly
wages or other benefits. If we do not raise wages in response to such increases
by our competitors, we could face difficulties attracting and retaining
qualified healthcare personnel. In addition, if we raise wages in response to
our competitors' wage increases and are unable to pass such cost increases on to
our clients, our margins could decline.
OUR COSTS OF PROVIDING HOUSING FOR NURSES AND OTHER HEALTHCARE PERSONNEL MAY BE
HIGHER THAN WE ANTICIPATE AND, AS A RESULT, OUR MARGINS COULD DECLINE.
We currently have approximately 2,900 apartments on lease throughout the
U.S. If the costs of renting apartments and furniture for our nurses and other
healthcare personnel increase more than we anticipate and we are unable to pass
such increases on to our clients, our margins may decline. To the extent the
length of a nurse's housing lease exceeds the term of the nurse's staffing
contract, we bear the risk that we will be obligated to pay rent for housing we
do not use. To limit the costs of unutilized housing, we try to secure leases
with term lengths that match the term lengths of our staffing contracts,
typically 13 weeks. In some housing markets we have had, and believe we will
continue to have, difficulty identifying short-term leases. If we cannot
identify a sufficient number of appropriate short-term leases in regional
markets, or, if for any reason, we are unable to efficiently utilize the
apartments we do lease, we may be required to pay rent for unutilized housing
or, to avoid such risk, we may forego otherwise profitable opportunities.
DECREASES IN PATIENT OCCUPANCY AT OUR CLIENTS' FACILITIES MAY ADVERSELY AFFECT
THE PROFITABILITY OF OUR BUSINESS.
Demand for our temporary healthcare staffing services is significantly
affected by the general level of patient occupancy at our clients' facilities.
When a hospital's occupancy increases, temporary employees are often added
before full-time employees are hired. As occupancy decreases, clients may reduce
their use of temporary employees before undertaking layoffs of their regular
employees. We also may experience more competitive pricing pressure during
periods of occupancy downturn. In addition, if a trend emerges toward providing
healthcare in alternative settings, as opposed to acute care hospitals,
occupancy at our clients' facilities could decline. This reduction in occupancy
could adversely affect the demand for our services and our profitability.
9
WE ARE DEPENDENT ON THE PROPER FUNCTIONING OF OUR INFORMATION SYSTEMS.
Our company is dependent on the proper functioning of our information
systems in operating our business. Critical information systems used in daily
operations identify and match staffing resources and client assignments and
perform billing and accounts receivable functions. Our information systems are
protected through physical and software safeguards and we have backup remote
processing capabilities. However, they are still vulnerable to fire, storm,
flood, power loss, telecommunications failures, physical or software break-ins
and similar events. In the event that critical information systems fail or are
otherwise unavailable, these functions would have to be accomplished manually,
which could temporarily impact our ability to identify business opportunities
quickly, to maintain billing and clinical records reliably and to bill for
services efficiently.
WE MAY EXPERIENCE DIFFICULTIES WITH OUR RECENTLY IMPLEMENTED FINANCIAL PLANNING
AND REPORTING SYSTEM.
In March 2001, we implemented a new financial planning and reporting system.
We may face difficulties or incur additional costs integrating data, including
data from companies acquired by us, to make it compatible with the new system.
If we experience difficulties with our system, our ability to generate timely
and accurate financial reports could be adversely affected.
IF REGULATIONS THAT APPLY TO US CHANGE, WE MAY FACE INCREASED COSTS THAT REDUCE
OUR REVENUE AND PROFITABILITY.
The temporary healthcare staffing industry is regulated in many states. In
some states, firms such as our company must be registered to establish and
advertise as a nurse staffing agency or must qualify for an exemption from
registration in those states. If we were to lose any required state licenses, we
could be required to cease operating in those states. The introduction of new
regulatory provisions could substantially raise the costs associated with hiring
temporary employees. For example, some states could impose sales taxes or
increase sales tax rates on temporary healthcare staffing services. These
increased costs may not be able to be passed on to clients without a decrease in
demand for temporary employees. In addition, if government regulations were
implemented that limited the amounts we could charge for our services, our
profitability could be adversely affected.
FUTURE CHANGES IN REIMBURSEMENT TRENDS COULD HAMPER OUR CLIENTS' ABILITY TO PAY
US.
Many of our clients are reimbursed under the federal Medicare program and
state Medicaid programs for the services they provide. In recent years, federal
and state governments have made significant changes in these programs that have
reduced reimbursement rates. In addition, insurance companies and managed care
organizations seek to control costs by requiring that healthcare providers, such
as hospitals, discount their services in exchange for exclusive or preferred
participation in their benefit plans. Future federal and state legislation or
evolving commercial reimbursement trends may further reduce, or change
conditions for, our clients' reimbursement. Limitations on reimbursement could
reduce our clients' cash flows, hampering their ability to pay us.
COMPETITION FOR ACQUISITION OPPORTUNITIES MAY RESTRICT OUR FUTURE GROWTH BY
LIMITING OUR ABILITY TO MAKE ACQUISITIONS AT REASONABLE VALUATIONS.
Our business strategy includes increasing our market share and presence in
the temporary healthcare staffing industry through strategic acquisitions of
companies that complement or enhance our business. We have historically faced
competition for acquisitions. In the future, this could limit our ability to
grow by acquisitions or could raise the prices of acquisitions and make them
less accretive to us. In addition, restrictive covenants in our credit facility,
including a covenant that requires us to obtain bank approval for any
acquisition over $10 million, may limit our ability to complete desirable
acquisitions. If we are unable to secure necessary financing under our credit
facility or otherwise, we may be unable to complete desirable acquisitions.
10
WE MAY FACE DIFFICULTIES INTEGRATING OUR ACQUISITIONS INTO OUR OPERATIONS AND
OUR ACQUISITIONS MAY BE UNSUCCESSFUL, INVOLVE SIGNIFICANT CASH EXPENDITURES OR
EXPOSE US TO UNFORESEEN LIABILITIES.
We continually evaluate opportunities to acquire healthcare staffing
companies and other human capital management services companies that complement
or enhance our business and frequently have preliminary acquisition discussions
with some of these companies.
These acquisitions involve numerous risks, including:
- potential loss of key employees or clients of acquired companies;
- difficulties integrating acquired personnel and distinct cultures into our
business;
- difficulties integrating acquired companies into our operating, financial
planning and financial reporting systems;
- diversion of management attention from existing operations; and
- assumption of liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for their failure to comply with
healthcare regulations.
These acquisitions may also involve significant cash expenditures, debt
incurrence and integration expenses that could have a material adverse effect on
our financial condition and results of operations. Any acquisition may
ultimately have a negative impact on our business and financial condition.
SIGNIFICANT LEGAL ACTIONS COULD SUBJECT US TO SUBSTANTIAL UNINSURED LIABILITIES.
In recent years, healthcare providers have become subject to an increasing
number of legal actions alleging malpractice, product liability or related legal
theories. Many of these actions involve large claims and significant defense
costs. In addition, we may be subject to claims related to torts or crimes
committed by our employees or temporary staffing personnel. In some instances,
we are required to indemnify clients against some or all of these risks. A
failure of any of our employees or personnel to observe our policies and
guidelines intended to reduce these risks, relevant client policies and
guidelines or applicable federal, state or local laws, rules and regulations
could result in negative publicity, payment of fines or other damages. To
protect ourselves from the cost of these claims, we maintain professional
malpractice liability insurance and general liability insurance coverage in
amounts and with deductibles that we believe are appropriate for our operations.
However, our insurance coverage may not cover all claims against us or continue
to be available to us at a reasonable cost. If we are unable to maintain
adequate insurance coverage, we may be exposed to substantial liabilities.
IF WE BECOME SUBJECT TO MATERIAL LIABILITIES UNDER OUR SELF-INSURED PROGRAMS,
OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.
We provide workers compensation coverage through a program that is partially
self-insured. In addition, we provide medical coverage to our employees through
a partially self-insured preferred provider organization. If we become subject
to substantial uninsured workers compensation or medical coverage liabilities,
our financial results may be adversely affected.
OUR CLIENTS MAY TERMINATE OR NOT RENEW THEIR STAFFING CONTRACTS WITH US.
Our travel staffing arrangements with clients are generally terminable upon
30 or 90 days' notice. We may have fixed costs, including housing costs,
associated with terminated arrangements that we will be obligated to pay
post-termination.
Our clinical trials staffing business is conducted under long-term contracts
with individual clients that may conduct numerous clinical trials. Some of these
long-term contracts are terminable by the clients without cause upon 30 to 60
days notice.
11
OUR INDEMNITY FROM W. R. GRACE, IN CONNECTION WITH OUR ACQUISITION OF THE ASSETS
OF CROSS COUNTRY STAFFING, MAY BE MATERIALLY IMPAIRED BY GRACE'S FINANCIAL
CONDITION.
In connection with our acquisition from W. R. Grace & Co. of the assets of
Cross Country Staffing, our predecessor, Grace agreed to indemnify us against
damages arising out of the breach of any representation or warranty of Grace, as
well as against any liabilities retained by Grace. In March 2001, Grace filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code. This
bankruptcy filing could materially impair Grace's obligations to indemnify us.
RISKS RELATED TO THIS OFFERING
BECAUSE OUR PRINCIPAL STOCKHOLDERS CONTROL US, THEY WILL BE ABLE TO DETERMINE
THE OUTCOME OF ALL MATTERS SUBMITTED TO OUR STOCKHOLDERS FOR APPROVAL,
REGARDLESS OF THE PREFERENCES OF OTHER STOCKHOLDERS.
Following this offering, Charterhouse Equity Partners III, or CEP III, and
investment funds managed by Morgan Stanley Private Equity together will own
approximately 66% of our outstanding common stock. Accordingly, acting together,
they will be able to:
- elect our entire board of directors;
- control our management and policies; and
- determine, without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our stockholders
for approval, including mergers, consolidations and the sale of all or
substantially all of our assets.
In addition, under our stockholders' agreement, CEP III and investment funds
managed by Morgan Stanley Private Equity will each have the right to designate
two directors for nomination to our board of directors. This number decreases if
either CEP III or the funds managed by Morgan Stanley Private Equity reduce
their respective ownership by more than 50%. CEP III and investment funds
managed by Morgan Stanley Private Equity, acting together, will also be able to
prevent or cause a change in control of us and will be able to amend our
certificate of incorporation and bylaws at any time. Their interests may
conflict with the interests of the other holders of common stock.
YOU WILL EXPERIENCE IMMEDIATE AND SIGNIFICANT DILUTION IN BOOK VALUE PER SHARE.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of our outstanding common
stock will be immediately after this offering. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares outstanding. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $16.53 in the net
tangible book value per share of common stock in this offering, based on an
assumed initial public offering price of $16.00 per share.
We also have a significant number of outstanding options to purchase our
common stock with exercise prices significantly below the initial public
offering price of the common stock. To the extent these options are exercised,
there will be further dilution.
AN AGGREGATE OF APPROXIMATELY 22,984,546 MILLION SHARES WILL BECOME ELIGIBLE FOR
RESALE IN THE PUBLIC MARKET 180 DAYS AFTER THIS OFFERING, AND FUTURE SALES OF
THIS STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could occur,
could adversely affect the market price of our common stock and could materially
impair our future ability to raise capital through offerings of our common
stock. An aggregate of 31,019,059 shares of common stock will be outstanding
after this offering. Of these, the 7,812,500 shares offered by this prospectus
will be freely tradable without restriction or further registration.
12
In connection with this offering, we and our officers, directors and
substantially all of our existing stockholders, who together hold 22,867,610
shares, have agreed not to sell or transfer any shares of our common stock for
180 days after completion of this offering without the underwriters' consent.
While the underwriters may release these shares from the restrictions at any
time, this will be done, if at all, only on a case-by-case basis. The
underwriters do not currently have any intention of consenting to a waiver of
these restrictions.
CEP III and investment funds managed by Morgan Stanley Private Equity each
have demand rights to cause us to file, at our expense, a registration statement
under the Securities Act covering resales of their shares. These shares will
represent approximately 66% of our outstanding common stock after the offering.
CEP III and the investment funds of Morgan Stanley Private Equity have informed
us that they do not presently intend to exercise their demand registration
rights, although they retain the right to do so. These shares may also be sold
under Rule 144 of the Securities Act, depending on their holding period and
subject to significant restrictions in the case of shares held by persons deemed
to be our affiliates.
In addition, after this offering, we also intend to register 4,398,000
shares of common stock for issuance under our stock option plans. As of
June 30, 2001, options to purchase 3,268,521 shares of common stock were issued
and outstanding, of which 1,056,968 shares were vested.
We cannot predict what effect, if any, market sales of shares held by any
stockholder or the availability of these shares for future sale will have on the
market price of our common stock. See "Shares Eligible for Future Sale" for a
more detailed description of the restrictions on selling shares of our common
stock after this offering.
IF OUR STOCK PRICE DECLINES AFTER THE INITIAL OFFERING, YOU COULD LOSE A
SIGNIFICANT PART OF YOUR INVESTMENT.
Prior to this offering, there has been no public market for our common
stock. We do not know if an active trading market will develop for our common
stock or how the common stock will trade in the future. Negotiations between the
underwriters and us will determine the initial public offering price. You may
not be able to resell your shares at or above the initial public offering price
due to fluctuations in the market price of our common stock due to changes in
our operating performance or prospects. In addition, the stock market in general
has experienced extreme volatility that often has been unrelated to the
operating performance or prospects of particular companies.
IF PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW DELAY OR PREVENT A
CHANGE IN CONTROL OF OUR COMPANY, WE MAY BE UNABLE TO CONSUMMATE A TRANSACTION
THAT OUR STOCKHOLDERS CONSIDER FAVORABLE.
Our certificate of incorporation and by-laws may discourage, delay or
prevent a merger or acquisition involving us that our stockholders may consider
favorable. For example, our certificate of incorporation authorizes our board of
directors, which is controlled by CEP III and investment funds managed by Morgan
Stanley Private Equity, to issue up to 10,000,000 shares of "blank check"
preferred stock. Without stockholder approval, the board of directors has the
authority to attach special rights, including voting and dividend rights, to
this preferred stock. With these rights, preferred stockholders could make it
more difficult for a third party to acquire us. Delaware law may also
discourage, delay or prevent someone from acquiring or merging with us.
13
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the matters discussed in this prospectus include forward-looking
statements. Statements that are predictive in nature, that depend upon or refer
to future events or conditions or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are forward-looking statements. These statements involve known and
unknown risks, uncertainties and other factors that may cause our actual results
and performance to be materially different from any future results or
performance expressed or implied by these forward-looking statements. These
factors include the following:
- our ability to attract and retain qualified nurses and other healthcare
personnel;
- costs and availability of short-term leases for our travel nurses;
- demand for the healthcare services we provide, both nationally and in the
regions in which we operate;
- the functioning of our information systems;
- the effect of existing or future government regulation and federal and
state legislative and enforcement initiatives on our business;
- our clients' ability to pay us for our services;
- our ability to successfully implement our acquisition and development
strategies;
- the effect of liabilities and other claims asserted against us; and
- the effect of competition in the markets we serve.
Although we believe that these statements are based upon reasonable
assumptions, we can not guarantee future results. Given these uncertainties, the
forward-looking statements discussed in this prospectus might not occur. These
forward-looking statements are made as of the date of this prospectus. Except as
may be required under applicable statutes, regulations or court decisions, we
undertake no obligation to update or revise them.
14
USE OF PROCEEDS
We estimate that our net proceeds from the offering will be $114.8 million,
assuming an initial offering price of $16.00 per share, based on the midpoint of
our filing range, and after deducting estimated expenses and underwriting
discounts and commissions of $10.3 million. We intend to use the net proceeds of
this offering to make the following payments:
- approximately $75.2 million to repay a portion of the outstanding balances
under our credit facility, which becomes due on July 29, 2005. As of
August 1, 2001, the outstanding balance of principal and interest on our
credit facility was approximately $140.1 million and the effective
interest rate was 7.84%. On March 16, 2001, to finance our acquisition of
ClinForce, we amended our credit facility to provide for an additional
term loan in the aggregate principal amount of $30.0 million; and
- approximately $39.5 million to redeem all of our outstanding senior
subordinated notes and pay a redemption premium. The senior subordinated
notes accrue interest at a rate of 12.00% per annum, compounded quarterly,
and become due on January 1, 2006. As of August 1, 2001, the outstanding
balance of principal and interest on the senior subordinated notes was
$38.0 million. As of August 1, 2001, the required redemption premium on
our senior subordinated notes was $1.5 million.
If the underwriters' over-allotment option is exercised in full, we estimate
that our net proceeds will be $132.2 million. Any additional net proceeds will
be used to repay additional indebtedness under our credit facility.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate declaring or paying any cash
dividends in the foreseeable future. In addition, covenants in our credit
facility limit our ability to declare and pay cash dividends on our common
stock.
15
CAPITALIZATION
The following table shows our capitalization as of June 30, 2001:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale of 7,812,500 shares of
our common stock at an assumed public offering price of $16.00 per share
and the application of the net proceeds of the offering to repay a portion
of our outstanding debt. See "Use of Proceeds."
In addition, you should read the following table in conjunction with our
consolidated financial statements and the accompanying notes which are contained
elsewhere in this prospectus.
AS OF JUNE 30, 2001
----------------------------
ACTUAL AS ADJUSTED(A)
----------- --------------
(IN THOUSANDS)
Long term debt:
Revolving loan facility................................... $ 8,250 $ --
Term loan................................................. 138,680 71,727
12.00% senior subordinated pay-in-kind notes due
2006(b)................................................. 37,650 --
Capitalized lease obligation.............................. 166 166
-------- --------
Total debt.................................................. 184,746 71,893
Less current maturities................................... 20,446 0
-------- --------
Total long-term debt.................................... 164,300 71,893
Stockholders' equity:
Undesignated preferred stock, none authorized--actual,
$0.01 par value, 10,000,000 shares authorized--as
adjusted, none issued and outstanding--actual and as
adjusted................................................ -- --
Common stock, $0.01 par value, 8,000,000 shares
authorized--actual, $0.0001 par value, 100,000,000
shares authorized--as adjusted, 23,206,559 shares issued
and outstanding--actual, 31,019,059 shares issued and
outstanding--as adjusted(c)............................. 2 2
Additional paid-in capital................................ 119,090 233,840
Retained earnings(d)...................................... 6,931 1,918
Accumulated other comprehensive earnings.................. (907) (907)
-------- --------
Total stockholders' equity.............................. 125,116 234,853
-------- --------
Total capitalization.................................. $289,416 $306,747
======== ========
- ------------------------
(a) As adjusted amounts do not include the use of $0.4 million of proceeds to
repay pay-in-kind notes issued between June 30, 2001 and August 1, 2001, and
a related redemption premium.
(b) Actual amount includes $1.1 million of interest accrued between April 1,
2001 and June 30, 2001.
(c) Gives effect to conversion of 760,284 shares of Class B common stock into a
like amount of Class A common shares.
(d) As adjusted amount includes the effects of a $1.5 million redemption premium
associated with the prepayment of our pay-in-kind notes and the write-off of
$6.6 million of related debt issuance costs as of June 30, 2001, net of
taxes.
16
DILUTION
Our net tangible book deficit as of June 30, 2001, was approximately
$132.9 million, or $5.73 per share of common stock. Net tangible book deficit is
the difference between our total tangible assets and our total liabilities. We
determined the net tangible book deficit per share by dividing our net tangible
book deficit by the total number of shares of common stock outstanding. After
giving effect to the issuance and sale of the 7,812,500 shares of common stock
offered by us in the offering at an assumed initial offering price of $16.00 per
share, and after deducting estimated underwriting discounts and commissions and
offering expenses payable by us, our pro forma net tangible book deficit as of
June 30, 2001 would have been approximately $16.5 million, or $0.53 per share of
common stock. This represents an immediate decrease in net tangible book deficit
of $5.19 per share to existing stockholders and an immediate dilution of $16.53
per share to new investors purchasing shares of common stock in the offering.
The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share............. $16.00
Net tangible book deficit per share as of June 30,
2001.................................................. $(5.73)
Decrease in net tangible book deficit per share
attributable to new investors......................... 5.19
------
Pro forma net tangible book deficit per share after the
offering.................................................. (0.53)
------
Dilution per share to new investors......................... $16.53
======
If the underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share after the offering would be $0.03 per
share, the increase in net tangible book value per share to existing
shareholders would be $5.76 per share and the dilution in net tangible book
value to new investors would be $15.97 per share.
The following table sets forth, as of June 30, 2001, the number of shares of
common stock purchased from us, the total consideration paid and the average
price per share paid by our existing stockholders and to be paid by new
investors in the offering at $16.00, before deduction of estimated underwriting
discounts and commissions and other expenses of the offering:
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ------------ -------- -------------
Existing stockholders....... 23,206,559 74.8% $122,500,169 49.5% $ 5.28
New investors............... 7,812,500 25.2 125,000,000 50.5 16.00
---------- ----- ------------ ----- ------
Total................... 31,019,059 100.0% $247,500,169 100.0% $ 7.98
========== ===== ============ ===== ======
The foregoing discussion and table assume no exercise of any outstanding
stock options to purchase common stock. As of June 30, 2001 there were 3,268,521
shares of common stock issuable upon the exercise of stock options outstanding
at a weighted average exercise price of $12.48. To the extent these options are
exercised, there will be further dilution to new investors.
17
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial data as of December 31, 1999 and 2000
and for the five-month period July 30, 1999 to December 31, 1999 and for the
year ended December 31, 2000 are derived from the audited consolidated financial
statements of Cross Country, Inc. included elsewhere in this prospectus. The
selected financial data as of December 31, 1998 and July 29, 1999 and for the
year ended December 31, 1998 and for the seven-month period January 1, 1999 to
July 29, 1999 have been derived from the audited financial statements of Cross
Country Staffing, included elsewhere in this prospectus. The selected financial
data as of December 31, 1996 and 1997 and for the period from July 1, 1996 to
December 31, 1996 and for the year ended December 31, 1997 were derived from the
financial statements of Cross Country Staffing that have been audited but not
included in this prospectus. The selected financial data as of June 30, 1996 and
for the period from January 1, 1996 to June 30, 1996 are derived from the
unaudited consolidated financial statements of Cross Country Staffing.
The data as of June 30, 2001 and for the six month periods ended June 30,
2000 and 2001 are derived from our unaudited consolidated financial statements
included elsewhere in this prospectus. The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals,
which we consider necessary for a fair presentation of our financial position
and results of operations for these periods. Operating results for the six
months ended June 30, 2001 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 2001.
The pro forma as adjusted consolidated statement of operations for the year
ended December 31, 2000 and the six months ended June 30, 2001 are pro forma for
the Heritage and ClinForce acquisitions and as adjusted for the offering and
expected use of proceeds as if these events had occurred on January 1, 2000. The
as adjusted consolidated balance sheet data as of June 30, 2001 are as adjusted
for the offering and expected use of proceeds as if these events had occurred on
June 30, 2001.
The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements and related notes of Cross Country,
Inc., Cross Country Staffing, TravCorps Corporation and Subsidiary, ClinForce,
Heritage, the "Pro Forma Condensed Consolidated Statement of Operations" and
related notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information included elsewhere in
this prospectus.
18
PREDECESSOR(A)
------------------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED DECEMBER
JANUARY 1 THROUGH JULY 1 THROUGH 31,
JUNE 30, DECEMBER 31, -----------------------
1996 1996 1997 1998
----------------- -------------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenue from services............ $ 65,045 $ 59,209 $ 138,560 $ 158,592
Operating expenses:
Direct operating expenses...... 52,061 46,617 108,726 121,951
Selling, general and
administrative expenses(d)... 7,595 7,378 16,051 19,070
Bad debt expense............... 144 437 624 722
Depreciation................... 126 83 150 264
Amortization................... 536 446 875 859
Non-recurring indirect
transaction costs(e)......... -- -- -- --
---------- ---------- ---------- ----------
Total operating expenses....... 60,462 54,961 126,426 142,866
---------- ---------- ---------- ----------
Income from operations........... 4,583 4,248 12,134 15,726
Other (income) expenses:
Interest expense, net.......... 2,602 1,169 1,647 850
Other (income) expenses........ (1,328) 299 37 183
---------- ---------- ---------- ----------
Income before income taxes and
discontinued operations........ 3,309 2,780 10,450 14,693
Income tax expense(f)............ -- -- -- --
---------- ---------- ---------- ----------
Income (loss) before discontinued
operations..................... 3,309 2,780 10,450 14,693
Discontinued operations:
Loss from discontinued
operations, net of income
taxes(g)..................... -- -- -- --
Loss on disposal(g)............ -- -- -- --
---------- ---------- ---------- ----------
Net income (loss)................ $ 3,309 $ 2,780 $ 10,450 $ 14,693
========== ========== ========== ==========
Basic and diluted income (loss)
per common share(h):
Income (loss) before
discontinued operations......
Discontinued operations........
Net income (loss)............
Weighted-average number of shares
outstanding:
Basic and diluted............
OTHER OPERATING DATA
EBITDA(i)........................ $ 5,245 $ 4,777 $ 13,159 $ 16,849
EBITDA as % of revenue........... 8.1% 8.1% 9.5% 10.6%
FTE's(j)......................... 2,100 1,846 2,102 2,264
Weeks worked(k).................. 54,596 47,996 109,313 117,728
Average contract revenue per
week(l)........................ $ 1,191 $ 1,234 $ 1,268 $ 1,347
Net cash flow provided by (used
in) operating activities....... $ 309 $ 3,875 $ 12,374 $ 14,434
Net cash flow provided by (used
in) investing activities....... $ (75) $ (89) $ (309) $ (977)
Net cash flow provided by (used
in) financing activities....... $ (977) $ (3,854) $ (12,064) $ (13,458)
PREDECESSOR(A)
----------------- PERIOD FROM YEAR ENDED DECEMBER 31,
PERIOD FROM JULY 30 ------------------------
JANUARY 1 THROUGH THROUGH PRO FORMA
JULY 29, DECEMBER 31, AS ADJUSTED
1999 1999(B) 2000 2000(C)
----------------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenue from services............ $ 106,047 $ 87,727 $ 367,690 $ 407,733
Operating expenses:
Direct operating expenses...... 80,187 68,036 273,095 298,159
Selling, general and
administrative expenses(d)... 12,688 9,257 49,027 58,356
Bad debt expense............... 157 511 433 543
Depreciation................... 212 155 1,324 1,459
Amortization................... 496 4,422 13,701 15,270
Non-recurring indirect
transaction costs(e)......... -- -- 1,289 1,289
---------- ---------- ---------- ----------
Total operating expenses....... 93,740 82,381 338,869 375,076
---------- ---------- ---------- ----------
Income from operations........... 12,307 5,346 28,821 32,657
Other (income) expenses:
Interest expense, net.......... 230 4,821 15,435 4,404
Other (income) expenses........ 190 -- -- --
---------- ---------- ---------- ----------
Income before income taxes and
discontinued operations........ 11,887 525 13,386 28,253
Income tax expense(f)............ -- 672 6,730 12,489
---------- ---------- ---------- ----------
Income (loss) before discontinued
operations..................... 11,887 (147) 6,656 15,764
Discontinued operations:
Loss from discontinued
operations, net of income
taxes(g)..................... -- (195) (1,604) --
Loss on disposal(g)............ -- -- (454) --
---------- ---------- ---------- ----------
Net income (loss)................ $ 11,887 $ (342) $ 4,598 $ 15,764
========== ========== ========== ==========
Basic and diluted income (loss)
per common share(h):
Income (loss) before
discontinued operations...... $ (.01) $ .29
Discontinued operations........ (.01) (.09)
---------- ----------
Net income (loss)............ $ (.02) $ .20
========== ==========
Weighted-average number of shares
outstanding:
Basic and diluted............ 15,291,749 23,205,388
========== ==========
OTHER OPERATING DATA
EBITDA(i)........................ $ 13,015 $ 9,923 $ 45,135 $ 50,675
EBITDA as % of revenue........... 12.3% 11.3% 12.3% 12.4%
FTE's(j)......................... 2,466 2,789 4,167 4,452
Weeks worked(k).................. 73,980 61,358 216,684 231,504
Average contract revenue per
week(l)........................ $ 1,429 $ 1,417 $ 1,616 $ 1,638
Net cash flow provided by (used
in) operating activities....... $ 12,178 $ 6,301 $ 10,397
Net cash flow provided by (used
in) investing activities....... $ (202) $ 1,380 $ (9,584)
Net cash flow provided by (used
in) financing activities....... $ (11,977) $ (3,111) $ (5,641)
AS OF DECEMBER 31,
AS OF ------------------------------------ AS OF
JUNE 30, 1996 1996 1997 1998 JULY 29, 1999
------------- ---------- ---------- ---------- -------------
CONSOLIDATED BALANCE SHEET DATA
Working capital.......................... $ 2,061 $ 12,710 $ 12,372 $ 12,871 $ 9,752
Cash and cash equivalents................ (1,476) -- 1 -- --
Total assets............................. 27,305 34,933 36,080 41,901 44,464
Total debt............................... 45,045 30,280 18,700 13,173 7,874
Stockholders' equity(m).................. (24,738) (2,471) 7,122 13,451 19,466
AS OF DECEMBER 31,
-------------------------------
1999 2000
---------- ----------
CONSOLIDATED BALANCE SHEET DATA
Working capital.......................... $ 33,998 $ 34,375
Cash and cash equivalents................ 4,828 --
Total assets............................. 309,695 317,626
Total debt............................... 159,074 157,272
Stockholders' equity(m).................. 118,742 123,340
19
SIX MONTHS
ENDED JUNE 30,
-------------------------------------
PRO FORMA
AS ADJUSTED
2000 2001 2001(N)
---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenue from services....................................... $ 177,650 $ 222,707 $ 230,400
Operating expenses:
Direct operating expenses................................. 131,870 167,099 172,449
Selling, general and administrative expenses.............. 24,229 31,511 33,117
Bad debt expense.......................................... 464 862 862
Depreciation.............................................. 610 1,163 1,198
Amortization.............................................. 7,317 7,495 7,768
Non-recurring indirect transaction costs(e)............... 433 -- --
---------- ---------- ----------
Total operating expenses................................ 164,923 208,130 215,394
---------- ---------- ----------
Income from operations...................................... 12,727 14,577 15,006
Other expenses:
Interest expense, net..................................... 7,738 8,532 3,336
---------- ---------- ----------
Income before income taxes and discontinued operations...... 4,989 6,045 11,670
Income tax expense(f)....................................... 2,509 2,827 4,993
---------- ---------- ----------
Income before discontinued operations....................... 2,480 3,218 6,677
Discontinued operations:
Loss from discontinued operations, net of income taxes.... (688) -- --
Loss on disposal.......................................... -- (544) --
---------- ---------- ----------
Net income.................................................. $ 1,792 $ 2,674 $ 6,677
========== ========== ==========
Basic and diluted income (loss) per common share(h):
Income before discontinued operations..................... $ .11 $ .14
Discontinued operations................................... (.03) (.02)
---------- ----------
Net income.............................................. $ .08 $ .12
========== ==========
Weighted-average number of shares outstanding:
Basic and diluted......................................... 23,205,388 23,205,586
OTHER OPERATING DATA
EBITDA(i)................................................... $ 21,087 $ 23,235 $ 23,972
EBITDA as a % of revenue.................................... 11.9% 10.4% 10.4%
FTE's(j).................................................... 4,195 4,509 4,647
Weeks worked(k)............................................. 109,070 117,234 120,822
Average contract revenue per week(l)........................ $ 1,532 $ 1,751 $ 1,763
Net cash flow provided by (used in) operating activities.... 10,513 12,984
Net cash flow provided by (used in) investing activities.... (746) (36,284)
Net cash flow provided by (used in) financing activities.... $ (13,423) $ 23,300
AS OF JUNE 30, 2001
---------------------------
ACTUAL AS ADJUSTED(O)
---------- --------------
CONSOLIDATED BALANCE SHEET DATA
Working capital............................................. $ 30,505 30,505
Cash and cash equivalents................................... -- --
Total assets................................................ 350,783 344,138
Total debt.................................................. 183,650 71,893
Stockholders' equity........................................ $ 125,116 $ 234,853
- ------------------------------
(a) On July 29, 1999, we acquired the assets of Cross Country Staffing which,
for accounting and reporting purposes, is our predecessor. Financial data
for periods prior to July 30, 1999 is that of Cross Country Staffing.
(b) Includes TravCorps results from December 16, 1999, the date of its
acquisition, through December 31, 1999.
20
(c) Reflects the following adjustments as if the offering and the Heritage and
ClinForce acquisitions had occurred on January 1, 2000:
- additional amortization expense of $0.9 million related to $35.4 million
of goodwill and other intangibles acquired in the Heritage and ClinForce
acquisitions;
- a reduction in interest expense of $11.0 million as a result of the
repayment of $35.5 million of senior subordinated debt (12.0% interest
rate) and $77.3 million of borrowings outstanding under our credit
facility using the weighted average interest rate in effect during the
year ended December 31, 2000 (9.74%); and
- additional income tax expense of $4.5 million as a result of the above
adjustments.
(d) Includes expenses related to a discontinued management incentive
compensation plan of $2.1 million and $2.7 million for the seven-month
period January 1-July 29, 1999 and the year ended December 31, 1998. The
management incentive compensation plan was discontinued on July 30, 1999.
(e) Non-recurring indirect transaction costs consist of non capitalizable
transition bonuses and integration costs related to the TravCorps
acquisition.
(f) Prior to July 30, 1999, our predecessor, Cross Country Staffing, operated as
a partnership under the applicable provisions of the Internal Revenue Code,
and, accordingly, income related to the operations of Cross Country Staffing
was taxed directly to its partners.
(g) Reflects the operating results of HospitalHub, Inc., which began operations
in 1999. We completed the divestiture of HospitalHub, Inc. during the second
quarter of 2001.
(h) The financial data contained herein for periods prior to July 30, 1999, is
that of our predecessor, Cross Country Staffing, a partnership, for which
share and per share amounts were not applicable.
(i) We define EBITDA as income before interest, income taxes, depreciation,
amortization and non-recurring indirect transaction costs. EBITDA should not
be considered a measure of financial performance under generally accepted
accounting principles. Items excluded from EBITDA are significant components
in understanding and assessing financial performance. EBITDA is a key
measure used by management to evaluate our operations and provide useful
information to investors. EBITDA should not be considered in isolation or as
an alternative to net income, cash flows generated by operations, investing
or financing activities, or other financial statement data presented in the
consolidated financial statements as indicators of financial performance or
liquidity. Because EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(j) FTE's represent the average number of contract staffing personnel on a
full-time equivalent basis.
(k) Weeks worked is calculated by multiplying the FTE's by the number of weeks
during the respective period.
(l) Average contract revenue per week is calculated by dividing the revenue
received under our staffing contracts by the number of weeks worked during
the respective period.
(m) Consists of partners' capital for periods prior to July 30, 1999, since our
predecessor, Cross Country Staffing, was a partnership.
(n) Reflects the following adjustments if the offering and the Heritage and
ClinForce acquisitions had occurred on January 1, 2000:
- additional amortization expense for the six months ended June 30, 2001 of
$0.2 million related to $35.4 million of goodwill and other intangibles
acquired in the Heritage and ClinForce acquisitions;
- a reduction in interest expense for the six months ended June 30, 2001 of
$5.4 million as a result of the repayment of $37.7 million of senior
subordinated debt (12.0% interest rate) and $75.2 million of borrowings
outstanding under our credit facility using the weighted average interest
rate in effect during the six months ended June 30, 2001 (9.17%); and
- additional income tax expense for the six months ended June 30, 2001 of
$2.0 million as a result of the above adjustments.
(o) Reflects the following adjustments as if the offering had occurred on
June 30, 2001:
- increase in stockholders' equity of $114.8 million of net proceeds from
the offering; and
- repayment of $37.7 million of senior subordinated debt, plus a
$1.5 million redemption premium, and repayment of $75.2 million of
borrowings outstanding under our credit facility and includes the effects
of the redemption premium and the write-off of $6.6 million of debt
issuance costs, net of taxes.
21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
We acquired ClinForce on March 16, 2001 and Heritage on December 26, 2000.
The pro forma condensed consolidated statement of operations for the year
ended December 31, 2000 and the six months ended June 30, 2001 give effect to
the acquisitions of Heritage and ClinForce as if the transactions had occurred
on January 1, 2000.
The Company acquired E-Staff, Inc. on July 31, 2000 and Gill/Balsano
Consulting, LLC on April 1, 2001. Gill/Balsano's and E-Staff results of
operations are immaterial to us; therefore such results have been excluded from
these unaudited pro forma condensed consolidated statement of operations.
The pro forma information is based on the historical statements of the
acquired businesses giving effect to the transactions under the purchase method
of accounting and the assumptions and adjustments described in the accompanying
notes to the Pro Forma Condensed Consolidated Statement of Operations.
The pro forma information as adjusted for the offering for the year ended
December 31, 2000 and the six months ended June 30, 2000, assumes the repayment
of certain of our indebtedness using a portion of the net proceeds received from
the offering as if the offering and the repayment had occurred on January 1,
2000.
This pro forma information does not purport to be indicative of the combined
results of operations that actually would have taken place if the transactions
had occurred at such dates. The pro forma Condensed Consolidated Statement of
Operations should be read in conjunction with the Consolidated Financial
Statements and related notes thereto included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------------------------------------------------------
PRO FORMA
ACQUISITION PRO FORMA ADJUSTMENTS PRO FORMA
CROSS COUNTRY CLINFORCE(A) HERITAGE(B) ADJUSTMENTS COMBINED FOR OFFERING AS ADJUSTED
------------- ------------ ----------- ----------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenue from services....... $ 367,690 $ 28,895 $ 11,148 $ 407,733 $ 407,733
Operating expenses:
Direct operating
expenses................ 273,095 20,128 4,936 298,159 298,159
Selling, general and
administrative
expenses................ 49,027 4,766 4,563 58,356 58,356
Bad debt expense.......... 433 110 -- 543 543
Depreciation.............. 1,324 135 -- 1,459 1,459
Amortization.............. 13,701 660 -- 909(c) 15,270 15,270
Non-recurring indirect
transaction costs....... 1,289 -- -- 1,289 1,289
---------- ---------- ---------- ---------- ----------
Total operating expenses.... 338,869 25,799 9,499 375,076 375,076
Income from operations...... 28,821 3,096 1,649 32,657 32,657
Interest expense, net....... 15,435 -- -- 3,758 (d) 19,193 (14,789)(e) 4,404
---------- ---------- ---------- ---------- ----------
Income before income
taxes..................... 13,386 3,096 1,649 13,464 28,253
Income tax expense.......... 6,730 1,227 -- (1,162)(f) 6,795 5,694 (f) 12,489
---------- ---------- ---------- ---------- ----------
Income from continuing
operations................ $ 6,656 $ 1,869 $ 1,649 $ 6,669 $ 15,764
========== ========== ========== ========== ==========
Basic and diluted income
from continuing operations
per common share.......... $ 0.29 -- -- $ 0.29
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic and diluted....... 23,205,388 -- -- 23,205,388
========== ========== ========== ==========
22
- ------------------------
(a) Represents the historical consolidated revenue and direct operating expenses
of ClinForce for the twelve months ended December 31, 2000. ClinForce was a
subsidiary of Edgewater Technology, Inc. ("Edgewater") prior to being
acquired by us in March 2001. The operating results of ClinForce are not
necessarily indicative of amounts that would have been incurred had
ClinForce operated as a stand-alone business during the period presented.
Edgewater provided substantial services to ClinForce during 2000. Edgewater
has traditionally charged ClinForce a management fee for tax planning
services and information system services through corporate allocations which
were generally based on a percent of sales. The amount of corporate
allocations was dependent upon the total amount of anticipated allocable
costs incurred by Edgewater, less amounts charged as a specific cost or
expense rather than by allocation. The amounts allocated for these services
are not included in these pro forma statements because they are not
necessarily indicative of amounts that would have been incurred by ClinForce
had it operated on a stand-alone basis. Expenses relating to corporate
advertising, accounting and legal services, officer salaries and other
selling, general and administrative expenses were not allocated by Edgewater
to ClinForce for internal financial statement purposes, and therefore, no
amounts have been allocated for these services in these pro forma financial
statements.
(b) Represents the historical results of Heritage for the period from January 1,
2000 through December 25, 2000.
(c) Pro forma adjustment to record the amortization of intangible assets
acquired as a result of the ClinForce and Heritage acquisitions. Our
intangible assets are amortized on a straight-line basis over periods
ranging from 4.5--25 years.
An additional $6.5 million is contingently payable to Heritage based upon
future EBITDA results.
Such amount is payable through 2003.
(d) Pro forma adjustment to record interest costs associated with the financing
of the ClinForce and Heritage acquisitions using the weighted average
interest rate in effect for the year ended December 31, 2000 (9.74%).
(e) Adjustment to record pro forma interest expense reduction as if
$114.8 million of estimated offering proceeds were used to reduce
outstanding debt through the repayment of $35.5 million of senior
subordinated debt and repayment of $77.3 million of borrowings outstanding
under our credit facility as of January 1, 2000.
(f) Pro forma adjustment for estimated income taxes at combined federal and
state statutory rates for the effect of the other adjustments and to record
pro forma income tax expense for Heritage which, prior to being acquired by
Cross Country, was an LLC for which income tax expense was determined at the
individual member level.
23
SIX MONTHS ENDED JUNE 30, 2001
----------------------------------------------------------------------------------------
PRO FORMA
ACQUISITION PRO FORMA ADJUSTMENTS PRO FORMA
CROSS COUNTRY CLINFORCE(A) ADJUSTMENTS COMBINED FOR OFFERING AS ADJUSTED
------------- ------------ ----------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenue from services............. $ 222,707 $ 7,693 $ 230,400 $ 230,400
Operating expenses:
Direct operating expenses....... 167,099 5,350 172,449 172,449
Selling, general and
administrative expenses....... 31,511 1,606 33,117 33,117
Bad debt expense................ 862 862 862
Depreciation.................... 1,163 35 1,198 1,198
Amortization.................... 7,495 92 181(b) 7,768 7,768
Non-recurring indirect
transaction costs............. -- -- -- --
---------- ---------- ---------- ----------
Total operating expenses.......... 208,130 7,083 215,394 215,394
Income from operations............ 14,577 610 15,006 15,006
Interest expense, net............. 8,532 179 440(c) 9,151 (5,815)(d) 3,336
---------- ---------- ---------- ----------
Income before income taxes........ 6,045 431 5,855 11,670
Income tax expense................ 2,827 166 (239)(e) 2,754 2,239(e) 4,993
---------- ---------- ---------- ----------
Income from continuing
operations...................... $ 3,218 $ 265 $ 3,101 $ 6,677
========== ========== ========== ==========
Basic and diluted income from
continuing operations per common
share........................... $ 0.14 -- $ 0.13 $ --
========== ========== ========== ==========
Weighted average common shares
outstanding:
Basic and diluted............. 23,205,586 -- 23,205,586 --
========== ========== ========== ==========
- --------------------------
(a) Represents the historical consolidated revenues and direct operating
expenses of ClinForce for the period from January 1, 2001 through March 16,
2001. ClinForce was a subsidiary of Edgewater. prior to being acquired by us
in March 2001. The operating results of ClinForce are not necessarily
indicative of amounts that would have been incurred had ClinForce operated
as a stand-alone business during the period presented. Edgewater provided
substantial services to ClinForce during 2000. Edgewater traditionally
charged ClinForce a management fee for tax planning services and information
system services through corporate allocations which were generally based on
a percent of sales. The amount of corporate allocations was dependent upon
the total amount of anticipated allocable costs incurred by Edgewater, less
amounts charged as a specific cost or expense rather than by allocation. The
amounts allocated for these services are not included in these pro forma
statements because they are not necessarily indicative of amounts that would
have been incurred by ClinForce had it operated on a stand-alone basis.
Expenses relating to corporate advertising, accounting and legal services,
officer salaries and other selling, general and administrative expenses were
not allocated by Edgewater to ClinForce for internal financial statement
purposes, and therefore, no amounts have been allocated for their services
in the pro forma financial statements.
(b) Pro forma adjustment to record the amortization of intangible assets
acquired as a result of the ClinForce acquisition. Our intangible assets are
amortized on a straight-line basis over periods ranging from 4.5--25 years.
(c) Pro forma adjustment to record interest costs associated with the financing
of the ClinForce acquisition using the weighted average interest rate in
effect for the six months ended June 30, 2001 (9.17%).
(d) Adjustment to record pro forma interest expense reduction as if
$114.8 million of estimated offering proceeds were used to reduce
outstanding debt through the repayment of $37.7 million of senior
subordinated debt and repayment of $75.2 million of borrowings outstanding
under our credit facility as of January 1, 2001.
(e) Pro forma adjustment for estimated income taxes at combined federal and
state statutory rates for the effect of the other adjustments.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING
NOTES THAT APPEAR ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are the largest provider of healthcare staffing services in the United
States based on revenue. Approximately 80% of our revenue is derived from travel
nurse staffing services. We also provide staffing of clinical research
professionals and allied healthcare professionals such as radiology technicians,
rehabilitation therapists and respiratory therapists. Our staffing operations
are complemented by other human capital management services, including search
and recruitment, consulting, education and training and resource management
services. For the year ended December 31, 2000, our revenue and EBITDA, pro
forma for the acquisitions of ClinForce and Heritage, were $407.7 million and
$50.7 million, respectively.
HISTORY
In July 1999, an affiliate of Charterhouse Group International, Inc. and
certain members of management acquired the assets of Cross Country Staffing, our
predecessor, from W. R. Grace & Co. Upon the closing of this transaction, we
changed from a partnership to a C corporation form of ownership. In
December 1999, we acquired TravCorps, which was owned by investment funds
managed by Morgan Stanley Private Equity and certain members of TravCorps'
management and subsequently changed our name to Cross Country TravCorps, Inc. In
May 2001, we changed our name to Cross Country, Inc.
REVENUE
Travel nurse staffing revenue is received primarily from acute care
hospitals. Our clinical trials staffing revenue is received primarily from
pharmaceutical and biotechnology companies, as well as medical device
manufacturers. Revenue from allied health staffing services is received from
numerous sources, including providers of radiation, rehabilitation and
respiratory services at additional venues including nursing homes, sports
medicine clinics and schools. Our staffing placements are through contracts with
assignments typically lasting 13 weeks or longer. Revenue from our search and
recruitment, consulting and education and training services is received from
numerous sources, including hospitals, physician group practices, insurance
companies and individual healthcare professionals. Our fees are paid directly by
our clients rather than by government or other third-party payors.
Revenue is recognized when services are rendered. Accordingly, accounts
receivable includes an accrual for employees' time worked but not yet invoiced.
Each of our field employees works for us under a contract. These contracts
typically last 13 weeks. Payroll contract employees are hourly employees whose
contract specifies the hourly rate they will be paid, including applicable
overtime, and any other benefits they are entitled to receive during the
contract period. For payroll contract employees, we bill clients at an hourly
rate and assume all employee costs, including payroll, withholding taxes,
benefits and professional liability insurance and Occupational Safety and Health
Administration, or OSHA, requirements, as well as any travel and housing
arrangements. Mobile contract employees are hourly employees of the hospital
client and receive an agreement that specifies the hourly rates they will be
paid by the hospital employer, as well as any benefits they are entitled to
receive from us. For mobile contract employees, we provide recruitment, housing
in apartments leased by the Company and travel services. The Company's contract
with the healthcare professional obligates it to provide these services to the
healthcare professional. The Company is compensated for the services it provides
at a predetermined rate negotiated between the Company and its hospital client,
25
without regard to the Company's cost of providing these services. Currently more
than 95% of our employees work under payroll contracts.
Our healthcare staffing revenue and earnings are impacted by the relative
supply of and demand for nurses at healthcare facilities. We rely significantly
on our ability to recruit and retain nurses and other healthcare personnel who
possess the skills, experience and, as required, licensure necessary to meet the
specified requirements of our clients. Shortages of qualified nurses and other
healthcare personnel could limit our ability to fill open assignments and grow
our revenue and EBITDA.
Fluctuations in patient occupancy at our clients' facilities may also affect
the profitability of our business. As occupancy increases, temporary employees
are often added before full-time employees are hired. As occupancy decreases,
clients tend to reduce their use of temporary employees before undertaking
layoffs of their regular employees. In addition, we may experience more
competitive pricing pressure during periods of occupancy downturn.
ACQUISITIONS
In May 2001, we acquired Gill/Balsano, a healthcare management consulting
firm, for $1.8 million in cash and potential earnout payments of $2.0 million.
In March 2001, we acquired ClinForce for $31.0 million in cash. In July 2001
a post-closing purchase price adjustment increased the purchase price and
goodwill by $1.4 million each. ClinForce supplies supplemental staffing services
for clinical trials. ClinForce's revenue was $28.9 million for the year ended
December 31, 2000. We believe this acquisition will enable us to extend our
services into a fragmented and complementary segment of the healthcare staffing
market.
In December 2000, we completed the acquisition of Heritage, a provider of
continuing education programs to the healthcare community, for a purchase price
of approximately $6.5 million in cash and potential earnout payments of
approximately $6.5 million. Heritage's revenue was $11.1 million for the period
ended December 26, 2000.
In July 2000, we acquired E-Staff, an application service provider that has
developed an internet subscription-based communication, scheduling,
credentialing and training service business for healthcare providers, for $1.5
million in cash and potential earnout payments of $3.2 million.
In December 1999, we acquired all outstanding shares of TravCorps' common
stock in exchange for shares of our common stock then valued at approximately
$32.1 million and we assumed TravCorps' debt of $45.0 million. TravCorps had
revenues of $113.0 million for the period December 27, 1998 to December 15,
1999.
DISCONTINUED OPERATIONS
In December 2000, we committed to a formal plan to divest HospitalHub, Inc.,
or HospitalHub, our electronic job board business, which began operations in
1999. The operating results of HospitalHub have been accounted for as
discontinued operations in our consolidated financial statements and notes
thereto and in the other financial information included herein. We completed the
divestiture of HospitalHub in the second quarter of 2001.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets from the acquisition of the assets of
Cross Country Staffing, our predecessor, and from subsequent acquisitions were
$151.4 million and $98.0 million, respectively, at June 30, 2001. Goodwill and
other intangible assets are being amortized using the straight-line method over
their estimated useful lives ranging from 4.5 to 25 years. Goodwill and other
intangible assets represented 199% of our stockholders' equity as of June 30,
2001. The amount of goodwill and other intangible assets amortized equaled 51.4%
of our income from operations for the six months ended June 30, 2001.
26
In July 2001, the Financial Accounting Standards Board issued FAS No. 141,
BUSINESS COMBINATIONS and FAS No. 142, INTANGIBLE ASSETS. FAS 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated before July 1, 2001.
FAS 142 further clarifies the criteria to recognize intangible assets separately
from goodwill and promulgates that goodwill and certain intangible assets not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized in earnings when incurred. These standards will
apply to us beginning January 1, 2002 for existing intangible assets and
July 1, 2001 for business combinations completed after June 30, 2001. The
Company will adopt these standards prospectively.
RESULTS OF OPERATIONS
The following table summarizes, for the periods indicated, selected
statement of operations data expressed as a percentage of revenue:
PREDECESSOR
---------------------------
PERIOD FROM PERIOD FROM SIX MONTHS
YEAR ENDED JANUARY 1- JULY 30- YEAR ENDED ENDED JUNE 30,
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, -------------------
AS A % OF REVENUE 1998 1999 1999 2000 2000 2001
- ----------------- ------------- ----------- ------------ ------------- -------- --------
Revenue........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct operating expenses......... 76.9 75.6 77.6 74.3 74.2 75.0
Selling, general and
administrative expenses......... 12.0 12.0 10.5 13.3 13.6 14.1
Bad debt expense.................. 0.5 0.1 0.6 0.1 0.3 0.4
----- ----- ----- ----- ----- -----
EBITDA(a)......................... 10.6 12.3 11.3 12.3 11.9 10.4
Depreciation and amortization..... 0.7 0.7 5.2 4.1 4.5 3.9
Non-recurring indirect transaction
costs........................... -- -- -- 0.4 0.2 --
----- ----- ----- ----- ----- -----
Income from operations............ 9.9 11.6 6.1 7.8 7.2 6.5
Interest expense, net............. 0.5 0.2 5.5 4.2 4.4 3.8
Other expenses.................... 0.1 0.2 -- -- -- --
----- ----- ----- ----- ----- -----
Income before income taxes and
discontinued operations......... 9.3 11.2 0.6 3.6 2.8 2.7
Income tax expense(b)............. -- -- 0.8 1.8 1.4 1.3
----- ----- ----- ----- ----- -----
Income (loss) before discontinued
operations...................... 9.3 11.2 (0.2) 1.8 1.4 1.4
Loss from discontinued operations,
net of income taxes............. -- -- (0.2) (0.4) (0.4) --
Estimated loss on disposal of
discontinued operations......... -- -- -- (0.1) -- (0.2)
----- ----- ----- ----- ----- -----
Net income (loss)................. 9.3% 11.2% (0.4)% 1.3% 1.0% 1.2%
===== ===== ===== ===== ===== =====
- ------------------------
(a) We define EBITDA as income before interest, income taxes, depreciation,
amortization and non-recurring indirect transaction costs. EBITDA should not
be considered a measure of financial performance under generally accepted
accounting principles. Items excluded from EBITDA are significant components
in understanding and assessing financial performance. EBITDA is a key
measure used by management to evaluate our operations and provide useful
information to investors. EBITDA should not be considered in isolation or as
an alternative to net income, cash flows generated by operations, investing
or financing activities, or other financial statement data presented in the
consolidated financial statements as indicators of financial performance or
liquidity. Because EBITDA is not a measurement determined in accordance with
generally accepted accounting principles and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(b) Prior to July 30, 1999, we were a partnership for which income tax expense
was determined at the partner level.
27
SEGMENT INFORMATION
PREDECESSOR
-----------------------------------
PERIOD FROM PERIOD FROM SIX MONTHS
YEAR ENDED JANUARY 1- JULY 30- YEAR ENDED ENDED JUNE 30,
DECEMBER 31, JULY 29, DECEMBER 31, DECEMBER 31, -------------------
1998 1999 1999 2000 2000 2001
------------- ------------------- ----------------- ------------- -------- --------
(DOLLARS IN THOUSANDS)
Revenue:
Healthcare staffing........ $156,951 $101,398 $ 85,595 $350,856 $169,670 $205,753
Other human capital
management services...... 1,641 4,649 2,132 16,834 7,980 16,954
-------- -------- -------- -------- -------- --------
$158,592 $106,047 $ 87,727 $367,690 $177,650 $222,707
======== ======== ======== ======== ======== ========
Contribution income(a):
Healthcare staffing........ $ 28,344 $ 19,409 $ 15,518 $ 61,894 $ 29,794 $ 29,576
Other human capital
management services...... (397) 693 (95) 4,290 2,175 3,995
Unallocated corporate
overhead................... 11,098 7,087 5,500 21,049 10,882 10,336
-------- -------- -------- -------- -------- --------
EBITDA $ 16,849 $ 13,015 $ 9,923 $ 45,135 $ 21,087 $ 23,235
======== ======== ======== ======== ======== ========
- ------------------------
(a) We define contribution income as earnings before interest, taxes,
depreciation, amortization and corporate expenses not specifically
identified to a reporting segment.
The following sections should be read in conjunction with the History and
Acquisitions sections that appear above in this Management's Discussion and
Analysis.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Revenue increased by 25.4% to $222.7 million for the six months ended
June 30, 2001 as compared to $177.7 million for the six months ended June 30,
2000. Revenue from our healthcare staffing segment increased 21.3% to
$205.8 million for the six months ended June 30, 2001 as compared to
$169.7 million for the six months ended June 30, 2000. Revenue included from
ClinForce, which was acquired on March 16, 2001 totaled $10.7 million for the
six months ended June 30, 2001. Excluding the effect of this acquisition,
revenue increased $25.4 million, or 15.0%, as compared with the six months ended
June 30, 2000. This increase is primarily due to an increase in the average
hourly bill rate along with an increase in the average number of field
employees, offset, in part, by a modest reduction in the average number of hours
billed per FTE per week. The average hourly bill rate increased primarily as a
result of bill rate increases and, to a lesser extent, an increase in the
percentage of nurses working under staffing rather than mobile contracts. The
average number of hours worked per week per FTE decreased primarily as a result
of an increase in the number of nurses working three 12 hour shifts rather than
five 8 hour shifts. For the six months ended June 30, 2001, 87.1% of healthcare
staffing revenue was generated by nurse staffing operations and 12.9% was
generated by other operations. For the six months ended June 30, 2000, 92.1% of
healthcare staffing revenue was generated by nurse staffing operations and 7.9%
was generated by other operations.
Revenue from our other human capital management services segment increased
112.5% to $17.0 million for the six months ended June 30, 2001 as compared to
$8.0 million for the six months ended June 30, 2000. Revenue included from
Heritage, which was acquired on December 26, 2000, totaled $6.7 million for the
six months ended June 30, 2001. Excluding the effect of this acquisition,
revenue increased $2.3 million, or 28.5%, as compared with the six months ended
June 30, 2000. This increase is primarily due to revenue from growth in our
physician search and existing consulting businesses, as well as our acquisition
of Gill/Balsano.
