<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
Quarterly report pursuant to Section 13 or 15(d) of the
[X] Securities Exchange Act of 1934 for the quarterly period ended
September 30, 1999
Transition report pursuant to Section 13 or 15(d) of the
[ ] Securities Exchange Act of 1934 for the transition period from
_________ to __________
COMMISSION FILE NUMBER: 0-20971
STAFFMARK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 71-0788538
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
234 EAST MILLSAP ROAD
FAYETTEVILLE, AR 72703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (501) 973-6000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at November 10, 1999 was 29,391,041.
1
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STAFFMARK, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
INDEX
-----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
StaffMark, Inc. Consolidated Financial Statements
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction 11
Results for the Three and Nine Months Ended September 30, 1999
Compared to Results for the Three and Nine Months Ended September 30, 1998 11
Liquidity and Capital Resources 14
Year 2000 Compliance 15
Foreign Currency Translation 16
Special Note Regarding Forward Looking Statements 16
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 17
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS 17
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 18
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 19
</TABLE>
2
<PAGE> 3
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SERVICE REVENUES $319,155 $264,341 $903,739 $722,047
COST OF SERVICES 239,065 194,252 676,449 531,764
-------- -------- -------- --------
Gross profit 80,090 70,089 227,290 190,283
-------- -------- -------- --------
OPERATING EXPENSES:
Selling, general and administrative 56,316 43,685 158,570 124,767
Depreciation and amortization 5,510 3,822 15,641 9,802
Nonrecurring costs 2,153 536 2,153 1,656
-------- -------- -------- --------
Operating income 16,111 22,046 50,926 54,058
-------- -------- -------- --------
OTHER EXPENSE:
Interest expense 4,708 2,121 12,209 3,993
Other, net -- 201 239 251
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 11,403 19,724 38,478 49,814
PROVISION FOR INCOME TAXES 3,581 7,487 13,490 19,350
-------- -------- -------- --------
NET INCOME $ 7,822 $ 12,237 $ 24,988 $ 30,464
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.27 $ 0.42 $ 0.85 $ 1.07
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.27 $ 0.41 $ 0.85 $ 1.03
======== ======== ======== ========
BASIC EARNINGS PER SHARE EXCLUDING
NONRECURRING COSTS $ 0.32 $ 0.44 $ 0.90 $ 1.10
======== ======== ======== ========
DILUTED EARNINGS PER SHARE EXCLUDING
NONRECURRING COSTS $ 0.32 $ 0.42 $ 0.90 $ 1.06
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
STAFFMARK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 779 $ 12,812
Accounts receivable, net 196,364 155,796
Prepaid expenses and other 14,515 10,063
Deferred income taxes 3,172 2,569
---------- ----------
Total current assets 214,830 181,240
PROPERTY AND EQUIPMENT, net 28,730 22,450
INTANGIBLE ASSETS, net 436,539 375,682
OTHER ASSETS 2,736 1,573
---------- ----------
$ 682,835 $ 580,945
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 33,407 $ 35,068
Payroll and related liabilities 41,180 40,309
Reserve for workers' compensation claims 9,091 8,087
Income taxes payable 1,854 3,318
---------- ----------
Total current liabilities 85,532 86,782
LONG TERM DEBT 298,150 176,700
OTHER LONG TERM LIABILITIES 18 47,737
DEFERRED INCOME TAXES 13,422 9,634
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; no shares issued or outstanding -- --
Common stock, $.01 par value; 29,316,594 and 29,083,379 shares issued
and outstanding as of September 30, 1999 and December 31, 1998 293 291
Paid-in capital 215,336 214,271
Retained 71,260 46,263
earnings
Accumulated other comprehensive income (1,176) (733)
---------- ----------
Total stockholders' equity 285,713 260,092
---------- ----------
$ 682,835 $ 580,945
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,822 $ 12,237 $ 24,988 $ 30,464
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,510 3,822 15,641 9,802
Provision for bad debts 1,303 69 1,870 1,323
Deferred income taxes 398 357 3,535 (1,203)
Effect of compensatory stock options -- (1,390) -- (1,429)
Change in operating assets and liabilities, net of
acquisitions:
Accounts receivable (9,901) (11,778) (34,093) (32,469)
Prepaid expenses and other (971) (23) (3,935) 385
Other assets (693) 663 (1,545) 2,666
Accounts payable and other accrued liabilities (3,287) 2,786 9,191 1,435
Payroll and related liabilities (712) 10,441 (96) 16,131
Payment of nonrecurring merger expenses (904) -- (14,537) --
Reserve for workers' compensation claims 675 472 714 836
Income taxes payable (4,062) (3,080) (2,143) (2,831)
Other long term liabilities 18 (899) (548) (2,729)
Other, net (729) (510) (1,112) (338)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities (5,533) 13,167 (2,070) 22,043
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (27,323) (35,416) (120,518) (135,037)
Capital expenditures (2,875) (2,019) (9,318) (8,344)
---------- ---------- ---------- ----------
Net cash used in investing activities (30,198) (37,435) (129,836) (143,381)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 69,284 60,918 316,274 203,118
Payments on borrowings (42,662) (34,670) (195,321) (76,310)
Proceeds from stock purchase plan and stock option
exercises 34 275 1,023 803
Deferred financing costs -- (269) (585) (839)
---------- ---------- ---------- ----------
Net cash provided by financing
activities 26,656 26,254 121,391 126,772
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (9,075) 1,986 (10,515) 5,434
Effect of foreign currency translation on cash and cash
equivalents 198 188 (1,518) (471)
CASH AND CASH EQUIVALENTS, beginning of period 9,656 9,444 12,812 6,655
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 779 $ 11,618 $ 779 $ 11,618
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 4,181 $ 2,384 $ 10,919 $ 3,956
========== ========== ========== ==========
Income taxes paid $ 7,815 $ 8,770 $ 14,152 $ 20,359
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
STAFFMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION:
We (StaffMark, Inc. and our subsidiaries) are an international provider
of diversified staffing, information technology ("IT"), professional, consulting
and solutions services to businesses, professional and service organizations and
governmental agencies. Revenues are recognized upon the performance of services.
We generally compensate our associates and consultants only for hours actually
worked and, therefore, wages of associates and consultants are a variable cost
that increase or decrease as revenues increase or decrease. However, we do have
associates and consultants that are full-time, salaried employees who are paid
even when not engaged in staffing or consulting. Cost of services primarily
consists of wages paid to associates and consultants, payroll taxes, workers'
compensation, foreign statutory taxes, national insurance and other related
employee benefits. Selling, general and administrative expenses are comprised
primarily of administrative salaries and benefits, marketing, rent, recruitment,
training, IT systems and communications expenses.
As of September 30, 1999, we operated over 310 offices in 32 states and
15 countries and provide staffing in the Commercial and Professional/Information
Technology ("Professional/IT") service lines. We extend trade credit to
customers representing a variety of industries. There are no individual
customers that account for more than 5% of our service revenues in any of the
periods presented.
2. BASIS OF PRESENTATION:
The accompanying interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission"). Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to those rules and regulations,
although we believe that the disclosures made are adequate to ensure the
information presented is not misleading.
The accompanying interim financial statements reflect all adjustments
(which were of a normal, recurring nature) that, in the opinion of management,
are necessary to present fairly our financial position, results of operations
and cash flows as of and for the interim periods presented. All significant
intercompany transactions have been eliminated in the accompanying consolidated
financial statements. Additionally, certain reclassifications have been made to
prior period balances in order to conform with the current period presentation.
These financial statements should be read in conjunction with our audited
financial statements and notes thereto included in our 1998 Annual Report on
Form 10-K as filed with the Commission on March 16, 1999.
3. SEASONALITY:
The timing of certain holidays, weather conditions and seasonal vacation
patterns can cause our results of operations to fluctuate. We generally expect
to realize higher revenues, operating income and net income during the second
and third quarters and relatively lower revenues, operating income and net
income during the first and fourth quarters. Accordingly, the results of
operations for an interim period are not necessarily indicative of the results
of operations for a full fiscal year.
4. BUSINESS COMBINATIONS:
On November 25, 1998, we completed our acquisition of Robert Walters plc
("Robert Walters"). In connection with the acquisition, each outstanding share
of Robert Walters common stock was converted into the right to receive 0.272
shares of StaffMark's common stock, totaling 6,687,704 common shares in the
aggregate. The merger has been accounted for as a pooling-of-interests.
Accordingly, the accompanying consolidated financial statements have been
restated to include the accounts of Robert Walters for all periods presented.
6
<PAGE> 7
In addition to Robert Walters, we acquired 17 staffing and professional
service companies during 1998. The 1998 acquisitions of Strategic Legal
Resources, Inc., and Progressive Personnel Resources, Inc. at the time were
considered significant. We have also included certain financial information in
the tables below from our acquisition of the staffing services division of
WorldTec Group International, Inc. ("WGI") during the fourth quarter of 1998.
These three 1998 acquisitions are referred to as the "Acquisitions." The
unaudited consolidated results of operations on a pro forma basis as though the
Acquisitions had been acquired as of the beginning of 1998 are presented below.
The pro forma information presented below does not reflect the reductions in
salaries that certain owners of the Acquisitions agreed to and does not reflect
any nonrecurring costs incurred in connection with several of our 1998
pooling-of-interests transactions and the 1999 restructure of IntelliMark, our
IT platform in the Professional/IT segment. The remaining 1998 and 1999
acquisitions were not individually significant and, therefore, have not been
included in the following pro forma presentation. We believe this information
reflects all adjustments necessary for a fair presentation of results for the
interim periods. The pro forma results of operations for the three and nine
months ended September 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS) 1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 319,154 $ 286,208 $ 903,739 $ 791,112
============ ============ ============ ============
Net income $ 9,299 $ 12,504 $ 26,465 $ 30,832
============ ============ ============ ============
Basic earnings per share $ 0.32 $ 0.43 $ 0.90 $ 1.07
============ ============ ============ ============
Diluted earnings per share $ 0.32 $ 0.42 $ 0.90 $ 1.03
============ ============ ============ ============
</TABLE>
Consideration paid with respect to acquisitions during the three and
nine months ended September 30, 1999 includes cash consideration paid for
companies acquired in the current period, as well as contingent consideration
paid to the former owners of companies acquired in previous periods. The
aggregate consideration paid consisted of $27.3 million in cash for the three
months ended September 30, 1999 and $120.5 million in cash and approximately
200,000 shares of common stock for the nine months ended September 30, 1999.
5. NONRECURRING COSTS:
During the fourth quarter of 1998, we recorded merger and integration
expenses totaling approximately $24.6 million related to the merger with Robert
Walters and other pooling-of-interests transactions completed during 1998.
Included in these costs were approximately $13.3 million for professional and
financial advisors' fees, approximately $10.8 million related to integration
expenses and approximately $500,000 for severance and employee-related expenses.
Integration expenses consisted primarily of costs related to office closings and
contract terminations pursuant to management's plan of integration, which was
completed by September 30, 1999. Substantially all costs associated with
severance had been incurred as of December 31, 1998. As the remaining balance of
approximately $828,000 represented an overaccrual of merger and integration
expenses relating to the merger with Robert Walters, this amount was reversed
into income during September 1999. The following is a summary of our merger and
integration accrual:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Total merger and integration expenses $ 24,626
Cash outlays (23,798)
Reversal of excess accrual (828)
---------
Accrual at September 30, 1999 $ --
=========
</TABLE>
7
<PAGE> 8
During the third quarter of 1999, we recorded restructure expenses totaling
approximately $3.0 million relating to the restructure of IntelliMark. Included
in these costs are approximately $2.2 million for severance costs, approximately
$280,000 for office closing costs, and approximately $457,000 for other costs
including legal and travel expenses. These restructure expenses of approximately
$3.0 million were offset by the reversal of the Robert Walters merger and
integration accrual of approximately $828,000. Our IT platform in the
Professional/IT segment closed 12 offices and is implementing a "hub-and-spoke"
branch structure to serve certain markets where a full branch office may not be
required. The implementation of a new front-end system throughout our domestic
IT offices altered branch staff requirements and reduced the need for certain
positions. As part of the IT restructuring, we are in the process of separating
sales and certain management functions between our IT staffing, e-solutions, and
end-user solutions deliveries. Approximately 80 employees were let go or
reassigned in the restructuring process, which also involved the hiring of about
25 new IT salespeople, service specialists and managers. In addition to costs
that have been incurred, the restructure expense also includes future
obligations to severed employees which extend through September 2001. The
following is a summary of our restructure accrual:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Total restructure expenses $ 2,980
Cash outlays (904)
-----------
Accrual at September 30, 1999 $ 2,076
===========
</TABLE>
6. EARNINGS PER COMMON SHARE:
A reconciliation of net income and weighted average shares used in
computing basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net income applicable to common shares $ 7,822 $ 12,237 $ 24,988 $ 30,464
======== ======== ======== ========
Weighted average common shares outstanding 29,301 28,841 29,266 28,497
======== ======== ======== ========
Basic earnings per share of common stock $ 0.27 $ 0.42 $ 0.85 $ 1.07
======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Net income applicable to common shares $ 7,822 $ 12,237 $ 24,988 $ 30,464
======== ======== ======== ========
Weighted average common shares outstanding 29,301 28,841 29,266 28,497
Dilutive effect of stock options 214 780 229 1,124
-------- -------- -------- --------
Weighted average common shares including
dilutive effect of stock options 29,515 29,621 29,495 29,621
======== ======== ======== ========
Diluted earnings per share of common stock $ 0.27 $ 0.41 $ 0.85 $ 1.03
======== ======== ======== ========
</TABLE>
Excluding the restructure expenses of approximately $2.2 million that
were incurred during the third quarter of 1999 relating to the restructure of
IntelliMark, basic and diluted earnings per share were both $0.32 for the three
months ended September 30, 1999 and basic and diluted earnings per share were
both $0.90 for the nine months ended September 30, 1999.
