<PAGE> 1
As filed with the Securities and Exchange Commission on October 11, 1996.
Registration No. 333-_______________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TEAM AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
OHIO 7363 31-1209872
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
110 E. Wilson Bridge Road
Worthington, Ohio 43085
(614) 848-3995
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive office)
RICHARD C. SCHILG
Chairman of the Board,
President and Chief Executive Officer
TEAM America Corporation
110 E. Wilson Bridge Road
Worthington, Ohio 43085
(614) 848-3995
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES TO:
FRED A. SUMMER, ESQ. CURTIS A. LOVELAND, ESQ.
Squire, Sanders & Dempsey L.L.P. Porter, Wright, Morris & Arthur
41 South High Street 41 South High Street
Columbus, Ohio 43215 Columbus, Ohio 43215
(614) 365-2700 (614) 227-2000
-----------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
TITLE OF EACH CLASS OF Proposed Maximum Proposed Maximum
SECURITIES TO BE Amount to Offering Price Aggregate Offering AMOUNT OF
REGISTERED be Registered (1) Per Share (2) Price (2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, no par
value.................... 1,437,500 shares $13.00 $18,687,500 $5,663
===============================================================================================================================
</TABLE>
(1) Includes 187,500 shares subject to purchase by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
PROSPECTUS
1,250,000 SHARES
LOGO
COMMON SHARES
------------------------
All of the 1,250,000 Common Shares (the "Common Shares") offered hereby,
other than shares to cover the over-allotment option, are being sold by TEAM
America Corporation (the "Company"). See "Principal and Selling Shareholders."
Upon completion of this offering (the "Offering"), the directors, executive
officers and existing principal shareholders of the Company and their affiliates
will continue to own approximately 49.7% of the outstanding Common Shares of the
Company (45.5% if the Underwriters' over-allotment option is exercised in full).
Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price will
be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
Application has been made to have the Common Shares listed on The Nasdaq
National Market under the symbol "TMAM."
------------------------
SEE "RISK FACTORS" AT PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================
UNDERWRITING DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............... $ $ $
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Total(3)................ $ $ $
====================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $425,000.
(3) The Company and certain shareholders of the Company (the "Selling
Shareholders") have granted the Underwriters a 30-day option to purchase up
to an aggregate of 87,500 and 100,000 additional Common Shares,
respectively, on the same terms as set forth above solely to cover
over-allotments, if any. If such option is exercised in full, then the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively, and
the proceeds to the Selling Shareholders will be $ . The Company
will not receive any proceeds from the sale of Common Shares by the Selling
Shareholders. See "Principal and Selling Shareholders" and "Underwriting."
------------------------
The Common Shares are being offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. It is expected that certificates for the Common Shares
offered hereby will be available for delivery at the offices of The Ohio
Company, Columbus, Ohio, on or about , 1996.
------------------------
THE OHIO COMPANY RONEY & CO.
, 1996
<PAGE> 3
[LOGO]
As a result of increasing regulatory burdens and employee lawsuits, businesses
need a partner as opposed to going it alone. Through a partnering agreement,
TEAM America, as a Professional Employer Organization ("PEO"), joins with its
Clients in the employment of its work force. The majority of responsibilities
and administrative duties as an employer are shifted to TEAM America. As a
result, its Clients are free to dedicate their time to growing their businesses
and strengthening their products or services and profit potential.
- TEN YEARS IN THE FIELD - LARGEST PEO
OF PROFESSIONAL HEADQUARTERED IN OHIO
EMPLOYMENT PARTNERING
- APPROXIMATELY 3,600
- 1995 REVENUES OF EMPLOYEES
$75 MILLION
[LOGO] - A STAFF OF 50
- OVER 250 CLIENTS PROFESSIONALS MANY OF
WHOM ARE DEGREED
- FOCUS ON PROVIDING A AND CERTIFIED
BROAD RANGE OF HUMAN
RESOURCE SERVICES TO - SELECTIVE UNDERWRITING
SMALL AND MEDIUM SIZE OF NEW CLIENTS
BUSINESSES
- $13.8 BILLION CURRENT
- APPROXIMATELY 1% MARKET GROWING AT 29%
MARKET PENETRATION ANNUAL COMPOUND
GROWTH RATE
- MARKET SIZE OF
$1.1 TRILLION
<TABLE>
<CAPTION>
REVENUES IN
YEAR MILLIONS
<S> <C>
1988 $ 1.0
1989 8.2
1990 20.7
1991 28.1
1992 34.8
1993 41.3
1994 56.1
1995 74.9
</TABLE>
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three quarters of each year containing
unaudited interim financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSITIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
presented in this Prospectus assumes no exercise of the Underwriters'
over-allotment option and has been adjusted to reflect the 184-to-1 split of the
Common Shares prior to the Offering and certain other changes in the Company's
capital stock to be effected immediately prior to the issuance and delivery of
the Common Shares offered hereby. See "Description of Capital Stock." Unless the
context otherwise requires, references in this Prospectus to "TEAM America" and
the "Company" refer to TEAM America Corporation and its consolidated
subsidiaries. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from the results anticipated in these forward-looking statements as a result of
certain of the factors set forth under "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
The Company is the largest professional employer organization ("PEO")
headquartered in Ohio and one of the oldest PEOs in the United States, having
been founded in 1986. The Company provides, through a "partnering" agreement,
comprehensive and integrated human resource management services to small and
medium-sized businesses, thereby allowing such businesses to outsource their
human resource responsibilities. The Company offers a broad range of services
including human resource administration, regulatory compliance management,
employee benefits administration, risk management services and employer
liability protection, payroll and payroll tax administration, and placement
services. The Company provides such services by establishing an employment
relationship with the worksite employees of its clients, contractually assuming
substantial employer responsibilities with respect to worksite employees, and
instructing its clients regarding employment practices. While the Company
becomes the legal employer for most purposes, the client remains in operational
control of its business. As of June 30, 1996, the Company provided professional
employer services to approximately 250 clients and in excess of 3,600 worksite
employees, substantially all of whom are located in the midwestern United
States, principally Ohio.
The Company's services provide substantial benefits to both the client and
its worksite employees. The Company believes its services assist business owners
by: (i) permitting the managers of the client to concentrate on the client's
core business by reducing the time and effort that they are required to spend
dealing with complex human resource, legal and regulatory compliance issues and
employee administration; and (ii) managing escalating costs associated with
unemployment, workers' compensation, health insurance coverage, worksite safety
programs and employee-related litigation. The Company also believes that its
worksite employees benefit from their relationship with the Company by having
access to better, more affordable benefits, enhanced benefit portability,
improved worksite safety and employment stability.
PEOs are in the business of providing small and medium-sized companies with
an alternative to the expense and burden of maintaining their own in-house,
full-time human resource departments. By entering into an agreement with its
clients whereby the PEO participates with the client in the employment of its
worksite employees, larger PEOs, such as the Company, are able to take advantage
of certain economies of scale in the "business of employment" and to pass those
benefits on to their clients and worksite employees. As a result of such
employment arrangements, the clients of PEOs are able to obtain, at an
economical cost, services and expertise similar to those provided by the human
resource departments of large companies. In addition, PEOs are able to provide
their worksite employees with health care insurance and other employee benefits
to which they might not otherwise have access.
The PEO industry is still in its infancy, having begun to evolve in the
early 1980s as the result of the growing demand from small and medium-sized
businesses for an outsourcing solution to the increasing human resource, legal
and regulatory complexities and costs of being an employer. In recent years, the
PEO industry has experienced significant growth as evidenced by industry
estimates that PEO industry gross revenues during the period from 1991 to 1995
increased from $5.0 billion to $13.8 billion, representing an increase of $8.8
billion, or a compound annual growth rate of approximately 29%. Based upon such
estimates, the PEO
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<PAGE> 5
industry is one of the fastest growing industries within the domestic service
sector. The PEO industry is highly fragmented, with in excess of 2,000 companies
currently providing PEO services, mostly in a single market or region.
Industry sources estimate that gross revenues for the PEO industry were
$13.8 billion in 1995. According to the U.S. Small Business Administration,
there were approximately 5.1 million businesses in the United States with fewer
than 500 employees in 1992. These businesses collectively employed 49 million
employees and had aggregate payrolls of approximately $1.1 trillion. Such data
suggests that the PEO industry has achieved a market penetration rate of
approximately 1.0%. With respect to the Ohio market, according to the U.S.
Department of Commerce, there were approximately 36,400 businesses in Ohio with
more than 20 and fewer than 500 employees in 1993. These businesses employed 2.3
million employees and had aggregate payrolls of approximately $53.3 billion.
Based upon these figures, the Company has achieved a market penetration rate in
Ohio of less than 1.0%. In certain more mature local and regional markets,
however, PEOs have achieved significantly greater market penetration rates.
The Company believes that there are further opportunities for growth in the
PEO industry as a result of the increasing trend of businesses to outsource
non-core activities and functions, the low market penetration of the PEO
industry, and the expanding number of small businesses in the United States. The
Company also believes that growing human resource, legal and regulatory
complexities and the need to invest significant capital in service delivery
infrastructures and management information systems should lead to significant
consolidation opportunities in the PEO industry.
GROWTH STRATEGY
The Company intends to further strengthen its position in Ohio and other
midwestern United States markets by pursuing the following business strategies:
- DELIVER HIGH-QUALITY SERVICES AND EXPAND CLIENT BASE. By offering a
broad and increasing range of high-quality services, the Company believes it is
attractive to employers who are seeking a single-source solution to their human
resource needs. The Company intends to continue to focus on providing
high-quality, value-added services as a means to differentiate itself from
competitors. Certain PEOs compete primarily by offering comparatively lower-cost
health and workers' compensation coverage to high risk industries or by
providing basic payroll and payroll tax administration with only limited
additional services. In contrast, the Company provides comprehensive and
integrated human resource management to clients who are selected after
performing a risk management assessment. The Company believes that its strategy
of emphasizing the quality and breadth of its services results in lower client
turnover and more consistent growth and profits than the strategy of certain
PEOs which compete by offering comparatively low-cost coverage or limited
services.
- INCREASE PENETRATION OF EXISTING MARKETS. The Company believes that
additional market penetration in established markets offers significant growth
potential. Based upon data obtained from the U.S. Department of Commerce, the
Company believes that it serves less than 1.0% of the total number of businesses
in Ohio having more than 20 and fewer than 500 employees. In established
markets, the Company's ability to achieve its growth objectives is enhanced by a
larger number of referrals, a higher client retention rate, a more experienced
sales force and greater momentum in its marketing efforts than in new markets.
The Company intends to capitalize on these advantages and to achieve higher
penetration in its existing markets by hiring additional sales personnel and
improving sales productivity. In addition, the Company intends to increase
significantly its advertising and promotional efforts in order to educate the
market place regarding the benefits of "partnering in employment" through
outsourcing the human resource function and the quality and breadth of the
Company's services. The Company believes that increasing its penetration in
existing markets will allow the Company to leverage its current economies of
scale, thereby increasing its cost effectiveness and profit margins.
- EXPAND THROUGH ACQUISITIONS. The PEO industry is highly fragmented, with
in excess of 2,000 companies providing PEO services in 1995. Accordingly, the
Company believes significant opportunities for consolidation exist in the PEO
industry. The Company believes that this industry consolidation will be driven
4
<PAGE> 6
by growing human resource, legal and regulatory complexities, increasing capital
requirements, and the significant economies of scale available to PEOs with a
regional concentration of clients. The Company intends to expand in its current
markets in the midwestern United States and possibly to enter selected new
markets by acquiring established high-quality PEOs that would provide a platform
for future regional consolidation. The Company has identified certain
fundamental attributes which characterize attractive markets such as (i)
proximity to a major metropolitan area, (ii) regulatory receptivity to PEOs,
(iii) prior successful introduction of the PEO concept, (iv) favorable economic
conditions, and (v) a high concentration of small to medium-sized businesses.
- DEVELOP PROPRIETARY INFORMATION SYSTEMS. The Company will continue to
develop its proprietary information systems which will enable the Company to
integrate all aspects of the administration of human resources and employee
benefits, thereby providing a significant competitive advantage in managing
costs and delivering a full range of high-quality services.
- TARGET SELECTED CLIENTS IN GROWTH INDUSTRIES. The Company attempts to
target, and tailors its services to meet the needs of, businesses with between
20 and 500 employees in industries which the Company believes have the potential
for significant growth. As of June 30, 1996, the Company's clients had an
average of approximately 14 worksite employees, compared to an estimated 1994
industry-wide average of 13 worksite employees. The Company believes that its
targeted businesses are likely to (i) desire the wide range of employee benefits
offered by the Company, (ii) recognize the burden of their human resource
administration costs, (iii) experience greater employment-related regulatory
burdens, and (iv) be more financially stable. In addition, the Company believes
that targeting such businesses results in greater marketing efficiency, lower
business turnover due to client business failure, and less exposure to credit
risk.
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered........................ 1,250,000
Common Shares to be outstanding after the
Offering................................... 3,335,088(1)
Use of proceeds.............................. To support expansion of the Company's
operations, including further penetration of
existing operations; to expand the Company's
client base in new or existing markets
through acquisitions; and for general
corporate purposes, including capital
expenditures and working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... TMAM
</TABLE>
- ---------------
(1) Excludes 350,000 Common Shares reserved for issuance under the Company's
Incentive Stock Plan. See "Management -- Incentive Stock Plan." If the
Underwriters' over-allotment is exercised in full, then the Company will
have 3,422,588 Common Shares outstanding upon consummation of the Offering.
See "Shares Eligible For Future Sale."
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
EIGHT MONTH SIX MONTHS ENDED
YEAR ENDED TRANSITION
APRIL 30, PERIOD ENDED YEAR ENDED DECEMBER 31, JUNE 30,
----------------- DECEMBER 31, --------------------------- -----------------
1991 1992 1992(1) 1993 1994 1995 1995 1996
------- ------- ------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $22,386 $30,862 $23,708 $41,252 $56,070 $74,921 $36,132 $44,812
Direct costs:
Salaries and wages........................ 21,128 29,261 19,859 34,555 47,602 63,502 30,422 37,887
Payroll taxes, workers' compensation
premiums, employee benefits and other... 113 131 2,290 4,018 5,578 7,594 3,996 4,556
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................................ 1,145 1,470 1,559 2,679 2,890 3,825 1,714 2,369
Total operating expenses.................... 1,880 1,724 1,257 2,045 2,401 3,168 1,359 1,814
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)..................... (735) (254) 302 634 489 657 355 555
Other income (expenses), net................ (89) 21 (41) (47) (37) (120) (63) (53)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes.................. (824) (233) 261 587 452 537 292 502
Net income (loss)........................... $ (824) $ (233) $ 243 $ 759 $ 270 $ 290 $ 158 $ 271
Earnings (loss) per common and common
equivalent shares(2)...................... $(0.68) $(0.20) $0.21 $0.46 $0.14 $0.14 $0.07 $0.13
Weighted average shares outstanding(2)...... 1,207 1,165 1,160 1,669 1,920 2,130 2,156 2,091
STATISTICAL DATA:
Average gross payroll per employee.......... * * * * $18,415 $21,563 $10,120 $11,222
Worksite employees at period end(3)......... * * * 2,421 2,748 3,141 3,264 3,610
Clients at period end(4).................... * * * 175 197 201 193 253
Average number of worksite employees per
client at period end...................... * * * 13.8 14.0 15.6 16.9 14.3
Gross profit margin(5)...................... 5.1% 4.8% 6.6% 6.5% 5.2% 5.1% 4.7% 5.3%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
ACTUAL AS ADJUSTED(6)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $ 4 $ 13,454
Total assets............................................................................. 5,812 19,262
Long-term obligations and redeemable preferred stock..................................... 396 375
Total shareholders' equity............................................................... 483 13,933
</TABLE>
- ---------------
* Data not available for period indicated.
(1) Effective as of May 1, 1992, the Company changed its fiscal year end from
April 30 to December 31.
(2) See Note 2 of the Notes to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
(3) Represents the number of employees paid during the last month of the period
shown.
(4) Represents the number of client billing locations during the last month of
the period shown. Accordingly, the number shown slightly overestimates the
actual number of clients because several clients have more than one billing
location.
(5) For a discussion of gross profit margin, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(6) Adjusted to reflect the sale of 1,250,000 Common Shares by the Company
pursuant to the Offering (assuming an initial public offering price of
$12.00 per share) and the application of the net proceeds from the Offering
as described in "Use of Proceeds."
6
<PAGE> 8
THE COMPANY
TEAM America Corporation was founded in 1986 and incorporated in Ohio in
1987. The word "TEAM" in the Company's name stands for "Total Employee
Administrative Management." Each subsidiary (or "Team") of the Company employs
worksite employees from a different industry group category, such as services
and retail, light manufacturing or professional. The Company believes that this
organizational structure insulates to some degree the liability exposure of the
Company and its other subsidiaries from claims asserted against a particular
subsidiary, thereby providing the Company's clients with greater security and
cost savings. The Company's corporate headquarters are located at 110 E. Wilson
Bridge Road, Worthington, Ohio 43085, and its telephone number is (614)
848-3995.
RISK FACTORS
Prospective investors should consider carefully the factors set forth
below, as well as the other information provided elsewhere in this Prospectus,
in evaluating an investment in the Common Shares of the Company.
POTENTIAL FOR UNFAVORABLE GOVERNMENT REGULATIONS
The Company's operations are affected by numerous federal, state and local
laws and regulations relating to labor, tax, insurance and employment matters.
By entering into an employment relationship with employees who work at client
locations ("worksite employees"), the Company assumes certain obligations and
responsibilities of an employer under these laws. Because many of the laws
related to the employment relationship were enacted prior to the development of
alternative employment arrangements, such as those provided by professional
employer organizations and other staffing businesses, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
employers. Interpretive issues concerning such relationships have arisen and
remain unsettled. Uncertainties arising under the Internal Revenue Code of 1986,
as amended (the "Code"), include, but are not limited to, the qualified tax
status and favorable tax status of certain benefit plans provided by the Company
and other alternative employers. The unfavorable resolution of these unsettled
issues could have a material adverse effect on the Company's results of
operations and financial condition.
While many states do not explicitly regulate PEOs, approximately one-third
of the states have enacted laws (not including Ohio) that have licensing or
registration requirements for PEOs, and several additional states, including
Ohio, are considering such laws. Such laws vary from state to state but
generally provide for the monitoring of the fiscal responsibility of PEOs and
specify the employer responsibilities assumed by PEOs. There can be no assurance
that the Company will be able to comply with any such regulations which may be
imposed upon it in the future. See "Industry Regulation."
In addition, there can be no assurance that existing laws and regulations
which are not currently applicable to the Company will not be interpreted more
broadly in the future so as to apply to the Company's existing activities or
that new laws and regulations will not be enacted with respect to the Company's
activities, either of which could have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.
See "Industry Regulation."
RISK OF LOSS OF QUALIFIED STATUS FOR CERTAIN TAX PURPOSES
The Internal Revenue Service ("IRS") is conducting a Market Segment Study
of the PEO industry, focusing on selected PEOs (not including the Company), in
order to examine the relationships among PEOs, worksite employees and owners of
client companies. In addition, the Company's 401(k) plan was audited for the
year ended December 31, 1992, and as part of that audit, the IRS regional office
has asked the IRS national office to issue a Technical Advice Memorandum ("TAM")
regarding whether or not the Company is the employer for benefit plan purposes.
The Company intends to state its position in a filing with the IRS that it is
the employer for benefit plan purposes. If the IRS concludes that PEOs are not
"employers" of certain worksite employees for purposes of the Code, then the tax
qualified status of the Company's 401(k) plan could be revoked and its cafeteria
plan may lose its favorable tax status. The loss of qualified status for the
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<PAGE> 9
401(k) Plan and the cafeteria plan could increase the Company's administrative
expenses and, thereby, materially adversely affect the Company's financial
condition and results of operations. The Company is unable to predict the timing
or nature of the findings of the Market Segment Study Group, the timing or
conclusions of the TAM or the ultimate outcome of such conclusions or findings.
See "Industry Regulation -- PEO Services (Employee Benefit Plans)."
OHIO MARKET CONCENTRATION
Clients with billing addresses in Ohio accounted for approximately 83% of
the Company's revenues for 1995. Accordingly, a significant portion of the
Company's revenues will be subject to economic and regulatory factors specific
to such geographic market. While the Company believes that market expansion into
other geographic markets will eventually lessen or eliminate this risk, there
can be no assurance that the Company will be able to duplicate in other markets
the revenue growth and operating results experienced in its Ohio market. See
"Business -- Growth Strategy."
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent to a substantial extent upon the continuing
efforts and abilities of Richard C. Schilg, the Company's founder, Chairman of
the Board, President and Chief Executive Officer, and Kevin T. Costello, the
Company's Senior Vice President and Chief Operating Officer. At the completion
of the Offering, the Company will enter into employment agreements with Mr.
Schilg and Mr. Costello. See "Management -- Employment Agreements." The loss of
the services of Messrs. Schilg or Costello could have a material adverse effect
upon the Company's financial condition and results of operations. The Company
maintains key-man life insurance policies on the lives of Messrs. Schilg and
Costello. See "Management -- Key-Man Life Insurance."
FAILURE TO MANAGE GROWTH AND RISKS RELATED TO GROWTH THROUGH ACQUISITIONS
The Company intends to continue its internal growth and to pursue an
acquisition strategy. Such growth may place a significant strain on the
Company's management, financial, operating and technical resources. The Company
has limited acquisition experience, and growth through acquisition involves
substantial risks, including the risk of improper valuation of the acquired
business and the risks inherent in integrating such businesses with the
Company's operations. There can be no assurance that suitable acquisition
candidates will be available, that the Company will be able to acquire or
profitably manage such additional companies or that future acquisitions will
produce returns that justify the investment or that are comparable to the
Company's past returns. In addition, the Company may compete for acquisition and
expansion opportunities with companies that have significantly greater resources
than the Company. There can be no assurance that management skills and systems
currently in place will be adequate to implement the Company's strategy, and the
failure to manage growth effectively, or to implement its strategy, could have a
material adverse effect on the Company's results of operations and financial
condition. The Company has experienced significant internal growth since its
inception; however, there can be no assurance that the Company will be able to
sustain its past growth rate. There also can be no assurance that the PEO
industry as a whole will be able to sustain the growth rate it has experienced
in recent years. See "Business -- Growth Strategy."
RISKS ASSOCIATED WITH EXPANSION INTO ADDITIONAL STATES
The Company operates primarily in Ohio, and to a significantly lesser
extent in Michigan, Illinois, Indiana and Florida. In the event that the Company
determines to offer its services to prospective clients in a state in which the
Company has not previously operated, the Company, in order to operate
effectively in such new state, will have to obtain all necessary regulatory
approvals, achieve acceptance in the local market, and adapt its procedures to
the state's regulatory requirements and local market conditions. The length of
time required to obtain regulatory approval to begin operations will vary from
state to state, and there can be no assurance that the Company will be able to
satisfy licensing requirements or other applicable regulations of any particular
state in which it is not currently operating, that it will be able to provide
the full range of services currently offered in its existing markets, or that it
will be able to operate profitably within the
8
<PAGE> 10
regulatory environment of any state in which it does obtain regulatory approval.
The absence of required licenses would require the Company to restrict the
services it offers. See "Industry Regulation." Moreover, as the Company expands
into additional states, there can be no assurance that the Company will be able
to duplicate in other markets the revenue growth and operating results
experienced in its Ohio market.
FINANCIAL CONDITION OF CLIENTS
For work performed prior to the termination of a client agreement, the
Company may be obligated, as an employer, to pay the gross salaries and wages of
the client's worksite employees and the related employment taxes and workers'
compensation costs, whether or not the Company's client pays the Company on a
timely basis or at all. To the extent that any client experiences financial
difficulty, or is otherwise unable to meet its obligations as they become due,
the Company's financial condition and results of operations could be adversely
affected. The Company generally attempts to mitigate this risk by obtaining
unconditional personal guaranties from the owners of each client and/or a cash
security deposit, bank line of credit or pledge of certificates of deposit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SHORT TERM NATURE OF CLIENT AGREEMENTS
The Company's standard client agreement provides for successive one-year
terms, subject to termination by the Company or the client at any time upon 30
days' prior written notice. A significant number of terminations by clients
could have a material adverse effect on the Company's financial condition,
results of operations and liquidity. See "Business -- Clients."
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS
A number of legal issues remain unresolved with respect to the relationship
among PEOs, their clients and worksite employees, including questions concerning
the ultimate liability for violations of employment and discrimination laws. See
"Industry Regulation." The Company's client agreement establishes a contractual
division of responsibilities between the Company and each client for various
human resource matters, including compliance with and liability under various
governmental laws and regulations. However, the Company may be subject to
liability for violations of these or other laws despite these contractual
provisions even if it does not participate in such violations. Although such
client agreements generally provide that the client indemnify the Company for
any liability attributable to the client's failure to comply with its
contractual obligations and the requirements imposed by law, the Company may not
be able to collect on such a contractual indemnification claim and thus may be
responsible for satisfying such liabilities. See "Risk Factors -- Financial
Condition of Clients" and "Business -- Clients." In addition, worksite employees
may be deemed to be agents of the Company, subjecting the Company to liability
for the actions of such worksite employees. The Company attempts to mitigate
this risk by maintaining employment practices liability insurance; however,
there can be no assurance that any such insurance will be sufficient or that
such insurance will be available to the Company in the future on satisfactory
terms, if at all. See "Risk Factors -- Potential Legal Liability; Insurance."
POTENTIAL LEGAL LIABILITY; INSURANCE
As an employer, the Company from time to time may be subject in the
ordinary course of its business to a wide variety of employment-related claims
such as claims for injuries, wrongful death, harassment, discrimination, wage
and hours violations and other matters. Although the Company carries general
liability insurance and employment practices liability insurance, there can be
no assurance that any such insurance carried by the Company or its providers
will be sufficient to cover any judgments, settlements or costs relating to any
present or future claims, suits or complaints or that sufficient insurance will
be available to the Company or such providers in the future on satisfactory
terms, if at all. If the insurance carried by the Company or its providers is
not sufficient to cover any judgments, settlements or costs relating to any
present or future claims, suits or complaints, the Company's business and
financial condition could be materially adversely affected.
9
<PAGE> 11
COMPETITION AND NEW MARKET ENTRANTS
The PEO industry is highly fragmented, with in excess of 2,000 companies
providing PEO services in 1995 according to the National Association of
Professional Employer Organizations ("NAPEO"). The Company encounters
competition from other PEOs and from single-service and "fee for service"
companies such as payroll processing firms, insurance companies and human
resource consultants. The Company may encounter substantial competition from new
market entrants. Some of the Company's current and future competitors may be
significantly larger, have greater name recognition and have greater financial,
marketing and other resources than the Company. There can be no assurance that
the Company will be able to compete effectively against such competitors in the
future. See "Business -- Competition."
MANAGEMENT DISCRETION REGARDING NET PROCEEDS OF THE OFFERING
The Company has not yet allocated a substantial portion of the net proceeds
of the Offering to specific uses. Management will have broad discretion as to
the application of the Offering proceeds. Pending the Company's use of such
proceeds for general corporate purposes and possible acquisitions, the net
proceeds of the Offering will be placed in short-term, interest-bearing,
investment-grade debt securities, certificates of deposit or direct or
guaranteed obligations of the United States. It is possible that the return on
such investments will be less than that which would be realized were the Company
immediately to use such funds for other purposes. See "Use of Proceeds."
CONTROL BY PRINCIPAL SHAREHOLDERS
After the Offering, Richard C. Schilg and Kevin T. Costello will
beneficially own an aggregate of 1,181,464 and 423,200 Common Shares,
respectively, together constituting approximately 48.1% of the outstanding
Common Shares (44.0% if the Underwriters' over-allotment option is exercised in
full). Accordingly, such persons will be in a position to effectively control
the management and policies of the Company in general, and to determine the
outcome of any corporate transaction or other matter submitted to the Company's
shareholders for approval including the election of directors, mergers,
acquisitions, consolidations or the sale of substantially all of the Company's
assets. See "Principal and Selling Shareholders."
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Shares. Although the Company has applied to have the Common Shares approved for
quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop for the Common Shares or, if one does
develop, that it will be maintained. The initial public offering price of the
Common Shares will be negotiated between the Company and the representatives of
the Underwriters and may not be indicative of the market price of the Common
Shares after the Offering. See "Underwriting." The market price of the Common
Shares could be highly volatile, fluctuating in response to factors such as
changes in the economy or the financial markets, variations in the Company's
operating results, failure to achieve earnings consistent with analysts'
estimates, announcements of new services or market expansions by the Company or
its competitors, and developments relating to regulatory or other issues
affecting the PEO industry. In addition, the Nasdaq National Market generally
has experienced and is likely in the future to experience significant price and
volume fluctuations which could adversely affect the market price of the
Company's Common Shares without regard to the Company's operating performance.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
Historically, the Company's quarterly operating results have fluctuated
significantly as a result of a number of factors, including the timing and
number of new client agreements and terminations thereof and the timing and
amount of executive bonuses, none of which can be predicted with any degree of
certainty. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations."
10
<PAGE> 12
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Shares in the public market
following the Offering could have an adverse effect on prevailing market prices
of the Common Shares. After the Offering, the 1,250,000 shares (1,437,500 shares
if the Underwriters' over-allotment option is exercised in full) offered hereby
will be freely tradeable without restriction, while approximately 1,073,088
additional shares (973,088 shares if the Underwriters' over-allotment option is
exercised in full) will be eligible for sale pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), subject to certain
volume and other limitations. However, all of the directors and executive
officers who, upon the completion of the Offering, will beneficially own an
aggregate of approximately 1,658,760 Common Shares (1,558,760 if the
Underwriters' over-allotment option is exercised in full), have agreed with the
Underwriters not to sell any of their shares for a period of 180 days from the
date of this Prospectus without the prior consent of the Representatives;
provided, however, that the Company may issue and sell up to 350,000 Common
Shares pursuant to the Incentive Stock Plan in effect on the date of this
Prospectus. See "Shares Eligible For Future Sale."
DIVIDEND POLICY
The Company presently intends to retain its earnings to finance the growth
and development of its business and does not expect to pay any cash dividends in
the foreseeable future. See "Dividend Policy."
ANTI-TAKEOVER EFFECT
Certain Ohio legislation applicable to the Company may deter or frustrate
takeovers of the Company. Certain provisions of the Articles of Incorporation
and Code of Regulations of the Company which will be in effect upon consummation
of the Offering may also deter takeovers of the Company. In addition, upon
consummation of the Offering, the Company will be authorized to issue 1,000,000
preferred shares in one or more series, having terms fixed by the Board of
Directors without shareholder vote, including dividend or liquidation rights
that could be greater than or senior to the rights of holders of Common Shares.
Issuance of these shares could also be used as an anti-takeover device. The
Company has no current intentions or plans to issue any such preferred shares.
See "Description of Capital Stock."
SUBSTANTIAL DILUTION
Purchasers of the Common Shares offered hereby will experience immediate
and substantial dilution in the net tangible book value of their shares. See
"Dilution."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company currently anticipates that its available cash resources
combined with the net proceeds of the Offering and funds from operations will be
sufficient to meet its presently anticipated working capital and capital
expenditures requirements both for the short-term and through at least the end
of 1997. The Company may need to raise additional funds through public or
private debt or equity financings in order to take advantage of unanticipated
opportunities, including more rapid expansion or acquisitions or to respond to
unanticipated competitive pressures. If additional funds are raised through the
issuance of equity securities, then the percentage ownership of the then current
shareholders of the Company may be reduced and such equity securities may have
rights, preferences or privileges senior to those of the holders of the
Company's Common Shares. There can be no assurance that additional financing
will be available on terms favorable to the Company, or at all. If adequate
funds are not available or are not available on acceptable terms, then the
Company may not be able to take advantage of unanticipated opportunities,
develop new or enhanced services or otherwise respond to unanticipated
competitive pressures and the Company's business, operating results and
financial condition could be materially adversely affected. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 Common
Shares being offered by the Company hereby (assuming an offering price of $12.00
per share, and after deducting estimated underwriting discounts and commissions
and offering expenses) are estimated to be approximately $13.5 million ($14.4
million if the Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds from the Offering (i) to
support expansion of the Company's operations, including further penetration of
existing markets by hiring additional sales personnel and increasing advertising
and promotional efforts, (ii) to expand the Company's client base in new or
existing markets through acquisitions as opportunities arise, and (iii) for
general corporate purposes, including capital expenditures and working capital.
See "Business -- Growth Strategy." The Company does not, however, currently have
any understanding or arrangement regarding any potential acquisition. Pending
such uses, the Company intends to invest the net proceeds of the Offering in
high-quality, short-term, interest-bearing, investment-grade debt securities,
certificates of deposit or direct or guaranteed obligations of the United
States. See "Risk Factors -- Management Discretion Regarding Net Proceeds of the
Offering."
The Company may need additional debt or equity financing beyond the
proceeds provided by the Offering to consummate significant future acquisitions.
Although it is expected that additional financing will be derived from capital
stock or debt issued by the Company in public or private transactions or from
borrowings by the Company, there can be no assurance that financing for future
acquisitions will be available on satisfactory terms. See "Risk
Factors -- Future Capital Needs; Uncertainty of Additional Financing."
The Company will not receive any proceeds from the sale of Common Shares by
the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never paid any cash dividends to holders of its Common
Shares and does not anticipate paying any cash dividends in the foreseeable
future, but intends instead to retain any future earnings for reinvestment in
its business. Any future determination as to the payment of dividends will be
made at the discretion of the Board of Directors of the Company and will depend
upon the Company's operating results, financial condition, capital requirements,
general business conditions and such other factors as the Board of Directors
deems relevant. See "Risk Factors -- Dividend Policy."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 on an actual and adjusted basis after giving effect to the transactions
described under "Description of Capital Stock," the sale of the 1,250,000 Common
Shares offered hereby at an assumed initial public offering price of $12.00 per
share and the application of the net proceeds therefrom as described under "Use
of Proceeds." This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................... $ -- $ --
---- -------
Shareholders' equity:
Voting preferred shares, no par value; 500,000 shares authorized, no
shares issued....................................................... -- --
Nonvoting preferred shares, no par value; 500,000 shares authorized, no
shares issued....................................................... -- --
Common shares, without par value;
10,000,000 shares authorized; 2,228,976 shares issued, actual;
3,478,976 shares issued, as adjusted(1)............................. 315 13,765
Retained earnings...................................................... 276 276
Less:
Treasury shares -- at cost; 139,288 shares.......................... (23) (23)
Excess purchase price............................................... (85) (85)
---- -------
Total shareholders' equity..................................... 483 13,933
---- -------
Total capitalization........................................... $ 483 $13,933
==== =======
</TABLE>
- ---------------
(1) Excludes 350,000 Common Shares reserved for issuance under the Company's
Incentive Stock Plan. See "Management -- Incentive Stock Plan."