Direct operating expenses are comprised primarily of field employee
compensation expenses, housing expenses, travel expenses and field insurance
expenses. Direct operating expenses totaled $167.1 million for the six months
ended June 30, 2001 as compared to $131.9 million for the six months ended
June 30, 2000. As a percentage of revenue, direct operating expenses represented
75.0% of
28
revenue for the six months ended June 30, 2001 as compared with 74.2% for the
six months ended June 30, 2000. The increase in direct operating expenses as a
percent of revenue was mostly attributable to an increase in field salaries,
housing costs and health insurance. These increases were offset in part by the
relatively lower direct operating expenses, as a percent of revenue, for each of
Heritage and ClinForce.
Selling, general and administrative expenses are comprised primarily of
corporate and administrative personnel compensation, advertising, referral
bonuses, insurance, communication, rent, utilities and postage and delivery.
Selling, general and administrative expenses totaled $31.5 million for the six
months ended June 30, 2001 as compared to $24.2 million for the six months ended
June 30, 2000. As a percentage of revenue, selling, general and administrative
expenses increased to 14.1% of revenue for the six months ended June 30, 2001,
as compared with 13.6% for the six months ended June 30, 2000. The increase is a
result of the acquisitions of Heritage and ClinForce, which have historically
higher selling, general and administrative expense than the travel nurse
staffing business. We expect selling, general and administrative expenses as a
percent of revenue to continue to remain higher throughout 2001, as compared to
2000, as a result of the acquisitions of Heritage and ClinForce, which have
historically had higher selling, general and administrative expenses than our
travel nurse staffing business.
Bad debt expense totaled $0.9 million for the six months ended June 30, 2001
as compared to $0.5 million for the six months ended June 30, 2000. As a
percentage of revenue, bad debt expense represented 0.4% of revenue for the six
months ended June 30, 2001 as compared with 0.3% for the six months ended
June 30, 2000.
EBITDA, as a result of the above, totaled $23.2 million for the six months
ended June 30, 2001 as compared to $21.1 million for the six months ended
June 30, 2000. As a percentage of revenue, EBITDA represented 10.4% of revenue
for the six months ended June 30, 2001 as compared with 11.9% for the six months
ended June 30, 2000.
Depreciation and amortization expense totaled $8.7 million for the six
months ended June 30, 2001 as compared to $7.9 million for the six months ended
June 30, 2000. The increase was primarily due to the increased amortization of
goodwill and other intangibles resulting from the Heritage and ClinForce
acquisitions. As a percentage of revenue, depreciation and amortization expense
declined to 3.9% of revenue for the six months ended June 30, 2001 as compared
to 4.5% for the six months ended June 30, 2000.
Non-recurring indirect transaction costs for the six months ended June 30,
2000 were $0.4 million, comprised of non capitalizable transition bonuses and
integration costs related to the TravCorps acquisition.
Income from operations totaled $14.6 million for the six months ended
June 30, 2001 and $12.7 million for the six months ended June 30, 2000. As a
percentage of revenue, income from operations represented 6.5% of revenue for
the six months ended June 30, 2001 as compared with 7.2% for the six months
ended June 30, 2000.
Net interest expense totaled $8.5 million for the six months ended June 30,
2001 as compared to $7.7 million for the six months ended June 30, 2000. This
increase was primarily due to borrowings related to the Heritage and ClinForce
acquisitions, offset in part by lower average borrowing costs.
Income before income taxes and discontinued operations totaled $6.0 million
for the six months ended June 30, 2001 as compared to $5.0 million for the six
months ended June 30, 2000 due to the factors discussed above.
Income tax expense totaled $2.8 million for the six months ended June 30,
2001 as compared to $2.5 million for the six months ended June 30, 2000.
Income before discontinued operations totaled $3.2 million for the six
months ended June 30, 2001 as compared to $2.5 million for the six months ended
June 30, 2000.
29
Losses from discontinued operations, net of income tax benefits, in
connection with HospitalHub were $0.5 million for the six months ended June 30,
2001 as compared to $0.7 million for the six months ended June 30, 2000.
A $0.5 million loss was recognized on the planned disposal of the HospitalHub
operation during the six months ended June 30, 2001. The divestiture of
HospitalHub was completed in the second quarter of 2001. An additional charge
was necessary as the actual losses on disposal incurred and anticipated were
more than estimated in December 2000.
Net income for the six months ended June 30, 2001 was $2.7 million as
compared to $1.8 million for the six months ended June 30, 2000.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO FIVE-MONTH PERIOD
JULY 30-DECEMBER 31, 1999 AND THE SEVEN-MONTH PERIOD JANUARY 1-JULY 29, 1999
Revenue for the year ended December 31, 2000 totaled $367.7 million as
compared to $193.8 million for the two periods that comprise 1999. Revenue for
the two periods that comprise 1999 includes the results of TravCorps from its
date of acquisition on December 16, 1999. Had the results of TravCorps'
operations for the full year of 1999 been included with the combined revenue for
the two periods in 1999, revenue would have increased by 19.9% to
$367.7 million in 2000 from $306.6 million in 1999.
Revenue from our healthcare staffing segment for the year ended
December 31, 2000 totaled $350.9 million as compared to $187.0 million for the
two periods that comprise 1999. Revenue for the two periods that comprise 1999
includes the results of TravCorps from its date of acquisition on December 16,
1999. Had the results of TravCorps' operations for the full year of 1999 been
included with the combined revenue for the two periods in 1999, revenue from our
healthcare staffing segment would have increased by 22.7% to $350.9 million in
2000 from $285.9 million in 1999. The increase was attributable to an increase
in the average number of traveling nurses, a higher average hourly bill rate and
increased allied health staffing revenue. For the year ended December 31, 2000,
92.5% of healthcare staffing revenue was generated by nurse staffing operations
and 7.5% was generated by other operations. For the two periods that comprise
1999, 91.9% of healthcare staffing revenue was generated by nurse staffing
operations and 8.1% was generated by other operations.
Revenue from our other human capital management services segment for the
year ended December 31, 2000 totaled $16.8 million as compared to $6.8 million
for the two periods that comprise 1999. Revenue for the two periods that
comprise 1999 includes the results of TravCorps from its date of acquisition on
December 16, 1999. Had the results of TravCorps' operations for the full year of
1999 been included with the combined revenue for the two periods in 1999,
revenue from our other human capital management services segment would have
decreased by 18.4% to $16.8 million in 2000 from $20.6 million in 1999. This
decrease was due to a decrease in year 2000-related consulting services offset,
in part, by an increase in our search and consulting business.
Direct operating expenses for the year ended December 31, 2000 totaled
$273.1 million as compared to $68.0 million for the five-month period
July 30-December 31, 1999 and $80.2 million for the seven-month period
January 1-July 29, 1999. As a percentage of revenue, direct operating expenses
represented 74.3% of revenue for the year ended December 31, 2000 compared with
77.6% for the five-month period July 30-December 31, 1999 and 75.6% for the
seven-month period January 1-July 29, 1999. The relative improvement was largely
a result of the inclusion of revenue from our search, recruitment and consulting
subsidiaries, for which all salaries and related expenses are classified as
selling, general and administrative expenses. We acquired these subsidiaries in
December 1999 in connection with our acquisition of the assets of TravCorps. In
addition, for 1999, a change was made in the manner by which we compensated
travel nurses and allied health professionals which resulted in greater direct
operating expenses, as a percentage of revenue for the five-month period
July 30-December 31, 1999.
30
Selling, general and administrative expenses for the year ended
December 31, 2000 totaled $49.0 million as compared to $9.3 million for the
five-month period July 30-December 31, 1999 and $12.7 million for the
seven-month period January 1-July 29, 1999. As a percentage of revenue, selling,
general and administrative expenses represented 13.3% of revenue for the year
ended December 31, 2000 compared with 10.5% for the five-month period
July 30-December 31, 1999 and 12.0% for the seven-month period
January 1-July 29, 1999. The relative increase in 2000 resulted from inclusion
of the TravCorps operations, which historically have had greater selling,
general and administrative expenses on a percentage of revenue basis. The
decrease in selling, general and administrative expenses during the period
July 30-December 31, 1999 as compared with the period January 1-July 30, 1999
was due to the modification of a management incentive program in July 1999.
Bad debt expense for the year ended December 31, 2000 totaled $0.4 million
as compared to $0.5 million for the five-month period July 30-December 31, 1999
and $0.2 million for the seven-month period January 1-July 29, 1999. As a
percentage of revenue, bad debt expense represented 0.1% of revenue for 2000
compared with 0.6% for the five-month period July 30-December 31, 1999 and 0.1%
for the seven-month period January 1-July 29, 1999. The increase in bad debt
expense during the five-month period July 30-December 31, 1999 was due to the
increase in the aging of accounts relating to one provider.
EBITDA, as a result of the above, totaled $45.1 million for the year ended
December 31, 2000 as compared to $9.9 million for the five-month period
July 30-December 31, 1999 and $13.0 million for the seven-month period
January 1-July 29, 1999. As a percentage of revenue, EBITDA represented 12.3% of
revenue for the year ended December 31, 2000 compared with 11.3% for the
five-month period July 30-December 31, 1999 and 12.3% for the seven-month period
January 1-July 29, 1999.
Depreciation and amortization expense for the year ended December 31, 2000
totaled $15.0 million as compared to $4.6 million for the five-month period
July 30-December 31, 1999 and $0.7 million for the seven-month period
January 1-July 29, 1999. The increase in depreciation and amortization expense
in 2000 was due to amortization of goodwill resulting from the acquisition of
the assets of Cross Country Staffing and the TravCorps acquisition. As a
percentage of revenue, depreciation and amortization expense represented 4.1% of
revenue for 2000 compared with 5.2% for the five-month period
July 30-December 31, 1999 and 0.7% for the seven-month period
January 1-July 29, 1999.
Non-recurring indirect transaction costs totaled $1.3 million for the year
ended December 31, 2000, which consisted primarily of transition bonuses related
to the TravCorps acquisition.
Income from operations for the year ended December 31, 2000 totaled
$28.8 million as compared to $5.3 million for the five-month period
July 30-December 31, 1999 and $12.3 million for the seven-month period
January 1-July 29, 1999. As a percentage of revenue, income from operations
represented 7.8% of revenue for the year ended December 31, 2000 compared with
6.1% for the five-month period July 30-December 31, 1999 and 11.6% for the
seven-month period January 1-July 29, 1999.
Net interest expense for the year ended December 31, 2000 totaled
$15.4 million as compared to $4.8 million for the five-month period
July 30-December 31, 1999 and $0.2 million for the seven-month period
January 1-July 29, 1999. The increase in 2000, and for the five-month period
July 30-December 31, 1999, was due to debt incurred in connection with our
acquisition of the assets of Cross Country Staffing in July 1999 and a higher
weighted average effective borrowing rate.
Income before income taxes and discontinued operations for the year ended
December 31, 2000 totaled $13.4 million as compared to $0.5 million for the
five-month period July 30-December 31, 1999 and $11.9 million for the
seven-month period January 1-July 29, 1999.
Income tax expense for the year ended December 31, 2000 was $6.7 million as
compared to $0.7 million for the five-month period July 30-December 31, 1999.
Our effective tax rate was 50.3% for the year ended December 31, 2000 and 128.0%
for the period July 30-December 31, 1999 largely as a
31
result of non-deductible expenses. Excluding the effects of non-deductible items
and the tax benefit of our discontinued operations, our effective tax rates for
the year ended December 31, 2000 and for the period July 30-December 31, 1999
were 41.5% and 34.7%, respectively. Prior to July 30, 1999, we were a
partnership for which income tax expense was determined at the partner level.
Pro forma adjustments have been made in the Cross Country Staffing financial
statements included elsewhere in this prospectus as if we were subject to
federal income taxes for the seven-month period January 1-July 29, 1999 using a
49.0% effective tax rate. On a pro forma basis, income tax expense was
$5.8 million for the seven-month period January 1-July 29, 1999.
Income before discontinued operations totaled $6.7 million for the year
ended December 31, 2000 as compared to a loss of $0.1 million for the five-month
period July 30-December 31, 1999.
Losses from discontinued operations, net of income tax benefits, for the
year ended December 31, 2000, and the five-month period July 30-December 31,
1999, were $1.6 million and $0.2 million, respectively, in connection with
HospitalHub, which began operations in 1999. Also for the year ended
December 31, 2000, a $0.5 million loss was recognized on the planned disposal of
HospitalHub. The divestiture of HospitalHub was completed in the second quarter
of 2001.
Net income for the year ended December 31, 2000 totaled $4.6 million as
compared to a net loss of $0.3 million for the five-month period
July 30-December 31, 1999. Net income for the seven-month period
January 1-July 29, 1999 was $6.0 million, including a pro forma adjustment for
income tax expense as discussed above.
THE SEVEN-MONTH PERIOD JANUARY 1, 1999-JULY 29, 1999 AND THE FIVE-MONTH PERIOD
JULY 30, 1999-DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Revenue for the five-month period July 30-December 31, 1999 totaled
$87.7 million and for the seven-month period January 1-July 29, 1999 totaled
$106.0 million as compared to $158.6 million for 1998. Combined revenue for the
two periods that comprise 1999 totaled $193.8 million, representing a 22.2%
increase over the year ended December 31, 1998.
Revenue from our healthcare staffing segment for the five-month period
July 30-December 31, 1999 totaled $85.6 million and for the seven-month period
January 1-July 29, 1999 totaled $101.4 million as compared to $157.0 million for
1998. Combined revenue from our healthcare staffing segment for the two periods
that comprise 1999 totaled $187.0 million, representing a 19.1% increase over
the year ended December 31, 1998. The increase was primarily due to increases in
the number of hours worked by our travel nurses and in the average hourly bill
rate, as well as by a greater mix of staffing business in payroll versus mobile
contracts. For the two periods that comprise 1999, 91.9% of healthcare staffing
revenue was generated by nurse staffing operations and 8.1% was generated by
other operations. For the year ended December 31, 1998, 87.5% of healthcare
staffing revenue was generated by nurse staffing operations and 12.5% was
generated by other operations.
Revenue from our other human capital management services segment for the
five-month period July 30-December 31, 1999 totaled $2.1 million and for the
seven-month period January 1-July 29, 1999 totaled $4.6 million as compared to
$1.6 million for 1998. Combined revenue from our other human capital management
services segment for the two periods that comprise 1999 totaled $6.8 million,
representing a 313.2% increase over the year ended December 31, 1998. This
increase was primarily due to an increase in year 2000-related consulting
revenues.
Direct operating expenses for the five-month period July 30-December 31,
1999 totaled $68.0 million and for the seven-month period January 1-July 29,
1999 totaled $80.2 million as compared to $122.0 million for the year ended
December 31, 1998. As a percentage of revenue, direct operating expenses
represented 77.6% of revenue for the five-month period July 30-December 31, 1999
and 75.6% for the seven-month period January 1-July 29, 1999 as compared to
76.9% for the year ended December 31, 1998. In 1999, a change was made in the
manner by which we compensated travel nurses and allied health professionals
which resulted in greater direct operating expenses, as a percentage of
32
revenue for the five-month period July 30-December 31, 1999. The relative
improvement, as a percent of revenue, during the seven-month period
January 1-July 29, 1999 as compared to the year ended December 31, 1998 was due
to a a greater percentage increase in billing rates than field employee
compensation expense.
Selling, general and administrative expenses for the five-month period
July 30-December 31, 1999 totaled $9.3 million and for the seven-month period
January 1-July 29, 1999 totaled $12.7 million as compared to $19.1 million for
the year ended December 31, 1998. As a percentage of revenue, selling, general
and administrative expenses was 10.5% of revenue for the five-month period
July 30-December 31, 1999 and 12.0% for the seven-month period
January 1-July 29, 1999 compared with 12.0% for the year ended December 31,
1998. The decrease in selling, general and administrative expenses as percentage
of revenue during the July 30-December 31, 1999 period was due to the
modification of a management incentive program in July 1999.
Bad debt expense for the five-month period July 30-December 31, 1999 totaled
$0.5 million and for the seven-month period January 1-July 29, 1999 totaled
$0.2 million as compared to $0.7 million for the year ended December 31, 1998.
As a percentage of revenue, bad debt expense was 0.6% of revenue for the
five-month period July 30-December 31, 1999, 0.1% for the seven-month period
January 1-July 29, 1999 and 0.5% for 1998. The relative improvement from 1998 to
the seven-month period January 1-July 29, 1999 was attributable to better
collections of aged receivables. The increase in bad debt expense during the
five-month period July 30-December 31, 1999 was due to the increase in the aging
of accounts relating to one provider.
EBITDA, as a result of the above, for the five-month period
July 30-December 31, 1999 totaled $9.9 million and for the seven-month period
January 1-July 29, 1999 totaled $13.0 million as compared to $16.8 million for
the year ended December 31, 1998. As a percentage of revenue, EBITDA represented
11.3% of revenue for the five-month period July 30-December 31, 1999 and 12.3%
for the seven-month period January 1-July 29, 1999 as compared to 10.6% for the
year ended December 31, 1998.
Depreciation and amortization expense for the five-month period
July 30-December 31, 1999 totaled $4.6 million and for the seven-month period
January 1-July 29, 1999 totaled $0.7 million as compared to $1.1 million for the
year ended December 31, 1998. As a percentage of revenue, depreciation and
amortization expense represented 5.2% of revenue for the five-month period
July 30-December 31, 1999 and 0.7% for the seven-month period
January 1-July 29, 1999 as compared to 0.7% for the year ended December 31,
1998. The relative increase for the five-month period July 30-December 31, 1999
was due principally to amortization of goodwill and other intangible assets
which resulted from the acquisition of the assets of Cross Country Staffing.
Income from operations for the five-month period July 30-December 31, 1999
totaled $5.3 million and for the seven-month period January 1-July 29, 1999
totaled $12.3 million as compared to $15.7 million for the year ended
December 31, 1998. As a percentage of revenue, income from operations
represented 6.1% of revenue for the five-month period July 30-December 31, 1999
and 11.6% for the seven-month period January 1-July 29, 1999 as compared to 9.9%
for the year ended December 31, 1998.
Net interest expense for the five-month period July 30-December 31, 1999
totaled $4.8 million and for the seven-month period January 1-July 29, 1999
totaled $0.2 million as compared to $0.8 million for the year ended
December 31, 1998. The relative increase in net interest expense for the
five-month period July 30-December 31, 1999 was due to debt incurred in
connection with our acquisition of the assets of Cross Country Staffing, in
July 1999, and a higher weighted average effective borrowing rate.
Income before income taxes and discontinued operations for the five-month
period July 30-December 31, 1999 totaled $0.5 million and for the seven-month
period January 1-July 29, 1999 totaled $11.9 million as compared to
$14.7 million for the year ended December 31, 1998. As a percentage of revenue,
income before income taxes and discontinued operations represented 0.6% of
33
revenue for the five-month period July 30-December 31, 1999 and 11.2% for the
seven-month period January 1-July 29, 1999 as compared to 9.3% for the year
ended December 31, 1998.
Income tax expense for the five-month period July 30-December 31, 1999
totaled $0.7 million. Our effective tax rate was 128% for the five-month period
July 30-December 31, 1999 largely as a result of non-deductible expenses.
Excluding the effects of non-deductible items and the tax benefit of
discontinued operations, our effective tax rate for the five-month period
July 30-December 31, 1999 was 34.7%. For the seven-month period
January 1-July 29, 1999 and for the year ended December 31, 1998, our
predecessor was a partnership for which income tax expense was determined at the
partner level. Pro forma adjustments have been made in the Cross Country
Staffing financial statements included elsewhere in this prospectus as if we
were subject to federal income taxes for the seven-month period
January 1-July 29, 1999 using a 49.0% effective tax rate. On a pro forma basis,
income tax expense was $5.8 million for the seven-month period
January 1-July 29, 1999.
Loss before discontinued operations for the five-month period
July 30-December 31, 1999 totaled $0.1 million.
Loss from discontinued operations, net of taxes, for the five-month period
July 30-December 31, 1999 was $0.2 million, in connection with HospitalHub,
which began operations in 1999. The divestiture of HospitalHub was completed in
the second quarter of 2001.
Net loss for the five-month period July 30-December 31, 1999 was
$0.3 million. Net income for the seven-month period January 1-July 29, 1999 was
$6.1 million, including a pro forma adjustment for income tax expense as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, we had a current ratio, the amount of current assets
divided by current liabilities, of 1.8 to 1.0. Working capital increased by
$3.8 million to $38.2 million as of June 30, 2001, compared to $34.4 million as
of December 31, 2000. The increase in working capital is primarily due to an
increase in accounts receivable offset by an increase in accrued employee
compensation and benefits. Although accounts receivable increased, days sales
outstanding decreased to 59 days at June 30, 2001 compared with 64 days at
December 31, 2000. The increase in employee compensation and benefits was due to
timing of employee payroll payments.
Our operating cash flows constitute our primary source of liquidity and
historically have been sufficient to fund our working capital, capital
expenditures, internal business expansion and debt service. We believe that our
capital resources are sufficient to meet our working capital needs for the next
twelve months. We expect to meet our future working capital, capital
expenditures, internal business expansion, debt service and acquisition
requirements from a combination of operating cash flow and funds available under
our credit facility.
CREDIT FACILITY
The credit facility is provided by a lending syndicate comprised of Citicorp
USA, GE Capital, Wachovia Bank, Deutsche Bank, Suntrust Bank, Fleet Bank, IBJ
Whitehall, ING US Capital, Sovereign Bank, Merrill Lynch, Bank of America and
Provident Bank of Maryland. In March 2001, we amended our credit facility. The
amended credit facility is comprised of (i) a revolving credit facility of up to
$30.0 million, including a swing-line sub-facility of $7.0 million and a letter
of credit sub-facility of $6.0 million, and (ii) a $144.9 million term loan
facility. The revolving facility matures on July 29, 2005 and the term loan
facility has staggered maturities in 2001, 2002, 2003, 2004 and 2005.
Borrowings under the amended credit facility bear interest at variable rates
based, at our option, on LIBOR or the prime rate plus various applicable margins
which are determined by the amended credit facility. As of June 30, 2001, the
weighted average effective interest rate under the amended credit facility was
7.86%. We are required to pay a quarterly commitment fee at a rate of 0.50% per
annum on unused commitments under the revolving loan facility. As of August 1,
2001, we had
34
availability under our revolving credit facility of $25.9 million and under our
letter of credit sub-facility of $1.9 million.
The terms of the amended credit facility include customary covenants and
events of default. Our investments covenant requires us to obtain the consent of
our lenders to complete any acquisition, the costs of which exceeds
$10.0 million. In addition, after this offering, if affiliates of Charterhouse
and investment funds managed by Morgan Stanley Private Equity, as a group, cease
to beneficially own at least 45.0% of our capital stock, a change of control,
which constitutes an event of default, will occur under the credit facility. In
the event of an event of default, our lenders may terminate their lending
commitments to us and declare our outstanding indebtedness under the credit
facility due and payable, together with accrued but unpaid interest and fees.
Borrowings under the amended credit facility are collateralized by substantially
all our assets and the assets of our subsidiaries.
Our credit facility requires us to use the first $40.0 million of proceeds
from this offering to reduce amounts outstanding thereunder. If after giving
effect to such application of proceeds, we satisfy the requisite debt to EBITDA
ratio specified in the credit facility, we are permitted to use remaining net
cash proceeds of this offering to redeem the outstanding principal on our senior
subordinated pay-in-kind notes, plus accrued interest and any fees and expenses
related to prepayment.
SENIOR SUBORDINATED PAY-IN-KIND NOTES
On July 29, 1999, we issued $30.0 million of senior subordinated pay-in-kind
notes to BT Investment Partners, Inc. and The Northwestern Mutual Life Insurance
Company. We used the proceeds of the senior subordinated notes to finance the
acquisition of the assets of Cross Country Staffing, our predecessor, and to pay
our transaction fees and expenses. Interest on the senior subordinated notes
accrues at 12.0% per annum and is compounded quarterly. The senior subordinated
notes mature at the earlier of six months after the final maturity of the
amended credit facility or upon a change in control. We plan to redeem our
senior subordinated pay-in-kind notes out of the proceeds of this offering. In
connection with our proposed redemption of the senior subordinated pay-in-kind
notes, we will be required to pay a redemption premium equal to 4.0% of
outstanding principal plus accrued and unpaid interest on the notes.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Net cash provided by operating activities for the six months ended June 30,
2001 increased $2.5 million to $13.0 million compared to $10.5 million for the
six months ended June 30, 2000. The use of cash from investing activities
totaled $36.3 million for the six months ended June 30, 2001 compared to a use
of $0.7 million in the six months ended June 30, 2000. Investing activities for
the six months ended June 30, 2001 included approximately $31.4 million for the
acquisition of ClinForce and $2.1 million for the acquisitions of Heritage and
Gill/Balsano. No acquisitions were completed during the six months ended
June 30, 2000. Net cash provided by financing activities for the six months
ending June 30, 2001 increased by $36.7 million to a provision of the
$23.3 million as compared to a use of $13.4 million for the six months ended
June 30, 2000. The source of the $23.3 million in the six months ended June 30,
2001 was primarily new debt associated with the acquisitions offset by repayment
of prior borrowings with cash provided by operating activities.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE FIVE-MONTH PERIOD
JULY 30-DECEMBER 31, 1999 AND THE SEVEN-MONTH PERIOD JANUARY 1-JULY 29, 1999
Net cash provided by operating activities for 2000 increased $4.1 million to
a provision of $10.4 million as compared to a provision of $6.3 million for the
five-month period July 30-December 31, 1999 and a provision of $12.2 million for
the seven-month period January 1-July 29, 1999. Excluding income tax expense,
our cash flow from operations was $17.1 million in 2000 compared with
$7.0 million for the period July 30-December 31, 1999 and $12.2 million for the
period January 1-July 29, 1999. The use of cash from investing activities for
2000 increased
35
$11.0 million to a use of $9.6 million as compared to a provision of
$1.4 million for the five-month period from July 30-December 31, 19999 and a use
of $0.2 million for the seven-month period January 1-July 29, 1999. Investing
activities during 2000 included $6.2 million for the acquisition of Heritage and
$1.5 million for the acquisition of E-Staff as compared to net cash provided by
acquisitions for the five-month period July 30-December 31, 1999 of
$1.8 million from the acquisition of TravCorps. No acquisitions were completed
during the period from January 1-July 30, 1999. Net cash used by financing
activities for 2000 increased $2.5 million to a use of $5.6 million as compared
to a use of $3.1 million for the five-month period July 30-December 31, 1999 and
a use of $12.0 million for the seven-month period January 1-July 29, 1999.
Financing activities for 2000 consisted of borrowings and repayments under debt
agreements, including primarily $5.1 million of net repayments under our term
loan agreement, borrowing of $3.9 million of subordinated debt and net
repayments under our revolver and swing line agreements of $1.0 million.
FIVE-MONTH PERIOD JULY 30-DECEMBER 31, 1999 AND THE SEVEN-MONTH PERIOD
JANUARY 1-JULY 29, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Net cash provided by operating activities for the five-month period
July 30-December 31, 1999 decreased $5.9 million to a provision of $6.3 million
as compared to a provision of $12.2 million for the seven-month period
January 1-July 29, 1999 and a provision of $14.4 million for 1998. The use of
cash from investing activities for the five-month period July 30-December 31,
1999 decreased $1.6 million to a provision of $1.4 million as compared to a use
of $0.2 million for the seven-month period from January 1-July 29, 1999 and a
use of $1.0 million for 1998. The net cash provided by acquisitions for the
five-month period July 30-December 31, 1999 included $1.8 million from the
acquisition of TravCorps. Net cash used by financing activities the five-month
period July 30-December 31, 1999 decreased $8.9 million to a use of
$3.1 million as compared to a use of $12.0 million for the seven-month period
January 1-July 29, 1999 and a use of $13.5 million for 1998.
INFLATION
During the last several years, the rate of inflation in healthcare related
services has exceeded that of the economy as a whole. This inflation has
increased our direct operating costs. We are also impacted by fluctuations in
housing costs. Historically, we have been able to recoup the negative impact of
such fluctuations by increasing our billing rates. We may not be able to
continue increasing our billing rates and increases in our direct operating
costs may adversely affect us in the future. In addition, our clients are
impacted by payments of healthcare benefits by federal and state governments as
well as private insurers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes, primarily as a result of our credit
facility which bears interest based on floating rates. We are party to an
interest rate swap agreement which fixes the interest rate paid on
$45.0 million of borrowings under our credit facility at 6.705% effective
January 1, 2001, plus the applicable margin. The swap matures in February 2003.
Prior to January 2001, we accounted for the swap agreement as a hedge, which
means changes in the fair value of the swap were not required to be recognized
in earnings. Effective January 1, 2001, we adopted Statement of Financial
Accounting Standard No. 133 ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. Upon adopting SFAS No. 133, we recorded a liability for the fair
value of the swap, which reduced consolidated stockholders' equity by $910,000.
We will recognize changes in the fair value of the swap in earnings to the
extent such changes are greater or less than the corresponding change in the
fair value of the future variable interest payments on the portion of the debt
underlying the swap. We do not contemplate that such changes will be material to
our results of operations for the remainder of 2001. However, changes in
interest rates which result in a yield curve that is different from those
projected may cause changes in the fair value of the swap to have a significant
impact on our results of operations.
A 1% change in interest rates on variable rate debt would have resulted in
interest expense fluctuating approximately $0.4 million for 1999, $1.2 million
for 2000, and $0.7 million for the six months ended June 30, 2001.
36
BUSINESS OF CROSS COUNTRY, INC.
OVERVIEW OF OUR COMPANY
We are the largest provider of healthcare staffing services in the United
States based on revenue. Approximately 80% of our revenue is derived from travel
nurse staffing services. Other staffing services include the placement of
clinical research professionals and allied healthcare professionals such as
radiology technicians, rehabilitation therapists and respiratory therapists. We
also provide other human capital management services, including search and
recruitment, consulting, education and training and resource management
services. Our active client base includes over 2,500 hospitals, pharmaceutical
companies and other healthcare providers across all 50 states. Our fees are paid
directly by our clients rather than by government or other third-party payors.
We are well positioned to take advantage of current industry dynamics, including
the growing shortage of nurses in the United States, the growing demand for
healthcare services and the trend among healthcare providers toward outsourcing
staffing services. For the year ended December 31, 2000, our revenue and EBITDA,
pro forma for the acquisitions of ClinForce and Heritage, were $407.7 million
and $50.7 million, respectively.
OVERVIEW OF OUR INDUSTRY
The STAFFING INDUSTRY REPORT, an independent staffing industry publication,
estimates that the healthcare segment of the temporary staffing market generated
$7.2 billion in revenue in 2000 and that this segment will grow 18% to
$8.5 billion in 2001.
The most common temporary nurse staffing alternatives available to hospital
administrators are travel nurses and per diem nurses.
- Travel nurse staffing involves placement of registered nurses on a
contracted, fixed-term basis. Travel nurses provide a long-term solution
to a nurse shortage, present hospitals and other healthcare facilities
with a pool of potential full-time job candidates and enable healthcare
facilities to provide their patients with continuity of care. Assignments
may run several weeks to one year, but are typically 13 weeks long. The
healthcare professional temporarily relocates to the geographic area of
the assignment. The staffing company generally is responsible for
providing travel nurses with customary employment benefits and for
coordinating travel and housing arrangements.
- Per diem staffing comprises the majority of all temporary healthcare
staffing and involves placement of locally based healthcare professionals
on very short-term assignments, often for daily shift work. Per diem
staffing often involves little advance notice of assignments by the
client.
INDUSTRY DYNAMICS
SHORTAGE OF NURSES. There is a pronounced shortage of registered nurses,
especially experienced, specialty nurses who staff operating rooms, emergency
rooms, intensive care units and pediatric wards. A recent study published in the
JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION, estimates that by 2020, the
nationwide registered nurse workforce will be nearly 20% below projected
requirements.
Several factors have contributed to the decline in the supply of nurses:
- The nurse pool is getting older and retiring. The study in the JOURNAL OF
THE AMERICAN MEDICAL ASSOCIATION projects that within the next ten years,
the average age of registered nurses will increase 3.5 years to over 45.
- Enrollment in nursing education programs is decreasing. According to the
American Association of Colleges of Nursing, nursing school enrollments
have declined at an average rate of 5% for each of the past six years.
37
- Many registered nurses are choosing to pursue careers outside of acute
care hospitals or in professions other than nursing.
The shortage of nurses drives demand for our services because hospitals turn
to temporary nurses to make up for shortfalls in their permanent staff.
INCREASING UTILIZATION OF HEALTHCARE SERVICES. There are a number of
factors driving an increase in the utilization of healthcare services,
including:
- Increasing demand for healthcare services as a result of the aging of the
baby boomers; and
- Technological advances in healthcare treatment methods which attract a
greater number of patients with complex medical conditions requiring a
higher intensity of care.
The U.S. Healthcare Financing Administration projects total healthcare
expenditures to grow by 8.6% in 2001 and by 7.1% annually from 2001 through
2010. According to these projections, healthcare expenditures will account for
approximately $2.6 trillion or 15.9% of U.S. gross domestic product by 2010.
INCREASED OUTSOURCING OF STAFFING SERVICES. Healthcare providers are
increasingly using temporary staffing to manage seasonal fluctuations in demand
for their services.
The following factors have created seasonal fluctuations in demand for
healthcare personnel:
- Seasonal population swings, in areas such as the sunbelt states of
Florida, Arizona and California in the winter months and the northeast in
the summer months.
- Seasonal changes in occupancy rates that tend to increase during the
winter months and decrease during the summer months.
The use of temporary personnel enables these providers to vary their staffing
levels to match these changes in demand and avoid the more costly alternative of
hiring permanent medical staff.
The healthcare staffing industry also includes the temporary staffing of
doctors and dentists, allied health personnel and professionals, and advanced
practice professionals, but excludes home healthcare services. Healthcare
staffing is also expanding, providing new specialties such as medical billing
and receptionists.
OUR COMPETITIVE STRENGTHS
Our competitive strengths include:
- LEADER IN THE RAPIDLY GROWING NURSE STAFFING INDUSTRY. We have operated in
the travel nurse staffing industry since the 1970s and have the leading
brand name based on revenue. Our Cross Country TravCorps brand is well
recognized among leading healthcare providers and professionals. We
believe that through our relationships with existing travel nurse staffing
clients, we are positioned to effectively market complementary services,
including staffing of clinical trials and allied health professionals,
search and recruitment, consulting, and education and training to our
existing client base.
- STRONG AND DIVERSE CLIENT RELATIONSHIPS. We provide staffing solutions to
an active client base of over 2,500 hospitals, pharmaceutical companies
and other healthcare providers across all 50 states. We do not rely on any
geographic region or client for a significant portion of our revenue. No
single client accounted for more than 3% of our revenue in 2000. In 2000,
we worked with over 75% of the nation's top hospitals, as identified by
U.S. NEWS AND WORLD REPORT. We provide temporary staffing to our clients
through assignments that typically have terms of 13 weeks or longer. Our
fees are paid directly by our clients rather than by government or other
third-party payors.
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- LEADER IN RECRUITING AND EMPLOYEE RETENTION. We are a leader in the
recruitment and the retention of highly qualified healthcare
professionals. We recruit healthcare professionals from all 50 states and
Canada. In 2000, we received approximately 28,000 requests for
applications from potential field employees and approximately 12,500
completed applications were added to our database. Employee referrals
generate a majority of our new candidates. We believe we offer appealing
assignments, competitive compensation packages, attractive housing options
and other valuable benefits. Historically, approximately 70% of our nurses
accepted new assignments with us within 35 days of completion of previous
assignments. In 1996, we established Cross Country University, the first
educational program in the travel nurse industry to be accredited by the
American Nurse Credentialing Center. In 2000, we were recognized by
WORKING MOTHER MAGAZINE as a top 100 national employer of working mothers.
- SCALABLE AND EFFICIENT OPERATING STRUCTURE. We have an efficient
centralized operating structure that includes a database of more than
146,000 nurses and other healthcare professionals who have completed job
applications with us. Our size and centralized structure provide us with
operating efficiencies in key areas such as recruiting, advertising,
marketing, training, housing and insurance benefits. Our fully integrated
proprietary information system enables us to manage virtually all aspects
of our travel staffing operations. This system is designed to accommodate
significant future growth of our business.
- STRONG MANAGEMENT TEAM WITH EXTENSIVE HEALTHCARE STAFFING AND ACQUISITION
EXPERIENCE. Our management team has played a key role in the development
of the travel nurse staffing industry. Our management team, which averages
15 years of experience in the healthcare industry, has consistently
demonstrated the ability to successfully identify and integrate strategic
acquisitions.
OUR BUSINESS
HEALTHCARE STAFFING SERVICES
TRAVEL STAFFING
OVERVIEW
We are a leading provider of travel nurse staffing services, in terms of
revenue generated. Under the Cross Country TravCorps brand, we provide nurses on
a fixed-term contract basis throughout the U.S. We fill the majority of our
assignments in acute care hospitals, including teaching institutions, trauma
centers and community hospitals. We also fill assignments in non-acute care
settings, including nursing homes, skilled nursing facilities and sports
medicine clinics, and, to a lesser degree, in non-clinical settings, such as
schools. We staff both public and private, for-profit and not-for-profit
facilities. In addition to our core nurse staffing business, we provide
operating room technicians, therapists and other allied health and advanced
practice professionals, such as radiology technicians, rehabilitation therapists
and respiratory therapists, in a wide range of specialties.
We recruit credentialed nurses and other healthcare professionals and place
them on assignments away from their homes. We believe that these professionals
are attracted to us because we offer them high levels of customer service, as
well as a wide range of diverse assignments throughout the United States,
Canada, Bermuda and the United States Virgin Islands.
CONTRACTS WITH FIELD EMPLOYEES AND CLIENTS
Each of our field employees works for us under a contract. These contracts
typically last 13 weeks. Payroll contract employees are hourly employees whose
contract specifies the hourly rate they will be paid, including applicable
overtime, and any other benefits they are entitled to receive during the
contract period. For payroll contract employees, we bill clients at an hourly
rate and assume all employee costs, including payroll, withholding taxes,
benefits and professional liability insurance and
39
OSHA requirements, as well as any travel and housing arrangements. Mobile
contract employees are hourly employees of the hospital client and receive an
agreement that specifies the hourly rates they will be paid by the hospital
employer, as well as any benefits they are entitled to receive from us. For
mobile contract employees, we provide recruitment, housing in apartments leased
by the Company and travel services. The Company's contract with the healthcare
professional obligates it to provide these services to the healthcare
professional. The Company is compensated for the services it provides at a
predetermined rate negotiated between the Company and its hospital client,
without regard to the Company's cost of providing these services. Currently more
than 95% of our employees work for us under payroll contracts. Our fees are paid
directly by our clients rather than by government or other third-party payors.
In 2000, we completed approximately 11,000 individual assignments, typically
lasting 13 weeks.
RECRUITING AND RETENTION
In 2000, we received approximately 28,000 requests for applications from
potential field employees and approximately 12,500 completed applications were
added to our database. More than half of our field employees have been referred
by current or former employees, with the remainder attracted by advertisements
in trade publications and our internet website. Our internet site allows
potential applicants to review our business profile, apply on-line, view our
company-provided housing and participate in on-line forums. We offer appealing
assignments, attractive compensation packages, housing and other benefits, as
well as substantial training opportunities through Cross Country University.
Our recruiters are responsible for recruiting applicants, handling
placements, maintaining a regular dialogue with nurses on assignment, making
themselves available to address nurses' concerns regarding current assignments
and future opportunities, and other significant job support and guidance.
Recognizing that a nurse's relationship with the recruiter is the key to
retaining qualified applicants, our recruiters establish lasting partnerships
with the nurses. As part of the screening process, we conduct in-depth telephone
interviews with our applicants and verify references to determine
qualifications. Along with our hospital clients, we typically review our travel
nurses' performance after each assignment and use this information to maintain
the high quality of our staffing.
Our recruiters utilize our sophisticated database of positions, which is
kept up-to-date by our account managers, to match assignment opportunities with
the experience, skills and geographic preferences of their candidates. Once an
assignment is selected, the account manager reviews the candidate's resume
package before submitting it to the client for review.
Our educational and training services give us a competitive advantage by
enhancing both the quality of our nurses and the effectiveness of our
recruitment efforts. We typically monitor the quality of our workforce in the
field through performance reviews after each assignment and further develop the
capabilities of our recruits through Cross Country University and our Cross
Country Seminars brand. These services offer substantial benefits, such as:
- improving the quality of our nurses by offering them substantial training
opportunities;
- enabling our nurses to easily complete state licensing requirements;
- providing professional development opportunities to our nurses; and
- enhancing our image within the industry.
We recently initiated Assignment America, a recruitment program for
foreign-trained nurses. Assignment America is designed to address the current
shortage of nurses in the United States. Through Assignment America, we plan to
recruit registered nurses from foreign English-speaking countries, assist them
in obtaining U.S. nursing licenses, sponsor them for U.S. permanent residency
40
visas and then place them in domestic acute care hospitals. We believe
Assignment America will help us meet a greater portion of the demand for our
services. Because the recruitment process for foreign nurses is more onerous
than for domestic nurses, Assignment America nurses commit to long-term
contracts which typically range from 18 to 24 months. We plan to initially
recruit nurses from the United Kingdom, South Africa, New Zealand and Australia.
OPERATIONS
We service all of the assignment needs of our field employees and client
facilities through two operations centers located in Boca Raton, FL and Malden,
MA. These centers perform key support activities such as coordinating assignment
accommodations, payroll processing, benefits administration, billing and
collections, contract processing, client care, and risk management.
Hours worked by field employees are recorded by our operations system which
then transmits the data directly to Automated Data Processing for payroll
processing. As a result, client billings can be generated automatically once the
payroll information is complete, enabling real time management reporting
capabilities as to hours worked, billings and payroll costs. Our payroll
department also provides customer support services for field employees who have
questions.
We have approximately 2,900 apartments on lease throughout the U.S. Our
client accommodations department secures leases, and arranges for furniture
rental and utilities for field employees at their assignment locations.
Typically, we provide for shared accommodations with lease terms which
correspond to the length of the assignment. We believe that our economies of
scale help us secure preferred pricing and favorable lease terms.
We have also developed expertise in insurance, benefits administration and
risk management. For workers compensation coverage, we provide an attractive
program that is partially self-insured. For medical coverage, we use a partially
self-insured preferred provider organization plan.
SALES AND MARKETING
Our sales and marketing activities are comprised of the following:
NEW ACCOUNT DEVELOPMENT. Our new account development efforts are driven
principally through inbound telemarketing activities managed by a two-person
team of new business executives. In addition to negotiating new contracts with
prospective clients, these account executives also actively seek out specific
job opportunities for candidates who are not able to match our existing database
of opportunities. These activities generate approximately 350 new clients each
year.
MANAGEMENT OF EXISTING ACCOUNTS. We have a sales force composed of account
executives and managers of business development assigned to geographic markets
who manage approximately 75 to 90 client accounts each. This sales force
determines the appropriate billing rate and nurse pay rate for a given facility
utilizing a proprietary pricing model.
Day-to-day management of client accounts is handled by a team of
approximately 20 professionals. The account managers, who often have a nursing
background, are responsible for contacting active client facilities to obtain
open orders for staff. Once a candidate is submitted to the account manager for
submission to the facility, the account manager reviews the candidate's
credentials and confirms the appropriateness of the match. The account manager
then electronically submits appropriate materials to the facility.
BRAND MARKETING. Our brand marketing initiatives help develop Cross
Country's image in the markets we serve. Our brand is reinforced by our
professionally designed website, brochures and pamphlets, direct mail and
advertising materials. We believe that our branding initiatives coupled with
41
our high-quality client service differentiate us from our competitors and
establish us as a leader, in terms of brand recognition, in temporary nurse
staffing.
TRADE AND ASSOCIATION RELATIONSHIP MANAGEMENT. We actively manage trade and
association relationships through attendance at numerous national, regional and
local conferences and meetings, including National Association of Health Care
Recruiters, Association of Critical Care Nurses, American Organization of Nurse
Executives, American Society for Healthcare Human Resource Administration,
American College of Healthcare Executives and Medical Group Management
Association.
CLINICAL RESEARCH AND TRIALS STAFFING
Through our ClinForce brand, we provide clinical research professionals for
both contract assignments and permanent placement to many of the world's leading
companies in the pharmaceutical, biotechnology, medical device and related
industries. We provide an array of professionals in such areas as clinical
research and clinical data sciences, medical review and writing, and
pharmaeconomics and regulatory affairs. Our understanding of the clinical
research process enables us to provide responsive service to our clients and to
offer greater opportunities to our research professionals.
PER DIEM STAFFING
We provide per diem nurse staffing services to healthcare facilities in
Atlanta, Georgia, Las Vegas, Nevada, Phoenix, Arizona, and Seattle, Washington.
Per diem staffing typically involves the placement of local nurses to fill the
immediate needs of healthcare facilities on a shift-by-shift or short-term
basis. While per diem services accounted for less than 1% of our revenue in
2000, we believe this market presents a significant growth opportunity.
OTHER HUMAN CAPITAL MANAGEMENT SERVICES
We provide an array of healthcare-oriented human capital management
services, which complement our core travel nurse staffing business. These
services include:
- SEARCH AND RECRUITMENT. We provide both retained and contingency search
and recruitment services to healthcare organizations throughout the United
States, including hospitals, pharmaceutical companies, insurance companies
and physician groups. Our search services include the placement of
physicians, healthcare executives and nurses.
- HEALTHCARE CONSULTING SERVICES. We provide healthcare-oriented consulting
services, including consulting related to physician compensation,
strategy, operations, facilities planning, workforce management and merger
integration.
- EDUCATION AND TRAINING SERVICES. Cross Country University is a national
leader in providing continuing education programs to the healthcare
industry. Cross Country University holds national conferences, as well as
one-day seminars, on topics relevant to nurses and healthcare
professionals and provides conference management services. To enhance
Cross Country University, in December 2000 we acquired Heritage, which
produced over 2,600 seminars and conferences that were attended by over
65,000 registrants in more than 200 cities across the U.S. in 2000. In
addition, we extend these educational services to our field employees on
favorable terms as a recruitment and retention tool.
- RESOURCE MANAGEMENT SERVICES. We provide software tools and services
designed to enhance clients' capabilities to manage their nursing staff
and their relationships with external staffing vendors. Our E-Staff tool
is a subscription-based, online communication, scheduling and training
service for the nursing industry.
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SYSTEMS
Our placement and support operations are supported by sophisticated
information systems that facilitate smooth interaction between our recruitment
and support functions. Our fully integrated proprietary information system
enables us to manage virtually all aspects of our travel staffing operations.
The system is designed to accommodate significant future growth of our business.
In addition, its parallel process design allows for the addition of further
capacity to its existing hardware platform. We have proprietary software that
handles most facets of our business, including contract pricing and
profitability, contract processing, job posting, housing management,
billing/payroll and insurance. Our systems provide reliable support to our
facility clients and field employees and enable us to efficiently fulfill and
renew job assignments. Our systems also provide detailed information on the
status and skill set of each registered field employee.
Our financial and management reporting is managed on the PeopleSoft
Financial Suite. PeopleSoft is an industry leading enterprise resource planning
software suite that provides modules used to manage our accounts receivable,
accounts payable, general ledger and billing. This system is designed to
accommodate significant future growth of our business.
GROWTH STRATEGY
We intend to continue to grow our businesses by:
- ENHANCING OUR ABILITY TO FILL UNMET DEMAND FOR OUR TRAVEL STAFFING
SERVICES. There is substantial unmet demand for our travel staffing
services. We are striving to meet a greater portion of this demand by
recruiting additional healthcare personnel. Our recruitment strategy for
nurses and other healthcare professionals is focused on:
- increasing referrals from existing field employees by providing them with
superior service;
- expanding our advertising presence to reach more nursing professionals;
- using the internet to accelerate the recruitment-to-placement cycle;
- increasing the number of staff dedicated to the recruitment of new
nurses; and
- developing Assignment America, our recruitment program for
foreign-trained acute care nurses residing abroad.
- INCREASING OUR MARKET PRESENCE IN THE PER DIEM STAFFING MARKET. We intend
to use our existing brand recognition, client relationships and database
of nurses who have expressed an interest in temporary assignments to
expand our per diem services to the acute care hospital market. While we
have not historically had a significant presence in per diem staffing
services, we believe that this market presents a substantial growth
opportunity.
- EXPANDING THE RANGE OF SERVICES WE OFFER OUR CLIENTS. We plan to utilize
our relationships with existing travel staffing clients to more
effectively market complementary services, including staffing of clinical
trials and allied health professionals, search and recruitment,
consulting, and education and training.
- ACQUIRING COMPLEMENTARY BUSINESSES. We intend to continue to evaluate
opportunities to acquire complementary businesses to strengthen and
broaden our market presence.
- INCREASING OPERATING EFFICIENCIES. We seek to increase our operating
margins by increasing the productivity of our administrative personnel,
using our purchasing power to achieve greater savings in key areas such as
housing and benefits and continuing to invest in our information systems.
43
COMPETITIVE ENVIRONMENT
The travel nurse staffing industry is highly competitive, with limited
barriers to entry. Our principal competitor in the travel nurse staffing
industry is AMN Healthcare Services Inc. We also compete with a number of
nationally and regionally focused temporary nurse staffing companies that have
the capabilities to relocate nurses geographically and, to a lesser extent, with
local temporary nurse agencies.
In addition, the markets for our clinical staffing, allied staffing and per
diem nurse staffing and for our healthcare-oriented human capital management
services are highly competitive and highly fragmented, with limited barriers to
entry.
The principal competitive factors in attracting qualified candidates for
temporary employment are salaries and benefits, quality of accommodations,
quality and breadth of assignments, speed of placements, quality of recruitment
teams and reputation. We believe that persons seeking temporary employment
through us are also pursuing employment through other means, including other
temporary staffing firms, and that multiple staffing companies have the
opportunity to place employees with many of our clients. Therefore, the ability
to respond to candidate inquiries and submit candidates to clients more quickly
than our competitors is an important factor in our ability to fill assignments.
In addition, because of the large overlap of assignments, we focus on retaining
field employees by providing long-term benefits such as 401(k) plans and cash
bonuses. Although we believe that the relative size of our database and
economies of scale derived from the size of our operations make us an attractive
employer for nurses seeking travel opportunities, we expect competition for
candidates to continue to increase.
The principal competitive factors in attracting and retaining temporary
healthcare staffing clients include the ability to fill client needs, size of
available pool of qualified candidates, quality assurance and screening
capabilities, compliance with regulatory requirements, an understanding of the
client's work environment, risk management policies and coverages, general
industry reputation, and, to a lesser extent, price.
FACILITIES
We do not own any real property. Our principal leases are listed below.
LOCATION FUNCTION SQUARE FEET LEASE EXPIRATION
- -------- -------- ----------- ----------------
Boca Raton, Florida Headquarters 43,000 April 30, 2008
Malden, Massachusetts Staffing administration, general office use 27,812 June 30, 2005
and storage space
Clayton, Missouri Search and recruitment headquarters 26,411 November 30, 2003
Durham, North Carolina Clinical research and trials staffing 12,744 December 31, 2004
headquarters
REGULATORY ISSUES
In order to service our client facilities and to comply with OSHA and Joint
Commission or Accreditation of Healthcare Organizations standards, we have
developed a risk management program. The program is designed to protect against
the risk of negligent hiring by requiring a detailed skills assessment from each
healthcare professional. We conduct extensive reference checks and credential
verifications for each of the nurses and other healthcare professionals that we
might staff. In addition, we have a claims-based professional liability
insurance policy with a limit of $1.0 million per claim and
44
an aggregate limit of $3.0 million. We also have a fully insured umbrella
liability insurance policy with a limit of $10.0 million.
PROFESSIONAL LICENSURE AND CORPORATE PRACTICE. Nurses and other healthcare
professionals employed by us are required to be individually licensed or
certified under applicable state law. In addition, the healthcare professionals
that we staff frequently are required to have been certified to provide certain
medical care, such as CPR and anesthesiology, depending on the positions in
which they are placed. Our comprehensive compliance program is designed to
ensure that our employees possess all necessary licenses and certifications, and
we believe that our employees, including nurses and therapists, comply with all
applicable state laws.
BUSINESS LICENSES. A number of states require state licensure for
businesses that, for a fee, employ and assign personnel, including healthcare
personnel, to provide services on-site at hospitals and other healthcare
facilities to support or supplement the hospitals' or healthcare facilities'
work force. A number of states also require state licensure for businesses that
operate placement services for individuals attempting to secure employment.
Failure to obtain the necessary licenses can result in injunctions against
operating, cease and desist orders, and/or fines. We endeavor to maintain in
effect all required state licenses.
REGULATIONS AFFECTING OUR CLIENTS. Many of our clients are reimbursed under
the federal Medicare program and state Medicaid programs for the services they
provide. In recent years, federal and state governments have made significant
changes in these programs that have reduced reimbursement rates. In addition,
insurance companies and managed care organizations seek to control costs by
requiring that healthcare providers, such as hospitals, discount their services
in exchange for exclusive or preferred participation in their benefit plans.
Future federal and state legislation or evolving commercial reimbursement trends
may further reduce, or change conditions for, our clients' reimbursement. Such
limitations on reimbursement could reduce our clients' cash flows, hampering
their ability to pay us.
EMPLOYEES
As of June 30, 2001, we had approximately 675 corporate employees and
approximately 5,000 field employees, 98% of whom were working for us on a full
time basis. None of our employees are subject to a collective bargaining
agreement. We consider our relationship with our employees to be good.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceedings.
45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below provides information regarding our directors and executive
officers. In connection with our application to list our common stock on the
Nasdaq National Market, we intend to appoint three additional directors prior to
the offering who will not be our employees or affiliated with management.
NAME AGE POSITION
- ---- -------------------- ----------------------------------------------------
Joseph A. Boshart...................... 45 President and Chief Executive Officer and Director
Emil Hensel............................ 51 Chief Financial Officer and Director
Vickie Anenberg........................ 37 President, Travel Staffing Division
Kevin Conlin........................... 43 President, Consulting Division
Dr. Franklin A. Shaffer, RN............ 58 President, Education and Training Division
Tony Sims.............................. 41 President, Clinical Trials Staffing Division
Carol D. Westfall...................... 51 President, Search and Recruitment Division
Karen H. Bechtel....................... 52 Director
Bruce A. Cerullo....................... 42 Director
Thomas C. Dircks....................... 43 Director
A. Lawrence Fagan...................... 71 Director
M. Fazle Husain........................ 37 Director
JOSEPH A. BOSHART has served as President and Chief Executive Officer since
July 1999, and formerly served in such capacity at our predecessor since 1993.
He has served as a director since July 1999. Mr. Boshart holds a B.S. degree in
economics from the University of Michigan.
EMIL HENSEL has served as Chief Financial Officer since July 1999 and
formerly served in such capacity at our predecessor since 1991. He has served as
a director since July 1999. Mr. Hensel holds a B.S. degree in electrical
engineering from Columbia University and a Masters degree in Business
Administration from New York University.
VICKIE ANENBERG has served as President of the Travel Staffing Division
since February 2000, and formerly served as Vice President of the Nursing
Division for our predecessor, since 1995. Prior to joining Cross Country
Staffing in 1990, she worked for Proctor & Gamble since 1986.
KEVIN CONLIN has served as President of the Consulting Division since
April 2001. Before joining Cross Country, he served from 1996 to March 2001 as
the President and Chief Executive Officer of Partners First, a consulting firm
focused on physician-hospital partnering and managed care. He also served as a
senior executive at Ascension Health, one of the largest not-for-profit hospital
systems in the U.S. He holds a B.A. in Biological Sciences from Rutgers
University and a Masters of Health Administration from Duke University.
DR. FRANKLIN A. SHAFFER, RN has served as President, Education and Training
Division since March 2001. He also served as Vice President in our Education
Division since February 1996. Dr. Shaffer has also served as adjunct faculty in
graduate nursing programs at Teachers College, Columbia University, Adelphi
University and Hunter College. Dr. Shaffer holds a Doctorate of Education in
Nursing Administration and a Masters of Education and a Masters of Arts from
Teachers College, Columbia University.
TONY SIMS has served as President, Clinical Trials Staffing Division since
January 2001, as Executive Vice President of Operations for ClinForce from March
1998 to December 2000 and as Managing Director of ClinForce from August 1997 to
March 1998. Before joining ClinForce, Mr. Sims served in various roles,
including National Account Executive and Business Development Manager, with the
46
healthcare staffing and support groups at Kelly Scientific Resources from August
1996 to August 1997. Mr. Sims holds a B.S. in Chemistry from Piedmont College.
CAROL D. WESTFALL has served as President, Search and Recruitment Division
since October 2000. Ms. Westfall served as Senior Vice President of Cejka &
Company's Physician Search and Outsourced Executive Search Divisions from August
1999 to October 2000 and Vice President of the Outsourced Executive and
Physician Search Division from 1994 to July 1999. Ms. Westfall holds a B.S.
degree in Education from Michigan State University and has completed graduate
work in Secondary Administration with Purdue University.
KAREN H. BECHTEL has been a director since December 1999. Ms. Bechtel has
been a Managing Director of Morgan Stanley Private Equity since 1998 and of
Morgan Stanley & Co. Incorporated since 1986. She received a B.A. in mathematics
from the University of Texas and an M.B.A. from the Harvard Graduate School of
Business Administration. She is also a director of several privately held
companies.
BRUCE A. CERULLO has been a director since December 1999 and served as
Chairman of the Board from December 1999 until December 2000. Mr. Cerullo served
as President of TravCorps from 1994 to December 1999 and Chief Executive Officer
of TravCorps from 1995 to December 1999. Mr. Cerullo holds a B.S. degree from
the University of New Hampshire and a master's degree from Pennsylvania State
University.