8
<PAGE> 9
Excluding the nonrecurring merger costs related to 1998
pooling-of-interests transactions, basic and diluted earnings per share were
$0.44 and $0.42 for the three months ended September 30, 1998 and were $1.10 and
$1.06 for the nine months ended September 30, 1998.
Options to purchase approximately 2.4 million shares of common stock at
prices ranging from $10.06 to $40.75 per share were outstanding during the three
months ended September 30, 1999, but were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of our common shares. These options, which expire
ten years from the date of grant, were still outstanding as of September 30,
1999.
7. SEGMENT INFORMATION:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which requires reporting segment
information consistent with the way management internally disaggregates an
entity's operations to assess performance and to allocate resources. As
required, we have adopted the provisions of SFAS No. 131 and have presented
below the required segment information for the three and nine months ended
September 30, 1999 and 1998.
We segment our operations based upon differences in services. Our
Commercial segment provides clerical and light industrial staffing services in
the United States. Our Professional/IT segment provides staffing, consulting,
solutions, technical and support services primarily in the areas of finance,
accounting, information technology and legal services in the United States, the
United Kingdom, Australia and twelve other foreign countries. The Corporate
column includes general corporate expenses, headquarters facilities and
equipment, internal-use software, and other expenses not allocated to the
segments.
The accounting policies used in measuring segment assets and operating
results are the same as those described in Note 2 to our audited financial
statements and notes thereto included in our 1998 Annual Report on Form 10-K as
filed with the Commission on March 16, 1999. We evaluate performance of the
segments based on segment operating income, excluding corporate overhead. We do
not have any significant intersegment sales or transfers.
The results of the business segments as of and for the three and nine
months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
PROFESSIONAL/
INFORMATION CONSOLIDATED
(IN THOUSANDS) TECHNOLOGY COMMERCIAL CORPORATE TOTALS
------------- ---------- --------- ------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Total service revenues $154,691 $164,464 $ -- $319,155
Operating income 11,164 10,226 (5,279) 16,111
Depreciation and amortization 3,275 1,769 466 5,510
Capital expenditures 869 272 1,734 2,875
Total assets 433,358 215,384 34,093 682,835
THREE MONTHS ENDED SEPTEMBER 30, 1998
Total service revenues $144,459 $119,882 $ -- $264,341
Operating income 15,453 9,253 (2,660) 22,046
Depreciation and amortization 2,389 1,048 385 3,822
Capital expenditures 433 527 1,059 2,019
Total assets 306,947 143,835 57,039 507,821
NINE MONTHS ENDED SEPTEMBER 30, 1999
Total service revenues $454,615 $449,124 $ -- $903,739
Operating income 35,510 27,596 (12,180) 50,926
Depreciation and amortization 9,295 5,123 1,223 15,641
Capital expenditures 2,224 1,817 5,277 9,318
NINE MONTHS ENDED SEPTEMBER 30, 1998
Total service revenues $395,513 $326,534 $ -- $722,047
Operating income 37,371 24,739 (8,052) 54,058
Depreciation and amortization 6,239 2,659 904 9,802
Capital expenditures 2,767 1,259 4,318 8,344
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
REVENUES BY COUNTRY 1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States $ 245,016 $ 196,387 $ 691,762 $ 536,234
United Kingdom 56,134 52,695 162,983 144,330
Australia 13,857 12,647 38,042 33,587
Other 4,148 2,612 10,952 7,896
---------- ---------- ---------- ----------
Total revenues $ 319,155 $ 264,341 $ 903,739 $ 722,047
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
PROPERTY AND EQUIPMENT BY COUNTRY 1999 1998
------- -------
<S> <C> <C>
United States $24,520 $15,957
United Kingdom 2,712 3,445
Australia 509 523
Other 989 905
------- -------
Total property and equipment $28,730 $20,830
======= =======
</TABLE>
8. COMPREHENSIVE INCOME:
Comprehensive income was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 7,822 $ 12,237 $ 24,988 $ 30,464
Other comprehensive income:
Change in cumulative foreign currency
translation adjustments 198 188 (1,518) (471)
-------- -------- -------- --------
Total comprehensive income $ 8,020 $ 12,425 $ 23,470 $ 29,993
======== ======== ======== ========
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The information below discusses the results of operations for the three
and nine months ended September 30, 1999 as compared to the results of
operations for the three and nine months ended September 30, 1998. Our services
are provided through two segments: Professional/IT and Commercial. The
Professional/IT segment provides staffing, consulting, solutions, technical and
support services primarily in the areas of finance, accounting, information
technology, and legal services. The Commercial segment provides clerical and
light industrial staffing services. Our services are provided through our
network of over 310 offices located in 32 states and 15 countries including, but
not limited to, the United States, the United Kingdom, Australia, Germany, New
Zealand, Belgium, the Netherlands, Singapore and Japan.
Revenues are recognized upon the performance of services. We generally
compensate our associates and consultants only for hours actually worked and,
therefore, wages of associates and consultants are a variable cost that increase
or decrease as revenues increase or decrease. However, we do have associates and
consultants that are full-time, salaried employees who are paid even when not
engaged in staffing or consulting. Cost of services primarily consists of wages
paid to associates and consultants, payroll taxes, workers' compensation,
foreign statutory taxes, national insurance and other related employee benefits.
Selling, general and administrative expenses are comprised primarily of
administrative salaries and benefits, marketing, rent, recruitment, training, IT
systems and communications expenses.
Earnings before interest, taxes, depreciation and amortization
("EBITDA") are included in the following discussion because we believe the
period-to-period change in EBITDA is a meaningful measure due principally to the
role acquisitions have played in our development and because the non-cash
expenses of depreciation and amortization have a significant impact on operating
income and operating margins. EBITDA should not be construed as an alternative
measure to net income or cash flows from operations as determined by generally
accepted accounting principles as EBITDA excludes certain significant costs of
doing business.
The financial information provided below has been rounded in order to
simplify its presentation. The amounts and percentages below have been
calculated using the detailed financial information contained in the financial
statements, the notes thereto and the other financial data included in this
Quarterly Report on Form 10-Q.
RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues. Consolidated revenues increased $54.8 million, or 20.7%, to
$319.2 million for the three months ended September 30, 1999 compared to $264.3
million for the three months ended September 30, 1998. Consolidated revenues
increased $181.7 million, or 25.2%, to $903.7 million for the nine months ended
September 30, 1999 compared to $722.0 million for the nine months ended
September 30, 1998. The purchase acquisitions completed during 1998 and 1999 in
both the Professional/IT and Commercial segments accounted for approximately
$32.9 million and $115.0 million of the increase for the three and nine months
ended September 30, 1999, respectively.
Revenues for the Professional/IT segment increased $10.2 million, or
7.1%, to $154.7 million for the three months ended September 30, 1999 compared
to $144.5 million for three months ended September 30, 1998. Revenues for the
Professional/IT segment increased $59.1 million, or 14.9%, to $454.6 million for
the nine months ended September 30, 1999 compared to $395.5 million for nine
months ended September 30, 1998. This increase is primarily the result of
acquisitions and internal growth, particularly in the expansion of contracting
professional and information technology consultants in the United Kingdom and
other European locations, as well as in Australia and certain Asian markets. The
purchase acquisitions completed during 1998 and 1999 in the Professional/IT
segment accounted for approximately $9.6 million and $31.1 million of the
increase for the three and nine months ended September 30, 1999, respectively.
For the three months ended September 30, 1999, the Professional/IT segment had
internal growth of approximately 1%. Domestic IntelliMark revenues decreased 6%
on an internal basis compared with the third quarter of 1998, while the rest of
the
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<PAGE> 12
Professional/IT segment recorded an internal growth rate of approximately 10%.
For the nine months ended September 30, 1999, the Professional/IT segment had
internal growth of approximately 8%. We believe the domestic IT staffing
business was affected adversely by industry trends, including customers' focus
on Year 2000 compliance spending and anticipated deferrals of other IT spending
and staffing requirements until calendar year 2000.
Revenues for the Commercial segment increased $44.6 million, or 37.2%,
to $164.5 million for the three months ended September 30, 1999 compared to
$119.9 million for three months ended September 30, 1998. Revenues for the
Commercial segment increased $122.6 million, or 37.5%, to $449.1 million for the
nine months ended September 30, 1999 compared to $326.5 million for nine months
ended September 30, 1998. This revenue growth is the result of internal growth
and acquisitions completed during 1998, particularly the fourth quarter
acquisition of WGI. Commercial companies purchased during 1998 accounted for
$23.0 million and $83.9 million of the change for the three and nine months
ended September 30, 1999, respectively. For the three months ended September 30,
1999, the Commercial segment had internal growth of approximately 12%. For the
nine months ended September 30, 1999, the Commercial segment had internal growth
of approximately 8%. No Commercial acquisitions have been made during the nine
months ended September 30, 1999.
Gross Profit, SG&A and EBITDA. For the three months ended September 30, 1999,
gross profit as a percentage of revenue decreased from 26.5% to 25.1%, while
SG&A as a percentage of revenue increased from 16.5% to 17.7%; however, SG&A for
the three months ended September 30, 1998 was partially reduced by compensatory
stock option income that was recorded for Robert Walters. Excluding these
nonrecurring stock option amounts, SG&A as a percentage of revenue was 17.1% for
the three months ended September 30, 1998. For the nine months ended September
30, 1999, gross profit as a percentage of revenue decreased from 26.4% to 25.2%
while SG&A as a percentage of revenue increased from 17.3% to 17.6%. Excluding
the compensatory stock option income that was recorded for Robert Walters, SG&A
as a percentage of revenue was 17.5% for the nine months ended September 30,
1998. EBITDA decreased $4.2 million, or 16.4%, to $21.6 million for the three
months ended September 30, 1999 as compared to $25.9 million for the three
months ended September 30, 1998. EBITDA increased $2.7 million, or 4.2%, to
$66.6 million for the nine months ended September 30, 1999 as compared to $63.9
million for the nine months ended September 30, 1998. EBITDA as a percentage of
revenues was 6.8% and 7.4% for the three and nine months ended September 30,
1999, respectively, and 9.8% and 8.8% for the three and nine months ended
September 30, 1998, respectively. Excluding the compensatory stock option income
that was recorded for Robert Walters, EBITDA as a percentage of revenues was
9.3% and 8.6% for the three and nine months ended September 30, 1998,
respectively. The decrease in gross margin and EBITDA is primarily the result of
the faster growth of our commercial staffing segment, which has grown to 52% of
total revenues up from 45% in this quarter last year. Our commercial staffing
growth was related primarily to the Strategic Resource Group, which targets
large accounts that typically bill at lower gross margins than our retail
business in exchange for higher volume, and the acquisition of WGI, which also
has lower margins. The decline in our higher margin Professional/IT revenues as
a percentage of our total consolidated revenues further contributes to the
decline in consolidated margins. We are modifying our IT business model and are
reacting to the Year 2000 issues affecting our revenue and margins as described
below. Exclusive of the 1999 restructure expenses and the 1998 nonrecurring
merger costs as discussed below, EBITDA was $23.8 million and $68.7 million for
the three and nine months ended September 30, 1999 and $26.4 million and $65.5
million for the three and nine months ended September 30, 1998, respectively,
and EBITDA margins were 7.5% and 7.6% for the three and nine months ended
September 30, 1999, respectively, and 10.0% and 9.1% for the three and nine
months ended September 30, 1998, respectively.
Nonrecurring Charges. For the three and nine months ended September 30,
1999, the charge for restructuring our IT platform in the Professional/IT
segment of approximately $3.0 million is comprised primarily of severance,
office closing costs related to management changes, and the redesign of key
business processes in our domestic and international IT operations. Our IT
platform in the Professional/IT segment closed 12 offices and is implementing a
"hub-and-spoke" branch structure to serve certain markets where a full branch
office may not be required. The implementation of a new front-end system
throughout our domestic IT offices altered branch staff requirements and reduced
the need for certain positions. As part of the IT restructuring, we are in the
process of separating sales and certain management functions between our IT
staffing, e-solutions, and end-user solutions deliveries. Approximately 80
employees were let go or reassigned in the restructuring process, which also
involved the hiring of about 25 new IT salespeople, service specialists and
managers. These restructure expenses of approximately $3.0 million were offset
by the reversal of the Robert Walters merger and integration accrual of
approximately $828,000. For the three and nine months ended September 30, 1998,
we incurred nonrecurring merger costs of $536,000 and $1.7 million,
respectively, associated with pooling-of-interests business combinations.
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<PAGE> 13
Depreciation and Amortization Expense. Depreciation and amortization
expense increased $1.7 million, or 44.2%, to $5.5 million for the three months
ended September 30, 1999 as compared to $3.8 million for the three months ended
September 30, 1998. Depreciation and amortization expense increased $5.8
million, or 59.6%, to $15.6 million for the nine months ended September 30, 1999
as compared to $9.8 million for the nine months ended September 30, 1998. This
increase is primarily attributable to amortization of goodwill associated with
our purchase business combinations. Depreciation expense also increased as a
result of continuing development of our corporate infrastructure and information
systems network, as well as assets acquired in acquisitions.
Operating Income. Operating income decreased $5.9 million, or 26.9%, to
$16.1 million for the three months ended September 30, 1999 compared to $22.0
million for the same period last year and decreased $3.1 million, or 5.8%, to
$50.9 million for the nine months ended September 30, 1999 compared to $54.0
million for the nine months ended September 30, 1998. Operating margin was 5.1%
and 5.6% for the three and nine months ended September 30, 1999, respectively,
as compared to 8.3% and 7.5% for the three and nine months ended September 30,
1998, respectively. Although operating income increased as a result of higher
revenues, the operating margin declined due to lower gross profit and higher
depreciation and amortization expense as discussed above. Exclusive of the 1999
restructure expenses and the 1998 nonrecurring merger costs, operating income
was $18.3 million and $53.1 million for the three and nine months ended
September 30, 1999 and $22.6 million and $55.7 million for the three and nine
months ended September 30, 1998, respectively. Operating margin excluding these
costs were 5.7% and 5.9% for the three and nine months ended September 30, 1999,
respectively, and 8.5% and 7.7% for the three and nine months ended September
30, 1998, respectively.