13
<PAGE> 15
DILUTION
At June 30, 1996, the net tangible book value of the Company's Common
Shares was $482,934, or $0.23 per share after giving effect to the 184-to-1
split of the Common Shares prior to the Offering. Net tangible book value per
share is determined by dividing net tangible book value (tangible assets less
liabilities and redeemable preferred shares) by the number of outstanding Common
Shares. After giving effect to the sale of the Common Shares offered hereby at
an assumed public offering price of $12.00 per share and after deducting assumed
underwriting discounts and commissions and estimated offering expenses, the pro
forma net tangible book value per Common Shares would have been $4.17. This
represents an immediate increase in net tangible book value of $3.94 per Common
Share to existing shareholders and an immediate dilution of $7.83 per Common
Share to new investors in the Offering. The following table illustrates this
dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................ $12.00
Net tangible book value per share before the Offering................ $0.23
Increase in net tangible book value per share attributable to new
investors......................................................... 3.94
-----
Pro forma net tangible book value per share after the Offering......... 4.17
------
Dilution per share to new investors.................................... $ 7.83
======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the
increase in net tangible book value per share to existing shareholders will be
$4.12 per share and the dilution per share to new investors will be $7.65. See
"Risk Factors -- Substantial Dilution."
Based on the same assumptions utilized in the table set forth above, the
following table summarizes, on a pro forma basis as of June 30, 1996, the
difference between the number of Common Shares purchased from the Company, the
aggregate consideration paid and the average price per Common Share paid by
existing shareholders and by new investors (based upon an assumed initial
offering price of $12.00 per share for new investors):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------ ----------- ------ -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1)(2)............... 2,089,688 62.57% $ 290,636 1.90% $ 0.14
New Investors(1).......................... 1,250,000 37.43 15,000,000 98.10 $ 12.00
--------- ------ ----------- ------
Total........................... 3,339,688 100.00% $15,290,636 100.00%
========= ====== =========== ======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, then the
number of shares held by existing shareholders will be reduced to 1,989,688
shares, or 58.06% of the total number of Common Shares to be outstanding
after the Offering, and the number of shares held by new investors will
increase to 1,437,500 shares, or 41.94% of the total number of Common
Shares to be outstanding after the Offering. See "Principal and Selling
Shareholders."
(2) Excludes 350,000 Common Shares reserved for issuance under the Company's
Incentive Stock Plan. See "Capitalization" and "Management -- Incentive
Stock Plan."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA
The following selected historical consolidated financial data for the
Company should be read in conjunction with the Company's Consolidated Financial
Statements, including the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
operations data set forth below with respect to the years ended December 31,
1993, 1994, and 1995 and the balance sheet data as of December 31, 1994 and 1995
are derived from, and are qualified by reference to, the audited consolidated
financial statements included elsewhere in this Prospectus. The balance sheet
data as of December 31, 1993 is derived from audited consolidated financial
statements not included herein. The statement of operations data for the years
ended April 30, 1991 and 1992, the eight month transition period ended December
31, 1992 and the six months ended June 30, 1995 and 1996 and the balance sheet
data as of April 30, 1991 and 1992, December 31, 1992 and June 30, 1996 are
unaudited. The unaudited results of operations for the six months ended June 30,
1996 are not necessarily indicative of results expected for the full year.
<TABLE>
<CAPTION>
YEAR ENDED EIGHTH MONTH SIX MONTHS ENDED
APRIL 30, TRANSITION YEAR ENDED DECEMBER 31, JUNE 30,
----------------- PERIOD ENDED --------------------------- -----------------
1991 1992 DECEMBER 31, 1992(1) 1993 1994 1995 1995 1996
------- ------- --------------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $22,386 $30,862 $23,708 $41,252 $56,070 $74,921 $36,132 $44,812
Direct costs:
Salaries and wages........ 21,128 29,261 19,859 34,555 47,602 63,502 30,422 37,887
Payroll taxes, workers'
compensation premiums,
employee benefits and
other................... 113 131 2,290 4,018 5,578 7,594 3,996 4,556
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ 1,145 1,470 1,559 2,679 2,890 3,825 1,714 2,369
Operating expenses:
Administrative salaries,
wages and employment
taxes................... 1,203 983 730 1,284 1,428 2,013 836 1,221
Other general and
administrative
expenses................ 562 620 468 653 860 996 465 489
Advertising............... 53 87 26 61 66 117 34 72
Depreciation and
amortization............ 62 34 33 47 47 42 24 32
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses......... 1,880 1,724 1,257 2,045 2,401 3,168 1,359 1,814
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)..... (735) (254) 302 634 489 657 355 555
Other income (expenses),
net....................... (89) 21 (41) (47) (37) (120) (63) (53)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes..................... (824) (233) 261 587 452 537 292 502
Income tax expense
(benefit)................. -- -- 109 (172) 182 247 134 231
Cumulative effect of change
in accounting............. -- -- 91 -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $ (824) $ (233) $ 243 $ 759 $ 270 $ 290 $ 158 $ 271
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per common
and common equivalent
shares(2)................. $ (0.68) $ (0.20) $ 0.21 $ 0.46 $ 0.14 $ 0.14 $ 0.07 $ 0.13
Weighted average shares
outstanding(2)............ 1,207 1,165 1,160 1,669 1,920 2,130 2,156 2,091
STATISTICAL DATA:
Average gross payroll per
employee.................. * * * * $18,415 $21,563 $10,120 $11,222
Worksite employees at period
end(3).................... * * * 2,421 2,748 3,141 3,264 3,610
Clients at period end(4).... * * * 175 197 201 193 253
Average number of worksite
employees per client at
period end................ * * * 13.8 14.0 15.6 16.9 14.3
Gross profit margin(5)...... 5.1% 4.8% 6.6% 6.5% 5.2% 5.1% 4.7% 5.3%
</TABLE>
(Balance sheet data and footnotes appear on next page)
15
<PAGE> 17
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31, JUNE 30,
----------------- ------------------------------------- -----------------
1991 1992 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............. $(1,341) $(1,413) $(1,346) $ (583) $ (263) $ (73) $ (102) $ 4
Total assets........................... 1,175 2,102 1,947 2,663 3,847 4,986 4,570 5,812
Long-term obligations and redeemable
preferred stock...................... 94 187 225 245 329 364 358 396
Total shareholders' equity (deficit)... (1,203) (1,409) (1,163) (405) (105) 212 98 483
</TABLE>
- ---------------
* Data not available for period indicated.
(1) Effective as of May 1, 1992, the Company changed its fiscal year end from
April 30 to December 31.
(2) See Note 2 of the Notes to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
(3) Reflects the number of employees paid during the last month of the period
shown.
(4) Represents the number of client billing locations during the last month of
the period shown. Accordingly, the number shown slightly overestimates the
actual number of clients because several clients have more than one billing
location.
(5) For a discussion of gross profit margin, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues include gross salaries and wages, federal and state
employment taxes, workers' compensation and employee benefits costs for worksite
employees and the Company's administrative fee. For work performed prior to the
termination of a client agreement, the Company may be obligated, as an employer,
to pay the gross salaries and wages of the client's worksite employees and the
related employment taxes and workers' compensation costs, whether or not the
Company's client pays the Company on a timely basis or at all. See "Risk
Factors -- Financial Condition of Clients." The Company believes that including
such amounts as revenues appropriately reflects the responsibility which the
Company bears for such amounts and is consistent with industry practice.
The Company's standard client agreement provides for successive one-year
terms, subject to termination by the Company or the client at any time upon 30
days' prior written notice. The Company's administrative fee under such
agreements is generally based upon either (i) a fixed fee per worksite employee
or (ii) an established percentage of gross salaries and wages, subject to a
guaranteed minimum fee per worksite employee. The Company's administrative fee
varies by client primarily based upon the nature and size of the client's
business and the Company's assessment of the cost and risk associated with the
employment of the client's worksite employees. Accordingly, the Company's
administrative fee income will fluctuate based on the number and gross salaries
and wages of worksite employees and the mix of client fee arrangements and
terms.
The Company's primary direct costs are salaries and wages of worksite
employees, federal and state employment taxes, workers' compensation premiums,
employee benefits and other associated costs. The Company may significantly
affect its gross profit margin by effectively managing its employment risks,
including workers' compensation and state unemployment costs, as described
below. The Company's risk management of the worksite includes policies and
procedures designed to proactively prevent and control costs of lawsuits, fines,
penalties, judgments, settlements and legal and professional fees. In addition,
the Company controls benefit plan costs by attempting to prevent fraud and
abuse. Other risk management programs of the Company include effectively
processing workers' compensation and unemployment claims and aggressively
contesting any suspicious or improper claims. The Company believes that such
risk management efforts increase the profitability of the Company by reducing
the Company's liability exposure and by increasing the value of the Company's
services to its clients. See "Business -- Client Services."
Workers' compensation costs include administrative costs and insurance
premiums related to the Company's workers' compensation coverage. With respect
to its worksite employees located in Ohio, the Company complies with Ohio
workers' compensation law and pays premiums into the Ohio Bureau of Workers'
Compensation state fund. With respect to its worksite employees located outside
of Ohio, the Company maintains workers' compensation insurance generally with a
private insurance company in accordance with the applicable laws of each state
in which the Company has worksite employees. See "Industry
Regulation -- Workers' Compensation." The cost of contesting workers'
compensation claims is borne by the Company and is not passed through directly
to the Company's clients. The workers' compensation premium rate charged by the
Company to each client, however, may include, in addition to the estimated
premium rate applicable to such client, a fee which is intended to compensate
the Company for such services and to reward the Company for successfully
managing workers' compensation risks.
Worksite employees of the Company currently reside in approximately 31
states, resulting in the payment by the Company of unemployment taxes in each of
such states. Such taxes are based on rates which vary from state to state.
Employers are generally subject to established minimum rates, however, the
aggregate rates payable by an employer are affected by the employer's claims
history. The Company controls unemployment claims by aggressively contesting
unfounded claims and placing worksite employees with other clients whenever
possible. As with workers' compensation premiums, the Company has an incentive
to minimize its state unemployment taxes because the Company bears the risk that
its actual costs will exceed those charged to its clients, and correspondingly,
the Company profits in the event that it effectively manages such costs.
17
<PAGE> 19
The Company's primary operating expenses are administrative personnel
expenses, other general and administrative expenses, and advertising expenses.
Administrative personnel expenses include compensation, fringe benefits and
other personnel expenses related to internal administrative employees. Other
general and administrative expenses include rent, insurance, general office
expenses, legal and accounting fees and other operating expenses.
RESULTS OF OPERATIONS
The following table sets forth for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1995 and 1996 certain selected income
statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
AS A PERCENT OF REVENUES
---------------------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs:
Salaries and wages............................... 83.8 84.9 84.8 84.2 84.5
Payroll taxes, workers' compensation premiums,
employee benefits and other costs............. 9.7 9.9 10.1 11.1 10.2
----- ----- ----- ----- -----
Gross profit....................................... 6.5 5.2 5.1 4.7 5.3
----- ----- ----- ----- -----
Operating expenses:
Administrative salaries, wages and employment
taxes......................................... 3.1 2.6 2.6 2.3 2.7
Other general and administrative................. 1.6 1.5 1.3 1.2 1.1
Advertising...................................... 0.2 0.1 0.2 0.1 0.2
Depreciation and amortization.................... 0.1 0.1 0.1 0.1 0.1
----- ----- ----- ----- -----
Total operating expenses................. 5.0 4.3 4.2 3.7 4.1
----- ----- ----- ----- -----
Operating income................................... 1.5 0.9 0.9 1.0 1.2
Other income (expense), net........................ (0.1) (0.1) (0.2) (0.2) (0.1)
----- ----- ----- ----- -----
Income before taxes................................ 1.4 0.8 0.7 0.8 1.1
Provision for income taxes......................... (0.4) 0.3 0.3 0.4 0.5
----- ----- ----- ----- -----
Net income......................................... 1.8% 0.5% 0.4% 0.4% 0.6%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
The Company's revenues were $44.8 million for the six months ended June 30,
1996, compared to $36.1 million for the six months ended June 30, 1995,
representing an increase of $8.7 million, or 24.0%. This increase was primarily
due to an increase in the number of clients and worksite employees. The Company
had 253 clients and 3,610 worksite employees at June 30, 1996, compared to 193
clients and 3,264 worksite employees at June 30, 1995, representing an increase
of 31.1% in the number of clients and an increase of 10.6% in the number of
worksite employees.
Salaries and wages of worksite employees were $37.9 million for the six
months ended June 30, 1996, compared to $30.4 million for the six months ended
June 30, 1995, representing an increase of $7.5 million, or 24.5%. Payroll
taxes, workers' compensation premiums, employee benefits and other direct costs
amounted to $4.6 million for the six months ended June 30, 1996, compared to
$4.0 million for the six months ended June 30, 1995, representing an increase of
$560,000, or 14.0%. Such expenses as a percentage of revenues for such six month
periods decreased from 11.1% to 10.2% due primarily to lower workers'
compensation and unemployment expenses.
Gross profit as a percentage of revenues in the six months ended June 30,
1996 was 5.3%, compared to 4.7% for the six months ended June 30, 1995,
primarily as a result of lower workers' compensation and
18
<PAGE> 20
unemployment expenses. As part of the Company's risk management system, the
Company has established programs designed to effectively process workers'
compensation and unemployment claims and to aggressively contest any suspicious
or improper claims. See "Business -- Client Services."
Administrative salaries, wages and employment taxes were $1.2 million for
the six months ended June 30, 1996, compared to $836,000 for the six months
ended June 30, 1995, representing an increase of $385,000, or 46.0%. This
increase was primarily due to the timing of executive bonuses and the hiring of
additional administrative personnel as a result of actual and anticipated
increases in the number of clients and worksite employees. The increase in these
costs as a percent of revenues from 2.3% to 2.7% was primarily attributable to
the employment of additional personnel in order to sustain the growth of the
Company. Other general and administrative costs increased to $489,000 from
$465,000 primarily due to the general growth of the Company.
The provision for income taxes as a percentage of income before taxes for
both six month periods was 46.0%.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company's revenues were $74.9 million for the year ended December 31,
1995, compared to $56.1 million for the year ended December 31, 1994,
representing an increase of $18.8 million, or 33.6%. This increase was primarily
due to an increase in the number of worksite employees. During the year ended
December 31, 1995, the number of clients increased to 201 from 197, or 2.0%.
This net increase of four additional clients was primarily the result of the
termination of certain less desirable clients following the Company's evaluation
of its clients and their contributions to revenues and income. In addition, the
actual increase in the number of clients exceeded four because two of the
terminated clients had multiple locations which under the Company's system for
tracking the number of clients are each counted as a separate client. See
footnote 4 to "Selected Consolidated Financial and Statistical Data." During the
year ended December 31, 1995, the number of worksite employees increased to
3,141 from 2,748, or 14.3%.
Salaries and wages of worksite employees were $63.5 million for 1995,
compared to $47.6 million for 1994, representing an increase of $15.9 million,
or 33.4%. Payroll taxes, workers' compensation premiums, employee benefits and
other direct costs amounted to $7.6 million in 1995, compared to $5.6 million in
1994, representing an increase of $2.0 million, or 36.1%. Such expenses as a
percentage of revenues for the years ended December 31, 1995 and 1994 were
comparable, at 9.9% and 10.1%, respectively.
Gross profit as a percentage of revenues in 1995 and 1994 were nearly
identical.
Administrative salaries, wages and employment taxes were $2.0 million in
1995, compared to $1.4 million in 1994, representing an increase of $585,000, or
41.0%. This increase was primarily due to the hiring of additional
administrative personnel as a result of actual and anticipated increases in the
number of worksite employees. Other general and administrative costs increased
to $996,000 from $860,000 primarily due to the general growth of the Company.
The provision for income taxes increased as a percentage of income before
taxes to 46.0% in 1995 from 40.2% in 1994 primarily due to the impact of tax
accounting for nondeductible life insurance premiums. See Note 8 of the Notes to
the Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
The Company's revenues were $56.1 million for the year ended December 31,
1994, compared to $41.3 million for the year ended December 31, 1993,
representing an increase of $14.8 million, or 35.9%. This increase was primarily
due to an increase in the number of clients and worksite employees. During the
year ended December 31, 1994, the number of the Company's clients increased to
197 from 175, or 12.6%. During the same period, the number of worksite employees
increased to 2,748 from 2,421, or 13.5%.
Salaries and wages of worksite employees were $47.6 million for 1994,
compared to $34.6 million for 1993, representing an increase of $13.0 million,
or 37.8%. Payroll taxes, workers' compensation premiums,
19
<PAGE> 21
employee benefits and other direct costs amounted to $5.6 million in 1994,
compared to $4.0 million in 1993, representing an increase of $1.6 million, or
38.8%.
Gross profit as a percentage of revenues in 1994 was 5.2%, compared to 6.5%
in 1993. This difference was primarily attributable to a one-time benefit
recognized by the Company in 1993 in connection with the conversion of the
Company's health care plan from a self-insured plan to a fully-insured plan, due
to the assumption by the insurance carrier of liability for claims incurred but
not reported.
Administrative salaries, wages and employment taxes were $1.4 million in
1994, compared to $1.3 million in 1993, representing an increase of $144,000, or
11.2%. This increase was primarily due to the hiring of additional
administrative personnel as a result of increases in the number of clients and
worksite employees. The significant reduction in these costs as a percent of
revenues from 3.1% to 2.6% was primarily attributable to the ability of the
Company to accommodate the increase in the number of clients and worksite
employees without proportionately increasing the number of corporate employees.
Other general and administrative costs increased to $860,000 from $653,000
primarily due to the general growth of the Company.
The provision for income taxes as a percentage of income before taxes was
40.2% in 1994. There was an income tax benefit of $172,000 in 1993 due to the
accounting for the benefit of a prior years' net operating loss carryforward.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited consolidated quarterly
financial information for the ten quarters ended June 30, 1996. In the opinion
of the Company's management, this information has been prepared on the same
basis as the audited consolidated financial statements appearing elsewhere in
this Prospectus and includes all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the unaudited quarterly
results set forth herein. The Company expects that it will continue to
experience significant fluctuations in its quarterly operating results. In the
past, these fluctuations have been caused by a variety of factors, including the
timing and number of new client agreements and terminations thereof and the
timing and amount of executive bonuses, none of which can be predicted with any
degree of certainty. The Company's quarterly results have in the past been
subject to fluctuations and, therefore, the operating results for any quarter or
quarters are not necessarily indicative of results for any future period. See
"Risk Factors -- Quarterly Fluctuations in Operating Results."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------- ------------------------------------- -----------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $11,065 $13,072 $15,813 $16,120 $17,451 $18,681 $18,849 $19,940 $21,418 $23,394
Direct costs................. 10,499 12,413 14,932 15,336 16,655 17,763 17,946 18,732 20,391 22,052
Gross profit................. 566 659 881 784 796 918 903 1,208 1,027 1,342
Income before taxes.......... 63 75 282 32 94 197 73 173 168 334
Income tax expense........... 26 30 114 12 43 91 34 79 84 147
Net income................... 37 45 168 20 51 106 39 94 84 187
Earnings per common and
common equivalent shares... $0.02 $0.02 $0.08 $0.01 $0.02 $0.05 $0.02 $0.04 $0.04 $0.09
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity and capital resources has
historically been its internal cash flow from operations. At June 30, 1996 and
December 31, 1995 and 1994, the Company had working capital surplus (deficits)
in the amounts of approximately $4,000, ($73,000) and ($263,000), respectively.
For work performed prior to the termination of a client agreement, the
Company may be obligated, as an employer, to pay the gross salaries and wages of
the client's worksite employees and the related employment taxes and workers'
compensation costs, whether or not the Company's client pays the Company on a
timely basis or at all. The Company, however, historically has not incurred
significant bad debt expenses because the Company generally collects from its
clients all revenues with respect to each payroll period in advance of the
20
<PAGE> 22
Company's payment of the direct costs associated therewith. The Company attempts
to minimize its credit risk by investigating and monitoring the credit history
and financial strength of its clients and by generally requiring payments to be
made by wire transfer, immediately available funds or Automatic Clearing House
("ACH") transfer. With respect to ACH transfers, the Company assumes the risk
that there will be insufficient funds in the client's bank account on the
payroll date. The Company's policy, however, is only to permit clients with a
proven credit history with the Company to pay by ACH transfer. In addition, in
the rare event of nonpayment by a client, the Company has the ability to
terminate immediately its contract with the client. The Company also protects
itself by obtaining unconditional personal guaranties from the owners of each
client and/or a cash security deposit, bank letter of credit or pledge of
certificates of deposit. As of June 30, 1996 and December 31, 1995, the Company
held cash security deposits in the amounts of $461,000 and $427,000,
respectively. See "Risk Factors -- Financial Condition of Clients." Additional
sources of funds to the Company are advance payments of employment taxes and
insurance premiums which the Company holds until they are due and payable to the
respective taxing authorities and insurance providers.
The Company has negotiated a credit facility with a bank which allows the
Company to obtain advances up to $500,000; however, the bank is not committed to
make any advances to the Company. Borrowings under this credit facility are
payable upon demand and bear interest at the bank's prime rate plus 0.5% (8.75%
at June 30, 1996). The credit facility is unsecured, but has been guaranteed by
Richard C. Schilg, Chairman of the Board, President and Chief Executive Officer
of the Company. See "Certain Transactions -- Certain Business Relationships." As
of December 31, 1995 and June 30, 1996, no borrowings were outstanding under
this credit facility.
The Company believes that the net proceeds from the sale of the Common
Shares offered hereby, together with existing cash, cash equivalents and
internally generated funds will be sufficient to meet the Company's presently
anticipated working capital and capital expenditure requirements both for the
short-term and through at least the end of 1997. To the extent that the Company
needs additional capital resources, the Company believes that it will have
access to both bank financing and capital leasing for additional facilities and
equipment; however, there can be no assurance that additional financing will be
available on terms favorable to the Company or at all. See "Risk
Factors -- Future Capital Needs; Uncertainty of Additional Financing."
INFLATION
The Company believes the effects of inflation have not had a significant
impact on its results of operations or financial condition.
21
<PAGE> 23
BUSINESS
GENERAL
The Company is the largest PEO headquartered in Ohio and one of the oldest
PEOs in the United States, having been founded in 1986. The Company provides,
through a "partnering" agreement, comprehensive and integrated human resource
management services to small and medium-sized businesses, thereby allowing such
businesses to outsource their human resource responsibilities. The Company
offers a broad range of services including human resource administration,
regulatory compliance management, employee benefits administration, risk
management services and employer liability protection, payroll and payroll tax
administration, and placement services. The Company provides such services by
establishing an employment relationship with the worksite employees of its
clients, contractually assuming substantial employer responsibilities with
respect to worksite employees, and instructing its clients regarding employment
practices. While the Company becomes the legal employer for most purposes, the
client remains in operational control of its business. As of June 30, 1996, the
Company provided professional employer services to approximately 250 clients and
in excess of 3,600 worksite employees, substantially all of whom are located in
the midwestern United States, principally Ohio.
The Company's services provide substantial benefits to both the client and
its worksite employees. The Company believes its services assist business owners
by: (i) permitting the managers of the client to concentrate on the client's
core business by reducing the time and effort that they are required to spend
dealing with complex human resource, legal and regulatory compliance issues and
employee administration; and (ii) managing escalating costs associated with
unemployment, workers' compensation, health insurance coverage, worksite safety
programs and employee-related litigation. The Company also believes that its
worksite employees benefit from their relationship with the Company by having
access to better, more affordable benefits, enhanced benefit portability,
improved worksite safety and employment stability.
INDUSTRY
PEOs are in the business of providing small and medium-sized companies with
an alternative to the expense and burden of maintaining their own in-house,
full-time human resource departments. By entering into an agreement with its
clients whereby the PEO participates with the client in the employment of its
worksite employees, larger PEOs, such as the Company, are able to take advantage
of certain economies of scale in the "business of employment" and to pass those
benefits on to their clients and worksite employees. As a result of such
employment arrangements, the clients of PEOs are able to obtain, at an
economical cost, services and expertise similar to those provided by the human
resource departments of large companies. In addition, PEOs are able to provide
their worksite employees with health care insurance and other employee benefits
to which they might not otherwise have access.
The PEO industry is still in its infancy, having begun to evolve in the
early 1980s as the result of the growing demand from small and medium-sized
businesses for an outsourcing solution to the increasing human resource, legal
and regulatory complexities and costs of being an employer. In recent years, the
PEO industry has experienced significant growth as evidenced by industry
estimates that PEO industry gross revenues during the period from 1991 to 1995
increased from $5.0 billion to $13.8 billion, representing an increase of $8.8
billion, or a compound annual growth rate of approximately 29%. Based upon such
estimates, the PEO industry is one of the fastest growing industries within the
domestic service sector. The PEO industry is highly fragmented, with in excess
of 2,000 companies currently providing PEO services, mostly in a single market
or region.
Industry sources estimate that gross revenues for the PEO industry were
$13.8 billion in 1995. According to the U.S. Small Business Administration,
there were approximately 5.1 million businesses in the United States with fewer
than 500 employees in 1992. These businesses collectively employed 49 million
employees and had aggregate payrolls of approximately $1.1 trillion. Such data
suggests that the PEO industry has achieved a market penetration rate of
approximately 1.0%. With respect to the Ohio market, according to the U.S.
Department of Commerce, there were approximately 36,400 businesses in Ohio with
more than 20 and
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<PAGE> 24
fewer than 500 employees in 1993. These businesses employed 2.3 million
employees and had aggregate payrolls of approximately $53.3 billion. Based upon
these figures, the Company has achieved a market penetration rate in Ohio of
less than 1.0%. In certain more mature local and regional markets, however, PEOs
have achieved significantly greater market penetration rates.
The Company believes that there are further opportunities for growth in the
PEO industry as a result of the increasing trend of businesses to outsource
non-core activities and functions, the low market penetration of the PEO
industry, and the expanding number of small businesses in the United States. The
Company also believes that growing human resource, legal and regulatory
complexities and the need to invest significant capital in service delivery
infrastructures and management information systems should lead to significant
consolidation opportunities in the PEO industry.
GROWTH STRATEGY
The Company intends to further strengthen its position in Ohio and other
midwestern United States markets by pursuing the following business strategies:
- DELIVER HIGH-QUALITY SERVICES AND EXPAND CLIENT BASE. By offering a
broad and increasing range of high-quality services, the Company believes it is
attractive to employers who are seeking a single-source solution to their human
resource needs. The Company intends to continue to focus on providing
high-quality, value-added services as a means to differentiate itself from
competitors. Certain PEOs compete primarily by offering comparatively lower-cost
health and workers' compensation coverage to high risk industries or by
providing principally basic payroll and payroll tax administration with only
limited additional services. In contrast, the Company provides comprehensive and
integrated human resource management to clients who are selected after
performing a risk management assessment. The Company believes that its strategy
of emphasizing the quality and breadth of its services results in lower client
turnover and more consistent growth and profits than the strategy of certain
PEOs which compete by offering comparatively lower-cost coverage or limited
services. See "Business -- Client Services."
- INCREASE PENETRATION OF EXISTING MARKETS. The Company believes that
additional market penetration in established markets offers significant growth
potential. Based upon data obtained from the U.S. Department of Commerce, the
Company believes that it serves less than 1.0% of the total number of businesses
in Ohio having more than 20 and fewer than 500 employees. See
"Business -- Industry." In established markets, the Company's ability to achieve
its growth objectives is enhanced by a larger number of referrals, a higher
client retention rate, a more experienced sales force and greater momentum in
its marketing efforts than in new markets. The Company intends to capitalize on
these advantages and to achieve higher penetration in its existing markets by
hiring additional sales personnel and improving sales productivity. In addition,
the Company intends to increase significantly its advertising and promotional
efforts in order to educate the market place regarding the benefits of
"partnering in employment" through outsourcing the human resource function and
the quality and breadth of the Company's services. The Company believes that
increasing its penetration in existing markets will allow the Company to
leverage its current economies of scale, thereby increasing its cost
effectiveness and profit margins. See "Business -- Sales and Marketing."
- EXPAND THROUGH ACQUISITIONS. The PEO industry is highly fragmented, with
in excess of 2,000 companies providing PEO services in 1995 according to NAPEO.
Accordingly, the Company believes significant opportunities for consolidation
exist in the PEO industry. See "Business -- Industry." The Company believes that
this industry consolidation will be driven by growing human resource, legal and
regulatory complexities, increasing capital requirements, and the significant
economies of scale available to PEOs with a regional concentration of clients.
The Company intends to expand in its current markets in the midwestern United
States and possibly to enter selected new markets by acquiring established
high-quality PEOs that would provide a platform for future regional
consolidation. The Company has identified certain fundamental attributes which
characterize attractive markets such as (i) proximity to a major metropolitan
area, (ii) regulatory receptivity to PEOs, (iii) prior successful introduction
of the PEO concept, (iv) favorable economic conditions, and (v) a high
concentration of small to medium-sized businesses. See "Risk Factors -- Failure
to Manage Growth and Risks Related to Growth Through Acquisitions."
23
<PAGE> 25
- DEVELOP PROPRIETARY INFORMATION SYSTEMS. The Company will continue to
develop its proprietary information systems which will enable the Company to
integrate all aspects of the administration of human resources and employee
benefits, thereby providing a significant competitive advantage in managing
costs and delivering a full range of highquality services. See
"Business -- Information Technology."
- TARGET SELECTED CLIENTS IN GROWTH INDUSTRIES. The Company attempts to
target, and tailors its services to meet the needs of, businesses with between
20 and 500 employees in industries which the Company believes have the potential
for significant growth. As of June 30, 1996, the Company's clients had an
average of approximately 14 worksite employees, compared to an estimated 1994
industry-wide average of 13 worksite employees. The Company believes that its
targeted businesses are likely to (i) desire the wide range of employee benefits
offered by the Company, (ii) recognize the burden of their human resource
administration costs, (iii) experience greater employment-related regulatory
burdens, and (iv) be more financially stable. In addition, the Company believes
that targeting such businesses results in greater marketing efficiency, lower
business turnover due to client business failure, and less exposure to credit
risk. See "Business -- Clients."
CLIENT SERVICES
CLIENT SERVICE TEAMS. The Company has four client service directors who
oversee a service staff consisting of eight customer service representatives
("CSRs") and two customer service administrators. A team consisting of a client
service director, a client service representative and a client service
administrator is assigned to each client. The client service team is responsible
for administering the client's personnel and benefits, coordinating the
Company's response to client needs for administrative support and responding to
any questions or problems encountered by the client.
The CSR acts as the principal client service representative of the Company
and typically is on call and in contact with each client throughout the week.
The CSR serves as the communication link between the Company's various
departments and the Company's on-site supervisor, who in many cases is the
manager of the client's business. Accordingly, the CSR is involved in every
aspect of the Company's delivery of services to the client. For example, the CSR
is responsible for gathering all information necessary to process each payroll
of the client and for all other information needed by the Company's human
resources, accounting and other departments with respect to such client and its
worksite employees. The CSRs also actively participate in hiring, disciplining
and terminating worksite employees, administering employee benefits, and
responding to employee complaints and grievances.
CORE ACTIVITIES. The Company provides professional employer services
through six core activities: (i) human resource administration, (ii) regulatory
compliance management, (iii) employee benefits administration, (iv) risk
management services and employer liability protection, (v) payroll and payroll
tax administration, and (vi) placement services.
- HUMAN RESOURCE ADMINISTRATION. The Company, as an employer, provides its
clients with a broad range of human resource services including on-going
supervisory education and training regarding risk management and employment
laws, policies and procedures. In addition, the Company's human resource
department handles sensitive and complicated employment issues such as employee
discipline, termination, sexual harassment, and wage and salary planning and
analysis. The Company is in the process of expanding its human resource services
to assist clients in areas such as employee morale and worksite employee and
on-site supervisor training. The Company provides a comprehensive employee
handbook to all worksite employees which includes customized, site-specific
materials concerning each worksite. In addition, the Company maintains extensive
files and records regarding worksite employees for compliance with various state
and federal regulations. This extensive record keeping is designed to
substantially reduce legal actions arising from lack of proper documentation.
- REGULATORY COMPLIANCE MANAGEMENT. The Company, under its standard client
agreement, assumes responsibility for complying with many employment related
regulatory requirements. As an employer, the Company must comply with numerous
federal and state laws, including (i) certain tax, workers' compensation,
unemployment, immigration, civil rights, and wage and hour laws, (ii) the
Americans with Disabilities Act of 1990, (iii) the Family and Medical Leave Act,
(iv) laws administered by the Equal Employment
24
<PAGE> 26
Opportunity Commission, and (v) employee benefits laws such as ERISA and COBRA.
The Company provides bulletin boards to its clients and maintains them for
compliance with required posters and notices. The Company also assists its
clients in their efforts as employers to comply with and understand certain
other laws and responsibilities with respect to which the Company does not
assume liability and responsibility. For example, while the Company provides
significant safety training and risk management services to its clients, it does
not assume responsibility for compliance with the Occupational Safety and Health
Act because the client controls its worksite facilities and equipment. See
"Business -- Clients.
- EMPLOYEE BENEFITS ADMINISTRATION. The Company offers a broad range of
employee benefit programs to its worksite employees. The Company administers
such benefit programs, thereby reducing the administrative responsibilities of
its clients for maintaining complex and tax-qualified employee benefit plans. By
combining its multiple worksite employees, the Company is able to take advantage
of certain economies of scale in the administration and provision of employee
benefits. As a result, the Company is able to offer to its worksite employees
benefit programs which are comparable to those offered by large corporations. In
fact, some programs offered by the Company would not otherwise be available to
the worksite employees of many clients if such clients were the sole employers.
Eligible worksite and corporate staff employees of the Company are entitled to
participate in the Company's employee benefit programs without discrimination.
Such programs include life insurance coverage as well as the Company's cafeteria
plan which offers a choice of different health plans and dental, vision and
prescription card coverage. In addition, the Company permits each qualified
employee to participate in the Company's 401(k) retirement plan and the
Company's dependent care assistance program. Each worksite employee is given (i)
the opportunity to purchase group-discounted, payroll-deducted auto, homeowners
or renters insurance and long-term disability insurance, and (ii) access to
store discount programs, free checking accounts with participating banks,
prepaid legal services plan, and various other employee benefits. The Company
believes that by offering its worksite employees a broad range of large
corporation style benefit plans and programs it is able to reduce worksite
employee turnover which results in cost savings for the Company and its clients.
The Company performs all required other regulatory compliance and plan
administration in accordance with state and federal benefit laws. See "Industry
Regulation."
- RISK MANAGEMENT SERVICES AND EMPLOYER LIABILITY PROTECTION. The
Company's risk management of the worksite includes policies and procedures
designed to proactively prevent and control costs of lawsuits, fines, penalties,
judgments, settlements and legal and professional fees. In addition, the Company
controls benefit plan costs by attempting to prevent fraud and abuse by closely
monitoring claims. Other risk management programs of the Company include
effectively processing workers' compensation and unemployment claims and
aggressively contesting any suspicious or improper claims. The Company believes
that such risk management efforts increase the profitability of the Company by
reducing the Company's liability exposure and by increasing the value of the
Company's services to its clients.