THOMAS C. DIRCKS has been a director since December 1999, and has been
President of Charterhouse Group International, a private equity firm, since
June 2001. Mr. Dircks served as Executive Vice President of Charterhouse from
July 2000 until June 2001 and has been employed as an executive officer of
Charterhouse since 1983. He was previously employed as a Certified Public
Accountant at a predecessor of PricewaterhouseCoopers, LLP. He holds a B.S. in
Accounting and an M.B.A. from Fordham University. Mr. Dircks also is a director
of Interliant, Inc., an application service provider, and a number of privately
held companies.
A. LAWRENCE FAGAN has been a director since December 1999. Mr. Fagan has
been Vice Chairman of Charterhouse since June 2001 and served as President and
Chief Operating Officer of Charterhouse from December 1996 until June 2001 and
formerly served as Executive Vice President of Charterhouse since 1984.
Mr. Fagan received a B.A. from Yale University and an M.B.A. from Columbia
University. He also is a director of Top Image Systems, Ltd. and a number of
privately held companies.
M. FAZLE HUSAIN has been a director since December 1999. He has been an
Executive Director of Morgan Stanley Private Equity and Morgan Stanley & Co.
Incorporated since February 1997. Mr. Husain has been at Morgan Stanley Private
Equity since 1987, and since 1991 has focused on investing in medical technology
and enterprise software industries. Mr. Husain received a B.S. in Chemical
Engineering from Brown University and an M.B.A. from the Harvard Graduate School
of Business Administration. He also is a director of Allscripts Healthcare
Solutions, Inc., The Medicines Company, Healthstream Inc., Cardiac Pathways
Corporation and several privately held companies.
THE BOARD OF DIRECTORS
Currently, we have seven members on our board of directors. We intend to add
three independent directors before the date of the offering. Each of our
directors was elected by Charterhouse and investment funds managed by Morgan
Stanley Private Equity, who together own a majority of our common shares, our
majority stockholder. Each of our directors holds office until his or her
successor is duly elected and qualified or until his or her resignation or
removal, if earlier, as provided in our by-laws. No family relationship exists
among any of the directors or executive officers.
47
COMMITTEES OF THE BOARD OF DIRECTORS
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. Our audit committee currently consists of Thomas
Dircks and Fazle Husain. In connection with our application to list our common
stock on the Nasdaq National Market, we intend to change the membership of our
audit committee to consist of three directors who are not our employees or
otherwise affiliated with us. The compensation committee reviews and recommends
to the board of directors the salaries, benefits and stock option grants for all
employees, consultants, directors and other individuals compensated by us. The
compensation committee also administers our stock option and other employee
benefit plans. The compensation committee consists of Thomas Dircks and Karen
Bechtel.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
compensation we paid in 2000 to our Chief Executive Officer and our four other
most highly compensated executive officers as of December 31, 2000 whose salary
and bonus earned in 2000 exceeded $100,000.
ALL OTHER
SALARY BONUS COMPENSATION
NAME AND POSITION ($) ($) ($)(A)
- ----------------- -------- -------- ------------
Joseph A. Boshart........................................... 263,465 193,883 5,250
President and Chief Executive Officer
Emil Hensel................................................. 218,976 159,794 5,250
Chief Financial Officer
Vickie Anenberg............................................. 112,769 70,318 3,938
President, Travel Staffing Division
Dr. Franklin A. Shaffer, RN................................. 114,000 12,000 3,201
President, Education and Training Division
Carol D. Westfall........................................... 140,000 280,740 8,603
President, Search and Recruitment Division
- ------------------------
(a) Amounts consist of employer matching contributions to our 401(k) plan,
except that Ms. Westfall's amount also includes a $3,503 matching
contribution to a non-qualified savings program.
48
AGGREGATED OPTION VALUES AS OF DECEMBER 31, 2000
The executive officers named in the summary compensation table did not
exercise any stock options during the year ended December 31, 2000. The
following table sets forth information concerning the year-end number and value
of unexercised options with respect to our named executive officers. There was
no public trading market for our common stock as of December 31, 2000.
Accordingly, the values set forth below have been calculated on the basis of the
assumed initial public offering price of $16.00 per share, less the applicable
exercise price per share, multiplied by the number of shares underlying the
options.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END ($)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Joseph A. Boshart.............................. 128,175 358,519 $399,914 $1,199,743
Emil Hensel.................................... 102,539 307,617 $319,932 $ 959,796
Vickie Anenberg................................ 51,272 153,805 $159,966 $ 479,898
Dr. Franklin A. Shaffer, RN.................... 14,434 43,290 $ 45,025 $ 135,076
Carol D. Westfall.............................. 8,412 25,236 $ 44,846 $ 134,539
OPTION GRANTS
No stock options were granted for the year ended 2000 to any of
Mr. Boshart, Mr. Hensel, Ms. Anenberg, Dr. Shaffer or Ms. Westfall.
EMPLOYMENT AGREEMENTS
We are party to employment agreements with each of Joseph Boshart and Emil
Hensel, pursuant to which Mr. Boshart serves as our president and chief
executive officer and Mr. Hensel serves as our chief operating officer and chief
financial officer. The initial term of each agreement expires on July 29, 2002.
Upon expiration of such initial term, each agreement will be automatically
renewed for successive one-year terms unless prior to the end of such renewal
term either party has given at least 90 days' prior written notice of its
intention not to renew the agreement. Messrs. Boshart and Hensel currently
receive annual base salaries of $273,000 and $225,000, respectively. These
salaries are subject to increase upon annual review by the board of directors,
and each of Messrs. Boshart and Hensel is eligible to receive an annual bonus
under our bonus plan. Under our bonus plan, 70% of the bonus is tied to the
achievement of annual operating profit targets, and the remaining 30% is tied to
the achievement of strategic and operating objectives established annually by
our Board of Directors. Messrs. Boshart and Hensel are eligible to participate
in all benefit plans and fringe benefit arrangements available to our senior
executives. If either executive's employment is terminated without cause, the
executive will be entitled to the greater of (x) base salary, for the balance of
the initial or renewal term, certain other benefits provided in the agreement
and bonus for the fiscal year in which termination occurs and (y) one year's
worth of his base salary in effect as of the date of termination. Each of
Messrs. Boshart and Hensel is subject to a two-year post-termination
noncompetition covenant. However, if either executive's employment is terminated
without cause, then the non-competition agreement will be effective only if we
continue to pay the executive's base salary, bonus and other benefits provided
in the agreement for the term of the noncompetition covenant. We are permitted
to terminate the noncompetition covenant, and related payments, upon 30 days'
prior written notice.
OUR STOCK PLANS
AMENDED AND RESTATED 1999 STOCK OPTION PLAN. We have reserved for issuance
2,145,515 shares of common stock under our Amended and Restated 1999 Stock
Option Plan, subject to adjustment for
49
stock splits or similar corporate events. Our Amended and Restated 1999 Stock
Option Plan provides for the granting of options to purchase shares of our
common stock to any of our employees or consultants. Each stock option granted
under our Amended and Restated 1999 Stock Option Plan is either intended to
qualify as an incentive stock option or is a non-qualified stock option. The
plan is currently administered by the compensation committee of our board of
directors. The exercise price of options granted under our Amended and Restated
1999 Stock Option Plan is determined by the committee, except that in the case
of substitute options, the exercise price cannot be less than 100% of the fair
market value of the common stock on the date of the grant. In the case of
incentive stock options granted to ten percent stockholders, the exercise price
cannot be less than 110% of the fair market value of the common stock. In the
event of a change of control of our company, stock options granted and not
previously exercisable, will become exercisable unless the committee determines
in good faith that an alternative option will be substituted. As of June 30,
2001, under our Amended and Restated 1999 Stock Option Plan, options to purchase
1,016,037 shares of common stock were outstanding.
AMENDED AND RESTATED EQUITY PARTICIPATION PLAN. We have reserved for
issuance 2,252,484 shares of common stock under our Amended and Restated Equity
Participation Plan, subject to adjustment for stock splits or similar corporate
events. Our Amended and Restated Equity Participation Plan provides for the
granting of options to purchase shares of our common stock to key management
employees of our company and our affiliates. Each stock option granted under our
Amended and Restated Equity Participation Plan is either intended to qualify as
an incentive stock option or is a non-qualified stock option. The exercise price
of options granted under our Amended and Restated Equity Participation Plan is
divided into five tranches ranging from 100 percent to 300 percent of the fair
market value of the common stock on the date of grant. However, for incentive
stock options granted to ten percent stockholders, the exercise price in the
first tranche cannot be less than 110 percent of the fair market value of the
common stock on the date of grant. The plan is currently administered by the
compensation committee of our board of directors. In the event of a change in
control of our company, stock options granted and not previously exercisable,
will become exercisable unless the committee determines in good faith that an
alternative option will be substituted. As of June 30, 2001, under our Amended
and Restated Equity Participation Plan, options to purchase 2,252,484 shares of
common stock were outstanding.
401(K) PLAN. We maintain a 401(k) Plan. The plan permits eligible employees
to make voluntary, pre-tax contributions to the plan up to a specified
percentage of compensation, subject to applicable tax limitations. We may make a
discretionary matching contribution to the plan equal to a pre-determined
percentage of an employee's voluntary, pre-tax contributions and may make an
additional discretionary profit sharing contribution to the plan, subject to
applicable tax limitations. Eligible employees who elect to participate in the
plan are generally vested in any matching contribution after three years of
service with the company. The plan is intended to be tax-qualified under
Section 401(a) of the Internal Revenue Code so that contributions to the plan,
and income earned on plan contributions, are not taxable to employees until
withdrawn from the plan, and so that our contributions, if any, will be
deductible by us when made.
50
RELATED PARTY TRANSACTIONS
In connection with our acquisition of the assets of Cross Country Staffing
in July 1999 from W. R. Grace, CEP III purchased 11,830,275 shares of our common
stock for an aggregate of $71.8 million, and we paid a transaction fee to
Charterhouse in the amount of $2.8 million. In addition, in July 1999, in
connection with the acquisition, Messrs. Boshart and Hensel and Ms. Anenberg
purchased 173,048, 82,402 and 16,487 shares of our common stock for an aggregate
of $1.7 million.
In December 1999, Messrs. Boshart, Hensel and Shaffer and Ms. Anenberg
received stock bonuses of 8,847, 8,702, 2,176 and 4,206 shares of our common
stock for a purchase price of $.001 per share.
In connection with our acquisition of TravCorps in December 1999, investment
funds managed by Morgan Stanley Private Equity acquired 7,155,066 shares of our
common stock then valued in the aggregate of $26.0 million in exchange for their
shares of TravCorps common stock valued at $26.0 million. In addition, in
connection with our acquisition of TravCorps, we paid a transaction fee to
Charterhouse in the amount of $0.3 million.
We are party to an agreement with Bruce Cerullo, pursuant to which
Mr. Cerullo has agreed to continue as a Director and provide certain consulting
services to us at such times as we may request and that are reasonably
convenient to Mr. Cerullo. He is subject to a four-year noncompetition covenant
which expires four years from the date he ceases to serve as a director. Under
the agreement, we will pay him $250 per hour for such consulting services.
Additionally, he retained all options that were vested and exercisable as of
December 31, 2000 in consideration of his continued service as a director.
51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 1, 2001 and as adjusted to reflect the
sale of the shares of common stock pursuant to this offering for:
- each person who is known by us to be the beneficial owner of more than 5%
of our common stock;
- each executive officer named in the summary compensation table;
- each of our directors; and
- all directors and executive officers as a group.
In connection with our application to list our common stock on the Nasdaq
National Market, we intend to appoint three additional directors prior to this
offering who will not be our employees or affiliated with management.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Except as otherwise indicated, the persons or
entities listed below have sole voting and investment power with respect to all
shares of common stock beneficially owned by them, except to the extent such
power may be shared with a spouse.
PERCENT BENEFICIALLY
OWNED(A)
SHARES BENEFICIALLY ---------------------
OWNED PRIOR TO BEFORE AFTER
NAME AND ADDRESS OFFERING OFFERING OFFERING
- ---------------- ------------------- --------- ---------
5% STOCKHOLDERS:
Charterhouse Equity Partners III, L.P.(b)................... 12,575,475 54.2% 40.5%
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022
Morgan Stanley Private Equity and related entities(c)....... 7,877,802 33.9 25.4
1221 Avenue of the Americas, 33rd Floor
New York, NY 10020
DIRECTORS:
Karen H. Bechtel(d)......................................... -- -- --
Joseph A. Boshart(e)........................................ 397,972 1.7 1.3
Bruce A. Cerullo(f)......................................... 358,574 1.5 1.2
Thomas C. Dircks(g)......................................... -- -- --
A. Lawrence Fagan(g)........................................ -- -- --
Emil Hensel(h).............................................. 262,573 1.1 *
M. Fazle Husain(d).......................................... -- -- --
OTHER NAMED EXECUTIVE OFFICERS:
Vickie Anenberg(i).......................................... 102,897 * *
Dr. Franklin A. Shaffer, RN(j).............................. 34,813 * *
Carol D. Westfall(k)........................................ 28,667 * *
All directors and executive officers as a group (7 1,185,496 5.1% 3.8%
persons)(l)...............................................
- ------------------------
* Less than 1%.
(a) For purposes of this table, information as to the shares of common stock
assumes, in the case of the column "After Offering," that the underwriters'
over-allotment option is not exercised. In addition, a person or group of
persons is deemed to have "beneficial ownership" of any shares of common
stock when such person or persons has the right to acquire them within
60 days after the date of this prospectus. For purposes of computing the
percentage of outstanding shares of common stock held by each person or
group of persons named above, any shares which such person or persons have
the right to acquire within 60 days after the date of this prospectus is
52
deemed to be outstanding but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person.
(b) The general partner of CEP III is CHUSA Equity Investors III, L.P., whose
general partner is CEP III, Inc., a wholly owned subsidiary of Charterhouse.
As a result of the foregoing, all of the shares held by CEP III would, for
purposes of the Securities Exchange Act of 1934, be considered to be
beneficially owned by Charterhouse.
(c) Consists of 1,223,321 shares owned by Morgan Stanley Dean Witter Capital
Partners IV, L.P. and its related investment funds (collectively, "MSDWCP")
and 134,606 shares owned by Morgan Stanley Venture Partners III, L.P. and
its related investment funds (collectively, "MSVP"). The general partner of
MSDWCP is MSDW Capital Partners IV, LLC, the institutional managing member
of which is MSDW Capital Partners IV, Inc. ("MSDWCP Inc."), a wholly owned
subsidiary of Morgan Stanley Dean Witter & Co. ("MSDW"). The general partner
of MSVP is Morgan Stanley Venture Partners III, L.L.C. ("MSVP L.L.C."), the
institutional managing member of which is Morgan Stanley Venture Capital
III, Inc. ("MSVC Inc."), a wholly owned subsidiary of MSDW.
(d) Karen H. Bechtel is a Managing Director of MSDWCP Inc. and Morgan Stanley &
Co. Incorporated, ("MS & Co."), a wholly owned subsidiary of MSDW. M. Fazle
Husain is an Executive Director of MSVC Inc. and MS & Co., and a managing
member of MSVP L.L.C. Ms. Bechtel and Mr. Husain each disclaim beneficial
ownership of the shares of common stock beneficially owned by the investment
funds managed by Morgan Stanley Private Equity and its affiliates, except to
the extent of any direct pecuniary interest therein.
(e) Includes 33,141 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(f) Includes 22,094 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(g) Thomas C. Dircks and A. Lawrence Fagan are executive officers of
Charterhouse. Mr. Fagan is also a director and stockholder of Charterhouse.
Messrs. Dircks and Fagan each disclaim beneficial ownership of the shares of
common stock beneficially owned by Charterhouse.
(h) Includes 26,513 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(i) Includes 13,256 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(j) Includes 3,731 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(k) Includes 1,863 shares subject to options that are currently exercisable or
exercisable within 60 days of the date of this prospectus.
(l) Includes an aggregate of 100,598 shares subject to options that are
currently exercisable or exercisable within 60 days of the date of this
prospectus.
53
DESCRIPTION OF CAPITAL STOCK
Our amended and restated certificate of incorporation, which will become
effective prior to the consummation of the offering, authorizes the issuance of
up to 100,000,000 shares of common stock and 10,000,000 shares of preferred
stock, the rights and preferences of which may be established from time to time
by our board of directors. As of August 23, 2001, we had 23,206,559 shares of
common stock outstanding and no shares of preferred stock outstanding.
The following description of our capital stock and provisions of our amended
and restated certificate of incorporation and amended and restated by-laws are
summaries and are qualified by reference to the certificate of incorporation and
the by-laws that will become effective prior to the effective date of the
registration statement registering shares included in this offering. Copies of
these documents have been filed with the Securities and Exchange Commission as
exhibits to our registration statement, of which this prospectus forms a part.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, a plurality of the votes cast in any election of directors
may elect all of the directors standing for election. Pursuant to a stockholders
agreement, investment funds managed by Morgan Stanley Private Equity and
Charterhouse have certain rights with respect to the board of directors and
other related matters. Specifically, this stockholders agreement provides that
we shall nominate for election to the board of directors, and recommend that the
stockholders elect to the board of directors, two designees of each of CEP III
and investment funds managed by Morgan Stanley Private Equity. A 50% reduction
in the number of shares of common stock owned by either CEP III or investment
funds managed by Morgan Stanley Private Equity reduces the number of designees
we are required to nominate, on behalf of such stockholder, to one and a 90%
reduction results in the elimination of the right to have us nominate a
designee, on behalf of such stockholder. Under our stockholders agreement, in
the event that either CEP III or investment funds managed by Morgan Stanley
Private Equity propose to sell more than ten percent of the total number of
shares of common stock owned by them, the other party is entitled to include in
such sale a pro rata portion of its common stock, on the same terms and for the
same consideration. Our stockholders agreement also provides that if both
Charterhouse and Morgan Stanley desire to sell shares into the public market,
they shall endeavor, subject to applicable securities laws, to effect such sales
in a manner that will not adversely disrupt the market for our common stock. In
addition, Charterhouse and Morgan Stanley have agreed, to the extent
practicable, to sell their shares of common stock through a single broker, and
that all sales will be made proportionally based on the number of shares desired
to be sold by such stockholders. Pursuant to an additional shareholders
agreement, each of Joseph Boshart, our President and Chief Executive Officer,
and Emil Hensel, our Chief Financial Officer (collectively, the "Management
Investors"), agree not to transfer, any shares of our common stock, except to
certain permitted transferees. The limitation on the ability of Management
Investors to transfer common stock terminates on the earliest of (x) the first
anniversary of the consummation of this offering and (y) the date of the
consummation of our first registered secondary public offering of common stock
after this offering. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
legally available funds. Upon our liquidation, dissolution or winding-up,
holders of common stock are entitled to receive ratably our net assets available
for distribution after the payment of all of our liabilities. The outstanding
shares of common stock are, and the shares sold in the offering will be, when
issued and paid for, validly issued, fully paid and nonassessable.
54
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock and to designate the
rights, preferences and privileges of each series of preferred stock, which may
be greater than the rights attached to the common stock. It will not be possible
to state the actual effect of the issuance of any shares of preferred stock on
the rights of holders of common stock until the board of directors determines
the specific rights attached to that preferred stock. The effects of issuing
preferred stock could include one or more of the following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change of control of our Company.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the liability
of our directors to us and our stockholders to the fullest extent permitted by
Delaware law. Specifically, our directors will not be personally liable for
money damages for breach of fiduciary duty as a director, except for liability.
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, which concerns
unlawful payments of dividends, stock purchases or redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation and amended and
restated by-laws also contain provisions indemnifying our directors and officers
to the fullest extent permitted by Delaware law. The indemnification permitted
under Delaware law is not exclusive of any other rights to which these persons
may be entitled.
In addition, we maintain directors' and officers' liability insurance to
provide our directors and officers with insurance coverage for losses arising
from claims based on breaches of duty, negligence, errors and other wrongful
acts.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BY-LAWS
A number of provisions under Delaware law and in our amended and restated
certificate of incorporation and amended and restated by-laws may make it more
difficult to acquire control of us. These provisions could deprive the
stockholders of opportunities to realize a premium on the shares of common stock
owned by them. In addition, these provisions may adversely affect the prevailing
market price of the common stock. These provisions are intended to:
- enhance the likelihood of continuity and stability in the composition of
the board and in the policies formulated by the board;
- discourage certain types of transactions which may involve an actual or
threatened change in control of our company;
- discourage certain tactics that may be used in proxy fights; and
55
- encourage persons seeking to acquire control of our company to consult
first with the board of directors to negotiate the terms of any proposed
business combination or offer.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law. Subject to
certain exceptions, Section 203 of Delaware law prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the "business combination" is approved in a prescribed
manner. A "business combination" is defined as a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder.
Subject to various exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within the past three years
did own 15% or more of a corporation's voting stock. This statute could prohibit
or delay the accomplishment of mergers or other takeover or change in control
attempts with respect to us and, accordingly, may discourage attempts to acquire
us.
STOCKHOLDER ACTION BY WRITTEN CONSENT. Our amended and restated by-laws
provide that stockholders may take action by written consent.
AUTHORIZED BUT UNISSUED SHARES OF COMMON STOCK. The authorized but unissued
shares of common stock and preferred stock are available for future issuance
without stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued shares of common stock and preferred stock
could render more difficult or discourage an attempt to obtain control of us by
means of a proxy contest, tender offer, merger or otherwise.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is SunTrust Bank.
LISTING
We expect our common stock to be approved for quotation on the Nasdaq
National Market under the symbol CCRN.
56
SHARES ELIGIBLE FOR FUTURE SALE
RULE 144 SECURITIES
Upon the consummation of this offering, we will have 31,019,059 shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. All of the
7,812,500 shares of common stock sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except for
any of the shares that are acquired by "affiliates" as that term is defined in
Rule 144 under the Securities Act. The 23,206,559 shares of common stock held by
our affiliates and our directors and executive officers and other existing
shareholders after the offering will be "restricted" securities under the
meaning of Rule 144 under the Securities Act and may not be sold in the absence
of registration under the Securities Act, unless an exemption from registration
is available, including exemptions pursuant to Rule 144 or Rule 144A under the
Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of either
of the following:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares outstanding immediately after this
offering, or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell its shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. The sale of these shares, or the perception that
sales will be made, could adversely affect the price of our common stock after
the offering because a greater supply of shares would be, or would be perceived
to be, available for sale in the public market.
We and our executive officers and directors and substantially all existing
stockholders have agreed that, without the prior written consent of Merrill
Lynch & Co. on behalf of the underwriters, we will not, during the period ended
180 days after the date of this prospectus, sell shares of common stock or take
certain related actions, subject to limited exceptions, all as described under
"Underwriting."
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases common stock from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this prospectus is entitled to resell those shares 90 days
after the effective date of this prospectus in reliance on Rule 144, without
having to comply with certain restrictions (including the holding period)
contained in Rule 144.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. It permits
non-affiliates to sell their Rule 701 shares in reliance on Rule 144 without
having to comply with the holding period, public information, volume limitation
or notice provisions of Rule 144. All holders of Rule 701 shares are required to
wait until 90 days after the date of this prospectus before selling those
shares.
57
STOCK OPTIONS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
issued or reserved for issuance under our various stock option plans. The
registration statement will become effective automatically upon filing. As of
June 30, 2001, options to purchase 3,268,521 shares of common stock were issued
and outstanding, of which 977,005 shares have vested. Accordingly, these shares
will, subject to vesting provisions, the provisions of the shareholders
agreement with the Management Investors, and Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market
immediately after the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Each of CEP III and investment funds managed by Morgan Stanley Private
Equity may require us on up to two occasions to use our best efforts to file
registration statements on Form S-1 or Form S-2 covering public sale of shares
of common stock held by them. We have the right, under specified circumstances,
to delay any registration required by up to 90 days. In addition, the holders
are entitled to require us to register their shares on registrations that we
initiate and we have granted the holders unlimited demand rights to cause us to
file a registration statement on Form S-3.
58
UNITED STATES FEDERAL TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the principal United States Federal
income and estate tax consequences of the ownership and disposition of our
common stock by a non-U.S. holder. As used in this discussion, the term
"non-U.S. holder" means a beneficial owner of our common stock that is not, for
U.S. Federal income tax purposes:
- an individual who is a citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States or of any political subdivision of the United States or a
partnership not engaged in trade or business within the United States;
- an estate whose income is includible in gross income for U.S. Federal
income tax purposes regardless of its source; or
- a trust, in general, if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have authority to control all substantial decisions of the trust.
An individual may be treated as a resident of the United States in any
calendar year for U.S. Federal income tax purposes, instead of a nonresident,
by, among other ways, being present in the United States on at least 31 days in
that calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year. For purposes of this calculation,
you would count all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days present
in the second preceding year. Residents are taxed for U.S. Federal income
purposes as if they were U.S. citizens.
This discussion does not consider:
- U.S. state and local or non-U.S. tax consequences;
- specific facts and circumstances that may be relevant to a particular
non-U.S. holder's tax position, including, if the non-U.S. holder is a
partnership that the U.S. tax consequences of holding and disposing of our
common stock may be affected by certain determinations made at the partner
level;
- the tax consequences for the shareholders, partners or beneficiaries of a
non-U.S. holder;
- special tax rules that may apply to particular non-U.S. holders, such as
financial institutions, insurance companies, tax-exempt organizations,
U.S. expatriates, broker-dealers, and traders in securities; or
- special tax rules that may apply to a non-U.S. holder that holds our
common stock as part of a "straddle," "hedge," "conversion transaction,"
"synthetic security" or other integrated investment.
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable U.S. Treasury regulations and
administrative and judicial interpretations, all as in effect on the date of
this prospectus, and all of which are subject to change, retroactively or
prospectively. The following summary assumes that a non-U.S. holder holds our
common stock as a capital asset. EACH NON-U.S. HOLDER SHOULD CONSULT A TAX
ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES OF ACQUIRING, HOLDING, AND DISPOSING OF SHARES OF OUR COMMON
STOCK.
DIVIDENDS
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that we pay
dividends on our common stock, we will have to withhold a U.S. Federal
withholding tax at a rate of 30%, or a lower rate under an applicable income
59
tax treaty, from the gross amount of the dividends paid to a non-U.S. holder.
Non-U.S. holders should consult their tax advisors regarding their entitlement
to benefits under a relevant income tax treaty.
With respect to any such dividends:
- a non-U.S. holder who claims the benefit of an applicable income tax
treaty rate generally will be required to satisfy applicable certification
and other requirements;
- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and
- look-through rules will apply for tiered partnerships.
A non-U.S. holder that is eligible for a reduced rate of U.S. Federal
withholding tax under an income tax treaty may obtain a refund or credit of any
excess amounts withheld by filing an appropriate claim for refund with the U.S.
Internal Revenue Service.
Dividends that are effectively connected with a non-U.S. holder's conduct of
a trade or business in the United States or, alternatively, if an income tax
treaty applies, are attributable to a permanent establishment maintained by the
non-U.S. holder in the United States, are taxed on a net income basis at the
regular graduated rates and in the manner applicable to U.S. persons. In that
case, we will not have to withhold U.S. Federal withholding tax if the non-U.S.
holder complies with applicable certification and disclosure requirements. In
addition, a "branch profits tax" may be imposed at a 30% rate, or a lower rate
under an applicable income tax treaty, on dividends received by a foreign
corporation that are effectively connected with the conduct of a trade or
business in the United States.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be taxed on gain recognized on a
disposition of our common stock unless:
- the gain is effectively connected with the non-U.S. holder's conduct of a
trade or business in the United States or, alternatively, if an income tax
treaty applies, is attributable to a permanent establishment maintained by
the non-U.S. holder in the United States; in these cases, the gain will be
taxed on a net income basis at the regular graduated rates and in the
manner applicable to U.S. persons and, if the non-U.S. holder is a foreign
corporation, the "branch profits tax" described above may also apply;
- the non-U.S. holder is an individual who holds our common stock as a
capital asset, is present in the United States for more than 182 days in
the taxable year of the disposition and meets other requirements; or
- we are or have been a "U.S. real property holding corporation" for U.S.
Federal income tax purposes at any time during the shorter of the five
year period ending on the date of disposition or the period that the
non-U.S. holder held our common stock.
In general, we will be treated as a "U.S. real property holding corporation"
if the fair market value of our "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of our worldwide real property interests
and our other assets used or held for use in a trade or business. Currently, it
is our best estimate that the fair market value of our U.S. real property
interests is, and has been for at least the previous five years, less than 50%
of the sum of the fair market value of our worldwide real property interests and
our other assets, including goodwill, used or held for use in a trade or
business. Therefore, we believe that we are not currently a U.S. real property
holding corporation. Nor do we anticipate becoming a U.S. real property holding
corporation in the future.
However, even if we are or have been a U.S. real property holding
corporation, a non-U.S. holder that did not beneficially own, directly or
indirectly, more than 5% of the total fair market value of our common stock at
any time during the shorter of the five-year period ending on the date of
disposition
60
or the period that our common stock was held by the non-U.S. holder (a "non-5%
holder") and which is not otherwise taxed under any other circumstances
described above, generally will not be taxed on any gain realized on the
disposition of our common stock if, at any time during the calendar year of the
disposition, our common stock was regularly traded on an established securities
market within the meaning of the applicable U.S. Treasury regulations.
We have applied to have our common stock listed on the Nasdaq National
Market. Although not free from doubt, our common stock should be considered to
be regularly traded on an established securities market for any calendar quarter
during which it is regularly quoted on the Nasdaq National Market by brokers or
dealers which hold themselves out to buy or sell our common stock at the quoted
price. If our common stock were not considered to be regularly traded on the
Nasdaq National Market at any time during the applicable calendar quarter and we
are or have been a U.S. real property holding corporation, then a non-5% holder
would be taxed for U.S. Federal income tax purposes on any gain realized on the
disposition of our common stock on a net income basis as if the gain were
effectively connected with the conduct of a U.S. trade or business by the non-5%
holder during the taxable year and, in such case, the person acquiring our
common stock from a non-5% holder generally would have to withhold 10% of the
amount of the proceeds of the disposition. Such withholding may be reduced or
eliminated pursuant to a withholding certificate issued by the U.S. Internal
Revenue Service in accordance with applicable U.S. Treasury regulations. We urge
all non-U.S. holders to consult their own tax advisors regarding the application
of these rules to them.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is a non-U.S.
holder at the time of death will be included in the individual's gross estate
for U.S. Federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. Federal estate
tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the U.S. Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to that holder and the tax withheld
from those dividends. Copies of the information returns reporting those
dividends and withholding may also be made available to the tax authorities in
the country in which the non-U.S. holder is a resident under the provisions of
an applicable income tax treaty or agreement.
The gross amount of dividends paid to a non-U.S. holder that fails to
certify its non-U.S. holder status in accordance with applicable U.S. Treasury
regulations generally will be reduced by backup withholding at a rate of 31%.
The payment of the proceeds of the disposition of common stock by a non-U.S.
holder to or through the U.S. office of a broker generally will be reported to
the U.S. Internal Revenue Service and reduced by backup withholding at a rate of
31% unless the non-U.S. holder either certifies its status as a non-U.S. holder
under penalties of perjury or otherwise establishes an exemption and the broker
has no actual knowledge to the contrary. The payment of the proceeds on the
disposition of common stock by a non-U.S. holder to or through a non-U.S. office
of a broker generally will not be reduced by backup withholding or reported to
the U.S. Internal Revenue Service. If however, the broker is a U.S. person or
has certain enumerated connections with the United States, the proceeds from
such disposition generally will be reported to the U.S. Internal Revenue Service
(but not reduced by backup withholding) unless certain conditions are met.
Non-U.S. holders should consult their own tax advisors regarding the
application of the information reporting and backup withholding rules to them.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded, or credited against the holder's U.S. Federal
income tax liability, if any, provided that the required information is
furnished to the U.S. Internal Revenue Service.
61
UNDERWRITING
We intend to offer the shares through the underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc., Banc of America
Securities LLC, SunTrust Capital Markets, Inc. and CIBC World Markets Corp. are
acting as representatives of the underwriters named below. Subject to the terms
and conditions described in a purchase agreement between us and the
underwriters, we have agreed to sell to the underwriters, and the underwriters
severally have agreed to purchase from us, the number of shares listed opposite
their names below.
NUMBER
OF SHARES
U.S. UNDERWRITER ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Salomon Smith Barney Inc....................................
Banc of America Securities LLC..............................
SunTrust Capital Markets, Inc...............................
CIBC World Markets Corp.....................................
------
Total.............................................
======
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares to the public at the initial public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $ per share. The underwriters may allow, and the dealers may
reallow, a discount not in excess of $ per share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Cross Country. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price..................... $ $ $
Underwriting discount..................... $ $ $
Proceeds, before expenses, to Cross
Country................................. $ $ $
The expenses of the offering, not including the underwriting discount, are
estimated at $1,500,000 and are payable by Cross Country.
62
OVERALLOTMENT OPTIONS
We have granted an option to the underwriters to purchase up to 1,171,875
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any overallotments. If the underwriters exercise this
option, each will be obligated, subject to conditions contained in the purchase
agreement, to purchase a number of additional shares proportionate to that
underwriter's initial amount reflected in the above table.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares offered by this prospectus for sale to
some of our directors, officers, employees, distributors, dealers, business
associates and related persons. If these persons purchase reserved shares, this
will reduce the number of shares available for sale to the general public. Any
reserved shares that are not orally confirmed for purchase within one day of the
pricing of this offering will be offered by the underwriters to the general
public on the same terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and substantially all existing
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining the
written consent of Merrill Lynch. Specifically, we and these other individuals
have agreed not to directly or indirectly:
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "CCRN."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the representatives. In addition to prevailing market conditions, the
factors to be considered in determining the initial public offering price are:
- the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us;
63
- our financial information;
- the history of, and the prospects for, our company and the industry in
which we compete;
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenue;
- the present state of our development; and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
NASD REGULATIONS
Approximately 24.2 percent of the proceeds of the offering will be applied
to pay down debt obligations owed to affiliates of Merrill Lynch, Salomon Smith
Barney Inc., Banc of America Securities LLC and SunTrust Capital Markets, Inc.
Because more than ten percent of the net proceeds of the offering will be paid
to members or affiliates of members of the National Association of Securities
Dealers, Inc. participating in the offering, the offering will be conducted in
accordance with NASD Conduct Rule 2710(c)(8). This rule requires that the public
offering price of an equity security be no higher than the price recommended by
a qualified independent underwriter which has participated in the preparation of
the registration statement and performed its usual standard of due diligence
with respect to that registration statement. CIBC World Markets Corp. has agreed
to act as qualified independent underwriter for the offering. The price of the
shares will be no higher than that recommended by CIBC World Markets Corp.
The underwriters will not confirm sales of shares to any account over which
they exercise discretionary authority without the prior written specific
approval of the customer.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.
The underwriters may purchase and sell our common stock in the open market.
These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common shares in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchases
64
of common shares made by the underwriters in the open market prior to the
completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of our common stock or preventing or retarding a decline in the
market price of the common shares. As a result, the price of our common stock
may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions. Salomon Smith Barney Inc. acted as the lead
arranger, and affiliates of Salomon Smith Barney Inc. acted as administrative
agent, collateral agent, issuing bank and swingline lender under our credit
facility. In addition, affiliates of Merrill Lynch, Salomon Smith Barney Inc.,
Banc of America Securities LLC and SunTrust Capital Markets, Inc. are lenders
under our credit facility. During the past two years we paid $3.8 million in
fees to Salomon Smith Barney Inc. and its affiliates and $0.1 million to each of
Merrill Lynch, Banc of America Securities LLC, SunTrust Capital Markets, Inc.
and their affiliates, primarily in connection with lending activities.
INTERNET DISTRIBUTION
Merrill Lynch will be facilitating internet distribution for the offering to
some of its internet subscription customers. Merrill Lynch intends to allocate a
limited number of shares for sale to its online brokerage customers. An
electronic prospectus is available on the website maintained by Merrill Lynch.
Other than the prospectus in electronic format, the information on the Merrill
Lynch website relating to the offering is not a part of this prospectus.
65
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Proskauer Rose LLP, New York, New York. Certain legal
matters related to the offering will be passed upon for the Underwriters by
Debevoise & Plimpton, New York, New York.
EXPERTS
The consolidated financial statements of Cross Country, Inc. at
December 31, 2000 and 1999, and for the year ended December 31, 2000 and for the
period from July, 30, 1999 to December 31, 1999, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The financial statements of Cross Country Staffing (a Partnership) as of
July 29, 1999 and December 31, 1998, and for the period from January 1, 1999
through July 29, 1999 and for the year ended December 31, 1998, included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of TravCorps Corporation and
Subsidiary at December 15, 1999, and for the period from December 27, 1998 to
December 15, 1999, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, and at December 26,
1998, and for the year ended December 26, 1998, by Deloitte & Touche LLP,
independent auditors, as set forth in their respective reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
The consolidated financial statements of ClinForce, Inc. at December 31,
2000 and 1999, and for each of the two years in the period ended December 31,
2000, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-1,
which includes amendments, exhibits, schedules and supplements, under the
Securities Act and the rules and regulations under the Securities Act, for the
registration of the common stock offered by this prospectus. Although this
prospectus, which forms a part of the registration statement, contains all
material information included in the registration statement, parts of the
registration statement have been omitted from this prospectus as permitted by
the rules and regulations of the Commission. For further information with
respect to us and the common stock offered by this prospectus, please refer to
the registration statement. Statements contained in this prospectus as to the
contents of any contracts or other document referred to in this prospectus are
not necessarily complete and, where such contract or other document is an
exhibit to the registration statement, each such statement is qualified in all
respects by the provisions of such exhibit, to which reference is now made. The
registration statement can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The public may obtain information regarding the Washington, D.C.
Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition,
the registration statement is publicly available through the Commission's site
on the Internet's World Wide Web, located at: http://www.sec.gov.
After the offering, we will be subject to the full informational
requirements of the Securities Exchange Act. To comply with these requirements,
we will file periodic reports, proxy statements and other information with the
Commission.
66
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
HISTORICAL FINANCIAL STATEMENTS
CROSS COUNTRY, INC.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets as of December 31, 1999 and
2000 and June 30, 2001 (Unaudited)...................... F-3
Consolidated Statements of Operations for the Period from
July 30, 1999 to December 31, 1999, for the Year Ended
December 31, 2000 and for the Six Months Ended June 30,
2000 and 2001 (Unaudited)............................... F-4
Consolidated Statements of Stockholders' Equity for the
Period from July 30, 1999 to December 31, 1999, for the
Year Ended December 31, 2000, and for the Six Months
Ended June 30, 2001 (Unaudited)......................... F-5
Consolidated Statements of Cash Flows for the Period from
July 30, 1999 to December 31, 1999, for the Year Ended
December 31, 2000, and for the Six Months Ended
June 30, 2000 and 2001 (Unaudited)...................... F-6
Notes to the Consolidated Financial Statements............ F-8
CROSS COUNTRY STAFFING ("PREDECESSOR COMPANY")
Report of Independent Certified Public Accountants........ F-27
Balance Sheets as of July 29, 1999 and December 31,
1998.................................................... F-28
Statements of Income and Partners' Capital for the Period
from January 1, 1999 to July 29, 1999 and for the Year
Ended December 31, 1998................................. F-29
Statements of Cash Flows for the Period from January 1,
1999 to July 29, 1999 and for the Year Ended December
31, 1998................................................ F-30
Notes to Financial Statements............................. F-31
TRAVCORPS CORPORATION AND SUBSIDIARY
Independent Auditors' Report.............................. F-37
Consolidated Balance Sheets as of December 15, 1999 and
December 26, 1998....................................... F-39
Consolidated Statements of Income for the Year Ended
December 26, 1998 and for the Period from December 27,
1998 to December 15, 1999............................... F-41
Consolidated Statements of Stockholders' (Deficit) Equity
for the Period from December 27, 1998 to December 15,
1999 and the Year Ended December 26, 1998............... F-42
Consolidated Statements of Cash Flows for the Period from
December 27, 1998 to December 15, 1999 and the Year
Ended December 26, 1998................................. F-43
Notes to the Consolidated Financial Statements............ F-44
CLINFORCE, INC.
Report of Independent Auditors............................ F-52
Consolidated Statements of Assets Acquired and Liabilities
Assumed as of December 31, 2000 and 1999................ F-53
Consolidated Statements of Operating Revenues and Expenses
for the Years Ended December 31, 2000 and 1999.......... F-54
Notes to the Financial Statements........................... F-55
HERITAGE PROFESSIONAL EDUCATION, LLC
Report of Independent Auditors............................ F-61
Balance Sheet as of December 25, 2000..................... F-62
Statement of Income for the Period from January 1, 2000
through December 25, 2000............................... F-63
Statement of Members' Deficit for the Period from January
1, 2000 through December 25, 2000....................... F-64
Statement of Cash Flows for the Period from January 1,
2000 through December 25, 2000.......................... F-65
Notes to Financial Statements............................. F-66
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Cross Country, Inc.
We have audited the accompanying consolidated balance sheets of Cross
Country, Inc. as of December 31, 1999 and 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from July 30, 1999 to December 31, 1999 and the year ended December 31, 2000.
Our audit also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cross Country, Inc. at December 31, 1999 and 2000, and the results of their
operations and their cash flows for the period from July 30, 1999 to
December 31, 1999 and the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/S/ ERNST & YOUNG LLP
West Palm Beach, Florida
May 7, 2001, except for
the third paragraph of
Note 11, as to which
the date is August 23, 2001
F-2
CROSS COUNTRY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
--------------------------- JUNE 30,
1999 2000 2001
------------ ------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash...................................................... $ 4,827,877 $ -- $ --
Accounts receivable, less allowance for doubtful accounts
of $2,144,110 in 1999, $2,087,747 in 2000 and $2,764,600
in 2001................................................. 50,243,772 65,087,380 72,550,119
Deferred income taxes..................................... 1,779,592 3,140,522 3,140,522
Income taxes receivable................................... 2,936,436 2,076,471 642,514
Prepaid rent on employees' apartments..................... 2,922,723 3,309,673 3,612,616
Deposits on employees' apartments, net of allowance of
$300,445 in 1999, $418,775 in 2000 and $300,585 in
2001.................................................... 1,518,071 1,055,106 1,235,417
Other current assets...................................... 449,595 2,032,437 3,202,925
------------ ------------ ------------
Total current assets........................................ 64,678,066 76,701,589 84,384,113
Property and equipment, net of accumulated depreciation and
amortization of $3,470,984 in 1999, $5,024,756 in 2000 and
$7,287,326 in 2001........................................ 3,975,129 6,168,505 8,280,860
Trademark, net of accumulated amortization of $158,644 in
1999, $746,669 in 2000 and $1,065,169 in 2001............. 14,541,356 13,953,331 15,734,831
Goodwill, net of accumulated amortization of $2,417,217 in
1999, $10,767,664 in 2000 and $15,431,774 in 2001......... 200,315,122 199,373,353 221,138,393
Other identifiable intangible assets, net of accumulated
amortization of $949,236 in 1999, $3,746,200 in 2000 and
$5,196,577 in 2001........................................ 15,480,764 12,683,800 12,533,423
Debt issuance costs, net of accumulated amortization of
$746,341 in 1999, $2,616,598 in 2000 and $3,617,182 in
2001...................................................... 10,475,198 8,604,941 8,586,190
Other assets................................................ 229,634 140,148 125,689
------------ ------------ ------------
Total assets................................................ $309,695,269 $317,625,667 $350,783,499
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,677,411 $ 6,445,501 $ 5,481,644
Accrued employee compensation and benefits................ 13,818,840 17,430,804 23,178,599
Accrued expenses.......................................... 5,963,985 3,801,172 2,350,854
Current portion of long-term debt......................... 5,120,000 12,400,000 20,280,000
Note payable and capital lease obligation................. 54,972 484,108 166,169
Net liabilities from discontinued operations.............. 309,670 534,999 480,924
Other current liabilities................................. 735,219 1,229,840 1,941,219
------------ ------------ ------------
Total current liabilities................................... 30,680,097 42,326,424 53,879,409
Interest rate swap.......................................... -- -- 962,045
Deferred income taxes....................................... 6,374,436 7,571,311 7,621,997
Long-term debt.............................................. 153,899,000 144,388,000 163,203,960
------------ ------------ ------------
Total liabilities........................................... 190,953,533 194,285,735 225,667,411
Commitments and contingencies
Stockholders' equity:
Common stock, Class A--$.0001 par value; 100,000,000
shares authorized; 22,445,104 shares issued and
outstanding at December 31, 1999 and 2000, and
23,206,549 shares issued and outstanding at June 30,
2001.................................................... 2,245 2,245 2,321
Common stock, Class B--$.0001 par value; 870,203 shares
authorized; 760,284 shares issued and outstanding at
December 31, 1999 and 2000, and 0 shares issued and
outstanding at June 30, 2001............................ 76 76 --
Additional paid-in capital................................ 119,080,880 119,080,880 119,089,872
Accumulated other comprehensive income.................... -- -- (907,184)
(Accumulated deficit) retained earnings................... (341,465) 4,256,731 6,931,079
------------ ------------ ------------
Total stockholders' equity.................................. 118,741,736 123,339,932 125,116,088
------------ ------------ ------------
Total liabilities and stockholders' equity.................. $309,695,269 $317,625,667 $350,783,499
============ ============ ============
See accompanying notes.
F-3
CROSS COUNTRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
PERIOD FROM JULY 30, YEAR ENDED JUNE 30
1999 TO DECEMBER 31, DECEMBER 31, ---------------------------
1999 2000 2000 2001
-------------------- ------------ ------------ ------------
(UNAUDITED)
Revenue from services.................... $87,727,219 $367,689,902 $177,649,900 $222,706,485
Operating expenses:
Direct operating expenses.............. 68,036,524 273,094,434 131,870,100 167,098,892
Selling, general and administrative
expenses............................. 9,256,719 49,027,376 24,229,494 31,510,975
Bad debt expense....................... 511,341 432,973 464,206 861,739
Depreciation........................... 154,590 1,323,397 610,276 1,163,312
Amortization........................... 4,421,577 13,701,384 7,317,010 7,495,287
Non-recurring indirect transaction
costs................................ -- 1,289,217 432,600 --
----------- ------------ ------------ ------------
Total operating expenses................. 82,380,751 338,868,781 164,923,686 208,130,205
----------- ------------ ------------ ------------
Income from operations................... 5,346,468 28,821,121 12,726,214 14,576,280
Other expenses:
Interest expense, net.................. 4,821,302 15,435,236 7,737,900 8,531,663
----------- ------------ ------------ ------------
Income before income taxes and
discontinued operations................ 525,166 13,385,885 4,988,314 6,044,617
Income tax expense....................... (671,917) (6,730,024) (2,509,059) (2,826,463)
----------- ------------ ------------ ------------
(Loss) income before discontinued
operations............................. (146,751) 6,655,861 2,479,255 3,218,154
Discontinued operations:
Loss from discontinued operations of
HospitalHub, less income tax benefit
of $140,710 in 1999, $1,159,013 in
2000, and $0 and $495,959 for the six
months ended June 30, 2000 and 2001,
respectively (194,714) (1,603,833) (687,715) --
Loss on disposal of HospitalHub, less
income tax benefit of $0 in 1999,
$327,963 in 2000 and $0 and $477,618
for the six months ended June 30,
2000 and 2001, respectively.......... -- (453,832) (543,806)
----------- ------------ ------------ ------------
Net (loss) income........................ $ (341,465) $ 4,598,196 $ 1,791,540 $ 2,674,348
=========== ============ ============ ============
Net (loss) income per common share--basic
and diluted:
(Loss) income before discontinued
operations........................... $ (.01) $ .29 $ .11 $ .14
Discontinued operations................ (.01) (.09) (.03) (.02)
----------- ------------ ------------ ------------
Net (loss) income........................ $ (.02) $ .20 $ .08 $ .12
=========== ============ ============ ============
Weighted average common shares
outstanding............................ 15,291,749 23,205,388 23,205,388 23,205,586
=========== ============ ============ ============
See accompanying notes.
F-4
CROSS COUNTRY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B ACCUMULATED (ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL OTHER DEFICIT)
--------------------- ------------------- PAID-IN COMPREHENSIVE RETAINED
SHARES DOLLARS SHARES DOLLARS CAPITAL INCOME EARNINGS
---------- -------- -------- -------- ------------ ------------- ------------
Balance at July 29, 1999 (date
of incorporation)........... 13,114,880 $1,312 -- $ -- $ 79,588,811 $ -- $ --
Issuance of common stock in
conjunction with issuance
of long-term debt......... 380,163 38 760,284 76 6,919,924 -- --
Issuance of common stock in
exchange for employee
services.................. 132,010 13 -- -- 470,627 -- --
Issuance of common stock in
conjunction with
acquisition of TravCorps
Corporation............... 8,818,052 882 -- -- 32,101,518 -- --
Net loss.................... -- -- -- -- -- -- (341,465)
---------- ------ -------- ---- ------------ ---------- ----------
Balance at December 31,
1999........................ 22,445,105 2,245 760,284 76 119,080,880 -- (341,465)
Net income.................. -- -- -- -- -- -- 4,598,196
---------- ------ -------- ---- ------------ ---------- ----------
Balance at December 31,
2000........................ 22,445,105 2,245 760,284 76 119,080,880 -- 4,256,731
Accumulated derivative loss
(unaudited)................. -- -- -- -- -- (907,184) --
Net income (unaudited)........ -- -- -- -- -- -- 2,674,348
Conversion of Class B common
stock to Class A............ 760,284 76 (760,284) (76) -- -- --
Exercise of stock options..... 1,160 -- -- -- 8,992 -- --
---------- ------ -------- ---- ------------ ---------- ----------
Balance at June 30, 2001
(unaudited)................. 23,206,549 $2,321 -- $ -- $119,089,872 $ (907,184) $6,931,079
========== ====== ======== ==== ============ ========== ==========
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance at July 29, 1999 (date
of incorporation)........... $ 79,590,123
Issuance of common stock in
conjunction with issuance
of long-term debt......... 6,920,038
Issuance of common stock in
exchange for employee
services.................. 470,640
Issuance of common stock in
conjunction with
acquisition of TravCorps
Corporation............... 32,102,400
Net loss.................... (341,465)
------------
Balance at December 31,
1999........................ 118,741,736
Net income.................. 4,598,196
------------
Balance at December 31,
2000........................ 123,339,932
Accumulated derivative loss
(unaudited)................. (907,184)
Net income (unaudited)........ 2,674,348
Conversion of Class B common
stock to Class A............ --
Exercise of stock options..... 8,992
------------
Balance at June 30, 2001
(unaudited)................. $125,116,088
============
See accompanying notes.
F-5
CROSS COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM SIX MONTHS ENDED
JULY 30, 1999 TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1999 2000 2000 2001
---------------- ------------ ----------- -------------
(UNAUDITED)
OPERATING ACTIVITIES
Net (loss) income.............................. $ (341,465) $ 4,598,196 $ 1,791,540 $ 2,674,348
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Amortization............................... 4,421,577 13,701,384 7,317,010 7,495,287
Depreciation............................... 154,590 1,323,397 610,276 1,163,312
Bad debt expense........................... 511,341 432,973 464,206 861,739
Cumulative interest due at maturity........ 1,537,000 3,839,000 1,863,000 2,095,960
Estimated loss on disposal of discontinued
operations............................... -- 453,832 -- 543,806
Loss on derivative instrument.............. -- -- -- 54,861
Changes in operating assets and
liabilities:
Accounts receivable........................ (1,874,246) (15,096,581) 2,781,466 (2,350,558)
Prepaid rent, deposits, and other current
assets................................... (3,381,084) (1,385,374) (1,146,949) (1,342,022)
Accounts payable and accrued expenses...... 1,793,712 2,679,076 (6,215,536) 1,673,817
Net liabilities from discontinued
operations............................... 309,670 (228,503) 1,075,420 (597,881)
Other current liabilities.................. 3,170,112 79,621 1,972,781 711,379
------------ ----------- ----------- -------------
Net cash provided by operating activities...... 6,301,207 10,397,021 10,513,214 12,984,048
INVESTING ACTIVITIES
Acquisition of TravCorps, net cash acquired.... 1,787,434 -- -- --
Acquisition of covenant not to compete......... (250,000) -- -- --
Issuance of common stock....................... 10,000 -- -- --
Exercise of stock options...................... -- -- -- 8,992
Acquisition of E-Staff, Inc.................... -- (1,500,000) -- --
Acquisition of Heritage Professional Education,
LLC.......................................... -- (6,200,000) -- (219,930)
Acquisition of Clinforce, Inc.................. -- -- -- (31,409,250)
Acquisition of Gill/Balsano Consulting, L.L.C.
Assets....................................... -- -- -- (1,831,000)
(Increase) decrease in other assets............ -- (6,205) (192,710) (12,968)
Increase in other liabilities.................. -- 1,196,875 -- --
Purchase of property and equipment............. (167,170) (1,992,109) (553,167) (2,038,451)
Increase in software development costs......... -- (1,082,595) -- (781,669)
------------ ----------- ----------- -------------
Net cash provided by (used in) investing
activities................................... 1,380,264 (9,584,034) (745,877) (36,284,276)
FINANCING ACTIVITIES
Debt issuance costs............................ 494,535 -- -- (981,833)
Repayment of debt.............................. (148,305,305) (65,258,097) (51,005,798) (63,067,939)
Proceeds from issuance of debt................. 144,700,000 59,617,233 37,583,126 87,350,000
------------ ----------- ----------- -------------
Net cash (used in) provided by financing
activities................................... (3,110,770) (5,640,864) (13,422,672) 23,300,228
Change in cash................................. 4,570,701 (4,827,877) (3,655,335)
Cash at beginning of period.................... 257,176 4,827,877 4,827,877 --
------------ ----------- ----------- -------------
Cash at end of period.......................... $ 4,827,877 $ -- $ 1,172,542 $ --
============ =========== =========== =============
See accompanying notes.
F-6
CROSS COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
PERIOD FROM SIX MONTHS ENDED
JULY 30, 1999 TO YEAR ENDED JUNE 30
DECEMBER 31, DECEMBER 31, -----------------------
1999 2000 2000 2001
---------------- ------------ ---------- ----------
(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in connection with
issuance of debt......................... $ 6,920,038 $ -- $ -- $ --
=========== =========== ========== ==========
Issuance of common stock with TravCorps
acquisition.............................. $32,102,400 $ -- $ -- $ --
=========== =========== ========== ==========
Issuance of common stock in exchange for
employee services........................ $ 470,640 $ -- $ -- $ --
=========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid.............................. $ 3,005,467 $10,711,873 $5,511,176 $7,215,446
=========== =========== ========== ==========
Income taxes paid.......................... $ 437,873 $ 221,467 $3,616,367 $2,229,550
=========== =========== ========== ==========
See accompanying notes.
F-7
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
On July 29, 1999, Cross Country Staffing, Inc. (CCS), a Delaware
corporation, was established through an acquisition of certain assets and
liabilities of Cross Country Staffing (the Partnership), a Delaware general
partnership. The acquisition included certain identifiable intangible assets
primarily related to proprietary databases and contracts. The Partnership was
engaged in the business of providing nurses and other allied health personnel to
health care providers primarily on a contract basis. CCS recorded the assets and
certain assumed liabilities, as defined in the asset purchase agreement, at fair
market value. The purchase price of approximately $189,000,000 exceeded the fair
market value of the assets less the assumed liabilities by approximately
$167,537,000, of which $20,890,000 was allocated to certain identifiable
intangible assets ($8,900,000--trademark, $8,440,000--databases,
$1,040,000--workforce, and $2,510,000--hospital relations), and $250,000
relating to a covenant not to compete. The remaining $146,397,000 was allocated
to goodwill.
On December 16, 1999, CCS entered into a Plan of Merger with TravCorps
Corporation (TravCorps). TravCorps and its wholly-owned subsidiary, Cejka &
Company (Cejka) provide flexible staffing, search, consulting and related
outsourced services to health care providers throughout the United States.
Pursuant to the Plan of Merger on December 16, 1999, all outstanding shares of
TravCorps' common stock were exchanged for common stock in CCS and TravCorps
became a wholly-owned subsidiary of CCS. The fair value of the shares of common
stock issued to the stockholders of TravCorps, as determined by a valuation of
the common stock as of December 16, 1999, was $32,102,000. The purchase price
exceeded the fair value of the net tangible assets acquired by approximately
$66,575,000, of which $10,240,000 was allocated to certain identifiable
intangible assets ($5,800,000--trademark, $2,910,000--databases,
$630,000--workforce, and $900,000--hospital relations). The remaining
$56,335,000 was allocated to goodwill. The acquisition was accounted for as a
purchase and, accordingly, the accompanying consolidated financial statements
include the results of TravCorps from the acquisition date.
Effective October 1, 2000, TravCorps changed its name to TVCM, Inc. (TVCM).
Effective October 10, 2000, CCS changed its name to Cross Country
TravCorps, Inc. (CCT). Subsequent to December 31, 2000, CCT changed its name to
Cross Country, Inc. (the Company). The Company is primarily engaged in the
business of providing temporary health care staffing services to acute and
subacute care facilities nationwide.