The following operating income discussion at the Professional/IT and
Commercial segment levels excludes unallocated corporate SG&A of $5.3 million
and $12.2 million for the three and nine months ended September 30, 1999,
respectively, and $2.7 million and $8.0 million for the three and nine months
ended September 30, 1998, respectively. The increase in unallocated corporate
SG&A was primarily a result of increased staff health costs associated with
our self-insurance plan, increased rent, utilities and telephone and equipment
lease costs associated with our new corporate headquarters and increased
professional fees primarily associated with international and domestic tax
restructuring, state unemployment tax planning and work opportunity tax credit
consultation.
Operating income for the Professional/IT segment decreased $4.3 million,
or 27.8%, to $11.2 million for the three months ended September 30, 1999 as
compared to $15.5 million for the three months ended September 30, 1998.
Operating income for the Professional/IT segment decreased $1.9 million, or
5.0%, to $35.5 million for the nine months ended September 30, 1999 as compared
to $37.4 million for the nine months ended September 30, 1998. The operating
margin for the Professional/IT segment decreased from 10.7% for the three months
ended September 30, 1998 to 7.2% for the three months ended September 30, 1999
and decreased from 9.4% for the nine months ended September 30, 1998 to 7.8% for
the nine months ended September 30, 1999. Negative growth in domestic IT
staffing, which we believe is associated with Year 2000 spending, deferral of
non-Year 2000 related developments projects, and higher depreciation and
amortization expenses were the primary reasons for the decreases in operating
income and operating margin.
Operating income for the Commercial segment increased $1.0 million, or
10.5%, to $10.2 million for the three months ended September 30, 1999 as
compared to $9.2 million in the same period last year. Operating income for the
Commercial segment increased $2.9 million, or 11.5%, to $27.6 million for the
nine months ended September 30, 1999 as compared to $24.7 million for the nine
months ended September 30, 1998. Continued growth from our Strategic Resource
Group and purchase acquisitions completed during 1998 were the primary factors
contributing to the increase in operating income for the three and nine months
ended September 30, 1999. The activity from our Strategic Resource Group, which
provides customers with dedicated on-site account management, tend to have lower
gross margins than traditional temporary staffing services. However, the higher
volumes and relatively long-term contracts associated with these relationships
have resulted in operating profit growth. The operating margin of the Commercial
segment decreased from 7.7% for the three months ended September 30, 1998 to
6.2% for the three months ended September 30, 1999. The operating margin for the
Commercial segment was 6.1% and 7.6% for the nine months ended September 30,
1999 and 1998, respectively. The decrease in operating margins resulted from
lower gross margins due to decreased permanent placement fees and higher
revenues from our Strategic Resource Group, as well as higher depreciation and
amortization expense. Operating margins have also been affected by the movement
of certain support functions from corporate in 1998 to the Commercial segment in
1999.
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<PAGE> 14
Interest Expense. We incurred interest expense of $4.7 million for the
three months ended September 30, 1999 as compared to $2.1 million of interest
expense for the three months ended September 30, 1998. Interest expense was
$12.2 million and $4.0 million for the nine months ended September 30, 1999 and
1998, respectively. Interest expense in all periods is primarily related to
borrowings on our Credit Facility (as defined below) to fund working capital
requirements, the cash portion of our acquisitions and additions to property and
equipment.
Net Income. Net income decreased $4.4 million, or 36.1%, to $7.8 million
for the three months ended September 30, 1999 as compared to $12.2 million for
the same period last year. Net margin was 2.5% for the three months ended
September 30, 1999 as compared to 4.6% for the three months ended September 30,
1998. Net income decreased $5.5 million, or 18.0%, to $25.0 million for the nine
months ended September 30, 1999 as compared to $30.5 million for the same period
in 1998. Net margin was 2.8% for the nine months ended September 30, 1999 as
compared to 4.2% for the nine months ended September 30, 1998. Exclusive of the
1999 restructure expenses and the 1998 nonrecurring merger costs, net income was
$9.3 million and $26.5 million for the three and nine months ended September 30,
1999 and $12.6 million and $31.5 million for the three and nine months ended
September 30, 1998, respectively. Net margin excluding these costs was 2.9% for
both the three and nine months ended September 30, 1999 and was 4.8% and 4.4%
for the three and nine months ended September 30, 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our primary historical sources of funds are from operations, the
proceeds from securities offerings, if any, and borrowings under our credit
facility with a consortium of banks (the "Credit Facility"). Our principal
historical uses of cash have been to fund acquisitions, working capital
requirements and capital expenditures. We generally pay our temporary associates
and professionals weekly for their services, while receiving payments from
customers 30 to 60 days from the date of the invoice.
In May 1999, we expanded the Credit Facility from $300 million to $325
million. On March 31, 2000, the maximum amount of borrowings under the Credit
Facility is scheduled to revert back to $300 million. The $300 million portion
of the Credit Facility matures in August 2003. The Credit Facility is secured by
all of the issued and outstanding capital stock of our domestic subsidiaries and
65% of the issued and outstanding capital stock of our first tier foreign
subsidiaries. Interest on any borrowings is computed at our option of either the
bank group's prime rate or the London interbank offered rate, incrementally
adjusted based on our operating leverage ratios. We pay a quarterly facility fee
determined by multiplying the total amount of the Credit Facility by a
percentage which varies based on our operating leverage ratios. During the three
and nine months ended September 30, 1999, our net additional borrowings on the
Credit Facility were approximately $26.6 million and $121.0 million, the
majority of which was used to pay the cash consideration for several of our
acquisitions and for general corporate purposes. As of November 9, 1999,
$300.7 million was outstanding on the Credit Facility.
In 1998, we entered into fixed interest rate swap agreements with a
notional amount of $60.0 million related to borrowings under the Credit Facility
to hedge against increases in interest rates which would increase the cost of
variable rate borrowings under the Credit Facility. These swaps did not have a
material impact on recorded interest expense during the periods presented.
Net cash (used in) provided by operating activities was ($5.5) million
and $13.1 million for the three months ended September 30, 1999 and 1998,
respectively, and ($2.1) million and $22.0 million for the nine months ended
September 30, 1999 and 1998, respectively. The net cash provided by or used in
operating activities for the periods presented was primarily attributable to net
income and changes in operating assets and liabilities. Excluding approximately
$904,000 and $14.5 million in nonrecurring merger expenses paid during the three
and nine months ended September 30, 1999, respectively, net cash provided by
(used in) operating activities was ($4.6) million and $12.5 million for the
three and nine months ended September 30, 1999, respectively.
Net cash used in investing activities was $30.2 million and $37.4
million for the three months ended September 30, 1999 and 1998, respectively,
and $129.8 million and $143.4 million for the nine months ended September 30,
1999 and 1998, respectively. Cash used in investing activities for all periods
was primarily related to our acquisitions and capital expenditures.
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<PAGE> 15
Net cash provided by financing activities was $26.7 million and $26.3
million for the three months ended September 30, 1999 and 1998, respectively,
and $121.4 million and $126.8 million for the nine months ended September 30,
1999 and 1998, respectively. Cash provided by financing activities for the
periods presented were primarily attributable to the proceeds from Credit
Facility borrowings used in conjunction with our acquisitions.
As a result of the above and the related foreign currency translations,
combined cash and cash equivalents decreased $8.9 million and $12.0 million for
the three and nine months ended September 30, 1999, respectively. Cash and cash
equivalents increased $2.2 million and $5.0 million for the three and nine
months ended September 30, 1998, respectively.
We believe that our cash flows from operations and borrowings available
under the Credit Facility will provide sufficient liquidity for our existing
operations. However, if we make any acquisitions or there is a slowdown in the
economy or our business is adversely influenced by other factors, we may need to
seek additional financing through the public or private sale of equity or debt
securities or request our bank group to increase the Credit Facility. See "Year
2000 Compliance" and "Special Note Regarding Forward Looking Statements." There
can be no assurance that we could secure such financing, if and when it is
needed, or on terms we deem acceptable. We periodically reassess the adequacy of
our liquidity position, taking into consideration current and anticipated
operating cash flow, anticipated capital expenditures, acquisition plans, public
or private offerings of debt or equity securities and borrowing availability
under the Credit Facility.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs (whether related
to IT systems or non-IT systems) being written using two digits rather than four
digits to define the applicable year. Computer programs that have time sensitive
software may recognize a date using "00" as the Year 1900 rather than the Year
2000. We have assembled a Year 2000 compliance team that is working on these
compliance matters company-wide. As part of this project and consistent with our
operating strategy, we are implementing one primary front office software
package (Caldwell-Spartin) in a majority of our Commercial offices. In a
majority of our Professional/IT offices, we have implemented one primary search
and retrieval software package (EZaccess) and one primary back office software
package (MAS 90). In addition, we have selected and implemented the PeopleSoft
system for our back office, administrative and accounting systems. All of these
software systems have the ability to process transactions with dates for the
Year 2000 and beyond at no incremental cost and, accordingly, we believe that
Year 2000 costs with respect to these software systems are not expected to have
a material impact on our financial condition or results of operations.
As to non-IT systems and vendor services, other than banking
relationships and utilities (which includes electrical power, water and related
items), we believe there is no single system or vendor service that is material
to our operations. As to banking needs, our banking relationships are primarily
with large, national and international financial institutions which have
undertaken their own Year 2000 compliance procedures and certified their
compliance to us. Certain of our utility vendors have certified and are
certifying their Year 2000 compliance to us. To the extent that a utility vendor
fails to certify its Year 2000 compliance capability, our contingency plan is to
identify and install back-up utility sources necessary to maintain the critical
information systems at our corporate headquarters. Utility failures at our
corporate or branch offices or the inability of our customers to operate could
have a material adverse effect on our revenue sources and could disrupt our
customers' payment cycle. We believe our Year 2000 compliance project will be
materially complete by December 15, 1999. We believe that the costs of our Year
2000 compliance project for each matter individually and all matters in the
aggregate will not be material to our financial condition or results of
operations.
As to software systems and applications utilized by entities acquired or
to be acquired by us, we anticipate that upgrades and/or conversions may be
required to ensure that these systems and applications are Year 2000 compliant.
We believe that any such upgrades and/or conversions will be timely made and are
not expected to have a material impact on our financial condition or results of
operations.
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<PAGE> 16
We believe that Year 2000 related issues will affect our results of
operations during the remainder of 1999 as our customers delay projects or
implement hiring freezes due to their focus on Year 2000 spending and/or delay
requests for services or expenditure decisions with regard to their existing IT
systems until after the beginning of the 2000 year. Additionally, we could be
adversely affected by delayed payments from customers because of uncertainty
relating to their Year 2000 compliance matters. Due to the diverse services we
provide and the unknown effect of Year 2000 issues on customer spending
decisions that could impact our revenues and results, these Year 2000
uncertainties will have a material adverse impact on our results of operations
for the balance of the 1999 fiscal year.
FOREIGN CURRENCY TRANSLATION
Operations outside of the United States expose us to foreign currency
exchange rate changes and could impact translations of foreign denominated
assets and liabilities into U.S. dollars and future earnings and cash flows from
transactions denominated in different currencies. We operate outside the United
States primarily through wholly owned subsidiaries in the United Kingdom and
Australia. These foreign subsidiaries use the local currency as their functional
currency as sales are generated and expenses are incurred in such currencies.
The translation from the applicable foreign currencies to United States dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. Gains or losses resulting from such
translations are included in stockholders' equity. We continuously monitor our
exposure to changes in foreign currency exchange rates. From time to time, we
may enter into foreign currency forward and option contracts to manage this
exposure.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Some of the statements in this Quarterly Report on Form 10-Q (this
"10-Q") constitute forward-looking statements under Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including statements made with respect to our future
liquidity, our IT business model and organization, Year 2000 compliance matters,
operations and/or future growth opportunities. These statements involve known
and unknown risks, uncertainties and other factors that may cause results,
levels of activity, growth, performance, earnings per share or achievements to
be materially different from any future results, levels of activity, growth,
performance, earnings per share or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, those
listed below, as well as those listed under "Business - Factors Affecting
Finances, Business Prospects and Stock Volatility" and elsewhere in our 1998
Annual Report on Form 10-K as filed with the Commission on March 16, 1999 and
under the headings "Potential Risks, Detriments and Other Considerations
Associated with the Transaction," and "Forward Looking Statements" in our proxy
statement filed with the Commission on September 25, 1998.
The forward-looking statements included in this 10-Q relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "believe," "will,"
"provide," "anticipate," "future," "could," "growth," "increase," "modifying,"
"reacting" or the negative of such terms or comparable terminology. These
forward-looking statements inherently involve certain risks and uncertainties,
although they are based on our current plans or assessments which are believed
to be reasonable as of the date of this 10-Q. Factors that may cause actual
results, goals, targets or objectives to differ materially from those
contemplated, projected, forecast, estimated, anticipated, planned or budgeted
in such forward-looking statements include, among others, the following
possibilities: (1) an inability to successfully implement the business model and
organizational changes previously announced; (2) the continuation or worsening
of declines in demand for placement (permanent or temporary) or staffing
services; (3) changes in industry trends such as changes in the demand for or
supply of commercial or professional/information technology personnel, whether
on a temporary or permanent placement basis and whether arising out of Year 2000
uncertainties and spending delays or otherwise; (4) adverse developments
involving currency exchange rates that have an effect on our operations; (5)
unanticipated problems associated with integrating acquired companies and their
operations; (6) failure to obtain new customers or retain significant existing
customers; (7) inability to carry out or timely carry out marketing and sales
plans, including Web-based services; (8) inability to obtain capital or
refinance debt for future internal and external growth; (9) loss of key
executives; and (10) general economic and business conditions (whether foreign,
national, state or local) which
16
<PAGE> 17
are less favorable than expected, including but not limited to adverse changes
in interest rates. Actual events or results may differ materially. These factors
may cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, growth, earnings per share or achievements. However,
neither we nor any other person assumes responsibility for the accuracy and
completeness of such statements. We are under no duty to update any of the
forward-looking statements after the date of this 10-Q to conform such
statements to actual results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the nine months ended September 30, 1999, we did not enter into new
arrangements, or modify existing arrangements, concerning market risk. For a
description of such existing arrangements, see Note 8 to our audited financial
statements filed as part of our 1998 Annual Report on Form 10-K as filed with
the Commission on March 16, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- - Foreign Currency Translation."