Many of the Company's direct competitors in both the public and private
sector are self-insured for health care, workers' compensation and employment
practices risks. The Company, however, is fully-insured for such risks. The
Company believes that it historically has been able to achieve a higher level of
client satisfaction and security by being fully-insured. The Company also
believes that being fully-insured has greatly reduced its liability exposure
and, consequently, the potential volatility of its income from operations
because it is not required to rely exclusively on contractual indemnification
from its clients, many of whom do not carry insurance which covers employment
practices liability or do not have sufficient net worth to support their
indemnification obligations. The Company has arranged for a large international
insurance corporation to provide employment practices liability insurance to the
Company and to its clients, as additional insureds. See "Risk
Factors -- Potential Legal Liability; Insurance." The Company believes that this
arrangement is better received by clients who are seeking to reduce their
employment liability exposures and also prevents the Company from becoming
involved in adversarial situations with its clients by eliminating the need for
the Company to seek indemnification. The Company continues to study the
possibility of becoming self-insured in the future for selected risks and
believes that significant opportunities to self-insure may arise in the future.
- PAYROLL AND PAYROLL TAX ADMINISTRATION. The Company provides its clients
with comprehensive payroll and payroll tax administration which substantially
eliminates client responsibility for payroll and payroll taxes beyond
verification of payroll information. Unlike traditional payroll service
providers which do not act as employers, the Company, as the employer, assumes
liability and responsibility for the payroll and payroll taxes of its worksite
employees and the obligations of its client to make federal and state
unemployment and workers' compensation filings, FICA deposits, child support
levies and garnishments, and
25
<PAGE> 27
new hire reports. The Company receives all payroll information, calculates,
processes and records all such information, and issues payroll checks and/or
directly deposits the net pay of worksite employees into their bank accounts.
The Company delivers all payroll checks either to the on-site supervisor of the
worksite or directly to the worksite employees. As part of the Company's
strategic plan of expanding its information technology, the Company is in the
process of developing client-based software interfaces to make it possible for
clients to enter and submit payroll information via computer modems. See
"Business -- Information Technology."
- PLACEMENT SERVICES. As a part of its overall employment relationship,
the Company assists its clients in their efforts to hire new employees. The
Company passes the cost of advertising for such positions through to its client.
As a result of the Company's advertising volume and contracts with newspapers
and other media, the Company is able to place such advertisements at
significantly lower prices than those available to the Company's clients. In
addition, in some cases, the Company does not have to place such advertisements
because it already has multiple qualified candidates in a job bank or pool of
candidates. The Company interviews, screens and pre-qualifies candidates based
on criteria established in a job description prepared by the Company with the
client's assistance and performs background checks. In addition, depending on
the needs of the client, the Company tests worksite employees for skills,
health, and drug-use in accordance with state and federal laws. Following the
selection of a candidate, the Company completes all hiring paperwork and, if the
employee is eligible, enrolls the employee in the Company's benefit programs.
The Company believes that its unique approach in providing such services gives
the Company a significant advantage over its competitors. Such services also
enable the Company to reduce its administrative expenses and employee turnover
and to avoid hiring unqualified or problem employees.
CLIENTS
The Company and its clients are each responsible for certain specified
employer-related obligations. While the Company becomes the legal employer for
most purposes, the client remains in operational control of its business. The
Company appoints an on-site supervisor for each client worksite. In many cases,
such on-site supervisor is the manager of the client's business. The Company
requires each on-site supervisor to enter into a standard on-site supervisor
employment agreement with the Company which specifies the on-site supervisor's
duties, responsibilities and limitations of authority. The Company's standard
client agreement likewise delineates the respective responsibilities of the
Company and the client. Such division of applicable responsibilities is
typically as follows:
TEAM AMERICA
- -------------------------------------------------------------------------------
- - Payment of payroll, tax reporting and payment (state and federal withholding,
Federal Insurance Contributions Act ("FICA"), Federal Unemployment Tax Act
("FUTA"), and state unemployment)
- - Workers' compensation compliance, procurement, management and reporting
- - Employee benefit procurement, administration and payment
- - Compliance with Fair Labor Standards Act and Immigration Reform and Control
Act, as well as monitoring changes in other government regulations governing
the employer/employee relationship and updating the client when necessary
- - Implementation of policies and practices relating to the employer/employee
relationship
- - Hiring and firing of employees including on-site supervisors
- - Education and training concerning working conditions and safety
CLIENT
- --------------------------------------------------------------------------------
- - Responsibility for products, services and operations
- - Professional liability or malpractice
- - Compliance with OSHA regulations, state and local government contracting
provisions, professional licensing requirements and fidelity bonding
requirements
- - Compliance with certain requirements under Ohio workers' compensation laws
26
<PAGE> 28
The Company's revenues include gross salaries and wages, federal and state
employment taxes, workers' compensation and employee benefits costs for worksite
employees and the Company's administrative fee. For work performed prior to the
termination of a client agreement, the Company may be obligated, as an employer,
to pay the gross salaries and wages of the client's worksite employees and the
related employment taxes and workers' compensation costs, whether or not the
Company's client pays the Company on a timely basis or at all. See "Risk
Factors -- Financial Condition of Clients." The Company believes that including
such amounts as revenues appropriately reflects the responsibility which the
Company bears for such amounts and is consistent with industry practice.
The Company's standard client agreement provides for successive one-year
terms, subject to termination by the Company or the client at any time upon 30
days' prior written notice. The Company's administrative fee under such
agreements is generally based upon either (i) a fixed fee per worksite employee
or (ii) an established percentage of gross salaries and wages, subject to a
guaranteed minimum fee per worksite employee. The Company's administrative fee
varies by client primarily based upon the nature and size of the client's
business and the Company's assessment of the cost and risk associated with the
employment of the client's worksite employees. Accordingly, the Company's
administrative fee income will fluctuate based on the number and gross salaries
and wages of worksite employees and the mix of client fee arrangements and
terms.
At June 30, 1996, the Company served approximately 250 clients and had in
excess of 3,600 worksite employees resulting in an average of 14 worksite
employees per client. No single client accounted for more than 8.25% of the
Company's revenues for the six months ended June 30, 1996 or for the year ended
December 31, 1995. However, approximately 83% of the Company's 1995 revenues
were derived from the Ohio market. See "Risk Factors -- Ohio Market
Concentration." As of June 30, 1996, approximately 17% of the Company's clients
fell within its target market of businesses with more than 20 and fewer than 500
employees. See "Business -- Growth Strategy." The Company's client base is
broadly distributed throughout a wide variety of industries. As of June 30,
1996, the Company's clients were distributed among the industries indicated
below as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
NUMBER OF
INDUSTRY GROUP CLIENTS % OF TOTAL
- --------------------------------------------------------- ----------------- ----------
<S> <C> <C>
Professional............................................. 74 29%
Manufacturing............................................ 52 21
Construction............................................. 30 12
Commercial............................................... 27 11
Non-profit............................................... 9 3
Agriculture.............................................. 8 3
Transportation........................................... 8 3
Services................................................. 5 2
Other.................................................... 40 16
---- ----
Total.......................................... 253 100%
==== ====
</TABLE>
The Company has benefitted from a high level of client retention, resulting
in a significant recurring revenue stream. The infrequent attrition that the
Company has experienced has typically been attributable to a variety of factors,
including (i) sale or acquisition of the client, (ii) termination by the Company
resulting from the client's inability to make timely payments, (iii) client
business failure or downsizing, and (iv) client nonrenewal due to price or
service dissatisfaction. The Company believes that the risk of a client
terminating its relationship with the Company decreases substantially after the
client has been associated with the Company for over one year because of the
client's increased appreciation of the Company's value-added services and the
difficulties associated with a client reassuming the burdens of being the sole
employer. The Company believes that only a small percentage of nonrenewing
clients withdraw due to dissatisfaction with the Company's services or to retain
the services of a competitor.
27
<PAGE> 29
SALES AND MARKETING
The Company markets its services through a direct sales force of four sales
executives. Each of the Company's sales executives enters into an employment
agreement with the Company which establishes a performance-based compensation
program, which currently includes a base amount, sales commissions and a bonus
for each new worksite employee enlisted. Such employment agreements contain
certain non-competition and non-solicitation provisions which prohibit the sales
executives from competing with the Company. The Company attributes the
productivity of its sales executives in part to their experience in fields
related to one or more of the Company's core services. The background of the
Company's sales executives includes experience in industries such as information
services, health insurance, business consulting and commercial sales. The
Company's sales materials emphasize its broad range of high-quality services and
the resulting benefits to clients and worksite employees.
The Company's sales and marketing strategy is to achieve higher penetration
in its existing markets by hiring additional sales personnel and increasing
sales productivity. The Company also intends to significantly increase its
advertising and promotional efforts in order to improve awareness of the PEO
industry, the Company and its value-added services. See "Business -- Growth
Strategy." Currently, the Company generates sales leads from two primary
sources, referrals and direct sales efforts. These leads result in initial
presentations to prospective clients. The Company's sales executives gather
information about the prospective client and its employees, including job
classification, workers' compensation and health insurance claims history,
salary and the desired level of employee benefits. The Company performs a risk
management analysis of each prospective client which involves a review of such
factors as the client's credit history, financial strength and health insurance
and unemployment claims history. Following a review of these factors, a client
proposal is prepared for acceptable clients. Management believes that its
stringent underwriting procedures greatly reduce the controllable costs and
liability exposure of the Company. In addition, the Company believes that the
application of such underwriting guidelines is in part responsible for the
Company's high rate of client retention. See "Business -- Clients."
Once a prospective client accepts the Company's proposal, the new client is
quickly incorporated into the Company's system by a "client service team"
consisting of one of the Company's two client service directors, a CSR and a
client service administrator. The client service team is responsible for
administering the client's personnel and benefits, coordinating the Company's
response to client needs for administrative support and responding to any
questions or problems encountered by the client. See "Business -- Client
Services."
INFORMATION TECHNOLOGY
The Company's primary information processing center is located at its
corporate headquarters. The Company's other offices are connected to the
centralized system through network dial-up services. The Company uses
industry-standard software to process its payroll and other commercially
available software to manage standard business functions such as accounting and
finance.
Since October 1995, the Company has been developing an integrated
information system based on client-server technology using an Oracle(TM)
relational database. The Company's new system will allow clients to enter and
submit payroll data via modem. The new system will also be used to store and
retrieve information regarding all aspects of the Company's business, including
human resource administration, regulatory compliance management, employee
benefits administration, risk management services, payroll and payroll tax
administration, placement services. The Company's development of such system is
in the parallel testing phase and the Company expects that the new system will
be operational in early 1997. The Company believes that this system will be
capable of being upgraded and expanded to meet the needs of the Company for the
next five years.
28
<PAGE> 30
COMPETITION
The PEO industry is highly fragmented, with in excess of 2,000 companies
currently providing PEO services, mostly in a single market or region. Most PEOs
currently service a single market or region. The Company's competitors include
traditional in-house human resource departments and other PEOs. The Company also
competes with providers of unbundled employment-related services such as payroll
processing firms, human resource consultants, and workers compensation and
unemployment administrators. Certain of such companies, many of which have
greater financial and other resources than the Company, are seeking to enter the
professional employer services market. See "Risk Factors -- Competition and New
Market Entrants." The Company believes that the primary elements of competition
are quality of service, choice and quality of benefits, reputation and price.
The Company believes that service quality, name recognition, regulatory
expertise, financial resources, risk management and data processing capability
distinguish leading PEOs from the rest of the industry.
The Company believes that barriers to entry into the PEO industry are
increasing as a result of several factors, including the following: (i) the
complexity of the PEO business and the need for expertise in multiple
disciplines; (ii) the need to invest significant capital in service delivery
infrastructures and management information systems; (iii) the requirement for
sophisticated management information systems to track all aspects of business in
a high-growth environment; and (iv) the three to five years of experience
required to establish experience ratings in key cost areas of workers'
compensation, health insurance and unemployment.
CORPORATE EMPLOYEES
As of June 30, 1996, the Company had 51 corporate employees, 42 of whom
were located at the Company's headquarters. For information with respect to the
Company's worksite employees, see "Business -- Clients."
FACILITIES
The Company maintains five facilities located in Columbus, Cleveland and
Dayton, Ohio, Indianapolis, Indiana and Orlando, Florida. The Company's
headquarters are located in a suburb of Columbus, Ohio in a leased building that
houses the Company's executive offices and PEO operations for central Ohio
worksite employees. The Company's other offices are used to service its local
PEO operations and are also leased. See Note 5 of the Notes to the Company's
Consolidated Financial Statements included elsewhere in this Prospectus for
information regarding the Company's leases. The Company believes that its
current facilities are adequate for its current needs and that additional
suitable space will be available as required.
LEGAL PROCEEDINGS
In July 1996, the Florida Department of Insurance assessed for retroactive
workers' compensation premiums all members of the insolvent self-insurance
insurance pool of which the Company's subsidiary which operates in Florida was a
part. Such subsidiary's pro rata share of such assessment was $275,000. The
subsidiary is currently attempting to negotiate a settlement with the Florida
authorities for a lesser amount. As of June 30, 1996, the Company recorded a
reserve of $75,000 with respect to the assessment based upon its discussion with
the Florida regulators; however, there can be no assurance that the Company's
actual liability will not exceed such amount.
Except as noted above, the Company is not a party to any pending legal
proceedings other than ordinary course routine litigation incidental to its
business that the Company believes would not have a material adverse effect on
its financial condition or results of operations.
29
<PAGE> 31
INDUSTRY REGULATION
OVERVIEW
The Company's professional employer operations are subject to extensive
state and federal regulations that include operating, fiscal, licensing and
certification requirements. Adding complexity to the Company's regulatory
environment are (i) uncertainties resulting from the non-traditional employment
relationships created by PEOs, (ii) variations in state regulatory schemes, and
(iii) the ongoing evolution of regulations regarding health care and workers'
compensation.
Many of the federal and state laws and regulations relating to labor, tax
and employment matters applicable to employers were enacted prior to the
development of non-traditional employment relationships and, accordingly, do not
specifically address the obligations and responsibilities of PEOs. Moreover, the
Company's PEO services are regulated primarily at the state level. Regulatory
requirements regarding the Company's business therefore vary from state to
state, and as the Company enters new states it will be faced with new regulatory
and licensing environments. There can be no assurance that the Company will be
able to satisfy the licensing requirements or other applicable regulations of
any particular state in which it is not currently operating.
The application of many laws to the Company's PEO services will depend on
whether the Company is considered an employer under the relevant statutes and
regulations. The common law test of the employment relationship is generally
used to determine employer status for benefit plan purposes under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code, the
workers' compensation laws of many states and various state unemployment laws.
This common law test involves an examination of approximately 20 factors to
ascertain whether an employment relationship exists between a worker and a
purported employer. Substantial weight is typically given to the question of
whether the purported employer has the right to direct and control the details
of an individual's work. Other factors include (i) the right to hire and fire
workers, (ii) whether the workers are involved in distinct occupations or
businesses, (iii) whether the kind of occupation involved is generally performed
by employees or by specialists who are independent contractors, (iv) whether the
purported employer provides the instrumentalities, tools and place of work, (v)
the method of payment, (vi) the length of time of the arrangement, (vii) the
level of skill and/or training required, (viii) whether the work is part of the
regular business of the purported employer, (ix) whether the principal is in
business, and (x) whether the parties believe that they are establishing a
master-servant relationship. By contrast, certain statues such as those relating
to PEO licensing and federal income tax withholding use differing or more
expansive definitions of employer. In addition, from time to time there have
been proposals to enact a statutory definition of employer for other purposes of
the Code.
While the Company cannot predict with certainty the development of federal
and state regulations, management will continue to pursue a practice strategy of
educating administrative authorities as to the advantages of PEOs and assisting
in the development of regulation which appropriately accommodates their
legitimate business function.
PEO SERVICES
PEO LICENSING REQUIREMENTS. A critical aspect of the growth of the PEO
industry has been increasing recognition and acceptance of PEOs by state
authorities. As the concept of PEO services became understood by regulatory
authorities, the regulatory environment began to shift from one of hostility and
skepticism to one of regulatory recognition of the industry. During the
mid-to-late 1980s, legitimate industry participants were challenged to overcome
well publicized failures of financially unsound and, in some cases, unscrupulous
operators. Given this environment, the Company and other industry leaders, in
conjunction with the National Association of Professional Employer
Organizations, worked with relevant government entities to establish a
regulatory framework designed to protect clients and worksite employees and
discourage unscrupulous and financially unsound operators, thereby promoting the
legitimacy and further development of the industry.
While many states do not explicitly regulate PEOs, approximately one-third
of the states (not including Ohio) have enacted laws that have licensing or
registration requirements for PEOs and several additional
30
<PAGE> 32
states, including Ohio, are considering such laws. Such laws vary from state to
state but generally provide for the monitoring of the fiscal responsibility of
PEOs. State regulation assists in screening insufficiently capitalized PEO
operations and, in the Company's view, has the effect of legitimizing the PEO
industry generally by resolving interpretative issues concerning employee status
for specific purposes under applicable state law. However, because existing
regulations are relatively new, there is limited interpretive or enforcement
guidance available. The development of additional regulations and interpretation
of existing regulations can be expected to evolve over time. The Company has
actively supported such regulatory efforts.
FEDERAL AND STATE EMPLOYMENT TAXES. The Company assumes the sole
responsibility and liability for the payment of federal and state employment
taxes with respect to wages and salaries paid to its employees, including
worksite employees. There are essentially three types of federal employment tax
obligations: (i) income tax withholding requirements, (ii) social security
obligations under FICA, and (iii) unemployment obligations under FUTA. Under
these Code sections, the employer has the obligation to withhold and remit the
employer portion and, where applicable, the employee portion of these taxes. See
"Risk Factors -- Potential For Unfavorable Government Regulations" and "-- Risk
of Loss of Qualified Status for Certain Tax Purposes."
EMPLOYEE BENEFIT PLANS. The Company offers various employee benefit plans
to its worksite employees, including a 401(k) plan, a cafeteria plan, a group
health plan, a group life insurance plan, a group disability insurance plan and
an employee assistance plan. See "Business -- Services." Generally, employee
benefit plans are subject to provisions of both the Code and ERISA. In order to
qualify for favorable tax treatment under the Code, the plans must be
established and maintained by an employer for the exclusive benefit of its
employees. Most of these benefit plans are also offered to the Company's
corporate employees.
The Market Segment Study Group established by the IRS is also examining
whether PEOs are the employers of worksite employees under Code provisions
applicable to employee benefit plans and consequently able to offer to worksite
employees benefit plans that qualify for favorable tax treatment and whether
client company owners are employees of PEOs under Code provisions applicable to
employee benefit plans. In addition, the Company's 401(k) plan was audited for
the year ended December 31, 1992, and as a part of that audit, the IRS regional
office has asked the IRS national office to issue a TAM regarding whether or not
the Company is the employer for benefit plan purposes. The Company intends to
state its position in a filing with the IRS that it is the employer for benefit
plan purposes. The Company is unable to predict the timing or nature of the
findings of the Market Segment Study Group, the timing or conclusions of the TAM
or the ultimate outcome of such conclusions or findings. If the IRS study were
to conclude that a PEO is not an employer of its worksite employees for plan
purposes, then worksite employees could not continue to make contributions to
the Company's 401(k) plan or cafeteria plan. The Company believes that although
unfavorable to the Company, a prospective application by the IRS of an adverse
conclusion would not have a material adverse effect on its financial position
and results of operations. If such conclusion were applied retroactively, then
employees' vested account balances could become taxable immediately, the Company
would lose its tax deduction for deposits to the plan trust which would become a
taxable trust, and penalties could be assessed. In such a scenario, the Company
would face the risk of client dissatisfaction as well as potential litigation. A
retroactive application by the IRS of an adverse conclusion could have a
material adverse effect on the Company's financial position and results of
operations. While the Company believes that a retroactive disqualification is
unlikely, there can be no assurance as to the ultimate resolution of these
issues. See "Risk Factors -- Risk of Loss of Qualified Status for Certain Tax
Purposes."
In addition to the employer/employee relationship issues described above,
pension and profit-sharing plans, including the Company's 401(k) plan, must
satisfy certain other requirements under the Code. These other requirements are
generally designed to prevent discrimination in favor of highly compensated
employees to the detriment of non-highly compensated employees with respect to
both the availability of, and the benefits, rights and features offered in,
qualified employee benefit plans. The Company applies the nondiscrimination
requirements of the Code to ensure that its 401(k) plan is in compliance with
the requirements of the Code.
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<PAGE> 33
Employee pension and welfare benefit plans are also governed by ERISA.
ERISA defines employer as "any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an employee benefit
plan." ERISA defines the term employee as "any individual employed by an
employer." The United States Supreme Court has held that the common law test of
employment must be applied to determine whether an individual is an employee or
an independent contractor under ERISA.
A definitive judicial interpretation of employer in the context of a PEO or
employee leasing arrangement has not been established. If the Company were found
not to be an employer for ERISA purposes, then its plans would not comply with
ERISA and the level of services the Company could offer may be materially
adversely affected.
WORKERS' COMPENSATION. Workers' compensation is a state mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries
illnesses and deaths. In exchange for providing workers' compensation coverage
for employees, employers are not subject to litigation by employees for benefits
in excess of those provided by the relevant state statute. In most states, the
extensive benefits coverage (for both medical cost and lost wages) is provided
through the purchase of commercial insurance from private insurance companies,
participation in state-run insurance funds or employer self-insurance. Workers'
compensation benefits and arrangements vary on a state-by-state basis and are
often highly complex. These laws establish the rights of workers to receive
benefits and to appeal benefit denials.
As a creation of state law, workers' compensation is subject to change by
the state legislature in each state and is influenced by the political processes
in each state. Several states, such as Ohio, have mandated that employers
receive coverage only from state operated funds. Although Ohio maintains such a
"state fund," it does allow employers of a sufficient size and with sufficient
ties to the state to self-insure for workers' compensation purposes. Employers
granted the privilege of self-insurance must be self-funded for at least the
first $50,000 of cost in every claim but may purchase private insurance for
costs in excess of that amount. Ohio also allows its "state fund" employers who
meet certain criteria as a group to band together for risk pooling purposes. In
addition, Ohio provides safety prevention program premium discounts. Although
workers' compensation in Ohio is mandatory and generally shields employers from
common law civil suits, the Ohio General Assembly has created an exception for
so-called "intentional torts." In 1995, the General Assembly enacted a law
imposing a very strict standard for plaintiffs to bring such suits. Similar
legislative efforts in the past, however, were struck down by the Ohio Supreme
Court.
Ohio and certain other states have recently adopted legislation requiring
that all workers' compensation injuries be treated through a managed care
program. Ohio's program takes effect in March 1997. The Company believes that
such program will not significantly impact the operations of the Company because
all Ohio employers will be subject to such new laws and regulations. In
addition, federal health care reform proposals include a proposal that may
require 24-hour health coverage, in which the coverage of traditional
employer-sponsored health plans is combined with workers' compensation coverage
to provide a single insurance plan for health problems, whether or not related
to work. Because workers' compensation benefits are mandated by law and are
subject to extensive regulation, payors and employers do not have the same
flexibility to alter benefits as they have with other health benefit programs.
Finally, because workers' compensation programs vary from state to state, it is
difficult for payors and multi-state employers to adopt uniform policies to
administer, manage and control the costs of benefits.
OTHER EMPLOYER RELATED REQUIREMENTS. As an employer, the Company is
subject to a wide variety of federal and state laws and regulations governing
employer-employee relationships, including the Immigration Reform and Control
Act, the Americans with Disabilities Act of 1990, the Family Medical Leave Act,
the Occupational Safety and Health Act, wage and hour regulations, and
comprehensive state and federal civil rights laws and regulations, including
those prohibiting discrimination and sexual harassment. The definition of
employer may be broadly interpreted under these laws.
Responsibility for complying with various state and federal laws and
regulations is allocated by agreement between the Company and its clients, or in
some cases is the joint responsibility of both. See "Business -- Clients."
Because the Company acts as an employer of worksite employees for many purposes,
it is possible
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<PAGE> 34
that the Company could incur liability for violations of laws even though the
Company is not contractually or otherwise responsible for the conduct giving
rise to such liability. The Company's standard client agreement generally
provides that the client will indemnify the Company for liability incurred as a
result of an act of negligence of a worksite employee under the direction and
control of the client or to the extent the liability is attributable to the
client's failure to comply with any law or regulation for which it has specified
contractual responsibility. However, there can be no assurance that the Company
will be able to enforce such indemnification and the Company may therefore be
ultimately responsible for satisfying the liability in question. See "Risk
Factors -- Financial Condition of Clients."
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
Richard C. Schilg(1)............... 39 Chairman of the Board, President and Chief
Executive Officer
Kevin T. Costello.................. 47 Senior Vice President, Chief Operating
Officer and Director
Russell R. Garver.................. 41 Vice President and Chief Financial Officer
William W. Johnston(2)............. 50 Secretary and Director
Charles F. Dugan II(1)(2).......... 57 Assistant Secretary and Director
Paul M. Cash(2).................... 48 Director
M. R. Swartz(1).................... 57 Director
</TABLE>
- ---------------
(1) Immediately prior to the completion of the Offering, said director will be a
member of the Audit Committee.
(2) Immediately prior to the completion of the Offering, said director will be a
member of the Compensation Committee.
Richard C. Schilg has served as Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since founding the Company
in 1986. From 1982 to 1986, Mr. Schilg served as a Career Agent, Sales Manager
and Director of Development of Mutual Security Life Insurance Company located in
Ft. Wayne, Indiana. Mr. Schilg served as President of the Ohio Association of
Professional Employer Organizations, a state chapter of NAPEO, from March 1995
to September 1996. Mr. Schilg is a Certified Professional Employer Specialist.
Kevin T. Costello has been a Director of the Company since 1992 and has
served as Senior Vice President of Operations and Chief Operating Officer of the
Company since 1993. From 1991 to 1993, Mr. Costello served as Vice President of
Sales and Marketing of the Company.
Russell R. Garver has served as Vice President of Finance and Chief
Financial Officer of the Company since 1994. From 1991 until 1994, Mr. Garver
served as Controller of Watkins Printing Company located in Columbus, Ohio. From
1988 until 1991, Mr. Garver served as Manager of Financial Operations for LCI
International, Inc. headquartered in Dublin, Ohio. Mr. Garver is a Certified
Public Accountant.
William W. Johnston has been a Director of the Company since 1990 and has
served as Secretary of the Company since 1990 and as general counsel to the
Company since 1989. From 1982 to 1990, Mr. Johnston was a partner in the law
firm of Crabbe, Brown, Jones, Potts and Schmidt located in Columbus, Ohio. Mr.
Johnston currently practices law in his own firm located in Worthington, Ohio.
From 1976 to 1982, Mr. Johnston was the Chairman of the Ohio Industrial
Commission.
Charles F. Dugan II has been a Director of the Company since 1994 and has
served as Assistant Secretary of the Company since 1992. Mr. Dugan has served as
counsel to the Company since 1987. From 1970 to 1990, Mr. Dugan was a partner in
the law firm of Vorys, Sater, Seymour and Pease located in Columbus Ohio. Mr.
Dugan currently practices law in his own firm located in Columbus, Ohio.
Paul M. Cash has been a Director of the Company since 1990 and has served
as a human resource consultant to the Company since 1989. Prior to 1989, Mr.
Cash served as Director of Administrative Operations and Personnel Director of
Accuray Corporation (now a part of Combustion Engineering) located in Columbus,
Ohio.
M. R. Swartz has been a Director of the Company since 1991. Mr. Swartz is
the owner and operator of the Dairy Depot restaurant located in Delaware, Ohio.
From 1970 to 1984, Mr. Swartz served as Finance Director for the City of
Delaware, Ohio.
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<PAGE> 36
BOARD OF DIRECTORS
General. The Company's Amended Code of Regulations (which will be adopted
immediately prior to completion of the Offering) provides for six directors and
divides the Board of Directors into two classes, with regular two-year staggered
terms. Messrs. Johnston, Cash and Swartz will serve as Class I directors and
hold office until the 1997 annual shareholders' meeting, and Messrs. Schilg,
Costello and Dugan will be Class II directors and will hold office until the
1998 annual shareholders' meeting. All officers of the Company serve at the
pleasure of the Board of Directors.
Committees. Immediately prior to the Offering, the Company's Board of
Directors will establish a Compensation Committee and an Audit Committee.
The Compensation Committee will administer the Company's compensation
programs and perform such other duties as may from time to time be determined by
the Board of Directors. The Compensation Committee initially will be comprised
of Messrs. Johnston, Dugan and Cash.
The Audit Committee will review the scope and results of the annual audit
of the Company's consolidated financial statements conducted by the Company's
independent accountants, the scope of other services provided by the Company's
independent accountants, proposed changes in the Company's financial and
accounting standards and principles, and the Company's policies and procedures
with respect to its internal accounting, auditing and financial controls. The
Audit Committee will also examine and consider other matters relating to the
financial affairs and accounting methods of the Company, including selection and
retention of the Company's independent accountants. The Audit Committee
initially will be comprised of Messrs. Schilg, Dugan, and Swartz.
Compensation. Directors who are not corporate employees of the Company
will receive $500 for each Board of Directors meeting attended, plus
out-of-pocket expenses incurred in connection with attendance at such meetings.
Directors who are corporate employees will not receive any separate compensation
for their services as directors.
KEY-MAN LIFE INSURANCE
The Company has obtained and intends to maintain key-man life insurance on
the life of Mr. Schilg in the amount of $2 million and on the life of Mr.
Costello in the amount of $1 million. The Company is the owner, beneficiary and
premium payor of each of such policies. See "Risk Factors -- Dependence Upon Key
Personnel."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has not previously had a formal
Compensation Committee. Decisions concerning compensation of executive officers
of the Company were made by the Company's Board of Directors, subject to the
provisions of any applicable employment agreements. See "Management --
Employment Agreements." In the past, a significant portion of the total
compensation of Messrs. Schilg and Costello has been in the form of year-end
bonuses determined based upon the income and revenues of the Company. Following
the consummation of the Offering, the Company will create a Compensation
Committee and will appoint Messrs. Johnston, Dugan and Cash to serve on it. The
Compensation Committee will determine the compensation of the Company's
executive officers subject to the provisions of any applicable employment
agreements.
During the year ended December 31, 1995, Messrs. Johnston and Dugan
received fees for legal services provided to the Company in the amounts of
$75,675 and $26,262, respectively, and Mr. Cash received fees for consulting
services provided to the Company in the amount of $35,022. Following the
completion of the Offering, the Company intends to continue to use the services
of Messrs. Johnston, Dugan and Cash. Each of Messrs. Johnston, Dugan and Cash
have entered into a standard client agreement with the Company pursuant to which
each of them is both a client and a worksite employee of the Company. The
Company has provided, and expects to continue to provide, PEO services to such
individuals upon time and conditions no more favorable to such individuals than
those generally provided to the Company's other clients.
35
<PAGE> 37
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
the Company on behalf of the Chief Executive Officer and the only other
executive officer of the Company who received an annual salary and bonus in
excess of $100,000 (hereafter collectively referred to as the "Named Executive
Officers") for services rendered during 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) OTHER(4)
- ---------------------------------------------------- ---- --------- -------- --------
<S> <C> <C> <C> <C>
Richard C. Schilg................................... 1995 $180,010 $158,790 $4,529
Chairman of the Board, President and Chief
Executive Officer
Kevin T. Costello................................... 1995 $178,316 $ 98,285 $4,529
Senior Vice President and Chief Operating Officer
</TABLE>
- ---------------
(1) Under rules promulgated by the Commission, since the Company was not a
reporting company during the three immediately preceding fiscal years, only
the information with respect to the most recent completed fiscal year is
noted in the Summary Compensation Table.
(2) Includes commissions in the amounts of $51,010 and $97,716 paid to Mr.
Schilg and Mr. Costello, respectively.
(3) The bonuses of Messrs. Schilg and Costello were determined by the Board of
Directors of the Company based upon the income and revenues of the Company.
(4) Represents health care insurance premiums paid by the Company for the
benefit of the indicated Named Executive Officer.
EMPLOYMENT AGREEMENTS
Richard C. Schilg. At the completion of the Offering, Mr. Schilg will
execute an employment agreement with the Company pursuant to which he will agree
to serve as Chairman of the Board, President and Chief Executive Officer of the
Company for a period of three years and, unless terminated in accordance with
the provisions therein, on the first day of each month that the agreement is in
effect, the remaining term thereof will be automatically extended for one
additional month. Under the terms of the agreement, Mr. Schilg will receive an
annual base salary of $ , plus incentive compensation in an amount to be
determined by the Company's Compensation Committee based upon various factors
including the Company's results of operations and financial condition and Mr.
Schilg's performance during the relevant period. In addition to such base salary
and incentive compensation, Mr. Schilg will continue to receive commissions on
sales to clients for which he is responsible pursuant to terms and conditions
substantially similar to those applicable to the Company's sales executives. In
the event Mr. Schilg's employment is terminated for cause, the Company will pay
Mr. Schilg the compensation (including a pro rata share of any incentive
compensation) and benefits due under his employment agreement through the date
of such termination. Mr. Schilg's employment agreement contains certain
non-competition and non-solicitation provisions which prohibit him from
competing with the Company during his employment by the Company and for a period
of one year after termination of his employment.
The Company has agreed to pay Mr. Schilg, upon retirement at age 65,
severance payments based on an amount calculated to be equal to the maximum loan
available from an insurance contract which will not cause such insurance policy
to lapse prior to Mr. Schilg's life expectancy. The payment will be recalculated
each year to reflect fluctuations in the value of the insurance contract. In the
event of his death prior to retirement, his widow will receive approximately
$48,000 each year for 15 years. No such benefit will be paid if his death occurs
after retirement.
Pursuant to Mr. Schilg's employment agreement, the Company has agreed to
grant to Mr. Schilg the right to purchase Common Shares at % of
the initial public offering price, subject to vesting 20% per year over five
years. These options will expire ten years after the date of grant and will be
subject to
36
<PAGE> 38
the terms and conditions of the Company's Incentive Stock Plan. See
"Management -- Incentive Stock Plan."
Kevin T. Costello. At the completion of the Offering, Mr. Costello will
execute an employment agreement with the Company pursuant to which he will agree
to serve as Senior Vice President of Operations and Chief Operating Officer of
the Company for a period of three years and, unless terminated in accordance
with the provisions therein, on the first day of each month that the agreement
is in effect, the remaining term thereof will be automatically extended for one
additional month. Under the terms of the agreement, Mr. Costello will receive an
annual base salary of $ , plus incentive compensation in an amount to
be determined by the Company's Compensation Committee based upon various factors
including the Company's results of operations and financial condition and Mr.
Costello's performance during the relevant period. In addition to such base
salary and incentive compensation, Mr. Costello will continue to receive
commissions on sales to clients for which he is responsible pursuant to terms
and conditions substantially similar to those applicable to the Company's sales
executives. In the event Mr. Costello's employment is terminated for cause, the
Company will pay Mr. Costello the compensation (including a pro rata share of
any incentive compensation) and benefits due under his employment agreement
through the date of such termination. Mr. Costello's employment agreement
contains certain noncompetition and non-solicitation provisions which prohibit
him from competing with the Company during his employment by the Company and for
a period of one year after termination of his employment.
The Company has agreed to pay Mr. Costello, upon retirement at age 65,
severance payments based on an amount calculated to be equal to the maximum loan
available from an insurance contract which will not cause such insurance policy
to lapse prior to Mr. Costello's life expectancy. The payment will be
recalculated each year to reflect fluctuations in the value of the insurance
contract. In the event of his death prior to retirement, his widow will receive
approximately $24,000 each year for 15 years. No such benefit will be paid if
his death occurs after retirement.