The consolidated financial statements include the accounts of the Company
and its wholly-owned direct and indirect subsidiaries, TVCM (f/k/a TravCorps),
Cejka, CC Staffing, Inc., E-Staff, Inc. (E-Staff), HospitalHub, Inc. (f/k/a
Ashley One, Inc.)(HospitalHub), and Cross Country Seminars, Inc. (f/k/a
CCS/Heritage Acquisition Corp.) (Cross Country Seminars). All material
intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements as of
June 30, 2001 and for the six months ended June 30, 2000 and 2001 have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to present fairly the
financial position, results of operations and cash flows have been included. The
results of operations for
F-8
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
the six months ended June 30, 2001 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2001.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk as defined by Financial Accounting Standards Board (FASB)
Statement No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, consist principally of accounts receivable. The Company's customers are
health care providers and accounts receivable represent amounts due from these
providers. The Company performs ongoing credit evaluations of its customers'
financial conditions and, generally, does not require collateral. Overall, based
on the large number of customers in differing geographic areas throughout the
United States and its territories, the Company believes the concentration of
credit risk is limited. As of December 31, 1999, approximately 8% of the
outstanding accounts receivable were due from one customer and as of
December 31, 2000, approximately 9% of the outstanding accounts receivable were
due from four customers. As of June 30, 2001, approximately 10% of the
outstanding accounts receivable were due from five customers.
PREPAID RENT AND DEPOSITS
The Company leases a number of apartments for its employees under short-term
agreements (typically three to six months), which generally coincide with each
employee's staffing contract. As a condition of these agreements, the Company
places security deposits on the leased apartments. Prepaid rent and deposits
relate to these short-term agreements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined on a straight-line basis over the estimated useful
lives of the assets, which generally range from three to seven years. Leasehold
improvements are depreciated over the lives of the related leases or the useful
life of an individual lease, whichever is shorter.
Certain software development costs are capitalized in accordance with the
provisions of Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE and FASB Statement No. 86,
ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE
MARKETED. Such costs include charges for consulting services and costs for
personnel associated with
F-9
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
programming, coding, and testing such software. Amortization of capitalized
software costs begins when the software is placed into service and is included
in depreciation expense in the accompanying consolidated statements of
operations. Software development costs are being amortized using the
straight-line method over five years or revenue to projected revenue, if
greater. Through June 30, 2001, the Company has not recognized any revenue from
the sale of software.
RESERVES FOR CLAIMS
Workers' compensation and health care benefits are provided under partially
self-insured plans. The Company records its estimate of the ultimate cost of,
and reserves for, workers' compensation and health care benefits based on
actuarial computations using the loss history as well as industry statistics.
Furthermore, in determining its reserves, the Company includes reserves for
estimated claims incurred but not reported.
The ultimate cost of workers' compensation and health care benefits will
depend on actual costs incurred to settle the claims and may differ from the
amounts reserved by the Company for those claims. Accruals for workers'
compensation claims and health care benefits are included in accrued employee
compensation and benefits in the consolidated balance sheets.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over the fair value of net
assets acquired. Goodwill is being amortized using the straight-line method over
its estimated useful life ranging from 5 to 25 years. Other identifiable
intangible assets, net, consist of database (approximately $10,550,000,
$8,259,000, and $7,121,000), workforce (approximately $1,593,000, $1,315,000,
and $2,014,000) and hospital relations (approximately $3,338,000, $3,110,000,
and $3,399,000) at December 31, 1999, December 31, 2000, and June 30, 2001,
respectively. Identifiable intangible assets are being amortized using the
straight-line method over their estimated useful lives ranging from 4.5 to
25 years. In accordance with FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
Company periodically reviews goodwill to determine if any impairment exists
based upon projected, undiscounted net cash flows of the Company. Recoverability
of intangible assets is measured by comparison of the carrying amount of the
asset to net future cash flows expected to be generated from the asset.
Identifiable intangible assets not covered by FASB Statement No. 121 and
goodwill not identified with assets that are subject to an impairment loss are
evaluated in accordance with Accounting Principles Board (APB) Opinion No. 17,
INTANGIBLE ASSETS. At December 31, 1999, December 31, 2000 and June 30, 2001,
the Company believes that no impairment of goodwill or identifiable intangible
assets exists.
DEBT ISSUANCE COSTS
Deferred costs related to the issuance of debt are being amortized on a
straight-line basis, which approximates the effective interest method, over the
six-year term of the debt. Debt issuance costs of
F-10
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
approximately $11,222,000, less accumulated amortization of approximately
$746,000 and $2,617,000 at December 31, 1999 and December 31, 2000,
respectively, are recorded in the consolidated balance sheets. Debt issuance
costs of approximately $12,203,000, less accumulated amortization of
approximately $3,617,000 are recorded in the consolidated balance sheet at
June 30, 2001.
REVENUE RECOGNITION
Revenue from services consists primarily of temporary staffing revenues.
Revenue is recognized when services are rendered. Accordingly, accounts
receivable includes an accrual for employees' time worked but not yet invoiced.
At December 31, 1999, December 31, 2000, and June 30, 2001, the amounts accrued
are approximately $5,526,000, $14,970,000, and $14,806,000, respectively.
Revenues on permanent and temporary placements are recognized when services
provided are substantially completed. The Company does not, in the ordinary
course of business, give refunds. If a candidate leaves a permanent placement
within a short period of time I.E., one month, it is customary for us to seek a
replacement at no additional cost. Allowances are established as considered
necessary to estimate significant losses due to placed candidates not remaining
employed for the Company's guarantee period. During 2000, 1999 and 1998, such
replacements and refunds were not material and, accordingly, related allowances
were not recorded.
STOCK-BASED COMPENSATION
The Company, from time to time, grants stock options for a fixed number of
common shares to employees. The Company accounts for employee stock option
grants in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and accordingly, recognizes no compensation
expense for the stock option grants when the exercise price of the options
equals, or is greater than, the market value of the underlying stock on the date
of grant. Accordingly, the Company did not recognize any compensation cost
during the period from July 30, 1999 to December 31, 1999, the year ended
December 31, 2000, or the six months ended June 30, 2000 and 2001 for
stock-based employee compensation awards.
ADVERTISING
The Company's advertising expense consists primarily of print media, online
advertising and promotional material. Advertising costs are expensed as incurred
and were approximately $404,000 for the period from July 30, 1999 to
December 31, 1999, $2,450,000 for the year ended December 31, 2000, and
$1,245,000 and $1,391,000 for the six months ended June 30, 2000 and 2001,
respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risks arising from changes in interest
rates. To protect against such risks, the Company has one derivative financial
instrument, an interest rate swap agreement, which is more fully disclosed in
Note 13, INTEREST RATE SWAP.
F-11
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
The Company has adopted FASB Statement No. 130, COMPREHENSIVE INCOME, which
requires that an enterprise: (a) classify items of other comprehensive income by
their nature in the financial statements; and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The items
of other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There are
no other components of comprehensive income or loss other than the Company's
consolidated net (loss) income for the period from July 30, 1999 to
December 31, 1999, the year ended December 31, 2000, and the six months ended
June 30, 2000 and the accumulated derivative loss for the six months ended
June 30, 2001.
During 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which was effective beginning January 1,
2001. FASB Statement No. 133 requires companies to recognize all of its
derivative instruments as either assets or liabilities in the statement of
financial position at fair value. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and further, on
the type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based upon the exposure being hedged, as either a fair value
hedge, cash flow hedge or a hedge of a net investment in a foreign operation. As
the Company's derivative instrument is designated and qualifies as a cash flow
hedge (i.e., hedging the exposure to variability in expected future cash flows
that is attributable to a particular risk), the effective portion of the gain or
loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of change.
The Company implemented the provisions of FASB Statement No. 133 on
January 1, 2001. The implementation of FASB Statement No. 133 resulted in a
reduction in consolidated stockholders' equity of approximately $910,000 as of
January 1, 2001. During the six months ended June 30, 2001, the Company recorded
the following in accumulated other comprehensive income:
Accumulated derivative loss at January 1, 2001.............. $(910,009)
Net change in hedging transaction........................... 2,825
---------
Accumulated derivative loss at June 30, 2001................ $(907,184)
=========
INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred income tax assets and liabilities are
determined based upon differences between
F-12
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION. SAB No. 101
provides interpretive guidance on the recognition, presentation, and disclosure
of revenue in financial statements. The Company believes that its current
revenue recognition policies comply with SAB No. 101.
In July 2001, the FASB issued Statement No. 141, BUSINESS COMBINATIONS and
Statement No. 142, INTANGIBLE ASSETS. FASB Statement No. 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated before July 1, 2001. FASB
Statement No. 142 further clarifies the criteria to recognize intangible assets
separately from goodwill and promulgates that goodwill and certain intangible
assets not be amortized. Instead, these assets will be reviewed for impairment
annually with any related losses recognized in earnings when incurred. These
standards will apply to the Company beginning January 1, 2002 for existing
intangible assets and July 1, 2001 for business combinations completed after
June 30, 2001.
RECLASSIFICATIONS
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation.
3. ACQUISITIONS
Effective July 31, 2000, the Company acquired substantially all of the
assets of E-Staff, a Pennsylvania corporation, for $1,500,000. E-Staff is a
development-stage company creating an Internet, subscription-based
communication, scheduling, credentialing and training service business. The
acquisition met the accounting criteria of a purchase and, accordingly, the
accompanying consolidated financial statements include the results of E-Staff
from the acquisition date. The consideration for this acquisition included
$1,500,000 in cash. In addition, the asset purchase agreement provides for
potential earnout payments of up to $3,250,000 to the seller based on the
profits of E-Staff over a three-year period ending July 31, 2003. This
contingent consideration is not related to the seller's employment. Upon
payment, the earnouts will be allocated to goodwill as additional purchase price
and amortized over the remaining life of the asset. The excess of the aggregate
purchase price over the fair market value of the assets acquired of
approximately $927,000 was allocated to goodwill and is being amortized over
five years.
Effective December 26, 2000, Cross Country Seminars acquired substantially
all of the assets of Heritage Professional Education, LLC (Heritage), a
Tennessee limited liability company. Heritage provides continuing professional
education courses to medical and healthcare personnel through seminars and study
programs servicing the healthcare industry. The acquisition met the accounting
criteria of a purchase and, accordingly, the accompanying consolidated financial
statements include the
F-13
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
3. ACQUISITIONS (CONTINUED)
results of Heritage from the acquisition date. The consideration for this
acquisition included $6,200,000 in cash and a post-closing adjustment of
approximately $300,000, to be paid 90 days from the closing date. In addition,
the asset purchase agreement provides for potential earnout payments of
approximately $6,500,000 based on adjusted earnings before interest, taxes,
depreciation, and amortization (EBITDA) (as defined in the asset purchase
agreement) of Heritage over a three-year period ending December 31, 2003. This
contingent consideration is not related to the seller's employment. Upon
payment, the earnouts will be allocated to goodwill as additional purchase price
and amortized over the remaining life of the asset. The excess of the aggregate
purchase price over the fair market value of the assets acquired of
approximately $6,482,000 was allocated to goodwill and is being amortized over
25 years.
On December 15, 2000, the Company entered into a stock purchase agreement to
acquire substantially all of the outstanding stock of two subsidiaries that
comprise ClinForce Inc., a Delaware corporation that provides temporary staffing
and permanent placement of clinical trials support services personnel. The
acquisition was consummated on March 16, 2001 and met the accounting criteria of
a purchase. The transaction was primarily funded through the issuance of
additional debt. The purchase price of approximately $31,000,000 exceeded the
fair value of assets acquired less liabilities assumed by approximately
$27,788,000 of which $3,400,000 was allocated to certain identifiable intangible
assets ($2,100,000--trademark, $890,000--workforce, $410,000--hospital
relations). The remaining $24,388,000 was allocated to goodwill and is being
amortized over 25 years. The purchase price was subject to a post-closing
adjustment based on changes in the net working capital of the acquired companies
between October 31, 2000 and March 16, 2001. Subsequent to June 30, 2001, the
post closing adjustment of approximately $1.4 million was calculated and
allocated to goodwill as additional purchase price.
In May 2001, Cejka acquired substantially all of the assets of Gill/Balsano
Consulting, L.L.C. (Gill/ Balsano), a Delaware limited liability company.
Gill/Balsano provides management consulting services to the healthcare industry.
The acquisition met the accounting criteria of a purchase, and, accordingly, the
accompanying consolidated financial statements include the results of
Gill/Balsano from the acquisition date. The consideration for this acquisition
was $1,831,000 in cash. In addition, the asset purchase agreement provides for
potential earnout payments of approximately $1,995,000 based on adjusted EBITDA
(as defined in the asset purchase agreement) of Gill/Balsano over a three-year
period ending March 31, 2004. This contingent consideration is not related to
the seller's employment. Upon payment, the earnouts will be allocated to
goodwill as additional purchase price and amortized over the remaining life of
the asset. The excess of the aggregate purchase price over the fair market value
of the assets acquired of approximately $1,674,000 was allocated to goodwill and
is being amortized over 25 years.
The following unaudited pro forma summary presents the consolidated results
of operations as if the Company's acquisitions had occurred as of the beginning
of each period presented, after giving effect to certain adjustments, including
amortization of goodwill and other specifically identifiable intangibles,
interest expense incurred on additional borrowings and related income tax
effects. E-staff and Gill/Balsano's results of operations have been excluded
from the pro forma financial information as amounts are considered immaterial to
the Company. The pro forma financial information does not
F-14
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
3. ACQUISITIONS (CONTINUED)
purport to be indicative of the results of operations that would have occurred
had the transactions taken place at the beginning of the periods presented or of
future results of operations.
PERIOD FROM SIX MONTHS
JULY 30, 1999 YEAR ENDED ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30,
1999 2000 2001
--------------- ------------ ------------
Revenue from services.............. $151,847,118 $407,732,700 $230,400,235
============ ============ ============
Net (loss) income.................. $ (3,133,254) $ 4,611,097 $ 2,557,481
============ ============ ============
Net (loss) income per common
share--basic and diluted......... $ (0.20) $ 0.20 $ 0.11
============ ============ ============
4. PROPERTY AND EQUIPMENT
At December 31, 1999, December 31, 2000 and June 30, 2001, property and
equipment consist of the following:
DECEMBER 31,
------------------------- JUNE 30,
1999 2000 2001
----------- ----------- -----------
Computer equipment.................... $ 4,601,677 $ 4,830,242 $ 5,954,893
Computer software..................... 875,672 3,900,076 5,815,082
Office equipment...................... 548,190 760,527 1,117,394
Furniture and fixtures................ 736,551 833,786 1,567,979
Leasehold improvements................ 684,023 868,630 1,112,838
----------- ----------- -----------
7,446,113 11,193,261 15,568,186
Less accumulated depreciation and
amortization........................ (3,470,984) (5,024,756) (7,287,326)
----------- ----------- -----------
$ 3,975,129 $ 6,168,505 $ 8,280,860
=========== =========== ===========
At December 31, 2000 and June 30, 2001, computer software includes
approximately $1,481,000 and $2,263,000, respectively, of software development
costs capitalized in accordance with the provisions of FASB Statement No. 86.
F-15
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
5. ACCRUED COMPENSATION AND BENEFITS
At December 31, 1999, December 31, 2000 and June 30, 2001, accrued employee
compensation and benefits consist of the following:
DECEMBER 31,
------------------------- JUNE 30,
1999 2000 2001
----------- ----------- -----------
Salaries.............................. $ 5,660,772 $ 6,903,347 $ 9,706,448
Bonuses............................... 5,686,305 6,858,620 8,769,918
Accrual for workers' compensation
claims.............................. 1,896,543 2,095,720 2,442,809
Accrual for health care benefits...... 372,000 1,295,632 1,628,960
Accrual for vacation.................. 203,220 277,485 630,464
----------- ----------- -----------
$13,818,840 $17,430,804 $23,178,599
=========== =========== ===========
6. LONG-TERM DEBT AND NOTE PAYABLE
At December 31, 1999, December 31, 2000 and June 30, 2001, long-term debt
consists of the following:
DECEMBER 31,
--------------------------- JUNE 30,
1999 2000 2001
------------ ------------ ------------
Term Loan, interest at 9.46% at
December 31, 1999, 9.52%, 9.50%,
and 9.41% for $65,000,000,
$45,000,000 and $4,880,000,
respectively at December 31, 2000
and 6.73% and 6.88% for
$108,680,000 and $30,000,000, at
June 30, 2001.................... $120,000,000 $114,880,000 $138,680,000
Revolving Loan Facility, interest
at 9.46% and 10.50% for
$5,400,000 and $3,000,000,
respectively, at December 31,
1999, 11.25% and 9.40% for
$1,250,000 and $6,200,000,
respectively at December 31, 2000
and 8.75% for $8,250,000, at
June 30, 2001.................... 8,400,000 7,450,000 8,250,000
Subordinated Pay-In-Kind Notes,
interest at 12%.................. 30,619,000 34,458,000 36,553,960
------------ ------------ ------------
159,019,000 156,788,000 183,483,960
Less current portion............... (5,120,000) (12,400,000) (20,280,000)
------------ ------------ ------------
$153,899,000 $144,388,000 $163,203,960
============ ============ ============
F-16
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
6. LONG-TERM DEBT AND NOTE PAYABLE (CONTINUED)
On July 29, 1999, the Company entered into a $105 million senior secured
credit facility consisting of a $75,000,000 term loan and a $30,000,000
revolving loan facility. The term loan and the revolving loan facility bear
interest based on either an alternate base rate plus a margin of 2.00%, 1.75%,
and 2.00% at December 31, 1999, December 31, 2000, and June 30, 2001
respectively, or LIBOR plus a margin of 3.00%, 2.75%, and 3.00% at December 31,
1999, December 31, 2000, and June 30, 2001, respectively, (each as defined in
the senior secured credit facility). During fiscal year 2000, the Company met
certain covenants which provided for the above reduction in interest rates. On
December 16, 1999, the senior credit facility was increased to $120 million. The
Company has pledged all of the assets of the Company as collateral for the
senior credit facility.
In March 2001, the senior credit facility was amended to increase the term
loan facility to $144,900,000. The Company is required to pay a quarterly
commitment fee at a rate of 0.50% per year on unused commitments under the
revolving loan facility.
The senior credit facility allows for the issuance of letters of credit in
an aggregate face amount at any time outstanding not in excess of $4,000,000,
$5,000,000, and $6,000,000 at December 31, 1999, December 31, 2000, and
June 30, 2001, respectively. Additionally, swingline loans, as defined in the
senior credit facility, not to exceed an aggregate principal amount at any time
outstanding of $7,000,000 are available under the senior credit facility.
The senior credit facility requires that the Company meet certain covenants,
including the maintenance of certain debt and interest expense ratios, capital
expenditure limits, and the maintenance of a minimum level of EBITDA (as defined
in the senior credit facility). The senior credit facility also limits the
Company's ability to declare and pay cash dividends on its common stock.
On July 29, 1999, the Company issued $30,000,000 in senior subordinated
pay-in-kind notes to two financial institutions. The proceeds of the loan were
used by the Company solely to finance the CCS acquisition and to pay fees and
expenses incurred in connection therewith. The interest rate on the subordinated
notes is 12% per annum, compounded quarterly. The pay-in-kind notes represent
additional debt issued by the Company in lieu of cash payments for accrued
interest. The maturity date is the earlier of six months after the final
maturity of the term and revolving debt issuances (January 29, 2006) or change
in control of the Company.
In connection with the issuance of the subordinated debt, the Company issued
504,468 shares of its common stock to the financial institutions. Debt issuance
costs of $6,920,000 relating to this transaction were recorded, which
represented the fair market value of the shares at the time of issuance.
F-17
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
6. LONG-TERM DEBT AND NOTE PAYABLE (CONTINUED)
The revolving loan facility matures on July 29, 2005. The aggregate
scheduled maturities of the term notes, the subordinated notes and the revolving
loan facility are as follows:
YEAR ENDING DECEMBER 31:
- ------------------------
2001........................................................ $ 12,400,000
2002........................................................ 20,160,000
2003........................................................ 29,600,000
2004........................................................ 34,720,000
2005........................................................ 25,450,000
Thereafter.................................................. 34,458,000
------------
$156,788,000
============
On July 16, 2000, the Company entered into a note payable with a third
party. The proceeds from the note payable were used to pay the Company's
insurance premiums. Principal and interest are payable over an 11-month period
at an interest rate of 7.10%. At December 31, 2000 and June 30, 2001,
respectively, the outstanding balance was $484,108 and $0.
7. EMPLOYEE BENEFIT PLANS
The Company maintains a voluntary defined contribution 401(k) profit-sharing
plan covering all eligible employees as defined in the plan documents. The plan
provides for a discretionary matching contribution, which is equal to a
percentage of each contributing participant's elective deferral, which the
Company, at its sole discretion, determines from year to year. Contributions by
the Company, net of forfeitures, under this plan amounted to approximately
$487,000 for the period from July 30, 1999 to December 31, 1999, and $885,000
for the year ended December 31, 2000. Contributions by the Company, net of
forfeitures, under this plan amounted to approximately $461,000 and $1,212,000
for the six months ended June 30, 2000 and 2001, respectively.
TVCM employees were covered under a separate benefit plan for both 2000 and
1999. TVCM had a 401(k) defined contribution plan for eligible employees.
Eligible employees made pretax savings contributions to the 401(k) Plan of up to
20% of their earnings to a certain statutory limit. TVCM matched employee
contributions from 1% to 3% of compensation based on years of service.
Contributions to the 401(k) Plan were approximately $630,000 for the year ended
December 31, 2000 and $270,000 for the six months ended June 30, 2000. Effective
fiscal 2001, TVCM employees participated in the Company's defined contribution
401(k) profit-sharing plan.
F-18
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into noncancelable operating lease agreements for
the rental of space. Future minimum lease payments associated with these
agreements are as follows:
YEAR ENDING DECEMBER 31:
- ------------------------
2001........................................................ $ 894,000
2002........................................................ 944,000
2003........................................................ 965,000
2004........................................................ 905,000
2005........................................................ 919,000
Thereafter.................................................. 1,557,000
----------
$6,184,000
==========
Rent expense related to office facilities was approximately $308,000 for the
period July 30, 1999 to December 31, 1999, $1,527,000 for the year ended
December 31, 2000, and $645,000 and $1,044,000 for the six months ended
June 30, 2000 and 2001, respectively.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the outcome of
these matters will not have a significant effect on the Company's consolidated
financial position or results of operations.
9. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of their short maturity. The carrying amount of the revolving
credit note and term loan approximates fair value because the interest rate is
tied to a quoted variable index.
10. INCOME TAXES
The components of the income tax expense are as follows:
PERIOD FROM
JULY 30, 1999 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- ------------
1999 2000
----------------- ------------
Current........................................... $ 15,000 $5,407,103
Deferred.......................................... 516,207 (164,055)
---------- ----------
$ 531,207 $5,243,048
========== ==========
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-19
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
10. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
DECEMBER 31,
-------------------------
1999 2000
----------- -----------
Deferred tax assets:
Accrued and prepaid expenses..................... $ 1,038,863 $ 2,376,762
Allowance for doubtful accounts.................. 347,492 841,844
Net operating loss carryforward.................. 85,324 --
Other............................................ 307,913 (78,084)
----------- -----------
1,779,592 3,140,522
Deferred tax liabilities:
Depreciation and amortization.................... (2,190,845) (3,720,933)
Identifiable intangibles......................... (4,183,591) (3,850,378)
----------- -----------
(6,374,436) (7,571,311)
----------- -----------
Net deferred taxes................................. $(4,594,844) $(4,430,789)
=========== ===========
FASB Statement No. 109 requires a valuation allowance to reduce the deferred
tax assets reported if, based on the weight of the evidence, it is more likely
than not that some of or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance at December 31, 1999 and 2000 is not
necessary. The reconciliation of income tax computed at the U. S. federal
statutory rate to income tax expense is as follows:
DECEMBER 31,
------------------------
1999 2000
---------- -----------
Tax at U. S. statutory rate......................... $ 183,808 $ 4,685,061
State taxes, net of federal benefit................. 18,706 468,908
Non-deductible goodwill............................. 50,686 1,136,323
Non-deductible meals and entertainment.............. 438,895 38,862
Benefit from discontinued operations................ (140,710) (1,486,976)
Other............................................... (20,178) 400,870
---------- -----------
$ 531,207 $ 5,243,048
========== ===========
At December 31, 1999, the Company had available net operating loss
carryforwards of approximately $207,000. There were no available net operating
loss carryforwards at December 31, 2000 and June 30, 2001.
F-20
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY
Effective on December 10, 1999, the Company approved a 2.26066 for 1 stock
split of its common stock. All common stock data in these consolidated financial
statements have been adjusted to give retroactive effect to the stock split.
Effective April 27, 2001, the 760,284 issued and outstanding shares of the
Company's Class B common stock were converted to an equal number of shares of
Class A common stock of the Company.
Effective August 23, 2001, the Company approved a 5.80135 for 1 stock split
of its common stock. All common stock data in these consolidated financial
statements have been adjusted to give retroactive effect to the stock split.
STOCK OPTIONS
On December 16, 1999, the Company's Board of Directors approved the 1999
Stock Option Plan and Equity Participation Plan (collectively, the Plans), which
provide for the issuance of incentive stock options (ISOs) and non-qualified
stock options to eligible employees for the purchase of up to 4,398,000 shares
of Class A common stock. Non-qualified stock options may also be issued to
consultants. Under the Plans, the exercise price of options granted must equal
or exceed the fair market value of the Company's common stock on the date of
grant, and the exercise price of ISOs granted may not be less than 110% of such
fair market value with respect to any options granted to a participant who owns
10% or more of the Company's outstanding common stock. Options granted during
1999 and 2000 under the 1999 Stock Option Plan generally vest ratably over
4 years. Options granted during 1999 and 2000 under the Equity Participation
Plan vest 25% on the first anniversary of the date of grant and then vest 12.5%
every 6 months thereafter. All options expire on the tenth (or, in the case of a
10% shareholder, the fifth) anniversary of the date of grant.
Information regarding the Company's stock option activity is summarized
below:
WEIGHTED AVERAGE
STOCK OPTION EXERCISE PRICE
ACTIVITY OPTION PRICE PER SHARE
------------ -------------- ----------------
Options outstanding at July 29, 1999............... -- $ -- $ --
Granted.......................................... 3,441,796 7.75-23.25 11.90
---------
Options outstanding at December 31, 1999........... 3,441,796 7.75-23.25 11.90
Granted.......................................... 194,055 10.13-32.35 14.75
Canceled......................................... (516,280) 7.75-23.25 12.81
---------
Options outstanding at December 31, 2000........... 3,119,571 7.75-32.35 11.93
GRANTED.......................................... 182,743 12.38-37.13 21.07
CANCELED......................................... (32,633) 7.75-10.80 8.10
EXERCISED........................................ (1,160) 7.75 7.75
---------
OPTIONS OUTSTANDING AT JUNE 30, 2001............... 3,268,521 $ 7.75-37.13 $ 12.48
=========
F-21
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
There were no exercisable options at December 31, 1999. The number of
options exercisable at December 31, 2000 was 736,818 and at June 30, 2001 was
977,005. The weighted-average grant-date fair value of options granted during
1999 and 2000 and the six months ended June 30, 2001 was $4.05 per share, $5.56
per share and $6.15 per share, respectively.
EXERCISE OPTIONS REMAINING OPTIONS
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------------- ------------ ---------------- -----------
$ 7.75 1,300,239 8.50 369,215
10.13 35,818 9.00 --
10.78 38,440 9.25 --
11.62 664,933 8.50 249,348
12.38 44,612 9.75 --
15.19 11,725 9.00 --
15.50 664,933 8.50 249,348
16.17 25,404 9.25 --
18.57 56,668 9.75 --
19.37 145,457 8.50 54,544
20.26 11,725 9.00 --
21.56 25,404 9.25 --
23.25 145,457 8.50 54,544
24.76 56,668 9.75 --
25.32 2,564 9.00 --
26.96 5,558 9.25 --
30.39 2,564 9.00 --
30.95 12,397 9.75 --
32.35 5,558 9.25 --
37.13 12,397 9.75 --
Had compensation cost for stock options granted during 1999, 2000, and 2001
been measured under the fair value based method prescribed by FASB Statement
No. 123, ACCOUNTING FOR STOCK-BASED
F-22
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
COMPENSATION, the Company's consolidated net income (loss) would have changed to
the pro forma amounts set forth below.
PERIOD FROM
JULY 30, 1999 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- ------------- JUNE 30,
1999 2000 2001
----------------- ------------- ----------
Pro forma net (loss) income............ $ (444,569) $2,818,729 $1,727,147
========== ========== ==========
Pro forma (loss) income per common
share--basic and diluted:
(Loss) income from continuing
operations......................... $ (0.02) $ 0.21 $ 0.09
Discontinued operations.............. (0.01) (0.09) (0.02)
---------- ---------- ----------
Net (loss) income.................... $ (0.03) $ 0.12 $ 0.07
========== ========== ==========
The fair value of options granted used to compute pro forma net income
(loss) disclosures were estimated on the date of grant using the Black-Scholes
option-pricing model based on the following assumptions:
DECEMBER 31,
------------------- JUNE 30,
1999 2000 2001
-------- -------- ---------
Dividend yield.................................... 0.00% 0.00% 0.00%
Expected volatility............................... 60.00 60.00 60.00
Risk-free interest rate........................... 5.19 5.19 5.19
Expected life..................................... 6 years 6 years 6 YEARS
The effect of applying FASB Statement No. 123 for providing pro forma
disclosures is not likely to be representative of the effect on reported net
income in future years.
12. EARNINGS PER SHARE
In accordance with the requirements of FASB Statement No. 128, EARNINGS PER
SHARE, basic earnings per share is computed by dividing net income or loss by
the weighted average number of shares outstanding and diluted earnings per share
reflects the dilutive effects of stock options (as calculated utilizing the
treasury stock method). Shares of common stock that are issuable upon the
exercise of options have been excluded from the 1999, 2000, and 2001 per share
calculations because their effect would have been anti-dilutive.
13. INTEREST RATE SWAP
The Company's senior credit facility requires that the Company maintain an
interest rate protection agreement to manage the impact of interest rate changes
on the Company's variable rate obligations. Effective February 7, 2000, the
Company entered into an interest rate swap agreement (the
F-23
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
13. INTEREST RATE SWAP (CONTINUED)
Agreement) with a financial institution. Interest rate swap agreements involve
the exchange of floating interest rate payments for fixed interest rate payments
over the life of the agreement without an exchange of the underlying notional
amount. The Company entered into the Agreement to reduce the exposure to adverse
fluctuations in floating interest rates on the underlying debt obligation as
required by the senior credit facility and not for trading purposes.
The interest rate swap matures on February 7, 2003 and has an underlying
notional amount of $45,000,000. The floating interest rate to be paid to the
Company is based on the three-month U.S. dollar London Interbank Offered Rate
(LIBOR), which is reset quarterly, while the fixed interest rate, through
December 31, 2000, to be paid by the Company is 6.625% if the three-month US
dollar LIBOR is less than 7.25%, the three-month U.S. dollar LIBOR if LIBOR is
greater than or equal to 7.25% but less than 8.5%, and 8.5% if the three-month
U.S. dollar LIBOR is greater than or equal to 8.5% over the term of the
Agreement. Effective January 1, 2001, the Agreement was amended to change the
fixed rate to be paid by the Company to 6.705%. In addition, the maturity date
of the Agreement was extended to February 28, 2003. Any differences paid or
received under the terms of the Agreement are recognized as adjustments to
interest expense over the life of the swap, thereby adjusting the effective
interest rate on the underlying debt obligation.
For the period from February 7, 2000 through December 31, 2000, the Company
paid a fixed interest rate of 6.625% based on an underlying notional amount of
$45,000,000. The floating interest rate paid by the financial institution to the
Company approximated 6.7503%. The carrying value of the interest rate swap at
December 31, 2000 and June 30, 2001 was immaterial as to the net amount due from
the financial institution. The fair value of the interest rate swap approximated
a $910,000 and $962,000 net payable based on quoted market prices for similar
instruments at December 31, 2000 and June 30, 2001, respectively. The estimated
fair value of the swap will fluctuate over time based on changes in floating
interest rates; however, these fair value amounts should not be viewed in
isolation but rather in relation to the overall reduction in the Company's
exposure to adverse fluctuations in floating interest rates. The fair value of
the interest rate swap transaction is not reflected in the consolidated
financial statements at December 31, 2000 as it properly qualified for hedge
accounting treatment under applicable accounting guidance. The Company recorded
the fair value of the interest rate swap transaction at January 1, 2001 which
resulted in a reduction in consolidated stockholders' equity of approximately
$910,000. During the six months ended June 30, 2001, the Company recognized a
net loss of approximately $55,000 related to the ineffective portion of its
hedging instrument. The amount of net gain related to the portion of the hedging
instrument excluded from the assessment of hedge effectiveness during the six
months ended June 30, 2001 was not material.
The Company has no plans to terminate the Agreement earlier than the
maturity date. The Company is exposed to credit loss in the event of
nonperformance by the counterparty to the Agreement. The amount of such exposure
is limited to the unpaid portion of amounts due to the Company, if any, pursuant
to the Agreement. However, management believes that this exposure is mitigated
by provisions in the Agreement that allow for the legal right of offset of any
amounts due to the Company from the counter party with any amounts payable to
the counterparty by the Company. As a result, management considers the risk of
counter party default to be minimal. At December 31,
F-24
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
13. INTEREST RATE SWAP (CONTINUED)
2000, the Company expects to reclassify approximately $423,000 of net losses on
the derivative instrument from accumulated other comprehensive income to
earnings during the next twelve months. The amount the Company expects to
reclassify to earnings during the next twelve months as of June 30, 2001 was
immaterial.
14. RELATED PARTY TRANSACTIONS
In connection with the July 29, 1999 CCS acquisition, Charterhouse Equity
Partners III, L.P. (Charterhouse), a majority shareholder of the Company,
received approximately $2,835,000 in transaction fees. In connection with the
TravCorps merger on December 16, 1999, Charterhouse received approximately
$288,000 in transaction fees. These transaction fees were capitalized in
accordance with the purchase method of accounting.
15. DISCONTINUED OPERATIONS
On December 20, 2000, the Company committed itself to a formal plan to
dispose of its wholly-owned subsidiary, HospitalHub, through a sale or
liquidation of the business segment. Pursuant to APB Opinion No. 30, REPORTING
THE RESULTS OF OPERATIONS-REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A
BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND
TRANSACTIONS, the consolidated financial statements of the Company have been
reclassified to reflect the discontinuance of HospitalHub. Accordingly, the
revenue, costs and expenses, assets and liabilities of HospitalHub have been
segregated and reported as discontinued operations in the accompanying
consolidated balance sheets and statements of operations. The divestiture was
completed in the second quarter of 2001.
16. SEGMENT INFORMATION
The Company has two reportable operating segments: healthcare staffing and
other human capital management services. The healthcare staffing operating
segment includes travel staffing, clinical research and trials staffing and per
diem staffing and it reflects management's approach to operating the business.
This segment provides temporary staffing services of healthcare professionals
primarily to hospitals, laboratories, and pharmaceutical and biotechnology
companies. The other human capital management services segment includes the
combined results of our education and training, healthcare consulting services,
physician search and resource management services.
The Company's management evaluates performance of each segment primarily
based on revenues and contribution income (which is defined as earnings before
interest, taxes, depreciation, amortization and corporate expenses not
specifically identified to a reported segment (EBITDA)). The Company's
management does not evaluate, manage or measure performance of segments using
asset information, accordingly, asset information by segment is not prepared or
disclosed. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see note 1). The
information in the following table is derived directly from the segments'
internal financial reporting used for corporate management purposes. Certain
corporate expenses are not allocated to and/or among the operating segments.
F-25
CROSS COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(INFORMATION PERTAINING TO JUNE 30, 2001 AND TO THE
SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED)
16. SEGMENT INFORMATION (CONTINUED)
Information on operating segments and a reconciliation to income before
income taxes, discontinued operation for the periods indicated are as follows:
SIX MONTHS ENDED
PERIOD FROM JULY 30, YEAR ENDED JUNE 30,
1999 TO DECEMBER 31, DECEMBER 31, ---------------------------
1999 2000 2000 2001
--------------------- ------------- ------------ ------------
Revenue from unaffiliated
customers:
Healthcare staffing............. $85,594,847 $350,856,054 $169,670,149 $205,752,322
Other human capital management
services...................... 2,132,372 16,833,848 7,979,770 16,954,163
----------- ------------ ------------ ------------
$87,727,219 $367,689,902 $177,649,919 $222,706,485
=========== ============ ============ ============
Contribution (expense) income:
Healthcare staffing............. $15,517,594 $ 61,894,291 $ 29,793,624 $ 29,576,322
Other human capital management
services...................... (94,852) 4,290,020 2,174,327 3,994,590
Unallocated corporate overhead.... 5,500,107 21,049,192 10,881,851 10,336,033
----------- ------------ ------------ ------------
EBITDA............................ $ 9,922,635 $ 45,135,119 $ 21,086,100 $ 23,234,879
=========== ============ ============ ============
Interest expense, net............. $ 4,821,302 $ 15,435,236 $ 7,737,900 $ 8,531,663
Depreciation and amortization..... 4,576,167 15,024,781 7,927,286 8,658,599
Nonrecurring indirect transaction
costs............................. 1,289,217 432,600
Other expenses....................
----------- ------------ ------------ ------------
Income before income taxes and
discontinued operations........... $ 525,166 $ 13,385,885 $ 4,988,314 $ 6,044,617
=========== ============ ============ ============
Contribution income is computed by the Company as operating income, less
unallocated corporate overhead. Contribution income is not a measure of
financial performance under generally accepted accounting principles and is only
used by management when assessing segment performance.
F-26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners of
Cross Country Staffing (a Partnership):
In our opinion, the accompanying balance sheets and the related statements
of income and partners' capital and of cash flows present fairly, in all
material respects, the financial position of Cross Country Staffing (a
Partnership) at July 29, 1999 and December 31, 1998, and the results of its
operations and its cash flows for the periods then ended in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1 to the financial statments, Cross Country Staffing's
assets were sold on July 29, 1999. The amounts included in the financial
statements pursuant to the Management Incentive Compensation Plan give no effect
to the additional amount payable as determined by the change in control
transaction as further discussed in Note 5 to the financial statements.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
November 5, 1999, except for Note 8 as to which the date is December 16, 1999
F-27
CROSS COUNTRY STAFFING
BALANCE SHEETS
JULY 29, DECEMBER 31,
1999 1998
----------- --------------
ASSETS
Current assets:
Cash.................................................... $ -- $ 110
Accounts receivable, less allowance for doubtful
accounts (1999-$1,158,039; 1998-$1,327,983)........... 31,494,858 28,794,335
Other current assets.................................... 3,255,994 2,886,333
----------- -----------
Total current assets.................................. 34,750,852 31,680,778
Fixed assets, net of accumulated depreciation
(1999-$842,971; 1998-$630,848)............................ 1,208,713 1,219,319
Goodwill, net of accumulated amortization (1999-$7,261,467;
1998-$6,809,880).......................................... 8,365,716 8,817,303
Other assets................................................ 138,852 183,817
----------- -----------
Total assets................................................ $44,464,133 $41,901,217
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Short-term debt......................................... $ 7,874,004 $ 3,533,039
Accounts payable........................................ 2,329,396 3,446,433
Accrued employee compensation and benefits.............. 7,256,162 5,515,526
Accrued distribution payable............................ -- 5,645,354
Accrued interest payable................................ 19,443 23,926
Accrued management incentive compensation............... 6,940,000 --
Other current liabilities............................... 579,473 645,612
----------- -----------
Total current liabilities............................. 24,998,478 18,809,890
Debt........................................................ -- 4,800,000
Accrued management incentive compensation plan.............. -- 4,840,000
----------- -----------
Total liabilities........................................... 24,998,478 28,449,890
Commitments and contingencies (Note 7)
Partners' capital........................................... 19,465,655 13,451,327
----------- -----------
Total liabilities and partners' capital..................... $44,464,133 $41,901,217
=========== ===========
The accompaying notes are an integral part of these financial statements.
F-28
CROSS COUNTRY STAFFING
STATEMENTS OF INCOME AND PARTNERS' CAPITAL
PERIOD ENDED PERIOD ENDED
JULY 29, DECEMBER 31,
1999 1998
---------------- -----------------
Revenue................................................ $106,046,826 $158,591,804
------------ ------------
Operating expenses:
Compensation and benefits............................ 80,186,753 121,950,872
Selling, general and administrative expenses......... 10,587,604 16,377,419
Management incentive compensation plan............... 2,100,000 2,693,001
Bad debt expense..................................... 156,772 721,510
Depreciation......................................... 212,123 264,026
Amortization......................................... 496,551 859,159
------------ ------------
Total operating expenses......................... 93,739,803 142,865,987
------------ ------------
Operating income....................................... 12,307,023 15,725,817
Other income (expense):
Interest income...................................... 62,026 48,423
Interest expense..................................... (292,642) (897,606)
Other................................................ (189,858) (183,435)
------------ ------------
Net income............................................. 11,886,549 14,693,199
Partners' capital at beginning of year................. 13,451,327 7,122,155
Distributions to partners.............................. (5,872,221) (8,364,027)
------------ ------------
Partners' capital at end of period..................... $ 19,465,655 $ 13,451,327
============ ============
Pro Forma net income data
Net income as reported............................... $ 11,886,549 $ 14,693,199
Pro Forma adjustment for income taxes................ (5,824,409) (7,199,668)
------------ ------------
Pro Forma net income................................. $ 6,062,140 $ 7,493,531
============ ============
The accompanying notes are an integral part of these financial statements.
F-29
CROSS COUNTRY STAFFING
STATEMENTS OF CASH FLOWS
JULY 29, 1999 DECEMBER 31, 1998
------------- -----------------
Cash flows from operating activities:
Net income................................................ $ 11,886,549 $ 14,693,199
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 708,674 1,123,185
Provision for management incentive compensation plan.... 2,100,000 2,693,001
Changes in operating assets and liabilities:
Increase in net accounts receivable..................... (2,700,523) (5,690,790)
Increase in other current assets........................ (369,661) (507,668)
Decrease in other assets................................ -- 230,000
(Decrease) increase in accounts payable................. (1,117,037) 1,202,369
Increase in accrued employee compensation and
benefits.............................................. 1,740,636 792,962
Decrease in accrued interest payable.................... (4,483) (57,534)
Decrease in other current liabilities................... (66,139) (44,409)
------------ ------------
Net cash provided by operating activities............. 12,178,016 14,434,315
------------ ------------
Cash flows from investing activities:
Net purchases of equipment............................ (201,516) (976,672)
------------ ------------
Net cash used in investing activities................. (201,516) (976,672)
------------ ------------
Cash flows from financing activities:
Net repayment of debt................................. (459,035) (10,366,961)
Distributions to partners............................. (11,517,575) (3,091,365)
------------ ------------
Net cash used in financing activities................. (11,976,610) (13,458,326)
------------ ------------
Net decrease in cash.................................. (110) (683)
Cash at beginning of year................................... 110 793
------------ ------------
Cash at end of year......................................... $ -- $ 110
============ ============
Supplemental disclosure of cash flow information:
Amounts paid during the period for interest............... $ 293,857 $ 955,140
============ ============
The accompanying notes are an integral part of these financial statements.
F-30
CROSS COUNTRY STAFFING (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
On July 1, 1996, Cross Country Staffing (CCS or the Partnership), a Delaware
general partnership, was established through a Joint Venture Agreement
(Agreement) between CCHP, Inc. (CCHP) and MRA Staffing Systems, Inc. (MRA), with
ownership percentages of 64% and 36%, respectively. CCHP is a 94% owned
subsidiary of W. R. Grace & Co.-Conn., a Connecticut corporation (Grace). Prior
to the transaction on July 28, 1999 described below, MRA was a wholly owned
subsidiary of Nestor Healthcare Group plc (Nestor), a public company registered
in the U.K.
CCHP and MRA (the Partners) were each engaged in the business of providing
nurses and other allied health personnel primarily on a contract basis. The
Partnership recorded the assets and assumed the liabilities, as defined in the
Agreement, of its Partners. Assets and liabilities contributed by the Partners
to the joint venture were recorded at predecessor basis. In addition to the
recorded assets and liabilities, the Partners contributed the value of their
businesses, which included certain unrecorded intangible assets primarily
related to proprietary databases and contracts.
On July 28, 1999, Grace purchased Nestor's ownership interest in MRA. On
July 29, 1999, the assets of CCS were sold (the "Sale") to Cross Country
Staffing, Inc. (the "Buyer"), an unrelated entity and affiliate of Charterhouse
Group International, Inc. The amounts included in these Financial Statements
give no effect to the Sale, including the repayment of outstanding bank debt and
liquidation of the Management Incentive Compensation Plan liability. See Notes 4
and 5 for further detail.
CCS is engaged in the business of providing staffing and placement of
healthcare and other professionals throughout the United States and its
territories.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
FIXED ASSETS
Fixed assets include office furniture, business machines and leasehold
improvements which are stated at cost, less accumulated depreciation.
Depreciation is determined on a straight-line basis over the estimated useful
lives of the assets of five years.
RESERVES FOR CLAIMS
Workers' compensation and health care benefits are provided under partially
self-insured plans. CCS records its estimate of the ultimate cost of, and
reserves for, workers' compensation and health care benefits based on actuarial
computations using its loss history as well as industry statistics. Furthermore,
in determining its reserves, CCS includes reserves for estimated claims incurred
but not reported.
F-31
CROSS COUNTRY STAFFING (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998
2. ACCOUNTING POLICIES (CONTINUED)
The ultimate cost of workers' compensation and health care benefits will
depend on actual costs incurred in settling the claims and may differ from the
amounts reserved by CCS for those claims. Accruals for workers' compensation
claims and health care benefits are included in accrued employee compensation
and benefits in the Balance Sheet.
GOODWILL
Goodwill contributed by one of the Partners at inception is amortized using
the straight-line method over its estimated useful life of 14 years
(approximately 11 years remaining at July 29, 1999). CCS assesses the
recoverability of goodwill whenever adverse events or changes in circumstance or
business climate indicate that expected future undiscounted cash flows are not
sufficient to support the carrying value. At July 29, 1999 and December 31, 1998
the Partnership believes that no impairment of goodwill exists.
DEFERRED DEBT ISSUE COSTS
Deferred costs related to the issuance of debt are amortized on a
straight-line basis over the five year term of the debt. At July 29, 1999 and
December 31, 1998 costs of $389,000 less accumulated amortization of $250,148
and $205,183, respectively, are recorded as other assets in the Balance Sheet.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At July 29, 1999 and December 31, 1998 the recorded value of cash, trade
receivables and debt approximated their fair value, based on the maturities of
these instruments and the terms of the individual debt agreements.
REVENUE RECOGNITION
Revenue is recognized when the service is performed. Accordingly, accounts
receivable includes an accrual for employees' time worked but not yet invoiced.
At July 29, 1999 and December 31, 1998 the amounts accrued are $7,176,798 and
$4,835,971.
CONCENTRATIONS OF CREDIT RISK
CCS's clients are principally health care providers and accounts receivable
represent amounts due from these providers. CCS performs ongoing credit
evaluations of its clients' financial condition and does not require collateral.
Overall, based on the large number of clients in differing geographic areas
throughout the United States and its territories, CCS believes the concentration
of credit risk is limited.
INCOME TAXES
CCS is not subject to federal taxation at the Partnership level as income is
taxed directly to the Partners. Accordingly, a provision for income taxes has
not been included in the financial statements.
The General Partnership Agreement (Partnership Agreement) provides for
quarterly distributions to the Partners based on the Partnership's estimated
taxable income for the year. Generally, it has been the practice of the
Partnership to make such distributions based on actual tax liabilities of the
F-32
CROSS COUNTRY STAFFING (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998
2. ACCOUNTING POLICIES (CONTINUED)
individual Partners. Currently, distributions are made at the request of the
Partners up to the quarterly distribution amount provided for in the Partnership
Agreement. A distribution payable was recorded to equalize the distributions
based on the respective Partners' ownership percentages.
RECLASSIFICATIONS
Certain amounts in prior year financial statements and related notes have
been reclassified to conform to current year's presentation.
3. OTHER BALANCE SHEET ITEMS
At July 29 and December 31, other current assets are composed of the
following:
JULY 29, DECEMBER 31,
1999 1998
---------- ------------
Prepaid rent on employees' apartments............... $1,907,276 $1,538,636
Deposits on employees' apartments, net of allowance
(1999-$299,246; 1998-$236,756).................... 1,025,308 866,354
Other............................................... 323,410 481,343
---------- ----------
$3,255,994 $2,886,333
========== ==========
CCS leases a number of apartments for its employees under short-term
agreements (typically three to six months) which generally coincide with each
employee's staffing contract. As a condition of those agreements, CCS places
security deposits on the leased apartments. Prepaid rent and deposits relate to
these short-term agreements.
At July 29 and December 31, accrued employee compensation and benefits is
composed of the following:
JULY 29, DECEMBER 31,
1999 1998
---------- ------------
Salaries............................................ $2,984,990 $1,947,117
Bonus............................................... 2,152,918 2,070,759
Accrual for workers' compensation claims............ 1,596,170 1,148,849
Accrual for health care benefits.................... 345,500 206,033
Accrual for vacation................................ 176,584 142,768
---------- ----------
$7,256,162 $5,515,526
========== ==========
F-33
CROSS COUNTRY STAFFING (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998
4. DEBT
On July 30, 1999, CCS repaid all of its long-term debt, which consists of
the Term Note and Revolving Loan Facility. Accordingly, they have been
classified as short-term at July 29, 1999. At July 29 and December 31,
short-term debt is composed of the following:
JULY 29, DECEMBER 31,
1999 1998
---------- ------------
Current maturities of long-term debt................ $7,850,000 $3,500,000
Note payable........................................ 24,004 33,039
---------- ----------
$7,874,004 $3,533,039
========== ==========
At July 29 and December 31, long-term debt is composed of the following:
JULY 29, DECEMBER 31,
1999 1998
----------- ------------
Term Loan, interest at the Eurodollar rate plus
0.325%, or the greater of the prime or Federal
Funds effective rate plus 0.5% (5.535% and
5.955%, at July 29, 1999 and December 31, 1998,
respectively).................................... $ 3,800,000 $ 3,500,000
Revolving Loan Facility, interest at the Eurodollar
rate plus 0.325%, or the greater of the prime or
Federal Funds effective rate plus 0.5% (8.0% and
5.955%, at July 29, 1999 and December 31,1998,
respectively).................................... 4,050,000 4,800,000
----------- -----------
7,850,000 8,300,000
(7,850,000) (3,500,000)
----------- -----------
$ -- $ 4,800,000
=========== ===========
Grace acts as guarantor of the Term Note and Revolving Loan Facility and, as
such, is paid a monthly fee based on the average outstanding balance. For the
periods ended July 29, 1999 and December 31, 1998 this fee was 0.025% per month.
For the periods ended July 29, 1999 and December 31, 1998 total fees in relation
to this guarantee were $13,398 and $47,663, respectively. Of these total fees,
which are recorded as interest expense, $9,229 and $18,243 were recorded as
accrued interest payable at July 29, 1999 and December 31, 1998, respectively.
5. MANAGEMENT INCENTIVE COMPENSATION PLAN
The CCS Management Incentive Compensation Plan (the Plan) is a
performance-based compensation plan for key personnel of the Partnership. The
Plan authorizes the award of percentage interests in an incentive pool based on
the achievement of certain performance objectives. The percentage interests vest
over a period of either three or five years or, in the case of a Liquidity Event
as defined in the Plan, vesting occurs immediately.
F-34
CROSS COUNTRY STAFFING (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998
5. MANAGEMENT INCENTIVE COMPENSATION PLAN (CONTINUED)
The Plan also authorized an immediate percentage award to certain key
executives based on Partnership equity value at inception, as defined by the
Plan. Incremental increases in the amount of this award may occur based on
increases in the value of the Partnership equity. The amount charged to income
for the award and the incremental increase in equity value was $319,000 and
$409,000 for the periods ended July 29, 1999 and December 31, 1998,
respectively.
In accordance with the terms of the Plan, cash payments are made at the
earlier of occurrence of a Liquidity Event or July 1, 2001. The occurrence of a
Liquidity Event also provides for a revised award computation. The Sale of CCS
assets on July 29, 1999 constituted a Liquidity Event and as such, a liquidation
cash payment was triggered. Grace used a portion of the Sale proceeds for such
liquidation payment totaling approximately $20,200,000.
6. PARTNERS' CAPITAL (DEFICIT)
Partners' capital accounts are as follows:
CCHP MRA TOTAL
------------ ------------ -----------
December 31, 1997.................................... $(12,234,662) $ 19,356,817 $ 7,122,155
1998 distributions paid and payable.................. (5,352,977) (3,011,050) (8,364,027)
1998 net income...................................... 9,403,647 5,289,552 14,693,199
------------ ------------ -----------
December 31, 1998.................................... (8,183,992) 21,635,319 13,451,327
1999 distributions................................... (3,757,272) (2,114,949) (5,872,221)
1999 net income...................................... 7,607,391 4,279,158 11,886,549
------------ ------------ -----------
July 29, 1999........................................ $ (4,333,873) $ 23,799,528 $19,465,655
============ ============ ===========
At December 31, 1998, accrued distributions payable of $5,645,354 relate to
CCHP.
7. COMMITMENTS AND CONTINGENCIES
CCS is involved in a dispute with the Internal Revenue Service (IRS) with
respect to the IRS Examination of the 1993-1995 treatment of per diem plan
allowances for meals and incidental expenses paid to CCHP health care personnel
who were performing temporary services while away from home. Under the terms of
the Sale, Grace has assumed ongoing responsibility for any settlement or related
litigation liability.
In connection with the Partnership's partially self-insured workers'
compensation plan, the Partnership has outstanding at July 29, 1999 a $943,594
standby letter of credit in order to guarantee the payment of workers'
compensation claims to the Partnership's insurance carrier.
CCS entered into an agreement to lease office space for the next 10 years
beginning in February 1998. In accordance with the Sale, CCS assigned the office
lease agreement to the Buyer.
Rent expense related to office facilities for the periods ended July 29,
1999 and December 31, 1998 was approximately $250,000 and $269,000,
respectively.
F-35
CROSS COUNTRY STAFFING (A PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIODS ENDED JULY 29, 1999 AND DECEMBER 31, 1998
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CCS is subject to legal proceedings and claims which arise in the ordinary
course of its business. In the opinion of management, the outcome of these
matters will not have a significant effect on the Partnership's financial
position or results of operations.
8. SUBSEQUENT EVENTS
As referred to in Note 1, the assets of CCS were sold to Cross Country
Staffing, Inc. on July 29, 1999.
On November 12, 1999 Cross Country Staffing, Inc. and TravCorps Corporation
announced their intention to merge operations. The combined company will be
owned by an affiliate of Charterhouse Group International, Inc., certain
investment funds managed by Morgan Stanley Private Equity and management. The
transaction was consummated on December 16, 1999.
F-36
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
TravCorps Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheet of TravCorps
Corporation and subsidiary (the "Company") as of December 15, 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the period from December 27, 1998 to December 15, 1999. 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. The consolidated financial statements for the year ended
December 26, 1998 were audited by other auditors whose report, dated March 12,
1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 financial position of TravCorps
Corporation and subsidiary as of December 15, 1999, and the results of their
operations and their cash flows for the period from December 27, 1998 to
December 15, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
March 10, 2000
F-37
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
TravCorps Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheet of TravCorps
Corporation and Subsidiary as of December 26, 1998, and the related consolidated
statement of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies as of December 26,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 12, 1999
F-38
TRAVCORPS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 15, 1999 AND DECEMBER 26, 1998
ASSETS
1999 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,594,666 $ 1,852,578
Accounts receivable, less allowance for doubtful accounts
of $657,000 and $397,000 in 1999 and 1998,
respectively............................................ 17,386,009 15,309,000
Prepaid rent.............................................. 488,008 862,968
Prepaid expenses and other................................ 215,396 784,979
Deferred income taxes..................................... 1,355,300 579,600
----------- -----------
Total current assets.................................. 23,039,379 19,389,125
----------- -----------
PROPERTY AND EQUIPMENT:
Computer and software equipment........................... 6,331,352 4,777,795
Office equipment.......................................... 239,719 225,244
Furniture and fixtures.................................... 373,762 371,457
Leasehold improvements.................................... 340,142 131,166
----------- -----------
Total property and equipment.......................... 7,284,975 5,505,662
Less accumulated depreciation and amortization............ (2,801,089) (1,628,152)
----------- -----------
Property and equipment--net........................... 4,483,886 3,877,510
----------- -----------
DEPOSITS.................................................... 470,665 627,043
----------- -----------
DEFERRED FINANCING COSTS--NET............................... 3,327,326 19,556
GOODWILL--NET............................................... 11,181,605 11,732,578
TOTAL....................................................... $42,502,861 $35,645,812
=========== ===========
See notes to consolidated financial statements.
F-39
TRAVCORPS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 15, 1999 AND DECEMBER 26, 1998
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
1999 1998
----------- -----------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,826,601 $ 2,956,273
Accrued expenses.......................................... 2,127,221 2,660,644
Accrued payroll and withholdings.......................... 1,933,697 2,262,534
Accrued incentive compensation............................ 2,670,960 2,321,544
Current maturities of long-term obligations............... 36,273 163,742
----------- -----------
Total current liabilities............................. 9,594,752 10,364,737
----------- -----------
DEFERRED INCOME TAXES....................................... 1,235,538 929,800
----------- -----------
LONG-TERM OBLIGATIONS....................................... 45,000,000 12,675,649
----------- -----------
STOCKHOLDERS' (DEFICIT) EQUITY:
Convertible preferred stock, $.01 par value per
share--1,020,000 shares authorized, issued and
outstanding (liquidation preference $0 and $3,804,750 in
1999 and 1998, respectively)............................ -- 2,869,229
Common stock, $.01 par value per share--1,774,385 shares
authorized; 2,984,171 shares and 614,011 shares issued
in 1999 and 1998, respectively; 2,984,171 shares and
476,291 shares outstanding in 1999 and 1998,
respectively............................................ 29,842 6,139
Treasury stock............................................ (73,576,703) (1,377)
Additional paid-in capital................................ 54,110,662 667,183
Retained earnings......................................... 6,108,770 8,134,452
----------- -----------
Total stockholders' (deficit) equity.................. (13,327,429) 11,675,626
----------- -----------
TOTAL....................................................... $42,502,861 $35,645,812
=========== ===========
See notes to consolidated financial statements.