PART II
ITEM 1. LEGAL PROCEEDINGS
From March 12, 1999 through April 22, 1999, John A. Jennen, Richard A.
Watson, Rick W. Johnson, Edward D. LaFrance and Trust Equity Advisors Plus, LLC,
each purporting to act on behalf of a class of our stockholders, filed
complaints against us in the United States District Court for the Eastern
District (in the case of each plaintiff except Mr. LaFrance) and Western
District (in the case of Mr. LaFrance) of Arkansas, alleging that the defendants
(which in addition to us includes one of our officer/directors and an officer of
one of our subsidiaries), violated the federal securities laws, and seeks
unspecified compensatory and other damages. By order entered May 6, 1999, the
four cases pending in the Eastern District of Arkansas were consolidated into
one action, and on July 15, 1999, the LaFrance action in the Western District of
Arkansas was transferred to the Eastern District to be consolidated with the
other four cases. Motions for the appointment of lead plaintiff and lead
plaintiff counsel are pending. The defendants believe that these complaints are
without merit and deny all of the allegations of wrongdoing and are vigorously
defending the suits.
We also are a party to litigation incidental to our business. We believe
that these routine legal proceedings will not have a material adverse effect on
the results of operations or financial condition. We maintain insurance in
amounts, with coverages and deductibles, that we believe are reasonable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.32 Employment Agreement between StaffMark, Inc. (the
"Company") and Stephen R. Bova dated as of August
18, 1999.
10.33 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Clete T. Brewer, amending that certain Employment
Agreement dated as of October 1, 1996, by and
among the Company, Brewer Personnel Services, Inc.
and Clete T. Brewer, which original agreement is
incorporated by reference from Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (File
No. 333-15059).
10.34 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Terry C. Bellora, amending that certain Employment
Agreement dated as of August 20, 1996, by and
among the Company and Terry C. Bellora, which
original agreement is incorporated by reference
from Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 333-15059).
10.35 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
David Bartholomew, amending that certain
Employment Agreement dated as of October 1, 1996,
by and among the Company, HRA, Inc. n/k/a
StaffMark, Inc. - Nashville and David Bartholomew,
which original agreement is incorporated by
reference from Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No.
333-15059).
10.36 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Gordon Y. Allison, amending that certain
Employment Agreement dated as of June 23, 1997, by
and among the Company and Gordon Y. Allison, which
original agreement is incorporated by reference
from Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended June 30, 1997, filed with the
Commission on July 28, 1997.
11.1 Statement re: computation of per share earnings,
reference is made to Note 6 of the StaffMark, Inc.
Consolidated Financial Statements contained in
this Form 10-Q.
27.1 Financial Data Schedule for the three months ended
September 30, 1999, submitted to the Commission in
electronic format.
(b) Reports on Form 8-K
1. A Form 8-K was filed with the Commission on August 31, 1999
relating to the Company's press release which was disseminated
publicly on August 29, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAFFMARK, INC.
Date: November 10, 1999 /s/ CLETE T. BREWER
-------------------------------------
Clete T. Brewer
Chief Executive Officer and Chairman
Date: November 10, 1999 /s/ TERRY C. BELLORA
-------------------------------------
Terry C. Bellora
Chief Financial Officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.32 Employment Agreement between StaffMark, Inc. (the
"Company") and Stephen R. Bova dated as of August
18, 1999.
10.33 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Clete T. Brewer, amending that certain Employment
Agreement dated as of October 1, 1996, by and
among the Company, Brewer Personnel Services, Inc.
and Clete T. Brewer, which original agreement is
incorporated by reference from Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (File
No. 333-15059).
10.34 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Terry C. Bellora, amending that certain Employment
Agreement dated as of August 20, 1996, by and
among the Company and Terry C. Bellora, which
original agreement is incorporated by reference
from Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 333-15059).
10.35 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
David Bartholomew, amending that certain
Employment Agreement dated as of October 1, 1996,
by and among the Company, HRA, Inc. n/k/a
StaffMark, Inc. - Nashville and David Bartholomew,
which original agreement is incorporated by
reference from Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (File No.
333-15059).
10.36 First Amendment to Employment Agreement dated as
of September 17, 1999, between the Company and
Gordon Y. Allison, amending that certain
Employment Agreement dated as of June 23, 1997, by
and among the Company and Gordon Y. Allison, which
original agreement is incorporated by reference
from Exhibit 10.1 to the Company's Form 10-Q for
the quarter ended June 30, 1997, filed with the
Commission on July 28, 1997.
11.1 Statement re: computation of per share earnings,
reference is made to Note 6 of the StaffMark, Inc.
Consolidated Financial Statements contained in
this Form 10-Q.
27.1 Financial Data Schedule for the three months ended
September 30, 1999, submitted to the Commission in
electronic format.
</TABLE>
<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
August 18, 1999, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as the "Company" or "StaffMark"), and Stephen R. Bova, (hereinafter
referred to as "Employee").
WITNESSETH
WHEREAS, in the course of building the business of StaffMark, and in
his capacity as an executive officer thereof, Employee will be engaged in a
confidential relationship and will gain knowledge of the business, affairs,
customers and methods of StaffMark and each of StaffMark's direct and indirect
subsidiaries during his employment with StaffMark and will have access to lists
of StaffMark's and its affiliates' customers and their needs, and will become
personally known to and acquainted with StaffMark's and its affiliates'
customers, thereby establishing a personal relationship with such customers for
the benefit of StaffMark.
WHEREAS, the Compensation Committee of the Board of Directors of
StaffMark has been delegated authority, by the Board of Directors of StaffMark
at its meeting on August 12, 1999, to determine the terms of, and approve, this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date hereof and shall continue until the third anniversary thereof, unless
terminated sooner in accordance with Sections 5 or 6 hereof, and shall
automatically renew for successive one year periods unless one party gives
written notice to the other at least 90 days prior to any such renewal date
that the Agreement shall not be further extended. During the term of this
Agreement, the calendar year shall be referred to herein as a "Compensation
Year."
2. DUTIES AND PERFORMANCE.
(1) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its President and
Chief Operating Officer and shall have such authority and shall
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer
of the Company, the Board of Directors of the Company or any other
member of senior management designated by the Chief Executive Officer
or the Board of Directors; provided, however, that without the
approval of the Board of Directors of StaffMark, Employee may not, on
behalf of StaffMark (A) enter into term employment arrangements for
StaffMark's employees of terms longer than those in place on the date
hereof or as standard Company policy permits, (B) borrow funds or make
material capital expenditures or commitments, or (C) alter or adopt
any employee benefit plans. Employee shall use all reasonable efforts
to further the interests of StaffMark and shall devote substantially
all of his business time
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and attentions to his duties hereunder; provided, however, that
Employee shall not be required to locate outside the Fayetteville area
without Employee's consent.
(2) Employee shall be entitled to be reimbursed in accordance
with the policies of StaffMark, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by
StaffMark.
3. BASE SALARY. StaffMark shall pay to Employee a base salary at the
rate of $325,000 per annum, payable on a regular basis in accordance with
StaffMark's standard payroll procedures, but not less than bi-monthly. On at
least an annual basis, the Board of Directors of StaffMark or a duly
constituted committee thereof will review Employee's performance and increase
Employee's base salary if and to the extent it determines, in its discretion,
that any such increase is warranted.
4. BENEFITS.
(1) When eligible under non-discriminatory standards,
Employee shall be entitled to participate in any employee benefit plan
maintained by the Company for its full time employees and shall be
entitled to four (4) weeks vacation per annum and such holidays as the
Company may establish as company policy.
(2) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
Employee shall maintain with respect to any automobile used for
business purposes such insurance coverage as may be reasonably
required by the Company, the cost of which shall be paid by Employee
from such monthly allowance. Employee shall provide the Company with a
copy of such insurance policy, which policy shall name the Company as
an additional insured party.
(3) The Company shall reimburse Employee for club dues
actually incurred by Employee for full golf membership at Pinnacle
Country Club, Rogers, Arkansas, provided that such club is used at
least 50 percent of the time for business purposes and such usage is
subject to audit by the Company.
(4) Employee shall be eligible to participate in the
Executive Incentive Compensation Plan of StaffMark and its affiliates
at the highest participatory level of 150% of base salary paid.
(5) Employee shall be eligible to participate in the
Company's nonqualified executive deferred compensation programs.
(6) Company shall provide Employee with life insurance in a
face amount of $500,000.
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<PAGE> 3
(7) Employee shall be reimbursed for relocation expenses
actually incurred in accordance with the Company's executive
relocation policy, and shall be reimbursed for Employee's share of the
New York stock transfer tax.
5. TERMINATION OF AGREEMENT.
(1) The Company, by the approval of a 75% vote of its Board
of Directors, shall be entitled to terminate Employee's services, in
any of the following circumstances:
(1) For "cause," which shall mean by reason of any
of the following: (A) Employee's conviction of, or plea of
nolo contendere to, any felony or to any crime or offense
causing substantial harm to the Company or any of its
affiliates (whether or not for personal gain) or involving
acts of theft, fraud, embezzlement, moral turpitude or
similar conduct, (B) Employee's violation of the Company's
substance abuse policy, (C) malfeasance in the conduct of
Employee's duties, including but not limited to (i) willful
and intentional misuse or diversion of the Company's or any
of its affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to the Company
or its affiliates, (D) material failure to perform the duties
of such person's employment, (E) material failure to follow
or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Chief Executive Officer, or the Board of
Directors of the Company, (F) a material breach by Employee
of the provisions of this Agreement (including without
limitation any breach of Section 7 of this Agreement), or (G)
a determination by an applicable adjudicative entity that
Employee has violated a non-competition agreement with a
former employer, or a settlement of a claim of such violation
that results in material expense to the Company; provided,
however, that in the case of the foregoing clauses (D) and
(E), Employee shall have been informed, in writing, of such
material failure referred to in the foregoing clauses (D) and
(E), respectively;
(2) If, for any reason, Employee is unable to
perform the essential functions of such person's duties, with
or without reasonable accommodation, for a consecutive period
of six (6) months, or such other period as may be required by
applicable employment laws; or
(3) The death of Employee.
(2) Except as provided in Section 6 hereof, in the event of
the termination of Employee's employment:
(1) For cause, or in the event of the resignation of
Employee (excluding circumstances involving Good Reason, as
defined below), then as of the date of such termination all
of the Company's obligations hereunder, including, without
limitation, the Company's obligations to pay Employee's base
salary accruing after the date of such termination, and any
benefits (except as otherwise required by applicable law),
other than
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those obligations which have accrued but remain unpaid as of
the date of such termination (such as accrued but unpaid
salary, expense reimbursements, health insurance premiums,
retirement plan contributions, if any, vacation pay, sick
pay, etc.), shall cease and Employee shall not be entitled to
receive any incentive compensation for the Compensation Year
of such termination;
(2) By the Company for any other reason other than
for the reasons set forth in clause (i) above, or by Employee
for Good Reason (as defined below), then in such event the
Company shall pay Employee's base salary, in such amount as
is determined by reference to clauses (A) and (B) below and
on such payment terms as set forth in the last sentence of
this paragraph (ii)(without offset for any compensation
received by Employee from any subsequent employment by any
person other than by an affiliate of the Company or in
violation of Section 7 hereof) and provide for the
continuation of any Company health insurance benefits for
which he would be eligible but for such termination, for a
period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the lesser of two (2) years
or the remaining term of this Agreement. The continuation of
health insurance benefits referenced above in this Section
5(b)(iii) shall extend to (i) Employee and his eligible
dependants under the terms of the applicable StaffMark
sponsored health care plan by which he was covered at the
time of such termination of employment, as such plan may be
in effect or may be modified from time to time, in
consideration for Employee's payment of such premiums as may
be required to be paid by active employees of StaffMark from
time to time ("Required Premium Payments") or (ii) if such
StaffMark sponsored health care plan does not by its terms
allow Employee's participation or continued participation,
StaffMark shall obtain (in return for Required Premium
Payments) insurance coverage on behalf of Employee and/or
Employee's eligible dependents that provides all benefits
otherwise provided under such StaffMark sponsored health care
plan or, at StaffMark's election (in return for Required
Premium Payments) shall provide such benefits from its own
assets (collectively, "Continued Health Care Coverage").
"Good Reason" shall mean any of the following circumstances
unless remedied by StaffMark within thirty (30) days after
receipt of written notification by Employee that such
circumstances exist or have occurred: (A) assignment to
Employee of any duties inconsistent with Employee's position,
authority, duties or responsibilities as contemplated by
Section 2 of the Agreement, or any other action by StaffMark
that results in diminution of such position, authority,
duties or responsibilities; or (B) any failure by StaffMark
to comply with any of the material provisions of the
Agreement. The payment of Employee's base salary amount under
the circumstances set forth in the first sentence of this
paragraph shall be made in two equal payments (equal to
one-half of such aggregate amount) on each of the effective
date of termination and ninety days after the effective date
of termination.
6. CHANGE IN CONTROL
(a) If Employee's employment with StaffMark is terminated
within two years following a Change in Control either by
StaffMark for any reason or no reason or by the Employee for
Good Reason only, StaffMark shall pay Employee a lump sum in
the amount of two (2) times the sum of (i) Employee's base
salary then in
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<PAGE> 5
effect and (ii) the greater of (A) $100,000.00 or (B) his
bonus percentage for the year immediately preceding the year
in which the termination of his employment occurs, multiplied
by his base salary in effect at the time of such termination.