Pursuant to Mr. Costello's employment agreement, the Company has agreed to
grant to Mr. Costello the right to purchase Common Shares at % of
the initial public offering price, subject to vesting 20% per year over five
years. These options will expire ten years after the date of grant and will be
subject to the terms and conditions of the Company's Incentive Stock Plan. See
"Management -- Incentive Stock Plan."
INCENTIVE STOCK PLAN
Prior to the completion of the Offering, the Board of Directors of the
Company will adopt, and the shareholders will approve, the Company's 1996
Incentive Stock Plan (the "Incentive Stock Plan"). The purpose of the Incentive
Stock Plan is to advance the long-term interests of the Company by (i)
motivating executive and other personnel by means of long-term incentive
compensation; (ii) furthering the identity of interests of participants with
those of the shareholders of the Company through the ownership and performance
of the Common Shares of the Company; and (iii) permitting the Company to attract
and retain directors and executive personnel upon whose judgment the successful
conduct of the business of the Company largely depends.
The maximum number of Common Shares with respect to which awards may be
granted under the Incentive Stock Plan will be 350,000 and the maximum number of
Common Shares that may be awarded during any calendar year may not exceed 10% of
the total number of issued and outstanding Common Shares of the Company. The
Common Shares to be issued by the Company under the Incentive Stock Plan will be
made available from authorized but unissued Common Shares or from treasury
shares. The Incentive Stock Plan will contain customary provisions with respect
to adjustments for share splits and similar transactions and the rights of
participants upon mergers and other business combinations. The Incentive Stock
Plan will provide for stock option, stock appreciation rights, restricted stock,
phantom stock and performance awards. No award under the Incentive Stock Plan
may be granted after December 31, 2006. The Incentive Stock Plan may be amended
or terminated at any time by the Board of Directors, except that no amendment
may be made without shareholder approval if the Committee determines that such
approval is necessary to comply
37
<PAGE> 39
with any tax or regulatory requirement, including any approval requirement which
is a prerequisite for exemptive relief from Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), for which or with which
the Committee determines that it is desirable to qualify or comply.
Immediately following the completion of the Offering, the Company will
grant Mr. Schilg and Mr. Costello options under the Stock Plan to purchase
and Common Shares, respectively, at an exercise price equal
to % of the initial offering price, subject to vesting 20% per year over
five years. The Company also intends to grant certain key employees options to
purchase Common Shares at an exercise price equal to the initial
offering price immediately following completion of the Offering.
CERTAIN TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS
William W. Johnston, a Director and the Secretary of the Company, serves as
counsel to the Company. During the fiscal year ended December 31, 1995, Mr.
Johnston received $75,675 in remuneration for providing legal services to the
Company.
Charles F. Dugan II, a Director and the Assistant Secretary of the Company,
serves as counsel to the Company. During the fiscal year ended December 31,
1995, Mr. Dugan received $26,262 in remuneration for providing legal services to
the Company.
Paul M. Cash, a Director of the Company, provides human resources
consulting services to the Company. During the fiscal year ended December 31,
1995, Mr. Cash received $35,022 in remuneration for providing such consulting
services to the Company.
Each of Messrs. Johnston, Dugan and Cash have entered into a standard
client agreement with the Company pursuant to which each of them is both a
client and a worksite employee of the Company. The Company has provided, and
expects to continue to provide, PEO services to such individuals upon terms and
conditions no more favorable to such individuals than those generally provided
to the Company's other clients. See "Management -- Compensation Committee
Interlocks and Insider Participation."
GUARANTY OF COMPANY DEBT
Mr. Schilg has personally guaranteed the Company's performance of its
obligations under its credit facility with a bank. No amounts are currently owed
by the Company under such credit facility. The Company's lender has agreed to
release Mr. Schilg from his guaranty upon completion of the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
38
<PAGE> 40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Shares by: (i) each of the Named
Executive Officers and directors, (ii) each other person (or group of persons)
who is known by the Company to own beneficially 5% or more of the Company's
Common Shares, and (iii) all directors and executive officers of the Company as
a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING(3)
NAME AND ADDRESS --------------------- ---------------------
OF BENEFICIAL OWNER(1)(2) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Richard C. Schilg(4)............................... 1,181,464 56.7% 1,181,464 35.4%
Kevin T. Costello(4)............................... 423,200 20.3 423,200 12.7
Charles F. Dugan II................................ 32,200 1.5 32,200 *
Paul M. Cash....................................... 9,936 * 9,936 *
M. R. Swartz....................................... 11,960 * 11,960 *
William W. Johnston................................ 0 0.0 0 0.0
All directors and executive officers as a group
(6 persons)(4)................................... 1,658,760 79.6 1,658,760 49.7
</TABLE>
- ---------------
* Less than 1.0%
(1) The address of each of the executive officers and directors is c/o TEAM
America Corporation, 110 E. Wilson Bridge Road, Worthington, Ohio 43085.
(2) Unless otherwise indicated, the Company believes that the beneficial owner
has sole voting and dispositive power over these shares. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission which generally attribute beneficial ownership of
securities to persons who possess sole or shared voting power and/or
investment power with respect to those shares.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) If the Underwriters' over-allotment option is exercised in full, Mr. Schilg
and Mr. Costello each will offer for sale an additional 50,000 Common
Shares. If such over-allotment option is exercised in full, Mr. Schilg will
be the beneficial owner of 1,131,464 shares or 33.1% of the Common Shares
outstanding after the Offering, Mr. Costello will be the beneficial owner of
373,200 shares or 10.9% of the Common Shares after the Offering, and all
directors and executive officers as a group will be the beneficial owners of
1,558,760 shares or 45.5% of the Common Shares outstanding after the
Offering.
39
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus and prior to giving effect to the
184-to-1 split of the Common Shares of the Company and the other changes to the
capital stock of the Company contemplated in the following paragraph, the
authorized capital stock of the Company consists of the following: (i) 7,500
Class A Preferred Shares, $100 par value, of which 198 shares are issued and
outstanding (such shares being held of record by five shareholders); (ii) 7,500
Class A Common Shares, without par value, of which 4,713 shares are issued and
outstanding (such shares being held of record by 36 shareholders); and (iii)
7,500 Class B Common Shares, without par value, of which 6,421 shares are issued
and outstanding (such shares being held of record by one shareholder).
Pursuant to the Company's Amended Articles of Incorporation which will be
filed with the Ohio Secretary of State immediately prior to the issuance and
delivery of the Common Shares offered hereby, the following changes to the
Company's capital stock will be made: (a) all issued Class A Common Shares and
Class B Common Shares of the Company will be converted to shares of a single
class of Common Shares and the classes of Class A Common Shares and Class B
Common Shares will be eliminated; (b) the number of authorized Common Shares
will be increased to 10,000,000 and each outstanding Common Share will be split
184-to-1; (c) the 198 issued and outstanding Class A Preferred Shares will be
converted into 36,432 Common Shares; and (d) the class of Class A Preferred
Shares will be eliminated and replaced with two new classes of preferred shares
consisting of 500,000 authorized voting preferred shares and 500,000 authorized
nonvoting preferred shares.
The following statements include a summary of certain provisions contained
in the Company's Amended Articles of Incorporation and its Amended Code of
Regulations in the form to be adopted by the Company's shareholders and
directors on or immediately prior to the issuance and delivery of the Common
Shares offered hereby, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part (the "Registration Statement").
This summary does not purport to be complete and is qualified in its entirety by
reference to such exhibits.
AUTHORIZED CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of 10,000,000 Common Shares, without par value, and
1,000,000 Preferred Shares, without par value, consisting of 500,000 Class A
Voting Preferred Shares (the "Class A Preferred Shares") and 500,000 Class B
Nonvoting Preferred Shares (the "Class B Preferred Shares").
COMMON SHARES
When the Common Shares sold in the Offering are fully paid for, they will
be validly issued, fully paid and nonassessable. Holders of Common Shares are
entitled to one vote per share on all matters that properly come before the
shareholders, including the election of directors. The Common Shares do not have
cumulative voting rights and, therefore, a simple majority of the Common Shares
present and voting at a meeting of shareholders will be able to elect all of the
directors to be elected at such meeting. Holders of Common Shares are entitled
to receive dividends when, as and if declared by the Board of Directors of the
Company out of funds legally available therefor. The Company presently intends
to retain its earnings to finance the future growth and development of its
business and, therefore, does not expect to pay cash dividends in the
foreseeable future. See "DIVIDEND POLICY." In the event of the liquidation,
dissolution or winding up of the affairs of the Company, holders of Common
Shares are entitled to receive ratably the net assets of the Company available
for distribution after the Company's creditors are paid. Holders of Common
Shares have no preemptive, redemption or conversion rights.
TRANSFER AGENT
The transfer agent for the Common Shares is National City Bank, Cleveland,
Ohio.
40
<PAGE> 42
PREFERRED SHARES
No Preferred Shares are outstanding. The Class A Preferred Shares and the
Class B Preferred Shares are identical except that Class A Preferred Shares have
voting rights and Class B Preferred Shares do not have voting rights. No other
terms of any Preferred Shares have been established. The Board of Directors has
the authority, without shareholder approval, to issue Preferred Shares and to
determine their terms (except voting rights) including the dividend or
distribution rate, the dates of payment of dividends or distributions and the
dates from which they are cumulative, liquidation price, redemption rights and
price, conversion rights and other rights to the extent permitted by law from
time to time. Class A Preferred Shares may be issued with voting or conversion
rights which may adversely affect the voting power of holders of Common Shares.
The issuance of a series or class of Preferred Shares could be used to hinder or
delay a takeover bid for the Company which might have the effect of inhibiting
such bids and decreasing the chance of the shareholders realizing a premium over
market price for their Common Shares as a result of such a takeover bid. The
Company does not have any current plan, arrangement or understanding to issue
any Preferred Shares.
CERTAIN CHARTER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Code of
Regulations may have the effect of deterring companies or other persons from
making takeover bids for control of the Company or may be used to hinder or
delay a takeover bid thereby decreasing the chance of the shareholders of
realizing a premium over market price for their Common Shares as a result of
such bids. The relevant provisions of the Company's Articles of Incorporation
are (a) a provision that requires the approval of holders of 75% of the
Company's voting shares for certain business combinations involving shareholders
who beneficially own more than 20% of the Company's outstanding shares and (b) a
provision authorizing the Company to purchase its capital shares by action of
the Board of Directors. The relevant provisions of the Code of Regulations are
(i) a provision that divides the Board of Directors into two classes with
staggered two year terms if the size of the Board of Directors is six or more
but less than nine persons, and that will divide the Board into three classes
with staggered terms of three years each if the size of the Board is increased
to nine or more, which may be done by the Board of Directors, (ii) a provision
that prevents shareholders from nominating directors from the floor at the
annual meeting, (iii) a provision that requires a vote of holders of 75% of the
voting shares to remove a director (but only for cause), (iv) a provision that
requires certain amendments to the Code of Regulations to be approved by holders
of 75% of the voting shares if such amendments are not approved by at least
three-fourths of the directors, (v) a provision that restricts the right of
shareholders to call a special meeting of shareholders unless holders of 50% of
the voting shares join in the request for a call, and (vi) a provision that
requires a vote of holders of 75% of the voting shares to change the number of
directors although such number may be changed within the range of 3 to 15 by the
Board of Directors without shareholder approval.
CERTAIN LAWS
The Company is subject to the Ohio Control Share Acquisition Law, which
requires that, subject to certain exemptions, any acquisition of shares having
one-fifth to one-third, one-third to one-half or a majority or more of the
Company's voting power be made only with the prior authorization of the holders
of a majority of the voting shares present at the meeting held to obtain such
authorization and a majority of the holders of shares who are disinterested. The
Company is also subject to Chapter 1704 of the Ohio Revised Code. Under Chapter
1704, the Company may not engage in a Chapter 1704 transaction (a term that
broadly includes mergers, asset and stock sales and other financing
transactions) with an interested shareholder (a person or entity that controls
10% or more of the Company's voting power) for three years after the interested
shareholder became such unless the directors of the Company approved the
transaction or the purchase of shares by the interested shareholder in advance.
The Company will exempt the Selling Shareholders from Chapter 1704. Chapter 1704
transactions between an interested shareholder who has held such shares for
three years and the Company that were not approved by the directors in advance
are subject to additional shareholder approval requirements or fairness
criteria. The provisions of Chapter 1704 may deter or prevent takeover bids that
have not been approved in advance by the directors and may decrease the chances
of shareholders realizing a premium over market price for their Common Shares as
the result of such a takeover bid.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
GENERAL
Upon consummation of the Offering, the Company will have 3,335,088 Common
Shares outstanding (3,422,588 Common Shares if the Underwriters' over-allotment
option is exercised in full), of which the 1,250,000 shares (1,437,500 shares if
the Underwriters' over-allotment option is exercised in full) offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by an "affiliate" of the Company
(in general, a person who has a control relationship with the Company), which
shares will be subject to the resale limitations, described below, or Rule 144
promulgated under the Securities Act. The remaining 2,085,088 shares (1,985,088
shares if the Underwriters' over-allotment option is exercised in full) are
deemed to be "restricted securities," as that term is defined under Rule 144, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering and, as such, may only be sold pursuant to an
effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. An aggregate of 1,073,088 (973,088 shares if the Underwriters'
over-allotment option is exercised in full) of such restricted shares will be
eligible for sale under Rule 144 (subject to certain recurring three-month
volume limitations prescribed by Rule 144 and the lock-up arrangements with the
Underwriters described in the following paragraph) commencing 90 days after the
Offering, and the balance will become so eligible at various times commencing
thereafter. See "Risk Factors -- Shares Eligible for Future Sale."
All of the directors and executive officers of the Company, beneficially
holding in the aggregate 1,658,760 Common Shares upon consummation of the
Offering, have agreed with the Underwriters not to sell or otherwise dispose of
any of those Common Shares for a period of 180 days after the date of this
Prospectus without the written consent of the Representatives; provided,
however, that the Company may issue and sell up to 350,000 Common Shares
pursuant to the Incentive Stock Plan in effect on the date of this Prospectus.
The Representatives may, in their sole discretion and at any time without
notice, release all or any portion of the securities subject to the Lock-up
Agreements.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted Common Shares beneficially for at least two years is entitled
to sell, within any three-month period, a number of shares that does not exceed
the greater of 1% of the total number of outstanding shares of the same class
or, if the common stock is quoted on Nasdaq National Market, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the company for at least three months immediately
preceding the sale and who has beneficially owned Common Shares for at least
three years is entitled to sell such shares under Rule 144 without regard to any
of the limitations described above. The Securities and Exchange Commission (the
"Commission") is currently considering a proposal to reduce the Rule 144 holding
period for restricted securities to one year.
The Company intends to file a registration statement under the Securities
Act to register Common Shares reserved for issuance under the Incentive Stock
Plan, thereby permitting the resale of such shares by non-affiliates in the
public market without restriction under the Securities Act. The Company has
reserved up to 350,000 Common Shares for issuance under the Incentive Stock
Plan. See "Management -- Incentive Stock Plan."
No prediction can be made as to the effect, if any, that public sales of
Common Shares or the availability of such shares for sale will have on the
market prices of the Common Shares prevailing from time to time. Nevertheless,
the possibility that substantial amounts of Common Shares may be sold in the
public market may adversely affect prevailing market prices for the Common
Shares and could impair the Company's ability in the future to raise additional
capital through the sale of its equity securities.
42
<PAGE> 44
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, each of the underwriters named below (the "Underwriters") has
severally agreed to purchase, and the Company and the Selling Shareholders have
agreed to sell to such Underwriter, the respective number of Common Shares set
forth opposite the name of such Underwriter:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
The Ohio Company..........................................................
Roney & Co................................................................
---------
Total........................................................... 1,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares offered hereby
are subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all Common
Shares offered hereby (other than those covered by the over-allotment option
described below) if any such shares are purchased.
The Underwriters, for whom The Ohio Company and Roney & Co. are acting as
Representatives (the "Representatives"), propose to offer part of the Common
Shares directly to the public at the public offering price set forth on the
cover page of this Prospectus and part of the shares to certain dealers at a
price which represents a concession not in excess of $ per share under
the public offering price. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the Offering, the offering price and other selling terms may be
changed. The Representatives of the Underwriters have advised the Company that
the Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company, Richard C. Schilg and Kevin T. Costello have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 87,500, 50,000 and 50,000
additional Common Shares, respectively, at the public offering price set forth
on the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the sale of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares in such table. In the event that the Underwriters exercise less than
their full over-allotment option, the number of shares to be sold pursuant
thereto shall be allocated first, to the Selling Shareholders on an equal basis,
and second, to the Company to the extent that the number of shares to be sold
exceeds 100,000.
The Company and all of its directors and executive officers, who
beneficially hold an aggregate of 1,663,360 Common Shares, have agreed that, for
a period of 180 days following the date of this Prospectus, they will not,
without the prior written consent of the Representatives, offer, sell, contract
to sell, or otherwise dispose of any Common Shares of the Company (other than
shares offered pursuant to this Prospectus) or any securities convertible into,
or exercisable or exchangeable for Common Shares of the Company; provided,
however, that the Company may issue and sell up to 350,000 Common Shares
pursuant to the Incentive Stock Plan in effect on the date of this Prospectus.
Prior to the Offering, there has not been any public market for the Common
Shares of the Company. Consequently, the initial public offering price for the
Common Shares included in the Offering will be
43
<PAGE> 45
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in determining such price are the history of and
prospects for the Company's business and the industry in which it competes, an
assessment of the Company's management and the present state of the Company's
development, the past and present revenues and earnings of the Company, the
prospects for the growth of the Company's revenues and earnings, the current
state of the economy in the United States and the current level of economic
activity in the industry in which the Company competes and in related or
comparable industries, and currently prevailing conditions in the securities
markets, including current market valuations of publicly traded companies that
are comparable to the Company.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters have reserved for sale, at the initial public offering
price, up to 25,000 of the Common Shares offered hereby for employees of the
Company and certain other individuals who have expressed an interest in
purchasing such Common Shares in the Offering. The number of shares available
for sale to the general public will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
shares offered hereby.
LEGAL MATTERS
Squire, Sanders & Dempsey L.L.P. has rendered an opinion as to the validity
of the Common Shares offered hereby. Certain legal matters relating to the
Offering will be passed upon for the Underwriters by Porter, Wright, Morris &
Arthur.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
for each of the three years in the period ended December 31, 1995 included in
this Prospectus and in the Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
thereon, which appears elsewhere herein and in the Registration Statement. The
financial statements have been included in reliance upon the report of such firm
and upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Shares offered in the Offering. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the Exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus concerning the provisions or contents of any
contract or other document referred to herein are not necessarily complete. With
respect to each such contract, agreement, or document filed as an exhibit to the
Registration Statement, reference is made to such exhibit for a more complete
description, and each such statement is deemed to be qualified in all respects
by such reference.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected, without charge, at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such materials may also be accessed electronically by means of the
Commission's home page on the Internet at http:\\www.sec.gov.
44
<PAGE> 46
Upon completion of the Offering, the Company will be subject to the
information requirements of the Exchange Act, and, in accordance therewith, will
file reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other information
can be inspected and copied at the addresses, and may be accessed electronically
at the Uniform Resource Locator, set forth above.
Statements contained in this Prospectus as to the contents of any
agreement, contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such agreement, contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
45
<PAGE> 47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996........ F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996..................................... F-5
Consolidated Statement of Changes in Shareholders' Equity (Deficit) for the Years
Ended December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and
1996................................................................................ F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1995 and 1996................................ F-7
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE> 48
AFTER THE EVENTS DESCRIBED IN NOTE 13 OF TEAM AMERICA CORPORATION'S CONSOLIDATED
FINANCIAL STATEMENTS ARE EFFECTED, WE EXPECT TO BE IN A POSITION TO RENDER THE
FOLLOWING AUDIT REPORT.
Arthur Andersen LLP
August 30, 1996.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
TEAM America Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of TEAM
AMERICA CORPORATION (an Ohio corporation) and subsidiaries as of December 31,
1994 and 1995, and the related consolidated statements of income, changes in
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TEAM America Corporation and
subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Columbus, Ohio,
August 30, 1996 (except with respect
to the matters discussed in Note 13 as to
which the date is October , 1996).
F-2
<PAGE> 49
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $1,356,989 $1,938,253 $2,032,649
Accounts receivable:
Trade, net of allowance for doubtful accounts of $5,406,
$3,266 and $0, respectively................................ 154,052 240,614 316,367
Related parties.............................................. 56,246 37,030 60,066
Employee advances............................................ 110,725 53,637 90,629
Unbilled revenues............................................ 1,591,933 1,968,760 2,367,978
---------- ---------- ----------
Total receivables....................................... 1,912,956 2,300,041 2,835,040
Prepaid expenses............................................... 75,113 95,912 66,708
Deferred income tax assets..................................... 15,000 23,000 23,000
---------- ---------- ----------
Total current assets.................................... 3,360,058 4,357,206 4,957,397
---------- ---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization................................................... 184,481 261,025 392,710
---------- ---------- ----------
OTHER ASSETS:
Notes receivable............................................... -- 11,000 11,000
Cash surrender value of life insurance policies................ 157,785 188,224 232,645
Mandated benefit/security deposits............................. 59,907 83,429 109,499
Deferred income tax assets..................................... 57,000 49,000 49,000
Other assets................................................... 28,175 35,785 59,251
---------- ---------- ----------
Total other assets...................................... 302,867 367,438 461,395
---------- ---------- ----------
Total assets............................................ $3,847,406 $4,985,669 $5,811,502
========== ========== ==========
</TABLE>
(Continued on next page)
F-3
<PAGE> 50
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
AS OF DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
---------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
NOTE 13
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable................................................. $ 60,614 $ 46,081 $ 110,738
Accrued compensation............................................. 1,495,604 1,586,366 2,038,428
Payroll taxes payable............................................ 834,325 1,233,319 1,256,856
Workers' compensation premium payable............................ 838,990 915,350 996,507
Federal and state income taxes payable........................... 30,628 182,211 67,113
Accrued expenses................................................. 10,051 16,903 19,020
Client deposits.................................................. 304,428 427,152 460,728
Note payable..................................................... 26,000 14,000 --
Capital lease obligation, current portion........................ 22,853 9,155 4,501
---------- ---------- ----------
Total current liabilities................................. 3,623,493 4,430,537 4,953,891
CAPITAL LEASE OBLIGATION, net of current position.................. 20,616 11,461 11,304
DEFERRED RENT...................................................... 150,711 143,418 130,728
DEFERRED COMPENSATION LIABILITIES.................................. 157,785 188,224 232,645
---------- ---------- ----------
Total liabilities......................................... 3,952,605 4,773,640 5,328,568
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $100,000 par value:
Class A, 7,500 shares authorized; 0, 213 and 213 issued
respectively; 0, 198 and 198 outstanding, respectively
(aggregate liquid preference $21,300)........................ -- 21,300 21,300 $ --
Common Stock, no par value; 10,000,000 shares authorized;
2,228,976 issued; 2,089,688 outstanding, pro forma............. -- -- -- 314,076
Common Stock, no par value:
Class A, 7,500 shares authorized; 5,693, 5,480 and 5,480
issued, respectively; 5,311, 4,758 and 4,738 outstanding
respectively................................................. 255,494 234,194 234,194 --
Class B, 7,500 shares authorized; 6,421 issued and
outstanding.................................................. 59,757 59,757 59,757 --
Excess purchase price............................................ (83,935) (83,935) (83,935) (83,935)
Subscription receivable.......................................... (31,500) -- -- --
Retained earnings (deficit)...................................... (284,345) 5,228 276,233 276,233
---------- ---------- ---------- --------
(84,529) 236,544 507,549 506,374
Less -- Treasury stock, Common Class A shares of 382, 722 and
742, respectively, at cost................................... (20,670) (23,340) (23,440) --
Less -- Treasury stock, Preferred Class A shares of 0, 15 and
15, respectively, at cost.................................... -- (1,175) (1,175) --
Less -- Treasury stock, Common Stock shares of 139,288, pro
forma........................................................ -- -- -- (23,440)
---------- ---------- ---------- --------
Total stockholders' equity (deficit)...................... (105,199) 212,029 482,934 $ 482,934
========
---------- ---------- ----------
Total liabilities and stockholders' equity (deficit)...... $3,847,406 $4,985,669 $5,811,502
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
<PAGE> 51
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES........................ $41,252,575 $56,070,617 $74,921,316 $36,131,724 $44,811,771
----------- ----------- ----------- ----------- -----------
DIRECT COSTS:
Salaries and wages............ 34,554,784 47,602,806 63,502,407 30,422,177 37,887,367
Payroll taxes, workers'
compensation premiums,
employee benefits and
other...................... 4,018,691 5,578,069 7,594,264 3,995,856 4,556,100
----------- ----------- ----------- ----------- -----------
38,573,475 53,180,875 71,096,671 34,418,033 42,443,467
----------- ----------- ----------- ----------- -----------
Gross profit............... 2,679,100 2,889,742 3,824,645 1,713,691 2,368,304
----------- ----------- ----------- ----------- -----------
EXPENSES:
Administrative salaries, wages
and employment taxes....... 1,283,926 1,427,432 2,013,481 836,244 1,221,224
Other general and
administrative expenses.... 653,410 859,683 996,010 465,227 488,767
Advertising................... 60,694 66,258 116,319 34,063 71,496
Depreciation and
amortization............... 47,570 47,553 42,331 23,227 32,373
----------- ----------- ----------- ----------- -----------
Total operating expenses... 2,045,600 2,400,926 3,168,141 1,358,761 1,813,860
----------- ----------- ----------- ----------- -----------
Income from operations..... 633,500 488,816 656,504 354,930 554,444
OTHER EXPENSES.................. (46,764) (37,561) (120,069) (63,143) (52,584)
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................... 586,736 451,255 536,435 291,787 501,860
INCOME TAX (EXPENSE) BENEFIT.... 171,850 (181,477) (246,862) (134,277) (230,855)
----------- ----------- ----------- ----------- -----------
Net income................. $ 758,586 $ 269,778 $ 289,573 $ 157,510 $ 271,005
=========== =========== =========== =========== ===========
Earnings per share......... $ 0.46 $ 0.14 $ 0.14 $ 0.07 $ 0.13
=========== =========== =========== =========== ===========
Weighted average shares
outstanding.............. 1,668,512 1,920,224 2,129,616 2,155,744 2,091,160
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 52
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS A
COMMON STOCK COMMON STOCK PREFERRED STOCK RETAINED
---------------- ---------------- ---------------- EARNINGS
NUMBER VALUE NUMBER VALUE NUMBER VALUE (DEFICIT)
------ ------- ------ ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992........ 3,393 $243,994 3,221 $ 9,857 -- $ -- $(1,312,709)
Net income...................... -- -- -- -- -- -- 758,586
----- -------- ----- ------- --- ------- -----------
BALANCE, December 31, 1993........ 3,393 243,994 3,221 9,857 -- -- (554,123)
Stock issued.................... 2,300 11,500 3,200 49,900 -- -- --
Net income...................... -- -- -- -- -- -- 269,778
----- -------- ----- ------- --- ------- -----------
BALANCE, December 31, 1994........ 5,693 255,494 6,421 59,757 -- -- (284,345)
Class A common stock
exchanged for Class A
preferred stock............... (213) (21,300) -- -- 213 21,300 --
Stock repurchased as treasury,
340 shares of Class A
common, at cost and 15
shares of Class A preferred
stock, at cost................ -- -- -- -- -- -- --
Subscriptions received in cash
subsequent to year-end........ -- -- -- -- -- -- --
Net income...................... -- -- -- -- -- -- 289,573
----- -------- ----- ------- --- ------- -----------
BALANCE, December 31, 1995........ 5,480 234,194 6,421 59,757 213 21,300 5,228
Stock repurchased as treasury,
20 shares of Class A common,
at cost....................... -- -- -- -- -- -- --
Net income...................... -- -- -- -- -- -- 271,005
----- -------- ----- ------- --- ------- -----------
BALANCE, June 30, 1996
(unaudited)..................... 5,480 $234,194 6,421 $59,757 213 $21,300 $ 276,233
===== ======== ===== ======= === ======= ===========
<CAPTION>
EXCESS TREASURY STOCK
PURCHASE --------------------- SUBSCRIPTION
PRICE COMMON PREFERRED RECEIVABLES TOTAL
-------- -------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992........ $(83,935) $(20,670) $ -- $ -- $(1,163,463)
Net income...................... -- -- -- -- 758,586
-------- -------- ------- -------- -----------
BALANCE, December 31, 1993........ (83,935) (20,670) -- -- (404,877)
Stock issued.................... -- -- -- (31,500) 29,900
Net income...................... -- -- -- -- 269,778
-------- -------- ------- -------- -----------
BALANCE, December 31, 1994........ (83,935) (20,670) -- (31,500) (105,199)
Class A common stock
exchanged for Class A
preferred stock............... -- -- -- -- --
Stock repurchased as treasury,
340 shares of Class A
common, at cost and 15
shares of Class A preferred
stock, at cost................ -- (2,670) (1,175) -- (3,845)
Subscriptions received in cash
subsequent to year-end........ -- -- -- 31,500 31,500
Net income...................... -- -- -- -- 289,573
-------- -------- ------- -------- -----------
BALANCE, December 31, 1995........ (83,935) (23,340) (1,175) -- 212,029
Stock repurchased as treasury,
20 shares of Class A common,
at cost....................... -- (100) -- -- (100)
Net income...................... -- -- -- -- 271,005
-------- -------- ------- -------- -----------
BALANCE, June 30, 1996
(unaudited)..................... $(83,935) $(23,440) $(1,175) $ -- $ 482,934
======== ======== ======= ======== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 53
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1996
---------- ---------- ---------- 1995 ----------
---------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 758,586 $ 269,778 $ 289,573 $ 157,510 $ 271,005
Depreciation and amortization...... 47,570 47,553 42,331 23,227 32,373
Loss on disposal of assets......... -- -- 14,995 -- --
(Increase) decrease in operating
assets:
Accounts and notes receivable... (12,255) (556,271) (398,085) (150,822) (566,499)
Prepaid expenses................ (28,534) (6,512) (20,799) (2,737) 29,204
Mandated benefit/security
deposits...................... 28,191 8,350 (23,522) 2,774 (26,634)
(Increase) decrease in deferred
tax asset, net................ (196,000) 144,000 -- -- --
Increase (decrease) in operating
liabilities:
Accounts payable................ 34,406 (67,137) (14,533) (31,321) 64,657
Accrued expenses and other
payables...................... (282,800) 781,094 724,551 470,688 443,775
Client deposits................. 197,505 104,373 122,724 120,042 33,576
Deferred liabilities............ 44,954 78,379 23,146 28,380 31,731
--------- --------- --------- --------- ---------
Net cash provided by operating
activities.................... 591,623 803,607 760,381 617,741 313,188
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (42,022) (15,950) (133,870) (72,650) (163,494)
Increase in cash surrender value of
life insurance policies......... (12,638) (75,672) (30,439) (32,027) (44,421)
Increase (decrease) in other
assets.......................... 7,579 2,422 (7,610) 195 (23,466)
--------- --------- --------- --------- ---------
Net cash used in investing
activities.................... (47,081) (89,200) (171,919) (104,482) (231,381)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable........... (14,669) (17,275) (12,000) (6,000) (14,000)
Payments on capital lease
obligation...................... (22,561) (29,444) (22,853) (16,546) (4,811)
Common stock issued................ -- 29,900 -- -- --
Purchase of treasury stock......... -- -- (3,845) -- (100)
Subscriptions received in cash
subsequent to year-end.......... -- -- 31,500 -- 31,500
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......... (37,230) (16,819) (7,198) (22,546) 12,589
--------- --------- --------- --------- ---------
Net increase in cash............ 507,312 697,588 581,264 490,713 94,396
</TABLE>
(Continued on next page)
F-7
<PAGE> 54
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
------------------------------------ -----------------------
1993 1994 1995 1996
---------- ---------- ---------- 1995 ----------
---------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS, beginning
of period.......................... $ 152,089 $ 659,401 $1,356,989 $1,356,989 $1,938,253
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 659,401 $1,356,989 $1,938,253 $1,847,702 $2,032,649
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest........................ $ 14,476 $ 19,056 $ 16,689 $ 3,035 $ 1,740
Income taxes.................... $ 9,552 $ 32,620 $ 87,403 $ 82,230 $ 279,343
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITY:
During 1994, the Company issued 900 shares of Class A Common Stock in
exchange for a promissory note in the amount of $31,500 which is shown as a
reduction of shareholders' equity (deficit) and was subsequently fully repaid in
1996.
During 1994, the Company entered into a capital lease agreement for
equipment in the amount of $35,000.
During 1995, the Company converted 213 shares of Class A Common Stock,
valued at $21,300, into 213 shares of Class A Preferred Stock. The conversion
was made pursuant to a preferred stock offering made to all Class A Common
shareholders, and was made on a dollar for dollar basis.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-8
<PAGE> 55
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(1) NATURE AND SCOPE OF BUSINESS
TEAM America Corporation, an Ohio corporation (the Company), is the largest
professional employer organization (PEO) headquartered in Ohio and one of the
oldest PEOs in the United States, having been founded in 1986. The Company
provides through a "partnering" agreement comprehensive and integrated human
resource management services to small and medium-sized businesses, thereby
allowing such businesses to outsource their human resource responsibilities. The
Company offers a broad range of services including human resource
administration, regulatory compliance management, employee benefits
administration, risk management services and employees liability protection,
payroll and payroll tax administration, and placement services. The Company
provides such services by establishing an employment relationship with the
worksite employees of its clients, contractually assuming substantial employer
responsibilities with respect to worksite employees, and instructing its clients
regarding employment practices. While the Company becomes the legal employer for
most purposes, the client remains in operational control of its business. As of
December 31, 1995, the Company provided professional employer services to
approximately 200 client organizations and in excess of 3,100 worksite
employees, substantially all of which are located in the midwestern United
States, principally Ohio.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The Company's consolidated financial statements
are prepared on the accrual basis in accordance with generally accepted
accounting principles.
Principles of Consolidation -- The consolidated financial statements
include TEAM America Corporation and its twenty (20) subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Revenue Recognition -- The Company invoices its customers for payroll,
payroll taxes, benefits and a human resource and benefits administration fee.
Income is recognized at the time services are provided by its worksite
employees, some of which is unbilled as of the respective balance sheet dates.
Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to a concentration of credit risk, consist principally of
accounts receivable. The Company provides its services to its customers based
upon an evaluation of the customer's financial condition. Exposure to losses on
receivables is principally dependent on each customer's financial condition. The
Company mitigates such exposure by requiring deposits, letters of credit or
personal guarantees from the majority of its customers. Exposure to credit
losses is monitored by the Company, and allowances for anticipated losses are
maintained.
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash and
highly liquid investments with maturities of three months or less.
F-9
<PAGE> 56
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
Property and Equipment -- Property and equipment is stated at cost with
depreciation and amortization computed on the straight-line method over the
estimated useful lives of the respective assets. Additions and betterments to
property and equipment over certain minimum dollar amounts are capitalized.