F-40
TRAVCORPS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
1999 1998
------------ -----------
REVENUES.................................................... $112,795,230 $99,604,430
------------ -----------
DIRECT COSTS AND EXPENSES:
Professional salaries and wages........................... 58,137,810 50,660,556
Other professional expenses............................... 15,972,698 17,475,730
------------ -----------
Total direct costs and expenses......................... 74,110,508 68,136,286
------------ -----------
GROSS PROFIT................................................ 38,684,722 31,468,144
------------ -----------
OPERATING EXPENSES:
Selling, general and administrative expenses (includes
nonrecurring transaction costs of $4,556,904 in 1999)... 35,431,054 21,282,325
Depreciation and amortization............................. 1,886,017 1,225,676
------------ -----------
Total operating expenses................................ 37,317,071 22,508,001
------------ -----------
INCOME FROM OPERATIONS...................................... 1,367,651 8,960,143
INTEREST EXPENSE............................................ 2,790,948 880,992
------------ -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES............. (1,423,297) 8,079,151
PROVISION FOR INCOME TAXES.................................. 580,134 3,349,400
------------ -----------
NET (LOSS) INCOME........................................... $ (2,003,431) $ 4,729,751
============ ===========
See notes to consolidated financial statements.
F-41
TRAVCORPS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ---------------------- TREASURY PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL EARNINGS
---------- ---------- --------- ---------- ------------ ----------- ----------
BALANCE, DECEMBER 27, 1997............. 1,020,000 $2,779,979 527,674 $ 5,276 $ (1,377) $ 181 $3,493,951
Stock options exercised.............. -- -- 16,337 163 -- 2,702 --
Accretion of preferred stock
dividends.......................... -- 89,250 -- -- -- -- (89,250)
Purchase of treasury stock........... -- -- -- -- (190,000) -- --
Issuance of stock in connection with
acquisition........................ -- -- 70,000 700 190,000 664,300 --
Net income........................... -- -- -- -- -- -- 4,729,751
---------- ---------- --------- ---------- ------------ ----------- ----------
BALANCE, DECEMBER 26, 1998............. 1,020,000 2,869,229 614,011 6,139 (1,377) 667,183 8,134,452
Stock options exercised.............. -- -- 305,470 3,056 -- 2,023,590 --
Accretion of preferred stock
dividends.......................... -- 22,251 -- -- -- -- (22,251)
Conversion of preferred stock........ (1,020,000) (2,550,000) 1,020,000 10,200 -- 2,539,800 --
Distribution of preferred stock
dividends.......................... -- (341,480) -- -- -- (2,550,000) --
Purchase of treasury stock........... -- -- -- -- (73,575,326) -- --
Issuance of common stock............. -- -- 1,044,690 10,447 -- 51,430,089 --
Net income (loss).................... -- -- -- -- -- -- (2,003,431)
---------- ---------- --------- ---------- ------------ ----------- ----------
BALANCE, DECEMBER 15, 1999............. -- $ -- 2,984,171 $ 29,842 $(73,576,703) $54,110,662 $6,108,770
========== ========== ========= ========== ============ =========== ==========
TOTAL
------------
BALANCE, DECEMBER 27, 1997............. $ 6,278,010
Stock options exercised.............. 2,865
Accretion of preferred stock
dividends.......................... --
Purchase of treasury stock........... (190,000)
Issuance of stock in connection with
acquisition........................ 855,000
Net income........................... 4,729,751
------------
BALANCE, DECEMBER 26, 1998............. 11,675,626
Stock options exercised.............. 2,026,646
Accretion of preferred stock
dividends.......................... --
Conversion of preferred stock........ --
Distribution of preferred stock
dividends.......................... (2,891,480)
Purchase of treasury stock........... (73,575,326)
Issuance of common stock............. 51,440,536
Net income (loss).................... (2,003,431)
------------
BALANCE, DECEMBER 15, 1999............. $(13,327,429)
============
See notes to consolidated financial statements.
F-42
TRAVCORPS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (2,003,431) $ 4,729,751
Adjustments to reconcile net (loss) income to cash (used
in) provided by operating activities:
Depreciation............................................ 1,108,346 781,569
Amortization............................................ 739,073 444,107
Increase (decrease) in cash from changes in:
Accounts receivable................................... (2,077,009) (1,814,191)
Income tax receivable................................. (1,817,733) --
Prepaid rent.......................................... 374,959 (48,326)
Prepaid expenses and other............................ 569,582 (77,956)
Other assets.......................................... -- (2,202)
Deferred income taxes................................. (469,962) 424,300
Accounts payable and accrued expenses................. (653,337) 1,534,809
Accrued payroll withholdings and incentive
compensation........................................ 20,578 1,051,983
------------ ------------
Cash provided by (used in) operating activities..... (4,208,934) 7,023,844
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Cejka, net of cash acquired................ -- (11,970,454)
Purchase of property and equipment........................ (1,779,340) (1,888,705)
Increase in deposits...................................... 156,378 (133,495)
------------ ------------
Cash used in investing activities................... (1,622,962) (13,992,654)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 53,136,887 2,865
Redemption of preferred stock............................. (2,569,927) --
Repurchase of common stock................................ (73,576,312) (190,000)
Net borrowings under revolving credit agreement........... 32,335,500 8,184,500
Deferred financing charges................................ (1,613,546) --
Principal payments on capital leases...................... -- (227,445)
Principal payments on other long-term obligations......... (138,618) (17,936)
------------ ------------
Cash provided by financing activities............... 7,573,984 7,751,984
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 1,742,088 783,174
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 1,852,578 1,069,404
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 3,594,666 $ 1,852,578
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
Cash paid during the year for:
Interest................................................ $ 2,857,017 $ 1,028,270
============ ============
Income taxes............................................ $ 3,011,490 $ 2,271,687
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS -
Stock issued in connection with the Cejka acquisition..... $ -- $ 855,000
============ ============
See notes to consolidated financial statements.
F-43
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
1. NATURE OF BUSINESS
TravCorps Corporation ("TravCorps") and its wholly-owned subsidiary,
Cejka & Company ("Cejka") (collectively, the "Company") provide flexible
staffing, search, consulting and related outsourced services to health care
providers throughout the United States. The Company's fiscal year typically ends
on the last Saturday in December.
On December 16, 1999, the Company merged with Cross Country Staffing, Inc.
("CCS") (see Note 9). These financial statements are presented on a going
concern basis and do not reflect any effects on the financial statements
resulting from the merger with CCS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION--The Company recognizes revenue from temporary staffing
services as services are rendered based on hours worked by the assigned health
care professionals. Retainer fees earned for search and related outsourced
services are recognized over the contract term. Placement revenues are
recognized upon successful completion of the search assignment. Consulting
revenues are recognized as services are rendered.
Revenues on permanent and temporary placements are recognized when services
provided are substantially completed. The Company does not, in the ordinary
course of business, make refunds. If a candidate leaves a permanent placement
within a short period of time (i.e., one month) it is customary for us to seek a
replacement at no additional cost. Allowances are established as considered
necessary to estimate significant losses due to placed candidates not remaining
employed for the Company's guarantee period. During 2000, 1999 and 1998, such
replacements and refunds were not material and, accordingly, related allowances
were not recorded.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of TravCorps Corporation and subsidiary. Upon consolidation, all
material intercompany accounts and transactions are eliminated.
CASH AND CASH EQUIVALENTS--The Company considers all investments in highly
liquid debt instruments with maturities of less than three months at the date of
purchase to be cash and cash equivalents.
USE OF ESTIMATES--The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates included in the
consolidated financial statements include allowances for uncollectible accounts
and certain accrued expenses. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives (three to seven years) of the related assets. This
caption also includes capitalized costs associated with the development of
internal-use software (see below). Such costs include charges for consulting
services and costs for personnel associated with programming, coding and testing
such software. These costs are not depreciated until the related software is
placed into service.
F-44
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR COMPUTER SOFTWARE COSTS--In March 1998, the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP No. 98-1 delineated the types of costs that may be
capitalized in connection with the development and installation of internal-use
software. The Company historically has had accounting policies that are
consistent with those specified in SOP No. 98-1. Accordingly, its implementation
did not have a material impact on the consolidated financial statements.
IMPAIRMENT OF LONG-LIVED ASSETS--Long-lived assets to be held and used are
reviewed for impairment whenever circumstances indicate that the carrying amount
of an asset may not be recoverable. Long-lived assets to be disposed of are
reported at the lower of the carrying amount or fair value, less cost to sell.
GOODWILL--The excess of the purchase price of acquired companies over the
fair value of net identifiable assets ("goodwill") at the date of acquisition
are amortized on a straight-line basis over their estimated lives of twenty or
twenty-five years. The Company periodically reviews goodwill to assess
recoverability, based upon expectations of nondiscounted cash flows and
operating income of the activities, that generated the goodwill balance.
Impairments would be recognized in operating results if such expected cash flows
were less than the carrying value of the related assets. No such impairments
have been recorded through December 15, 1999.
DEFERRED FINANCING COSTS--Deferred financing costs represent commitment fees
and other costs incurred relating to the refinancing of the Company's revolving
credit agreement and are being amortized over the life of the agreement.
INCOME TAXES--Deferred income taxes are provided for differences in bases of
the Company's assets and liabilities for book and tax purposes. Deferred income
taxes are estimated using currently enacted tax rates.
CONCENTRATION OF CREDIT RISK--The Company extends credit to its customers on
an unsecured basis and requires no collateral. However, credit control policies
are in place to control the Company's exposure to potential uncollectible
receivables.
STOCK-BASED COMPENSATION--The Company accounts for stock-based awards to
employees using the intrinsic-value method.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts reported
in the consolidated balance sheets for cash, accounts receivable, accounts
payable and accrued expenses approximate fair value because of their short
maturity. The carrying amount of the long-term obligations approximates fair
value because the interest rate is tied to a quoted variable index.
3. ACQUISITION
On April 29, 1998, the Company acquired certain assets and assumed certain
liabilities of Cejka, a company that provides permanent placement, consulting
and related outsourced services for physicians and health care executives. The
acquisition has been accounted for as a purchase and, accordingly, the results
of Cejka are included in these consolidated financial statements from the date
of acquisition.
F-45
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
3. ACQUISITION (CONTINUED)
The purchase and related acquisition costs aggregated $12,826,000 and were
funded with the borrowing of $11,821,000 under the Company's revolving credit
agreement and the issuance of 90,000 shares of Class A common stock valued at
$855,000.
The consideration involved in the acquisition, after giving effect to
liabilities assumed, has been allocated to the assets acquired based on their
respective fair values as follows:
Assets:
Cash and cash equivalents................................. $ 300
Accounts receivable....................................... 1,785,969
Prepaid rent.............................................. 28,229
Deposits.................................................. 11,396
Property and equipment.................................... 379,047
Goodwill.................................................. 11,560,000
-----------
Assets acquired............................................. 13,764,941
Less assumed liabilities.................................... 939,187
-----------
Total consideration......................................... $12,825,754
===========
4. LONG-TERM OBLIGATIONS
Long-term obligations at December 15, 1999 and December 26, 1998 consist of
the following:
1999 1998
----------- -----------
Revolving Credit Agreement......................... $45,000,000 $12,664,500
Capital lease obligations.......................... 36,273 174,891
----------- -----------
Total.............................................. 45,036,273 12,839,391
Less current portion............................... 36,273 163,742
----------- -----------
Total long-term obligations........................ $45,000,000 $12,675,649
=========== ===========
CREDIT AGREEMENT--At December 15, 1999, the Company has a revolving credit
agreement with Chase Bank (the "Revolving Credit Agreement"), which provides for
a term loan of $45 million, revolving loans of up to $10,000,000 and swingline
loans up to $1,000,000, including letters of credit of up to $2,500,000,
maturing May 14, 2005. Revolving loans under the Revolving Credit Agreement can
be ABR loans or Eurodollar loans. Swingline loans must be ABR loans. Eurodollar
rate loans must have a minimum principal balance of $1,000,000 and must be in
integral multiples of $250,000. ABR Revolving loans must have a minimum
principal balance of $250,000 and must be in integral multiples of $50,000.
Swingline loans must have a minimum principal balance of $250,000 and must be in
integral multiples of $50,000. Amounts outstanding under the term loan at
December 15, 1999 totaled $45 million and are scheduled to be repaid with
interest at 9.40% in quarterly installments of $250,000 from December 25, 1999
through March 2004 and $10,125,000 through May 2005. There were no Revolving or
Swingline loans outstanding at December 15, 1999.
F-46
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
4. LONG-TERM OBLIGATIONS (CONTINUED)
ABR loans carry interest at the greatest of a) the Prime Rate, b) the Base
CD Rate plus 1%, or c) the Federal Funds Effective Rate plus 1/2of 1%.
Eurodollar loans carry interest at the LIBOR Rate for the interest period
multiplied by b) the Statutory Reserve Rate. The interest on any ABR or
Eurodollar loan is payable quarterly. The interest on any Swingline loan is
payable on the principal due date.
Letters of credit amounting to $404,099 and $399,508 at December 15, 1999
and December 26, 1998, respectively, had been issued pursuant to the Company's
workers' compensation insurance program.
The Agreement contains, among other things, restrictions on further
indebtedness, asset sales, capital expenditures, payment of dividends, changes
in the capital structure and changes in the ownership of the Company. The
Agreement also has covenants which require the Company to maintain a minimum
level of tangible net worth, achieve minimum levels of earnings before interest,
taxes, depreciation and amortization, and achieve certain financial ratios, all
as defined in the Agreement.
At December 26, 1998, the Company had a revolving credit agreement with
Fleet Bank NA that carried terms similar to the Chase Bank agreement. The Fleet
agreement did not include a term loan. The Fleet Bank agreement was terminated
and replaced with the Chase Bank agreement in connection with the leveraged
recapitalization discussed in Note 7.
CAPITAL LEASE OBLIGATIONS--The Company leases equipment under capital
leases. The leases bear interest at rates ranging from 8.0% to 9.0% and expire
in 2000. The Company intends to exercise its options to purchase the equipment.
5. COMMITMENTS AND CONTINGENCIES
OPERATING ACTIVITIES--The Company has entered into various operating leases
for temporary housing of its professional medical personnel, with terms of up to
twelve months. The Company also leases office space for its corporate
activities. Future lease payments for office space pursuant to the leases total
$736,088, $440,050, $449,188, $441,166 and $0 for the years ending
December 2000, 2001, 2002, 2003 and 2004, respectively. Total lease expense was
approximately $12,132,185 and $10,024,495 for the period December 27, 1998 to
December 15, 1999 and the year ended December 26, 1998, respectively.
F-47
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
6. INCOME TAXES
The components of the provision for income taxes for the for the period
December 26, 1998 to December 15, 1999 and the year ended December 26, 1998 are
as follows:
1999 1998
---------- ----------
Current:
Federal............................................ $ 831,600 $2,141,800
State.............................................. 189,200 783,300
---------- ----------
1,020,800 2,925,100
---------- ----------
Deferred:
Federal............................................ (363,000) 310,700
State.............................................. (77,700) 113,600
---------- ----------
(440,700) 424,300
---------- ----------
Total................................................ $ 580,100 $3,349,400
========== ==========
The components of the deferred tax assets and liabilities at December 15,
1999 and December 26, 1998 are as follows:
1999 1998
---------- ----------
Deferred tax assets--current:
Accrued incentive compensation..................... $ 971,700 $ 704,550
Accrued liabilities................................ 223,900 337,650
Other.............................................. 310,000 149,400
---------- ----------
1,505,600 1,191,600
Deferred tax liabilities--current--prepaid
expenses........................................... (150,300) (612,000)
---------- ----------
Net deferred tax assets--current..................... $1,355,300 $ 579,600
========== ==========
Deferred tax liabilities--noncurrent--depreciation... $1,235,538 $ 929,800
========== ==========
Difference between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate are primarily due to state taxes and
expenses not deductible for income tax purposes.
7. STOCKHOLDERS' EQUITY
LEVERAGED RECAPITALIZATION--On May 14, 1999, in connection with a leveraged
recapitalization transaction, the Company sold 1,044,690 of the Company's common
shares to Morgan Stanley Dean Witter ("MSDW") and the Company redeemed 1,583,983
of its common shares. Immediately preceding the leveraged recapitalization, the
Company's preferred shareholders converted 1,020,000 preferred shares into
1,020,000 common shares. The price for the redeemed shares was $76,869,925,
which was paid in cash. After the transaction, MSDW owned 87.29% of the
Company's outstanding common stock.
F-48
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
The redemption was funded with $45,200,000 of new bank borrowings (see
Note 4) and the proceeds from the sale of the common shares. These new
borrowings and common share proceeds were also used to repay $11,081,000 of
existing bank borrowings and to pay $4,036,000 of transaction expenses.
For financial accounting purposes, the transaction is treated as a leveraged
recapitalization, whereby the assets are not revalued and the excess purchase
price of the redeemed shares over the net book value of the shares reduces the
Company's equity.
The characteristics of preferred and common stock of the Company prior to
the recapitalization are described as follows:
PREFERRED STOCK--During 1995, the Company issued 1,020,000 shares of
convertible preferred stock at $2.50 per share. All (but not less than all) of
the shares of convertible preferred stock were convertible at any time, at the
option of the holders of the convertible preferred stock, into conversion units
which consisted of one share of Class B common stock and one share of redeemable
preferred stock for each share of convertible preferred stock tendered for
conversion. In connection with the leveraged recapitalization described above,
the holders of the convertible preferred stock elected to convert their
preferred shares into Class B common shares only.
The holders of convertible preferred stock were entitled to elect three
representatives to the Board. On all other matters, the holders of convertible
preferred stock were entitled to vote, as a single class with the common
stockholders, as if their convertible preferred stock had been converted into an
equivalent number of shares of common stock.
The convertible preferred stock was entitled to cumulative dividends at the
rate of 3.5% per year on the convertible base liquidation amount, as defined, of
$2.50 per share. At December 15, 1999 and December 26, 1998, the cumulative
preferred dividends in arrears totaled $0 and $319,229, respectively, as all
cumulative preferred dividends were paid in connection with the leveraged
recapitalization. No dividends could be paid to holders of common stock or
Class B common stock until all cumulative preferred stock dividends were paid.
Convertible preferred stock dividends became immediately payable upon the
leveraged recapitalization.
COMMON STOCK--Common stock and Class B common stock are identical, except
that the holders of common stock and Class B common stock, each voting as
separate classes, are entitled to each elect two representatives to the Board.
The Class B common stock is convertible into an equivalent number of shares of
common stock immediately prior to the closing of an Extraordinary Transaction as
defined. The leveraged recapitalization qualified as an Extraordinary
Transaction and, accordingly, the Class B common shares were converted into
common shares.
STOCK OPTIONS--The Company's 1995 Stock Option Plan (the "Plan") provides
for the issuance of incentive stock options ("ISOs") and nonstatutory stock
options ("NSOs") to officers, employees, directors, consultants and advisors for
the purchase of up to 430,000 shares of common stock. The exercise price of ISOs
may not be less than the fair market value of the Company's common stock on the
date of grant and may not be less than 110% of such fair market value with
respect to any ISOs granted to a participant who owns 10% or more of the
Company's outstanding common stock. Options
F-49
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
7. STOCKHOLDERS' EQUITY (CONTINUED)
vest in installments over periods of up to seven years. Options granted must be
exercised within ten years.
The Company applies the intrinsic value method to determine compensation
cost associated with its plan. The Board has determined that the fair value of
common stock approximates the exercise price at the time of the grant.
Accordingly, no compensation costs have been recognized for its stock option
plan. The difference between net (loss) income on a pro forma basis had
compensation cost for the Company's plan been determined consistent with the
fair value method described in SFAS No. 123, and reported net (loss) income is
immaterial:
The following is a summary of stock option activity under the Plan:
WEIGHTED-
AVERAGE
EXERCISE
PRICE PER
SHARES SHARE
-------- ---------
Outstanding at December 27, 1997 (25,935 exercisable at a
weighted-average price of $0.20)....................... 216,673 $2.93
Granted (weighted-average fair value of $3.27)......... 149,509 11.81
Forfeited.............................................. (12,310) 5.33
Exercised.............................................. (16,337) 0.18
--------
Outstanding at December 26, 1998 (51,307 exercisable at a
weighted-average price of $2.83)....................... 337,535 6.91
Granted (weighted-average fair value of $25.00).......... 14,725 25.00
Forfeited.............................................. (46,790) 13.98
Exercised.............................................. (305,470) 6.26
--------
Outstanding at December 15, 1999......................... 0
========
The fair value of each option grant was estimated on the date of grant using
an option pricing model with the following assumptions:
1999 1998
-------- --------
Risk-free interest rate.................................... 4.75% 4.75%
Dividend yield............................................. 0.00% 0.00%
Expected life (years)...................................... 10.00 10.00
In connection with the merger with CCS (see Note 9), the options outstanding
as of December 15, 1999 immediately vested and were exchanged for an equivalent
number of shares in CCS.
RESTRICTION ON DIVIDENDS--Pursuant to the terms of the Company's Revolving
Credit Agreement in effect at December 26, 1998 (see Note 4), the Company was
precluded from declaring or paying any dividends on any of its preferred or
common stock and was prohibited from repurchasing any of its outstanding
preferred and common stock, except that up to $190,000 of common stock could
have been repurchased annually from employees whose employment had ceased.
F-50
TRAVCORPS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERIOD FROM DECEMBER 27, 1998 TO DECEMBER 15, 1999
AND THE YEAR ENDED DECEMBER 26, 1998
8. PROFIT-SHARING PLAN
TravCorps has a 401(k) defined contribution benefit plan (the "401(k) Plan")
for eligible employees. Eligible employees may make pretax savings contributions
to the 401(k) Plan of up to 15% of their earnings to a certain statutory limit.
TravCorps matches employee contributions up to 1% of compensation. TravCorps
contributed $97,000 and $93,000 to the 401(k) Plan during the period from
December 27, 1998 to December 15, 1999 and the year ended December 26, 1998,
respectively, and made a discretionary profit sharing contribution of
approximately $86,000 during the year ended December 26, 1998. Cejka has a
separate 401(k) defined contribution benefit plan (the "Cejka plan") for
eligible employees. Eligible employees may make pretax savings contributions to
the Cejka plan of up to 10% of their earnings to a statutory limit. Cejka
matches 50% of the employee contributions up to 6% of compensation. Cejka
contributed approximately $145,000 and $250,000 to the Cejka plan and a
discretionary profit-sharing plan during the period December 27, 1998 to
December 15, 1999 and year ended December 26, 1998, respectively.
9. SUBSEQUENT EVENT--MERGER WITH CROSS COUNTRY STAFFING, INC.
On December 16, 1999, the Company entered into a Plan of Merger with CCS, a
company engaged in the business of providing temporary health care staffing
services to acute and subacute care facilities nationwide. Pursuant to the Plan
of Merger, all outstanding shares of the Company's common stock were exchanged
for common stock in CCS. The fair value of the shares of CCS common stock issued
to the stockholders of the Company, as determined by an independent valuation of
the common stock in January 2000, was $32,102,000. In connection with the merger
transaction, CCS assumed the Company's long-term obligation of $45,000,000. The
merger was accounted for in the CCS consolidated financial statements as a
purchase.
Upon consummation of the merger, certain computer information systems used
by the Company were replaced with CCS systems resulting in a write down of
computer and software equipment approximately $1.2 million. In addition,
unamortized deferred financing costs approximately $1.6 million were written off
in connection with CCS's assumption of the Company's long-term obligation. These
asset write downs were accounted for in the purchase accounting as part of the
merger. Accordingly, the effects of these write downs are not reflected in the
accompanying financial statements.
F-51
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cross Country, Inc.
We have audited the accompanying consolidated statements of assets acquired
and liabilities assumed of ClinForce, Inc. ("ClinForce") as of December 31, 2000
and 1999 and the related consolidated statement of operating revenues and
expenses for each of the two years in the period ended December 31, 2000. These
statements are the responsibility of ClinForce's management. Our responsibility
is to express an opinion on the statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying consolidated statements of assets acquired and liabilities
assumed and the related consolidated statements of operating revenues and
expenses were prepared for inclusion in the Registration Statement on Form S-1
of Cross Country, Inc. for purposes of complying with the rules and regulations
of the Securities and Exchange Commission in lieu of the full financial
statements required by Rule 3-05 for the transaction between Cross Country, Inc.
and ClinForce. The statements are not intended to be a complete presentation of
the financial position of ClinForce.
In our opinion, the statements referred to above present fairly, in all
material respects, the consolidated assets acquired and liabilities assumed of
ClinForce at December 31, 2000 and 1999, and the operating revenues and expenses
for each of the two years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States.
/s/ ERNST &YOUNG LLP
Raleigh, North Carolina
April 26, 2001
F-52
CLINFORCE, INC.
CONSOLIDATED STATEMENTS OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31
-------------------------
2000 1999
----------- -----------
ASSETS ACQUIRED
Current assets:
Cash...................................................... $ -- $ 737,556
Accounts receivable, less allowance for doubtful accounts
of $103,645 in 2000 and $0 in 1999...................... 4,943,894 3,367,818
Prepaid expenses.......................................... 25,201 4,290
Current deferred tax asset................................ 108,877 --
Other current assets...................................... 1,999 68,961
----------- -----------
Total current assets........................................ 5,079,971 4,178,625
Property and equipment, net of accumulated depreciation of
$842,498 in 2000 and $707,356 in 1999..................... 404,402 435,979
Goodwill, net of accumulated amortization of $2,119,322 in
2000 and $1,458,113 in 1999............................... 11,073,812 11,735,021
Other assets................................................ 30,036 14,983
----------- -----------
Total assets acquired....................................... $16,588,221 $16,364,608
=========== ===========
LIABILITIES ASSUMED
Current liabilities:
Cash overdraft............................................ $ 248,801 $ --
Accounts payable.......................................... 62,277 2,036
Income taxes payable...................................... 2,060,900 884,515
Accrued employee compensation and benefits................ 1,146,856 626,484
Other current liabilities................................. 4,837 21,909
----------- -----------
Total current liabilities................................... 3,523,671 1,534,944
----------- -----------
Long-term deferred tax liability............................ 354,998 195,435
----------- -----------
Total liabilities assumed................................... $ 3,878,669 $ 1,730,379
=========== ===========
See accompanying notes.
F-53
CLINFORCE, INC.
CONSOLIDATED STATEMENTS OF OPERATING REVENUES AND EXPENSES
YEAR ENDED DECEMBER 31
-------------------------
2000 1999
----------- -----------
Revenue from services....................................... $28,895,276 $26,385,411
Operating expenses:
Compensation and benefits................................. 20,128,675 19,066,580
Selling, general and administrative expenses.............. 4,765,833 3,906,762
Bad debt expense.......................................... 110,000 --
Depreciation.............................................. 135,141 94,199
Amortization.............................................. 659,657 659,657
----------- -----------
Total operating expenses.................................... 25,799,306 23,727,198
----------- -----------
Income from operations...................................... 3,095,970 2,658,213
Income tax expense.......................................... 1,227,071 1,079,950
----------- -----------
Income from operations after tax............................ $ 1,868,899 $ 1,578,263
=========== ===========
See accompanying notes.
F-54
CLINFORCE, INC.
NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION AND BASIS OF PRESENTATION
ClinForce, Inc. ("ClinForce" or the "Company") is in the business of
recruiting and placing temporary and permanent clinical research professionals.
The Company was a subsidiary of Edgewater Technology, Inc. (f/k/a
Staffmark, Inc.), a publicly held company.
ClinForce, Inc. was founded in 1991 as Clinical Trial Support Services. In
1997, the Company acquired ClinForce in Morristown, New Jersey. In August 1996,
the Company merged with four other regional companies to form Staffmark, Inc.
(n/k/a Edgewater Technology, Inc.). In October 1996, Staffmark became a publicly
traded company. In March 1998, ClinForce acquired Temporary Tech in North
Carolina. On April 1, 1999, the Company changed its name to ClinForce, Inc.
During 2000, the Company opened facilities in Ft. Myers, Boston, Philadelphia,
and Cincinnati.
CFRC, Inc., a wholly-owned subsidiary of ClinForce, was established in
fiscal year 1997. CFRC, Inc. was established primarily as an intellectual
property company. The consolidated financial statements of ClinForce include the
results of operations for CFRC, Inc.
On December 15, 2000, the ClinForce entered into a stock purchase agreement
to be acquired by Cross Country, Inc. for approximately $31,000,000. The
transaction was consummated on March 16, 2001 and met the accounting criteria of
a purchase. The purchase price is subject to a post-closing adjustment based on
changes in the net working capital of the acquired companies between
October 31, 2000 and March 16, 2001.
The consolidated statements of assets acquired and liabilities assumed and
related consolidated statements of operating revenues and expenses (the
"statements") have been prepared solely to comply with the requirements of the
Securities and Exchange Commission. These statements are not intended to be a
complete presentation of the assets, liabilities, revenues and expenses of the
Company because they do not include corporate allocated expenses that would have
been incurred by the Company had it operated as a stand-alone business (see
Note 2).
USE OF ESTIMATES
The preparation of the statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the statements and
accompanying notes. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These statements are not indicative of the financial condition or results of
operations of this business going forward because of the change in the business
and the omission of various administrative expenses.
REVENUE RECOGNITION
Revenues consist primarily of billing for associates' time and permanent
placement fees. Revenue is recognized upon completion of services.
Revenues on permanent and temporary placements are recognized when services
provided are substantially completed. The Company does not, in the ordinary
course of business, make refunds. If a candidate leaves a permanent placement
within a short period of time (i.e., one month) it is customary
F-55
CLINFORCE, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for us to seek a replacement at no additional cost. Allowances are established
as considered necessary to estimate significant losses due to placed candidates
not remaining employed for the Company's guarantee period. During 2000 and 1999,
such replacements and refunds were not material and, accordingly, related
allowances were not recorded.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk as defined by Financial Accounting Standards Board (FASB)
Statement No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, consist principally of accounts receivable. The Company's customers are
clinical research organizations ("CROs") and accounts receivable represent
amounts due from these CROs. The Company performs ongoing credit evaluations of
its customers' financial conditions and, generally, does not require collateral.
Overall, based on the large number of customers in differing geographic areas
throughout the United States and its territories, the Company believes the
concentration of credit risk is limited. As of December 31, 2000, approximately
48% of the outstanding accounts receivable were due from four customers. As of
December 31, 1999, approximately 70% of the outstanding accounts receivable were
due from four customers.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is determined on a straight-line basis over the estimated useful
lives of the assets, which generally range from three to seven years. Leasehold
improvements are depreciated over the lives of the related leases or the useful
life of an individual lease, whichever is shorter.
CORPORATE ALLOCATIONS
Edgewater provided substantial services to the Company during 2000,
Edgewater has traditionally charged the Company a management fee for tax
planning services and information system services through corporate allocations
which were generally based on a percent of sales. The amount of corporate
allocations was dependent upon the total amount of anticipated allocable costs
incurred by Edgewater less amounts charged as a specific cost or expense rather
than by allocation. The amounts allocated for these services are not included in
these statements because they are not necessarily indicative of amounts that
would have been incurred by the Company had it operated on a stand-alone basis.
Expenses relating to corporate advertising, accounting and legal services,
officer salaries and other selling, general and administrative expenses were not
allocated by Edgewater to ClinForce for internal financial statement purposes,
and therefore, no amounts have been allocated for their services in the pro
forma financial statements.
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired. Goodwill associated with acquisitions in 1998 and 1997 is being
amortized using the straight-line method over its estimated useful life of
twenty years. In accordance with FASB Statement No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
F-56
CLINFORCE, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Recoverability of assets is measured by comparison of the carrying amount of the
asset to net future cash flows expected to be generated from the asset. At
December 31, 2000 and 1999, the Company believes that no impairment of goodwill
exists.
ADVERTISING
The Company's advertising expense consists primarily of print media, online
advertising and promotional material. Advertising costs are expensed as incurred
and were approximately $16,539 and $16,759 for the years ended December 31, 2000
and 1999, respectively.
INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. Deferred income tax assets and liabilities are
determined based upon differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. ClinForce
has always been included in a consolidated return for United States federal tax
reporting purposes. The income tax provision included in the statement of
operating revenues and expenses was prepared as if the Company was a stand-alone
entity.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, accounts payable and accrued expenses approximate fair
value because of their short maturity.
COMPREHENSIVE INCOME
The Company has adopted FASB Statement No.130, COMPREHENSIVE INCOME, which
requires that an enterprise: (a) classify items of other comprehensive income by
their nature in the financial statements; and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The items
of other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. There are
no other components of comprehensive income or loss other than the Company's
consolidated net income and net loss for the years ended December 31, 2000 and
1999, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.133, as
amended, is required to be adopted in years beginning after June 15, 2000. The
Company plans to adopt the new statement effective January 1, 2001. Because of
the Company's minimal use of derivatives, management does not anticipate the
adoption of the new Statement will have a significant affect on earnings or the
consolidated financial position of the Company.
F-57
CLINFORCE, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. PROPERTY AND EQUIPMENT
At December 31, property and equipment consist of the following:
2000 1999
---------- ----------
Computer equipment................................... $ 268,657 $ 251,398
Computer software.................................... 161,853 131,014
Office equipment..................................... 118,721 118,722
Furniture and fixtures............................... 558,968 556,770
Leasehold improvements............................... 138,701 85,431
---------- ----------
1,246,900 1,143,335
Less accumulated depreciation........................ (842,498) (707,356)
---------- ----------
$ 404,402 $ 435,979
========== ==========
4. ACCRUED COMPENSATION AND BENEFITS
At December 31, accrued employee compensation and benefits consist of the
following:
2000 1999
---------- ----------
Salaries............................................. $ 305,446 $ 222,820
Bonuses.............................................. 512,225 238,169
Accrual for payroll taxes............................ 226,855 82,063
Accrual for vacation................................. 102,330 83,432
---------- ----------
$1,146,856 $ 626,484
========== ==========
5. COMMITMENTS AND CONTINGENCIES
The Company has entered into non-cancelable operating lease agreements for
the rental of space. Future minimum lease payments associated with these
agreements are as follows:
YEAR ENDING DECEMBER 31:
------------------------
2001................................................. $ 412,214
2002................................................. 363,176
2003................................................. 365,844
2004................................................. 294,378
2005................................................. 35,352
Thereafter........................................... 23,712
----------
$1,494,676
==========
Rent expense related to office facilities was approximately $355,161 and
$244,536 for the years ended December 31, 2000 and 1999, respectively.
The Company is subject to legal proceedings and claims that arise in the
ordinary course of its business. In the opinion of management, the outcome of
these matters will not have a significant effect on the Company's consolidated
financial position or results of operations.
F-58
CLINFORCE, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
DECEMBER 31, 2000
6. INCOME TAXES
The Company has always been included in a consolidated return for United
States federal tax reporting purposes. The income tax expense and deferred
income taxes were calculated based on income from operations, and therefore are
not necessarily indicative of amounts that would have been incurred by the
Company had it operated as a stand-alone entity. These calculations were
prepared as if the Company filed on a separate return basis. Deferred income
taxes from years prior to 1999 have not been calculated.
The components of the income tax expense (benefit) are as follows:
2000 1999
---------- ----------
Current.............................................. $1,176,385 $ 884,515
Deferred............................................. 50,686 195,435
---------- ----------
$1,227,071 $1,079,950
========== ==========
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31
-----------------------
2000 1999
---------- ----------
Deferred tax assets:
Accrued expenses..................................... $ 67,953 $ --
Allowance for doubtful accounts...................... 40,924 --
---------- ----------
108,877 --
Deferred tax liabilities:
Goodwill amortization................................ (235,764) (149,686)
Depreciation......................................... (119,234) (45,749)
---------- ----------
Net deferred taxes................................... $ (246,121) $ (195,435)
========== ==========
FASB Statement No. 109 requires a valuation allowance to reduce the deferred
tax assets reported if, based on the weight of the evidence, it is more likely
than not that some of or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance at December 31, 2000 and 1999 is not
necessary.
F-59
CLINFORCE, INC.
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
DECEMBER 31, 2000
6. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U. S. federal statutory
rate to income tax expense is as follows:
DECEMBER 31
-----------------------
2000 1999
---------- ----------
Tax at U.S. statutory rate........................... $1,083,590 $ 930,375
State taxes, net of federal benefit.................. 140,039 119,221
Non-deductible items................................. 9,243 9,363
Other................................................ (5,801) 20,791
---------- ----------
$1,227,071 $1,079,950
========== ==========
7. CASH FLOW INFORMATION (UNAUDITED)
Based on available information and management's best estimates, cash flows
for the Company are as follows for the year ended December 31, 2000:
Provided by operating activities............................ 2,092,075
Used in investing activities................................ (103,564)
Provided by financing activities............................ 0
F-60
REPORT OF INDEPENDENT AUDITORS
To the Members of
Heritage Professional Education, LLC
We have audited the accompanying balance sheet of Heritage Professional
Education, LLC as of December 25, 2000, and the related statements of income,
members' deficit and cash flows for the period from January 1, 2000 through
December 25, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Heritage Professional
Education, LLC at December 25, 2000, and the results of its operations and its
cash flows for the period from January 1, 2000 through December 25, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Nashville, TN
August 10, 2001
F-61
HERITAGE PROFESSIONAL EDUCATION, LLC
BALANCE SHEET
DECEMBER 25, 2000
ASSETS
Current assets:
Cash and cash equivalents................................. $ 376,965
Accounts receivable, net of allowance for doubtful
accounts of $131,081.................................... 118,155
Prepaid expenses and other current assets................. 55,896
---------
Total current assets........................................ 551,016
Property and equipment:
Furniture and fixtures.................................... 10,541
Computer equipment........................................ 50,035
---------
60,576
Less accumulated depreciation and amortization............ (23,672)
---------
36,904
Other assets................................................ 3,226
---------
Total assets................................................ $ 591,146
=========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.................. $ 609,459
Accrued compensation...................................... 138,106
Deferred revenue.......................................... 282,567
---------
Total current liabilities................................... 1,030,132
Members' deficit............................................ (438,986)
---------
Total liabilities and members' deficit...................... $ 591,146
=========
See accompanying notes.
F-62
HERITAGE PROFESSIONAL EDUCATION, LLC
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 2000
THROUGH DECEMBER 25, 2000
Revenue..................................................... $11,147,522
Operating costs and expenses:
Cost of revenues.......................................... 4,935,771
Selling, general and administrative expenses.............. 4,562,912
-----------
Total operating costs and expenses.......................... 9,498,683
-----------
Net income.................................................. $ 1,648,839
===========
See accompanying notes.
F-63
HERITAGE PROFESSIONAL EDUCATION, LLC
STATEMENT OF MEMBERS' DEFICIT
MEMBERS' DEFICIT
----------------
Balance at January 1, 2000.................................. $ (551,003)
Net income.................................................. 1,648,839
Capital distribution........................................ (1,536,822)
----------
Balance at December 25, 2000................................ $ (438,986)
==========
See accompanying notes.
F-64
HERITAGE PROFESSIONAL EDUCATION, LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 2000
THROUGH DECEMBER 25, 2000
OPERATING ACTIVITIES:
Net income.................................................. $1,648,839
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 11,259
Allowance for doubtful accounts........................... 88,096
Changes in operating assets and liabilities:
Accounts receivable..................................... (186,358)
Prepaid expenses and other current assets............... (55,792)
Accounts payable and accrued liabilities................ 285,668
Accrued compensation.................................... 115,142
Deferred revenue........................................ 21,258
----------
Net cash provided operating activities...................... 1,928,112
INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (14,325)
----------
Net cash used in investing activities....................... (14,325)
FINANCING ACTIVITIES:
Distribution to members..................................... (1,536,822)
----------
Net cash used in financing activities....................... (1,536,822)
Net increase in cash and cash equivalents................... 376,965
Cash and cash equivalents at beginning of period............ --
----------
Cash and cash equivalents at end of period.................. $ 376,965
==========
See accompanying notes.
F-65
HERITAGE PROFESSIONAL EDUCATION, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 25, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY
Heritage Professional Education, LLC (the "Company") was organized on
January 1, 1998 and is based in Nashville, Tennessee. The Company provides one
day instructor-led seminars throughout the United States to meet the ongoing
training and continuing education needs of the healthcare community. The Company
has an infinite life unless terminated earlier in accordance with its Operating
Agreement dated January 1, 1998.
RECOGNITION OF REVENUE
Revenue is recognized as the instructor-led seminars are performed and the
related learning materials are delivered. The Company does not require
collateral on trade receivables.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates and such differences could be material to the financial statements.
CASH AND CASH EQUIVALENTS
The Company considers unrestricted, highly liquid investments with initial
maturities of less than three months to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost. Depreciation and
amortization are provided on the straight-line method over the following
estimated useful lives:
YEARS
--------
Furniture and fixtures...................................... 7
Computer equipment.......................................... 3-5
LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires that companies consider whether events or changes in facts and
circumstances, both internally and externally, may indicate that an impairment
of long-lived assets held for use are present. Management periodically evaluates
the carrying value of long-live assets, including property and equipment and
intangible assets and has determined that there were no indications of
impairment as of December 25, 2000. Should there be an impairment in the future,
the Company would recognize the amount of the impairment based on expected
future cash flows from the impaired assets. The cash flow estimates that would
be used would be based on management's best estimates, using appropriate and
customary assumptions and projections at the time.
F-66
HERITAGE PROFESSIONAL EDUCATION, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 25, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED REVENUE
Deferred revenue represents amounts which have been billed and collected,
but not yet recognized in revenue.
INCOME TAXES
The Company has elected to be treated as a partnership for federal income
tax purposes. Accordingly, for federal income tax purposes, the members report
their proportionate share of the Company's taxable income or loss on their
respective tax returns; therefore, no provision for federal income taxes is
included in the financial statements. Furthermore, because the Company's income
is subject to individual self-employment taxes, the income is not subject to
Tennessee income tax. As a result, no provision for state income taxes is
included in the financial statements.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are included in cost of revenues.
ADVERTISING
The Company expenses the costs of advertising as incurred. Advertising
expense for the period from January 1, 2000 through December 25, 2000 was
$3,246,358 and is included in selling, general and administrative expenses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts approximate the fair value
because of the short-term maturity or short-term nature of such instruments.
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND DEFERRED
REVENUE: The carrying amounts approximate the fair value because of the
short-term nature of such instruments.
2. MEMBERS' DEFICIT
The Operating Agreement requires that a separate capital account be
maintained for each member. The respective capital account of each Member
consists of the opening capital account, increased by additional capital
contributions and share of profits transferred to capital by agreement between
the members, and decreased by the share of the Company losses and distributions
of capital. No member shall withdraw any part of his or her capital account
without the consent of the majority in interest of all the members of the
Company. If the capital account of a member becomes impaired, his or her share
of the subsequent Company profits shall be first credited to his or her capital
account until that account has been restored, before such profits are credited
to his or her income accounts. Income tax depreciation shall be taken by each
member based on the ratio that each member's capital account bears to the total
sum of all capital accounts.
F-67
HERITAGE PROFESSIONAL EDUCATION, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 25, 2000
2. MEMBERS' DEFICIT (CONTINUED)
The net profits and losses of the Company are divided between the members in
the same proportions as subsequent contributions to capital described above. A
separate income account shall be maintained for each member. Company profits and
losses shall be charged or credited to the separate income account for each
member. If a member has no credit balance in his or her income account, losses
shall be charged to his or her capital account.
Without the consent of a majority in interest of the members of the Company,
no member shall receive any salary for services or other remuneration rendered
to the Company. Withdrawals of income during each year shall be in amounts
agreed upon from time to time by the members. If a member has a debit balance in
his or her income account, it shall be deemed a debit due to the Company payable
quarterly upon the demand of any member.
3. PROFIT SHARING PLAN
The Company has a profit sharing plan (the "Plan"). Employees of the Company
must have attained the age of 21 and have completed one year of service to be
eligible to participate in the Plan. Under the provisions of the Plan, the
Company may make discretionary contributions to the Plan. The Company
contributed $9,725 during 2000.
4. LEASE COMMITMENTS
The Company leases its office facility in Nashville, Tennessee under an
agreement that expires on December 31, 2002. The lease agreement contains a
provision for escalating rent payments over the term of the lease. The Company
accounts for this lease by recognizing the straight-line rent expense and
adjusting the deferred rent expense liability for the difference between the
straight-line rent expense and the amount of rent paid. Total rent expense under
all operating leases was $39,710 in 2000. Future rental payment commitments at
December 25, 2000 under the non-cancelable facility-operating lease with an
initial term of one year or more, are as follows:
OPERATING LEASES
----------------
2001........................................................ $40,916
2002........................................................ 40,927
Thereafter.................................................. --
-------
Total minimum lease payments................................ $81,843
=======
5. SUBSEQUENT EVENTS
Effective December 26, 2000, Cross Country Seminars, a wholly-owned
subsidiary of Cross Country, Inc., acquired substantially all of the assets and
business of the Company. The Company received approximately $6,500,000 in cash.
In addition, the asset purchase agreement provides for potential earnout
payments of approximately $6,5000,000 based on adjusted earnings before
interest, taxes, depreciation, and amortization (EBITDA) (as defined in the
asset purchase agreement) of the business over a three-year period ending
December 31, 2003.
Subsequent to December 25, 2000, the Company changed its name to Caney Fork
Investments, LLP.
F-68
[Description of artwork: Depiction of patient and healthcare personnel]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 2001 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
CROSS COUNTRY, INC.
COMMON STOCK
---------------------
P R O S P E C T U S
---------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
SUNTRUST ROBINSON HUMPHREY
CIBC WORLD MARKETS
, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of common stock registered hereby,
all of which expenses, except for the Securities and Exchange Commission
registrant fee, the National Association of Securities Dealers, Inc. filing fee,
and the Nasdaq National Market listing application fee, are estimated.
Securities and Exchange Commission registration fee......... $ 38,142
National Association of Securities Dealers, Inc. filing
fee....................................................... 15,774
Nasdaq National Market listing application fee.............. *
Printing and engraving fees and expenses.................... *
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Transfer Agent and Registrar fees and expenses.............. *
Miscellaneous expenses...................................... *
----------
Total................................................... $1,500,000
==========
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the General Corporation Law of Delaware allows a corporation
to limit a director's personal liability to the corporation or its stockholders
from monetary damages for breach of fiduciary duty as a director, with certain
exceptions. The Company's Certificate of Incorporation, as amended, provides
such limitation to the fullest extent permitted by the General Corporation Law
of Delaware.
Section 145 of the General Corporation Law of Delaware permits a
corporation, subject to the standards set forth therein, to indemnify any person
in connection with any action, suit or proceeding brought or threatened by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation or is or was serving as such with respect to another
entity at the request of the corporation. The Company's Certificate of
Incorporation, as amended, and the Company's By-Laws, as amended, provide for
full indemnification of its directors and officers to the extent permitted by
Section 145.
Our amended and restated certificate of incorporation limits the liability
of our directors to us and our stockholders to the fullest extent permitted by
Delaware law. Specifically, our directors will not be personally liable for
money damages for breach of fiduciary duty as a director, except for liability
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, which concerns
unlawful payments of dividends, stock purchases, or redemptions; and
- for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation and amended and
restated by-laws will also contain provisions indemnifying our directors and
officers to the fullest extent permitted by Delaware law. The indemnification
permitted under Delaware law is not exclusive of any other rights to which such
persons may be entitled.
II-1
In addition, we maintain insurance on behalf of our directors and officers
insuring them against liabilities asserted against them in their capacities as
directors or officers or arising out of such status, except when we have
directly indemnified the directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, Cross Country has issued and sold the following
securities:
On July 29, 1999, we issued and sold 2,040,503 shares of Common Stock to
Charterhouse Equity Partners III, L.P. and CHEF Nominees, Ltd. for gross
proceeds of $71.8 million.
On July 29, 1999, in connection with our acquisition of substantially all
the assets of Cross Country Staffing, we issued 170,445 shares of Common Stock
to Cross Country Staffing.
On July 29, 1999, pursuant to an Amended and Restated Subscription and
Stockholders Agreement, we issued to Joseph Boshart, Emil Hensel, Jonathan Ward
and Vickie Anenberg an aggregate of 49,716 shares of Common Stock for gross
proceeds of $1.8 million.
On July 29, 1999, we issued 65,527 shares of Common Stock to The
Northwestern Mutual Life Insurance Company in connection with its purchase of
$10.0 million of our 12% Senior Subordinated Pay-in-Kind Notes, due on
January 1, 2006.
On July 29, 1999, we issued 131,053 shares of Common Stock to DB Capital
Investors in connection with the purchase by BT Investment Partners of
$20.0 million of our 12% Senior Subordinated Pay-in-Kind Notes, due on
January 1, 2006.
On December 9, 1999, we granted to certain of our and our subsidiaries'
employees an aggregate of 22,754 shares of Common Stock in consideration for the
receipt of $0.01 per share. The following individuals purchased these shares:
Joseph Boshart, Emil Hensel, Vickie Anenberg, Jonathan Ward, Lee Ann O'Connor,
Frank Shaffer, Barbara Astler, Jerry Chua, Daniel Lewis, Richard Ives, Wendi
Dusseault, Katherine Miyares, Dijanan Lesh, Debbie Simpson, Jean Ann Johnson,
Denise Brodwyn, Kristin Dunn, Francine Denello, Lisa Vrana, Lisa Lapina, Mia
Wender, Hope Mello, Tom Homish, Christine Portner, Darren Portner, Marc Leon,
Tom Stevens, Brian Hekman, Sharon Boggs, Lynn Gianatasio, Ted Burg, Jeanette
McClary, Chris West, Karen McConnell, Darren Bounds, Michael MacNeill, Stephanie
Russo, Michael Britt, Melissa Rutherford, Mary Walker, Luz Torres, Kimberly
Hewlitt, Kathleen Salerno, Jill Wengerter, Jennifer Goldstein, Jackie Finz,
Gregg Proietti, Dawn Anderson, Beth Butler, Audrey Mariovich, Arlene Belue,
Anthony Pederson and Heather Stover.
On December 16, 1999, in connection with our acquisition of TravCorps, we
issued 1,520,000 shares of Common Stock to certain holders of stock of
TravCorps.
In addition, as of June 30, 2001, the Company has granted options to
purchase a total of 3,268,521 shares of Common Stock to employees, including
certain senior managers, at a weighted average exercise price of approximately
$12.48 per share.
The issuances described above in this Item 15 were deemed exempt from
registration under the Securities Act in reliance on either: (1) Rule 701
promulgated under the Securities Act as offers and sales of securities pursuant
to certain compensatory benefit plans and contracts relating to compensation in
compliance with Rule 701; or (2) Section 4(2) of the Securities Act, including
Regulation D thereunder, as transactions by an issuer not involving any public
offering.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed with this registration statement.
NO. DESCRIPTION
--- -----------
1.1 Form of Underwriting Agreement
2.1+ Cross Country Staffing Asset Purchase Agreement, dated June
24, 1999, by and among W. R. Grace & Co.-Conn., a
Connecticut corporation, Cross Country Staffing, a Delaware
general partnership, and the Registrant, a Delaware
corporation
2.2+ Agreement and Plan of Merger, dated as of October 29, 1999,
by and among the Registrant, CCTC Acquisition, Inc. and
Certain Stockholders of Cross Country Staffing, Inc and
TravCorps Corporation and the Stockholders of TravCorps
Corporation
2.3+ Stock Purchase Agreement, dated as of December 15, 2000, by
and between Edgewater Technology, Inc. and the Registrant
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Amended and Restated By-laws of the Registrant
4.1* Form of specimen common stock certificate
4.2** Amended and Restated Stockholders Agreement, dated
August 23, 2001, among the Registrant, a Delaware
corporation, the CEP Investors and the Investors
4.3+ Registration Rights Agreement, dated as of October 29, 1999,
among the Registrant, a Delaware corporation, and the CEP
Investors and the MSDWCP Investors
4.4 Amendment to the Registration Rights Agreement, dated as of
August 23, 2001, among the Registrant, a Delaware
corporation, and the CEP Investors and the MSDWCP Investors
4.5 Stockholders Agreement, dated as of August 23, 2001, among
the Registrant, Joseph Boshart and Emil Hensel and the
Financial Investors
5.1 Opinion of Proskauer Rose LLP as to the legality of the
common stock being registered
10.1+ Employment Agreement, dated as of June 24, 1999, between
Joseph Boshart and the Registrant
10.2+ Employment Agreement, dated as of June 24, 1999, between
Emil Hensel and the Registrant
10.3+ Employment Agreement termination, dated as of December 21,
2000, between Bruce Cerullo and the Registrant
10.4+ Lease Agreement, dated April 28, 1997, between Meridian
Properties and the Registrant
10.5+ Lease Agreement, dated October 31, 2000, by and between
Trustees of the Goldberg Brothers Trust, a Massachusetts
Nominee Trust and TVCM, Inc.
10.6+ 222 Building Standard Office Lease between Clayton Investors
Associates, LLC and Cejka & Company
10.7** Amended and Restated 1999 Stock Option Plan of the
Registrant
10.8** Amended and Restated Equity Participation Plan of the
Registrant
10.9+ Second Amended and Restated Credit Agreement, dated as of
March 16, 2001, among the Registrant, the Lenders Party
thereto, Salomon Smith Barney, Inc., as Arranger, Citicorp
USA, Inc. as Administrative Agent, Collateral Agent, Issuing
Bank and Swingline Lender, Bankers Trust Company, as
Syndication Agent, and Wachovia Bank, N.A., as Documentation
Agent
II-3
NO. DESCRIPTION
--- -----------
10.10+ Waiver and Amendment No. 1 dated as of May 3, 2001, to the
Credit Agreement dated as of July 29, 1999, as amended and
restated as of December 16, 1999 and March 16, 2001 by and
among the Registrant, the Lenders Party thereto, Salomon
Smith Barney, Inc., as Arranger, Citicorp USA, Inc. as
Administrative Agent, Collateral Agent, Issuing Bank and
Swingline Lender, Bankers Trust Company, as Syndication
Agent, and Wachovia Bank, N.A., as Documentation Agent
10.11+ Form of Subsidiary Guarantee Agreement, dated as of December
16, 1999, among the Registrant's subsidiary guarantors and
Citicorp USA, Inc., as collateral agent for the Obligees
10.12+ Form of Security Agreement, dated as of July 29, 1999, as
amended and restated as of December 16, 1999 among the
Registrant and Citicorp USA, Inc. as collateral agent for
the Obligees
10.13+ Form of Pledge Agreement, dated as of July 29, 1999, as
amended and restated as of December 16, 1999, among the
Registrant and Citicorp USA, Inc., as collateral agent for
the Obligees
10.14+ Form of Indemnity, Subrogation and Contribution Agreement,
dated as of December 16, 1999, among the Registrant, the
subsidiaries of the Registrant and Citicorp USA, Inc., as
collateral agent for the Obligees
21.1+ List of subsidiaries of the Registrant
23.1 Consents of Ernst & Young LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Proskauer Rose LLP (contained in Exhibit 5.1)
24.1+ Power of Attorney (included on signature page of the
Registration Statement)
- ------------------------
* To be filed by amendment.
** Previously filed and filed in revised form.
+ Previously filed
(b) Financial Statement Schedules
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS (FOR CONTINUING OPERATIONS)
-------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES WRITEOFF'S RECOVERIES CHANGES OF PERIOD
- ----------- ---------- ---------- ---------- ---------- ---------- ----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Period July 30-December 31, $1,158,039 $ 511,341 $ (272,142) $ -- $ 746,872 (a) $2,144,110
1999............................
Year ended December 31, 2000...... 2,144,110 432,973 (565,012) 75,676 -- 2,087,747
Six months ended June 30, 2001.... 2,087,747 861,739 (237,385) -- 52,499 (b) 2,764,600
- --------------------------
(a) - Allowance for doubtful accounts for receivables acquired in TravCorps
acquisition
(b) - Allowance for doubtful accounts for receivables acquired in ClinForce
acquisition
All schedules not identified above have been omitted because they are not
required, are not applicable or the information is included in the selected
consolidated financial data or notes contained in this Registration Statement.
II-4
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by the director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Boca Raton, Florida, on the 23rd
day of August, 2001.
CROSS COUNTRY, INC.
By: *
-----------------------------------------
Joseph Boshart
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on the
23rd day of August, 2001.
SIGNATURE TITLE
--------- -----
* President, Chief Executive Officer and
------------------------------------------- Director
Joseph A. Boshart (Principal Executive Officer)
* Chief Financial Officer, Chief Operating
------------------------------------------- Officer and Director (Principal Financial
Emil Hensel Officer and Principal Accounting Officer)
*
------------------------------------------- Director
Karen H. Bechtel
*
------------------------------------------- Director
Bruce A. Cerullo
*
------------------------------------------- Director
Thomas C. Dircks
*
------------------------------------------- Director
A. Lawrence Fagan
*
------------------------------------------- Director
Fazle Husain
*By: /s/ JOSEPH A. BOSHART
--------------------------------------
Joseph A. Boshart
Attorney-in-fact
II-6
Exhibit 1.1
================================================================================
CROSS COUNTRY, INC.