Such lump sum payment shall be due on the effective date of
the termination of Employee's employment. In addition, in the
case of any such termination, Employee shall be permitted to
receive Continued Health Care Coverage for the period
described in clause 5(b)(iii)(B).
(b) A "Change in Control" shall be deemed to have occurred
if: (i) any person, other than StaffMark or an employee
benefit plan of StaffMark, acquires directly or indirectly
the "beneficial ownership" (as defined in Section 13(d) of
the Securities Exchange Act of 1934, as amended, "Beneficial
Ownership") of any voting security of StaffMark and
immediately after such acquisition such person is, directly
or indirectly, the Beneficial Owner of voting securities
representing 50% or more of the total voting power of all of
the then-outstanding StaffMark voting securities of
StaffMark; (ii) the individuals (A) who, as of the effective
date of StaffMark's registration statement with respect to
its initial public offering, constitute the Board of
Directors of StaffMark (the "Original Directors") or (B) who
thereafter are elected to the Board of Directors of StaffMark
and whose election, or nomination for election to the Board
of Directors of StaffMark was approved by vote of at least
two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original
Directors" immediately following their election) or (C) who
are elected to the Board of Directors of StaffMark and whose
election, or nomination for election, to the Board of
Directors of StaffMark was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also
becoming Additional Original Directors immediately following
their election), cease for any reason to constitute a
majority of the members of the Board of Directors of
StaffMark; (iii) the stockholders of StaffMark shall approve
a merger or merger agreement involving StaffMark, a
consolidation transaction involving StaffMark, a
recapitalization or reorganization of StaffMark, a reverse
stock split of outstanding StaffMark voting securities, or
the consummation of any such transaction if stockholder
approval is not sought nor obtained, provided, however, that
the foregoing referenced transactions or events in this
clause (iii) shall not constitute a "Change of Control" if
such transaction or event would result in at least 75% of the
total voting power represented by outstanding securities of
the surviving or resulting entity (immediately after such
transaction or event after giving effect to the consideration
issued or transferred in such
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<PAGE> 6
transaction or event on an as-converted or fully-diluted
basis) being Beneficially Owned by at least 75% of the
holders of outstanding voting securities of StaffMark
immediately prior to the transaction, with the voting power
of each such continuing holder relative to other such
continuing holders not altered in the transaction in any
material way; or (iv) the stockholders of StaffMark shall
approve a plan of complete liquidation of StaffMark or an
agreement for the sale or disposition by StaffMark of all or
a substantial portion of StaffMark's assets (i.e., 50% or
more of the total assets of StaffMark).
(c) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined
that any payment or distribution by StaffMark to or for the
benefit of Employee, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess
parachute payment" within the meaning of section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"),
amounts payable or distributable to or for the benefit of
Employee pursuant to this Agreement that are determined to be
"parachute payments" within the meaning of section 280G(b)(2)
of the Code (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement
Payments") shall not be paid or distributed in the amounts or
at the times otherwise required by this Agreement, but shall
instead be paid or distributed annually, beginning as of the
effective date of the termination of Employee's employment
and thereafter on each anniversary thereof, in the maximum
substantially equal amounts and over the minimum number of
years that are determined to be required to reduce the
aggregate present value of Agreement Payments to an amount
that will not cause any Payment to be non-deductible under
section 280G of the Code. For purposes of this Section 6,
present value shall be determined in accordance with section
280G(d)(4) of the Code.
(ii) All determinations to be made under this
Section 6 shall be made by StaffMark's independent public
accountant immediately prior to the Change of Control (the
"Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to
StaffMark and Employee within 10 days of the effective date
of the termination of Employee's employment. Any such
determination by the Accounting Firm shall be binding upon
StaffMark and Employee.
(iii) Within two years after the effective date of
the termination of Employee's employment, the Accounting Firm
shall review the determinations made by it pursuant to
paragraph (i), above. If at that time, as a result of the
uncertainty in the application of section
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<PAGE> 7
280G of the Code at the time of the initial determination by
the Accounting Firm hereunder, the annual amounts of
Agreement Payments or the period over which Agreement
Payments are paid or distributed, as determined pursuant to
paragraph (i), above, are determined not to satisfy the
requirements of paragraph (i), then the annual amounts of
future Agreement Payments and/or the period over which future
Agreement Payments are paid or distributed shall be
redetermined to satisfy the requirements of paragraph (i),
and all future Agreement Payments shall be paid or
distributed in accordance with such redetermination.
(iv) All of the fees and expenses of the Accounting
Firm in performing the determinations referred to in
paragraphs (ii) and (iii) above shall be borne solely by
StaffMark. StaffMark agrees to indemnify and hold harmless
the Accounting Firm of and from any and all claims, damages
and expenses resulting from or relating to its determinations
pursuant to paragraphs (ii) and (iii) above, except for
claims, damages or expenses resulting from the negligence or
misconduct of the Accounting Firm.
7. COVENANT NOT TO COMPETE, CONFIDENTIALITY.
(1) Employee acknowledges that in the course of his
employment by the Company he has and will become privy to various
economic and trade secrets and relationships of the Company and its
affiliates. Therefore, in consideration of this Agreement, Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or
subsidiaries, or with the prior written consent of the Board of
Directors of the Company, which consent may be granted or withheld at
the sole discretion of the Company's Board of Directors:
(1) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise,
or be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary
or permanent staffing services, or clinical staffing or
recruiting (a "StaffMark, Inc. Services Business") in the
State of Arkansas and, outside the State of Arkansas, within
a radius of fifty (50) miles from any office operated during
the Noncompetition Period by the Company, or any of its
affiliates (collectively, the "Territory") or in any
StaffMark, Inc. Services Business directly competitive with
that of the Company, or any of its affiliates, or itself
engage in such business; provided, however, that
(1) Nothing herein shall be construed to
prohibit Employee from owning not more than five
percent (5%) of any class of securities issued by an
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<PAGE> 8
entity which is subject to the reporting
requirements of the Securities Exchange Act of 1934,
as amended, or which is traded over the counter;
(2) The foregoing shall not restrict
Employee with respect to businesses, other than
StaffMark, Inc. Services Businesses, engaged in by
the Company or its affiliates during the
Noncompetition Period unless Employee either is or
was substantially involved in such other businesses
of the Company or such affiliates or had access to
Confidential Information (as hereinafter defined)
with respect to such other businesses; or
(2) During the Noncompetition Period, in the
Territory, solicit, cause or authorize, directly or
indirectly, to be solicited for or on behalf of himself or
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services
Business transacted by or with such customer by the Company
or its affiliates; or
(3) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or
indirectly, to be accepted for or on behalf of himself or for
third parties, any such StaffMark, Inc. Services Business
from any such customers of the Company or its affiliates; or
(4) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly,
any information heretofore or hereafter acquired, developed
or used by the Company or its affiliates relating to their
business or the operations, employees or customers of the
Company or its affiliates which constitutes proprietary or
confidential information of the Company or its affiliates
("Confidential Information"), including without limitation
any Confidential Information contained in any customer lists,
mailing lists and sources thereof, statistical data and
compilations, patents, copyrights, trademarks, trade names,
inventions, formulae, methods, processes, agreements,
contracts, manuals or any other documents; and (B) from and
after the date hereof, use, publish, disseminate or otherwise
disclose, directly or indirectly, any information heretofore
or hereafter acquired, developed or used by the Company or
its affiliates which constitutes Confidential Information,
but excluding any Confidential Information which has become
part of common knowledge or understanding in the StaffMark,
Inc. Services Business industry or otherwise in the public
domain (other than from disclosure by Employee in violation
of this Agreement); provided, however, this subparagraph (iv)
shall not be applicable to the extent Employee is required to
testify in. a judicial or regulatory proceeding pursuant to
the order of a judge or administrative law judge after
Employee requests that such Confidential Information be
preserved; or
(5) During the Noncompetition Period, in the
Territory,
(1) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who
within the preceding ninety (90) days was an
employee) of the Company or its affiliates or any
other person who is under contract with or rendering
services to the Company or its affiliates, to
terminate his or her
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<PAGE> 9
employment by, or contractual relationship with,
such person or to refrain from extending or renewing
the same (upon the same or new terms) or to refrain
from rendering, services to or for such person or to
become employed by or to enter into contractual
relations with any persons other than such person or
to enter into a relationship with a competitor of
the Company or its affiliates;
(2) Approach any such employee for any of
the foregoing purposes; or
(3) Authorize or knowingly approve or
assist in the taking of any such actions by any
person other than the Company or its affiliates.
(2) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an
officer or employee of, or consultant to the Company or any of its
affiliates; provided, however, that the Noncompetition Period shall
end immediately upon a termination of the employment of Employee by
the Company under this Agreement which is not for cause or by Employee
for Good Reason.
(3) The invalidity or non-enforceability of this Section 7 in
any respect shall not affect the validity or enforceability of this
Section 7 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 7 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the Geographic or business scope or the duration thereof,
such invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the
fullest extent permitted by law, this Agreement shall be construed as
if the geographic or business scope or the duration of such provision
had been more narrowly drafted so as not to be invalid or
unenforceable and further, to the extent permitted by law, such
geographic or business scope or the duration thereof may be re-written
by a court of competent jurisdiction to make such sufficiently limited
to be enforceable.
(4) Employee acknowledges that the Company's remedy at law
for any breach of the provisions of this Section 7 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(5) The provisions of this Section 7 shall survive
termination of this Agreement.
8. DIVISIBILITY OF AGREEMENT. In the event that any term, condition or
provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
9. NOTICES. Any notices or other communications required or permitted
to be sent hereunder shall be in writing and shall be duly given if personally
delivered or sent postage prepaid by certified or registered mail, return
receipt requested, or sent by prepaid overnight courier service, delivery
confirmed, as follows:
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(1) If to Employee:
Stephen R. Bova
(2) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
10. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
11. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
12. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one
and the same instrument.
13. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ STEPHEN R. BOVA
---------------------------
Stephen R. Bova
/s/ RANDALL E. GRIGG
- --------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
-------------------------------
Clete T. Brewer, Chief Executive Officer
11
<PAGE> 1
EXHIBIT 10.33
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This first amendment (the "Amendment") to the employment agreement
dated as of October 1, 1996 (the "Agreement") among StaffMark, Inc.
("StaffMark"), Brewer Personnel Services, Inc. ("Brewer") and Clete T. Brewer
("Employee"), is made and entered as of September 17, 1999 by and between
StaffMark and Employee.
WHEREAS, the terms of Employee's overall executive compensation package
and the terms of this Amendment have been the subject of deliberation by the
Compensation Committee of the Board of Directors of StaffMark (the "Compensation
Committee") at meetings held on March 11, 1999, May 7, 1999, June 17, 1999,
August 2, 1999, August 12, 1999, September 15, 1999, and September 17, 1999.
WHEREAS, the Compensation Committee has been delegated authority, by
the Board of Directors of StaffMark at its meeting on August 12, 1999, to
determine the terms of, and approve, the Amendment;
WHEREAS, StaffMark believes that its interests would best be served by
securing Employee's continued employment; and
WHEREAS, StaffMark believes that, to achieve this goal, it is necessary
to extend the term of the Agreement, to revise the Agreement to reflect certain
modifications to the terms of the Employee's employment, to provide severance
benefits in additional specified circumstances, and to provide certain benefits
in the event of a change in control of StaffMark; and
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WHEREAS, the Compensation Committee has determined that the Amendment
is in the best interests of StaffMark and has approved the Amendment on
September 17, 1999.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Section 1 of the Agreement is amended by deleting "September 30,
2001" in the second line thereof and replacing it with "April 1, 2002."
2. Effective January 1, 1999, the second sentence of Section 1 of the
Agreement is deleted and replaced with the following provision:
"During the term of this Agreement, the calendar year shall be
referred to herein as a "Compensation Year.""
3. Effective April 1, 1999, Section 3 of the Agreement is deleted and
replaced with the following provision:
"3. BASE SALARY. StaffMark shall pay to Employee a base salary at
the rate of $215,000 per annum through September 30, 1999 and
thereafter at the rate of $350,000 per annum, in each case
payable on a regular basis in accordance with StaffMark's
standard payroll procedures, but not less than bi-monthly. On at
least an annual basis, the Board of Directors of StaffMark or a
duly-constituted committee thereof will review Employee's
performance and increase Employee's base salary if and to the
extent it determines, in its discretion, that any such increase
is warranted."
4. Section 5(b) of the Agreement is amended by inserting "Except as
provided in Section 6 hereof" (as renumbered) at the beginning of the initial
clause thereof.
5. Section 5(b)(i) of the Agreement is amended by adding "(excluding
circumstances involving Good Reason, as defined below)" immediately following
the word "Employee" in the second line thereof.
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6. Section 5(b)(iii) of the Agreement is amended
(a) by inserting "or by Employee for Good Reason (as defined
below)," immediately following the comma in the second line thereof,
and
(b) by deleting the words "continue to" on the third line thereof
and inserting after the word "pay" on the third line thereof the
phrase ", in such amount as is determined by reference to clauses
(A) and (B) below and on such payment terms set forth in the last
sentence of this paragraph (iii)," and by deleting the word "to" on
the fifth line thereof, and
(c) by inserting "the lesser of three (3) years or" at the beginning
of clause 5(b)(iii)(B), and
(d) by adding the following provision to the end thereof:
""Good Reason" shall mean any of the following circumstances
unless remedied by StaffMark within thirty (30) days after
receipt of written notification by Employee that such
circumstances exist or have occurred: (A) assignment to Employee
of any duties inconsistent with Employee's position, authority,
duties or responsibilities as contemplated by Section 2 of the
Agreement, or any other action by StaffMark that results in
diminution of such position, authority, duties or
responsibilities; or (B) any material failure by StaffMark to
comply with any of the material provisions of the Agreement. The
continuation of health insurance benefits referenced above in
this Section 5(b)(iii) shall extend to (i) Employee and his
eligible dependants under the terms of the applicable StaffMark
sponsored health care plan by which he was covered at the time
of such termination of employment, as such plan may be in effect
or may be modified from time to time, in consideration for
Employee's payment of such premiums as may be required to be
paid by active employees of StaffMark from time to time
("Required Premium Payments") or (ii) if such StaffMark
sponsored health care plan does
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<PAGE> 4
not by its terms allow Employee's participation or continued
participation, StaffMark shall obtain (in return for Required
Premium Payments) insurance coverage on behalf of Employee
and/or Employee's eligible dependents that provides all benefits
otherwise provided under such StaffMark sponsored health care
plan or, at StaffMark's election (in return for Required Premium
Payments) shall provide such benefits from its own assets
(collectively, "Continued Health Care Coverage"). The payment of
Employee's base salary amount under the circumstances set forth
in the first sentence of this paragraph shall be made in two
equal payments (equal to one-half of such aggregate amount) on
each of the effective date of termination and ninety days after
the effective date of termination."