Repair and maintenance expenses are expensed as incurred. The following is a
summary of the Company's property, plant and equipment and the associated
accumulated depreciation and amortization at December 31:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Furniture and fixtures......................................... $301,061 $305,790
Computer hardware and software................................. 37,861 141,078
Leasehold improvements......................................... 30,421 30,805
-------- --------
Total property and equipment......................... 369,343 477,673
Less: Accumulated depreciation and amortization................ 184,862 216,648
-------- --------
Property and equipment, net.......................... $184,481 $261,025
======== ========
</TABLE>
Depreciation and amortization is provided over the estimated useful lives
of the assets using the straight-line method. The estimated useful lives are as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and fixtures........................................................ 7
Computer hardware and software................................................ 5
Leasehold improvements........................................................ 5
</TABLE>
Other Assets -- Other assets primarily consist of investments in securities
which are stated at cost because no readily ascertainable market values are
available.
Deferred Rent -- The Company entered into the lease of its corporate
headquarters in 1990. This lease included inducements in the early periods of
the lease, including the first six months being rent free, with following years'
payments having scheduled increases. In accordance with generally accepted
accounting principles, rent expense is recognized on a straight-line basis over
the life of the lease. Consequently, a deferred credit has been generated, which
will be amortized over the remaining years of the lease (until the year 2000).
Advertising -- Advertising expenses relate to promotional materials and are
expensed as incurred.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- The carrying amounts of current
assets and liabilities approximate their fair value because of the immediate or
short-term maturity of these financial instruments. The carrying amount of the
long-term debt obligation with a bank approximates its fair value as the
underlying financial instrument is a variable rate note that reprices
frequently. Notes receivable have no readily ascertainable market value.
Earnings Per Share -- Earnings per share was computed by dividing net
income by the weighted average of shares of common stock outstanding and common
stock equivalents outstanding during the respective periods, and has been
restated for the 184-to-1 stock split, as of the effective date of the
registration statement. In 1995, there were no common stock equivalents. For
1994 common stock equivalents were anti-dilutive, and
F-10
<PAGE> 57
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
therefore, were not included in the weighted average number of common stock
shares. The Company used the modified treasury stock method as prescribed by
Accounting Principles Board Opinion No. 15 to compute earnings per share in 1993
since the number of rights and options outstanding was in excess of 20% of
common stock shares issued and outstanding. Adjustments to 1993 net income
relate to interest savings. The computation adjusted net income and weighted
average common and common equivalent shares used in the calculation of earnings
per common share as follows:
<TABLE>
<CAPTION>
1993
----------
<S> <C>
Weighted average of common stock shares outstanding.................... 1,146,688
Dilutive effect of options and warrants outstanding.................... 521,824
----------
Weighted average of common stock and common stock equivalent shares.... 1,668,512
==========
Net income............................................................. $ 758,586
Adjustments to net income.............................................. 3,334
----------
Net income for purposes of the earnings per common share calculation... $ 761,920
==========
Earnings per common stock and common stock equivalent share............ $ 0.46
==========
</TABLE>
Unaudited Interim Consolidated Financial Statements -- The accompanying
interim consolidated financial statements as of June 30, 1996 and for the six
month periods ended June 30, 1995 and 1996, are unaudited. However, in the
opinion of management, these interim statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the consolidated financial position, results of operations,
changes in shareholders' equity and cash flows of TEAM America Corporation and
its subsidiaries.
Accounting Pronouncements Not Yet Effective -- Statement of Financial
Accounting Standards (SFAS) No. 123 "Accounting For Stock Based Compensation"
establishes a fair value based method of accounting for stock-based compensation
plans. It encourages entities to adopt that method in place of the provisions of
APB Opinion No. 25, "Accounting for Stock Issue to Employees" (APB 25), for all
arrangements under which employees receive shares or other equity instruments
from the employer. The Company will continue to follow APB 25 and will comply
with the specific provisions of SFAS 123 that require pro forma disclosures
concerning compensation expense in the notes to the financial statements for
1996. Accordingly, the adoption of SFAS 123 will not impact the results of
financial position or operating results of the Company.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of " ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company adopted SFAS 121 effective January 1, 1996. Adoption of SFAS 121 did not
have a material impact on the Company's financial position or results of
operations.
(3) DEBT OBLIGATIONS
The Company had a demand note payable to a bank, bearing interest at the
prime rate plus 2% (10.5% at December 31, 1994 and 1995). The note was secured
by all business assets and was guaranteed by an officer of the Company. This
note was repaid in full in 1996.
The Company has negotiated a credit facility with a bank which allows the
Company to obtain advances up to $500,000; however, the bank is not committed to
make any advances to the Company. Borrowings under
F-11
<PAGE> 58
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
this credit facility are payable upon demand and bear interest at the bank's
prime rate plus 0.5% (9.0% at December 31, 1995). The credit facility is
unsecured, but has been guaranteed by an officer of the Company. As of December
31, 1995, no borrowings were outstanding under this credit facility.
(4) CAPITAL LEASE
The Company has a capitalized lease obligation for equipment.
Future minimum lease payments are due as follows:
<TABLE>
<S> <C>
1996....................................................................... $11,445
1997....................................................................... 11,445
1998....................................................................... 954
-------
23,844
Less: amount representing interest......................................... (3,228)
-------
20,616
Less: current portion...................................................... (9,155)
-------
Capital lease obligation, net of current portion........................... $11,461
=======
</TABLE>
The cost and related accumulated amortization of the assets capitalized
under capital lease was $121,718 and $84,256 at December 31, 1994 and $35,569
and $21,341 at December 31, 1995, respectively.
(5) COMMITMENTS
The Company leases office facilities, automobiles and certain office
equipment under long-term agreements expiring through 2000, which are accounted
for as operating leases. The following is a schedule of future minimum lease
payments due as of December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
--------------------------------------------------------------------------
<S> <C>
1996................................................................... $156,000
1997................................................................... 166,000
1998................................................................... 175,000
1999................................................................... 175,000
2000................................................................... 125,000
--------
$797,000
========
</TABLE>
Rent expense under all operating leases was $155,086, $148,989 and $166,337
for the years ended December 31, 1993, 1994 and 1995, respectively.
The Company currently has agreements with an officer and certain other
employees which call for payment of commissions on future revenues from clients
brought in by the employees. The amount of such payments is determined by the
achievement of certain sales goals while such employees are employed with the
Company, as well as the level of sales from such employees' clients subsequent
to termination for a certain period, as defined. These commission agreements are
subject to compliance with non-compete agreements which are effective for one
year beyond an employee's termination date. The Company incurred no expense
relating to such agreements in 1993, 1994 or 1995.
F-12
<PAGE> 59
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
(6) DEFERRED COMPENSATION LIABILITY
The Company has several deferred compensation agreements with certain
employees. The liabilities under these agreements are being accrued over the
participants' remaining periods of employment so that, on the payout date, the
then-present value of the payments will have been accrued. These liabilities are
being funded by life insurance policies, the cash surrender value of which
determines the deferred compensation liabilities, as defined in the respective
agreements. Expense for 1993, 1994 and 1995 related to deferred compensation was
$49,280, $62,143 and $58,778, respectively.
(7) EMPLOYEE BENEFIT PROGRAMS
Cafeteria Plan -- The Company sponsors a Section 125 cafeteria plan that
includes a fully insured health, dental, vision and prescription card program.
The plan is offered to full-time employees. Entrance to the plan is the first
day of the month following thirty days of service.
401(k) Retirement Plan -- The Company sponsors a 401(k) retirement plan
which covers substantially all full-time employees with at least one year of
service. The Plan does not provide for Company contributions.
Other Programs -- Other available employee programs include life,
accidental death and dismemberment insurance, disability insurance and dependent
care assistance programs. Benefits under such programs are funded by the
Company's employees and customers.
Health Insurance Program -- Prior to September 1, 1993, the Company was
self-insured for medical health claims up to approximately $100,000 per
employee, per annum. Under the Company's insurance programs, coverage was
obtained for catastrophic exposures, as well as those risks required to be
insured by law or contract. Provisions for losses expected under these programs
were recorded based upon the Company's estimates of the aggregate liability for
claims incurred. Effective September 1, 1993, the Company's health plan became
fully insured.
(8) INCOME TAXES
In May 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes", which requires an asset
and liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
The components of the income tax expense (benefit) for the years ended
December 31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $ 20,527 $ 31,855 $209,833
State.......................................... 3,623 5,622 37,029
Deferred:
Change in valuation allowance.................. (422,600) -- --
Decrease in deferred income tax assets......... 226,600 144,000 --
---------- --------- --------
Total income tax expense (benefit)..... $ (171,850) $ 181,477 $246,862
========= ========= ========
</TABLE>
F-13
<PAGE> 60
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
A reconciliation of the statutory Federal tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate.................................... 34.0% 34.0% 34.0%
Adjustments to Federal statutory tax rate:
State income tax expense, net............................... 6.0 6.0 6.0
Valuation allowance......................................... (72.0) -- --
Other, primarily life insurance............................. 2.7 0.2 6.0
--- --- ---
Effective tax rate............................................ (29.3)% 40.2% 46.0%
=== === ===
</TABLE>
The reduction in the valuation allowance to zero in 1993 resulted from the
Company's expectation to realize its net operating loss (NOL) carryforwards in
future years based upon the Company's growth in recurring operating income in
1993, and its expectation of future income. The Company fully utilized its NOL
carryforwards by 1994.
The Company pays state income tax on the greater of a net worth basis or an
income basis in a majority of the states in which it operates.
The significant items giving rise to the deferred income tax assets
(liabilities), as of December 31, 1994 and 1995, are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- --------
<S> <C> <C>
Deferred income tax assets (liabilities):
Deferred compensation....................................... $ 54,000 $ 71,000
Deferred rents.............................................. 59,000 57,000
Other, net.................................................. (41,000) (56,000)
---------- --------
Total deferred income tax assets (liabilities),
net............................................... $ 72,000 $ 72,000
========= ========
</TABLE>
(9) RELATED PARTY TRANSACTIONS
At December 31, 1994, the Company had a non-interest bearing account
receivable from an officer in the amount of $50,894. In 1995, this receivable
was paid in full.
At December 31, 1994 and 1995, the Company had accounts receivable in the
aggregate amount of $28,143 and $7,281, respectively, from related parties
including several members of the Board of Directors who are clients of the
Company.
During the years ended December 31, 1993, 1994 and 1995, the Company
recorded sales to related parties in the amounts of $205,346, $334,097 and
$417,127, respectively. During the years ended December 31, 1993, 1994 and 1995,
the Company purchased services from related parties in the amounts of $57,159,
$35,526 and $136,959, respectively.
(10) SHAREHOLDERS' EQUITY
The Company is authorized to issue 7,500 Class A and 7,500 Class B common
shares, without par or stated value, and 7,500 Class A preferred stock, $100 par
value. Each Class A and Class B common share is entitled to participate in any
dividends or distributions when declared by the directors without distinction as
to class. Further, the holders of Class A and Class B common shares exercise
voting rights without distinction as to class; however, the holders of Class A
common shares have exclusive right to elect three Class A directors and the
holder of Class B common shares has exclusive right to elect three Class B
directors.
F-14
<PAGE> 61
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
In 1993, the Board of Directors granted to two officers of the Company
options to purchase total of 2,300 shares of Class A common stock at $5 per
share and 2,300 shares of Class B common stock at $8 per share. These options
were exercised in 1994.
During 1994, the Company issued 900 shares of Class A common stock to an
officer in exchange for a promissory note in the amount of $31,500 which is
shown as a reduction of shareholders' equity. This note bears interest at 5% per
annum. Subsequent to December 31, 1995, this receivable was paid in cash.
In 1994, a total of 5,500 shares was sold to Company officers.
During 1995, the Company converted 213 shares of Class A common stock
(valued at $21,300), into 213 shares of Class A Preferred Stock. The Class A
Preferred Stock is non-voting with cumulative dividend rights. The dividend rate
is established annually at a rate equal to the prime lending rate, but not less
than 4% or more than 10%. The Company has the right to redeem the preferred
shares at par value. No cumulative liability exists as of December 31, 1995.
(11) CONTINGENCIES
The Internal Revenue Service (IRS) is conducting a Market Segment Study of
the PEO industry, focusing on selected PEOs (not including the Company), in
order to examine the relationships among PEOs, worksite employees and owners of
client companies. In addition, the Company's 401(k) plan was audited for the
year ended December 31, 1992, and as part of that audit, the IRS regional office
has asked the IRS national office to issue a Technical Advice Memorandum (TAM)
regarding whether or not the Company is the employer for benefit plan purposes.
The Company intends to state its position in a filing with the IRS that it is
the employer for benefit plan purposes. If the IRS concludes that PEOs are not
"employers" of certain worksite employees for purposes of the Code, then the tax
qualified status of the Company's 401(k) plan could be revoked and its cafeteria
plan may lose its favorable tax status. The loss of qualified status for the
401(k) Plan and the cafeteria plan could increase the Company's administrative
expenses and, thereby, materially adversely affect the Company's financial
condition and results of operations. The Company is unable to predict the timing
or nature of the findings of the Market Segment Study Group, the timing or
conclusions of the TAM or the ultimate outcome of such conclusions or findings.
(12) SUBSEQUENT EVENTS
In July 1996, the Company's Florida subsidiary received an assessment for
workers' compensation premiums in the amount of $275,000 relating to its
involvement in prior years with an insolvent insurance pool in which the Company
participated. Although the outcome of this matter cannot be determined at this
time, the Company has offered $75,000 in settlement to the Florida Department of
Insurance. Additionally, the Company is subject to a workers' compensation claim
against the Florida subsidiary subject to a settlement with the State of Florida
of the assessment discussed above.
(13) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
On October 11, 1996, the Company filed this Registration Statement under
the Securities Act of 1933 of which this Prospectus is a part with the
expectation that the following will occur by the effective date of this
Registration.
a. An increase in the number of shares of authorized capital stock to
11,000,000 shares, no par value, of which 500,000 will be designated as
voting preferred shares, 500,000 will be designated as nonvoting
preferred shares, and 10,000,000 will be designated as Common Stock.
F-15
<PAGE> 62
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 AND 1995
b. A conversion of all of the Company's issued Class A common stock and
Class B common stock to a single class of Common Stock and the
elimination of the classes of Class A common stock and Class B common
stock.
c. A conversion of the Company's issued Class A preferred stock, $100 per
share, to an equal number of Common Stock shares and the elimination of
the class of Class A preferred stock.
d. A 184-to-1 split of the Common Stock shares prior to the offering.
e. An Incentive Stock Option Plan for employees which provides for the
issuance of up to 350,000 shares of Common Stock. The maximum number of
shares, that may be awarded during any calendar year, may not exceed 10%
of the total number of issued and outstanding Common Stock shares of the
Company.
f. The Company will execute employment agreements with two of its officers
pursuant to which each such officer will be employed by the Company for
a three year period and will receive an annual base salary, plus
incentive compensation to be determined by the Company's Compensation
Committee based upon the Company's results of operations and financial
position and various other factors. Additionally, the Company has agreed
to grant to these officers the right to purchase an amount of common
stock to be determined as a percentage of the initial public offering
price, subject to vesting 20% per year over five years.
Reference is made to the "Risk Factors" section of the Registration
Statement for further discussion.
The pro forma balance sheet section, as of June 30, 1996, shows the
shareholders' equity (deficit) reflecting the events and transactions in items
a. through f. above as if they had occurred as of that date.
F-16
<PAGE> 63
A REVOLUTIONARY IDEA. . .
"PARTNERING IN EMPLOYMENT"
[PHOTO]
REVOLUTIONARY "ONE STOP SHOP"
TEAM America does not sell multiple services in competition with payroll
services, insurance companies, consultants and workers' compensation
administrators. Rather, TEAM America actually joins in the employment of the
employees and shares the responsibility and liability of being an employer. As
a result of partnering with TEAM America our Clients gain many services
including:
<TABLE>
<S> <C>
- - Human Resource Services - Employment Risk Management
- - Payroll & Payroll Tax Services - Placement Services
- - Government Compliance - Workers' Compensation Claims Administration
- - Benefits Administration - Unemployment Claims Administration
</TABLE>
REVOLUTIONARY "EMPLOYEE BENEFITS"
This unique relationship is widely accepted by employees. The introduction of
TEAM America into the existing employment relationship allows employees to gain
access to TEAM America's "large corporation style" benefits program. The
program is designed to provide greater job satisfaction and increased loyalty
to the clients business and includes:
<TABLE>
<S> <C>
- - Section 125 Pretax "Cafeteria Style" Plan - Discounted Group Life and Disability on a
- - Multiple Health Insurance Options, Dental, Payroll Deduction
Vision, Prescription Card - Payroll Deducted Group Auto and Homeowners
- - Section 129 Day Care Assistance Plan; - Theater, Amusement Park and Store Discount
(Pretax cost) Programs
- - Section 401k Retirement Savings Plan - Free checking and Visa and Discounted Services
with Multiple Investment Options with Various Local Banks
- - Prepaid Legal Services Plan - Long Term Disability Insurance
</TABLE>
[TEAM AMERICA HUMAN RESOURCES LOGO]
<PAGE> 64
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR BY ANY OF
THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON SHARES
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON SHARES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 7
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial and
Statistical Data.................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 22
Industry Regulation................... 30
Management............................ 34
Certain Transactions.................. 38
Principal and Selling Shareholders.... 39
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 42
Underwriting.......................... 43
Legal Matters......................... 44
Experts............................... 44
Available Information................. 44
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,250,000 SHARES
LOGO
COMMON SHARES
-------------------------
PROSPECTUS
-------------------------
THE OHIO COMPANY
RONEY & CO.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 65
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to be
incurred in connection with the issuance and distribution of the securities
being registered, other than underwriting compensation:
<TABLE>
<CAPTION>
NOTICE OF EXPENSE AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
Registration Fee -- Securities and Exchange Commission.................... $ 5,663
Filing Fee -- National Association of Securities Dealers.................. 2,368
Nasdaq National Market Listing and Entry Fee.............................. 22,113
Transfer Agent and Registrar Fees and Expenses............................ 4,000
Blue Sky Counsel Fees and Expenses........................................ 15,000
Legal Fees and Expenses................................................... 110,000
Accounting Fees and Expenses.............................................. 97,000
Printing and Engraving Expenses........................................... 75,000
Miscellaneous............................................................. 93,856
--------
Total........................................................... $425,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As authorized by Section 1701.13(E) of the Ohio Revised Code, Article V of
the Company's Amended Code of Regulations ("Article V") provides that directors
and officers of the Company may, under certain circumstances, be indemnified
against expenses (including attorneys' fees) and other liabilities actually and
reasonably incurred by them as a result of any suit brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, if they
had no reasonable cause to believe their conduct was unlawful. Article V also
provides that directors and officers may also be indemnified against expenses
(including attorneys' fees) incurred by them in connection with a derivative
suit if they acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interests of the corporation, except that no
indemnification may be made without court approval if such person was adjudged
liable to the corporation.
The Underwriting Agreement provides for indemnification by the Underwriters
of directors, officers and controlling persons of the Company for certain
liabilities, including certain liabilities under the Securities Act, under
certain circumstances.
The Company has purchased director and officer liability insurance in the
amount of $1 million covering its current executive officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information concerning all sales of securities
by the Company during the past three years that were not registered under the
Securities Act of 1933. The description presented below gives effect to the
184-to-1 split of the Common Shares prior to the issuance and delivery of the
Common Shares offered hereby:
(a) Pursuant to a Subscription Agreement dated March 11, 1988 between
Richard C. Schilg and a corporation that was merged with and into the
Company in 1989, Mr. Schilg subscribed to purchase 165,600 Common Shares of
the Company for an aggregate purchase price of $31,500 or $0.1902 per
share. On December 31, 1994, Mr. Schilg executed and delivered to the
Company a promissory note in the principal amount of $31,500 bearing
interest at a rate of 5% per annum. Such note was repaid in full
II-1
<PAGE> 66
in October 1996. For accounting purposes, the Company has treated such
shares as having been issued on December 31, 1994.
(b) On January 31, 1994, Mr. Schilg exercised options to purchase
423,200 Common Shares at a price of $0.0435 per share. The aggregate
exercise price of $18,400 was paid in cash by Mr. Schilg on December 30,
1994.
(c) On January 31, 1994, Kevin T. Costello exercised options to
Purchase 423,200 Common Shares at a price of $0.0272 per share. The
aggregate exercise price of $11,500 was paid in cash by Mr. Costello on
December 30, 1994.
(d) In 1995 and 1996, the Company converted a total of 39,192 Common
Shares held by Clair E. Irish (11,224 Common Shares), Robert and Phyllis
Christian (3,680 Common Shares), Thomas and Sharon Balduf (2,760 Common
Shares), Alfred J. Cappurccini (12,328 Common Shares) and Loren L. and
Carol Welsch (9,200 Common Shares) into an equal number of Class A
Preferred Shares. All of such Class A Preferred Shares will be converted
back into an equal number of Common Shares immediately prior to the
issuance and delivery of the Common Shares offered hereby.
These transactions were completed without registration under the Securities
Act of 1933 in reliance on the exemption provided by Section 4(2) of the
Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following Exhibits are filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended Articles of Incorporation of the Registrant to be filed by the
Registrant immediately prior to consummation of the Offering to which this
Registration Statement relates.
3.2 Form of Amended Code of Regulations of the Registrant to be adopted by the Registrant
immediately prior to consummation of the Offering to which this Registration
Statement relates.
4.1 Specimen certificate for Common Shares of the Registrant.*
4.2 See Exhibits 3.1 and 3.2 for provision of the Amended Articles of Incorporation and
Amended Code of Regulations of the Registrant defining rights of holders of Common
Shares.
5.1 Opinion of Squire, Sanders & Dempsey L.L.P. as to the legality of the Common Shares
being registered (including consents).*
10.1 Form of 1996 Incentive Stock Plan.
10.2 Form of Executive Employment Agreement between Richard C. Schilg and the Registrant.*
10.3 Form of Executive Employment Agreement between Kevin T. Costello and the Registrant.*
10.4 Lease for Cascade Corporate Center dated June 22, 1990 between EastGroup Properties
and the Registrant, as amended.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Squire, Sanders & Dempsey L.L.P. (see Exhibit 5.1).
24.1 Power of Attorney (included elsewhere in Part II of this Registration Statement).
</TABLE>
- ---------------
* To be filed by amendment.
II-2
<PAGE> 67
(b) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedules of the Company are attached
hereto and are filed as part of this Registration Statement:
Report of Independent Auditors
Schedule II -- Valuation and qualifying accounts
All other schedules are omitted because the required information is either
presented in the financial statements or notes thereto, or is not applicable,
required or material.
ITEM 17. UNDERTAKINGS.
(f) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions described in Item 14 above,
or otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(i) The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 68
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Columbus,
State of Ohio, on October 10, 1996.
TEAM AMERICA CORPORATION,
an Ohio corporation
By: /s/ RICHARD C. SCHILG
------------------------------------
Richard C. Schilg
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Richard
C. Schilg and Kevin T. Costello, or any one of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him and in his name, place and stead in any and all capacities to execute in
the name of each such person who is then an officer or director of the
Registrant any and all amendments (including post-effective amendments) to this
Registration Statement, and any registration statement relating to the Offering
hereunder pursuant to Rule 462 under the Securities Act of 1933, as amended, and
to file the same with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do and
perform each and every act and thing required to necessary to be done in and
about the premises as fully as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed effective as of October 10, 1996 by the
following persons in the capacities indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<C> <S>
/s/ RICHARD C. SCHILG Chairman of the Board, President and Chief
- -------------------------------------------- Executive Officer (Principal Executive
Richard C. Schilg Officer)
/s/ KEVIN T. COSTELLO Senior Vice President, Chief Operating
- -------------------------------------------- Officer and Director
Kevin T. Costello
/s/ RUSSELL R. GARVER Vice President and Chief Financial Officer
- -------------------------------------------- (Principal Financial and Accounting
Russell R. Garver
/s/ WILLIAM W. JOHNSTON Director
- --------------------------------------------
William W. Johnston
/s/ CHARLES F. DUGAN II Director
- --------------------------------------------
Charles F. Dugan II
/s/ PAUL M. CASH Director
- --------------------------------------------
Paul M. Cash
/s/ M. R. SWARTZ Director
- --------------------------------------------
M. R. Swartz
</TABLE>
II-4
<PAGE> 69
After the events described in Note 13 of TEAM America Corporation's Consolidated
Financial Statements are effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
August 30, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENTS AND SCHEDULES
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of TEAM AMERICA CORPORATION and
subsidiaries included in this Registration Statement and have issued our report
thereon dated August 30, 1996. Our audits were made for the purpose of forming
an opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in Item 16(b) is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Columbus, Ohio
August 30, 1996
II-5
<PAGE> 70
SCHEDULE II
TEAM AMERICA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO BALANCE AT END
DESCRIPTION PERIOD EXPENSE WRITE-OFFS OF PERIOD
- ------------------------------------------- ------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
Allowance for doubtful accounts.......... $ 38,088 $ 12,522 $ 35,475 $ 15,135
DECEMBER 31, 1994
Allowance for doubtful accounts.......... $ 15,135 $ 40,773 $ 50,502 $ 5,406
DECEMBER 31, 1995
Allowance for doubtful accounts.......... $ 5,406 $ 35,653 $ 37,793 $ 3,266
</TABLE>
II-6
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended Articles of Incorporation of the Registrant to be filed by the
Registrant immediately prior to consummation of the Offering to which this
Registration Statement relates.
3.2 Form of Amended Code of Regulations of the Registrant to be adopted by the
Registrant immediately prior to consummation of the Offering to which this
Registration Statement relates.
4.1 Specimen certificate for Common Shares of the Registrant.*
4.2 See Exhibits 3.1 and 3.2 for provision of the Amended Articles of Incorporation and
Amended Code of Regulations of the Registrant defining rights of holders of Common
Shares.
5.1 Opinion of Squire, Sanders & Dempsey L.L.P. as to the legality of the Common Shares
being registered (including consents).*
10.1 Form of 1996 Incentive Stock Plan.
10.2 Form of Executive Employment Agreement between Richard C. Schilg and the
Registrant.*
10.3 Form of Executive Employment Agreement between Kevin T. Costello and the
Registrant.*
10.4 Lease for Cascade Corporate Center dated June 22, 1990 between EastGroup Properties
and the Registrant, as amended.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Squire, Sanders & Dempsey L.L.P. (see Exhibit 5.1).
24.1 Power of Attorney (included elsewhere in Part II of this Registration Statement).
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
TEAM AMERICA CORPORATION
1,250,000 Shares
Common Stock
UNDERWRITING AGREEMENT
___________________, 1996
THE OHIO COMPANY
RONEY & CO.
As Representatives of the several Underwriters
named in Schedule A hereto
c/o The Ohio Company
155 East Broad Street
Columbus, OH 43215
Ladies and Gentlemen:
TEAM America Corporation, an Ohio corporation (the "Company"), and the
stockholders of the Company named in Schedule B hereto (the "Selling
Stockholders") hereby confirm their agreement with you and the other
underwriters named in Schedule A annexed hereto as follows:
SECTION 1. UNDERWRITERS AND REPRESENTATIVES. The term "Underwriters," as used
herein, will mean and refer collectively to you and the other underwriters named
in Schedule A annexed hereto and the term "Representatives" will refer to both
of you in your capacity as the representatives of the Underwriters. Except as
may be expressly set forth below, any reference to you in this Agreement shall
be solely in your capacity as the Representatives.
SECTION 2. SHARES OFFERED. The Company proposes to issue and sell to the
Underwriters an aggregate of 1,250,000 shares of its authorized and unissued
common shares, without par value (the "Common Stock"). The above-referenced
shares of Common Stock to be sold by the Company are hereinafter called the
"Firm Shares." The Company and the Selling Stockholders also propose to
<PAGE> 2
grant to the Underwriters an Option (as hereinafter defined) to purchase from
the Company up to an additional aggregate of 187,500 shares (the "Option
Shares") of Common Stock on the terms and for the purposes set forth in Section
5(b) hereof. The Firm Shares and the Option Shares are hereinafter sometimes
together called the "Shares."
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) A registration statement on Form S-1 (File No. ________) relating
to the Shares, including a preliminary prospectus, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules, regulations and instructions (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed by the Company with the Commission. One or more
amendments to such registration statement, including in each case a revised
preliminary prospectus, have been so prepared and filed. If such registration
statement has not become effective as of the execution and delivery of this
Agreement, and the filing of a further amendment (the "Final Amendment") to such
registration statement is necessary to permit such registration statement to
become effective, such amendment will promptly be filed by the Company with the
Commission. If such registration statement has become effective and any
post-effective amendment has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent post-effective
amendment has been declared effective by the Commission. If such registration
statement has become effective and the prospectus included as part of the
registration statement at the time it became effective omitted information
permitted to be omitted by Rule 430A of the Rules and Regulations ("Rule 430A
Information"), a final prospectus (the "Rule 430A Prospectus") containing all
required Rule 430A Information will promptly be filed by the Company pursuant to
Rule 424(b) of the Rules and Regulations. The term "preliminary prospectus" as
used herein means any form of prospectus (as referred to in Rule 430 of the
Rules and Regulations) with respect to the Shares included at any time as part
of such registration statement or filed with the Commission pursuant to Rule
424(a) of the Rules and Regulations prior to such registration statement being
declared effective. The registration statement referred to in this Section 3(a)
as amended at the time that it becomes or became effective, or, if applicable,
as amended at the time the most recent post-effective amendment to such
registration statement filed with the Commission prior to the execution and
delivery of this Agreement became effective, including financial statements and
all exhibits and other information (whether filed or incorporated by reference)
deemed to be a part thereof at such time pursuant to Rule 430A of the Rules and
Regulations is herein called the "Registration Statement;" and the final
prospectus relating to the Shares in the form first filed with the Commission
pursuant to Rule 424(b)(1) or (4) of the Rules and Regulations or, if no such
filing is required, the form of final prospectus included in the Registration
Statement at the Effective Date (as hereinafter defined) is herein called the
"Prospectus." The date on which the Registration Statement becomes effective is
hereinafter called the "Effective Date."
(b) When the Registration Statement becomes effective, and at all
subsequent times to and including the Closing Time (as hereinafter defined) and
at the Option Exercise Time (as
- 2 -
<PAGE> 3
hereinafter defined), or for such longer period as the Prospectus may be
required, by the Act or the Rules and Regulations or the Exchange Act (as
hereinafter defined) or the rules and regulations promulgated thereunder, to be
delivered in connection with sales of the Shares by the Underwriters or a
dealer, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto; provided that no amendment or supplement to the
Registration Statement or the Prospectus shall be made without prior
consultation with you) will comply with the requirements of the Act and the
Rules and Regulations, will contain all statements required to be stated therein
in accordance with the Act and the Rules and Regulations, will not contain an
untrue statement of a material fact and will not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
subsection (b) do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon and made in conformity with written
information furnished to the Company through the Representatives by or on behalf
of any Underwriter specifically for inclusion therein.
(c) The Commission has not issued an order preventing or suspending the
use of any preliminary prospectus with respect to the Shares and has not
instituted or, to the Company's knowledge, threatened to institute any
proceedings with respect to such an order. Each preliminary prospectus, when
filed with the Commission, conformed in all material respects with the
requirements of the Act and the Rules and Regulations and, as of its date, did
not include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however that the
representations and warranties in this sentence do not apply to statements or
omissions in each such preliminary prospectus based upon and made in conformity
with written information furnished to the Company through the Representatives by
or on behalf of any Underwriter specifically for inclusion in such preliminary
prospectus.
(d) The Company is, and at the Closing Time and at the Option Exercise
Time will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio. The Company has, and at the
Closing Time and at the Option Exercise Time will have, the power and authority
(corporate, governmental, regulatory and otherwise) and has or will have all
necessary approvals, orders, licenses, certificates, permits and other
governmental authorizations (collectively the "Authorizations") to own or lease
all of the assets owned or leased by it and to conduct its business as described
in the Registration Statement and the Prospectus, except where the failure to
have any Authorization would not have a material adverse effect on the business,
condition (financial or otherwise), results of operations or assets of the
Company (a "Material Adverse Effect"). The Company is, and at the Closing Time
and at the Option Exercise Time will be, duly licensed or qualified to do
business and in good standing as a foreign corporation in all jurisdictions (i)
in which the nature of the activities conducted by it requires such
qualification and (ii) in which the Company owns or leases real property, except
where the failure to be so qualified would not have a Material Adverse Effect.
The Company does not own, and at the Closing Time and at the Option Exercise
Time the Company will not own, any shares of stock or any other equity
securities of any
- 3 -
<PAGE> 4
corporation or have any equity interest in any firm, partnership, association or
other entity other than as set forth in the Registration Statement. A complete
and correct copy of the Articles of Incorporation and the Code of Regulations of
the Company, in each case as amended and as currently in effect, have been
delivered or made available to you or your counsel and no changes therein will
be made subsequent to the date hereof and prior to the expiration of the Option.
(e) At the Closing Time and at the Option Exercise Time the Company
will be authorized to issue only 10,000,000 shares of Common Stock, 500,000
Voting Preferred Shares and 500,000 Non-Voting Preferred Shares, each without
par value, and at the Closing Time will have outstanding, fully paid and
nonassessable, 2,085,088 shares of Common Stock and no Voting Preferred Shares
or Non-Voting Preferred Shares, without giving effect to the issuance of shares
of Common Stock by the Company pursuant to this Agreement. At the Closing Time
and at the Option Exercise Time the Company will have authorized and reserved
for issuance 350,000 shares of Common Stock under the Company's Incentive Stock
Plan (the "Incentive Plan"), of which options to purchase ___ shares will be
outstanding. Subsequent to the date hereof and prior to the Closing Time and the
Option Exercise Time the Company will not issue any securities. Except as
contemplated by this Agreement and as set forth in the Registration Statement
and the Prospectus, the Company does not have outstanding, and at the Closing
Time and at the Option Exercise Time the Company will not have outstanding, any
options to purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell shares of capital stock or any warrants, convertible securities or
obligations.
(f) The audited financial statements of the Company (including the
footnotes thereto) filed with and as part of the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the dates
thereof, and the audited statements of income and cash flows of the Company for
the periods covered thereby have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with prior periods
(except as otherwise described in the footnotes thereto). Arthur Andersen LLP
(the "Company's accountants"), who have reported on such audited financial
statements, are independent accountants with respect to the Company as required
by the Act and the Rules and Regulations. No financial statements or schedules
are required to be included in the Registration Statement or the Prospectus
which are not included therein.
(g) The Company has a duly authorized equity capitalization as set
forth in the Prospectus. Based on the assumptions set forth in the Prospectus,
the Company will have the adjusted capitalization set forth in the column
captioned "June 30, 1996 -- As Adjusted" under "Capitalization" at the Closing
Time. The financial and statistical information and data set forth in the
Prospectus under the captions "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Capitalization," "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business,"
"Management," "Certain Transactions," "Principal and Selling Shareholders,"
"Shares Eligible for Future Sale" and "Description of Capital Stock" are true
and correct in all material respects and as to the financial information is
prepared on a basis consistent with the audited financial statements of the
Company.