(a Delaware corporation)
Shares of Common Stock
PURCHASE AGREEMENT
Dated: , 2001
================================================================================
Table of Contents
-----------------
Page
----
Section 1. Representations and Warranties..................................3
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY...................3
(b) OFFICER'S CERTIFICATES.........................................14
Section 2. Sale and Delivery to Underwriters; Closing.....................14
(a) INITIAL SECURITIES.............................................14
(b) OPTION SECURITIES..............................................14
(c) PAYMENT........................................................14
(d) DENOMINATIONS; REGISTRATION....................................15
(e) APPOINTMENT OF QUALIFIED INDEPENDENT UNDERWRITER...............15
Section 3. Covenants of the Company.......................................16
Section 4. Payment of Expenses............................................19
(a) EXPENSES.......................................................19
(b) TERMINATION OF AGREEMENT.......................................20
Section 5. Conditions of Underwriters' Obligations........................20
Section 6. Indemnification................................................23
(a) INDEMNIFICATION OF UNDERWRITERS................................23
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS.............25
(c) ACTIONS AGAINST PARTIES; NOTIFICATION..........................25
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE.............26
(e) INDEMNIFICATION FOR RESERVED SECURITIES........................26
Section 7. Contribution...................................................27
Section 8. Representations, Warranties and Agreements to Survive Delivery.28
Section 9. Termination of Agreement.......................................28
(a) TERMINATION; GENERAL...........................................28
(b) LIABILITIES....................................................29
Section 10. Default by One or More of the Underwriters.....................29
Section 11. Notices........................................................30
Section 12. Parties........................................................30
i
Table of Contents
-----------------
(continued)
Section 13. GOVERNING LAW AND TIME.........................................30
Section 14. Effect of Headings.............................................31
SCHEDULES
Schedule A - List of Underwriters.............................Sch A-1
Schedule B - Pricing Information..............................Sch B-1
Schedule C - List of Persons subject to Lock-up...............Sch C-1
Schedule D - List of Subsidiaries of the Company..............Sch D-1
EXHIBITS...................................................................A-1
Exhibit A - Form of Opinion of Company's Counsel.................A-1
Exhibit B - Form of Lock-up Letter................................B-1
ii
CROSS COUNTRY, INC.
(a Delaware corporation)
Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
, 2001
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney
Banc of America Securities LLC
SunTrust Capital Markets, Inc.
CIBC World Markets
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
4 World Financial Center
North Tower
New York, New York 10080
Ladies and Gentlemen:
Cross Country, Inc., a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Salomon Smith Barney, Banc of America
Securities LLC, SunTrust Capital Markets, Inc. and CIBC World Markets are acting
as representatives (in such capacity, the "Representatives"), with respect to
the issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock,
par value $o per share, of the Company ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of o additional shares of Common Stock to cover
over-allotments, if any.
The aforesaid o shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the o shares of Common
Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities".
The Company understands that the Underwriters propose to make
a public offering of the Securities as soon as the Representatives deem
advisable after this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to o shares of
the Initial Securities to be purchased by the Underwriters (the "Reserved
Securities") shall be reserved for sale by the Underwriters to some of the
Company's directors, officers, employees, business associates and related
persons (collectively "Eligible Persons") as part of the distribution of the
Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Securities are not orally confirmed for
purchase by such eligible employees and persons having business relationships
with the Company by the end of the first business day after the date of this
Agreement, such Reserved Securities may be offered to the public as part of the
public offering contemplated hereby.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-64914) covering the registration of the Securities under the Securities Act
of 1933, as amended (the "1933 Act"), including the related preliminary
prospectus or prospectuses. Promptly after execution and delivery of this
Agreement, the Company will prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations. The information included
in any such prospectus that was omitted from such registration statement at the
time it became effective but that is deemed to be part of such registration
statement at the time it became effective pursuant to paragraph (b) of Rule 430A
is referred to as "Rule 430A Information". Each Form of Prospectus used before
such registration statement became effective, and any prospectus that omitted
the Rule 430A Information, that was used after such effectiveness and prior to
the execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the
2
Rule 430A Information, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final Form of Prospectus in the form first furnished
to the Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." For purposes of this Agreement, all references
to the Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
Prior to or upon the consummation of the offering of the
Securities (i) the Company's certificate of incorporation and bylaws will be
amended and restated and the Company will file with the Secretary of State of
the State of Delaware the amended and restated certificate of incorporation
("the Charter Amendments"), (ii) a o for o split of the Common Stock will be
effected (the "Stock Split"), (iii) conversion of o shares of Class B non-voting
common stock of the Company into o shares of Common Stock will be effected (the
Conversion"), and (iv) the letter agreements among the Company and Messrs.
Boshart, Hensel and Cerullo will be terminated (the "Preemptive Right
Termination"). The Charter Amendments, the Stock Split, the Recapitalization and
the Preemptive Right Termination are collectively referred to herein as the
"Related Transactions."
Section 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and if any Option Securities
are purchased, as of each Date of Delivery (if any) referred to in Section 2(b)
hereof, and agrees with each Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at
3
the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and did not and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectuses, any
preliminary prospectuses and any supplement thereto or prospectus
wrapper prepared in connection therewith, at their respective times of
issuance and at the Closing Time, complied and will comply in all
material respects with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus and such preliminary prospectus,
as amended or supplemented, if applicable, are distributed in
connection with the offer and sale of Reserved Securities. Neither the
Prospectus nor any amendments or supplements thereto (including any
prospectus wrapper), at the time the Prospectus or any amendments or
supplements thereto were issued and at the Closing Time (and, if any
Option Securities are purchased, at each Date of Delivery), included or
will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity
with information furnished to the Company in writing by any Underwriter
through the Representatives expressly for use in the Registration
Statement or the Prospectus.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The consolidated financial
statements included in the Registration Statement and the Prospectus,
together with the related schedules and notes, present fairly the
financial position of the Company and its consolidated Subsidiaries,
Cross Country Staffing, Inc. partnership (the
4
"Predecessor Entity"), TravCorps Corporation, ClinForce, Inc. and
Heritage Professional Education LLC (collectively, the "Acquired
Entities") at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and its
consolidated Subsidiaries, the Predecessor Entity and the Acquired
Entities for the periods specified; said financial statements have
been prepared in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected consolidated
financial and other data and the summary consolidated financial and
other information of the Company included in the Prospectus present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in
the Registration Statement. The pro forma financial information and the
related notes thereto included in the Registration Statement and the
Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its Subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its Subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
5
(vi) GOOD STANDING OF SUBSIDIARIES. (A) Each Subsidiary of the
Company set forth on Schedule D hereto (which lists all subsidiaries of
the Company) (each a "Subsidiary" and, collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
of each such Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, directly or
through Subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of
such Subsidiary. The only subsidiaries of the Company are the
Subsidiaries listed on Schedule 1 hereto.
(B) Except as disclosed in the Prospectus, there are no
encumbrances or restrictions on the ability of any Subsidiary (i) to
pay any dividends or make any distributions on such Subsidiary's
capital stock, (ii) to make any loans or advances to, or investments in
the Company or any other Subsidiary, or (iii) to transfer any of its
property or assets to the Company or any other Subsidiary.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company. The shares of issued and outstanding
capital stock of the Company have been issued in compliance, in all
material respects, with all federal and state securities laws. Except
as disclosed in the Prospectus, there are no outstanding options or
warrants to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of the
Company's capital stock or any such options, warrants, rights,
convertible securities or obligations. The description of
6
the Company's stock option and purchase plans and the options or other
rights granted and exercised thereunder set forth in the Prospectus
accurately and fairly describe, in all material respects, the
information required to be shown with respect to such plans,
arrangements, options and rights.
(viii) AUTHORIZATION OF AGREEMENT. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale to the Underwriters pursuant
to this Agreement, and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set
forth herein will be validly issued, fully paid and non-assessable; the
Common Stock conforms to all statements relating thereto contained in
the Prospectus and such description conforms to the rights set forth in
the instruments defining the same; no holder of the Securities will be
subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(x) AUTHORIZATION OF RELATED TRANSACTIONS. To the extent
required by law, the Company's certificate of incorporation, by-laws or
other constituent documents, or any agreement between the Company and
any of its stockholders or holders of its indebtedness, the
consummation of the Related Transactions has been duly authorized by
the Company's board of directors and securityholders and no other
corporate proceedings on the part of the Company are needed to
authorize the Related Transactions.
(xi) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company
nor any of its Subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any Subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
under Agreements and Instruments that would not result in a Material
Adverse Effect; and the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated in this
Agreement and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of
Proceeds" and the completion of the Related Transactions) and
compliance by the Company with its obligations under this
7
Agreement have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Subsidiary pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
Subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
Subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or
any person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any Subsidiary.
(xii) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any Subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any Subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, would reasonably be expected to
result in a Material Adverse Effect.
(xiii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
would reasonably be expected to result in a Material Adverse Effect, or
which would reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement or the Related Transactions
or the performance by the Company of its obligations hereunder or
thereunder; the aggregate of all pending legal or governmental
proceedings to which the Company or any Subsidiary is a party or of
which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, would not reasonably be
expected to result in a Material Adverse Effect.
8
(xiv) ACCURACY OF EXHIBITS. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.
(xv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
Subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
Subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would reasonably be expected
to result in a Material Adverse Effect.
(xvi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement, the consummation of the
Related Transactions or the consummation of the transactions
contemplated by this Agreement, except (i) such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations and foreign or state securities or blue sky laws and (ii)
with regard to offers and sales of Reserved Securities, such as have
been obtained under the laws and regulations of jurisdictions outside
the United States in which the Reserved Securities are offered.
(xvii) POSSESSION OF LICENSES AND PERMITS. The Company and its
Subsidiaries possess required permits, licenses (including, without
limitation, any state nursing pool licenses), provider numbers,
certificates, approvals, accreditations (including, without limitation,
accreditation required by the Joint Commission on Accreditation of
Healthcare Organizations), consents and other authorizations
(collectively, "Governmental Licenses") issued by, and have made all
required declarations and filings with, the appropriate federal, state,
local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them (including, without limitation, the
Governmental Licenses as are required under such federal and state
healthcare laws as are applicable to the
9
Company and its Subsidiaries; to the best knowledge of the Company, the
individual nurses and other personnel that the Company and its
subsidiaries have placed or intend to place with clients have obtained
all necessary Governmental Licenses to be legally qualified to serve at
the facilities and in the positions in which they are staffed and the
Company takes reasonable measures to ensure that all such nurses and
other personnel possess such Governmental Licenses; the Company and its
Subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xviii) NO FEES FROM THIRD-PARTY PAYORS. None of the Company
or any of its Subsidiaries receives fees, compensation or reimbursement
of any kind for any of its services from any governmental or other
third-party payor, including, without limitation, from third-party
payors such as Medicare, Medicaid, Medi-Cal, private insurance
companies, health maintenance organizations, preferred provider
organizations, managed care systems and other third party payors
(including, without limitation, Blue Cross plans).
(xix) LICENSURE OF NURSES AND OTHER HEALTHCARE PROFESSIONALS.
The Company has established and shall administer, except to the extent
that a failure to do so would not reasonably be expected to result in a
Material Adverse Effect, a compliance program (including a written
compliance policy) applicable to the Company and its Subsidiaries, to
assist the Company, its Subsidiaries and the directors, officers and
employees of the Company and its Subsidiaries, in complying with
applicable federal and state guidelines (including, without limitation,
guidelines imposed by OSHA and JCAHO (including its Comprehensive
Accreditation Manual for Hospitals)) for the due qualification and
licensure of registered nurses and other healthcare professionals that
the Company and its Subsidiaries place through their staffing
businesses.
(xx) TITLE TO PROPERTY. Except to the extent specifically
disclosed in the Prospectus, the Company and its Subsidiaries have good
and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectus or (b) do not, singly or in the
10
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or any of its Subsidiaries; and all of the leases and
subleases material to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or any of its
Subsidiaries holds properties described in the Prospectus, are in full
force and effect, and neither the Company or any of its Subsidiaries
has any notice of any claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any of its Subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or of its Subsidiaries to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xxi) INVESTMENT COMPANY ACT. None of the Company or any of
its Subsidiaries is, and upon the issuance and sale of the Securities
as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus none of them will be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act").
(xxii) ENVIRONMENTAL LAWS. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, reasonably be expected to result in a Material Adverse
Effect, (A) neither the Company nor any of its Subsidiaries is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances (including, without limitation,
asbestos, polychlorinated biphenyls, urea-formaldehyde, insulation,
petroleum or petroleum products) (collectively, "Hazardous Materials")
or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials
(collectively, "Environmental Laws"), (B) the Company and its
Subsidiaries have all permits, authorizations and approvals required
under any applicable Environmental Laws and are each in compliance with
their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or any of its Subsidiaries (including, without limitation,
any claims relating to the purchases and other corporate transactions
involving the current Subsidiaries and predecessor entities which
currently are integrated with the
11
Company and its Subsidiaries) and (D) there are no events or
circumstances that would reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its Subsidiaries relating to Hazardous Materials
or any Environmental Laws.
(xxiii) REGISTRATION RIGHTS. Except as disclosed in the
Prospectus under the caption "Shares Eligible for Future Sale -
Registration Rights" there are no persons with registration rights or
other similar rights to have any securities of the Company or any of
its Subsidiaries registered pursuant to the Registration Statement or
otherwise registered by the Company or any other person under the 1933
Act.
(xxiv) INSURANCE. The Company and each of its Subsidiaries is
insured by insurers of recognized financial responsibility against such
loses and risks and in such amounts as are prudent and customary in the
industries in which the Company and its Subsidiaries operate; none of
the Company or any of its Subsidiaries has been refused any material
insurance coverage sought or applied for; and the Company has no reason
to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
operations except where the failure to renew or maintain such coverage
would not reasonably be expected to result in a Material Adverse
Effect. The officers and directors of the Company are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent and
customary for officers' and directors' liability insurance of a public
company and as the Company believes would cover claims which would
reasonably be expected to be made in connection with the issuance of
the Securities; and the Company has no reason to believe that it will
not be able to renew its existing directors' and officers' liability
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to cover its
officers and directors.
(xxv) TAX RETURNS AND PAYMENT OF TAXES. The Company and its
Subsidiaries have timely filed all federal, state, local and foreign
tax returns that are required to be filed or has duly requested
extensions thereof and all such tax returns are true, correct and
complete, except to the extent that any failure to file or request an
extension, or any incorrectness would not reasonably be expected to
result in a Material Adverse Effect. The Company and its Subsidiaries
have timely paid all taxes shown as due on such filed tax returns
(including any related assessments, fines or penalties), except to the
extent that any such taxes are being contested in good faith and by
appropriate proceedings, or to the extent that any failure to pay would
not reasonably be expected to result in a Material Adverse
12
Effect; and adequate charges, accruals and reserves have been provided
for in the financial statements referred to in Section 1(a)(iii) above
in accordance with GAAP in respect of all Federal, state, local and
foreign taxes for all periods as to which the tax liability of the
Company and its Subsidiaries has not been finally determined or remains
open to examination by applicable taxing authorities except (A) for
taxes incurred after the date of the financial statements referred to
in Section 1(a)(iii) or (B) where the failure to provide for such
charges, accruals and reserves would not reasonably be expected to
result in a Material Adverse Effect. None of the Company or its
Subsidiaries is a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Internal Revenue Code of
1986, as amended (the "Code").
(xxvi) NO STABILIZATION OR MANIPULATION. Neither the Company
nor any of its Subsidiaries or, to the best of their knowledge, any of
their directors, officers or affiliates has taken or will take,
directly or indirectly, any action designed to, or that could be
reasonably expected to, cause or result in stabilization or
manipulation of the price of the Securities in violation of Regulation
M under the Securities Exchange Act of 1934, as amended (the "1934
Act").
(xxvii) CERTAIN TRANSACTIONS. Except as disclosed in the
Prospectus, there are no outstanding loans, advances, or guarantees of
indebtedness by the Company or any of its Subsidiaries to or for the
benefit of any of the executive officers or directors of the Company or
any of the members of the families of any of them that would be
required to be so disclosed under the 1933 Act, the 1933 Act
Regulations or Form S-1.
(xxviii) STATISTICAL AND MARKET DATA. The statistical and
market-related data included in the Prospectus are derived from sources
which the Company reasonably and in good faith believes to be accurate,
reasonable and reliable in all material respects and the statistical
and market-related data included in the Prospectus agrees with the
sources from which it was derived in all material respects.
(xxix) ACCOUNTING AND OTHER CONTROLS. The Company has
established a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions were, are and will
be executed in accordance with management's general or specific
authorization; (ii) transactions were, are and will be recorded as
necessary to permit preparation of financial statements in conformity
with GAAP and to maintain accountability for assets; (iii) access to
assets was, is and will be permitted only in accordance with a
management's general or specific authorizations; and (iv) the recorded
accountability for assets was, is and will be compared with existing
assets at reasonable intervals and appropriate action was, is and will
be taken with respect to any differences.
13
(b) OFFICER'S CERTIFICATES. Any certificate signed by any
officer of the Company or any of its Subsidiaries delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
Section 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional o
shares of Common Stock at the price per share set forth in Schedule B, less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
The option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery for the
Option Securities (a "Date of Delivery") shall be determined by Merrill Lynch,
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as Merrill Lynch in its discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery
of certificates for, the Initial Securities shall be made at the offices of
Debevoise & Plimpton, 919 Third Avenue, New York, New York 10022, or at such
other place as shall be agreed upon by the Representatives and the Company, at
9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day)
14
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase price for,
and delivery of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representatives and the Company, on each Date of Delivery as specified in the
notice from the Representatives to the Company.
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the Company, against
delivery to the Representatives for the respective accounts of the Underwriters
of certificates for the Securities to be purchased by them. It is understood
that each Underwriter has authorized the Representatives, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
(e) APPOINTMENT OF QUALIFIED INDEPENDENT UNDERWRITER. The
Company hereby confirms its engagement of CIBC World Markets as, and CIBC World
Markets hereby confirms its agreement with the Company to render services as, a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. with
respect to the offering and sale of the Securities. CIBC World Markets, solely
in its capacity as qualified independent underwriter and not otherwise, is
referred to herein as the "Independent Underwriter".
15
Section 3. COVENANTS OF THE COMPANY. The Company covenants
with each Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become
effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order
is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) FILING OF AMENDMENTS. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectus, will furnish the Representatives with
copies of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use
any such document to which the Representatives or counsel for the
Underwriters shall reasonably object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has
furnished or, if requested by the Representatives, will deliver to the
Representatives and counsel for the Underwriters, without charge,
signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and copies of all signed consents
and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the Underwriters. The copies of the Registration
Statement and each amendment thereto furnished
16
to the Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to
each Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement and in the Prospectus. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend
the Registration Statement or amend or supplement any Prospectus in
order that the Prospectus will not include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement any
Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration
17
Statement; provided, however, that the Company shall not be obligated
to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have
been so qualified, the Company will file such statements and reports as
may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) RULE 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
(i) LISTING. The Company will use its best efforts to effect
and maintain the quotation of the Securities on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have
securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 180
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Securities to be sold
hereunder, (B) any shares of Common Stock issued by the Company upon
the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus,
(C) any shares of Common Stock
18
issued or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company referred to in the Prospectus or
(D) any shares of Common Stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan.
(k) REPORTING REQUIREMENTS. The Company, during the period
when the Prospectus is required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
(l) COMPLIANCE WITH NASD RULES. The Company hereby agrees that
it will ensure that the Reserved Securities will be restricted as
required by the NASD or the NASD rules from sale, transfer, assignment,
pledge or hypothecation for a period of three months following the date
of this Agreement. The Underwriters will notify the Company as to which
persons will need to be so restricted. At the request of the
Underwriters, the Company will direct the transfer agent to place a
stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions
any of the Reserved Securities, the Company agrees to reimburse the
Underwriters for any reasonable expenses (including, without
limitation, legal expenses) they incur in connection with such release.
(m) COMPLIANCE WITH RULE 463. The Company will comply with the
requirements of Rule 463 of the 1933 Act Regulations.
Section 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to
the performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
19
preliminary prospectus, and of the Prospectus and any amendments or supplements
thereto, (vii) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and
expenses of any transfer agent or registrar for the Securities and (ix) the
filing fees incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Securities, (x) the fees and expenses incurred in connection with the inclusion
of the Securities in the Nasdaq National Market, (xi) all costs and expenses of
the Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to employees and others having a
business relationship with the Company and (xii) the fees and expenses of the
Independent Underwriter.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated
by the Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
Section 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The
obligations of the several Underwriters hereunder are subject to the accuracy of
the representations and warranties of the Company contained in Section 1 hereof
or in certificates of any officer of the Company or any Subsidiary of the
Company delivered pursuant to the provisions hereof, to the performance by the
Company of its covenants and other obligations hereunder, and to the following
further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing
such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Proskauer Rose LLP, special counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect
20
set forth in Exhibit A hereto and to such further effect as counsel to
the Underwriters may reasonably request.
(c) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Debevoise & Plimpton, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters in form and substance reasonably satisfactory to
the Underwriters.
(d) OFFICERS' CERTIFICATE. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and the Representatives shall have
received a certificate of the President and Chief Executive Officer and
the Chief Financial Officer and Chief Operating Officer, dated as of
Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or threatened or are contemplated by the
Commission.
(e) ACCOUNTANT'S COMFORT LETTERS. At the time of the execution
of this Agreement, the Representatives shall have received from Ernst &
Young, a letter dated such date, in form and substance satisfactory to
the Representatives, together with signed or reproduced copies of such
letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectus.
(f) BRING-DOWN COMFORT LETTERS. At Closing Time, the
Representatives shall have received from Ernst & Young a letter, dated
as of Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (e) of this
Section, except that the specified date referred to shall be a date not
more than three business days prior to Closing Time.
21
(g) APPROVAL OF LISTING. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(h) NO OBJECTION. The NASD shall have confirmed that it has
not raised any objection with respect to the fairness and
reasonableness of the underwriting terms and arrangements with respect
to the Securities.
(i) LOCK-UP AGREEMENTS. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule C
hereto.
(j) RELATED TRANSACTIONS. Prior to the purchase of the
Securities by the Underwriters, the Related Transactions shall have
been consummated.
(k) CONSENT OF CHARTERHOUSE AND MORGAN STANLEY. At the date of
this Agreement, the Representatives shall have received from the
appropriate affiliates of each of the Charterhouse Group International,
Inc. and Morgan Stanley Capital Partners IV, such consent as is
required for the transactions contemplated by the Company under this
Agreement, including the offering of the Securities, under the
stockholder agreement among the affiliates of Charterhouse Group
International, Inc. and Morgan Stanley Capital Partners IV and the
Company, or the Representatives shall have received a written waiver of
such right to consent.]
(l) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any
Subsidiary of the Company hereunder shall be true and correct as of
each Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such
Date of Delivery, of the President or a Vice President of the
Company and of the chief financial or chief accounting officer
of the Company confirming that the certificate delivered at
the Closing Time pursuant to Section 5(d) hereof remains true
and correct as of such Date of Delivery.
(ii) OPINION OF COUNSEL FOR COMPANY. The favorable
opinion of: Proskauer Rose LLP, counsel for the Company, in
form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery
22
and otherwise to the same effect as the opinion required by
Section 5(b) hereof.
(iii) OPINION OF COUNSEL FOR UNDERWRITERS. The favorable
opinion of Debevoise & Plimpton, counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities
to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(iv) BRING-DOWN COMFORT LETTERS. A letter from Ernst &
Young in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially
in the same form and substance as the letter furnished to the
Representatives pursuant to Section 5(f) hereof, except that
the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(m) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
(n) TERMINATION OF AGREEMENT. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
Section 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. (1) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
23
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of
any applicable laws or regulations of any jurisdiction where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in any jurisdiction) in
connection with the reservation and sale of the Reserved Securities to
Eligible Persons or the omission or alleged omission therefrom of a
material fact necessary to make the statements therein, when considered
in conjunction with the Prospectuses or preliminary prospectuses, not
misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission or in
connection with any violation of the nature referred to in Section
6(a)(1)(ii)(A) hereof; provided that (subject to Section 6(d) below)
any such settlement is effected with the written consent of the
Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof,
to the extent that any such expense is not paid under (i), (ii) or
(iii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with
24
written information furnished to the Company by any Underwriter through the
Representatives expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(2) In addition to and without limitation of the Company's
obligation to indemnify CIBC World Markets as an Underwriter, the Company also
agrees to indemnify and hold harmless the Independent Underwriter and each
person, if any, who controls the Independent Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any
and all loss, liability, claim, damage and expense whatsoever, as incurred,
incurred as a result of the Independent Underwriter's participation as a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. in
connection with the offering of the Securities.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a)(1) of this Section, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through the
Representatives expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a)(1) above, counsel to the indemnified parties shall be selected
by Merrill Lynch, and, in the case of parties indemnified pursuant to Section
6(b) above, counsel to the indemnified parties shall be selected by the Company.
An indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local
25
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances;
provided, that, if indemnity is sought pursuant to Section 6(a)(2), then, in
addition to the fees and expenses of such counsel for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one counsel (in addition to any local counsel) separate from its
own counsel and that of the other indemnified parties for the Independent
Underwriter in its capacity as a "qualified independent underwriter" and all
persons, if any, who control the Independent Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of 1934 Act in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances if, in the
reasonable judgment of the Independent Underwriter, there may exist a conflict
of interest between the Independent Underwriter and the other indemnified
parties. Any such separate counsel for the Independent Underwriter and such
control persons of the Independent Underwriter shall be designated in writing by
the Independent Underwriter. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(1)(iii) effected without its written consent
if (i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.
(e) INDEMNIFICATION FOR RESERVED SECURITIES. In connection
with the offer and sale of the Reserved Securities, the Company agrees, promptly
upon a request, in writing to indemnify and hold harmless the Underwriters from
and against any and all losses, liabilities, claims, damages and expenses
incurred by them as a result of the failure of Eligible Persons to pay for and
accept delivery of Reserved Securities which,
26
by the end of the first business day following the date of this Agreement, were
subject to a properly confirmed agreement to purchase.
Section 7. CONTRIBUTION. If the indemnification provided for
in Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions,
or in connection with any violation of the nature referred to in Section
6(a)(1)(ii)(A) hereof, which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand
and the Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds (i.e., after deducting the
total underwriting discount) from the offering of the Securities pursuant to
this Agreement (before deducting expenses) received by the Company and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, bear to the aggregate initial public offering price
of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any violation of the nature referred to in Section
6(a)(1)(ii)(A) hereof.
The Company and the Underwriters agree that CIBC World Markets
will not receive any additional benefits hereunder for serving as the
Independent Underwriter in connection with the offering and sale of the
Securities.
The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred
27
to above in this Section 7. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
any such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who
controls an Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial Securities set forth opposite
their respective names in Schedule A hereto and not joint.
Section 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company or any of its
Subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
Section 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the Prospectus,
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects
28
of the Company and its Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the
National Association of Securities Dealers, Inc. or any other governmental
authority, or (iv) if a banking moratorium has been declared by either Federal
or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to
this Section, such termination shall be without liability of any party to any
other party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full force
and effect.
Section 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one
or more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may be agreed upon
and upon the terms herein set forth; if, however, the Representatives shall not
have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option Securities to be
29
purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the Underwriters to purchase and the Company to sell the relevant Option
Securities, as the case may be, either the Representatives or the Company shall
have the right to postpone Closing Time or the relevant Date of Delivery, as the
case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for a Underwriter under this Section 10.
Section 11. NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at 4 World Financial
Center, North Tower, New York, New York 10281-1201, attention of Jim Forbes and
Syndicate Operations, with a copy to Debevoise & Plimpton, 919 Third Avenue, New
York, New York, attention of Michael W. Blair; and notices to the Company shall
be directed to it at 6551 Park of Commerce Blvd., Suite 200, Boca Raton, Florida
33487, attention of Joseph Boshart, President and CEO, with a copy to Proskauer
Rose LLP, 1585 Broadway, New York, New York 10036, attention of Julie M. Allen.
Section 12. PARTIES. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters and the Company and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
Section 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
30
LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
Section 14. EFFECT OF HEADINGS. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
31
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its terms.
Very truly yours,
CROSS COUNTRY, INC.
By:
-------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
SunTrust CAPITAL MARKETS INC.
CIBC WORLD MARKETS
By: MERRILL LYNCH, PIERCE, FENNER &
SMITH, INCORPORATED
By:
--------------------------------------------------
Authorized Signatory
For themselves and as Representatives of the other
Underwriters named in Schedule A hereto.
32
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith Incorporated....................
Salomon Smith Barney..................................................
Banc of America Securities LLC........................................
SunTrust Capital Markets, Inc.........................................
CIBC World Markets....................................................
---
Total.................................................................
===
SCHEDULE B
CROSS COUNTRY, INC.
Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $o.
2. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $o, being an amount equal to the initial
public offering price set forth above less $o per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
SCHEDULE C
Entities and Persons Subject to Lock-up
---------------------------------------
[To Be Updated]
Charterhouse Equity Partners III, L.P.
Morgan Stanley Dean Witter Capital Partners IV, LP
Karen H. Bechtel
Joseph A. Boshart
Bruce A. Cerullo
Thomas C. Dircks
A. Lawrence Fagan
Alan Fitzpatrick
Emil Hensel
Fagle Husain
Lori Livers
Vicki Anenberg
Barbara Astler
Kevin Coulin
Annette Gardner
Dr. Franklin A. Shaffer
Tony Sims
Rosellen Sullivan
Jonathan Ward
Carol Westfall
[All Other Securityholders]
SCHEDULE D
Subsidiaries of Cross Country, Inc.
-----------------------------------
ClinForce, Inc.
Cejka & Company
E-Staff, Inc.
Cross Country Seminars, Inc.
CC Staffing, Inc.
Flex Staff, Inc.
CFRC, Inc.
TVCM, Inc.
Cross Country TravCorps Inc. Limited
[Others]
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CROSS COUNTRY, INC.
Cross Country, Inc., a corporation organized and existing under the
laws of the State of Delaware, does hereby certify:
1. The name of the corporation is Cross Country, Inc. Cross Country,
Inc. was originally incorporated under the name Cross Country Holdings, Inc. and
the original Certificate of Incorporation was filed with the Secretary of State
of the State of Delaware on May 20, 1999.
2. Pursuant to Sections 242 and 228 of the General Corporation Law of
the State of Delaware, the amendments and restatement herein set forth have been
duly approved by the Board of Directors and stockholders of Cross Country, Inc.
3. Pursuant to Section 245 of the General Corporation Law of the State
of Delaware, this Amended and Restated Certificate of Incorporation restates and
integrates and amends the provisions of the Certificate of Incorporation of this
corporation.
4. The text of the Restated Certificate of Incorporation is hereby
restated and amended to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Cross Country, Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of
Delaware is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808, County
of New Castle. The name of its registered agent at such address is
Corporation Service Company.
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
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ARTICLE IV
CAPITAL STOCK
A. AUTHORIZED CAPITAL STOCK
The total number of shares which the Corporation shall have authority
to issue is 110,000,000, consisting of (i) 100,000,000 shares of common stock,
par value $0.0001 per share ("Common Stock") and (ii) 10,000,000 shares of
preferred stock, par value $0.01 per share ("Preferred Stock").
B. RECLASSIFICATION
Effective upon the filing of this Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, each share
of Class A Common Stock, par value $0.01 per share ("Class A Common Stock"),
outstanding shall be reclassified on the basis of 5.80135 shares of Common Stock
for each share of Class A Common Stock outstanding and, accordingly, each share
of Class A Common Stock outstanding shall, without further action by the
Corporation or any stockholder, be deemed to represent 5.80135 shares of Common
Stock, provided that all fractional shares resulting therefrom shall be
eliminated and each holder thereof shall be entitled to receive a cash payment
equal to the holder's fraction of a share of Common Stock multiplied by the per
share fair market value, as determined by the Board of Directors. Whether a
stockholder holds fractional shares after such reclassification shall be
determined on the basis of the total number of shares of Class A Common Stock
held by such holder immediately prior to such reclassification and the number of
shares of Common Stock issuable upon such aggregate reclassification.
C. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
any then outstanding Preferred Stock.
2. VOTING RIGHTS. Each holder of record of Common Stock shall be
entitled to one vote for each share of Common Stock in such holder's name on the
books of the Corporation.
3. DIVIDENDS. Subject to provisions of law and this Article IV, the
holders of Common Stock shall be entitled to receive dividends out of funds
legally available therefore at such times and in such amounts as the Board of
Directors may determine in its sole discretion and subject to any preferential
dividend rights of any then outstanding Preferred Stock.
4. LIQUIDATION. Subject to provisions of law and this Article IV, upon
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary, after the payment or provisions for payment of all debts and
liabilities of the
2
Corporation and all preferential amounts to which the holders of any then
outstanding Preferred Stock are entitled with respect to the distribution of
assets in liquidation, the holders of Common Stock shall be entitled to share
ratably in the remaining assets of the Corporation available for distribution.
D. PREFERRED STOCK
Subject to the limitations set forth herein, the Board of Directors is
expressly authorized at any time, and from time to time, to provide for the
issuance of shares of Preferred Stock of one or more series, with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for the issue
thereof adopted by the Board of Directors, and as are now stated and expressed
in this Amended and Restated Certificate of Incorporation, or any amendment
thereto, including (but without limiting the generality of the foregoing) the
following:
(i) The number of shares constituting such series and the distinctive
designation of such series;
(ii) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other class or classes or
of any other series of capital stock, and whether such dividends shall be
cumulative or noncumulative;
(iii) Whether the shares of such series shall be subject to redemption
by the corporation, and, if made subject to such redemption, the times, prices
and other terms and conditions of such redemption;
(iv) The terms and amount of any sinking fund provided for the purchase
or redemption of the shares of such series;
(v) Whether the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes of capital stock of the
corporation, and, if provision be made for conversion or exchange, the times,
prices, rates, adjustments, and other terms and conditions of such conversion or
exchange;
(vi) Whether such series shall have voting rights, in addition to the
voting rights provided by law, and if so, the terms of such voting rights;
(vii) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(viii) The rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of such series.
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ARTICLE V
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation or the Bylaws of the Corporation, in the manner now or hereafter
prescribed by statute, and all rights conferred on a stockholder herein are
granted subject to this reservation.
ARTICLE VI
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION
A. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
B. The Corporation shall indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article VI, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article VI, shall eliminate or reduce the effect of this
Article VI, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VI, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss.291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
ss.279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the corporation as a consequence of
such
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compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the corporation, as the case
may be, and also on this corporation.
ARTICLE VIII
STOCKHOLDERS AGREEMENT
Election of members of the Board of Directors of the Corporation shall
be subject to the rights of the CEP Investors and the MS Investors pursuant to
Section 2.1 of that certain Amended and Restated Stockholders Agreement, dated
as of August 23, 2001, (the "Stockholders Agreement") among the Corporation, the
CEP Investors and the MS Investors (in each case as defined in the Stockholders
Agreement) to designate individuals to be nominated to serve as directors on
Board of Directors of the Corporation.
ARTICLE IX
NO WRITTEN BALLOTS
Unless, and except to the extent that, the by-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
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IN WITNESS WHEREOF, Cross Country, Inc. has caused this Amended and
Restated Certificate of Incorporation to be executed by Stephen W. Rubin, its
Secretary, this 23rd day of August, 2001.
By: /s/ Stephen W. Rubin
-------------------------------
Name: Stephen W. Rubin
Title: Secretary
6
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
CROSS COUNTRY, INC.
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of stockholders shall
be held at such date, place and time as determined by the Board of Directors
(the "Board").
1.2 Special Meetings. Special meetings of the stockholders may
be called by resolution of the Board or the Chairman and shall be called by the
President or Secretary upon the written request (stating the purpose or purposes
of the meeting) of a majority of the directors then in office or of the holders
of at least 20% of the outstanding shares entitled to vote. Only business
related to the purposes set forth in the notice of the meeting may be transacted
at a special meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders
may be held in or outside Delaware at the place and time specified by the Board
or the officers or stockholders requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written notice of
each meeting of stockholders shall be given to each stockholder entitled to vote
at the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given, except when required
under Section 1.5 below or by law. Each notice of a meeting shall be given,
personally or by mail, not fewer than 10 nor more than 60 days before the
meeting and shall state the time and place of the meeting, and, unless it is the
annual meeting, shall state at whose direction or request the meeting is called
and the purposes for which it is called. If mailed, notice shall be considered
given when mailed to a stockholder at his address on the corporation's records.
The attendance of any stockholder at a meeting, without protesting at the
beginning of the meeting that the meeting is not lawfully called or convened,
shall constitute a waiver of notice by him.
1.5 Quorum. At any meeting of stockholders, the presence in
person or by proxy of the holders of no less than a majority in interest of the
shares entitled to vote shall constitute a quorum for the transaction of any
business. In the absence of a quorum, a majority in voting interest of those
present or, if no stockholders are present, any officer entitled to preside at
or to act as Secretary of the meeting, may adjourn the meeting until a quorum is
present. At any adjourned meeting at which a quorum is present, any action may
be taken that might have been taken at the meeting as originally called. No
notice of an adjourned meeting need be given, if the time and place are
announced at the meeting at which the adjournment is taken, except that, if
adjournment is for more than 30 days or if, after the adjournment, a new record
date is fixed for the meeting, notice of the adjourned meeting shall be given
pursuant to Section 1.4.
1.6 Voting; Proxies. Unless otherwise provided in the
Certificate of Incorporation of the corporation or in these By-Laws, each
stockholder of record shall be entitled to one vote, in person or by proxy, for
each share registered in his name. Corporate action to be taken by
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stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by Section 1.8. Directors shall be elected in the manner
provided in Section 2.1. Voting need not be by ballot, unless requested by a
majority of the stockholders entitled to vote at the meeting or ordered by the
Chairman of the meeting. Each stockholder entitled to vote at any meeting of
stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person to act for him by proxy.
No proxy shall be valid after three years from its date, unless it provides
otherwise.
1.7 List of Stockholders. Not fewer than 10 days prior to the
date of any meeting of stockholders, the Secretary, or other officer, of the
Corporation shall prepare a complete list of stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in his name. For a period of not
fewer than 10 days prior to the meeting, the list shall be available during
ordinary business hours for inspection by any stockholder for any purpose
germane to the meeting. During this period, the list shall be kept either (a) at
a place within the city where the meeting is to be held, if that place shall
have been specified in the notice of the meeting, or (b) if not so specified, at
the place where the meeting is to be held. The list shall also be available for
inspection by stockholders at the time and place of the meeting.
1.8 Action by Consent Without a Meeting. Any action required
or permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not fewer than the minimum number of votes that would be necessary
to
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authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voting. Prompt notice shall be given to those
stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors. The
business of the corporation shall be managed by the entire Board, which shall
consist of such number of directors as shall be determined from time to time
either by resolution of a majority of the Board or by the holders of a majority
of the shares entitled to vote, but no decrease may shorten the term of any
incumbent director. Directors shall be elected at each annual meeting of
stockholders by a plurality of the votes cast and shall hold office until the
next annual meeting of stockholders and until the election and qualification of
their respective successors, subject to the provisions of Section 2.9 of these
By-laws and Section 2 of that certain Amended and Restated Stockholders
Agreement, dated August 23, 2001, (the "Stockholders Agreement") among the
Company, the CEP Investors and the MS Investors (each as defined in the
Stockholders Agreement) . As used in these By-Laws, the term "entire Board"
means the total number of directors the corporation would have, if there were no
vacancies on the Board.
2.2 Quorum and Manner of Acting. A majority of the entire
Board shall constitute a quorum for the transaction of business at any meeting,
except as provided in Section 2.10. Action of the Board shall be authorized by
the vote of the majority of the directors present at the time of the vote, if
there is a quorum, unless otherwise provided by law, by the Certificate of
Incorporation, or by these By-Laws. In the absence of a quorum, a majority of
the directors present may adjourn any meeting from time to time until a quorum
is present, without further notice or waiver of notice.
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2.3 Place of Meetings. Meetings of the Board may be held in or
outside Delaware as determined by the Board from time to time.
2.4 Annual and Regular Meetings. Annual meetings of the Board,
for the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of stockholders
and at the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6. Regular meetings of the
Board may be held without notice at such times and places as the Board
determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.5 Special Meetings. Special meetings of the Board may be
called by the Chairman, the Chief Executive Officer or by any two directors of
the Board.
2.6 Notice of Meetings; Waiver of Notice. Notice of the time
and place of each special meeting of the Board, and of each annual meeting not
held immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting also shall state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the
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meeting was not lawfully called or convened. Notice of any adjourned meeting
need not be given, other than by announcement at the meeting at which the
adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any action
required or permitted to be taken by the Board or by any committee of the Board
may be taken without a meeting, if all the members of the Board or the committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents by the members of the Board or the committee
shall be filed with the minutes of the proceedings of the Board or the
committee.
2.8 Participation in Board or Committee Meetings by Conference
Telephone. Any or all members of the Board or any committee of the Board may
participate in a meeting of the Board or the committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
2.9 Resignation and Removal of Directors. Any director may
resign at any time by delivering his resignation in writing to the Chairman,
President or Secretary of the Corporation, to take effect at the time specified
in the resignation; the acceptance of a resignation, unless required by its
terms, shall not be necessary to make it effective. Subject to Section 2.2 of
the Stockholders Agreement, any or all of the directors may be removed at any
time, either with or without cause, by vote of the stockholders.
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2.10 Vacancies. Any vacancy in the Board, including one
created by an increase in the number of directors, shall be filled by a vote of
the stockholders or by a vote of the Board; subject to the provisions of the
Stockholders Agreement.
2.11 Compensation. Directors shall receive such compensation
as the Board determines, together with reimbursement of their reasonable
expenses in connection with the performance of their duties. A director also may
be paid for serving the corporation or its affiliates or subsidiaries in other
capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may designate an executive committee of one or
more directors, which shall have all the powers and authority of the Board,
except as otherwise provided in the resolution, Section 141(c) of the General
Corporation Law of Delaware or any other applicable law. The members of the
executive committee shall serve at the pleasure of the Board. All action of the
executive committee shall be reported to the Board at its next meeting.
3.2 Other Committees. Subject to the express provisions of the
Stockholders Agreement, the Board, by resolution adopted by a majority of the
entire Board, may designate other committees of one or more directors, which
shall serve at the Board's pleasure and have such powers and duties as the Board
determines.
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3.3 Rules Applicable to Committees. The Board may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In case of the
absence or disqualification of any member of a committee, the member or members
present at a meeting of the committee and not disqualified, whether or not a
quorum, may unanimously appoint another director to act at the meeting in place
of the absent or disqualified member in accordance with the provisions of the
Stockholders Agreement. All action of a committee shall be reported to the Board
at its next meeting. Each committee shall adopt rules of procedure and shall
meet as provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The officers of the corporation shall be
the Chairman, the Chief Executive Officer, the President, the chief operating
officer, the Chief Executive Officer, the Secretary and such other officers as
may be appointed from time to time by the Board. Any two or more offices may be
held by the same person. The Board may require any officer, agent or employee to
give security for the faithful performance of his duties.
4.2 Election; Term of Office. The officers of the corporation
shall be elected annually by the Board, and each such officer shall hold office
until the next annual meeting of the Board and until the election of his
successor.
4.3 Subordinate Officers. The Board may appoint subordinate
officers (including assistant secretaries and assistant treasurers), agents or
employees, each of whom shall hold office for
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such period and have such powers and duties as the Board determines. The Board
may delegate to any executive officer or committee the power to appoint and
define the powers and duties of any subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may
resign at any time by delivering his resignation in writing to the Chairman,
President or Secretary of the Corporation, to take effect at the time specified
in the resignation; the acceptance of a resignation, unless required by its
terms, shall not be necessary to make it effective. Any officer elected or
appointed by the Board or appointed by an executive officer or by a committee
may be removed by the Board either with or without cause and in the case of an
officer appointed by an executive officer or by a committee, by the officer or
committee that appointed him or by the Chairman.
4.5 Vacancies. A vacancy in any office may be filled for the
unexpired term in the manner prescribed in Sections 4.2 and 4.3 for election or
appointment to the office.
4.6 The Chairman. The Chairman of the Board shall preside over
all meetings of the Board at which he is present, and shall have such other
powers and duties as chairmen of the boards of corporations usually have or the
Board assigns to him.
4.7 The Chief Executive Officer. Subject to the control of the
Board, the Chief Executive Officer of the corporation shall manage and direct
the daily business and affairs of the corporation and shall communicate to the
Board and any Committee thereof reports, proposals and recommendations for their
respective consideration or action. He may do and perform all acts on
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behalf of the Corporation and shall preside at all meetings of the stockholders
if present thereat, and in the absence of the Chairman of the Board of Directors
have such powers and perform such duties as the Board or the Chairman may from
time to time prescribe or as may be prescribed in these By-laws, and in the
event of the absence, incapacity or inability to act of the Chairman, then the
Chief Executive Officer shall perform the duties and exercise the powers of the
Chairman.
4.8 President. The President shall have such powers and
perform such duties as the Board or the Chairman may from time to time prescribe
or as may be prescribed in these By-laws.
4.9 Chief Operating Officer. The chief operating officer shall
have such powers and duties as the Board or the Chairman assigns to him.
4.10 Chief Financial Officer. The Chief Executive Officer of
the corporation shall be the Treasurer and shall be in charge of the
corporation's books and accounts. Subject to the control of the Board, he shall
have such other powers and duties as the Board or the President assigns to him.
4.11 The Secretary. The Secretary shall be the secretary of,
and keep the minutes of, all meetings of the Board and the stockholders, shall
be responsible for giving notice of all meetings of stockholders and the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board or the President assigns to him. In the absence
of the Secretary from any meeting, the minutes shall be kept by the person
appointed for that purpose by the presiding officer.
5. SHARES.
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5.1 Certificates. The corporation's shares shall be
represented by certificates in the form approved by the Board. Each certificate
shall be signed by the Chairman, Chief Executive Officer, President or a vice
president, and by the Secretary or an assistant secretary or the treasurer or an
assistant treasurer, and shall be sealed with the corporation's seal or a
facsimile of the seal. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate issued,
it may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
5.2 Transfers. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of capital stock, if any, share
of the capital stock of the corporation may be transferred on the books of the
Corporation only by the holder of such shares or by his duly authorized
attorney, upon the surrender to the Corporation or its transfer agent of the
certificate representing such stock properly endorsed and the payment of taxes
due thereon.
5.3 The Board of Directors or any transfer agent of the
Corporation may direct one or more new certificate(s) representing stock of the
Corporation to be issued in place of any certificate or certificates theretofore
issued by the Corporation, alleged to have been lost, stolen, or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors (or any transfer agent of
the Corporation authorized to do so by a resolution of the Board of Directors)
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may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as the Board of Directors (or any transfer agent so authorized) shall
direct to indemnify the Corporation against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen, or destroyed or the issuance of such new certificates, and such
requirement may be general or confined to specific instances.
5.4 Determination of Stockholders of Record. The Board may
fix, in advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or to receive payment of any dividend or the allotment of any
rights, or for the purpose of any other action. The record date may not be more
than 60 or fewer than 10 days before the date of the meeting or more than 60
days before any other action.
5.5 Regulations. The Board shall have power and authority to
make all such rules and regulations as it may deem expedient concerning the
issue, transfer, registration, cancellation, and replacement of certificates
representing stock of the Corporation.
6. INDEMNIFICATION AND INSURANCE.
6.1 Right to Indemnification. Each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative
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or investigative (a "proceeding"), by reason of the fact that he, or a person of
whom he is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent permitted by the General Corporation Law
of Delaware, as amended from time to time, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith, and that
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his heirs,
executors and administrators; provided, however, that, except as provided in
Section 6.2, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
that person, only if that proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in these By-laws shall be a
contract right and shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of
Delaware, as amended from time to time, requires, the payment of such expenses
incurred by a director or officer in his capacity as a director or officer (and
not in any other capacity in which service was or is rendered by that person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a proceeding shall
be made only upon
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delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced, if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
these By-laws or otherwise. The corporation may, by action of its Board, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
6.2 Right of Claimant to Bring Suit. If a claim under Section
6.1 is not paid in full by the corporation within 30 days after a written claim
has been received by the corporation, the claimant may at any time thereafter
bring suit against the corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant also shall be entitled to
be paid the expense of prosecuting that claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition, where the required
undertaking, if any, is required and has been tendered to the corporation) that
the claimant has failed to meet a standard of conduct that makes it permissible
under Delaware law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its Board, its
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he has met that standard of conduct,
nor an actual determination by the corporation (including its Board, its
independent counsel or its stockholders) that the claimant has not met that
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has failed to meet that standard of conduct.
-14-
6.3 Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section 6 shall not be exclusive of any
other right any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-law, agreement, vote of
stockholders or disinterested directors or otherwise.
6.4 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against that expense,
liability or loss under Delaware law.
6.5 Expenses as a Witness. To the extent any director,
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he shall be indemnified against all costs and
expenses actually and reasonably incurred by him or on his behalf in connection
therewith.
6.6 Indemnity Agreements. The Corporation may enter into
agreement with any director, officer, employee or agent of the Corporation
providing for indemnification to the fullest extent permitted by Delaware law.
7. MISCELLANEOUS.
-15-
7.1 Seal. The Board shall adopt a corporate seal, which shall
be in the form of a circle and shall bear the Corporation's name and the year
and state in which it was incorporated.
7.2 Fiscal Year. The Board may determine the Corporation's
fiscal year. Until changed by the Board, the last day of the Corporation's
fiscal year shall be December 31.
7.3 Voting of Shares in Other Corporations. Shares in other
corporations held by the Corporation may be represented and voted by an officer
of this Corporation or by a proxy or proxies appointed by one of them. The Board
may, however, appoint some other person to vote the shares.
7.4 Amendments. By-laws may be amended, repealed or adopted by
a majority vote of the Board or the stockholders.
-16-
Exhibit 4.2
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of
August 23, 2001, among CROSS COUNTRY, INC. (f/k/a Cross Country Staffing, Inc.),
a Delaware corporation (the "Company"), the CEP Investors and the MS Investors
(each as defined below).
W I T N E S S E T H:
WHEREAS, the parties desire to amend and restate that certain
Stockholders Agreement, dated as of October 29, 1999 (the "ORIGINAL AGREEMENT"),
among the Company, the CEP Investors and the MS Investors;
WHEREAS, the CEP Investors and the MS Investors own shares of
Class A Common Stock, $.01 par value, of the Company (together with any shares
into which the Class A Common Stock may be converted or recapitalized, the
"COMMON STOCK");
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
1.1 CERTAIN DEFINITIONS. The following terms shall have the
following respective meanings (such meanings being equally applicable to both
the singular and plural form of the terms defined).
"ACT" means the Securities Act of 1933, as amended.
"AGREEMENT" means this Amended and Restated Stockholders
Agreement, including all amendments, modifications and supplements and any
exhibits or schedules to any of the foregoing, and shall refer to the Agreement
as the same may be in effect at the time such reference becomes operative.
"CEP" means Charterhouse Equity Partners III, L.P.
"CEP INVESTORS" means CEP, Chef Nominees Limited and each of
their respective Permitted Transferees.
"CEP NOMINEE" has the meaning set forth in Section 2.1(a).
"COMMON STOCK" has the meaning set forth in the recitals
hereto.
"COMMON STOCK REORGANIZATION" means any subdivision by the
Company of its outstanding shares of Common Stock into a greater number of
shares or any consolidation by the Company of its outstanding shares of Common
Stock into a smaller number of shares.
"COMPANY" has the meaning given to it in the caption hereto.
"COMPANY BOARD" means the Board of Directors of the Company.
"INVESTORS" means, collectively, the CEP Investors and the MS
Investors and "Investor" means any of them.
"MS NOMINEES" has the meaning set forth in Section 2.1(a).
"MSDWCP" means Morgan Stanley Dean Witter Capital Partners IV,
L.P.
"MSDWCP NOMINEE" has the meaning set forth in Section 2.1(a).
"MSDWVP" means Morgan Stanley Venture Partners III, L.P.
"MSDWVP NOMINEE" has the meaning set forth in Section 2.1(a).
"MS INVESTORS" means Morgan Stanley Dean Witter Capital
Partners IV, L.P., MSDW IV 892 Investors, L.P., Morgan Stanley Dean Witter
Capital Investors IV, L.P., Morgan Stanley Venture Partners III, L.P., Morgan
Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners
Entrepreneur Fund, L.P. and their respective Permitted Transferees.
"OFFERED INVESTORS" has the meaning set forth in Section
5.1(a).
"OFFERED SECURITIES" has the meaning set forth in Section
5.1(a).
"OPTIONS" means any rights to subscribe for or to purchase, or
any warrants or options for the purchase of, capital stock of the Company or any
stock or securities convertible into or exchangeable for capital stock of the
Company.
"ORIGINAL AGREEMENT" has the meaning set forth in the captions
hereto.
"PERMITTED TRANSFEREE" means (i) with respect to any CEP
Investor or MS Investor, any entity controlling, controlled by or under common
control with such Investor; and (ii) with respect to any other Investor, any
parent or wholly owned direct or indirect subsidiary entity thereof (it being
understood that the later sale, liquidation or spin off of such wholly owned
subsidiary or other transaction in which the parent ceases to control, directly
or indirectly, 100% of the equity of such subsidiary would constitute a Transfer
of Stock, which may only be made in compliance with the terms and restrictions
set forth in this Agreement).
"RULE 144" means Rule 144, and any amendments thereto,
promulgated by the U.S. Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended.
"STOCK" means (i) shares of outstanding capital stock of the
Company; (ii) Options; and (iii) shares of capital stock issuable upon the
exercise of Options.
"STOCKHOLDERS" mean, all the holders of Common Stock and
"Stockholder" means any such person.
"SUBSIDIARY" means any entity of which ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Company.
"SUBSIDIARY BOARD" has the meaning set forth in Section
2.1(C).
2
"TAG ALONG OFFER" has the meaning set forth in Section 5.1(a).
"TAG ALONG OFFER PERIOD" has the meaning set forth in Section
5.1(a).
"TAG ALONG NOTICE" has the meaning set forth in Section 5.1.
"TAG ALONG RIGHT" has the meaning set forth in Section 5.1.
"TAGGED INVESTORS" has the meaning set forth in Section 5.1.
"TRANSFER" means any direct or indirect sale, assignment,
transfer or other disposal of Stock.
3
SECTION 2. CORPORATE GOVERNANCE
2.1 ELECTION OF DIRECTORS.
(a) COMPANY BOARD.
(i) At each meeting of the stockholders of the
Company (or consent solicitation in lieu of a meeting) at which directors of the
Company are to be elected, the Company agrees to (x) nominate two individuals
designated by the CEP Investors to serve as members of the Company Board (each a
"CEP NOMINEE"), (y) nominate one individual designated by MSDWCP to serve as a
member of the Company Board (a "MSDWCP NOMINEE") and (z) nominate one individual
designated by MSDWVP to serve as a member of the Company Board (a "MSDWVP
NOMINEE", together with the MSDWCP Nominee, the "MS NOMINEES"). Further, at each
such meeting of the stockholders (or consent solicitation in lieu of a meeting),
the Company agrees to recommend that the stockholders elect such CEP Nominees
and MS Nominees to the Company Board.
(ii) At such time as the MS Investors shall have
Transferred to persons other than their Permitted Transferees more than 50% of
the shares of Common Stock owned by the MS Investors, collectively, as of the
date hereof, the rights set forth in Section 2.1(a)(ii) shall be automatically
amended to provide that the Company shall be required to nominate only one
individual designated by MSDWCP, which individual shall be a MSDWCP Nominee to
serve as a member of the Company Board. Additionally, at such time as the CEP
Investors shall have Transferred to persons other than their Permitted
Transferees more than 50% of the shares of Common Stock owned by the CEP
Investors, collectively, as of the date hereof, the rights set forth in Section
2.1(a)(i) shall be automatically amended to provide that the Company shall be
required to nominate only one individual designated by the CEP Investors to
serve as a member of the Company Board.
(iii) At such time as the MS Investors shall have
Transferred to persons other than their Permitted Transferees more than 90% of
the shares of Common Stock owned by the MS Investors, collectively, as of the
date hereof, the rights of the MS Investors set forth in Sections 2.1(a)(i)-(ii)
shall terminate. Additionally, at such time as the CEP Investors shall have
Transferred to persons other than their Permitted Transferees more than 90% of
the shares of Common Stock owned by the CEP Investors, collectively, as of the
date hereof, the rights of the CEP Investors set forth in Sections
2.1(a)(i)-(ii) shall terminate.
(b) COMMITTEES. The membership of each committee of the
Company Board (other than the Audit Committee) shall include at least one MS
Nominee (so long as at least one MS Nominee remains on the Company Board) and at
least one CEP Nominee (so long as at least one CEP Nominee remains on the
Company Board).
(c) SUBSIDIARY BOARDS. The board of directors of each
subsidiary of the Company (each such board, a "SUBSIDIARY BOARD") shall include
at all times at least one CEP Nominee (so long as at least one CEP Nominee
remains on the Company Board) or one MS Nominee (so long as at least one MS
Nominee remains on the Company Board). The number of CEP Nominees and MS
Nominees, respectively, on the Subsidiary Boards shall be as equitable as
possible. Further, each of the CEP Investors and the MS Investors shall have the
right to have
4
a representative participate as an observer at each meeting of a Subsidiary
Board whose membership does not include one of its Nominees.