7. The following new Section 6 is inserted immediately following
Section 5 of the Agreement, and subsequent Sections of the Agreement and all
references thereto are renumbered accordingly:
"6. CHANGE IN CONTROL
(a) If Employee's employment with StaffMark is terminated
within two years following a Change in Control, either by
StaffMark for any reason or no reason or by the Employee for
Good Reason only, StaffMark shall pay Employee a lump sum in
the amount of two (2) times the sum of (i) Employee's base
salary then in effect and (ii) the greater of $125,000.00 or
his bonus for the year immediately preceding the year in
which the termination of his employment occurs. Such lump
sum payment shall be due on the effective date of the
termination of Employee's employment. In addition, in the
case of any such termination, Employee shall be permitted to
receive Continued Health Care Coverage for a period of three
(3) years.
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<PAGE> 5
(b) ""Change in Control" shall be deemed to have occurred
if: (i) any person, other than StaffMark or an employee
benefit plan of StaffMark, acquires directly or indirectly
the "beneficial ownership" (as defined in Section 13(d) of
the Securities Exchange Act of 1934, as amended, "Beneficial
Ownership") of any voting security of StaffMark and
immediately after such acquisition such person is, directly
or indirectly, the Beneficial Owner of voting securities
representing 50% or more of the total voting power of all of
the then-outstanding voting securities of StaffMark; (ii)
the individuals (A) who, as of the effective date of
StaffMark's registration statement with respect to its
initial public offering, constitute the Board of Directors
of StaffMark (the "Original Directors") or (B) who
thereafter are elected to the Board of Directors of
StaffMark and whose election, or nomination for election to
the Board of Directors of StaffMark was approved by vote of
at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional
Original Directors" immediately following their election) or
(C) who are elected to the Board of Directors of StaffMark
and whose election, or nomination for election, to the Board
of Directors of StaffMark was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also
becoming Additional Original Directors immediately following
their election), cease for any reason to constitute a
majority of the members of the Board of Directors of
StaffMark; (iii) the stockholders of StaffMark shall approve
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<PAGE> 6
a merger or merger agreement involving StaffMark, a
consolidation transaction involving StaffMark, a
recapitalization or reorganization of StaffMark, a reverse
stock split of outstanding StaffMark voting securities, or
the consummation of any such transaction if stockholder
approval is not sought nor obtained, provided, however, that
the foregoing referenced transactions or events in this
clause (iii) shall not constitute a "Change of Control" if
such transaction or event would result in at least 75% of
the total voting power represented by outstanding securities
of the surviving or resulting entity outstanding
(immediately after such transaction after giving effect to
the consideration issued or transferred in such transaction
or event on an as converted or fully diluted basis) being
Beneficially Owned by at least 75% of the holders of
outstanding voting securities of StaffMark immediately prior
to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders
not substantially altered in the transaction in any material
way; or (iv) the stockholders of StaffMark shall approve a
plan of complete liquidation of StaffMark or an agreement
for the sale or disposition by StaffMark of all or a
substantial portion of StaffMark's assets (i.e., 50% or more
of the total assets of StaffMark).
(c) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined that
any payment or distribution by StaffMark to or for the benefit of
Employee, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a
"Payment"), would constitute an "excess parachute payment" within
the meaning of section 280G of
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<PAGE> 7
the Internal Revenue Code of 1986, as amended (the "Code"),
amounts payable or distributable to or for the benefit of
Employee pursuant to this Agreement that are determined to be
"parachute payments" within the meaning of section 280G(b)(2) of
the Code (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement Payments")
shall not be paid or distributed in the amounts or at the times
otherwise required by this Agreement, but shall instead be paid
or distributed annually, beginning as of the effective date of
the termination of Employee's employment and thereafter on each
anniversary thereof, in the maximum substantially equal amounts
and over the minimum number of years that are determined to be
required to reduce the aggregate present value of Agreement
Payments to an amount that will not cause any Payment to be
non-deductible under section 280G of the Code. For purposes of
this Section 6, present value shall be determined in accordance
with section 280G(d)(4) of the Code.
(ii) All determinations to be made under this
Section 6 shall be made by StaffMark's independent public
accountant immediately prior to the Change of Control (the
"Accounting Firm"), which firm shall provide its determinations
and any supporting calculations both to StaffMark and Employee
within 10 days of the effective date of the termination of
Employee's employment. Any such determination by the Accounting
Firm shall be binding upon StaffMark and Employee.
(iii) Within two years after the effective date of
the termination of Employee's employment, the Accounting Firm
shall review the determinations made by it pursuant to paragraph
(i), above. If at that time, as a result of the uncertainty in
the application of section 280G of the Code at the time of the
initial determination by the Accounting Firm hereunder, the
annual amounts of Agreement Payments or the period over which
Agreement Payments are paid or distributed, as determined
pursuant to paragraph (i), above, are determined not to satisfy
the requirements of paragraph (i), then the annual amounts of
future Agreement Payments and/or the period over which future
Agreement Payments are paid or distributed shall be redetermined
to satisfy the requirements of paragraph (i), and all future
Agreement
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<PAGE> 8
Payments shall be paid or distributed in accordance with such
redetermination.
(iv) All of the fees and expenses of the
Accounting Firm in performing the determinations referred to in
paragraphs (ii) and (iii) above shall be borne solely by
StaffMark. StaffMark agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations
pursuant to paragraphs (ii) and (iii) above, except for claims,
damages or expenses resulting from the negligence or misconduct
of the Accounting Firm."
8. The provisions of Section 10 (formerly Section 9) of the Agreement
shall be effective as of the date hereof.
9. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect in accordance with its terms from and after the date
hereof. All references to the Agreement from and after the date hereof shall be
deemed to include the Agreement as amended by the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
EMPLOYEE: STAFFMARK, INC.:
/s/ CLETE T. BREWER By: /s/ TERRY C. BELLORA
----------------------- ---------------------------
Clete T. Brewer Title: Chief Financial Officer
------------------------
WITNESS: /s/ GORDON Y. ALLISON
------------------------
8
<PAGE> 1
EXHIBIT 10.34
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This first amendment (the "Amendment") to the employment agreement
dated as of August 20, 1996 (the "Agreement") by and between StaffMark, Inc.
(the "Company"), and Terry Bellora ("Employee"), is made and entered as of
September 17, 1999 between the Company and Employee.
WHEREAS, the terms of Employee's overall executive compensation package
and the terms of this Amendment have been the subject of deliberation by the
Compensation Committee of the Board of Directors of StaffMark (the "Compensation
Committee") at meetings held on March 11, 1999, May 7, 1999, June 17, 1999 ,
August 2, 1999, August 12, 1999, September 15, 1999, and September 17, 1999.
WHEREAS, the Compensation Committee of the Board of Directors of
StaffMark has been delegated authority, by the Board of Directors of StaffMark
at its meeting on August 12, 1999, to determine the terms of, and approve, the
Amendment;
WHEREAS, the Company believes that its interests would best be served
by securing Employee's continued employment; and
WHEREAS, the Company believes that, to achieve this goal, it is
necessary to extend the term of the Agreement, to revise the Agreement to
reflect certain modifications to the terms of the Employee's employment, to
provide severance benefits in additional specified circumstances, and to provide
certain benefits in the event of a change in control of the Company; and
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<PAGE> 2
WHEREAS, the Compensation Committee has determined that the Amendment
is in the best interests of StaffMark and has approved the Amendment on
September 17, 1999.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Effective April 1, 1999, paragraph 2(a) of the Agreement is amended
by deleting "$150,000 per year" in the first line thereof and replacing it with
"$200,000 per year through September 30, 1999 and thereafter $250,000 per year,
in each case."
2. Paragraph 4(a) of the Agreement is deleted and is replaced with the
following provisions:
"(a) Employee agrees to provide services hereunder at the
Company's corporate headquarters in Fayetteville, Arkansas as
required or as requested by the Company's Chief Executive
Officer, and to travel as necessary to provide such services;
provided, however, that the Company will provide office space
and necessary clerical and technical support at its
Jacksonville and Orlando, Florida offices, and will provide
necessary office equipment and technical support at Employee's
Palm Coast, Florida residence, for the convenience of Employee
when he is neither traveling on Company business nor required
to be at corporate headquarters."
3. Paragraph 5 of the Agreement is amended by
(a) deleting "for five (5) years" in the first line thereof and
replacing it with "until April 1, 2002."
(b) inserting (i) the phrase "or Resignation without Good Reason"
following the caption "Good Cause" in subparagraph (c) and (ii) the phrase "or
termination by Employee for circumstances other than Good Reason (as defined
herein)," before the word "Employee" on the last line of subparagraph (c).
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<PAGE> 3
(c) deleting subparagraphs (d) - (f) (excluding the final unlettered
paragraph of paragraph 5) and replacing them with the following provisions:
"(d) Without Cause or for Good Reason.
Except under circumstances described in paragraph 9 of
this Agreement, at any time after the commencement of
employment, the Company may, without cause, terminate
this Agreement and Employee's employment, or Employee
may terminate this Agreement and his employment for Good
Reason (as defined below), effective thirty (30) days
after written notice is provided to the other party by
the party terminating this Agreement. In either case,
Employee shall receive from the Company two payments,
each equal to one-half of the following: the amount of
Employee's base salary (without offset for any
compensation received by Employee from any subsequent
employment by any person other than by any affiliate of
the Company or in violation of Section 3 of this
Agreement) for a period which is the greater of (A)
sixty (60) days from the date of such termination or (B)
the lesser of two years or the remaining term of this
Agreement. The first payment shall be due on the
effective date of termination and the second payment
shall be due ninety days after the effective date of
termination. Upon the effective date of termination in
either case, all Options granted to Employee in
paragraph 2(c)(viii) shall become immediately
exercisable. Further, any such termination shall operate
to shorten the period set forth in paragraph 3(b) and
during which the terms of paragraph (3) apply to one (1)
year from the date of
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<PAGE> 4
termination of employment. In addition, in the case of
any such termination, Employee shall be permitted to
continue health care coverage for himself and his
eligible dependents until he reaches age 65, (i) under
the terms of the applicable Company sponsored health
care plan by which he was covered at the time of such
termination of employment, as such plan may be in effect
or may be modified from time to time, in consideration
for Employee's payment of such premiums as may be
required to be paid by active employees of the Company
from time to time ("Required Premium Payments") or (ii)
if such Company sponsored health care plan does not by
its terms allow Employee's participation or continued
participation, the Company shall obtain (in return for
Required Premium Payments) insurance coverage on behalf
of Employee and/or Employee's eligible dependents that
provides all benefits otherwise provided under such
Company sponsored health care plan or, at the Company's
election (in return for Required Premium Payments),
shall provide such benefits from its own assets
(collectively, "Continued Health Care Coverage"). "Good
Reason" shall mean any of the following circumstances
unless remedied by the Company within thirty (30) days
after receipt of written notification by Employee that
such circumstances exist or have occurred: (A)
assignment to Employee of any duties inconsistent with
Employee's position, authority, duties or
responsibilities as contemplated by paragraph 1 of the
Agreement, or any other action by the Company that
results in diminution of such position, authority,
duties or
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<PAGE> 5
responsibilities; (B) any material failure by the
Company to comply with any of the material provisions of
the Agreement; or (C) without Employee's consent, a
requirement that Employee perform services hereunder at
a location or locations other than the locations
contemplated by paragraph 4 of the Agreement."
(d) deleting "(e)" in the first line of the final paragraph thereof and
replacing it with "(d)," and inserting "Except as otherwise provided in clauses
(a) through (d) above," at the beginning of the second sentence of such final
paragraph.
4. Paragraph 9 of the Agreement is amended by deleting the comma and
the words preceding the comma on the first line of subparagraph (a), and by
deleting subparagraphs (b) and (c) thereof and replacing them with the following
new subparagraphs (b) and (c):
"(b) If Employee's employment with the Company is terminated
within two years following a Change in Control, either by the
Company for any reason or no reason or by the Employee for
Good Reason only, (i) the Company shall pay Employee a lump
sum in the amount of two (2) times the sum of (A) Employee's
base salary then in effect and (B) the greater of $100,000.00
or his bonus for the year immediately preceding the year in
which the termination of his employment occurs, such lump sum
payment to be due and payable on the effective date of the
termination of Employee's employment; (ii) the provisions of
paragraph 5(d) relating to exercisability of Options and
Continued Health Care Coverage shall apply; and (iii) the
non-competition provisions of paragraph 3 shall apply for a
period of one (1) year from the effective date of termination
if employment is terminated by Employee, and shall not apply
at all if employment is terminated by the Company.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined that
any payment or distribution by StaffMark to or for the benefit
of
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<PAGE> 6
Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess parachute
payment" within the meaning of section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), amounts payable
or distributable to or for the benefit of Employee pursuant to
this Agreement that are determined to be "parachute payments"
within the meaning of section 280G(b)(2) of the Code (such
payments or distributions pursuant to this Agreement are
hereinafter referred to as "Agreement Payments") shall not be
paid or distributed in the amounts or at the times otherwise
required by this Agreement, but shall instead be paid or
distributed annually, beginning as of the effective date of
the termination of Employee's employment and thereafter on
each anniversary thereof, in the maximum substantially equal
amounts and over the minimum number of years that are
determined to be required to reduce the aggregate present
value of Agreement Payments to an amount that will not cause
any Payment to be non-deductible under section 280G of the
Code. For purposes of this paragraph 9, present value shall be
determined in accordance with section 280G(d)(4) of the Code.