- 4 -
<PAGE> 5
(h) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and at all times prior to the
expiration of the Option, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) the Company has and will have
conducted its business in substantially the same manner as on June 30, 1996;
(ii) the Company has not incurred and will not have incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business; (iii) the Company has not
paid or declared and will not pay or declare any dividends or other
distributions on its capital stock; and (iv) there has not been and will not
have been any change in the capitalization of the Company (except for payments
required by debt agreements) or any other change which would have a Material
Adverse Effect.
(i) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, the Company does not have, and at the Closing Time
and the Option Exercise Time will not have, any material contingent obligations.
(j) There are no actions, suits or proceedings at law or in equity
pending, or to the knowledge of the Company threatened, against the Company, any
of its assets or any of its officers or directors, which have not been disclosed
in writing to you, before or by any federal, state, county or local commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would have a
Material Adverse Effect. The Company is not involved in any labor dispute nor,
to its knowledge, is any such dispute threatened, which dispute would have a
Material Adverse Effect.
(k) The Company has, and at the Closing Time and at the Option Exercise
Time will have, complied in all material respects, except as described in the
Prospectus, with all laws, regulations, ordinances and orders applicable to it
or its business (including without limitation all laws, regulations, ordinances
and orders relating to releases, discharges, emissions or disposals to air,
water, land or groundwater, to the withdrawal or use of groundwater, to the use,
handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances, pollutants or contaminants, or to exposure to toxic, hazardous or
other controlled, prohibited or regulated substances) the violation of which
would have a Material Adverse Effect. In addition, and irrespective of such
compliance, the Company is not subject to any liabilities for environmental
remediation or clean-up, including any liability or class of liability of the
lessee under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or the Resource Conservation and Recovery Act
of 1976, as amended, which liability would have a Material Adverse Effect. The
Company has, and at the Closing Time and at the Option Exercise Time will have,
in all respects performed all of the obligations required to be performed by it,
and is not, and at the Closing Time and at the Option Exercise Time will not be,
in default under and there exists no state of facts which with notice or lapse
of time or both would constitute a default under any indenture, mortgage, deed
of trust, voting trust agreement, loan agreement, letter of credit agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which it is a party or by which it
or any of its property is bound, and, to the knowledge of the Company, no other
party
- 5 -
<PAGE> 6
under any such agreement or instrument to which the Company is a party is in
default in any respect thereunder, except, in each case, where such failure to
perform or default would not have a Material Adverse Effect.
(l) The Company (i) keeps books, records and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company, and (ii) maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(A) transactions are executed in accordance with management's general or
specific authorization, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C) access to
assets is permitted only in accordance with management's general or specific
authorization and (D) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has not made any payment to any state,
federal or foreign governmental officer or official or other person charged with
public or quasi-public duties (other than payments required or permitted by the
laws of the United States or any jurisdiction thereof).
(m) The Company is not in violation of its Articles of Incorporation or
Code of Regulations, in each case as amended as of the date hereof.
(n) The outstanding shares of Common Stock have been and, upon issuance
and payment therefor, all of the Shares to be sold by the Company will be, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. The holders of shares of Common Stock will not be subject to
personal liability for the obligations of the Company solely by reason of being
such holders. The Common Stock and the Shares conform, and when the Registration
Statement becomes effective and at the Closing Time and at the Option Exercise
Time will conform, to all statements with regard thereto contained in the
Registration Statement and the Prospectus; and the issuance and sale of the
Shares to be issued and sold by the Company have been duly and validly
authorized by all necessary corporate action on the part of the Company.
(o) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles and except as rights to indemnity and contribution hereunder may be
limited by applicable law; the performance of this Agreement and the
consummation of the transactions contemplated hereby will not result in a breach
or violation of any of the terms and provisions of, or constitute a default (and
there exists no state of facts which with notice or lapse of time or both would
constitute a default) under or result in the creation or imposition of any lien,
charge or encumbrance upon the assets or properties of the Company, pursuant to
any indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
letter of credit agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties are bound,
and will not result in a breach
- 6 -
<PAGE> 7
or violation of the Articles of Incorporation or Code of Regulations of the
Company or any statute or any regulation, ordinance or order applicable to the
Company or its business or properties or of any court or other governmental
body; and no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions on its part herein contemplated, except such as may be required
under the Act, the Exchange Act or under state securities or blue sky laws or
such as have been obtained.
(p) The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in or
referred to in the Prospectus or such as would not have a Material Adverse
Effect. The Company has valid, subsisting and enforceable leases for the
properties reflected in the Prospectus as leased by it, except as enforceability
may be limited by general equitable principles, bankruptcy, insolvency,
moratorium, reorganization or other laws affecting creditors' rights generally.
(q) There is no document or contract of a character required to be
described in the Prospectus or to be filed as an exhibit to the Registration
Statement which is not described or filed as required; and no statement,
representation, warranty or covenant made by the Company in this Agreement or in
any certificate or document required by this Agreement to be delivered to you
is, was when made, or as of the Closing Time and the Option Exercise Time will
be, inaccurate, untrue or incorrect. No transaction has occurred between or
among the Company and any of its officers, directors or stockholders or any
affiliate of any such officer, director or stockholder that is required by the
Act or the Rules and Regulations to be described in and is not described in the
Registration Statement and the Prospectus.
(r) The Company owns or possesses all patents, patent rights, licenses,
inventions, copyrights, knowhow (including trade secrets, applications and other
unpatented or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
"Proprietary Rights") used in or necessary for the conduct of the business of
the Company as now conducted and as proposed to be conducted as described in the
Prospectus, except where the failure to own such Proprietary Rights would not
have a Material Adverse Effect. The Company has the right to use all Proprietary
Rights used in or necessary for the conduct of its business without infringing
the rights of any person or violating the terms of any licensing or other
agreement to which the Company is a party and, to the Company's knowledge, no
person is infringing upon any of the Proprietary Rights except where the
infringement or lack of a right to use would not have a Material Adverse Effect.
No charges, claims or litigation have been asserted or, to the Company's
knowledge, threatened against the Company contesting the right of the Company to
use, or the validity of, any of the Proprietary Rights or challenging or
questioning the validity or effectiveness of any license or agreement pertaining
thereto or asserting the misuse thereof, and, to the Company's knowledge, no
valid basis exists for the assertion of any such charge, claim or litigation.
All licenses and other agreements to which the Company is a party relating to
Proprietary Rights are in full force and effect and constitute valid, binding
and enforceable obligations of the Company and, to the Company's knowledge, the
other parties thereto, subject in each case to
- 7 -
<PAGE> 8
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, as the case may be, and there have not been
and there currently are not any defaults, and no event has occurred which
(whether by notice or lapse of time or both) would constitute a default by the
Company under any license or other agreement affecting Proprietary Rights used
in or necessary for the conduct of the business of the Company except for
defaults, if any, which would not have a Material Adverse Effect. The validity,
continuation and effectiveness of all licenses and other agreements relating to
the Proprietary Rights and the current terms thereof will not be affected by the
transactions contemplated by this Agreement.
(s) The Company intends to apply its proceeds from the sale of the
Shares for the purposes set forth in the Prospectus under "Use of Proceeds."
(t) The Company is not, and does not intend to conduct its business in
a manner which would cause it to become, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended.
(u) All issuances and sales by the Company of its securities prior to
the date hereof were either (i) registered under the Act, or (ii) exempt from
registration under the Act and complied in all respects with the provisions of
all applicable federal and state securities laws. Except as set forth in or
contemplated by the Prospectus, no holder of any securities of the Company has
the right to require registration of any shares of Common Stock or other
securities of the Company because of the filing or effectiveness of the
Registration Statement.
(v) Neither the Company nor any of its officers or directors or
affiliates (as defined in the Rules and Regulations) has taken or will take,
directly or indirectly, any action designed to stabilize or manipulate the price
of any security of the Company, or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation of
the price of any security of the Company, to facilitate the sale or resale of
any of the Shares.
(w) The Company has not, and at the Closing Time and at the Option
Exercise Time will not have, incurred any liability for financial advisory,
finder's or brokerage fees or agent's commissions in connection with the offer
and sale of the Shares, this Agreement or the transactions hereby contemplated,
except for the Underwriters' discounts and commissions provided for in this
Agreement.
(x) The Company has filed all federal, state and local income,
employment, withholding, franchise and other tax returns required to be filed
through the date hereof and has paid all taxes shown as due thereon. Except as
set forth in the Registration Statement or the Prospectus, no tax deficiency has
been, nor does the Company have any knowledge of any tax deficiency which might
be, asserted against the Company which would have a Material Adverse Effect.
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<PAGE> 9
(y) The Company has, and at the Closing Time and at the Option Exercise
Time will have, made all filings required to be made by it under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the applicable rules
of the National Association of Securities Dealers, Inc. ("the "NASD").
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder severally represents and warrants that:
(a) The Selling Stockholder has, and immediately prior to the Closing
Time and at the Option Exercise Time the Selling Stockholder will have, good and
valid title to the Option Shares to be sold by the Selling Stockholder on such
date, free and clear of all liens, encumbrances, equities or claims; and upon
delivery of such shares and payment therefor pursuant hereto and thereto, good
and valid title to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters.
(b) The Selling Stockholder has placed in custody under a custody
agreement (the "Custody Agreement" and, together with the similar agreement
executed by the other Selling Stockholder, the "Custody Agreements") with
Squire, Sanders & Dempsey, as custodian (the "Custodian"), for delivery under
this Agreement, certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent in the United
States or a member firm of the New York or American Stock Exchanges)
representing the Option Shares to be sold by the Selling Stockholder hereunder.
(c) The Selling Stockholder has duly and irrevocably executed and
delivered a power of attorney (the "Power of Attorney" and, together with the
similar power of attorney executed by the other Selling Stockholder, the "Powers
of Attorney") appointing the Custodian and one or more other persons, as
attorneys-in-fact, with full power of substitution, and with full authority
(exercisable by any one or more of them) to execute and deliver this Agreement
and to take such other action as may be necessary or desirable to carry out the
provisions hereof on behalf of the Selling Stockholder.
(d) The Selling Stockholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody Agreement; the
execution, delivery and performance of this Agreement, the Power of Attorney and
the Custody Agreement by the Selling Stockholder and the consummation by the
Selling Stockholder of the transactions contemplated hereby and thereby will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Selling
Stockholder is a party or by which the Selling Stockholder is bound or to which
any of the property or assets of the Selling Stockholder is subject, nor will
such actions result in any violation of the provisions of any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Selling Stockholder or the property or assets of the
Selling Stockholder; and, except for the registration of the Option Shares under
the Securities Act and such consents, approvals, authorizations, registrations
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<PAGE> 10
or qualifications as may be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution of the Option
Shares by the Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement, the
Power of Attorney or the Custody Agreement by the Selling Stockholder and the
consummation by the Selling Stockholder of the transactions contemplated hereby
and thereby.
(e) The Registration Statement and the Prospectus do not and will not,
as of the applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the Prospectus
and any amendment or supplement thereto) contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein.
(f) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 2 hereof are
not materially true and correct, is familiar with the Registration Statement and
the Prospectus (as amended or supplemented) and has no knowledge of any material
fact, condition or information not disclosed in the Registration Statement, as
of the effective date, or the Prospectus (or any amendment or supplement
thereto), as of the applicable filing date, which has adversely affected or may
adversely affect the business of the Company and is not prompted to sell shares
of Common Stock by any information concerning the Company which is not set forth
in the Registration Statement and the Prospectus.
(g) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or which
might reasonably be expected to cause or result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
SECTION 5. PURCHASE, SALE AND DELIVERY OF THE SHARES; CLOSING; DISTRIBUTION.
(a) (i) On the basis of the representations and warranties set forth in
this Agreement and subject to the terms and conditions herein set
forth, the Company agrees, to sell to the Underwriters 1,250,000 Firm
Shares, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at and for a price of $_____ per Share the
number of Firm Shares determined as hereinafter provided. The
obligation of each Underwriter to the Company shall be to purchase from
the Company that number of whole Firm Shares which (as nearly as
practicable, as determined by you) represents the same proportion of
the number of Firm Shares to be sold by the Company as the number of
Firm Shares set forth opposite
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<PAGE> 11
the name of such Underwriter in Schedule A hereto represents of the
total number of Firm Shares to be purchased by all the Underwriters
under this Agreement (subject to adjustment as provided in Section 13).
(ii) Delivery of the Firm Shares shall be made to you for the
accounts of the respective Underwriters, at the offices of The Ohio
Company, 155 East Broad Street, Columbus, Ohio, or such other location
as you and the Company shall agree, against payment by you on behalf of
the several Underwriters of the purchase price therefor by delivery of
certified or bank cashier's checks payable in next day funds to the
order of the Company at 10:00 a.m., Columbus time, on _____________,
1996, or on such other business day (Saturdays, Sundays and legal
holidays in the City of Columbus not being considered business days for
the purposes of this Agreement), not later than the fourth full
business day following the date of this Agreement as you shall
determine and advise the Company by at least two full business days'
notice in writing, which time and date are herein called the "Closing
Time." Delivery of the Firm Shares shall be made in registered form in
such name or names and in such denominations as you shall request by at
least two full business days' notice in writing. The cost of original
issue tax stamps and transfer stamps, if any, in connection with the
issuance and delivery or sale of the Firm Shares by the Company to the
respective Underwriters shall be borne by the Company. The Company will
pay and save each Underwriter or its nominees, and any subsequent
holder of the Firm Shares, harmless from any and all liabilities with
respect to or resulting from any failure or delay in paying federal or
state stamp and other transfer taxes, if any, which may be payable or
determined to be payable in connection with the sale by the Company to
such Underwriter of the Firm Shares or any portion thereof.
(iii) The Company will make the certificates for the Firm
Shares available to you for examination at such offices as you shall
designate, not later than 2:00 p.m., on the business day preceding the
Closing Time.
(iv) The obligations of the several Underwriters to purchase
and pay for the Firm Shares shall be subject to compliance as of such
date with all of the conditions specified in Section 10 hereof and to
the absence of any termination of this Agreement pursuant to Section
12.
(b) (i) The Company and the Selling Stockholders hereby grant to the
several Underwriters an option (the "Option") to purchase from the
Company and the Selling Stockholders up to 187,500 Option Shares
(87,500 of such Option Shares to be sold by the Company and 100,000 of
such Option Shares to be sold by the Selling Stockholders), in the same
proportion as each Underwriter has agreed to purchase the Firm Shares,
at and for a price of $_____ for each Option Share; provided, however,
that the Option may be exercised only for the purpose of covering any
over-allotments which may be made by you in connection with the
distribution and sale of the Firm Shares.
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<PAGE> 12
(ii) The Option is exercisable by you in whole or in part at
any time within 30 days after the date of the Prospectus, by giving
notice to the Company and the Selling Stockholders in the manner
provided in Section 14 hereof, setting forth the number of Option
Shares as to which the Option is being exercised, the name or names in
which the certificates for such Option Shares are to be registered, the
denominations of such certificates and the date of delivery of such
Option Shares, which date, if not the Closing Time, shall not be less
than two nor more than fourth full business days after such notice.
(iii) Upon the exercise of the Option, the Company and the
Selling Stockholders shall sell to the several Underwriters the
aggregate number of Option Shares specified in the notice exercising
the Option and the Underwriters, on the basis of the representations
and warranties of the Company contained herein and in each certificate
and document contemplated under this Agreement to be delivered to you,
but subject to the terms and conditions of this Agreement, shall
purchase from the Company the aggregate number of Option Shares
specified in such notice. If the Underwriters shall exercise the Option
as to less than all of the Option Shares, Option Shares shall first be
sold and delivered pro rata by the Selling Stockholders and the
balance, if any, shall be sold and delivered by the Company.
(iv) Delivery of the Option Shares with respect to which the
Option shall have been exercised shall be made to you, for the account
of the several Underwriters, at the offices of The Ohio Company, 155
East Broad Street, Columbus, Ohio or such other location, including New
York, New York, as you and the Company shall agree, against payment by
you, on behalf of the respective Underwriters, of the purchase price
therefor to the Company and the Selling Stockholders by certified or
bank cashier's check or checks payable in next-day funds to the order
of the Company and the Selling Stockholders in the amounts to which
they are respectively entitled, at 10:00 a.m., Columbus time, on the
date and in the place designated in the notice given by you as above
provided for, unless some other place, time and date is mutually agreed
upon (such time and date being herein called the "Option Exercise
Time"). The cost of original issue tax stamps or transfer stamps, if
any, in connection with each issuance and delivery of Option Shares by
the Company to the respective Underwriters shall be borne by the
Company. The Company will pay and save each Underwriter, and any
subsequent holder of Option Shares, harmless from any and all
liabilities with respect to or resulting from any failure or delay in
paying federal and state stamp taxes, if any, which may be payable or
determined to be payable as a result of the sale by the Company to such
Underwriter of Option Shares or any portion thereof.
(v) The Company and the Selling Stockholders will make the
certificates for the Option Shares to be purchased at the Option
Exercise Time available to you for examination at such offices as you
shall designate, not later than 2:00 p.m., on the business day next
preceding such Option Exercise Time.
(vi) The obligation of the several Underwriters to purchase
and pay for the Option Shares at the Option Exercise Time shall be
subject to compliance as of such date with all
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<PAGE> 13
the conditions specified in Section 10 hereof and to the absence of any
termination of this Agreement pursuant to Section 12 hereof.
(c) Subject to the terms and conditions hereof, the several
Underwriters agree that (i) they will offer the Shares to the public as set
forth in the Prospectus as soon after the Registration Statement becomes
effective as may be practicable, and (ii) they will offer and sell the Shares to
the public only in those jurisdictions where, and in such amounts as to which,
due qualification and/or registration has been effected or an exemption from
such qualification and/or registration is available under the applicable
securities or blue sky laws; it being understood, however, that such agreement
only covers the initial sale of the Shares by the Underwriters and not any
subsequent sale of such Shares in any trading market.
SECTION 6. REGISTRATION STATEMENT AND PROSPECTUS.
(a) The Company will deliver to each of you, without charge, two fully
signed copies of the Registration Statement and of each amendment thereto,
including all financial statements and exhibits, and to each Underwriter the
number of conformed copies of the Registration Statement and of each amendment
thereto, including all financial statements, but excluding exhibits, as each
Underwriter may reasonably request.
(b) The Company has delivered to each Underwriter, and each of the
dealers selected by you in connection with the distribution of the Shares
(hereafter sometimes referred to individually as a "Selected Dealer" and
collectively as "Selected Dealers"), without charge, as many copies as you have
requested of each preliminary prospectus heretofore filed with the Commission
and will deliver to each Underwriter and to any Selected Dealer, without charge,
on the Effective Date, and thereafter from time to time during the period in
which the Prospectus is required by law to be delivered in connection with sales
of Shares by an Underwriter or a dealer, as many copies of the Prospectus (and,
in the event of any amendment of or supplement to the Prospectus, of such
amended or supplemented Prospectus) as you may reasonably request.
(c) The Company has authorized the Underwriters to use, and make
available for use by prospective dealers, the preliminary prospectuses, and
authorizes each Underwriter, all Selected Dealers and all dealers to whom any of
such Shares may be sold by the Underwriters or by any Selected Dealer, to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Shares in accordance with the applicable provisions of the Act,
the applicable Rules and Regulations and applicable state law until completion
of the public offering of the Shares and for such longer period as you may
request if the Prospectus is required to be delivered in connection with sales
of the Shares by an Underwriter or a dealer.
SECTION 7. COVENANTS OF THE COMPANY. The Company covenants and agrees with
each Underwriter that:
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<PAGE> 14
(a) After the execution and delivery of this Agreement, the Company
will not, at any time, whether before or after the Effective Date, file any
amendment of or supplement to the Registration Statement or the Prospectus of
which you shall not previously have been advised and furnished with a copy, or
which you or Porter, Wright, Morris & Arthur ("counsel for the Underwriters")
shall not have approved (which approval shall not be unreasonably withheld or
delayed) or which is not in compliance with the Act or the Rules and
Regulations.
(b) If the Registration Statement has not become effective, the Company
will promptly file the Final Amendment with the Commission and will use its best
efforts to cause the Registration Statement to become effective. If the
Registration Statement has become effective, the Company will file the Rule 430A
Prospectus or other Prospectus with the Commission as promptly as practicable,
but in no event later than is permitted by Rule 424(b). The Company will
promptly advise you (i) when the Registration Statement, or any post-effective
amendment thereto, shall hereafter become effective, or any amendments or
supplements to the Prospectus shall have been filed with the Commission; (ii) of
any request of the Commission or any state or other regulatory body for any
amendment or supplement of the Registration Statement or the Prospectus or for
additional information and the nature and substance thereof; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any
preliminary prospectus or prohibiting the offer or sale of any of the Shares or
of the initiation of any proceedings for such purpose; (iv) of any receipt by
the Company of any notification with respect to the suspension of qualification
of the Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose; and (v) of the happening of any event during
the periods in which the Prospectus is to be used in conjunction with the offer
or sale of Shares which makes any statement made in the Registration Statement
or the Prospectus untrue in any material respect or which requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein not misleading. The Company will use its best efforts to
prevent the issuance of any stop order or any order preventing or suspending the
use of the Registration Statement or Prospectus and, if such order is issued, to
obtain the lifting thereof as promptly as possible.
(c) The Company will prepare and file with the Commission, upon your
request, any such amendments of or supplements to the Registration Statement or
the Prospectus, in form satisfactory to Squire, Sanders & Dempsey ("counsel for
the Company"), as in the opinion of counsel for the Underwriters may be
necessary or advisable in connection with the distribution of the Shares or any
change in the price at which, or the terms upon which, the Shares may be offered
by you, and will use its best efforts to cause the same to become effective as
promptly as possible.
(d) The Company will comply with the Act and the Rules and Regulations
and the Exchange Act and the rules and regulations thereunder so as to permit
the continuance of sales of and dealings in the Shares under the Act and the
Exchange Act. If at any time when a prospectus is required to be delivered under
the Act an event shall have occurred as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements therein not
untrue or not misleading in any material respect or to make the Prospectus
comply with the Act and the
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<PAGE> 15
Rules and Regulations, the Company will notify you promptly thereof and will,
subject to the provisions of Section 7(a) hereof, file with the Commission an
amendment or supplement which will correct such statement in accordance with the
requirements of Section 10 of the Act.
(e) The Company will comply with all of the provisions of any
undertakings contained in the Registration Statement.
(f) The Company will take all reasonable actions to furnish to whomever
you direct, when and as requested by you, all necessary documents, exhibits,
information, applications, instruments and papers as may be required or, in the
opinion of counsel for the Underwriters, desirable in order to permit or
facilitate the sale of the Shares. The Company will use its best efforts to
qualify or register the Shares for sale under the so-called blue sky laws of
such jurisdictions as you shall request, to make such applications, file such
documents and furnish such information as may be required for such purpose and
to comply with such laws so as to continue such qualification in effect so long
as required for the purposes of the distribution of the Shares; provided,
however, that the Company shall not be required to qualify as a foreign
corporation in any jurisdiction; and provided further that the Company shall not
be required to file a consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Shares.
(g) During the period of two years commencing on the Effective Date,
the Company will furnish to each Underwriter, in such number of copies as such
Underwriter may reasonably request, (i) within 90 days after the end of each
fiscal year of the Company, either (A) a consolidated balance sheet of the
Company and its then consolidated subsidiaries, and a separate balance sheet of
each subsidiary, if any, of the Company the accounts of which are not included
in such consolidated balance sheet, as of the end of such fiscal year, and
consolidated statements of income and retained earnings of the Company and its
then consolidated subsidiaries, and separate statements of income and retained
earnings of each of the subsidiaries, if any, of the Company the accounts of
which are not included in such consolidated statements, for the fiscal year then
ended, all in reasonable detail, prepared in accordance with generally accepted
accounting principles, consistently applied, and all certified by independent
accountants (within the meaning of the Act and the Rules and Regulations), or
(B) the Company's Form 10-K for such fiscal year as filed with the Commission in
accordance with the Exchange Act; (ii) within 45 days after the end of each of
the first three fiscal quarters of each fiscal year, either (A) similar balance
sheets as of the end of such fiscal quarter and similar statements of income and
retained earnings for the fiscal quarter then ended, all in reasonable detail,
and all certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting principles, consistently applied, or (B) the
Company's Form 10-Q for such fiscal quarter as filed with the Commission in
accordance with the Exchange Act; (iii) as soon as available, each report and
each proxy or information statement furnished to or filed with the Commission or
any securities exchange and each report and financial statement furnished to the
Company's stockholders generally; and (iv) any material reports filed by the
Company in connection with the quotation of its Common Stock in the Nasdaq
National Market ("Nasdaq/NM") or any listing on any stock exchange.
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<PAGE> 16
(h) Counsel for the Company, the Company's accountants and the officers
of the Company will respectively furnish the opinions, the letters and the
certificates referred to in subsections (e), (g), (h) and (i) of Section 10
hereof, and, in the event that the Company shall file any amendment to the
Registration Statement relating to the offering of the Shares or any amendment
or supplement to the Prospectus relating to the offering of the Shares
subsequent to the Effective Date, whether pursuant to subsection (c) of this
Section 7 or otherwise, such counsel, such accountants and such officers will,
at the time of such filing or at such subsequent time as you shall specify,
respectively, furnish to you such opinions, letters and certificates, each dated
the date of its delivery, of the same nature as the opinions, letters and
certificates referred to in said subsections (e), (g), (h) and (i),
respectively, as you may reasonably request, or, if any such opinion, letter or
certificate cannot be furnished by reason of the fact that such counsel or such
accountants or any such officer believes that the same would be inaccurate, such
counsel or such accountants or any such officer will furnish an accurate
opinion, letter or certificate with respect to the same subject matter.
(i) Prior to the expiration of the Option, the Company will not issue,
directly or indirectly, without first consulting with you and counsel for the
Underwriters, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby.
(j) Except as described in the Prospectus or as contemplated by this
Agreement, the Company shall not, without your prior written consent, sell,
contract to sell or otherwise dispose of any shares of Common Stock, or any
securities convertible into shares of Common Stock, for a period of 180 days
after the Effective Date.
(k) The Company will apply the net proceeds from the sale of the Shares
in the manner set forth under "Use of Proceeds" in the Prospectus and will
deliver promptly to the Representatives a signed copy of each Form SR filed by
it with the Commission.
(l) The Company has applied, or will, prior to the Effective Date,
apply for the listing of the Shares on Nasdaq/NM and will use its best efforts
to complete that listing, subject only to official notice of issuance and
evidence of satisfactory distribution, prior to the Closing Date.
(m) The Company will file with the NASD all documents and notices
required of companies that have issued securities that are traded in the
over-the-counter market and quotations for which are reported on the Nasdaq/NM.
(n) After the Closing Time and the Option Exercise Time, the Company
will be in compliance with the financial record-keeping requirements and
internal accounting control requirements of Section 13(b)(2) of the Exchange
Act.
(o) As soon as practicable after the Effective Date, the Company will
make generally available to its security holders and deliver to you an earnings
statement (which need not be audited)
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<PAGE> 17
covering a period of at least 12 months beginning not earlier than the Effective
Date which shall satisfy the provisions of Section 11(a) of the Act and/or Rule
158 promulgated under the Act.
SECTION 8. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
covenants and agrees with each Underwriter that:
(a) For a period of 180 days after the Effective Date, he will not
offer, directly or indirectly, for sale, sell or otherwise dispose of (or enter
into any transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of), any
shares of Common Stock without the prior written consent of the Representatives.
(b) The Option Shares to be sold by the Selling Stockholder hereunder,
which are represented by the certificates held in custody for the Selling
Stockholder, are subject to the interest of the Underwriters and the other
Selling Stockholder hereunder, the arrangements made by the Selling Stockholder
for such custody are to that extent irrevocable, and the obligations of the
Selling Stockholder hereunder shall not be terminated by any act of the Selling
Stockholder, by operation of law, by the death or incapacity of any Selling
Stockholder or by the occurrence of any other event.
(c) The Selling Stockholder will deliver to the Representatives prior
to the Option Exercise Time a properly completed and executed United States
Treasury Department Form W-9.
SECTION 9. EXPENSES. The Company will pay and bear all costs, fees, taxes and
expenses incident to the performance of the obligations of the Company and the
Selling Stockholders under this Agreement, including, but not limited to: (a)
the costs incident to the issuance, sale and delivery to the Underwriters of the
Shares; (b) the costs incident to the preparation, printing and filing under the
Act of each preliminary prospectus, the Prospectus, the Registration Statement
and any amendments or supplements thereof and exhibits thereto; (c) the costs of
printing and distributing to the Representatives, the other Underwriters and any
Selected Dealers copies of any preliminary prospectus, the Prospectus, the
Registration Statement and any amendment or supplement to the Prospectus or
Registration Statement required by this Agreement or the Act; (d) the costs of
preparation, printing, mailing, delivery, filing and distribution of preliminary
and final blue sky memoranda, Underwriter's Questionnaires and Powers of
Attorney, letters to prospective Underwriters, the Agreement Among Underwriters,
the Selected Dealer Agreement, this Agreement and all documents related thereto;
(e) the filing fees of the Commission; (f) the costs of qualification or
registration of the Shares in the jurisdictions referred to in Section 7(f)
hereof, including the legal fees and expenses of counsel for the Underwriters in
connection therewith, and all filing fees in connection therewith; (g) the cost
of preparation of all filings with the NASD incident to securing any required
review of the terms of sale of the Shares and all filing fees in connection
therewith; (h) fees and expenses of counsel for the Company and the Selling
Stockholders, the Company's accountants and the Company's consultants; (i) fees
in connection with the qualification of the Shares for quotation in Nasdaq/NM;
(j) the costs of delivering and distributing the Custody Agreements and the
Powers of Attorney; and (k) all other costs and expenses incurred or to be
incurred by the Company and the Selling Stockholders incident to the performance
of their
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<PAGE> 18
obligations under this Agreement; provided that the Selling Stockholders shall
pay the fees and expenses of their counsel if they shall retain counsel other
than Squire, Sanders & Dempsey and shall pay any transfer taxes payable in
connection with their sale of Option Shares to the Underwriters. If the Firm
Shares are not sold to the Underwriters by reason of any failure, refusal or
inability on the part of the Company to perform any agreement on its part to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if you shall terminate this Agreement pursuant to Section 12(a)
hereof, the Company shall reimburse you for all of the actual out-of-pocket
expenses reasonably incurred in connection with this Agreement and the proposed
purchase of the Shares including without limitation all reasonable fees and
disbursements of counsel for the Underwriters in connection therewith. The
Company shall have no obligation to reimburse the Underwriters for any such
out-of-pocket expenses referred to in the immediately preceding sentence if the
Underwriters shall terminate this Agreement pursuant to Section 13 hereof.
SECTION 10. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The Underwriters'
obligations hereunder to purchase and pay for the Shares are subject (as of the
date hereof, the Closing Time and the Option Exercise Time) to the following
conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Columbus time, on the date of this Agreement, or
at such later time or on such later date as you may agree to in
writing; (ii) if required, the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b)(1) or (4) of the Rules and
Regulations within the applicable time period prescribed for such
filing thereunder and in accordance with the provisions of Section 7(b)
hereof; (iii) at or prior to the Closing Time or the Option Exercise
Time, as the case may be, no stop order suspending the effectiveness of
the Registration Statement or the qualification or registration of the
Shares under the blue sky laws of any jurisdiction shall have been
issued and no proceeding for that purpose shall have been initiated or
shall be threatened or contemplated by the Commission or the
authorities of any such jurisdiction; (iv) any request for additional
information on the part of the Commission or any such authorities shall
have been complied with to the satisfaction of the Commission or such
authorities and to the reasonable satisfaction of counsel for the
Underwriters; (v) the NASD, upon review of the terms of the public
offering of Shares, shall not have objected to such offering, such
terms, or the Underwriters' participation in the same; and (vi) after
the date hereof, no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed without your prior
consent.
(b) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto, in
your reasonable judgment after conferring with counsel for the Underwriters,
contains an untrue statement of a fact which is material, or omits to state a
fact which is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
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<PAGE> 19
(c) Between the time of the execution and delivery of this Agreement
and the Closing Time or the Option Exercise Time, as the case may be, there
shall be no litigation instituted against the Company or any of its officers or
directors, as such, and between such dates there shall be no proceeding
instituted or threatened against the Company or any of its officers or
directors, as such, before or by any federal, state, county or local commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, in which litigation or proceeding an unfavorable ruling, decision or
finding would have a Material Adverse Effect or would materially and adversely
affect the ability of the Company or the Selling Stockholders to perform their
obligations under this Agreement.
(d) Each of the representations and warranties of the Company contained
herein and in each certificate and document contemplated under this Agreement to
be delivered shall be true and correct at the Closing Time and the Option
Exercise Time as if made at the Closing Time or the Option Exercise Time, as the
case may be, and all covenants and agreements contained herein, and in each such
certificate and document, to be performed on the part of the Company and all
conditions contained herein and in each such certificate and document to be
fulfilled or complied with by the Company and the Selling Stockholders at or
prior to the Closing Time or the Option Exercise Time, as the case may be, shall
have been duly performed, fulfilled or complied with.
(e) At the Closing Time and the Option Exercise Time, counsel for the
Company shall furnish to you an opinion, in form and substance reasonably
satisfactory to you and your counsel, dated as of the date of its delivery, to
the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Ohio, has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus, and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure so to qualify would not have a material
adverse effect on the financial condition, earnings, operations or
business of the Company.
(ii) The Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder.
(iii) This Agreement and the issuance of the Shares pursuant
hereto have been duly authorized by all necessary corporate action on
the part of the Company. This Agreement has been duly executed and
delivered by the Company, and assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles and except as rights to
indemnity and contribution hereunder may be limited by applicable law.
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<PAGE> 20
(iv) The authorized capital stock of the Company is as set
forth in the Prospectus, and the issued and outstanding shares of
Common Stock have been duly and validly authorized and issued, are
fully paid and nonassessable, and have not been issued in violation of
any preemptive right.
(v) The Firm Shares or the Option Shares, as the case may be,
to be issued by the Company pursuant to the terms of this Agreement
will be, upon issuance and delivery against payment therefor in
accordance with the terms hereof, duly authorized and validly issued
and fully paid and nonassessable, and not issued in violation of any
preemptive right.
(vi) To such counsel's knowledge, except as set forth in or
contemplated by the Prospectus no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company because of the filing or effectiveness of the
Registration Statement.
(vii) The terms and provisions of the Common Stock and the
Shares conform in all material respects to the description thereof
contained in the Registration Statement and Prospectus; and the forms
of certificates evidencing the Common Stock and the Shares comply with
the Ohio General Corporation Law.
(viii) The execution and delivery of this Agreement by the
Company, and the consummation by it of the transactions herein
contemplated did not and will not (x) result in any violation of the
Company's Articles of Incorporation or Code of Regulations, or (y) to
such counsel's knowledge, result in the material breach or violation of
any of the terms and provisions of, or constitute a material default
under, any material indenture, mortgage or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, or any applicable statute, rule or
regulation or any order, writ or decree known to such counsel of any
court or governmental agency or body having jurisdiction over the
Company or any of its properties; provided, however, that no opinion
need be rendered concerning state securities or blue sky laws.