(d) INVESTORS' AGREEMENT. Each Investor shall vote his or its
shares of Stock, and the Company and each Investor shall take all other actions
necessary, to ensure that the certificate of incorporation and bylaws of the
Company facilitate and do not at any time conflict with any provision of this
Agreement.
2.2 AGREEMENT TO VOTE FOR DIRECTORS Each Investor agrees to
vote, in person or by proxy, all its shares of Common Stock, or to execute a
written consent in respect of all such shares of Common Stock, as the case may
be, in favor of the CEP Nominees and the MS Nominees for election to the Company
Board and take all other necessary action (including causing the Company to call
a special meeting of Stockholders) in order to ensure that the composition of
the Company Board is as set forth in this Section.
5
2.3 REMOVAL AND REPLACEMENT OF DIRECTORS.
(a) REMOVAL OF CEP NOMINEES. If at any time the CEP Investors
notify the Investors of a wish to remove any CEP Nominee, the Investors shall
take all actions contemplated by Section 2.1(a) so as to remove such CEP
Nominee. Removal of a CEP Nominee, other than pursuant to the immediately
preceding sentence, shall require the prior written consent of CEP unless such
removal is based upon the gross negligence or wilfull misconduct of the CEP
Nominee.
(b) REMOVAL OF MS NOMINEES. If at any time the MS Investors
notify the Investors of their wish to remove any MS Nominee, the Investors shall
take all actions contemplated by Section 2.1(a) so as to remove such MS Nominee.
Removal of a MS Nominee, other than pursuant to the immediately preceding
sentence, shall require the prior written consent of the MS Investors, unless
such removal is based upon the gross negligence or wilfull misconduct of the MS
Nominee.
(c) REPLACEMENT OF DIRECTORS. If at any time a vacancy is
created on the Company Board by reason of the incapacity, death, permitted
removal or resignation of any director nominated by the CEP Investors or the MS
Investors, then the persons who were entitled to designate such individual to be
nominated by the Company to serve as a member of the Company Board in accordance
with Section 2.1(a) shall designate an individual to be nominated by the Company
to fill such vacancy. Each Investor hereby agrees to take all actions
contemplated by Section 2.1(a) reasonably necessary to effect the foregoing.
SECTION 3. TRANSFER OF STOCK
3.1 TRANSFERS TO PERMITTED TRANSFEREES. Each Investor may, at
any time, Transfer any Stock owned by it to a Permitted Transferee, subject to
the provisions of Section 8.6. None of the restrictions on Transfers of Stock
contained in this Agreement shall apply to any Transfers by will or by the laws
of descent, except that any such transferee shall be deemed to take such Stock
subject to all provisions of this Agreement.
3.2 TRANSFERS PURSUANT TO RULE 144; PUBLIC DISTRIBUTIONS. Any
Investor may, at any time, and from time to time, Transfer Common Stock pursuant
to and in compliance with Rule 144. If any Investor shall intend to Transfer any
Stock publicly (other than in a registered offering pursuant to the Registration
Rights Agreement dated as of October 29, 1999, as amended as of August 23,
2001, among the parties hereto) or to distribute any Stock in a manner that is
likely to result in sales into the public market, such Investor shall give
notice of such intention to the Company and each other Investor, and shall
refrain from effecting any such Transfer or distribution for a period of five
business days. If other Investors shall have given notice of a similar intention
at any time prior to the end of such five business day period, all of such
Investors shall endeavor, subject to the provisions of applicable securities
laws, to effect such Transfers or distributions in manner that will not
adversely disrupt or otherwise adversely affect the market for the Stock. Such
Investors shall agree that, to the extent practicable, in the case of any public
Transfer, they will sell their securities through a single broker or market
maker over a sufficient period of time to permit an orderly disposition of such
securities. Any such Transfers shall be made proportionately based on the number
of shares desired to be sold by each Investor or on such other basis as the
Investors may agree. Any Investor that intends to
6
make a distribution of Stock shall coordinate the timing and the magnitude of
such distribution with the distributions or Transfers of other Investors in
order to avoid adversely disrupting the public market for the Stock.
3.3 NO MORTGAGE, ETC. Notwithstanding anything herein to the
contrary, no Investor may mortgage, pledge, grant a security interest or
participation in or otherwise encumber any Stock owned by it. Each Transfer of
Stock must be made in compliance with the Act, any applicable state and foreign
securities law and this Agreement. Each Investor understands and agrees that the
Common Stock has not been registered under the Act and that shares of Common
Stock are restricted securities. Any attempt to Transfer, pledge, grant a
security interest or participation in, or otherwise encumber any Stock not in
compliance with this Agreement shall be null and void and neither the Company
nor any transfer agent shall give any effect in the Company's transfer records
to such Transfer, pledge, grant or encumbrance.
3.4 NO PROXIES, ETC. No Investor shall (i) grant any proxy or
enter into or agree to be bound by any voting trust or agreement with respect to
the Stock, (ii) enter into any agreement or arrangement of any kind with any
person with respect to its Stock inconsistent with the provisions of this
Agreement or for the purpose or with the effect of denying or reducing the
rights of any other Investor under this Agreement including, but not limited to,
agreements or arrangements with respect to the Transfer or voting of its Stock
or (iii) act, for any reason, as a member of a group or in concert with any
other person in connection with the Transfer or voting of its Stock in any
manner which is inconsistent with the provisions of this Agreement.
SECTION 4. COVENANTS
4.1 FINANCIAL INFORMATION. The Company shall cause to be
prepared and delivered to each Investor owning more than 10% of the outstanding
Common Stock the following financial information:
(a) no later than 90 days after the end of each fiscal year of
the Company, the following audited financial statements, prepared in accordance
with generally accepted accounting principles consistently applied and
accompanied by the report thereon of the independent accountants for the
Company: a consolidated balance sheet of the Company as at the end of such
fiscal year and consolidated statements of income and cash flows for such fiscal
year, in each case setting forth in comparative form the figures for the
previous fiscal year and the budgeted figures for such fiscal year;
(b) within 30 days after the end of each fiscal month of the
Company, the following financial statements, prepared in accordance with
generally accepted accounting principles consistently applied: balance sheets of
the Company as at the end of such fiscal month and the consolidated statements
of income and cash flows for such fiscal month and for the elapsed portion of
the fiscal year ended with the last day of such month, in each case on a
consolidated basis and broken out by division and setting forth in comparative
form the figures for the corresponding periods in the previous fiscal year and
budgeted figures for the periods in such fiscal year; and
(c) within 30 days after the end of each fiscal month of the
Company, financial information relating to the key operating statistics of the
business of the Company and
7
its subsidiaries to the extent such information is distributed to senior
management of the Company in the ordinary course.
SECTION 5. TAG-ALONG RIGHTS
5.1 TAG-ALONG RIGHT OF THE INVESTORS.
(a) If the CEP Investors or the MS Investors (such parties who
propose to Transfer shall be referred to as the "TAGGED INVESTORS" and such
other unaffiliated parties shall be referred to as the "OFFERED INVESTORS")
propose, in a single, bona fide, arm's length transaction or a series of related
transactions, to Transfer more than 10% of the total number of shares of Common
Stock owned by the Tagged Investors on the date hereof to transferees other than
Permitted Transferees of such Tagged Investors (the "TAG ALONG OFFER") the
Tagged Investors shall promptly give notice thereof to the Offered Investors
(the "TAG ALONG NOTICE"). The Tag Along Notice shall identify the proposed
purchaser, the consideration per share and the other material terms and
conditions of the Tag Along Offer and, in the case of a Tag Along Offer in which
the consideration payable for the Common Stock consists in part or in whole of
consideration other than cash, such information relating to such consideration
as the Offered Investors may reasonably request as being necessary to evaluate
such non-cash consideration (it being understood that such request shall not
obligate the Tagged Investors to deliver any information to the Offered
Investors not available to such Tagged Investors). Each Offered Investor shall
have the right, exercisable as set forth below, to Transfer to such transferees
on the same terms and for the same consideration per share of Common Stock as
are set forth in the Tag Along Notice with respect to the Tagged Investors'
shares of Common Stock (the "TAG ALONG RIGHT"), up to the number of shares of
Common Stock then owned by such Offered Investor at the time of the Transfer,
multiplied by a fraction (i) the numerator of which is the number of shares of
Common Stock desired to be Transferred to the Transferee by the Tagged
Investors, and (ii) the denominator of which is the total number of shares of
Common Stock owned by the Tagged Investors at the time of the Transfer. Each
Offered Investor's rights under this Section 5.1 may be exercised by giving
written notice (which shall be irrevocable) to the Tagged Investors during the
period (the "TAG ALONG OFFER PERIOD") which is 45 days after the delivery to the
Offered Investors of the Tag Along Notice. The failure by any Offered Investor
to so notify the Tagged Investors within such Tag Along Offer Period shall be
deemed an election by such Offered Investor not to exercise its Tag Along
Rights. The provisions of this Section 5.1 shall not apply to any Transfers (i)
pursuant to and in compliance with Rule 144, (ii) pursuant to a public offering
registered under the Act, or (iii) to the limited partners of any Investor in
connection with a pro rata distribution to such partners pursuant to the terms
of such Investor's partnership agreement.
(b) The Tagged Investors shall have 120 days from the
termination of the Tag Along Offer Period to consummate the Transfer
contemplated by the Tag Along Offer to the proposed transferees at the price and
on the terms contained in the Tag Along Notice. If the Tagged Investors have not
completed the Transfer contemplated by the Tag Along Notice within the period
described above, then the rights of the Tagged Investors and the Offered
Investors to Transfer such Common Stock pursuant to this Section 5.1 shall
terminate and the Tagged Investors shall again comply with the procedures set
forth in this Section 5.1 with respect to any subsequent proposed Transfer.
8
(c) Promptly after the consummation of the Transfer of the
Common Stock pursuant to the Tag Along Offer, the Tagged Investors shall notify
the Offered Investors thereof, shall remit to the Offered Investors the total
sales price and consideration specified in the Tag Along Notice for their shares
of Common Stock Transferred pursuant thereto, and shall furnish such other
evidence of such Transfer and the terms thereof as may be reasonably requested
by the Offered Investors. Notwithstanding the foregoing, the Offered Investors
shall be required (i) to bear their proportionate share of any escrows,
holdbacks or adjustments in purchase price and (ii) to make such
representations, warranties and covenants and enter into such agreements as are
customary to be made in the Offered Investors' capacities as stockholders of the
Company and for transactions of the nature of the Tag Along Offer.
(d) Notwithstanding anything contained in this Section 5.1,
there shall be no liability on the part of the Tagged Investors to the Offered
Investors if the Transfer of Common Stock pursuant to this Section 5.1 is not
consummated for whatever reason, regardless of whether the Tagged Investors have
delivered a Tag Along Notice. Whether or not to effect a Transfer of Common
Stock pursuant to this Section 5.1 by the Tagged Investors is in the sole and
absolute discretion of the Tagged Investors.
5.2 CLOSING. In the event the rights of an Offered Investor
under Section 5.1 shall be exercised, each transferring party shall cause the
stock certificate or certificates representing the shares covered by such
Transfer to be delivered to said transferee, duly endorsed for Transfer with all
applicable stock transfer tax stamps attached, paid or otherwise provided for by
such Offered Investor, together with such other documents and instruments as the
transferee may reasonably request.
SECTION 6. SPECIFIC PERFORMANCE. Each of the Investors acknowledges and agrees
that in the event of any breach of this Agreement, the non-breaching party or
parties would be irreparably harmed and could not be made whole by monetary
damages. It is accordingly agreed that the Investors shall waive the defense in
any action for specific performance that a remedy at law would be adequate and
that the Investors, in addition to any other remedy to which they may be
entitled at law or in equity, shall be entitled to compel specific performance
of this Agreement.
SECTION 7. LEGEND. Each of the Investors agrees that substantially the following
legend shall be placed on the certificates representing any shares of Stock
owned by them:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (I) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SUCH LAWS,
AND (II) ARE SUBJECT TO THE RIGHTS AND RESTRICTIONS CONTAINED IN THE
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF AUGUST 23,
2001 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER
HEREOF)."
9
SECTION 8. MISCELLANEOUS.
8.1 HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the subject matter contained
herein, and supersedes all prior arrangements or understandings with respect
hereto.
8.3 NOTICES. All notices and other communications hereunder
shall be validly given or made if in writing, (i) when delivered personally (by
courier service or otherwise); (ii) when sent by telecopier; or (iii) when
actually received if mailed by first-class certified or registered United States
mail, postage-prepaid and return receipt requested, and all legal process with
regard hereto shall be validly served when served in accordance with applicable
law, in each case to the address of the party to receive such notice or other
communication set forth below, or at such other address as any party hereto may
from time to time advise the other parties pursuant to this Section:
(a) If to the Company, to it at:
Cross Country, Inc.
6551 Park of Commerce Blvd., N.W.
Suite 200
Boca Raton, Florida 33487
Attention: Chief Executive Officer
(B) If to any CEP Investor, to it at:
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, New York 10022-4299
Attention: Thomas C. Dircks, President
Fax: (212) 750-9704
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Stephen W. Rubin, Esq.
Fax: (212) 969-2900
(C) If to any MS Investor, to it at:
c/o Morgan Stanley Dean Witter Capital
Partners IV, L.P.
1221 Avenue of the Americas
New York, New York 10020
Attention: Karen H. Bechtel, Managing
Director
10
Fax: (212) 762-8282
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Carole Schiffman, Esq.
Fax (212) 450-4800
11
8.4 APPLICABLE LAW; SUBMISSION TO JURISDICTION. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of Delaware (without regard to its conflicts of law rules). Each of the
parties hereto hereby consents to the exclusive jurisdiction of the United
States District Court for the District of Delaware and the Chancery Court of the
State of Delaware (and of the appropriate appellate courts therefrom) over any
suit, action or proceeding arising out of or relating to this Agreement. Each
party hereto irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue in any such
court or that any such proceeding which is brought in accordance with this
Section has been brought in an inconvenient forum. Subject to applicable law,
process in any such proceeding may be served on any party any where in the
world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing and subject to applicable law, each party agrees that
service of process on such party as provided in Section 8.3 shall be deemed
effective service of process on such party. Nothing herein shall affect the
right of any party to serve legal process in any other manner permitted by law
or at equity or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction. WITH RESPECT TO A PROCEEDING IN ANY SUCH
COURT, EACH OF THE PARTIES IRREVOCABLY WAIVES AND RELEASES TO THE OTHER ITS
RIGHT TO A TRIAL BY JURY, AND AGREES THAT IT WILL NOT SEEK A TRIAL BY JURY IN
ANY SUCH PROCEEDING.
8.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any provision, in any other jurisdiction, it being intended that all
rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
8.6 AGREEMENT TO BE BOUND. Notwithstanding anything to the
contrary contained in this Agreement, no shares of Common Stock held by any
Investor may be Transferred unless the transferee, prior to such Transfer,
agrees in writing, in form and substance reasonably satisfactory to the Company,
to be bound by the terms of this Agreement to the same extent and in the same
manner as the transferor of such shares, a copy of which writing shall be
maintained on file with the Secretary of the Company and shall include the
address of such transferee to which notices hereunder shall be sent; provided
that the provisions of this Section 8.6 shall not apply to any Transfers: (i)
pursuant to and in compliance with Rule 144, (ii) pursuant to a public offering
registered under the Act or (iii) to the limited partners of any Investor in
connection with a pro rata distribution to such partners pursuant to the terms
of such Investor's partnership agreement.
8.7 SUCCESSOR, ASSIGNS, TRANSFEREES. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns. Notwithstanding
the foregoing, neither this Agreement nor any right, remedy, obligation or
liability arising hereunder or by reason hereof shall be assignable by the
Company or any Investor, except to a Permitted Transferee of such Investor and
then only if such Transferee agrees to be bound by the terms of this Agreement
pursuant to Section 8.6 above.
12
8.8 AMENDMENTS; WAIVERS. This Agreement may not be amended,
terminated, modified or supplemented and no waivers of or consents to departures
from the provisions hereof may be given unless consented to in writing by the
parties hereto.
8.9 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same Agreement.
8.10 TERM OF AGREEMENT.
(a) This Agreement shall become effective only upon the
consummation of the Company's initial public offering pursuant to Registration
No. 333-64914. If such initial public offering is not consummated then this
Agreement shall have no force or effect and the Original Agreement shall remain
in effect in accordance with its terms. This Agreement shall automatically
terminate on the occurrence of any of the following events: (i) the cessation of
the Company's business or the complete liquidation of the Company; or (ii)
whenever one holder owns all of the shares of Common Stock.
(b) In addition, this Agreement shall terminate and be of no
further force or effect (i) with respect to any Investor when such Investor
ceases to own any Stock or (ii) by written consent in accordance with Section
8.8.
8.11 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto and their respective successors and permitted assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
8.12 RECAPITALIZATION, ETC. In the event that any capital
stock or other securities are issued in respect of, in exchange for, or in
substitution of, any Common Stock by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Common Stock or any other change in capital
structure of the Company, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
8.13 REASONABLE BEST EFFORTS. Subject to the terms and
conditions of this Agreement, the Company and each of the Investors will use its
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable under applicable laws and
regulations to give effect to the terms and conditions of this Agreement.
8.14 EFFECTIVE DATE. This Agreement has been executed as of
the date first above written, to automatically and without further action of the
parties become effective on the date first written above.
8.15 DISPUTES. In the event of any dispute under this
Agreement, the non-prevailing party shall pay all legal fees and expenses of the
prevailing party.
13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
The Company: CROSS COUNTRY, INC.
By: /s/ Joseph Boshart
--------------------------------
Name: Joseph Boshart
Title: President and Chief Executive Officer
The CEP Investors: CHARTERHOUSE EQUITY PARTNERS III, L.P.
By: CHUSA Equity Investors III, L.P.,
general partner
By: Charterhouse Equity III, Inc.,
General Partner
By: /s/ Thomas C. Dircks
---------------------------
Name: Thomas C. Dircks
Title: Managing Director
CHEF NOMINEES LIMITED
By: Charterhouse Group International, Inc.,
Attorney-in-Fact
By: /s/ Thomas C. Dircks
---------------------------------
Name: Thomas C. Dircks
Title: Managing Director
MS Investors: MORGAN STANLEY DEAN WITTER
CAPITAL PARTNERS IV, L.P.
By: MSDW Capital Partners IV, LLC,
as General Partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as Member
By: /s/ Karen Bechtel
---------------------------------
Name: Karen Bechtel
Title: Managing Director
14
MSDW IV 892 INVESTORS, L.P.
By: MSDW Capital Partners IV, LLC,
as General Partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as Member
By: /s/ Karen Bechtel
---------------------------------
Name: Karen Bechtel
Title: Managing Director
MORGAN STANLEY DEAN WITTER
CAPITAL INVESTORS IV, L.P.
By: MSDW Capital Partners IV, LLC,
as General Partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as Member
By: /s/ Karen Bechtel
---------------------------------
Name: Karen Bechtel
Title: Managing Director
MORGAN STANLEY VENTURE
PARTNERS III, L.P.
By: Morgan Stanley Venture Partners III,
L.L.C., its General Partner
By: Morgan Stanley Venture Capital III,
Inc., its Institutional Managing Member
By: /s/ Jeffrey Booth
---------------------------------
Name: Jeffrey Booth
Title: Executive Director
MORGAN STANLEY VENTURE INVESTORS III, L.P.
By: Morgan Stanley Venture Investors III,
L.L.C., its General Partner
15
By: Morgan Stanley Venture Capital III,
Inc., its Institutional Managing Member
By: /s/ Jeffrey Booth
---------------------------------
Name: Jeffrey Booth
Title: Executive Director
THE MORGAN STANLEY VENTURE
PARTNERS ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners III,
L.L.C., its General Partner
By: Morgan Stanley Venture Capital III,
Inc., its Institutional Managing Member
By: /s/ Jeffrey Booth
---------------------------------
Name: Jeffrey Booth
Title: Executive Director
16
Exhibit 4.4
AMENDMENT NO. 1, dated August 23, 2001, to that certain Registration
Rights Agreement, dated as of October 29, 1999 (the "Original Agreement"), among
Cross Country, Inc. (f/k/a Cross Country Staffing, Inc.) (the "Company"), and
the Investors (as defined in the Original Agreement.)
For good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto hereby agree that the Original Agreement is
amended to provide as follows:
1. A new Section 8(l) shall be added to the Original Agreement, which shall
read as follows:
"Recapitalization, Etc. In the event that any capital stock or
other securities are issued in respect of, in exchange for, or in substitution
of, any Common Stock by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Common Stock or any other change in capital
structure of the Company, appropriate adjustments shall be made with respect tot
he relevant provisions of this Agreement so as to fairly and equitable preserve,
as far as practicable, the original rights and obligations of the parties hereto
under this Agreement."
2. Except as amended hereby, the Original Agreement shall remain unchanged
and in full force and effect.
[Signature Page to Follow]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CROSS COUNTRY, INC.
By: /s/ Joseph Boshart
----------------------------------------
Name: Joseph Boshart
Title: President and Chief Executive
Officer
CHARTERHOUSE EQUITY PARTNERS III, L.P.
By: CHUSA Equity Investors III, L.P.,
general partner
By: Charterhouse Equity III, Inc.,
general partner
By: /s/ Thomas C. Dircks
----------------------------------------
Name: Thomas C. Dircks
Title: Managing Director
CHEF NOMINEES LIMITED
By: Charterhouse Group International, Inc.,
Attorney-in-Fact
By: /s/ Thomas C. Dircks
----------------------------------------
Name: Thomas C. Dircks
Title: Managing Director
MORGAN STANLEY DEAN WITTER
CAPITAL PARTNERS IV, L.P.
By: MSDW Capital Partners IV, LLC,
as general partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as member
By: /s/ Karen Bechtel
----------------------------------------
Name: Karen Bechtel
Title: Managing Director
MSDW IV 892 INVESTORS, L.P.
By: MSDW Capital Partners IV, LLC,
as general partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as member
By: /s/ Karen Bechtel
----------------------------------------
Name: Karen Bechtel
Title: Managing Director
MORGAN STANLEY DEAN WITTER
CAPITAL INVESTORS IV, L.P.
By: MSDW Capital Partners IV, LLC,
as general partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as member
By: /s/ Karen Bechtel
---------------------------------------
Name: Karen Bechtel
Title: Managing Director
MORGAN STANLEY VENTURE
PARTNERS III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing
Member
By: /s/ Jeffrey Booth
----------------------------------------
Name: Jeffrey Booth
Title: Executive Director
MORGAN STANLEY VENTURE
INVESTORS III, L.P.
By: Morgan Stanley Venture Investors III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Jeffrey Booth
----------------------------------------
Name: Jeffrey Booth
Title: Executive Director
THE MORGAN STANLEY VENTURE
PARTNERS ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Jeffrey Booth
----------------------------------------
Name: Jeffrey Booth
Title: Executive Director
Exhibit 4.5
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of August 23, 2001, among Cross Country,
Inc. (the "ISSUER"), Joseph Boshart and Emil Hensel (each, a "MANAGEMENT
INVESTOR") and the other persons listed on the signature pages hereof under the
heading "Financial Investor," (each a "FINANCIAL INVESTOR").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS. Terms defined herein shall have the meaning set
forth on Annex A.
SECTION 2. GENERAL RESTRICTIONS. Until the first to occur of (i) the first
anniversary of the consummation of the Issuer's initial public offering of
initial public shares and (ii) the date of the consummation of the first
registered secondary public offering of Common Shares following the Issuer's
initial public offering, and except for Transfers by a Management Investor to
his Permitted Transferees, each Management Investor and each Permitted
Transferee of such Management Investor agrees not to Transfer, mortgage, pledge,
grant a security interest in or otherwise encumber, any of his Common Shares.
SECTION 3. AGREEMENT TO BE BOUND. No Transfer of Common Shares by a
Management Investor to one of his Permitted Transferees otherwise permitted
pursuant to this Agreement shall be effective unless prior to such Transfer,
such Permitted Transferee shall have executed and delivered to the Issuer an
instrument or instruments in form and substance satisfactory to the other
parties hereto confirming that such Permitted Transferee has agreed to be bound
by the terms of this Agreement in the same manner as the transferor, a copy of
which instrument shall be maintained on file with the Secretary of the Issuer
and shall include the address of such transferee to which notices hereunder
shall be sent.
SECTION 4. MISCELLANEOUS. This Agreement constitutes the entire agreement
and understanding of the parties hereto and thereto in respect of the subject
matter contained herein and therein. This Agreement may be executed in any
number of counterparts, each of which shall be an original with the same effect
as if the signatures thereto and hereto were upon the same instrument. The
invalidity or unenforceability of any provisions of this Agreement in any
jurisdiction shall not affect the validity, legality or enforceability of the
remainder of this Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement, including any such provision, in any other
jurisdiction, it being intended that all rights and obligations of the parties
hereunder shall be enforceable to the fuller extent permitted by law.
SECTION 5. EFFECTIVENESS. This Agreement shall become effective only upon
the consummation of the Issuer's initial public offering pursuant to
Registration No. 333-64914.
If such initial public offering is not consummated, then this Agreement shall
have no force or effect.
SECTION 6. APPLICABLE LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Florida, without regard to the
conflicts of law rules of such state.
SECTION 7. SUCCESSORS, ASSIGNS, TRANSFEREES. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, executors, administrators, successors and permitted
assigns. Notwithstanding the foregoing, neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by the Issuer or any other party hereto, except (i) as specifically
provided pursuant to the terms hereof and (ii) that any Financial Investor may
assign any of its rights, remedies, obligations or liabilities hereunder to (or
exercise any of the foregoing jointly with) an Affiliate of such Financial
Investor without the consent of the other parties hereto,
SECTION 8. AMENDMENTS; WAIVERS. No failure or delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
SECTION 9. REMEDIES. The parties hereto acknowledge and agree that in the
event of any breach of this Agreement, the parties would be irreparably harmed
and could not be made whole by monetary damages. Each party hereto accordingly
agrees (i) not to assert by way of defense or otherwise that a remedy at law
would be adequate, and (ii) that the parties agree, in addition to any other
remedy to which they may be entitled, that the remedy of specific performance of
this Agreement is appropriate in any action in court.
SECTION 10. TERMINATION. This Agreement shall terminate as to any
Management Investor upon the earlier to occur of (i) the sale of all of the
Common Shares owned by such Management Investor pursuant to the terms hereof,
(ii) the date on which the Financial Investors cease to hold any Common Shares;
PROVIDED that nothing in this Section shall relieve any such Management
Investor(s) of liability for breach prior to such termination of any of his
covenants or agreements contained in this Agreement, or (iii) the date such
Management Investor ceases to be an employee of the Issuer.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CROSS COUNTRY, INC.
By: /s/ Thomas C. Dircks
-----------------------------
Name: Thomas C. Dircks
Title: Chairman
Financial Investors: CHARTERHOUSE EQUITY PARTNERS III, L.P.
By: CHUSA Equity Investors III, L.P.,
general partner
By: Charterhouse Equity III, Inc.,
General Partner
By: /s/ Thomas C. Dircks
--------------------------
Name: Thomas C. Dircks
Title: Managing Director
CHEF NOMINEES LIMITED
By: Charterhouse Group International, Inc.,
Attorney-in-Fact
By: /s/ Thomas C. Dircks
-------------------------
Name: Thomas C. Dircks
Title: Managing Director
MORGAN STANLEY DEAN WITTER
CAPITAL PARTNERS IV, L.P.
By: MSDW Capital Partners IV, LLC,
as General Partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as Member
By: /s/ Karen Bechtel
-----------------------
Name: Karen Bechtel
Title: Managing Director
MSDW IV 892 INVESTORS, L.P.
By: MSDW Capital Partners IV, LLC,
as General Partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as Member
By: /s/ Karen Bechtel
--------------------------
Name: Karen Bechtel
Title: Managing Director
MORGAN STANLEY DEAN WITTER
CAPITAL INVESTORS IV, L.P.
By: MSDW Capital Partners IV, LLC,
as General Partner
By: MSDW CAPITAL PARTNERS IV, INC.,
as Member
By: /s/ Karen Bechte
----------------------------
Name: Karen Bechtel
Title: Managing Director
MORGAN STANLEY VENTURE
PARTNERS III, L.P.
By: Morgan Stanley Venture Partners III, L.L.C.,
its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Jeffrey Booth
--------------------------
Name: Jeffrey Booth
Title: Executive Director
MORGAN STANLEY VENTURE
INVESTORS III, L.P.
By: Morgan Stanley Venture Investors III,
L.L.C., its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Jeffrey Booth
--------------------------
Name: Jeffrey Booth
Title: Executive Director
THE MORGAN STANLEY VENTURE
PARTNERS ENTREPRENEUR FUND, L.P.
By: Morgan Stanley Venture Partners III,
L.L.C., its General Partner
By: Morgan Stanley Venture Capital III, Inc.,
its Institutional Managing Member
By: /s/ Jeffrey Booth
-----------------------
Name: Jeffrey Booth
Title: Executive Director
Management Investors: By:
------------------------------------
Name: Joseph Boshart
Title: President and Chief Executive
Officer
By:
------------------------------------
Name: Emil Hensel
Title: Chief Financial Officer
ANNEX A
The following terms, as used herein, have the following meanings:
"AFFILIATE" means, with respect to any Person, any other Person, directly or
indirectly, controlling, controlled by, or under common control with, such
Person.
"COMMON SHARES" means shares of the common stock of the Issuer, par value
$0.0001 per share.
"PERMITTED TRANSFEREE" means: (i) with respect to any party that is an
individual, (x) the spouse, issue, grandparents, grandchildren, aunts, uncles,
nieces and nephews (in each case, whether natural or adopted) of such party, (y)
a Person to whom Common Shares are Transferred by such Holder by will or the
laws of descent and distribution or (z) a trust established for the exclusive
benefit of such party or his Permitted Transferees and for no other Person; and
(ii) with respect to any other party, any Affiliate of such Holder.
"PERSON" means an individual, partnership, corporation, limited liability
company, trust, joint stock company, association, joint venture, or any other
entity or organization.
"TRANSFER" means, with respect to any security, (i) when used as a verb, to
sell, assign, dispose of, exchange or otherwise transfer such security or any
interest therein, whether directly or indirectly, or agree or commit to do any
of the foregoing and (ii) when used as a noun, a direct or indirect sale,
assignment, disposition, exchange or other transfer or any agreement or
commitment to do any of the foregoing.
\
Exhibit 5.1
[Letterhead of Proskauer Rose]
August 23, 2001
Cross Country, Inc.
6551 Park of Commerce Blvd, N.W.
Suite 200
Boca Raton, FL 33487
Ladies and Gentlemen:
We have acted as counsel to Cross Country, Inc., a Delaware corporation
(the "Company"), in connection with the proposed initial public offering by the
Company of up to 8,984,375 shares of the Company's common stock, par value
$.0001 per share (the "Common Stock"), to be sold pursuant to the terms of the
purchase agreement (the "Purchase Agreement") to be entered into by the Company
and each of the Underwriters (as defined therein) for whom Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney, Banc
of America Securities, Sun Trust Robinson-Humphrey and CIBC World Markets are
acting as Representatives.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of our opinion, including: (a) the Amended and
Restated Certificate of Incorporation of the Company; (b) the Amended and
Restated By-laws of the Company; and (c) certain resolutions adopted by the
Board of Directors and stockholders of the Company.
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement on Form S-1 (File No. 333-64914) (the
"Registration Statement") filed by the Company with Securities and Exchange
Commission (the "Commission") becomes effective under the Act; (ii) the Purchase
Agreement is duly executed and delivered by the parties thereto; and (iii) the
shares of Common Stock are delivered to and paid for by the Underwriters as
contemplated by the Purchase Agreement, the issuance and sale of the Common
Stock will be duly authorized, and the Common Stock will be legally and validly
issued, fully paid and nonassessable.
Cross Country, Inc.
August 23, 2001
Page 2
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
us under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ Proskauer Rose LLP
Proskauer Rose LLP
Exhibit 10.7
CROSS COUNTRY STAFFING, INC.
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
TABLE OF CONTENTS
PAGE
----
ARTICLE I PURPOSE.........................................................1
ARTICLE II DEFINITIONS.....................................................1
ARTICLE III ADMINISTRATION..................................................5
ARTICLE IV SHARE AND OTHER LIMITATIONS.....................................8
ARTICLE V ELIGIBILITY.....................................................9
ARTICLE VI STOCK OPTIONS..................................................10
ARTICLE VII NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY.........................................12
ARTICLE VIII CHANGE IN CONTROL PROVISIONS...................................13
ARTICLE IX TERMINATION OR AMENDMENT OF PLAN...............................15
ARTICLE X COMPANY CALL RIGHTS............................................16
ARTICLE XI UNFUNDED PLAN..................................................17
ARTICLE XII GENERAL PROVISIONS.............................................17
ARTICLE XIII EFFECTIVE DATE OF PLAN.........................................20
ARTICLE XIV TERM OF PLAN...................................................20
CROSS COUNTRY STAFFING, INC.
------------------------------
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
------------------------------
ARTICLE I
PURPOSE
The purpose of this Cross Country Staffing, Inc. Amended and
Restated 1999 Stock Option Plan is to enhance the profitability and value of
the Company for the benefit of its stockholders by enabling the Company to
offer employees of and Consultants to the Company and its Affiliates
stock-based incentives in the Company, thereby creating a means to raise the
level of stock ownership by employees and Consultants in order to attract,
retain and reward such individuals and strengthen the mutuality of interests
between such individuals and the Company's stockholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Affiliate" means each of the following: (i) any
Subsidiary; (ii) any Parent; (iii) any corporation, trade or business
(including, without limitation, a partnership or limited liability
company) which is directly or indirectly controlled 50% or more
(whether by ownership of stock, assets or an equivalent ownership
interest or voting interest) by the Company or one of its Affiliates;
and (iv) any other entity in which the Company or any of its Affiliates
has a material equity interest and which is designated as an
"Affiliate" by resolution of the Committee.
2.2 "Award" means any award under this Plan of a Stock Option.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means, with respect to a Participant's
Termination: (i) in the case where there is no employment agreement,
consulting agreement, change in control agreement or similar agreement
in effect between the Company or an Affiliate and the Participant at
the time of the grant of the Award (or where there is such an agreement
but
it does not define "cause" (or words of like import)), termination due
to a Participant's insubordination, dishonesty, fraud, incompetence,
moral turpitude, misconduct, refusal to perform his or her duties or
responsibilities for any reason other than illness or incapacity or
materially unsatisfactory performance of his or her duties for the
Company or an Affiliate as determined by the Committee in its sole
discretion; or (ii) in the case where there is an employment agreement,
consulting agreement, change in control agreement or similar agreement
in effect between the Company or an Affiliate and the Participant at
the time of the grant of the Award that defines "cause" (or words of
like import), "cause" as defined under such agreement; provided,
however, that with regard to any agreement that conditions "cause" on
occurrence of a change in control, such definition of "cause" shall not
apply until a change in control actually takes place and then only with
regard to a termination thereafter. Notwithstanding the foregoing, a
Participant shall be deemed to be terminated for "cause" if the
Participant: (i) breaches the terms of any agreement between the
Company and the Participant including, without limitation, an
employment agreement or non-competition agreement or (ii) discloses to
anyone outside the Company or its Affiliates, or uses in other than the
Company's or its Affiliate's business, without written authorization
from the Company, any confidential information or proprietary
information, relating to the business of the Company or its Affiliates,
acquired by the Participant prior to the Participant's Termination.
2.5 "CEP" means Charterhouse Equity Partners III, L.P., and
its successors.
2.6 "Change in Control" has the meaning set forth in Article
VIII.
2.7 "Code" means the Internal Revenue Code of 1986, as
amended. Any reference to any section of the Code shall also be a
reference to any successor provision.
2.8 "Committee" means a committee or subcommittee of the Board
appointed from time to time by the Board, which committee or
subcommittee shall consist of 2 or more non-employee directors;
provided, however, that if and to the extent that no Committee exists
which has the authority to administer this Plan, the functions of the
Committee shall be exercised by the Board and all references herein to
the Committee shall be deemed to be references to the Board.
2.9 "Common Stock" means the Class A common stock, $.01 par
value per share, of the Company.
2.10 "Company" means Cross Country Staffing, Inc., a Delaware
corporation, and its successors.
2.11 "Consultant" means any advisor or consultant to the
Company or its Affiliates.
-2-
2.12 "Disability" means a disability which would qualify as
such under the Company's long-term disability plan. A Disability shall
only be deemed to occur at the time of the determination by the
Committee of the Disability.
2.13 "Effective Date" means the effective date of this Plan as
defined in Article XIII.
2.14 "Eligible Employee" means each employee of the Company or
an Affiliate.
2.15 "Exchange Act" means the Securities Exchange Act of 1934,
as amended. Any references to any section of the Exchange Act shall
also be a reference to any successor provision.
2.16 "Fair Market Value" means, for purposes of this Plan,
unless otherwise required by any applicable provision of the Code or
any regulations issued thereunder, as of any date, the price for Common
Stock, as determined in good faith by the Committee and, prior to the
initial public offering of the Common Stock of the Company, as agreed
to by CEP and MSDWCP.
2.17 "Incentive Stock Option" means any Stock Option awarded
to an Eligible Employee under this Plan intended to be and designated
as an "Incentive Stock Option" within the meaning of Section 422 of the
Code.
2.18 "MSDWCP" means a representative of Morgan Stanley Dean
Witter Capital Partners IV, L.P. and its affiliated funds, and their
respective successors.
2.19 "Non-Qualified Stock Option" means any Stock Option
awarded under this Plan that is not an Incentive Stock Option.
2.20 "Parent" means any parent corporation of the Company
within the meaning of Section 424(e) of the Code.
2.21 "Participant" means any Eligible Employee or Consultant
to whom a Stock Option has been awarded under this Plan.
2.22 "Plan" means this Cross Country Staffing, Inc. Amended
and Restated 1999 Stock Option Plan, as amended from time to time.
2.23 "Retirement" means a Termination without Cause by a
Participant at or after age 65 or such earlier date after age 50 as may
be approved by the Committee with regard to such Participant.
-3-
2.24 "Securities Act" means the Securities Act of 1933, as
amended. Any reference to any section of the Securities Act shall also
be a reference to any successor provision.
2.25 "Stock Option" or "Option" means any option to purchase
shares of Common Stock granted to Eligible Employees or Consultants
under Article VI.
2.26 "Subsidiary" means any subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code.
2.27 "Substitute Options" means Stock Options issued in
assumption of or substitution for stock options issued by a company
acquired by the Company or with which the Company combines.
2.28 "Ten Percent Stockholder" means a person owning stock
possessing more than 10% of the total combined voting power of all
classes of stock of the Company, its Subsidiaries or its Parent.
2.29 "Termination" means a Termination of Consultancy or
Termination of Employment, as the case may be.
2.30 "Termination of Consultancy" means (i) that the
Consultant is no longer acting as a consultant to the Company or an
Affiliate; or (ii) when an entity which is retaining a Participant as a
Consultant ceases to be an Affiliate, unless the Participant otherwise
is, or thereupon becomes, a Consultant to the Company or another
Affiliate. In the event that a Consultant becomes an Eligible Employee
upon the termination of his consultancy, the Committee, in its sole and
absolute discretion, may determine that no Termination of Consultancy
shall be deemed to occur until such time as such Consultant is no
longer a Consultant or an Eligible Employee. The Committee may
otherwise define Termination of Consultancy in the Award agreement or,
if no rights of a Participant are reduced, may otherwise define
Termination of Consultancy thereafter.
2.31 "Termination of Employment" means: (i) a termination of
employment (for reasons other than a military or personal leave of
absence granted by the Company) of a Participant from the Company and
its Affiliates; or (ii) when an entity which is employing a Participant
ceases to be an Affiliate, unless the Participant otherwise is, or
thereupon becomes, employed by the Company or another Affiliate. In the
event that an Eligible Employee becomes a Consultant upon the
termination of his employment, the Committee, in its sole and absolute
discretion, may determine that no Termination of Employment shall be
deemed to occur until such time as such Eligible Employee is no longer
an Eligible Employee or a Consultant. The Committee may otherwise
define Termination of Employment in the Award agreement or, if no
rights of a Participant are reduced, may otherwise define Termination
of Employment thereafter.
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2.32 "Transfer" means anticipate, alienate, attach, sell,
assign, pledge, encumber, charge, hypothecate or otherwise transfer and
"Transferred" has a correlative meaning.
ARTICLE III
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee.
3.2 GRANTS OF AWARDS. The Committee shall have full authority
to grant Stock Options to Eligible Employees and Consultants pursuant
to the terms of this Plan. All Stock Options shall be granted by,
confirmed by, and subject to the terms of, a written agreement executed
by the Company and the Participant. In particular, the Committee shall
have the authority:
(a) to select from among those persons recommended by the
President of the Company the Eligible Employees and
Consultants to whom Stock Options may from time to time be
granted hereunder;
(b) to determine whether and to what extent Stock Options
are to be granted hereunder to one or more Eligible Employees
or Consultants after receipt of a recommendation by the
President of the Company;
(c) to determine, in accordance with the terms of this
Plan, the number of shares of Common Stock to be covered by
each Stock Option granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Stock Option
granted hereunder (including, but not limited to, the exercise
or purchase price (if any), any restriction or limitation, any
vesting schedule or acceleration thereof and any forfeiture
restrictions or waiver thereof, regarding any Stock Option and
the shares of Common Stock relating thereto, based on such
factors, if any, as the Committee shall determine, in its sole
discretion);
(e) to determine whether and under what circumstances a
Stock Option may be settled in cash, Common Stock and/or
restricted stock under Section 6.3(d);
(f) to determine whether, to what extent and under what
circumstances to provide loans to Eligible Employees and
Consultants in order to exercise Stock Options under this
Plan;
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(g) to determine whether a Stock Option is an Incentive
Stock Option or Non-Qualified Stock Option;
(h) to determine whether to require an Eligible Employee
or Consultant, as a condition of the granting of any Stock
Option, not to sell or otherwise dispose of shares of Common
Stock acquired pursuant to the exercise of an Option for a
period of time as determined by the Committee, in its sole
discretion, following the date of the acquisition of such
Option or Award; and
(i) to modify, extend or renew an Award, subject to
Article IX herein, provided, however, that if an Award is
modified, extended or renewed and thereby deemed to be the
issuance of a new Award under the Code or the applicable
accounting rules, the exercise price of a Stock Option may
continue to be the original exercise price even if less than
the Fair Market Value of the Common Stock at the time of such
modification, extension or renewal.
3.3 GUIDELINES. Subject to Article IX hereof, the Committee
shall have the authority to adopt, alter and repeal such administrative
rules, guidelines and practices governing this Plan and perform all
acts, including the delegation of its administrative responsibilities,
as it shall, from time to time, deem advisable; to construe and
interpret the terms and provisions of this Plan and any Stock Option
issued under this Plan (and any agreements relating thereto); and to
otherwise supervise the administration of this Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency
in this Plan or in any agreement relating thereto in the manner and to
the extent it shall deem necessary to effectuate the purpose and intent
of this Plan. The Committee may adopt special guidelines and provisions
for persons who are residing in or employed in, or subject to, the
taxes of, foreign jurisdictions to comply with applicable tax and
securities laws and may impose any limitations and restrictions that it
deems necessary to comply with the applicable tax and securities laws
of such foreign jurisdictions.
3.4 DECISIONS FINAL. Any decision, interpretation or other
action made or taken in good faith by or at the direction of the
Company, the Board or the Committee (or any of its members) arising out
of or in connection with this Plan shall be within the absolute
discretion of all and each of them, as the case may be, and shall be
final, binding and conclusive on the Company and all employees and
Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5 PROCEDURES. If the Committee is appointed, the Board shall
designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company,
at such times and places as it shall deem advisable, including, without
limitation, by telephone conference or by written consent to the extent
permitted by applicable law. A majority of the Committee members shall
constitute a quorum. All determinations of the Committee shall be made
by a majority of its members. Any decision or determination reduced to
writing and signed by all the
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Committee members in accordance with the By-Laws of the Company, shall
be fully as effective as if it had been made by a vote at a meeting
duly called and held. The Committee shall keep minutes of its meetings
and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
3.6 DESIGNATION OF CONSULTANTS/LIABILITY.
(a) The Committee may designate employees of the Company
and professional advisors to assist the Committee in the
administration of this Plan and may grant authority to
officers to execute agreements or other documents on behalf of
the Committee.
(b) The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the
administration of this Plan and may rely upon any opinion
received from any such counsel or consultant and any
computation received from any such consultant or agent.
Expenses incurred by the Committee or Board in the engagement
of any such counsel, consultant or agent shall be paid by the
Company. The Committee, its members and any person designated
pursuant to paragraph (a) above shall not be liable for any
action or determination made in good faith with respect to
this Plan. To the maximum extent permitted by applicable law,
no officer of the Company or member or former member of the
Committee or of the Board shall be liable for any action or
determination made in good faith with respect to this Plan or
any Stock Option granted under it. To the maximum extent
permitted by applicable law or the Certificate of
Incorporation or By-Laws of the Company and to the extent not
covered by insurance directly insuring such person, each
officer and member or former member of the Committee or the
Board shall be indemnified and held harmless by the Company
against any cost or expense (including reasonable fees of
counsel reasonably acceptable to the Company) or liability
(including any sum paid in settlement of a claim with the
approval of the Company), and advanced amounts necessary to
pay the foregoing at the earliest time and to the fullest
extent permitted, arising out of any act or omission to act in
connection with the administration of this Plan, except to the
extent arising out of such officer's, member's or former
member's own fraud or bad faith. Such indemnification shall be
in addition to any rights of indemnification the employees,
officers, directors or members or former officers, directors
or members may have under applicable law or under the
Certificate of Incorporation or By-Laws of the Company or any
Affiliate. Notwithstanding anything else herein, this
indemnification will not apply to the actions or
determinations made by an individual with regard to Stock
Option granted to him or her under this Plan.
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ARTICLE IV
SHARE AND OTHER LIMITATIONS
4.1 SHARES.
The aggregate number of shares of Common Stock which may
be issued or used for reference purposes under this Plan or
with respect to which Stock Options may be granted shall not
exceed 2,145,515* shares of Common Stock (subject to any
increase or decrease pursuant to Section 4.2) which may be
either authorized and unissued Common Stock or Common Stock
held in or acquired for the treasury of the Company or both.
If any Stock Option granted under this Plan other than a
Substitute Option expires, terminates or is forfeited for any
reason other than by reason of its exercise, the number of
shares of Common Stock underlying such unexercised or
forfeited Stock Option shall again be available for the
purposes of Awards under this Plan.
In the event Substitute Options are granted pursuant to
Section 5.4, the Committee may increase the aggregate number
of shares of Common Stock available under the Plan for
Non-Qualified Stock Options by the number of shares of Common
Stock subject to such Substitute Options. The maximum number
of shares of Common Stock which may be issued under this Plan
with respect to Incentive Stock Options shall not be increased
(subject to any increase or decrease pursuant to Section 4.2).
4.2 CHANGES.
(a) The existence of this Plan and the Stock Options
granted hereunder shall not affect in any way the right or
power of the Board or the stockholders of the Company to make
or authorize (i) any adjustment, recapitalization,
reorganization or other change in the Company's capital
structure or its business, (ii) any merger or consolidation of
the Company or any Affiliate, (iii) any issuance of bonds,
debentures, preferred or prior preference stock ahead of or
affecting the Common Stock, (iv) the dissolution or
liquidation of the Company or any Affiliate, (v) any sale or
transfer of all or part of the assets or business of the
Company or any Affiliate, or (vi) any other corporate act or
proceeding.
(b) In the event of any change in the capital structure or
business of the Company by reason of any stock split, reverse
stock split, stock dividend, combination or reclassification
of shares, recapitalization, or other change in the capital
structure of the Company, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of
rights or warrants to purchase any Common Stock or securities
convertible into Common Stock, or any other corporate
transaction or event having an effect similar to any of the
foregoing, then
-----------------
* Note, this number reflects the stock split that occurred on
August 23, 2001.
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the Committee may take such action, if any, with respect to
the Plan and outstanding Stock Options, as it may deem
equitable to prevent substantial dilution or enlargement of
the rights granted to, or available for, Participants under
this Plan, including, without limitation, adjustment of the
aggregate number and kind of shares which thereafter may be
issued under this Plan, the number and kind of shares or other
property (including cash) to be issued upon exercise of an
outstanding Stock Option granted under this Plan and the
purchase price thereof. Any such action or adjustment
determined by the Committee in good faith shall be final,
binding and conclusive on the Company and all Participants and
employees and their respective heirs, executors,
administrators, successors and assigns. Except as provided in
this Section 4.2, a Participant shall have no rights by reason
of any issuance by the Company of any class or securities
convertible into stock of any class of the Company, any
subdivision or consolidation of shares of stock of any class
of the Company, the payment of any stock dividend, any other
increase or decrease in the number of shares of stock of any
class of the Company, any sale or transfer of all or part of
the Company's assets or business or any other change affecting
the Company's capital structure or business.
(c) Fractional shares of Common Stock resulting from any
adjustment in Options pursuant to Section 4.2(a) or (b) shall
be aggregated until, and eliminated at, the time of exercise
by rounding-down for fractions less than one-half and
rounding-up for fractions equal to or greater than one-half.
No cash settlements shall be made with respect to fractional
shares eliminated by rounding. Notice of any adjustment shall
be given by the Committee to each Participant whose Option has
been adjusted and such adjustment (whether or not such notice
is given) shall be effective and binding for all purposes of
this Plan.
4.3 MINIMUM PURCHASE PRICE. Notwithstanding any provision of
this Plan to the contrary, if authorized but previously unissued shares
of Common Stock are issued under this Plan, such shares shall not be
issued for a consideration which is less than as permitted under
applicable law.
ARTICLE V
ELIGIBILITY
5.1 NON-QUALIFIED STOCK OPTIONS. All Eligible Employees and
Consultants and prospective employees of and Consultants to the Company
and its Affiliates are eligible to be granted Non-Qualified Stock
Options. Eligibility for the grant of a Non-Qualified Stock Option and
actual participation in this Plan shall be determined by the Committee
in its sole discretion.
5.2 INCENTIVE STOCK OPTIONS. All Eligible Employees of the
Company, its Subsidiaries and its Parent (if any) are eligible to be
granted Incentive Stock Options under
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this Plan. Eligibility for the grant of an Incentive Stock Option and
actual participation in this Plan shall be determined by the Committee
in its sole discretion.
5.3 GENERAL REQUIREMENT. The vesting and exercise of Options
granted to a prospective employee or Consultant are conditioned upon
such individual actually becoming an Eligible Employee or Consultant.
5.4 SUBSTITUTE OPTIONS. Substitute Options may be granted by
the Committee in its sole discretion to holders of stock options issued
by a company acquired by the Company or with which the Company
combines.
ARTICLE VI
STOCK OPTIONS
6.1 STOCK OPTIONS. Each Stock Option granted hereunder shall
be one of two types: (i) an Incentive Stock Option intended to satisfy
the requirements of Section 422 of the Code; or (ii) a Non-Qualified
Stock Option.
6.2 GRANTS. Subject to the provisions of Article V, the
Committee shall have the authority to grant to any Eligible Employee
one or more Incentive Stock Options, Non- Qualified Stock Options or
both types of Stock Options. To the extent that any Stock Option does
not qualify as an Incentive Stock Option (whether because of its
provisions or the time or manner of its exercise or otherwise), such
Stock Option or the portion thereof which does not qualify, shall
constitute a separate Non-Qualified Stock Option. The Committee shall
have the authority to grant any Consultant one or more Non-Qualified
Stock Options. Notwithstanding any other provision of this Plan to the
contrary or any provision in an agreement evidencing the grant of a
Stock Option to the contrary, any Stock Option granted to an Eligible
Employee of an Affiliate (other than an Affiliate which is a Parent or
a Subsidiary) shall be a Non-Qualified Stock Option.
6.3 TERMS OF STOCK OPTIONS. Stock Options granted under this
Plan shall be subject to the following terms and conditions, and shall
be in such form and contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem
desirable:
(a) EXERCISE PRICE. The exercise price per share of Common
Stock shall be determined by the Committee, but, except in the
case of Substitute Options, shall not be less than 100% of the
Fair Market Value of the Common Stock at the time of grant;
provided, however, that if an Incentive Stock Option is
granted to a Ten Percent Stockholder, the exercise price shall
be no less than 110% of the Fair Market Value of the Common
Stock.
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(b) STOCK OPTION TERM. The term of each Stock Option shall
be fixed by the Committee; provided, however, that no Stock
Option shall be exercisable more than 10 years after the date
such Stock Option is granted; and further provided that the
term of an Incentive Stock Option granted to a Ten Percent
Stockholder shall not exceed 5 years.
(c) EXERCISABILITY. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as
shall be determined by the Committee at grant. If the
Committee provides, in its discretion, that any Stock Option
is exercisable subject to certain limitations (including,
without limitation, that such Stock Option is exercisable only
in installments or within certain time periods), the Committee
may waive such limitations on the exercisability at any time
at or after grant in whole or in part (including, without
limitation, waiver of the installment exercise provisions or
acceleration of the time at which such Stock Option may be
exercised), based on such factors, if any, as the Committee
shall determine, in its sole discretion. Any decision by the
Committee to waive such limitations must be first approved by
each of CEP and MSDWCP.
(d) METHOD OF EXERCISE. Subject to whatever installment
exercise and waiting period provisions apply under subsection
(c) above, Stock Options may be exercised in whole or in part
at any time and from time to time during the Stock Option term
by giving written notice of exercise to the Committee
specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price
as follows: (i) in cash or by check, bank draft or money order
payable to the order of the Company; (ii) if the Common Stock
is traded on a national securities exchange, The Nasdaq Stock
Market, Inc. or quoted on a national quotation system
sponsored by the National Association of Securities Dealers,
through a "cashless exercise" procedure whereby the
Participant delivers irrevocable instructions to a broker
approved by the Committee to deliver promptly to the Company
an amount equal to the purchase price; or (iii) on such other
terms and conditions as may be acceptable to the Committee
(including, without limitation, the relinquishment of Stock
Options or by payment in full or in part in the form of Common
Stock owned by the Participant for a period of at least 6
months (and for which the Participant has good title free and
clear of any liens and encumbrances) based on the Fair Market
Value of the Common Stock on the payment date). No shares of
Common Stock shall be issued until payment therefor, as
provided herein, has been made or provided for.
(e) INCENTIVE STOCK OPTION LIMITATIONS. To the extent that
the aggregate Fair Market Value (determined as of the time of
grant) of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an
Eligible Employee during any calendar year under this Plan
and/or any other stock option plan of the Company, any
Subsidiary or any Parent exceeds $100,000, such Options shall
be treated as Non-Qualified Stock Options. In addition, if an
Eligible
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Employee does not remain employed by the Company, any
Subsidiary or any Parent at all times from the time an
Incentive Stock Option is granted until 3 months prior to the
date of exercise thereof (or such other period as required by
applicable law), such Stock Option shall be treated as a
Non-Qualified Stock Option. Should any provision of this Plan
not be necessary in order for the Stock Options to qualify as
Incentive Stock Options, or should any additional provisions
be required, the Committee may amend this Plan accordingly,
without the necessity of obtaining the approval of the
stockholders of the Company.
(f) FORM, MODIFICATION, EXTENSION AND RENEWAL OF STOCK
OPTIONS. Subject to the terms and conditions and within the
limitations of this Plan, Stock Options shall be evidenced by
such form of agreement or grant as is approved by the
Committee, and the Committee may (i) modify, extend or renew
outstanding Stock Options granted under this Plan (provided
that the rights of a Participant are not reduced without his
consent), and (ii) accept the surrender of outstanding Stock
Options (up to the extent not theretofore exercised) and
authorize the granting of new Stock Options in substitution
therefor (to the extent not theretofore exercised).
(g) DEFERRED DELIVERY OF COMMON SHARES. The Committee may
in its discretion permit Participants to defer delivery of
Common Stock acquired pursuant to a Participant's exercise of
an Option in accordance with the terms and conditions
established by the Committee.
ARTICLE VII
NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY
7.1 NON-TRANSFERABILITY. No Stock Option shall be Transferable
by the Participant otherwise than by will or by the laws of descent and
distribution. All Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant. No Stock Option shall,
except as otherwise specifically provided by law or herein, be
Transferable in any manner, and any attempt to Transfer any such Stock
Option shall be void, and no such Stock Option shall in any manner be
liable for or subject to the debts, contracts, liabilities, engagements
or torts of any person who shall be entitled to such Stock Option, nor
shall it be subject to attachment or legal process for or against such
person.
7.2 TERMINATION OF EMPLOYMENT AND TERMINATION OF CONSULTANCY.
The following rules apply with regard to the Termination of a
Participant. Unless otherwise determined by the Committee at grant or,
if no rights of the Participant are reduced, thereafter:
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(a) TERMINATION BY REASON OF DEATH, DISABILITY OR
RETIREMENT. If a Participant's Termination is by reason of
death, Disability or Retirement, all Stock Options held by
such Participant which are exercisable at the time of the
Participant's Termination may be exercised by the Participant
(or, in the case of death, by the legal representative of the
Participant's estate) at any time within a period of one year
from the date of such Termination, but in no event beyond the
expiration of the stated terms of such Stock Options;
provided, however, that, in the case of Retirement, if the
Participant dies within such exercise period, all unexercised
Stock Options held by such Participant shall thereafter be
exercisable, to the extent to which they were exercisable at
the time of death, for a period of one year from the date of
such death, but in no event beyond the expiration of the
stated term of such Stock Options.