(ii) All determinations to be made under this
paragraph 9 shall be made by StaffMark's independent public
accountant immediately prior to the Change of Control (the
"Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to
StaffMark and Employee within 10 days of the effective date of
the termination of Employee's employment. Any such
determination by the Accounting Firm shall be binding upon
StaffMark and Employee.
(iii) Within two years after the effective date of
the termination of Employee's employment, the Accounting Firm
shall review the determinations made by it pursuant to clause
(i), above. If at that time, as a result of the uncertainty in
the application of section 280G of the Code at the time of the
initial determination by the Accounting Firm hereunder, the
annual amounts of Agreement Payments or the period over which
Agreement Payments are paid or distributed, as determined
pursuant to clause (i), above, are determined not to satisfy
the requirements of clause (i), then the annual amounts of
future Agreement Payments and/or the period over which future
Agreement Payments are paid or distributed shall be
redetermined to satisfy the requirements of clause (i), and
all future Agreement Payments shall be paid or distributed in
accordance with such redetermination.
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<PAGE> 7
(iv) All of the fees and expenses of the Accounting
Firm in performing the determinations referred to in clauses
(ii) and (iii) above shall be borne solely by StaffMark.
StaffMark agrees to indemnify and hold harmless the Accounting
Firm of and from any and all claims, damages and expenses
resulting from or relating to its determinations pursuant to
clauses (ii) and (iii) above, except for claims, damages or
expenses resulting from the negligence or misconduct of the
Accounting Firm."
5. Paragraph 9(d) is amended by inserting "and paragraph 9(b)"
immediately following "paragraph 5" in the first line thereof and by deleting
"and (c)" in the first line thereof.
6. Paragraph 9(e) shall be deleted and replaced in its entirety by the
following:
(e) ""Change in Control" shall be deemed to have occurred if: (i)
any person, other than StaffMark or an employee benefit plan of
StaffMark, acquires directly or indirectly the "beneficial
ownership" (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended, "Beneficial Ownership") of any
voting security of StaffMark and immediately after such
acquisition such person is, directly or indirectly, the
Beneficial Owner of voting securities representing 50% or more
of the total voting power of all of the then-outstanding
StaffMark voting securities of StaffMark; (ii) the individuals
(A) who, as of the effective date of StaffMark's registration
statement with respect to its initial public offering,
constitute the Board of Directors of StaffMark (the "Original
Directors") or (B) who thereafter are elected to the Board of
Directors of StaffMark and whose election, or nomination for
election to the Board of Directors of StaffMark was approved by
vote of at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original
Directors" immediately following their election) or (C) who are
elected to the Board of Directors of StaffMark and whose
election, or nomination for election, to the Board of Directors
of StaffMark was approved by a vote of at least two-thirds (2/3)
of the Original Directors and Additional Original Directors then
still in office (such directors also becoming Additional
Original Directors immediately following their election), cease
for any reason to constitute a majority of the members of the
Board of Directors of StaffMark; (iii) the stockholders of
StaffMark shall approve a merger or merger agreement involving
StaffMark, a consolidation transaction involving StaffMark, a
recapitalization or reorganization of
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<PAGE> 8
StaffMark, a reverse stock split of outstanding StaffMark voting
securities, or the consummation of any such transaction if
stockholder approval is not sought nor obtained, provided,
however, that the foregoing referenced transactions or events in
this clause (iii) shall not constitute a "Change of Control" if
such transaction or event would result in at least 75% of the
total voting power represented by outstanding securities of the
surviving or resulting entity (immediately after such
transaction or event after giving effect to the consideration
issued or transferred in such transaction or event on an
as-converted or fully-diluted basis) being Beneficially Owned by
at least 75% of the holders of outstanding voting securities of
StaffMark immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such
continuing holders not altered in the transaction in any
material way; or (iv) the stockholders of StaffMark shall
approve a plan of complete liquidation of StaffMark or an
agreement for the sale or disposition by StaffMark of all or a
substantial portion of StaffMark's assets (i.e., 50% or more of
the total assets of StaffMark)."
7. The provisions of paragraph 10 of the Agreement shall be effective
as of the date hereof.
8. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect in accordance with its terms from and after the date
hereof. All references to the Agreement from and after the date hereof shall be
deemed to include the Agreement as amended by the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
EMPLOYEE: STAFFMARK, INC.:
/s/ TERRY C. BELLORA By: /s/ CLETE T. BREWER
- ---------------------- ---------------------
Terry C. Bellora Title: Chief Executive Officer
8
<PAGE> 1
EXHIBIT 10.35
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This first amendment (the "Amendment") to the employment agreement
dated as of October 1, 1996 (the "Agreement") among StaffMark, Inc.
("StaffMark"), HRA, Inc., a wholly-owned subsidiary of StaffMark and W. David
Bartholomew ("Employee"), is made and entered as of September 17, 1999 by and
between StaffMark and Employee.
WHEREAS, the terms of Employee's overall executive compensation
package and the terms of this Amendment have been the subject of deliberation
by the Compensation Committee of the Board of Directors of StaffMark (the
"Compensation Committee") at meetings held on March 11, 1999, May 7, 1999, June
17, 1999, August 2, 1999, August 12, 1999, September 15, 1999 and September 17,
1999; and
WHEREAS, the Compensation Committee has been delegated authority, by
the Board of Directors of StaffMark at its meeting on August 12, 1999, to
determine the terms of, and approve, the Amendment;
WHEREAS, StaffMark believes that its interests would best be served by
securing Employee's continued employment; and
WHEREAS, StaffMark believes that, to achieve this goal, it is
necessary to extend the term of the Agreement, to revise the Agreement to
reflect certain modifications to the terms of the Employee's employment, to
provide severance benefits in additional specified circumstances, and to
provide certain benefits in the event of a change in control of StaffMark; and
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<PAGE> 2
WHEREAS, the Compensation Committee has determined that the Amendment
is in the best interests of StaffMark and has approved the Amendment on
September 17, 1999.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Section 1 of the Agreement is amended by deleting "September 30,
2001" in the second line thereof and replacing it with "April 1, 2002."
2. Effective January 1, 1999, the second sentence of Section 1 of the
Agreement is deleted and replaced with the following provision:
"During the term of this Agreement, the calendar year shall
be referred to herein as a "Compensation Year.""
3. Section 2(a) of the Agreement is amended by deleting (i) ", the
Board of Directors of the Company" in the fourth and fifth lines thereof and
(ii) "the Board of Directors or" in the fifth and sixth lines thereof.
4. Section 3 of the Agreement is amended by deleting "$125,000 per
annum through the expiration of the term of the Agreement," and is replacing it
with "$145,000 per year through September 30, 1999, and thereafter throughout
the term of this Agreement, $225,000 per year, in each case."
5. Section 5(b) of the Agreement is amended by inserting "Except as
provided in Section 6 hereof" (as renumbered) at the beginning of the initial
clause thereof.
6. Section 5(b)(i) of the Agreement is amended by adding "(excluding
circumstances involving Good Reason, as defined below)" immediately following
the word "Employee" in the second line thereof.
7. Section 5(b)(iii) of the Agreement is amended
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<PAGE> 3
(a) by inserting "or by Employee for Good Reason (as defined
below)," immediately following the comma in the second line
thereof, and
(b) by deleting the words "continue to" on the third line
thereof and inserting after the word "pay" on the third line
thereof the phrase ", in such amount as is determined by
reference to clauses (A) and (B) below and on such payment
terms set forth in the last sentence of this paragraph
(iii)," and by deleting the word "to" on the fifth line
thereof, and
(c) by inserting "the lesser of two (2) years or" at the
beginning of clause 5(b)(iii)(B), and
(d) by adding the following provision to the end thereof:
""Good Reason" shall mean any of the following
circumstances unless remedied by StaffMark within thirty
(30) days after receipt of written notification by
Employee that such circumstances exist or have occurred:
(A) assignment to Employee of any duties inconsistent
with Employee's position, authority, duties or
responsibilities as contemplated by paragraph 2 of the
Agreement, or any other action by StaffMark that results
in diminution of such position, authority, duties or
responsibilities; or (B) any material failure by
StaffMark to comply with any of the material provisions
of the Agreement. The continuation of health insurance
benefits referenced above in this Section 5(b)(iii)
shall extend to (i) Employee and his eligible dependants
under the terms of the applicable StaffMark sponsored
health care plan by which he was covered at the time of
such termination of employment, as such plan may be in
effect or may be modified from time to time, in
consideration for Employee's payment of such premiums as
may be required to be paid by active employees of
StaffMark from time to time ("Required Premium
Payments") or (ii) if such StaffMark sponsored health
care plan does not by its terms allow Employee's
participation or continued
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<PAGE> 4
participation, StaffMark shall obtain (in return for
Required Premium Payments) insurance coverage on behalf
of Employee and/or Employee's eligible dependents that
provides all benefits otherwise provided under such
StaffMark sponsored health care plan or, at StaffMark's
election (in return for Required Premium Payments) shall
provide such benefits from its own assets (collectively,
"Continued Health Care Coverage"). The payment of
Employee's base salary amount under the circumstances
set forth in the first sentence of this paragraph shall
be made in two equal payments (equal to one-half of such
aggregate amount) on each of the effective date of
termination and ninety days after the effective date of
termination."
8. The following new Section 6 is inserted immediately following
Section 5 of the Agreement, and subsequent Sections of the Agreement and all
references thereto are renumbered accordingly:
"6. CHANGE IN CONTROL
(a) If Employee's employment with StaffMark is
terminated within two years following a Change in
Control either by StaffMark for any reason or no
reason or by the Employee for Good Reason only,
StaffMark shall pay Employee a lump sum in the
amount of two (2) times Employee's base salary then
in effect and his bonus for the year in which the
termination of his employment occurs, such lump sum
payment shall be due on the effective date of the
termination of Employee's employment. In addition,
in the case of any such termination, Employee shall
be permitted to receive Continued Health Care
Coverage for the period described in clause
5(b)(iii)(B).
(b) A "Change in Control" shall be deemed to have
occurred if: (i) any person, other than StaffMark
or an employee benefit plan of StaffMark, acquires
directly or indirectly the "beneficial ownership"
(as defined in
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<PAGE> 5
Section 13(d) of the Securities Exchange Act of
1934, as amended, "Beneficial Ownership") of any
voting security of StaffMark and immediately after
such acquisition such person is, directly or
indirectly, the Beneficial Owner of voting
securities representing 50% or more of the total
voting power of all of the then-outstanding
StaffMark voting securities of StaffMark; (ii) the
individuals (A) who, as of the effective date of
StaffMark's registration statement with respect to
its initial public offering, constitute the Board
of Directors of StaffMark (the "Original
Directors") or (B) who thereafter are elected to
the Board of Directors of StaffMark and whose
election, or nomination for election to the Board
of Directors of StaffMark was approved by vote of
at least two-thirds (2/3) of the Original Directors
then still in office (such directors becoming
"Additional Original Directors" immediately
following their election) or (C) who are elected to
the Board of Directors of StaffMark and whose
election, or nomination for election, to the Board
of Directors of StaffMark was approved by a vote of
at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in
office (such directors also becoming Additional
Original Directors immediately following their
election), cease for any reason to constitute a
majority of the members of the Board of Directors
of StaffMark; (iii) the stockholders of StaffMark
shall approve a merger or merger agreement
involving StaffMark, a consolidation transaction
involving StaffMark, a recapitalization or
reorganization of StaffMark, a reverse stock split
of outstanding StaffMark voting securities,
5
<PAGE> 6
or the consummation of any such transaction if
stockholder approval is not sought nor obtained,
provided, however, that the foregoing referenced
transactions or events in this clause (iii) shall
not constitute a "Change of Control" if such
transaction or event would result in at least 75%
of the total voting power represented by
outstanding securities of the surviving or
resulting entity (immediately after such
transaction or event after giving effect to the
consideration issued or transferred in such
transaction or event on an as-converted or
fully-diluted basis) being Beneficially Owned by at
least 75% of the holders of outstanding voting
securities of StaffMark immediately prior to the
transaction, with the voting power of each such
continuing holder relative to other such continuing
holders not altered in the transaction in any
material way; or (iv) the stockholders of StaffMark
shall approve a plan of complete liquidation of
StaffMark or an agreement for the sale or
disposition by StaffMark of all or a substantial
portion of StaffMark's assets (i.e., 50% or more of
the total assets of StaffMark).
(c) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be
determined that any payment or distribution by
StaffMark to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would
constitute an "excess parachute payment" within the
meaning of section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the
aggregate present value of amounts payable or
distributable to or for the benefit of the Employee
pursuant to this Agreement (such payments or
distributions pursuant to this Agreement are
hereinafter referred to as "Agreement Payments")
shall be reduced (but not below zero) to the
Reduced Amount. The "Reduced Amount" shall be an
amount expressed in present value which maximizes
the aggregate
6
<PAGE> 7
present value of Agreement Payments without causing
any Payment to be subject to the taxation under
section 4999 of the Code. For purposes of this
Section 6, present value shall be determined in
accordance with section 280G(d)(4) of the Code.
(ii) All determinations to be made under
this Section 6 shall be made by StaffMark's
independent public accountant immediately prior to
the Change of Control (the "Accounting Firm"),
which firm shall provide its determinations and any
supporting calculations both to StaffMark and
Employee within 10 days of the effective date of
the termination of Employee's employment. Any such
determination by the Accounting Firm shall be
binding upon StaffMark and Employee.