(ix) No authorization, approval or consent of any governmental
authority or agency is necessary in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, except such as have been obtained
under the Act, the Exchange Act or other applicable laws, or such as
may be required under state or other securities or blue sky laws in
connection with the purchase and the distribution of the Shares by the
Underwriters.
(x) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, (a) no stop order suspending the
effectiveness of the Registration Statement has been issued and (b) no
proceedings for that purpose have been instituted or are pending or
threatened under the Act. The opinion delivered at the Closing Time
shall
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<PAGE> 21
confirm that all filings required by Rule 424 and, if applicable, Rule
430A of the Rules and Regulations have been made.
(xi) Each of the Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the financial
statements, financial data and supporting schedules included in such
Registration Statement or Prospectus, as to which such counsel need
express no opinion) as of the effective date of the Registration
Statement, complied as to form with the requirements of the Act and the
applicable Rules and Regulations.
(xii) The description in the Registration Statement and the
Prospectus of contracts are accurate in all material respects and
fairly present the information required by the Act or the Rules and
Regulations to be presented; and to such counsel's knowledge, there are
no contracts or documents of a character required to be described or
referred to in the Registration Statement or Prospectus or to be filed
as an exhibit to the Registration Statement that are not described or
referred to therein and filed as required.
(xiii) The Company is not an "investment company" as defined
in Section 3(a) of the Investment Company Act and, if the Company
conducts its business as set forth in the Registration Statement and
the Prospectus, will not become an "investment company" and will not be
required to register under the Investment Company Act.
In addition, such counsel shall confirm that although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and upon their discussions with officers and representatives
of and the independent public accountants for the Company, nothing has come to
the attention of such counsel which caused them to believe that, at the time the
Registration Statement became effective, the Registration Statement (except as
to financial statements, financial data and supporting schedules contained in
such Registration Statement and Prospectus, as to which such counsel need
express no belief) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or the Prospectus (except as aforesaid), as
of the date of the Prospectus and as of the Closing Time or the Option Exercise
Time, as the case may be, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(f) The [respective] counsel for [each of] the Selling Stockholders
shall [each] have furnished to you its opinion, as counsel to [each of] the
Selling Stockholders for whom [they][it] [is][are] acting as counsel, dated the
Option Exercise Date, in form and substance reasonably satisfactory to you, to
the effect that:
(i) Each Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement; the execution, delivery and
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<PAGE> 22
performance of this Agreement, the Power of Attorney and the Custody
Agreement by each Selling Stockholder and the consummation by each
Selling Stockholder of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which any Selling Stockholder is
a party or by which any Selling Stockholder is bound or to which any of
the property or assets of any Selling Stockholder is subject, nor will
such actions result in any violation of the provisions of any statute
or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over any Selling
Stockholder or the property or assets of any Selling Stockholder; and,
except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable
state securities laws in connection with the purchase and distribution
of the Stock by the Underwriters, no consent, approval, authorization
or order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Power of Attorney or the Custody
Agreement by any Selling Stockholder and the consummation by any
Selling Stockholder of the transactions contemplated hereby and
thereby;
(ii) This Agreement has been duly executed and delivered by or
on behalf of each Selling Stockholder;
(iii) A Power of Attorney and a Custody Agreement have been
duly executed and delivered by each Selling Stockholder and constitute
valid and binding agreements of each Selling Stockholder, enforceable
in accordance with their respective terms;
(iv) Immediately prior to the Option Exercise Date, each
Selling Stockholder was the record and beneficial owner of the Option
Shares to be sold by such Selling Stockholder under this Agreement,
free and clear of all liens, encumbrances, equities or claims, and had
full right, power and authority to sell, assign, transfer and deliver
such Option Shares hereunder; and
(v) Assuming that the Underwriters are bona fide purchasers
purchasing in good faith without notice of any adverse claim within the
meaning of the Uniform Commercial Code, upon the delivery of and
payment for the Option Shares to be sold by the Selling Stockholders as
contemplated by this Agreement, each of the Underwriters will receive
valid title to the Option Shares purchased by it from such Selling
Stockholders, free and clear of any pledge, lien, security interest,
voting trust, encumbrance, claim or equitable interest, except any
claim arising as a result of any action or inaction of any Underwriter.
In rendering the opinion in Section 10(f)(iv) above, such counsel may
rely upon a certificate of each Selling Stockholder in respect of matters of
fact as to ownership of and liens, encumbrances, equities or claims on the
shares of Stock sold by each Selling Stockholder, provided that such
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<PAGE> 23
counsel shall furnish copies thereof to the Representatives and state that it
believes that both the Underwriters and it are justified in relying upon such
certificate. Such counsel shall also have furnished to the Representatives a
written statement, addressed to the Underwriters and dated the Option Exercise
Date, in form and substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to each Selling Stockholder in
connection with the preparation of the Registration Statement, and (y) based on
the foregoing, no facts have come to the attention of such counsel which lead it
to believe that the Registration Statement, as of the Effective Date, contained
any untrue statement of a material fact relating to any Selling Stockholder or
omitted to state such a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, or that the Prospectus
contains any untrue statement of a material fact relating to any Selling
Stockholder or omits to state such a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing opinion
and statement may be qualified by a statement to the effect that such counsel
does not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the Prospectus.
(g) Concurrently with the execution and delivery of this Agreement, the
Company's accountants shall have furnished to you a letter, dated the date
hereof, addressed to the Underwriters and in form and substance satisfactory to
you (i) confirming that such accountants are independent public accountants
within the meaning of the Act and are in compliance with the applicable
requirements relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, and (ii) stating, as of the date hereof (or,
with respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
With respect to the letter of the Company's Accountants referred to in
the preceding paragraph and delivered to the you concurrently with the execution
of this Agreement (the "initial letter"), the Company shall have furnished to
you a letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated the Closing Date and the Option Exercise Date (i)
confirming that they are independent public accountants within the meaning of
the Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of Regulation S-X
of the Commission, (ii) stating, as of the date of the bring-down letter (or,
with respect to matters involving changes or developments since the respective
dates as of which specified financial information is given in the Prospectus, as
of a date not more than five days prior to the date of the bring-down letter),
the conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii) confirming
in all material respects the conclusions and findings set forth in the initial
letter.
(h) At the Closing Time, and at the Option Exercise Time, there shall
be furnished to you, on behalf of the Company, a certificate, dated the date of
its delivery, signed by both the chief
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<PAGE> 24
executive officer and the chief financial officer of the Company, in form and
substance reasonably satisfactory to you, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) to his knowledge, as
of the date of such certificate and as of the Effective Date, the
statements in the Registration Statement and the Prospectus are and
were true and correct in all material respects and neither the
Registration Statement nor the Prospectus omits to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (B) since the Effective Date, no event has
occurred of which he has knowledge and which was required by the Act or
the Rules and Regulations to be set forth in a supplement to or
amendment of the Prospectus but which has not been so set forth; and
(C) since the dates as of which and the periods for which information
is given in the Registration Statement and the Prospectus, there has
not been to his knowledge any change which would have a Material
Adverse Effect, other than changes which the Registration Statement and
the Prospectus specifically disclose have occurred or may occur
subsequent to the Effective Date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been commenced or are, to the knowledge of each signer of
such certificate, threatened or contemplated by the Commission.
(iii) The Company has not received notice that any stop order
suspending the qualification or registration of any of the Shares under
the blue sky laws of any jurisdiction has been issued, or that any
proceedings for such purpose have been commenced, and, to the knowledge
of each signer of such certificate, no such proceedings are threatened
or contemplated by any jurisdiction.
(iv) Each of the representations and warranties of the Company
contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when
originally made and is, at the time such certificate is dated, true and
correct.
(v) Each of the covenants required herein to be performed by
the Company on or prior to the date of such certificate has been duly,
timely and fully performed and each condition herein required to be
complied with by the Company on or prior to the date of such
certificate has been duly, timely and fully complied with by the
Company.
(i) The Company shall have furnished to you such certificates, in
addition to those specifically mentioned herein, as you may have reasonably
requested in a timely manner as to the accuracy and completeness, at the Closing
Time and the Option Exercise Time, of any statement in the Registration
Statement or the Prospectus; as to the accuracy, at the Closing Time and the
Option Exercise Time, of the representations and warranties of the Company
herein and in each certificate
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<PAGE> 25
and document contemplated under this Agreement to be delivered to you; as to the
performance by the Company of its obligations hereunder and under each such
certificate and document; and as to the fulfillment of the conditions concurrent
and precedent to your obligations hereunder.
(j) Except as contemplated by the Registration Statement and the
Prospectus, since the date hereof, there shall not have been any change in the
capitalization of the Company or any change which would have a Material Adverse
Effect, arising for any reason whatsoever.
(k) All corporate proceedings and other legal matters relating to the
sale and transfer of the Shares, this Agreement, the Registration Statement, the
Prospectus and other related matters shall be reasonably satisfactory in all
material respects to counsel for the Underwriters, who shall have furnished to
you at the Closing Time and Option Exercise Time such opinion, in form and
substance reasonably satisfactory to you, with respect to the sufficiency of the
aforementioned corporate proceedings and other legal matters as you may
reasonably require; and the Company shall have furnished to such counsel such
records and documents as such counsel may have reasonably requested in a timely
manner for the purpose of enabling them to pass upon such matters.
(l) The Shares shall be authorized for quotation in Nasdaq/NM and/or
approved for listing in Nasdaq/NM upon notice of issuance which notice shall
have been given.
All of the opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters. You reserve the right to waive any condition
hereinabove set forth.
SECTION 11. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each of the Selling Stockholders, jointly and
severally, shall indemnify and hold harmless each Underwriter, its officers and
employees and each person, if any, who controls any Underwriter within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Shares), to which that Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any preliminary prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (B) in any blue sky
application or other document prepared or executed by the Company (or based upon
any written information furnished by the Company) specifically for the purpose
of qualifying any or all of the Shares under the securities laws of any state or
other jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky
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<PAGE> 26
Application"), (ii) the omission or alleged omission to state in any preliminary
prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company and the
Selling Stockholders shall not be liable under this clause (iii) to the extent
that it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from any
such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct), and shall
reimburse each Underwriter and each such officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by that
Underwriter, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred; and provided,
further, that the aggregate liability of any Selling Stockholder under this
Section 11(a) shall not exceed the proceeds (net of underwriting discount)
received by such Selling Stockholder from the sale of Shares under this
Agreement; and provided, further, that the Company and the Selling Stockholders
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus, the Registration Statement or the Prospectus, or in
any such amendment or supplement, or in any Blue Sky Application, in reliance
upon and in conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Company and the Selling
Stockholders may otherwise have to any Underwriter or to any officer, employee
or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, the Selling Stockholders, and the Company's officers
and employees, each of the Company's directors (including any person who, with
his or her consent, is named in the Registration Statement as about to become a
director of the Company), and each person, if any, who controls the Company
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof, to
which the Company or any such Selling Stockholder, director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any preliminary prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any preliminary
prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was
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<PAGE> 27
made in reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or on behalf
of that Underwriter specifically for inclusion therein, and shall reimburse the
Company, the Selling Stockholders and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the Company, the
Selling Stockholders or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company, the Selling Stockholders or any
such director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
11 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 11, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 11 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 11.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 11 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company or any Selling Stockholder under this Section 11 if, in the
reasonable judgment of the Representatives, it is advisable for the
Representatives and those Underwriters, officers, employees and controlling
persons to be jointly represented by separate counsel, and in that event the
fees and expenses of such separate counsel shall be paid by the Company or
Selling Stockholders. No indemnifying party shall (i) without the prior written
consent of the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for any settlement
of any such action effected without its written consent (which consent shall not
be unreasonably withheld), but if settled with the consent of the indemnifying
party or if there be a final judgment of the plaintiff in any such
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<PAGE> 28
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 11 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 11(a) or 11(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the Shares purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the Shares under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, the Selling Stockholders or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section were to be
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by an indemnified party as a result of the loss, claim, damage
or liability, or action in respect thereof, referred to above in this Section
shall be deemed to include, for purposes of this Section 11(d), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 11(d), no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public was offered to the public
exceeds the amount of any damages which such Underwriter has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided
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<PAGE> 29
in this Section 11(d) are several in proportion to their respective underwriting
obligations and not joint.
(e) The Underwriters severally confirm, and the Company and the Selling
Stockholders acknowledge, that the statements with respect to the public
offering of the Shares by the Underwriters set forth on the cover page, the
legend concerning over-allotments on the inside front cover page, the concession
and reallowance figures appearing under the caption "Underwriting" in the
Prospectus, and any additional information referred to in Section 15(b) hereof,
are correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
SECTION 12. TERMINATION.
This Agreement (except for the provisions of Sections 9 and 11 hereof)
may be terminated by you, by notice to the Company on or after the Effective
Date and prior to the Closing Time, if at any time during that period any of the
following has occurred:
(a) Any of the conditions specified in Section 10 hereof shall not have
been fulfilled when and as required by this Agreement to be fulfilled or any of
the covenants, representations or warranties contained herein or in any
certificate or document contemplated under this Agreement to be delivered to you
shall not have been satisfied or fulfilled within the respective times herein
provided for, unless compliance therewith or performance or satisfaction thereof
shall have been expressly waived by you in writing;
(b) Any outbreak of hostilities or escalation in existing hostilities
anywhere in the world or other national or international calamity or crisis or
change in economic or political conditions, if the effect of such outbreak,
escalation, calamity, crisis or change on the financial markets in the United
States would, in your reasonable judgment, make it impracticable to offer for
sale or to enforce contracts made by the Underwriters for the resale of the
Shares agreed to be purchased hereunder;
(c) Any general suspension of trading in securities on the New York
Stock Exchange or the American Stock Exchange or the Nasdaq/NM or any general
limitation on prices for such trading or any general restrictions on the
distribution of securities, all to such a degree as would, in your reasonable
judgment, materially adversely affect the market for the Shares; or
(d) A banking moratorium shall have been declared by Federal, Ohio or
New York State authorities.
SECTION 13. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters
default in their obligation to take and pay for Firm Shares or Option Shares and
the aggregate number of Firm Shares or Option Shares which such defaulting
Underwriter or Underwriters agreed but failed to
- 29 -
<PAGE> 30
purchase does not exceed 10% of the aggregate number of Firm Shares or Option
Shares, as the case may be, the other Underwriters shall be obligated severally
in proportion to their respective commitments hereunder to purchase the Firm
Shares or Option Shares which such defaulting Underwriter or Underwriters agreed
but failed to purchase. If any Underwriter or Underwriters so default and the
aggregate number of Firm Shares or Option Shares with respect to which such
default or defaults occur is more than 10% of the aggregate number of Firm
Shares or Option Shares, as the case may be, and arrangements satisfactory to
you and the Company for the purchase of such Firm Shares or Option Shares by
other persons (who may include one or more of the non-defaulting Underwriters
including you) are not made within 36 hours after such default, this Agreement
may be terminated by you. If such arrangements satisfactory to you and the
Company shall have been made within such 36-hour period as aforesaid, (a) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven full business days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (b) the respective number of Firm Shares or
Option Shares, as the case may be, to be purchased by the remaining Underwriters
and substituted underwriters shall be taken as the basis of their underwriting
obligation.
In the event of any termination of this Agreement pursuant to this
Section 13, the Company shall not be liable to any Underwriter (except as
provided in Section 9 and Section 11 hereof) nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the number of Firm Shares or Option
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Section 11 hereof). As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 13. Nothing herein shall relieve a defaulting Underwriter from liability
for its default.
SECTION 14. NOTICE. Except as otherwise expressly provided in this Agreement,
(a) whenever advice or a notice, objection, designation, request or report is
given or is required by the provisions of this Agreement to be given to the
Company, such advice, notice, objection, designation, request or report shall be
in writing or by telegraph confirmed in writing, addressed to the Company and
delivered at TEAM America Corporation, 110 E. Wilson Bridge Road, Worthington,
Ohio 43085, Attention: Richard C. Schilg, Chairman of the Board, with a copy to
Squire, Sanders & Dempsey, 41 South High Street, Columbus, Ohio 43215,
Attention: Fred A. Summer, Esq., and (b) whenever advice or a notice, objection,
designation, request or report is given or is required by the provisions of this
Agreement to be given to you or the Underwriters, such advice, notice,
objection, designation, request or report shall be in writing, addressed to The
Ohio Company, and delivered at 155 East Broad Street, Columbus, Ohio 43215,
Attention: Curtis D. Milner, Senior Vice President and Manager, with a copy to
Porter, Wright, Morris & Arthur, 41 South High Street, Columbus, Ohio 43215,
Attention: Curtis A. Loveland, Esq., or at such other address of which a party
hereto may give notice in accordance herewith.
- 30 -
<PAGE> 31
SECTION 15. MISCELLANEOUS.
(a) This Agreement is made solely for the benefit of the Underwriters,
the Company, the Selling Stockholders, the Company's directors, the Company's
officers who shall have signed the Registration Statement and any controlling
person referred to in Section 11 hereof, and their respective successors and
assigns, and no other person, partnership, association or corporation shall
acquire or have any right under or by virtue of this Agreement. The term
"successor" or the term "successors and assigns" as used in this Agreement shall
not include any buyer, as such, of any of the Shares from the Underwriters. All
of the obligations of the Underwriters hereunder are several and not joint.
(b) The information in the Prospectus under the caption "Underwriting"
with respect to (i) the names of, and number of Shares to be purchased by, each
of the Underwriters, (ii) the amounts of the selling concession and reallowance
and (iii) the intention of the Underwriters with respect to sales to accounts
over which they exercise discretionary authority and with respect to their
consent to waive the lock-up shall constitute the only information furnished in
writing by or on behalf of the several Underwriters for use in connection with
the preparation of the Registration Statement as originally filed or in any
amendment thereto, any preliminary prospectus or the Prospectus as the case may
be.
(c) This Agreement shall supersede any agreement or understanding, oral
or in writing, express or implied, between the Company and you relating to the
sale of any of the Shares.
(d) No change, amendment or supplement to, or waiver of, this Agreement
or any term, provision or condition contained herein, shall be valid or of any
effect unless in writing and signed by the party against whom such is asserted.
(e) This Agreement shall be governed by and construed in accordance
with the law of the State of Ohio applicable to contracts made and to be
performed therein without giving effect to the principles of conflicts of law
thereof.
(f) This Agreement may be signed in two or more counterparts with the
same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Agreement.
- 31 -
<PAGE> 32
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed copy hereof, whereupon it
will be a binding agreement by and between the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
TEAM AMERICA CORPORATION
By:_________________________________
Richard C. Schilg, Chairman of the Board
The Selling Stockholders named in Schedule
B to this Agreement
By:____________________________________________
Attorney-in-Fact
Accepted as of the date first above written:
THE OHIO COMPANY
Acting on behalf of itself and as the
Representative of the other Underwriters
named in Schedule A attached hereto.
By:________________________________________
RONEY & CO.
Acting on behalf of itself and as the
Representative of the other Underwriters
named in Schedule A attached hereto.
By:__________________________________________
- 32 -
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER
NAME OF UNDERWRITER OF SHARES
<S> <C>
The Ohio Company............................................................................... ---------
Roney & Co. ................................................................................... ---------
TOTAL............................ 1,250,000
=========
</TABLE>
- 33 -
<PAGE> 34
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF
NAME AND ADDRESS OF SELLING STOCKHOLDER OPTION SHARES
<S> <C>
Richard C. Schilg....................................................................... 50,000
Kevin T. Costello....................................................................... 50,000
-------
TOTAL......................... 100,000
=======
</TABLE>
- 34 -
<PAGE> 1
EXHIBIT 3.1
AMENDED ARTICLES OF INCORPORATION
OF
TEAM AMERICA CORPORATION
These Amended Articles of Incorporation supersede the Articles of
Incorporation of the Corporation heretofore in effect.
FIRST: The name of the Corporation shall be TEAM America
Corporation (hereinafter referred to as the "Corporation").
SECOND: The place in the State of Ohio where the principal office
of the Corporation will be located is the City of Worthington in Franklin
County.
THIRD: The purpose for which the Corporation is formed is to engage
in any lawful act or activity for which corporations may be formed under Chapter
1701 of the Ohio Revised Code, as now in effect or hereafter amended.
FOURTH: The amount of total authorized capital which the
Corporation shall have authority to issue is Eleven Million (11,000,000) shares,
consisting of Ten Million (10,000,000) Common Shares, without par value (the
"Common Shares"), and One Million (1,000,000) Preferred Shares, without par
value, consisting of Five Hundred Thousand (500,000) Class A Voting Preferred
Shares (the "Class A Preferred Shares") and Five Hundred Thousand (500,000)
Class B Nonvoting Preferred Shares (the "Class B Preferred Shares").
Each Class A Common Share, Class B Common Share and Class A
Preferred Share issued and outstanding or held as treasury shares on the
effective date of these Amended Articles of Incorporation is hereby changed and
split into one hundred eighty-four (184) Common Shares. Each holder of Class A
Common Shares, Class B Common Shares and Class A Preferred Shares shall be
entitled to receive a stock certificate representing the number of additional
Common Shares issuable to such holder as a result of the aforesaid change and
split of shares, pursuant to such reasonable terms and conditions as may be
established by the Board of Directors of the Corporation.
(A) EXPRESS TERMS OF THE COMMON SHARES
The Common Shares shall be subject to the terms of the Class A
Preferred Shares and the Class B Preferred Shares (collectively, the "Preferred
Shares") and the express terms of any series thereof. Each Common Share shall be
equal to every other Common Share and the holders thereof shall be entitled to
one vote for each Common Share on all questions
<PAGE> 2
presented to the shareholders. Subject to any rights to receive dividends to
which the holders of the outstanding Preferred Shares may be entitled, the
holders of Common Shares shall be entitled to receive dividends, if and when
declared, payable from time to time by order of the Board of Directors from
funds legally available therefor.
(B) EXPRESS TERMS OF THE CLASS A PREFERRED SHARES
The Class A Preferred Shares may be issued from time to time in one
or more series. All Class A Preferred Shares shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed by the Board of
Directors as hereinafter provided, and each share of each series shall be
identical with all other shares of such series, except as to the date from which
dividends are cumulative. Subject to the provisions of this paragraph (B), which
provisions shall apply to all Class A Preferred Shares, the Board of Directors
hereby is authorized to cause such shares to be issued in one or more series and
with respect to each such series prior to the issuance thereof to fix:
(1) the designation of the series, which may be by
distinguishing number, letter or title;
(2) the number of shares of the series, which number
the Board of Directors may from time to time
(except where otherwise provided in the creation
of the series) increase or decrease (but not below
the number of shares thereof then outstanding);
(3) the dividend rate of the series;
(4) the dates of payment of dividends and the dates
from which dividends of the series shall be
cumulative;
(5) the redemption rights and price or prices for
shares of the series;
(6) sinking fund requirements, if any, for the
purchase or redemption of shares of the series;
(7) the liquidation price payable on shares of the
series in the event of any liquidation,
dissolution or winding up of affairs of the
Corporation;
(8) whether the shares of the series shall be
convertible into Common Shares, and, if so, the
conversion price or prices, any adjustments
thereof, and all other terms and conditions upon
which such conversion may be made;
-2-
<PAGE> 3
(9) restrictions on the issuance of shares of any
class or series; and
(10) such other terms as the Board of Directors may by
law from time to time be permitted to fix or
change.
The Board of Directors is authorized to adopt from time to time
amendments to these Amended Articles of Incorporation fixing or changing, with
respect to each such series, the matters described in the preceding clauses (1)
to (10) of this paragraph (B).
Class A Preferred Shares shall entitle the holder thereof to one
vote for each Class A Preferred Share on all matters submitted to a vote of the
shareholders of the Corporation. Except as otherwise provided herein or by law,
the holders of Class A Preferred Shares and the holders of Common Shares shall
vote together as one class on all matters submitted to a vote of shareholders of
the Corporation. During any period in which dividends on the Class A Preferred
Shares are cumulatively in arrears in the amount of six (6) or more full
quarterly dividends, the holders of the Class A Preferred Shares, voting
together as a class with the holders of any other class or series of Preferred
Shares who are similarly entitled to vote, will have the right to elect two (2)
directors, which two (2) directorships shall be in addition to that number of
directors then determined as constituting the number of members of the Board of
Directors pursuant to the Regulations of the Corporation. The approval of
holders of a majority of the outstanding Class A Preferred Shares voted together
as a class shall be required in order to amend these Amended Articles of
Incorporation of the Corporation to affect adversely the rights of the holders
of the Class A Preferred Shares or to take any action that would result in the
creation of or an increase in the number of authorized shares senior or superior
with respect to dividends or upon liquidation to the Class A Preferred Shares.
(C) EXPRESS TERMS OF CLASS B PREFERRED SHARES
The shares of Class B Preferred Shares may be issued from time to
time in one or more series. All shares of Class B Preferred Shares shall be of
equal rank and shall be identical, except in respect of the matters that may be
fixed by the Board of Directors as hereinafter provided, and each share of each
series shall be identical with all other shares of such series, except as to the
date from which dividends are cumulative. Subject to the provisions of this
paragraph (C), which provisions shall apply to all Class B Preferred Shares, the
Board of Directors hereby is authorized to cause such shares to be issued in one
or more series and with respect to each such series prior to the issuance
thereof to fix:
(1) the designation of the series, which may be by
distinguishing number, letter or title;
-3-
<PAGE> 4
(2) the number of shares of the series, which number
the Board of Directors may from time to time
(except where otherwise provided in the creation
of the series) increase or decrease (but not below
the number of shares thereof then outstanding);
(3) the dividend rate of the series;
(4) the dates of payment of dividends and the dates
from which dividends of the series shall be
cumulative;
(5) the redemption rights and price or prices for
shares of the series;
(6) sinking fund requirements, if any, for the
purchase or redemption of shares of the series;
(7) the liquidation price payable on shares of the
series in the event of any liquidation,
dissolution or winding up of affairs of the
Corporation;
(8) whether the shares of the series shall be
convertible into Common Shares, and, if so, the
conversion price or prices, any adjustments
thereof, and all other terms and conditions upon
which such conversion may be made;
(9) restrictions on the issuance of shares of any
class or series; and
(10) such other terms as the Board of Directors may by
law from time to time be permitted to fix or
change.
The Board of Directors is authorized to adopt from time to time
amendments to these Amended Articles of Incorporation fixing or changing, with
respect to each such series, the matters described in the preceding clauses (1)
to (10) of this paragraph (C).
No Class B Preferred Shares shall be entitled to voting rights
except to the extent described below. During any period in which dividends on
the Class B Preferred Shares are cumulatively in arrears in the amount of six
(6) or more full quarterly dividends, the holders of the Class B Preferred
Shares, voting together as a class with the holders of any other class or series
of Preferred Shares who are similarly entitled to vote, will have the right to
elect two (2) directors, which two (2) directorships shall be in addition to
that number of directors then determined as constituting the number of members
of the Board of Directors pursuant to the Regulations of the Corporation. The
approval of holders of a majority of the outstanding Class B Preferred Shares
voted together as a class shall be required in order to amend these Amended
Articles of Incorporation of the Corporation to affect adversely the rights of
the
-4-
<PAGE> 5
holders of the Class B Preferred Shares or to take any action that would result
in the creation of or an increase in the number of authorized shares senior
superior with respect to dividends or upon liquidation to the Class B Preferred
Shares.
FIFTH: Without derogation from any other power to purchase shares
of the Corporation, the Corporation by action of its directors may purchase
outstanding shares of any class of the Corporation to the extent not prohibited
by law.
SIXTH: No holder of shares of any class of the Corporation shall,
as such holder, have any preemptive or preferential right to purchase or
subscribe to any shares of any class of the Corporation, whether now or
hereafter authorized, whether unissued or in the treasury, or to purchase any
obligations convertible into shares of any class of the Corporation, which at
any time may be proposed to be issued by the Corporation or subjected to rights
or options to purchase granted by the Corporation.
SEVENTH: Except as otherwise provided in these Amended Articles of
Incorporation or the Regulations of the Corporation as they may be amended from
time to time, the holders of a majority of the Corporation's outstanding voting
shares, a majority of a particular class of such shares, or a majority of each
class of such shares are authorized to take any action which, but for this
Article SEVENTH, would require the vote or other action of the holders of more
than a majority of such shares, of a particular class of such shares, or of each
class of such shares.
EIGHTH: No holder of shares of any class of the Corporation shall
have the right to cumulate his voting power in the election of the Board of
Directors and the right to cumulative voting described in Ohio Revised Code
Section 1701.55 is hereby specifically denied to the holders of shares of any
class of the Corporation.
NINTH: The Corporation may create and issue, whether or not in
connection with the issue and sale of any shares or other securities of the
Corporation, rights or options entitling the holders thereof to purchase from
the Corporation any shares of any class or classes to the extent such shares are
authorized by these Amended Articles of Incorporation, such rights or options to
be evidenced by or in such instrument or instruments as shall be approved by the
Board of Directors. The terms upon which any such shares may be purchased upon
the exercise of any such right or option, including without limitation the time
or times (which may be limited or unlimited in duration) at or within which, and
the price or prices at which, any such shares may be purchased, shall be such as
shall be determined as set forth or incorporated by reference in a resolution
adopted by the Board of Directors providing for the creation and issue of such
rights or options.
-5-
<PAGE> 6
TENTH: (A) If, as of the record date for the determination of the
shareholders entitled to vote thereon or consent thereto, any Prior Holder (as
hereinafter defined) owns or controls, directly or indirectly, 20% or more of
the outstanding shares of the Corporation entitled to vote, then the affirmative
vote of the holders of shares representing at least 75% of the shares of the
Corporation entitled to vote for the election of directors, voting as a class,
will be required, except as otherwise expressly provided in paragraph (B) of
this Article TENTH, in order for any of the following actions or transactions to
be effected by the Corporation, or approved by the Corporation as shareholder of
any subsidiary of the Corporation:
(1) any merger or consolidation of the Corporation or any of its
subsidiaries with or into such Prior Holder or any of its affiliates,
subsidiaries or associates;
(2) any merger or consolidation of the Corporation with or into any
subsidiary of the Corporation, except a merger with a subsidiary of the
Corporation in which the Corporation is the surviving corporation, or a
subsidiary of the Corporation is the surviving corporation and, following such
merger, the certificate or articles of incorporation of such subsidiary contains
provisions substantially the same in substance as those in Article EIGHTH, this
Article TENTH and Article ELEVENTH of these Amended Articles of Incorporation;
(3) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Corporation or any of its subsidiaries to
or with such Prior Holder or any of its affiliates, subsidiaries or associates;
(4) any issuance or delivery of any voting securities of the
Corporation or any of its subsidiaries to such Prior Holder or any of its
affiliates, subsidiaries or associates in exchange for cash, other assets or
securities, or a combination thereof; or
(5) any dissolution of the Corporation.
(B) The vote of shareholders specified in paragraph (A) of
this Article TENTH will be required for any action or transaction described in
such paragraph if the Board of Directors of the Corporation has approved the
action or transaction before direct or indirect ownership or control of 20% or
more of the outstanding shares of the Corporation entitled to vote is acquired
by the Prior Holder.
(C) For the purpose of this Article TENTH and for guidance
to the Board of Directors for the purpose of paragraph (D) hereof:
(1) "Prior Holder" means any corporation, person or entity other
than the Corporation or any of its subsidiaries;
-6-
<PAGE> 7
(2) a Prior Holder will be deemed to "own" or "control," directly
or indirectly, any outstanding shares of stock of the Corporation (a) which it
has the right to acquire pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise, or (b) which are owned, directly or indirectly (including shares
deemed owned through application of clause (a) above), by any other corporation,
person or other entity which is its subsidiary, affiliate or associate or with
which it or any of its subsidiaries, affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of shares of the Corporation (or, with or without such an agreement or
understanding, acts in concert);
(3) "outstanding shares of the Corporation entitled to vote" and
"voting securities" mean such shares as are entitled to vote in the election of
directors, considered as one class;
(4) "subsidiary" means any corporation of which another corporation
owns, directly or indirectly, 50% or more of the voting shares;
(5) an "associate" and an "affiliate" have the same meanings as set
forth in the General Rules and Regulations under the Securities Exchange Act of
1934; and
(6) "substantial part of the assets" means assets then having a
fair market value, in the aggregate, of more than $5,000,000.
(D) The Board of Directors of the Corporation will have the
power and duty to determine for the purposes of this Article TENTH, on the basis
of information then known to the Board of Directors, the following:
(1) who constitutes a Prior Holder,
(2) whether any Prior Holder owns or controls, directly or
indirectly, 20% or more of the outstanding shares of the Corporation entitled to
vote, and what entities are its subsidiaries, affiliates or associates, and
(3) whether any proposed sale, lease, exchange or other disposition
involves a substantial part of the assets of the Corporation or any of its
subsidiaries. Any such determination by the Board will be conclusive and binding
for all purposes.
ELEVENTH: The Corporation reserves the right to amend or repeal any
provision contained in these Amended Articles of Incorporation in the manner
prescribed by the Ohio General Corporation Law. However, the provisions set
forth in article EIGHTH, Article TENTH and this Article ELEVENTH of these
Amended Articles of Incorporation may not be altered, amended, superseded or
repealed in any respect, unless such action is approved by the affirmative vote
of the holders of shares representing at least 75% of the shares of the
Corporation entitled to vote for the election of directors, voting as a class.
All
-7-
<PAGE> 8
rights conferred in these Amended Articles of Incorporation are granted subject
to the reservation set forth in this Article ELEVENTH.
[End of Amended Articles of Incorporation]
-8-
<PAGE> 1
EXHIBIT 3.2
TEAM AMERICA CORPORATION
(THE "CORPORATION")
AMENDED CODE OF REGULATIONS
ADOPTED: OCTOBER ____, 1996
OFFICER'S CERTIFICATE
The undersigned officer of the Corporation
hereby certifies that this is a true
and complete copy of the Amended Code of
Regulations duly adopted under Section
1701.11(A) of the Ohio Revised Code,
effective as of the date set forth above.
- --------------------------------------------
Charles F. Dugan II, Assistant Secretary
<PAGE> 2
AMENDED CODE OF REGULATIONS
OF
TEAM AMERICA CORPORATION
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETING.
The annual meeting of shareholders of the Corporation shall be held at
such time and on such business day as the directors may determine each year. The
annual meeting shall be held at the principal office of the Corporation or at
such other place within or without the State of Ohio as the directors may
determine. The directors shall be elected thereat and such other business
transacted as may be specified in the notice of the meeting.
SECTION 1.02. SPECIAL MEETINGS.
Special meetings of the shareholders may be called at any time by the
President, a Vice President or by a majority of the directors acting with or
without a meeting, or by shareholders holding 50% or more of the outstanding
shares entitled to vote thereat. Such meetings may be held within or without the
State of Ohio at such time and place as may be specified in the notice thereof.
SECTION 1.03. NOTICE OF MEETINGS.
Written notice of every annual or special meeting of the shareholders
stating the time, place and purposes thereof shall be given to each shareholder
entitled to vote thereat and to each shareholder entitled to notice as provided
by law, in person or by mailing the same to his last address appearing on the
records of the Corporation at least seven (7) days before the meeting. Any
shareholder may waive notice of any meeting, and, by attendance at any meeting
without protesting the lack of proper notice, shall be deemed to have waived
notice thereof.