(b) INVOLUNTARY TERMINATION WITHOUT CAUSE. If a
Participant's Termination is by involuntary termination
without Cause, all Stock Options held by such Participant
which are exercisable at the time of such Termination, may be
exercised by the Participant at any time within a period of 90
days from the date of such Termination, but in no event beyond
the expiration of the stated term of such Stock Options.
(c) VOLUNTARY TERMINATION. If a Participant's Termination
is voluntary (other than a voluntary termination described in
Section 7.2(d)(ii) below), all Stock Options held by such
Participant which are exercisable at the time of such
Termination, may be exercised by the Participant at any time
within a period of 30 days from the date of such Termination,
but in no event beyond the expiration of the stated terms of
such Stock Options.
(d) TERMINATION FOR CAUSE. If a Participant's Termination
(i) is for Cause or (ii) is a voluntary termination (as
provided in subsection (c) above) at any time after an event
which would be grounds for a Termination for Cause, all Stock
Options held by such Participant shall thereupon terminate and
expire as of the date of such Termination.
ARTICLE VIII
CHANGE IN CONTROL PROVISIONS
8.1 BENEFITS. In the event of a Change in Control of the
Company, except as otherwise provided by the Committee upon the grant
of a Stock Option, the Participant shall be entitled to the following
benefits:
(a) Except to the extent provided in the applicable Stock
Option agreement, the Participant's employment agreement with
the Company or an Affiliate, as approved by
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the Committee, or other written agreement approved by the
Committee (as such agreement may be amended from time to
time), Stock Options granted and not previously exercisable
shall become exercisable upon a Change in Control, subject to
subsection 8.1(b).
(b) Notwithstanding anything to the contrary herein,
unless the Committee provides otherwise at the time a Stock
Option is granted hereunder or thereafter, no acceleration of
exercisability shall occur with respect to such Stock Options
if the Committee reasonably determines in good faith, that the
Stock Options shall be honored or assumed, or new rights
substituted therefor (each such honored, assumed or
substituted stock option hereinafter called an "Alternative
Option"), by a Participant's employer (or the parent or a
subsidiary of such employer) immediately following the Change
in Control, provided that any such Alternative Option must
meet the following criteria:
(i) the Alternative Option must provide such
Participant with rights and entitlements substantially
equivalent to or better than the rights, terms and
conditions applicable under such Stock Option, including,
but not limited to, an identical or better exercise
schedule; and
(ii) the Alternative Option must substantially comply
and in the case of an Incentive Stock Option, must comply
with the requirements of Treasury Regulation ss. 1.425-1
(and any amendments thereto), except that the Alternative
Option need not be an Incentive Stock Option.
(c) If the Company and the other party to a transaction
constituting a Change in Control agree that such transaction
shall be treated as a "pooling of interests" for financial
reporting purposes, and if the transaction is in fact so
treated, then the acceleration of exercisability, vesting or
lapse of the applicable Restriction Period shall not occur to
the extent that the Company's independent public accountants
determine in good faith that such acceleration would preclude
"pooling of interests" accounting.
8.2 CHANGE IN CONTROL. A "Change in Control" shall be deemed
to have occurred:
(a) upon any "person" as such term is used in Sections
13(d) and 14(d) of the Exchange Act (other than CEP, MSDWCP,
the Company, any trustee or other fiduciary holding securities
under any employee benefit plan of the Company, or any company
owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their
ownership of Common Stock of the Company), becoming the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the
Company's then outstanding securities;
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(b) during any period of 2 consecutive years, individuals
who at the beginning of such period constitute the Board, and
any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a
transaction described in paragraph (a), (c), or (d) of this
Section or a director whose initial assumption of office
occurs as a result of either an actual or threatened election
contest (as such term is used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf
of a person other than the Board) whose election by the Board
or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the
beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board;
(c) a merger or consolidation of the Company or a
Subsidiary with any other corporation, other than a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more
than 35% of the combined voting power of the voting securities
of the Company or such surviving entity or such surviving
entity's parent outstanding immediately after such merger or
consolidation; or
(d) upon the approval by the stockholders of the Company
of a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets other than the sale
or disposition of all or substantially all of the assets of
the Company to a person or persons who beneficially own,
directly or indirectly, at least 50% or more of the combined
voting power of the outstanding voting securities of the
Company at the time of the sale.
8.3 INITIAL PUBLIC OFFERING NOT A CHANGE IN CONTROL. For
purposes of the Plan, an initial public offering of the Common Stock of
the Company shall not be deemed to be a Change in Control.
ARTICLE IX
TERMINATION OR AMENDMENT OF PLAN
Notwithstanding any other provision of this Plan, the Board or
the Committee may at any time, and from time to time, amend, in whole
or in part, any or all of the provisions of this Plan (including any
amendment deemed necessary to ensure that the Company may comply with
any regulatory requirement referred to in Article XII), or suspend or
terminate it entirely, retroactively or otherwise; provided, however,
that, unless otherwise required by law or specifically provided herein,
the rights of a Participant with respect to
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Awards granted prior to such amendment, suspension or termination, may
not be impaired without the consent of such Participant. In no event
may this Plan be amended without the approval of the stockholders of
the Company in accordance with the applicable laws of the State of
Delaware to increase the aggregate number of shares of Common Stock
that may be issued under this Plan, decrease the minimum exercise price
of any Stock Option, or to make any other amendment that would require
stockholder approval under the rules of any exchange or system on which
the Company's securities are listed or traded.
The Committee may amend the terms of any Stock Option
theretofore granted, prospectively or retroactively, but, subject to
Article IV above or as otherwise specifically provided herein, no such
amendment or other action by the Committee shall impair the rights of
any holder without the holder's consent.
ARTICLE X
COMPANY CALL RIGHTS
10.1 COMPANY CALL RIGHTS. (a) In the event of Termination for
Cause, the Company may repurchase from the Participant any shares of
Common Stock previously acquired by the Participant through the
exercise of a Stock Option granted under this Plan at a repurchase
price equal to the lesser of (i) the original purchase price or
exercise price (as applicable), if any, or (ii) Fair Market Value as of
the date of termination.
(b) In the event of a Termination for any reason other
than for Cause (including termination due to Retirement,
death, Disability, involuntary termination without Cause or
resignation), the Company may at any time within 270 days
after the date of such Termination: (i) repurchase from the
Participant each outstanding vested Stock Option based on the
greater of (A) the difference between the exercise price of a
share of Common Stock relating to such Stock Option and the
Fair Market Value of a share of Common Stock on the date of
termination and (B) $.01 and (ii) repurchase from the
Participant any shares of Common Stock previously acquired by
the Participant through the exercise of a Stock Option under
this Plan at a repurchase price equal to Fair Market Value as
of the date of termination, but in no event less than the
exercise price of a share of Common Stock relating to such
Stock Option. In addition, the Company may at any time within
270 days after a Participant acquires shares of Common Stock
upon the exercise of a Stock Option after the date of the
event of Termination for any reason other than Cause,
repurchase from the Participant any shares of Common Stock
previously acquired by the Participant through the exercise of
a Stock Option under this Plan at a repurchase price equal to
Fair Market Value as of the date of termination, but in no
event less than the exercise price of a share of Common Stock
relating to such Stock Option.
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10.2 EFFECT OF IPO. Notwithstanding the foregoing, the Company
shall cease to have rights pursuant to this Article X following an
initial public offering of the Common Stock of the Company.
ARTICLE XI
UNFUNDED PLAN
11.1 UNFUNDED STATUS OF PLAN. This Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation.
With respect to any payments as to which a Participant has a fixed and
vested interest but which are not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any
rights that are greater than those of a general unsecured creditor of
the Company.
ARTICLE XII
GENERAL PROVISIONS
12.1 LEGEND. The Committee may require each person receiving
shares pursuant to an Award under this Plan to represent to and agree
with the Company in writing that the Participant is acquiring the
shares without a view to distribution thereof. In addition to any
legend required by this Plan, the certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on Transfer.
All certificates for shares of Common Stock delivered under
this Plan shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Common Stock is then
listed or any national securities association system upon whose system
the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
12.2 OTHER PLANS. Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in
specific cases.
12.3 NO RIGHT TO EMPLOYMENT/CONSULTANCY. Neither this Plan nor
the grant of any Award hereunder shall give any Participant or other
employee or Consultant any right with respect to continuance of
employment or consultancy by the Company or any Affiliate, nor shall
they be a limitation in any way on the right of the Company or any
-17-
Affiliate by which an employee is employed or a Consultant is retained
to terminate his employment or consultancy at any time.
12.4 WITHHOLDING OF TAXES. The Company shall have the right to
deduct from any payment to be made to a Participant, or to otherwise
require, prior to the issuance or delivery of any shares of Common
Stock or the payment of any cash hereunder, payment by the Participant
of, any Federal, state or local taxes required by law to be withheld.
Any statutorily required withholding obligation with regard to
any Eligible Employee may be satisfied, subject to the consent of the
Committee, by reducing the number of shares of Common Stock otherwise
deliverable or by delivering shares of Common Stock already owned. Any
fraction of a share of Common Stock required to satisfy such tax
obligations shall be disregarded and the amount due shall be paid
instead in cash by the Participant.
12.5 LISTING AND OTHER CONDITIONS.
(a) Unless otherwise determined by the Committee, as long
as the Common Stock is listed on a national securities
exchange or system sponsored by a national securities
association, the issue of any shares of Common Stock pursuant
to a Stock Option shall be conditioned upon such shares being
listed on such exchange or system. The Company shall have no
obligation to issue such shares unless and until such shares
are so listed, and the right to exercise any Stock Option with
respect to such shares shall be suspended until such listing
has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock
pursuant to a Stock Option is or may in the circumstances be
unlawful or result in the imposition of excise taxes on the
Company under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation
to make such sale or delivery, or to make any application or
to effect or to maintain any qualification or registration
under the Securities Act or otherwise with respect to shares
of Common Stock or Stock Option, and the right to exercise any
Stock Option shall be suspended until, in the opinion of said
counsel, such sale or delivery shall be lawful or will not
result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under
this Section 12.5, a Stock Option affected by such suspension
which shall not then have expired or terminated shall be
reinstated as to all shares available before such suspension
and as to shares which would otherwise have become available
-18-
during the period of such suspension, but no such suspension
shall extend the term of any Stock Option.
(d) A Participant shall be required to supply the Company
with any certificates, representations and information that
the Company requests and otherwise cooperate with the Company
in obtaining any listing, registration, qualification,
exemption, consent or approval the Company deems necessary or
appropriate.
12.6 STOCKHOLDERS AGREEMENT. As a condition to the receipt of
shares of Common Stock pursuant to a Stock Option under this Plan, to
the extent required by the Committee, the Participant shall execute and
deliver a stockholder's agreement or such other documentation which
shall set forth certain restrictions on transferability of the shares
of Common Stock acquired upon exercise or purchase, a right of first
refusal of the Company with respect to shares, the right of the Company
to purchase Common Stock in accordance with this Plan and such other
terms as the Board or Committee shall from time to time establish. Such
stockholder's agreement shall apply to all Common Stock acquired under
the Plan.
12.7 GOVERNING LAW. This Plan shall be governed and construed
in accordance with the laws of the State of Delaware (regardless of the
law that might otherwise govern under applicable Delaware principles of
conflict of laws).
12.8 CONSTRUCTION. Wherever any words are used in this Plan in
the masculine gender they shall be construed as though they were also
used in the feminine gender in all cases where they would so apply, and
wherever any words are used herein in the singular form they shall be
construed as though they were also used in the plural form in all cases
where they would so apply.
12.9 OTHER BENEFITS. No Award payment under this Plan shall be
deemed compensation for purposes of computing benefits under any
retirement plan of the Company or its subsidiaries nor affect any
benefits under any other benefit plan now or subsequently in effect
under which the availability or amount of benefits is related to the
level of compensation.
12.10 COSTS. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock
pursuant to any Awards hereunder.
12.11 NO RIGHT TO SAME BENEFITS. The provisions of Stock
Options need not be the same with respect to each Participant, and such
Stock Options to individual Participants need not be the same in
subsequent years.
-19-
12.12 DEATH/DISABILITY. The Committee may in its discretion
require the transferee of a Participant to supply it with written
notice of the Participant's death or Disability and to supply it with a
copy of the will (in the case of the Participant's death) or such other
evidence as the Committee deems necessary to establish the validity of
the transfer of an Award. The Committee may also require that the
agreement of the transferee to be bound by all of the terms and
conditions of this Plan.
12.13 SUCCESSORS AND ASSIGNS. The Plan shall be binding on all
successors and permitted assigns of a Participant, including, without
limitation, the estate of such Participant and the executor,
administrator or trustee of such estate.
12.14 SEVERABILITY OF PROVISIONS. If any provision of this
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this
Plan shall be construed and enforced as if such provisions had not been
included.
12.15 HEADINGS AND CAPTIONS. The headings and captions herein
are provided for reference and convenience only, shall not be
considered part of this Plan, and shall not be employed in the
construction of this Plan.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
13.1 The Plan shall become effective upon adoption by the
Board, subject to the approval of this Plan by the stockholders of the
Company in accordance with the requirements of the laws of the State of
Delaware, or such later date as provided in the adopting resolution.
ARTICLE XIV
TERM OF PLAN
14.1 No Stock Option shall be granted pursuant to this Plan on
or after the tenth anniversary of the earlier of the date this Plan is
adopted or the date of stockholder approval, but Stock Options granted
prior to such tenth anniversary may, and the Committee's authority to
administer the terms of such Options shall, extend beyond that date.
-20-
Exhibit 10.8
CROSS COUNTRY STAFFING, INC.
AMENDED AND RESTATED
EQUITY PARTICIPATION PLAN
TABLE OF CONTENTS
PAGE
ARTICLE I PURPOSE....................................................1
ARTICLE II DEFINITIONS................................................1
ARTICLE III ADMINISTRATION.............................................5
ARTICLE IV SHARE AND OTHER LIMITATIONS................................9
ARTICLE V ELIGIBILITY...............................................11
ARTICLE VI STOCK OPTIONS.............................................11
ARTICLE VII NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT................................................14
ARTICLE VIII CHANGE IN CONTROL PROVISIONS..............................16
ARTICLE IX TERMINATION OR AMENDMENT OF PLAN..........................18
ARTICLE X COMPANY CALL RIGHTS AND OTHER LIMITATIONS.................18
ARTICLE XI UNFUNDED PLAN.............................................19
ARTICLE XII GENERAL PROVISIONS........................................20
ARTICLE XIII EFFECTIVE DATE OF PLAN....................................23
ARTICLE XIV TERM OF PLAN..............................................23
CROSS COUNTRY STAFFING, INC.
AMENDED AND RESTATED
--------------------------
EQUITY PARTICIPATION PLAN
--------------------------
ARTICLE I
PURPOSE
The purpose of this Cross Country Staffing, Inc. Amended and Restated
Equity Participation Plan is to enhance the profitability and value of the
Company for the benefit of its stockholders by enabling the Company to offer
key management employees of the Company and its Affiliates stock-based
incentives in the Company, thereby creating a means to raise the level of
stock ownership by key management employees in order to attract, retain and
reward such employees and strengthen the mutuality of interests between such
employees and the Company's stockholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Affiliate" means each of the following: (i) any Subsidiary;
(ii) any Parent; (iii) any corporation, trade or business (including,
without limitation, a partnership or limited liability company) which is
directly or indirectly controlled 50% or more (whether by ownership of
stock, assets or an equivalent ownership interest or voting interest) by
the Company or one of its Affiliates; and (iv) any other entity in which
the Company or any of its Affiliates has a material equity interest and
which is designated as an "Affiliate" by resolution of the Committee.
2.2 "Award" means any award under this Plan of a Stock Option.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Cause" means, with respect to a Participant's Termination of
Employment: (i) in the case where there is no employment agreement,
consulting agreement, change in control agreement or similar agreement in
effect between the
Company or an Affiliate and the Participant at the time of the grant of
the Award (or where there is such an agreement but it does not define
"cause" (or words of like import)), termination due to a Participant's
insubordination, dishonesty, fraud, incompetence, moral turpitude,
misconduct, refusal to perform his or her duties or responsibilities for
any reason other than illness or incapacity or materially unsatisfactory
performance of his or her duties for the Company or an Affiliate as
determined by the Committee in its sole discretion; or (ii) in the case
where there is an employment agreement, consulting agreement, change in
control agreement or similar agreement in effect between the Company or an
Affiliate and the Participant at the time of the grant of the Award that
defines "cause" (or words of like import), "cause" as defined under such
agreement; provided, however, that with regard to any agreement that
conditions "cause" on occurrence of a change in control, such definition
of "cause" shall not apply until a change in control actually takes place
and then only with regard to a termination thereafter.
2.5 "CEP" means Charterhouse Equity Partners III, L.P., and its
successors.
2.6 "Change in Control" has the meaning set forth in Article VIII.
2.7 "Code" means the Internal Revenue Code of 1986, as amended. Any
reference to any section of the Code shall also be a reference to any
successor provision.
2.8 "Committee" means a committee or subcommittee of the Board
appointed from time to time by the Board, which committee or subcommittee
shall consist of 2 or more non-employee directors; provided, however, that
if and to the extent that no Committee exists which has the authority to
administer this Plan, the functions of the Committee shall be exercised by
the Board and all references herein to the Committee shall be deemed to be
references to the Board.
2.9 "Common Stock" means the Class A common stock, $.01 par value
per share, of the Company.
2.10 "Company" means Cross Country Staffing, Inc., a Delaware
corporation, and its successors.
2.11 "Consultant" means any advisor or consultant to the Company or
its Affiliates.
2.12 "Detrimental Activity" means (i) the disclosure to anyone
outside the Company or its Affiliates, or the use in other than the
Company's or its Affiliate's business, without written authorization from
the Company, of any confidential information or proprietary information,
relating to the business of the Company or its Affiliates, acquired by a
Participant prior to the Participant's Termination of
-2-
Employment; (ii) activity while employed that results, or if known could
result, in the Participant's Termination of Employment that is classified
by the Company as a termination for Cause; (iii) any attempt, directly or
indirectly, to solicit, induce or hire (or the identification for
solicitation, inducement or hire) any non-clerical employee of the Company
or its Affiliates to be employed by, or to perform services for, the
Participant or any person or entity with which the Participant is
associated (including, but not limited to, due to the Participant's
employment by, consultancy for, equity interest in, or creditor
relationship with such person or entity) or any person or entity from
which the Participant receives direct or indirect compensation or fees as
a result of such solicitation, inducement or hire (or the identification
for solicitation, inducement or hire) without, in all cases, written
authorization from the Company; (iv) any attempt, directly or indirectly,
to solicit in a competitive manner any current customer of the Company or
its Affiliates without, in all cases, written authorization from the
Company; (v) the Participant's Disparagement, or inducement of others to
do so, of the Company or its Affiliates or their past and present
officers, directors, employees or products; (vi) without written
authorization from the Company, the rendering of services for any
organization, or engaging, directly or indirectly, in any business, which
is competitive with the Company or its Affiliates, or which organization
or business, or the rendering of services to such organization or
business, is otherwise prejudicial to or in conflict with the interests of
the Company or its Affiliates, provided, however, that competitive
activities shall only be those competitive with any business unit or
Affiliate of the Company with regard to which the Participant performed
services at any time within the 2 years prior to the Participant's
Termination of Employment; (vii) the Participant's breach of the terms of
any agreement between the Company and the Participant including, without
limitation, an employment agreement or non-competition agreement; or
(viii) except as otherwise provided in the applicable Stock Option
agreement, any other conduct or act determined by the Committee, in its
sole discretion, to be injurious, detrimental or prejudicial to any
interest of the Company or its Affiliates. For purposes of subparagraphs
(i), (iii), (iv) and (vi) above, the Chief Executive Officer and the
General Counsel of the Company shall each have authority, subject to the
prior approval of the Board, to provide the Participant with written
authorization to engage in the activities contemplated thereby and no
other person shall have authority to provide the Participant with such
authorization.
2.13 "Disability" means a disability which would qualify as such
under the Company's long-term disability plan. A Disability shall only be
deemed to occur at the time of the determination by the Committee of the
Disability.
2.14 "Disparagement" means (unless modified in the applicable Stock
Option agreement) making comments or statements to the press, the
Company's or its Affiliates' employees or any individual or entity with
whom the Company or its Affiliates has a business relationship which would
adversely affect in any manner: (i) the conduct of the business of the
Company or its Affiliates (including, without
-3-
limitation, any products or business plans or business prospects), or (ii)
the business reputation of the Company or its Affiliates, or any of their
products, or their past or present officers, directors or employees.
2.15 "Effective Date" means the effective date of this Plan as
defined in Article XIII.
2.16 "Eligible Employee" means each key management employee of the
Company or an Affiliate.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended. Any references to any section of the Exchange Act shall also be a
reference to any successor provision.
2.18 "Fair Market Value" means, for purposes of this Plan, unless
otherwise required by any applicable provision of the Code, any
regulations issued thereunder or as provided in the applicable Stock
Option agreement, as of any date, the price for Common Stock consistently
applied on such date, as determined in good faith by the Committee and,
prior to the initial public offering of the Common Stock of the Company,
as agreed to by CEP and MSDWCP.
2.19 "Family Member" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships, any person sharing the
employee's household (other than a tenant or employee), a trust in which
these persons have more than 50% of the beneficial interest, a foundation
in which these persons (or the employee) control the management of assets,
and any other entity in which these persons (or the employee) own more
than 50% of the voting interests.
2.20 "Incentive Stock Option" means any Stock Option awarded to an
Eligible Employee under this Plan intended to be and designated as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
2.21 "MSDWCP" means a representative of Morgan Stanley Dean Witter
Capital Partners IV, L.P. and its affiliated funds, and their respective
successors.
2.22 "Non-Qualified Stock Option" means any Stock Option awarded
under this Plan that is not an Incentive Stock Option.
2.23 "Parent" means any parent corporation of the Company within the
meaning of Section 424(e) of the Code.
-4-
2.24 "Participant" means any Eligible Employee to whom a Stock
Option has been awarded under this Plan.
2.25 "Plan" means this Cross Country Staffing, Inc. Amended and
Restated Equity Participation Plan, as amended from time to time.
2.26 "Retirement" means a Termination of Employment without Cause by
a Participant at or after age 65 or such earlier date after age 50 as may
be approved by the Committee with regard to such Participant.
2.27 "Securities Act" means the Securities Act of 1933, as amended.
Any reference to any section of the Securities Act shall also be a
reference to any successor provision.
2.28 "Stock Option" or "Option" means any option to purchase shares
of Common Stock granted to Eligible Employees under Article VI.
2.29 "Subsidiary" means any subsidiary corporation of the Company
within the meaning of Section 424(f) of the Code.
2.30 "Ten Percent Stockholder" means a person owning stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, its Subsidiaries or its Parent.
2.31 "Termination of Employment" means: (i) a termination of
employment (for reasons other than a military or personal leave of absence
granted by the Company) of a Participant from the Company and its
Affiliates; or (ii) when an entity which is employing a Participant ceases
to be an Affiliate, unless the Participant otherwise is, or thereupon
becomes, employed by the Company or another Affiliate. In the event that
an Eligible Employee becomes a Consultant upon the termination of his
employment, the Committee, in its sole and absolute discretion, may
determine that no Termination of Employment shall be deemed to occur until
such time as such Eligible Employee is no longer an Eligible Employee or a
Consultant. The Committee may otherwise define Termination of Employment
in the Award agreement or, if no rights of a Participant are reduced, may
otherwise define Termination of Employment thereafter.
2.32 "Transfer" means anticipate, alienate, attach, sell, assign,
pledge, encumber, charge, hypothecate or otherwise transfer and
"Transferred" has a correlative meaning.
ARTICLE III
ADMINISTRATION
-5-
3.1 THE COMMITTEE. The Plan shall be administered and interpreted by
the Committee.
3.2 GRANTS OF AWARDS. The Committee shall have full authority to
grant Stock Options to Eligible Employees pursuant to the terms of this
Plan. All Stock Options shall be granted by, confirmed by, and subject to
the terms of, a written agreement executed by the Company and the
Participant. In particular, the Committee shall have the authority:
(a) to select from among those persons recommended by the
President of the Company the Eligible Employees to whom Stock
Options may from time to time be granted hereunder;
(b) to determine whether and to what extent Stock Options are
to be granted hereunder to one or more Eligible Employees after
receipt of a recommendation by the President of the Company;
(c) to determine, in accordance with the terms of this Plan,
the number of shares of Common Stock to be covered by each Stock
Option granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of this Plan, of any Stock Option granted hereunder
(including, but not limited to, the exercise or purchase price (if
any), any restriction or limitation, any vesting schedule or
acceleration thereof and any forfeiture restrictions or waiver
thereof, regarding any Stock Option and the shares of Common Stock
relating thereto, based on such factors, if any, as the Committee
shall determine, in its sole discretion);
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash, Common Stock and/or restricted stock
under Section 6.3(d);
(f) to determine whether, to what extent and under what
circumstances to provide loans to Eligible Employees in order to
exercise Stock Options under this Plan;
(g) to determine whether a Stock Option is an Incentive Stock
Option or Non-Qualified Stock Option; provided, however, that a
Stock Option shall be, to the extent practicable, designated as an
Incentive Stock Option;
(h) to determine whether to require an Eligible Employee, as a
condition of the granting of any Stock Option, not to sell or
otherwise dispose of shares of Common Stock acquired pursuant to the
exercise of an Option for a
-6-
period of time as determined by the Committee, in its sole
discretion, following the date of the acquisition of such Option or
Award; and
(i) to modify, extend or renew an Award, subject to Article IX
herein, provided, however, that if an Award is modified, extended or
renewed and thereby deemed to be the issuance of a new Award under
the Code or the applicable accounting rules, the exercise price of a
Stock Option may continue to be the original exercise price even if
less than the Fair Market Value of the Common Stock at the time of
such modification, extension or renewal.
3.3 GUIDELINES. Subject to Article IX hereof, the Committee shall
have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan and perform all acts,
including the delegation of its administrative responsibilities, as it
shall, from time to time, deem advisable; to construe and interpret the
terms and provisions of this Plan and any Stock Option issued under this
Plan (and any agreements relating thereto); and to otherwise supervise the
administration of this Plan. The Committee may correct any defect, supply
any omission or reconcile any inconsistency in this Plan or in any
agreement relating thereto in the manner and to the extent it shall deem
necessary to effectuate the purpose and intent of this Plan. The Committee
may adopt special guidelines and provisions for persons who are residing
in or employed in, or subject to, the taxes of, foreign jurisdictions to
comply with applicable tax and securities laws and may impose any
limitations and restrictions that it deems necessary to comply with the
applicable tax and securities laws of such foreign jurisdictions.
3.4 DECISIONS FINAL. Any decision, interpretation or other action
made or taken in good faith by or at the direction of the Company, the
Board or the Committee (or any of its members) arising out of or in
connection with this Plan shall be within the absolute discretion of all
and each of them, as the case may be, and shall be final, binding and
conclusive on the Company and all employees and Participants and their
respective heirs, executors, administrators, successors and assigns.
3.5 PROCEDURES. If the Committee is appointed, the Board shall
designate one of the members of the Committee as chairman and the
Committee shall hold meetings, subject to the By-Laws of the Company, at
such times and places as it shall deem advisable, including, without
limitation, by telephone conference or by written consent to the extent
permitted by applicable law. A majority of the Committee members shall
constitute a quorum. All determinations of the Committee shall be made by
a majority of its members. Any decision or determination reduced to
writing and signed by all the Committee members in accordance with the
By-Laws of the Company, shall be fully as effective as if it had been made
by a vote at a meeting duly called and held. The Committee shall keep
minutes of its meetings and shall make such rules and regulations for the
conduct of its business as it shall deem advisable.
-7-
3.6 DESIGNATION OF CONSULTANTS/LIABILITY.
(a) The Committee may designate employees of the Company and
professional advisors to assist the Committee in the administration of
this Plan and may grant authority to officers to execute agreements or
other documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of this Plan and
may rely upon any opinion received from any such counsel or consultant and
any computation received from any such consultant or agent. Expenses
incurred by the Committee or Board in the engagement of any such counsel,
consultant or agent shall be paid by the Company. The Committee, its
members and any person designated pursuant to paragraph (a) above shall
not be liable for any action or determination made in good faith with
respect to this Plan. To the maximum extent permitted by applicable law,
no officer of the Company or member or former member of the Committee or
of the Board shall be liable for any action or determination made in good
faith with respect to this Plan or any Stock Option granted under it. To
the maximum extent permitted by applicable law or the Certificate of
Incorporation or By-Laws of the Company and to the extent not covered by
insurance directly insuring such person, each officer and member or former
member of the Committee or the Board shall be indemnified and held
harmless by the Company against any cost or expense (including reasonable
fees of counsel reasonably acceptable to the Company) or liability
(including any sum paid in settlement of a claim with the approval of the
Company), and advanced amounts necessary to pay the foregoing at the
earliest time and to the fullest extent permitted, arising out of any act
or omission to act in connection with the administration of this Plan,
except to the extent arising out of such officer's, member's or former
member's own fraud or bad faith. Such indemnification shall be in addition
to any rights of indemnification the employees, officers, directors or
members or former officers, directors or members may have under applicable
law or under the Certificate of Incorporation or By-Laws of the Company or
any Affiliate. Notwithstanding anything else herein, this indemnification
will not apply to the actions or determinations made by an individual with
regard to Stock Option granted to him or her under this Plan.
-8-
ARTICLE IV
SHARE AND OTHER LIMITATIONS
4.1 SHARES.
-9-
(a) The aggregate number of shares of Common Stock which may be
issued or used for reference purposes under this Plan or with respect to
which Stock Options may be granted shall not exceed 2,252,485* shares of
Common Stock (subject to any increase or decrease pursuant to Section 4.2)
which may be either authorized and unissued Common Stock or Common Stock
held in or acquired for the treasury of the Company or both.
(b) Stock Options granted under the Plan shall be sub-divided into 5
tranches (as described more fully in Section 6.2). The number of shares of
Common Stock available for each tranche shall be as follows:
------------------------------------------------
NUMBER OF SHARES
TRANCHE SUBJECT TO TRANCHE
------------------------------------------------
1 79,070
------------------------------------------------
2 148,837
------------------------------------------------
3 148,837
------------------------------------------------
4 32,558
------------------------------------------------
5 32,558
------------------------------------------------
(c) If any Stock Option granted under this Plan expires, terminates
or is forfeited for any reason other than by reason of its exercise, the
number of shares of Common Stock underlying such unexercised or forfeited
Stock Option shall again be available for the purposes of Awards under
this Plan.
4.2 CHANGES.
(a) The existence of this Plan and the Stock Options granted
hereunder shall not affect in any way the right or power of the Board or
the stockholders of the Company to make or authorize (i) any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, (ii) any merger or consolidation of the Company
or any Affiliate, (iii) any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock, (iv) the
dissolution or liquidation of the Company or any Affiliate, (v) any sale
or transfer of all or part of the assets or business of the Company or any
Affiliate, or (vi) any other corporate act or proceeding.
(b) In the event of any change in the capital structure or business
of the Company by reason of any stock split, reverse stock split, stock
dividend, combination or reclassification of shares, recapitalization, or
other change in the capital structure of the Company, merger,
consolidation, spin-off,
* Note, the number reflects the stock split that occured on August 23, 2001.
-10-
reorganization, partial or complete liquidation, issuance of rights or
warrants to purchase any Common Stock or securities convertible into
Common Stock, or any other corporate transaction or event having an effect
similar to any of the foregoing, then the Committee may take such action,
if any, with respect to the Plan and outstanding Stock Options, as it may
deem equitable to prevent substantial dilution or enlargement of the
rights granted to, or available for, Participants under this Plan,
including, without limitation, adjustment of the aggregate number and kind
of shares which thereafter may be issued under this Plan, the number and
kind of shares or other property (including cash) to be issued upon
exercise of an outstanding Stock Option granted under this Plan and the
purchase price thereof. Any such action or adjustment determined by the
Committee in good faith shall be final, binding and conclusive on the
Company and all Participants and employees and their respective heirs,
executors, administrators, successors and assigns. Except as provided in
this Section 4.2, a Participant shall have no rights by reason of any
issuance by the Company of any class or securities convertible into stock
of any class of the Company, any subdivision or consolidation of shares of
stock of any class of the Company, the payment of any stock dividend, any
other increase or decrease in the number of shares of stock of any class
of the Company, any sale or transfer of all or part of the Company's
assets or business or any other change affecting the Company's capital
structure or business.
(c) Fractional shares of Common Stock resulting from any adjustment
in Options pursuant to Section 4.2(a) or (b) shall be aggregated until,
and eliminated at, the time of exercise by rounding-down for fractions
less than one-half and rounding-up for fractions equal to or greater than
one-half. No cash settlements shall be made with respect to fractional
shares eliminated by rounding. Notice of any adjustment shall be given by
the Committee to each Participant whose Option has been adjusted and such
adjustment (whether or not such notice is given) shall be effective and
binding for all purposes of this Plan.
4.3 MINIMUM PURCHASE PRICE. Notwithstanding any provision of this Plan to
the contrary, if authorized but previously unissued shares of Common Stock are
issued under this Plan, such shares shall not be issued for a consideration
which is less than as permitted under applicable law.
ARTICLE V
ELIGIBILITY
5.1 NON-QUALIFIED STOCK OPTIONS. All Eligible Employees are eligible to be
granted Non-Qualified Stock Options. Eligibility for the grant of a
Non-Qualified
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Stock Option and actual participation in this Plan shall be determined by the
Committee in its sole discretion.
5.2 INCENTIVE STOCK OPTIONS. All Eligible Employees of the Company, its
Subsidiaries and its Parent (if any) are eligible to be granted Incentive Stock
Options under this Plan. Eligibility for the grant of an Incentive Stock Option
and actual participation in this Plan shall be determined by the Committee in
its sole discretion.
ARTICLE VI
STOCK OPTIONS
6.1 STOCK OPTIONS. Each Stock Option granted hereunder shall be one of two
types: (i) an Incentive Stock Option intended to satisfy the requirements of
Section 422 of the Code; or (ii) a Non-Qualified Stock Option.
6.2 GRANTS. (a) Subject to the provisions of Article V, the Committee
shall have the authority to grant to any Eligible Employee one or more Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options. To
the extent that any Stock Option does not qualify as an Incentive Stock Option
(whether because of its provisions or the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof which does not qualify,
shall constitute a separate Non-Qualified Stock Option. Notwithstanding any
other provision of this Plan to the contrary or any provision in an agreement
evidencing the grant of a Stock Option to the contrary, any Stock Option granted
to an Eligible Employee of an Affiliate (other than an Affiliate which is a
Parent or a Subsidiary) shall be a Non-Qualified Stock Option.
(b) Each Stock Option granted under the Plan shall be sub-divided
into 5 tranches. The number of shares of Common Stock in each tranche for
any Stock Option shall be the total number of shares of Common Stock
subject to the Stock Option multiplied by the applicable percentage for
such tranche in the following table:
------------------------------------------------
PERCENTAGE OF SHARES
TRANCHE SUBJECT TO TRANCHE
------------------------------------------------
1 17.8947368%
------------------------------------------------
2 33.6842105%
------------------------------------------------
3 33.6842105%
------------------------------------------------
4 7.368421%
------------------------------------------------
5 7.368421%
------------------------------------------------
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6.3 TERMS OF STOCK OPTIONS. Stock Options granted under this Plan shall be
subject to the following terms and conditions, and shall be in such form and
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem desirable:
(a) EXERCISE PRICE. Stock Options under this Plan shall be
exercisable at the exercise prices set forth in the following table;
provided, however, that if an Incentive Stock Option is granted to a Ten
Percent Stockholder, the exercise price of the first tranche shall be no
less than 110% of the Fair Market Value of the Common Stock at the time of
grant:
------------------------------------------------------------------------
ACTUAL EXERCISE PRICE OF
EXERCISE PRICE OF OPTIONS GRANTED ON THE
TRANCHE OPTIONS GRANTED EFFECTIVE DATE
------------------------------------------------------------------------
1 100% of Fair Market $ 44.96
Value on Date of Grant
------------------------------------------------------------------------
2 150% of Fair Market $ 67.44
Value on Date of Grant
------------------------------------------------------------------------
3 200% of Fair Market $ 89.92
Value on Date of Grant
------------------------------------------------------------------------
4 250% of Fair Market $ 112.40
Value on Date of Grant
------------------------------------------------------------------------
5 300% of Fair Market $ 134.88
Value on Date of Grant
------------------------------------------------------------------------
(b) STOCK OPTION TERM. The term of each Stock Option shall be fixed
by the Committee; provided, however, that no Stock Option shall be
exercisable more than 10 years after the date such Stock Option is
granted; and further provided that the term of an Incentive Stock Option
granted to a Ten Percent Stockholder shall not exceed 5 years.
(c) EXERCISABILITY. Except as otherwise provided by the Committee in
accordance with the provisions of this Section, 25% of each tranche of any
Stock Option granted under this Article VI shall be exercisable on the
first anniversary of the date of grant and 12.5% of each tranche of any
Stock Option granted under this Article VI shall be exercisable at the end
of each six-month period thereafter. Notwithstanding the foregoing, Stock
Options shall be exercisable at such time or times and subject to such
terms and conditions as shall be determined by the Committee at grant. If
the Committee provides, in its discretion, that any Stock Option is
exercisable subject to certain limitations (including, without limitation,
that such Stock Option is exercisable only in installments or within
certain time periods), the Committee may waive such
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limitations on the exercisability at any time at or after grant in whole
or in part (including, without limitation, waiver of the installment
exercise provisions or acceleration of the time at which such Stock Option
may be exercised), based on such factors, if any, as the Committee shall
determine, in its sole discretion. Unless otherwise determined by the
Committee at grant, the grant shall provide that (i) in the event the
Participant engages in Detrimental Activity prior to any exercise of the
Stock Option, all Stock Options held by the Participant shall thereupon
terminate and expire, (ii) as a condition of the exercise of a Stock
Option, the Participant shall be required to certify at the time of
exercise in a manner acceptable to the Company that the Participant is in
compliance with the terms and conditions of the Plan and that the
Participant has not engaged in, and does not intend to engage in, any
Detrimental Activity, (iii) in the event the Participant engages in
Detrimental Activity during the 6 month period commencing on the date the
Stock Option is exercised, the Company shall be entitled to recover from
the Participant at any time within one year after such exercise, and the
Participant shall pay over to the Company, any gain realized as a result
of the exercise (whether at the time of exercise or thereafter), (iv) any
decision by the Committee to waive such limitations must be first approved
by each of CEP and MSDWCP and (v) the foregoing provisions described in
(i), (ii), (iii) and (iv) shall cease to apply upon a Change in Control.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise and
waiting period provisions apply under subsection (c) above, Stock Options
may be exercised in whole or in part at any time and from time to time
during the Stock Option term by giving written notice of exercise to the
Committee specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price as follows:
(i) in cash or by check, bank draft or money order payable to the order of
the Company; (ii) if the Common Stock is traded on a national securities
exchange, The Nasdaq Stock Market, Inc. or quoted on a national quotation
system sponsored by the National Association of Securities Dealers,
through a "cashless exercise" procedure whereby the Participant delivers
irrevocable instructions to a broker approved by the Committee to deliver
promptly to the Company an amount equal to the purchase price; or (iii) on
such other terms and conditions as may be acceptable to the Committee
(including, without limitation, the relinquishment of Stock Options or by
payment in full or in part in the form of Common Stock owned by the
Participant for a period of at least 6 months (and for which the
Participant has good title free and clear of any liens and encumbrances)
based on the Fair Market Value of the Common Stock on the payment date).
No shares of Common Stock shall be issued until payment therefor, as
provided herein, has been made or provided for.
(e) INCENTIVE STOCK OPTION LIMITATIONS. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the
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Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by an Eligible Employee during any calendar year under
this Plan and/or any other stock option plan of the Company, any
Subsidiary or any Parent exceeds $100,000, such Options shall be treated
as Non-Qualified Stock Options. In addition, if an Eligible Employee does
not remain employed by the Company, any Subsidiary or any Parent at all
times from the time an Incentive Stock Option is granted until 3 months
prior to the date of exercise thereof (or such other period as required by
applicable law), such Stock Option shall be treated as a Non-Qualified
Stock Option. Should any provision of this Plan not be necessary in order
for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend this Plan
accordingly, without the necessity of obtaining the approval of the
stockholders of the Company.
(f) FORM, MODIFICATION, EXTENSION AND RENEWAL OF STOCK OPTIONS.
Subject to the terms and conditions and within the limitations of this
Plan, Stock Options shall be evidenced by such form of agreement or grant
as is approved by the Committee, and the Committee may (i) modify, extend
or renew outstanding Stock Options granted under this Plan (provided that
the rights of a Participant are not reduced without his consent), and (ii)
accept the surrender of outstanding Stock Options (up to the extent not
theretofore exercised) and authorize the granting of new Stock Options in
substitution therefor (to the extent not theretofore exercised).
(g) DEFERRED DELIVERY OF COMMON SHARES. The Committee may in its
discretion permit Participants to defer delivery of Common Stock acquired
pursuant to a Participant's exercise of an Option in accordance with the
terms and conditions established by the Committee.
ARTICLE VII
NON-TRANSFERABILITY AND
TERMINATION OF EMPLOYMENT
7.1 NON-TRANSFERABILITY. Except as provided herein, no Stock Option shall
be Transferable by the Participant otherwise than by will or by the laws of
descent and distribution. All Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant. No Stock Option shall, except
as otherwise specifically provided by law or herein, be Transferable in any
manner, and any attempt to Transfer any such Stock Option shall be void, and no
such Stock Option shall in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person who shall be entitled
to such Stock Option, nor shall it be subject to attachment or legal process for
or against such person. Notwithstanding the foregoing, the Committee may
determine at the time of grant or thereafter that a Non-Qualified Stock Option
that is otherwise not Transferable
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pursuant to this Section 7.1 is Transferable to a Family Member in whole or in
part and in such circumstances, and under such conditions, as specified by the
Committee. A Non- Qualified Stock Option that is Transferred to a Family Member
pursuant to the preceding sentence (i) may not be subsequently Transferred
otherwise than by will or by the laws of descent and distribution and (ii)
remains subject to the terms of this Plan and the Stock Option agreement. Any
shares of Common Stock acquired upon the exercise of a Stock Option by a
transferee of a Stock Option shall be subject to the terms of this Plan and the
Stock Option agreement, including, without limitation, the provisions of Article
X hereof.
7.2 TERMINATION OF EMPLOYMENT. The following rules apply with regard to
the Termination of Employment of a Participant. Unless otherwise determined by
the Committee at grant or, if no rights of the Participant are reduced,
thereafter:
(a) TERMINATION BY REASON OF DEATH, DISABILITY OR RETIREMENT. If a
Participant's Termination of Employment is by reason of death, Disability
or Retirement, all Stock Options held by such Participant which are
exercisable at the time of the Participant's Termination of Employment,
may be exercised by the Participant (or, in the case of death, by the
legal representative of the Participant's estate) at any time within a
period of one year from the date of such Termination of Employment, but in
no event beyond the expiration of the stated terms of such Stock Options;
provided, however, that, in the case of Retirement, if the Participant
dies within such exercise period, all unexercised Stock Options held by
such Participant shall thereafter be exercisable, to the extent to which
they were exercisable at the time of death, for a period of one year from
the date of such death, but in no event beyond the expiration of the
stated term of such Stock Options.
(b) INVOLUNTARY TERMINATION WITHOUT CAUSE. If a Participant's
Termination of Employment is by involuntary termination without Cause, all
Stock Options held by such Participant which are exercisable at the time
of such Termination of Employment, may be exercised by the Participant at
any time within a period of 90 days from the date of such Termination of
Employment, but in no event beyond the expiration of the stated term of
such Stock Options.
(c) VOLUNTARY TERMINATION. If a Participant's Termination of
Employment is voluntary (other than a voluntary termination described in
Section 7.2(d)(ii) below), all Stock Options held by such Participant
which are exercisable at the time of such Termination of Employment, may
be exercised by the Participant at any time within a period of 30 days
from the date of such Termination of Employment, but in no event beyond
the expiration of the stated terms of such Stock Options.
(d) TERMINATION FOR CAUSE. If a Participant's Termination of
Employment (i) is for Cause or (ii) is a voluntary termination (as
provided in
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subsection (c) above) at any time after an event which would be grounds
for a Termination of Employment for Cause, all Stock Options held by such
Participant shall thereupon terminate and expire as of the date of such
Termination of Employment.
ARTICLE VIII
CHANGE IN CONTROL PROVISIONS
8.1 BENEFITS. In the event of a Change in Control of the Company, except
as otherwise provided by the Committee upon the grant of a Stock Option, the
Participant shall be entitled to the following benefits:
(a) Except to the extent provided in the applicable Stock Option
agreement, the Participant's employment agreement with the Company or an
Affiliate, as approved by the Committee, or other written agreement
approved by the Committee (as such agreement may be amended from time to
time), Stock Options granted and not previously exercisable shall become
exercisable upon a Change in Control, subject to subsection 8.1(b).
(b) Notwithstanding anything to the contrary herein, unless the
Committee provides otherwise at the time a Stock Option is granted
hereunder or thereafter, no acceleration of exercisability shall occur
with respect to such Stock Options if the Committee reasonably determines
in good faith that the Stock Options shall be honored or assumed, or new
rights substituted therefor (each such honored, assumed or substituted
stock option hereinafter called an "Alternative Option"), by a
Participant's employer (or the parent or a subsidiary of such employer)
immediately following the Change in Control, provided that any such
Alternative Option must meet the following criteria:
(i) the Alternative Option must provide such Participant with
rights and entitlements substantially equivalent to or better than
the rights, terms and conditions applicable under such Stock Option,
including, but not limited to, an identical or better exercise
schedule; and
(ii) the Alternative Option must substantially comply and in
the case of an Incentive Stock Option must comply with the
requirements of Treasury Regulation ss. 1.425-1 (and any amendments
thereto), except that the Alternative Option need not be an
Incentive Stock Option.
(c) If the Company and the other party to a transaction constituting
a Change in Control agree that such transaction shall be treated as a
"pooling of interests" for financial reporting purposes, and if the
transaction is in fact so treated, then the acceleration of
exercisability, vesting or lapse of the applicable
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Restriction Period shall not occur to the extent that the Company's
independent public accountants determine in good faith that such
acceleration would preclude "pooling of interests" accounting.
8.2 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred:
(a) upon any "person" as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than CEP, MSDWCP, the Company, any
trustee or other fiduciary holding securities under any employee benefit
plan of the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), becoming the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 50% or more of the combined
voting power of the Company's then outstanding securities;
(b) during any period of 2 consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in paragraph (a), (c),
or (d) of this Section or a director whose initial assumption of office
occurs as a result of either an actual or threatened election contest (as
such term is used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board) whose election
by the Board or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the two-year period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the Board;
(c) a merger or consolidation of the Company or a Subsidiary with
any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) more
than 35% of the combined voting power of the voting securities of the
Company or such surviving entity or such surviving entity's parent
outstanding immediately after such merger or consolidation; or
(d) upon the approval by the stockholders of the Company of a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets other than the sale or disposition of all or substantially all of
the assets of the Company to a person or persons who beneficially own,
directly or indirectly, at least 50% or
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more of the combined voting power of the outstanding voting securities of
the Company at the time of the sale.
8.3 INITIAL PUBLIC OFFERING NOT A CHANGE IN CONTROL. For purposes of the
Plan, an initial public offering of the Common Stock of the Company shall not be
deemed to be a Change in Control.
ARTICLE IX
TERMINATION OR AMENDMENT OF PLAN
Notwithstanding any other provision of this Plan, the Board or the
Committee may at any time, and from time to time, amend, in whole or in part,
any or all of the provisions of this Plan (including any amendment deemed
necessary to ensure that the Company may comply with any regulatory requirement
referred to in Article XII), or suspend or terminate it entirely, retroactively
or otherwise; provided, however, that, unless otherwise required by law or
specifically provided herein, the rights of a Participant with respect to Awards
granted prior to such amendment, suspension or termination, may not be impaired
without the consent of such Participant. In no event may this Plan be amended
without the approval of the stockholders of the Company in accordance with the
applicable laws of the State of Delaware to increase the aggregate number of
shares of Common Stock that may be issued under this Plan, decrease the minimum
exercise price of any Stock Option, or to make any other amendment that would
require stockholder approval under the rules of any exchange or system on which
the Company's securities are listed or traded.
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but, subject to Article IV above or as otherwise
specifically provided herein, no such amendment or other action by the Committee
shall impair the rights of any holder without the holder's consent.
ARTICLE X
COMPANY CALL RIGHTS AND OTHER LIMITATIONS
10.1 COMPANY CALL RIGHTS. (a) In the event of Termination of Employment
for Cause, the Company may repurchase from the Participant any shares of Common
Stock previously acquired by the Participant through the exercise of a Stock
Option granted under this Plan at a repurchase price equal to the lesser of (i)
the original purchase price or exercise price (as applicable), if any, or (ii)
Fair Market Value as of the date of termination.
(b) In the event of a Termination of Employment for any reason other than
for Cause (including termination due to Retirement, death, Disability,
involuntary termination without Cause or resignation), the Company may at any
time within 270
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days after a Participant incurs a Termination of Employment or acquires shares
of Common Stock upon the exercise of a Stock Option following his or her
Termination of Employment for any reason other than for Cause: (i) repurchase
from the Participant each outstanding vested Stock Option based on the greater
of (A) the difference between the exercise price of a share of Common Stock
relating to such Stock Option and the Fair Market Value of a share of Common
Stock on the date of termination and (B) $.01 and (ii) repurchase from the
Participant any shares of Common Stock previously acquired by the Participant
through the exercise of a Stock Option under this Plan at a repurchase price
equal to Fair Market Value as of the date of termination, but in no event less
than the exercise price of a share of Common Stock relating to such Stock
Option.
10.2 LIMITATIONS ON TRANSFER OF SHARES. A Participant only may, directly
or indirectly, Transfer shares of Common Stock acquired by the Participant (or
his or her estate or legal representative) through the exercise of an Option
under this Plan in the same proportion to the aggregate amount of shares of
Common Stock sold by CEP and MSDWCP to entities which are not Affiliates for
cash or marketable securities.
10.3 EFFECT OF IPO. Notwithstanding the foregoing, the Company shall cease
to have rights pursuant to Section 10.1 following an initial public offering of
the Common Stock of the Company.
ARTICLE XI
UNFUNDED PLAN
11.1 UNFUNDED STATUS OF PLAN. This Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments as to which a Participant has a fixed and vested interest but which are
not yet made to a Participant by the Company, nothing contained herein shall
give any such Participant any rights that are greater than those of a general
unsecured creditor of the Company.
ARTICLE XII
GENERAL PROVISIONS
12.1 LEGEND. The Committee may require each person receiving shares
pursuant to an Award under this Plan to represent to and agree with the Company
in writing that the Participant is acquiring the shares without a view to
distribution thereof. In addition to any legend required by this Plan, the
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on Transfer.
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All certificates for shares of Common Stock delivered under this Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Common Stock is then listed or any national securities association system upon
whose system the Common Stock is then quoted, any applicable Federal or state
securities law, and any applicable corporate law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
12.2 OTHER PLANS. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
12.3 NO RIGHT TO EMPLOYMENT. Neither this Plan nor the grant of any Award
hereunder shall give any Participant any right with respect to continuance of
employment by the Company or any Affiliate, nor shall they be a limitation in
any way on the right of the Company or any Affiliate by which an employee is
employed to terminate his employment at any time.
12.4 WITHHOLDING OF TAXES. The Company shall have the right to deduct from
any payment to be made to a Participant, or to otherwise require, prior to the
issuance or delivery of any shares of Common Stock or the payment of any cash
hereunder, payment by the Participant of, any Federal, state or local taxes
required by law to be withheld.
Any statutorily required withholding obligation with regard to any
Eligible Employee may be satisfied, subject to the consent of the Committee, by
reducing the number of shares of Common Stock otherwise deliverable or by
delivering shares of Common Stock already owned. Any fraction of a share of
Common Stock required to satisfy such tax obligations shall be disregarded and
the amount due shall be paid instead in cash by the Participant.
12.5 LISTING AND OTHER CONDITIONS.
(a) Unless otherwise determined by the Committee, as long as the
Common Stock is listed on a national securities exchange or system
sponsored by a national securities association, the issue of any shares of
Common Stock pursuant to a Stock Option shall be conditioned upon such
shares being listed on such exchange or system. The Company shall have no
obligation to issue such shares unless and until such shares are so
listed, and the right to exercise any Stock Option with respect to such
shares shall be suspended until such listing has been effected.
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(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to a Stock
Option is or may in the circumstances be unlawful or result in the
imposition of excise taxes on the Company under the statutes, rules or
regulations of any applicable jurisdiction, the Company shall have no
obligation to make such sale or delivery, or to make any application or to
effect or to maintain any qualification or registration under the
Securities Act or otherwise with respect to shares of Common Stock or
Stock Option, and the right to exercise any Stock Option shall be
suspended until, in the opinion of said counsel, such sale or delivery
shall be lawful or will not result in the imposition of excise taxes on
the Company.
(c) Upon termination of any period of suspension under this Section
12.5, a Stock Option affected by such suspension which shall not then have
expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension
shall extend the term of any Stock Option.
(d) A Participant shall be required to supply the Company with any
certificates, representations and information that the Company requests
and otherwise cooperate with the Company in obtaining any listing,
registration, qualification, exemption, consent or approval the Company
deems necessary or appropriate.
12.6 STOCKHOLDERS AGREEMENT. As a condition to the receipt of shares of
Common Stock pursuant to a Stock Option under this Plan, to the extent required
by the Committee, the Participant shall execute and deliver a stockholder's
agreement or such other documentation which shall set forth certain restrictions
on transferability of the shares of Common Stock acquired upon exercise or
purchase (including Section 10.2), a right of first refusal of the Company with
respect to shares, the right of the Company to purchase Common Stock in
accordance with this Plan and such other terms as the Board or Committee shall
from time to time establish. Such stockholder's agreement shall apply to all
Common Stock acquired under the Plan.
12.7 GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
12.8 CONSTRUCTION. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
12.9 OTHER BENEFITS. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
12.10 COSTS. The Company shall bear all expenses included in administering
this Plan, including expenses of issuing Common Stock pursuant to any Awards
hereunder.
12.11 NO RIGHT TO SAME BENEFITS. The provisions of Stock Options need not
be the same with respect to each Participant, and such Stock Options to
individual Participants need not be the same in subsequent years.
12.12 DEATH/DISABILITY. The Committee may in its discretion require the
transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will (in
the case of the Participant's death) or such other evidence as the Committee
deems necessary to establish the validity of the transfer of an Award. The
Committee may also require that the agreement of the transferee to be bound by
all of the terms and conditions of this Plan.
12.13 SUCCESSORS AND ASSIGNS. The Plan shall be binding on all successors
and permitted assigns of a Participant, including, without limitation, the
estate of such Participant and the executor, administrator or trustee of such
estate.
12.14 SEVERABILITY OF PROVISIONS. If any provision of this Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provisions had not been included.
12.15 HEADINGS AND CAPTIONS. The headings and captions herein are provided
for reference and convenience only, shall not be considered part of this Plan,
and shall not be employed in the construction of this Plan.
ARTICLE XIII
EFFECTIVE DATE OF PLAN
13.1 The Plan shall become effective upon adoption by the Board, subject
to the approval of this Plan by the stockholders of the Company in accordance
with the requirements of the laws of the State of Delaware, or such later date
as provided in the adopting resolution.
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ARTICLE XIV
TERM OF PLAN
14.1 No Stock Option shall be granted pursuant to this Plan on or after
the tenth anniversary of the earlier of the date this Plan is adopted or the
date of stockholder approval, but Stock Options granted prior to such tenth
anniversary may, and the Committee's authority to administer the terms of such
Options shall, extend beyond that date.
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EXHIBIT 23.1(A)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 7, 2001, except for the third paragraph of
Note 11, as to which the date is August 23, 2001, in Amendment No. 1 to the
Registration Statement (Form S-1) and related Prospectus of Cross Country, Inc.
dated August 23, 2001.
/S/ ERNST & YOUNG LLP
West Palm Beach, FL
August 23, 2001
EXHIBIT 23.1(B)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 10, 2000 related to the consolidated financial
statements of TravCorps Corporation and Subsidiary, in Amendment No. 1 to the
Registration Statement (Form S-1) and related Prospectus of Cross Country, Inc.
dated August 23, 2001.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
August 22, 2001
EXHIBIT 23.1(C)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 26, 2001 related to the consolidated financial
statements of ClinForce, Inc. in Amendment No. 1 to the Registration Statement
(Form S-1) and related Prospectus of Cross Country, Inc. dated August 23, 2001.
/S/ ERNST & YOUNG LLP
Raleigh, North Carolina
August 23, 2001
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated November 5, 1999, except for Note 8 as to which the date is
December 16, 1999, relating to the financial statements of Cross Country
Staffing, a Partnership, as of July 29, 1999 and December 31, 1998 and for the
period from January 1, 1999 through July 29, 1999 and for the year ended
December 31, 1998, which appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
August 22, 2001
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
No. 333-64914 of Cross Country Inc. on Form S-1 of our report dated March 12,
1999 related to the consolidated financial statements of TravCorps Corporation
and Subsidiary for the year ended December 26, 1998, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
August 21, 2001