(iii) As a result of the uncertainty
in the application of section 280G of the Code at
the time of the initial determination by the
Accounting Firm hereunder, it is possible that
Agreement Payments, as the case may be, will have
been made by StaffMark which should not have been
made ("Overpayment") or that additional Agreement
Payments which have not been made by StaffMark
could have been made ("Underpayment"), in each
case, consistent with the calculations required to
be made hereunder. Within two years after the
effective date of the termination of Employee's
employment, the Accounting Firm shall review the
determination made by it pursuant to paragraph (i),
above. In the event that the Accounting Firm
determines that an Overpayment has been made, any
such Overpayment shall be treated for all purposes
as a loan to Employee which Employee shall repay to
StaffMark together with interest at the applicable
Federal rate provided for in section 7872(f)(2) of
the Code (the "Federal Rate"); provided, however,
that no amount shall be payable by Employee to
StaffMark if and to the extent such payment would
not reduce the amount which is subject to taxation
under section 4999 of the Code. In the event that
the Accounting Firm determines that an Underpayment
has occurred, any such Underpayment shall be
promptly paid by StaffMark to or for the benefit of
Employee together with interest at the Federal
Rate.
(iv) All of the fees and expenses of the
Accounting Firm in performing the determinations
referred to in paragraphs (ii) and (iii) above
shall be borne solely by StaffMark. StaffMark
agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims,
damages and expenses resulting from or relating to
its determinations pursuant to paragraphs (ii) and
(iii) above,
7
<PAGE> 8
except for claims, damages or expenses resulting
from the negligence or misconduct of the Accounting
Firm."
8. The provisions of Section 10 (formerly Section 9) of the Agreement
shall be effective as of the date hereof.
9. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect in accordance with its terms from and after the date
hereof. All references to the Agreement from and after the date hereof shall be
deemed to include the Agreement as amended by the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
<TABLE>
<CAPTION>
EMPLOYEE: STAFFMARK, INC.:
<S> <C>
/s/ W. DAVID BARTHOLOMEW
---------------------------
W. David Bartholomew By: /s/ CLETE T. BREWER
------------------------------
WITNESS: /s/ KATHY S. McNEELEY Title: Chief Executive Officer
--------------------------- ---------------------------
</TABLE>
8
<PAGE> 1
EXHIBIT 10.36
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This first amendment (the "Amendment") to the employment agreement
dated as of June 23, 1997 (the "Agreement") by and between StaffMark, Inc.
("the Company" or "StaffMark"), and Gordon Y. Allison ("Employee"), is made and
entered as of September 17, 1999 between the Company and Employee.
WHEREAS, the terms of Employee's overall executive compensation
package and the terms of this Amendment have been the subject of deliberation
by the Compensation Committee of the Board of Directors of StaffMark (the
"Compensation Committee") at meetings held on March 11, 1999, May 7, 1999, June
17, 1999, August 2, 1999, August 12, 1999, September 15, 1999 and September 17,
1999; and
WHEREAS, the Compensation Committee of the Board of Directors of
StaffMark has been delegated authority, by the Board of Directors of StaffMark
at its meeting on August 12, 1999, to determine the terms of, and approve, the
Amendment;
WHEREAS, the Company believes that its interests would best be served
by securing Employee's continued employment; and
WHEREAS, the Company believes that, to achieve this goal, it is
necessary to extend the term of the Agreement, to revise the Agreement to
reflect certain modifications to the terms of the Employee's employment, to
provide certain severance benefits in additional specified circumstances, and
to provide certain additional benefits in the event of a change in control of
the Company; and
1
<PAGE> 2
WHEREAS, the Compensation Committee has determined that the Amendment
is in the best interests of StaffMark and has approved the Amendment on
September 17, 1999.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. Effective April 1, 1999, paragraph 2(a) of the Agreement is amended
by deleting "$120,000" in the first line thereof and replacing it with
"$140,000."
2. Paragraph 5 of the Agreement is amended by
(a) deleting "for four (4) years" in the second line thereof and
replacing it with "until April 1, 2002;"
(b) inserting (i) the phrase "or Resignation without Good Reason"
following the caption "Good Cause" in subparagraph (c) and (ii) the phrase "or
termination by Employee for circumstances other than Good Reason (as defined
herein)," before the word "Employee" on the last line of subparagraph (c).
(c) deleting subparagraphs (d) - (f) and replacing them with the
following provisions:
"(d) Without Cause or for Good Reason. Except under
circumstances described in paragraph 9 of this Agreement, at
any time after the commencement of employment, the Company
may, without cause, terminate this Agreement and Employee's
employment, or Employee may terminate this Agreement and his
employment for "Good Reason" (as defined below) effective
thirty (30) days after written notice is provided to the
other party by the party terminating this Agreement. In
either case, Employee
2
<PAGE> 3
shall receive from the Company two payments, each equal to
one-half of the following: the amount of Employee's base
salary (without offset for any compensation received by
Employee from any subsequent employment by any person other
than by any affiliate of the Company or in violation of
Section 3 of this Agreement) for a period which is the
greater of (A) sixty (60) days from the date of such
termination or (B) the lesser of two years or the remaining
term of this Agreement. The first payment shall be due on the
effective date of termination and the second payment shall be
due ninety days after the effective date of termination. Upon
the effective date of termination in either case, all Options
granted to Employee in paragraph 2(c)(viii) shall become
immediately exercisable. Further, any such termination shall
operate to shorten the period set forth in paragraph 3(b) and
during which the terms of paragraph (3) apply to one (1) year
from the date of termination of employment. In addition, in
the case of any such termination, Employee shall be permitted
to continue health care coverage for himself and his eligible
dependents for the period described in clause (B) of this
subparagraph 5(d), (i) under the terms of the applicable
Company sponsored health care plan by which he was covered at
the time of such termination of employment, as such plan may
be in effect or may be modified from time to time, in
consideration for Employee's payment of such premiums as may
be required to be paid by active employees of the Company
from time to time ("Required Premium Payments") or (ii) if
such Company sponsored health care plan does not by its terms
allow Employee's
3
<PAGE> 4
participation or continued participation, the Company shall
obtain (in return for Required Premium Payments) insurance
coverage on behalf of Employee and/or Employee's eligible
dependents that provides all benefits otherwise provided
under such Company sponsored health care plan or, at the
Company's election (in return for Required Premium Payments),
shall provide such benefits from its own assets
(collectively, "Continued Health Care Coverage"). "Good
Reason" shall mean any of the following circumstances unless
remedied by the Company within thirty (30) days after receipt
of written notification by Employee that such circumstances
exist or have occurred: (A) assignment to Employee of any
duties inconsistent with Employee's position, authority,
duties or responsibilities as contemplated by paragraph 1 of
the Agreement, or any other action by the Company that
results in diminution of such position, authority, duties or
responsibilities; or (B) any material failure by the Company
to comply with any of the material provisions of the
Agreement."
3. Paragraph 9 of the Agreement is amended by deleting the comma and
all of the words preceding the comma on the first line of subparagraph (a), and
by deleting subparagraphs (b) and (c) thereof and replacing them with the
following new subparagraphs (b) and (c):
"(b) If Employee's employment with the Company is terminated
within two years following a Change in Control, either by the
Company for any reason or no reason or by the Employee for
Good Reason only, (i) the Company shall pay Employee a lump
sum in the amount of two (2) times the sum of Employee's base
4
<PAGE> 5
salary then in effect and his bonus for the year immediately
preceding the year in which the termination of his employment
occurs, such lump sum payment to be due and payable on the
effective date of the termination of Employee's employment;
(ii) the provisions of paragraph 5(d) relating to
exercisability of Options and Continued Health Care Coverage
shall apply; and (iii) the non-competition provisions of
paragraph 3 shall apply for a period of one (1) year from the
effective date of termination if employment is terminated by
Employee, and shall not apply at all if employment is
terminated by the Company.
(c) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined
that any payment or distribution by StaffMark to or for the
benefit of Employee, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would constitute an "excess
parachute payment" within the meaning of section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"),
amounts payable or distributable to or for the benefit of
Employee pursuant to this Agreement that are determined to be
"parachute payments" within the meaning of section 280G(b)(2)
of the Code (such payments or distributions pursuant to this
Agreement are hereinafter referred to as "Agreement
Payments") shall not be paid or distributed in the amounts or
at the times otherwise required by this Agreement, but shall
instead be paid or distributed annually, beginning as of the
effective date of the termination of Employee's employment
and thereafter on each anniversary thereof, in the maximum
substantially equal amounts and over the minimum number of
years that are determined to be required to reduce the
aggregate present value of Agreement Payments to an amount
that will not cause any Payment to be non-deductible under
section 280G of the Code. For purposes of this paragraph 9,
present value shall be determined in accordance with section
280G(d)(4) of the Code.
(ii) All determinations to be made under this
paragraph 9 shall be made by StaffMark's independent public
accountant immediately prior to the Change of Control (the
"Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to
StaffMark and Employee within 10 days of the effective date
of the termination of Employee's
5
<PAGE> 6
employment. Any such determination by the Accounting Firm
shall be binding upon StaffMark and Employee.
(iii) Within two years after the effective date of
the termination of Employee's employment, the Accounting Firm
shall review the determinations made by it pursuant to clause
(i), above. If at that time, as a result of the uncertainty
in the application of section 280G of the Code at the time of
the initial determination by the Accounting Firm hereunder,
the annual amounts of Agreement Payments or the period over
which Agreement Payments are paid or distributed, as
determined pursuant to clause (i), above, are determined not
to satisfy the requirements of clause (i), then the annual
amounts of future Agreement Payments and/or the period over
which future Agreement Payments are paid or distributed shall
be redetermined to satisfy the requirements of clause (i),
and all future Agreement Payments shall be paid or
distributed in accordance with such redetermination.
(iv) All of the fees and expenses of the Accounting
Firm in performing the determinations referred to in clauses
(ii) and (iii) above shall be borne solely by StaffMark.
StaffMark agrees to indemnify and hold harmless the
Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations
pursuant to clauses (ii) and (iii) above, except for claims,
damages or expenses resulting from the negligence or
misconduct of the Accounting Firm."
4. Paragraph 9(d) is amended by inserting "and paragraph 9(b)"
immediately following "paragraph 5" in the first line thereof and by deleting
"and (c)" in the first line thereof.
5. Paragraph 9(e) shall be deleted and replaced in its entirety by the
following:
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than StaffMark or an employee benefit
plan of StaffMark, acquires directly or indirectly the
"beneficial ownership" (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended, "Beneficial
Ownership") of any voting security of StaffMark and
immediately after such acquisition such
6
<PAGE> 7
person is, directly or indirectly, the Beneficial Owner of
voting securities representing 50% or more of the total
voting power of all of the then-outstanding StaffMark voting
securities of StaffMark; (ii) the individuals (A) who, as of
the effective date of StaffMark's registration statement with
respect to its initial public offering, constitute the Board
of Directors of StaffMark (the "Original Directors") or (B)
who thereafter are elected to the Board of Directors of
StaffMark and whose election, or nomination for election to
the Board of Directors of StaffMark was approved by vote of
at least two-thirds (2/3) of the Original Directors then
still in office (such directors becoming "Additional Original
Directors" immediately following their election) or (C) who
are elected to the Board of Directors of StaffMark and whose
election, or nomination for election, to the Board of
Directors of StaffMark was approved by a vote of at least
two-thirds (2/3) of the Original Directors and Additional
Original Directors then still in office (such directors also
becoming Additional Original Directors immediately following
their election), cease for any reason to constitute a
majority of the members of the Board of Directors of
StaffMark; (iii) the stockholders of StaffMark shall approve
a merger or merger agreement involving StaffMark, a
consolidation transaction involving StaffMark, a
recapitalization or reorganization of StaffMark, a reverse
stock split of outstanding StaffMark voting securities, or
the consummation of any such transaction if stockholder
approval is not sought nor obtained, provided, however, that
the foregoing referenced transactions or events in this
clause (iii) shall not constitute a "Change of Control" if
such transaction or event would result in at least 75% of the
total voting power represented by outstanding securities of
the surviving or resulting entity (immediately after such
transaction or event after giving effect to the consideration
issued or transferred in such transaction or event on an
as-converted or fully-diluted basis) being Beneficially Owned
by at least 75% of the holders of outstanding voting
securities of StaffMark immediately prior to the transaction,
with the voting power of each such continuing holder relative
to other such continuing holders not altered in the
transaction in any material way; or (iv) the stockholders of
StaffMark shall approve a plan of complete liquidation of
StaffMark or an agreement for the sale or disposition by
StaffMark of all or a substantial portion of StaffMark's
assets (i.e., 50% or more of the total assets of StaffMark)."
6. The provisions of paragraph 10 of the Agreement shall be effective
as of the date hereof.
7
<PAGE> 8
7. Except as otherwise set forth herein, the Agreement shall remain in
full force and effect in accordance with its terms from and after the date
hereof. All references to the Agreement from and after the date hereof shall be
deemed to include the Agreement as amended by the terms hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
<TABLE>
<CAPTION>
EMPLOYEE: STAFFMARK, INC.:
<S> <C>
/s/ GORDON Y. ALLISON
--------------------------- By: /s/ CLETE T. BREWER
Gordon Y. Allison -------------------------------
Title: Chief Executive Officer
----------------------------
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 779
<SECURITIES> 0
<RECEIVABLES> 201,267
<ALLOWANCES> 4,903
<INVENTORY> 0
<CURRENT-ASSETS> 214,830
<PP&E> 42,306
<DEPRECIATION> 13,576
<TOTAL-ASSETS> 682,835
<CURRENT-LIABILITIES> 85,532
<BONDS> 0
0
0
<COMMON> 293
<OTHER-SE> 285,420
<TOTAL-LIABILITY-AND-EQUITY> 682,835
<SALES> 903,739
<TOTAL-REVENUES> 903,739
<CGS> 676,449
<TOTAL-COSTS> 176,364
<OTHER-EXPENSES> 239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,209
<INCOME-PRETAX> 38,478
<INCOME-TAX> 13,490
<INCOME-CONTINUING> 24,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,988
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.85
</TABLE>