SECTION 1.04. PERSONS BECOMING ENTITLED BY OPERATION OF LAW OR TRANSFER.
Every person who, by operation of law, transfer or any other means
whatsoever, shall become entitled to any shares, shall be bound by every notice
in respect of such share or shares which prior to the entering of his name and
address on the records of the Corporation shall have been duly given to the
person from whom he derives his title to such shares.
<PAGE> 3
SECTION 1.05. QUORUM AND ADJOURNMENTS.
Except as may be otherwise required by law or by the Corporation's
Articles of Incorporation, the holders of shares entitling them to exercise a
majority of the voting power of the Corporation shall constitute a quorum;
provided that any meeting duly called, whether a quorum is present or otherwise,
may, by vote of the holders of a majority of the voting shares represented
thereat, adjourn from time to time, in which case no further notice of the
adjourned meeting need be given.
SECTION 1.06. ORGANIZATION OF MEETINGS.
The Board of Directors will designate a chairman for each meeting of
shareholders. The chairman will call the meeting to order and act as chairman of
the meeting. In the absence of such a chairman, the highest ranking officer of
the Corporation who is present at the meeting will act as chairman of the
meeting.
The chairman of the meeting will appoint the secretary of the meeting,
an inspector or inspectors of elections for the meeting and such other
functionaries as the chairman deems necessary or appropriate.
Any proposal to be brought before any meeting of shareholders by any
shareholder must be submitted in writing to the Secretary of the Corporation at
least thirty (30) days prior to the date fixed for the meeting at which it is
intended that such proposal is to be presented.
SECTION 1.07. CONDUCT OF BUSINESS.
The chairman of the meeting will determine the order of business and
procedures at the meeting, including without limitation the manner of voting and
the conduct of discussion.
SECTION 1.08.
At meetings of the shareholders, any shareholder of record entitled to
vote thereat may be represented and may vote by a proxy or proxies appointed by
an instrument in writing signed by such shareholder, but such instrument shall
be filed with the secretary of the meeting before the person holding such proxy
shall be allowed to vote thereunder. No proxy shall be valid after the
expiration of eleven months after the date of its execution, unless the
shareholder executing it shall have specified therein the length of time it is
to continue in force.
ARTICLE II
DIRECTORS
SECTION 2.01. AUTHORITY AND QUALIFICATIONS.
Except where the law, the Articles or these Regulations otherwise
provide, all authority of the Corporation shall be vested in and exercised by
its directors. Directors need not be shareholders of the Corporation.
- 2 -
<PAGE> 4
SECTION 2.02. NUMBER.
Upon adoption of these Regulations, the number of directors initially
shall be fixed at six (6). Thereafter, the number of directors may be determined
by the vote of the holders of 75% of the shares entitled to vote thereon at any
annual meeting or special meeting called for the purpose of electing directors
or by resolution adopted by affirmative vote of a majority of the directors then
in office; provided that the number of directors shall in no event be fewer than
three (3) nor more than fifteen (15). When so fixed, such number shall continue
to be the authorized number of directors until changed by the shareholders or
directors.
SECTION 2.03. NOMINATION.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the Corporation.
Nominations of persons for election as directors of the Corporation may be made
at a meeting of shareholders by or at the direction of the directors, by any
person or committee appointed by the directors or by any shareholder of the
Corporation entitled to vote for the election of directors who complies with the
notice procedures set forth in this Section 2.03. Such nominations, other than
those made by or at the direction of the directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (1) as to each person who is not
an incumbent director whom the shareholder proposes to nominate for election as
a director, (i) the name, age, business address and residence address of such
person; (ii) the principal occupation or employment of such person; (iii) the
class and number of shares, if any, of the Corporation which are beneficially
owned by such person; and (iv) any other information relating to such person
that is required to be disclosed in solicitations for proxies for election of
directors pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended; and (2) as to the shareholder giving the notice, (A) the name and
record address of such shareholder and (B) the class and number of shares, if
any, of the Corporation which are beneficially owned by such shareholder. Such
notice shall be accompanied by the written consent of each proposed nominee to
serve as a director of the Corporation, if elected. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this Section 2.03. The chairman of a meeting of
shareholders shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the provisions of this Section
2.03; and if he should so determine, the defective nomination shall be
disregarded.
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SECTION 2.04. CLASSIFICATION. TERM OF OFFICE AND ELECTION OF DIRECTORS.
If the number of directors determined in accordance with the provisions
of Section 2.01 of these Regulations is nine (9) or more, then the directors
will be classified into three (3) classes, "Class 1," "Class 2" and "Class 3,"
respectively. If the number of directors determined in accordance with the
provisions of Section 2.02 of these Regulations is six (6) or more but less than
nine (9), then the directors will be classified into two classes, designated
"Class 1" and "Class 2," respectively. The number of directors constituting each
class will, as nearly as possible, be equal. However, if the number of directors
constituting the whole Board of Directors is not evenly divisible by the number
of classes of directors, then the number of directors constituting each class
will be such that (i) the difference between the number of directors
constituting each class is not greater than one, (ii) the number of Class 3
directors, if any, is greater than or equal to the number of Class 2 directors
and the number of Class 1 directors, and (iii) the number of Class 2 directors
is greater than or equal to the number of Class 1 directors. Initially, there
shall be two classes of directors and (a) the term of office of each Class 1
director will expire at the annual meeting in 1997, and (b) the term of office
of each Class 2 director will expire at the annual meeting in 1998. If and when
the directors are classified into three classes, the Class 3 directors will be
elected for a term which expires at the annual meeting which takes place three
(3) years after the annual meeting at which the Class 3 directors are first
elected (the "Initial Class 3 Annual Meeting"), and the Class 1 or Class 2
directors whose term expires at the Initial Class 3 Annual meeting will be
elected for a term which expires at the annual meeting which takes place two (2)
years after the Initial Class 3 Annual Meeting. After the Class 1 and Class 2
directors are elected to their initial terms and until there is an Initial Class
3 Annual Meeting, the successors to the directors of each class will hold office
for terms of two (2) years, and after the Initial Class 3 Annual Meeting, the
successors to the directors of each class will hold office for three (3) years,
in either case so that the term of office of one class of directors will expire
at each annual meeting. Each director will hold office for the term for which he
is elected or appointed and until his successor is elected and qualified or
until his earlier death, resignation, disqualification or removal. Election of
directors shall be by ballot whenever requested by any person entitled to vote
at the meeting but unless so requested such election may be conducted in any way
approved at such meeting. Notwithstanding anything herein to the contrary, if
the number of directors determined in accordance with the provisions of Section
2.02 of these Regulations is less than six (6), then the directors will not be
classified and the directors shall hold office until the annual meeting of the
shareholders meet following their election and until their respective successors
are elected, or until their earlier resignation, death or removal from office.
SECTION 2.05. INCREASE OR DECREASE IN THE NUMBER OF DIRECTORS.
Whenever the number of directors constituting the whole Board of
Directors is increased between annual meetings, a majority of the directors then
in office may appoint the new director or directors. The term of office of such
new director or directors will be for the balance of the terms of the directors
of the class to which such new director is appointed and until his successor is
elected and qualified or until his earlier death, resignation, disqualification
or removal.
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<PAGE> 6
Any decrease in the number of directors constituting the whole Board of
Directors will not become effective until the expiration of the term or terms of
the directors of each class affected by the decrease. However, a decrease in the
number of directors constituting the whole Board of Directors may become
effective at any time to the extent that there are vacancies on the Board of
Directors which are being eliminated by the decrease.
SECTION 2.06. VACANCIES.
Whenever any vacancy shall occur among the directors, the remaining
directors shall constitute the directors of the Corporation until such vacancy
is filled or until the number of directors is changed as provided in Section
2.02 hereof. Except in cases where a director is removed as provided by law and
his successor is elected by the shareholders, the remaining directors may, by a
vote of a majority of their number, fill any vacancy for the unexpired term.
SECTION 2.07. REMOVAL OF A DIRECTOR.
A director may be removed by holders of 75% of the shares then entitled
to vote for the election of directors, but only for cause.
Except as otherwise required or provided for by law, cause to remove a
director will be construed to exist only if the director whose removal is
proposed (a) has been adjudged incompetent, (b) has been convicted of a felony
by a court of competent jurisdiction and such conviction is no longer subject to
direct appeal or (c) has been adjudged by a court of competent jurisdiction to
be liable for negligence or misconduct in the performance of his duty to the
Corporation in a matter of substantial importance to the Corporation and such
adjudication is no longer subject to direct appeal.
SECTION 2.08. QUORUM AND ADJOURNMENTS.
A majority of the directors in office at the time shall constitute a
quorum, provided that any meeting duly called, whether a quorum is present or
otherwise, may, by vote of a majority of the directors present, adjourn from
time to time and place to place within or without the State of Ohio, in which
case no further notice of the adjourned meeting need be given. At any meeting at
which a quorum is present, all questions and business shall be determined by the
affirmative vote of not less than a majority of the directors present, except as
is otherwise authorized by Section 1701.60(A)(1) of the Ohio Revised Code.
SECTION 2.09. ORGANIZATION MEETING.
Immediately after each annual meeting of the shareholders at which
directors are elected, or each special meeting held in lieu thereof, the
directors, if a quorum thereof is present, shall hold an organization meeting at
the same place or at such other time and place as may be fixed by the
shareholders at such meeting, for the purpose of electing officers and
transacting any other business. Notice of such meeting need not be given. In the
event that for any reason such organization meeting is not held at such time, a
special meeting for such purpose shall be held as soon thereafter as
practicable.
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SECTION 2.10. REGULAR MEETINGS.
Regular meetings of the directors may be held at such times and places
within or without the State of Ohio as may be provided for in resolutions
adopted by the directors and upon such notice, if any, as shall be so provided
for.
SECTION 2.11. SPECIAL MEETINGS.
Special meetings of the directors may be held at any time within or
without the State of Ohio upon call by the President, the Chief Executive
Officer or by any two directors. Notice of each such meeting shall be given to
each director by letter or telegram or in person, either orally or
telephonically, not less than forty-eight (48) hours prior to such meeting. Any
director may waive notice of any meeting, and, by attendance at any meeting
without protesting the lack of proper notice, shall be deemed to have waived
notice thereof. Unless otherwise limited in the notice thereof, any business may
be transacted at any organization, regular or special meeting.
SECTION 2.12. COMPENSATION.
The directors are authorized to fix a reasonable salary for directors
or a reasonable fee for attendance at any meeting of the directors, Compensation
Committee, Audit Committee or other committees elected under Section 3.01
hereof, or any combination of salary and attendance fee. In addition to such
compensation provided for directors, they shall be reimbursed for any expenses
incurred by them in traveling to and from such meetings.
ARTICLE III
COMMITTEES
SECTION 3.01. MEMBERSHIP.
The Board of Directors by majority vote of the whole board shall
designate the following standing committees: a Compensation Committee and an
Audit Committee. The Compensation Committee and the Audit Committee will each be
comprised of three members determined by the Board of Directors in its
discretion.
The Board of Directors in its discretion shall determine whether to
designate additional committees and the composition of all the committees that
it so designates.
SECTION 3.02. QUORUM.
The majority of the authorized number of directors that comprises a
standing committee shall constitute a quorum of that committee. No alternate
members of committees shall be designated.
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SECTION 3.03. AUTHORITY.
To the extent provided in the resolution of the Board of Directors
establishing such committee, a committee shall have and may exercise the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation; provided, however, no committee may be empowered to
declare dividends, elect or rename officers, fill vacancies among the directors
or repeal or amend any resolution adopted by the Board of Directors.
SECTION 3.04. VOTE.
Each committee shall act by vote of a majority of a quorum of the
directors that comprise that committee.
SECTION 3.05. MEETINGS.
(i) Meetings of standing committees shall be held at such time as the
committee or person calling the meeting shall fix. Regular meetings for the
following year shall be scheduled at the first meeting of a year.
(ii) Meetings of standing committee shall be held at such place within
or without the State of Ohio as shall be fixed by the committee or person
calling the meeting.
(iii) No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of any committee member or by any officer instructed by any committee member.
(iv) No notice shall be required for regular meetings for which the
time and place have been fixed. Written notice of the time, place and purpose
shall be given for special meetings at least seventy-two (72) hours in advance
to each committee member with a copy to the Secretary. Written notice shall be
sent to each committee member by United States mail postage prepaid, overnight
delivery service or telecopier transmission and shall be effective upon receipt.
Notice shall be sent to the respective addresses designated in writing by the
respective committee members or, in the absence of such designation, to the last
known addresses. Notice need not be given to any committee member who submits a
written waiver of notice signed by him before or after the time for the meeting
stated therein. Attendance of any such person at a meeting shall constitute a
waiver of notice of such meeting, except when he attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of a committee need be specified in any written
waiver of notice, provided, however, that a waiver of notice shall be effective
only with respect to the purpose stated in the notice of the meeting.
(v) One committee member may adjourn a meeting to another time and
place. The quorum and voting provisions herein stated shall not be construed as
conflicting with any provisions of Chapter 1701 of the Ohio Revised Code, the
Articles of Incorporation and these Regulations which govern action of
disinterested directors.
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<PAGE> 9
(vi) A committee member, in the exercise of his fiduciary duty to the
Corporation, shall disqualify himself from a vote of a committee with respect to
a transaction in which a potential conflict of interest exists between the
committee member and the Corporation.
SECTION 3.06. REPORTS.
The chairman of each committee shall make a report on its activities at
each meeting of the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 4.01. OFFICERS DESIGNATED.
The directors, at their organization meeting or at a special meeting
held in lieu thereof, shall elect a Chairman of the Board, a President, a
Secretary, a Treasurer and, in their discretion, one or more Vice Presidents, a
General Manager, an Assistant Secretary or Secretaries, an Assistant Treasurer
or Treasurers and such other officers as the directors may see fit. The
President and the Chairman of the Board shall be, and the other officers may,
but need not be, chosen from among the directors. Any two or more of such
offices other than that of President and Vice President, Secretary and Assistant
Secretary or Treasurer and Assistant Treasurer, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity.
SECTION 4.02. TENURE OF OFFICE.
The officers of the Corporation shall hold office until the next
organization meeting of the directors and until their successors are chosen and
qualify, except in case of resignation, death or removal. The directors may
remove any officer at any time with or without cause by a majority vote of the
directors in office at the time. A vacancy, however created, in any office may
be filled by election by the directors.
SECTION 4.03. CHAIRMAN OF THE BOARD.
The Chairman of the Board, if any, shall preside at meetings of the
directors and shall have such other powers and duties as may be prescribed by
the directors.
SECTION 4.04. PRESIDENT.
The President shall preside at all meetings of the shareholders, and in
the absence of the Chairman of the Board shall also preside at meetings of the
directors. The President shall be the Chief Executive Officer of the Corporation
unless otherwise determined by the directors, and shall have general supervision
over its property, business and affairs, and perform all the duties usually
incident to such office, subject to the directions of the directors. Unless
otherwise determined by the directors, he shall have authority to represent the
Corporation at meetings of the shareholders of other corporations in which the
Corporation holds shares, and to execute on
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<PAGE> 10
behalf of the Corporation discretionary or restricted proxies. He may execute
all authorized deeds, mortgages, bonds, contracts and other obligations in the
name of the Corporation, and shall have such other powers and duties as may be
prescribed by the directors.
SECTION 4.05. VICE PRESIDENTS.
The Vice Presidents shall have such powers and duties as may be
prescribed by the directors or as may be delegated by the President or the Chief
Executive Officer. In case of the absence or disability of the President or when
circumstances prevent the President from acting, the Vice Presidents, in the
order designated by the directors, shall perform the duties of the President,
and in such case, the power of the Vice Presidents to execute all authorized
deeds, mortgages, bonds, contracts and other obligations in the name of the
Corporation, shall be coordinate with like powers of the President. In case the
President and such Vice Presidents are absent or unable to perform their duties,
the directors may appoint a President pro tempore. The directors may designate
one or more Vice Presidents as Senior Vice Presidents.
SECTION 4.06. SECRETARY.
The Secretary shall attend and keep the minutes of all meetings of the
shareholders and of the directors. He shall keep such books as may be required
by the directors, shall give all notices of meetings of shareholders and
directors, provided, however, that any persons calling such meetings may, at
their option, give such notice. He shall have such other powers and duties as
may be prescribed by the directors.
SECTION 4.07. TREASURER.
The Treasurer shall receive and have in charge all money, bills, notes,
bonds, stocks in other corporations and similar property belonging to the
Corporation and shall do with the same as shall be ordered by the directors. He
shall keep accurate financial accounts and hold the same open for inspection and
examination of the directors. On the expiration of his term of office, he shall
turn over to his successor or the directors all property, books, papers and
money of the Corporation in his hands. He shall have such other powers and
duties as may be prescribed by the directors.
SECTION 4.08. OTHER OFFICERS.
The Assistant Secretaries, Assistant Treasurers, if any, and the other
officers, if any, shall have such powers and duties as the directors may
prescribe.
SECTION 4.09. DELEGATION OF DUTIES.
The directors are authorized to delegate the duties of any officers to
any other officer and generally to control the actions of the officers and to
require the performance of duties in addition to those mentioned herein.
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SECTION 4.10. COMPENSATION.
The directors are authorized to determine or to provide the method of
determining the compensation of all officers.
SECTION 4.11. BOND.
Any officer or employee, if required by the directors, shall give bond
in such sum and with such security as the directors may require for the faithful
performance of his duties.
SECTION 4.12. SIGNING CHECKS AND OTHER INSTRUMENTS.
The directors are authorized to determine or provide the method of
determining how checks, notes, bills of exchange and similar instruments shall
be signed, countersigned or endorsed.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 5.01. INDEMNIFICATION.
(a) The Corporation shall indemnify any director or officer or any
former director or officer of the Corporation or any person who is or has served
at the request of the Corporation as a director, officer, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the Corporation, to which he was, is or is threatened to
be made a party by reason of the fact that he is or was such director, officer,
trustee, employee or agent provided it is determined in the manner set forth in
paragraph (c) of this section that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and that, with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful.
(b) In the case of any threatened, pending or completed action or suit
by or in the right of the Corporation, the Corporation shall indemnify each
person indicated in paragraph (a) of this section against expenses, including
attorneys' fees, actually and reasonably incurred in connection with the defense
or settlement thereof, provided it is determined in the manner set forth in
paragraph (c) of this section that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the court of common pleas or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly
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<PAGE> 12
and reasonably entitled to indemnity for such expenses as the court of common
pleas or such other court shall deem proper.
(c) The determinations referred to in paragraphs (a) and (b) of this
section shall be made (i) by a majority vote of a quorum consisting of directors
of the Corporation who were not and are not parties to or threatened with any
such action, suit or proceeding, (ii) if such a quorum is not obtainable or if a
majority vote of a quorum of disinterested directors so directs, in a written
opinion by independent legal counsel other than an attorney or a firm having
associated with it an attorney who has been retained by or who has performed
services for the Corporation or any person to be indemnified within the past
five years, (iii) by the shareholders or (iv) by the court of common pleas or
the court in which such action, suit or proceeding was brought
(d) Expenses, including attorneys' fees, incurred by a director in
defending any action, suit or proceeding referred to in paragraphs (a) and (b)
of this section, shall be paid by the Corporation as they are incurred, in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director in which he agrees to do both
of the following: (i) repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation or undertaken with reckless disregard for the best interests of
the Corporation; and (ii) reasonably cooperate with the Corporation concerning
the action, suit or proceeding.
(e) Expenses, including attorneys' fees, incurred by a director,
officer or trustee in defending any action, suit or proceeding referred to in
paragraphs (a) and (b) of this section may be paid by the Corporation as they
are incurred, in advance of the final disposition of such action, suit or
proceeding as authorized by the directors in the specific case upon receipt of
an undertaking by or on behalf of the director, officer or trustee to repay such
amount, if it ultimately is determined that he is not entitled to be indemnified
by the Corporation.
(f) The indemnification provided by this section shall not be deemed
exclusive (i) of any other rights to which those seeking indemnification may be
entitled under the Articles of Incorporation, these Regulations, any agreement,
any insurance purchased by the Corporation, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office or (ii) of the
power of the Corporation to indemnify any person who is or was an employee or
agent of the Corporation or of another corporation, joint venture, trust or
other enterprise which he is serving or has served at the request of the
Corporation, to the same extent and in the same situations and subject to the
same determinations as are hereinabove set forth with respect to a director,
officer or trustee. As used in this paragraph (e), references to the
"Corporation" include all constituent corporations in a consolidation or merger
in which the Corporation or a predecessor to the Corporation by consolidation or
merger was involved. The indemnification provided by this section shall continue
as to a person who has ceased to be a director, officer or trustee and shall
inure to the benefit of the heirs, executors and administrators of such person.
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ARTICLE VI
PROVISIONS IN ARTICLES OF INCORPORATION
SECTION 6.01.
These Regulations are at all times subject to the provisions of the
Articles of Incorporation of the Corporation (including in such term whenever
used in these Regulations, amendments thereto).
ARTICLE VII
RESTRICTIONS ON TRANSFER OF SHARES
SECTION 7.01. STOCK CERTIFICATES.
The shares of stock of the Corporation shall be represented by
certificates signed by the President or a Vice President and by a second officer
who may be the Treasurer, an Assistant Treasurer, the Secretary, or an Assistant
Secretary of the Corporation, certifying the number of shares evidenced thereby.
The signatures of the officers of the Corporation upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or by a
registrar other than the Corporation itself or its employee. In case any officer
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of issue. Each certificate shall set forth additional material as is
required by law.
SECTION 7.02. TRANSFERS.
The Corporation reserves the right to refuse to transfer any shares on
its records unless and until it receives a satisfactory opinion letter from an
attorney for the transferee of such shares that such transfer will not violate
the Securities Act of 1933, as amended, or the regulations thereunder, the Ohio
Securities Act or the regulations thereunder, or any other applicable law or
regulation.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. AMENDMENTS.
These Regulations may be altered, changed or amended in any respect or
superseded by new Regulations in whole or in part, by the affirmative vote of
the holders of record of shares entitling them to exercise a majority of the
voting power of the Corporation at an annual or special meeting called for such
purpose, or without a meeting by the written consent of the holders of record of
shares entitling them to exercise two-thirds of the voting power with respect
thereto; provided, however, that, notwithstanding anything herein this Section
8.01 to the contrary, the provisions of Sections 1.02, 1.06, 2.02, 2.03, 2.04,
2.07 and this Section 8.01 may not be altered, changed or amended in any
respect, or superseded by new Regulations in
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<PAGE> 14
whole or in part except by the affirmative vote of shareholders holding 75% or
more of the outstanding shares entitled to vote thereat if such alteration,
change or amendment is not approved by at least three-fourths of the directors.
In case of adoption of any Regulation or amendment by such written consent, the
Secretary shall enter the same in the corporate records and mail a copy thereof
to each shareholder who would have been entitled to vote thereon and did not
participate in the adoption thereof.
SECTION 8.02. RECORD DATES.
For any lawful purpose, including, without limitation, the
determination of the shareholders who are entitled to: (i) receive notice of or
to vote at a meeting of shareholders; (ii) receive payment of any dividend or
distribution; (iii) receive or exercise rights of purchase of or subscription
for, or exchange or conversion of, shares or other securities, subject to
contract rights with respect thereto; or (iv) participate in the execution of
written consents, waivers, or releases, the directors may fix a record date,
which shall not be a date earlier than the date on which the record date is
fixed and, in the cases provided for in clauses (i), (ii) and (iii) above, shall
not be more than sixty (60) nor fewer than ten (10) days preceding the date of
the meeting of the shareholders, or the date fixed for the payment of any
dividend or distribution, or the date fixed for the receipt or the exercise of
rights, as the case may be, unless the Articles of Incorporation specify a
shorter or longer period for such purpose.
SECTION 8.03. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
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<PAGE> 1
EXHIBIT 10.1
TEAM AMERICA CORPORATION
1996 INCENTIVE STOCK PLAN
Adopted by Board of Directors: October ____, 1996
Approved by Shareholders: October ____, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Section 1. Purpose.................................................................................... 1
Section 2. Definitions................................................................................ 1
Section 3. Administration............................................................................. 3
Section 4. Eligibility................................................................................ 4
Section 5. Shares Available........................................................................... 4
Section 6. Term....................................................................................... 5
Section 7. Participation.............................................................................. 5
Section 8. Stock Options.............................................................................. 5
Section 9. Stock Appreciation Rights.................................................................. 7
Section 10. Restricted Stock Awards................................................................... 8
Section 11. Phantom Stock............................................................................. 8
Section 12. Performance Shares........................................................................ 9
Section 13. Directors' Stock Options.................................................................. 9
Section 14. Payment of Awards......................................................................... 10
Section 15. Dividends and Dividend Equivalents........................................................ 11
Section 16. Termination of Employment................................................................. 11
Section 17. Assignment and Transfer; Holding Period................................................... 11
Section 18. Adjustments Upon Changes in Capitalization................................................ 12
Section 19. Extraordinary Distributions and Pro Rata Repurchases...................................... 12
Section 20. Withholding Taxes......................................................................... 13
Section 21. Regulatory Approvals and Listings......................................................... 13
Section 22. No Right to Continued Employment or Grants................................................ 13
Section 23. Rights as Shareholder..................................................................... 13
Section 24. Responsibility and Indemnification........................................................ 14
Section 25. Substitution, Extension, Renewal and Regrant of Awards.................................... 14
Section 26. Amendment................................................................................. 14
Section 27. Corporate Changes; Use of Funds........................................................... 15
Section 28. Change in Control......................................................................... 15
Section 29. Governing Law............................................................................. 17
Section 30. Interpretation............................................................................ 17
</TABLE>
<PAGE> 3
TEAM AMERICA CORPORATION
1996 Incentive Stock Plan
SECTION 1. PURPOSE
The purpose of this Plan is to advance the long-term interests of TEAM
America Corporation by (i) motivating executive and other personnel by means of
long-term incentive compensation, (ii) furthering the identity of interests of
participants with those of the shareholders of the Company through the ownership
and performance of the Common Stock of the Company and (iii) permitting the
Company to attract and retain directors and executive personnel upon whose
judgment the successful conduct of the business of the Company largely depends.
Toward this objective, the Committee may grant stock options, stock appreciation
rights, restricted stock awards, phantom stock and/or performance shares to Key
Employees of the Company and its Subsidiaries, and shall grant stock options to
non-employee directors of the Company, on the terms and subject to the
conditions set forth in the Plan.
SECTION 2. DEFINITIONS
2.1. "Administrative Policies" means the administrative policies and
procedures adopted and amended from time to time by the Committee to administer
the Plan.
2.2. "Applicable Market" means the Nasdaq National Market ("NNM") or,
if the Common Stock is no longer traded in the NNM, then the principal national
securities exchange, if any, on which the Common Stock is traded as determined
by the Committee, or if the Common Stock is no longer traded in the NNM or on
any national securities exchange, then such other market price reporting system
pursuant to which the Common Stock is traded or quoted as designated by the
Committee.
2.3. "Award" means any form of stock option, stock appreciation right,
restricted stock award, phantom stock or performance share granted under the
Plan, whether singly, in combination, or in tandem, granted, made or awarded to
a Participant by the Committee pursuant to such terms, conditions, restrictions
and limitations, if any, as the Committee may establish by the Award Agreement
or otherwise.
2.4. "Award Agreement" means a written agreement with respect to an
Award between the Company and a Participant establishing the terms, conditions,
restrictions and limitations applicable to an Award. To the extent an Award
Agreement is inconsistent with the terms of the Plan, the Plan shall govern the
rights of the Participant thereunder.
2.5. "Board of Directors" or "Board" means the directors of the
Company, as a group, serving as such from time to time.
2.6. "Change in Control" means (a) the acquisition after the effective
date of this Plan by any "Person" (defined for the purposes of this Section to
mean any person within the meaning
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of Section 13(d) of the Exchange Act, other than the Company or an employee
benefit plan created by the Board of Directors of the Company), either directly
or indirectly, of the beneficial ownership (determined under Rule 13d-3 of the
Regulations promulgated by the Securities and Exchange Commission ("SEC") under
Section 13(d) of the Exchange Act) of any securities issued by the Company if,
after such acquisition, such Person is the beneficial owner of securities issued
by the Company having 20% or more of the voting power in the election of
Directors at the next meeting of the holders of voting securities to be held for
such purpose of all of the voting securities issued by the Company, if such
person acquired such beneficial ownership without the prior consent of the Board
of Directors; (b) the commencement (determined under Rule 14d-2 of the
Regulations promulgated by the SEC under Section 14(d) of the Exchange Act)
after the effective date of this Plan by any Person of a tender offer subject to
the provisions of Section 14(d) of the Exchange Act if, after consummation of
such tender offer, such Person would, directly or indirectly, be the beneficial
owner of securities issued by the Company having 20% or more of the voting power
in the election of Directors at the next meeting of the holders of voting
securities to be held for such purpose of all of the voting securities issued by
the Company, if such Person commenced such tender offer without the prior
written consent of the Directors; (c) the election of a majority of the
Directors, elected at any meeting of the holders of voting securities of the
Company, who were not nominated for such election by the Board of Directors or a
duly constituted committee of the Board of Directors; or (d) the merger or
consolidation with or transfer of substantially all of the assets of the Company
to another person if the Board of Directors does not adopt a resolution, before
the Company enters into any agreement for such merger, consolidation or
transfer, determining that it is not a Change in Control.
2.7. "Change in Control Price" means the higher of (i) the mean of the
high and low closing prices for the Company's Common Stock on the Applicable
Market on the date of determination of the Change in Control, or (ii) the
highest price per share actually paid for the Common Stock in connection with
the Change in Control.
2.8. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.9. "Committee" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board to administer the Plan
under Section 3 hereof.
2.10. "Common Stock" means the Common Shares, without par value, of
the Company.
2.11. "Company" means TEAM America Corporation, an Ohio corporation.
2.12. "Derivative Security" means any of the "derivative securities"
as defined in Rule 16a-1 under the Exchange Act as such rule may be amended or
superseded from time to time.
2.13. "Director" means a member of the Board of Directors.
2.14. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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2.15. "IPO" means the initial underwritten public offering of the
Common Stock.
2.16. "IPO Price" means the price at which the Common Stock is offered
by the Company in the IPO.
2.17. "Key Employee" means an employee of the Company or a Subsidiary
who holds a position of responsibility in an executive, managerial,
administrative or professional capacity, and whose performance, as determined by
the Committee in the exercise of its sole and absolute discretion, can have an
effect on the growth, profitability and success of the Company.
2.18. "Participant" means any individual to whom an Award has been
granted by the Committee under this Plan.
2.19. "Plan" means this TEAM America Corporation 1996 Incentive Stock
Plan, as the same may be amended from time to time.
2.20. "Section 16 Officer" means any Participant who is an "officer"
of the Company within the meaning of Rule 16a-1 under the Exchange Act as such
rule may be amended or superseded from time to time.
2.21. "Subsidiary" means a corporation or other business entity in
which the Company directly or indirectly has an ownership interest of fifty-one
percent or more.
2.22. "Termination" means the termination of the Participant's
relationship with the Company including termination of the Participant's
employment and status as a Director. A Participant who is absent from employment
or other relationship with the Company for a reason or purpose and for a period
of time approved by the Committee, in its sole discretion, shall not for the
period of such absence be deemed, solely because of such absence, to have
suffered a Termination, unless and until the Committee otherwise determines.
SECTION 3. ADMINISTRATION
The Plan shall be administered under the supervision of either (i) the
Board of Directors, or (ii) the Committee composed of not less than three
Directors each of whom shall be a "non-employee director" as defined in Rule
16b-3 under the Exchange Act as such rule may be amended or superseded from time
to time and an "outside director" under Section 162(m) of the Code and the
regulations thereunder. References to the authority, duties and obligations of
the Committee hereinafter set forth shall apply to the Board of Directors at any
time the Board of Directors rather than the Committee is administering and
supervising the Plan.
Members of the Committee shall serve at the pleasure of the Board of
Directors, and may resign by written notice filed with the Chairman of the
Board, President or Secretary of the Company. A vacancy in the membership of the
Committee shall be filled by the appointment of a successor member by the Board
of Directors. Until such vacancy is filled, the remaining
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members shall constitute a quorum and the action at any meeting of a majority of
the entire Committee, or an action unanimously approved in writing by all
Committee members, shall constitute action of the Committee. Subject to the
express provisions of this Plan, the Committee shall have exclusive and final
authority to: (i) construe and interpret the Plan and any Award Agreement
entered into hereunder; (ii) establish, amend and rescind Administrative
Policies for the administration of the Plan; and (iii) determine the "fair
market value" of the Common Stock of the Company (based on the Applicable
Market, if any, for the Common Stock). The Committee shall have such additional
authority as the Board of Directors may from time to time determine to be
necessary or desirable. Employees, agents and independent contractors of the
Company or the Committee may be assigned, or employed or retained to perform,
administrative, clerical and other duties of the Committee, subject to the
supervision and control of the Committee; provided, however, that only the
Committee may grant or award an Award under the Plan and make decisions
concerning the timing, pricing and amount of any Award, except for stock options
automatically granted to Directors who are not employees of the Company under
Section 13 hereof.
For so long as Directors and/or Section 16 Officers are or may be
Participants in the Plan, the Committee shall not knowingly take any action, or
decline to take any action, which shall cause the Plan not to meet the
requirements contained in Rule 16b-3 under the Exchange Act, as such rule is
amended or superseded from time to time, which permit the granting or making of
Awards under the Plan to be exempt from section 16(b) of the Exchange Act as
amended or superseded from time to time.
SECTION 4. ELIGIBILITY
Any Key Employee is eligible to become a Participant in the Plan.
Directors of the Company, other than Directors who are employees of the Company,
shall be eligible only to receive stock options pursuant to Section 13 hereof.
SECTION 5. SHARES AVAILABLE
(a) Shares of Common Stock available for issuance under the Plan may be
authorized and unissued shares or treasury shares. Subject to the adjustments
provided for in Sections 18 and 19 hereof, the maximum number of shares of
Common Stock available for grant of Awards under the Plan is 350,000 shares.
Notwithstanding the foregoing, at no time shall the number of shares of Common
Stock deemed to be available for grant in any calendar year exceed ten percent
of the total number of issued and outstanding shares of Common Stock of the
Company. The number of shares of Common Stock available for grant to any
individual Participant in any calendar year shall not exceed [15,000] shares.
(b) For purposes of calculating the number of shares of Common Stock
deemed to be granted hereunder during any fiscal year, each Award, whether
denominated in stock options, stock appreciation rights, restricted stock,
performance shares or phantom stock, shall be deemed to be a grant of a number
of shares of Common Stock equal to the number of shares represented
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by the stock options, shares of restricted stock, performance shares, shares of
phantom stock or stock appreciation rights set forth in the Award; provided
however
(i) in the case of any Award as to which the exercise of one
right nullifies the exercisability of another (including, by way of
illustration the grant of a stock option with Tandem SARs (as
hereinafter defined)), the number of shares deemed to have been granted
shall be the maximum number of shares (and/or cash equivalents) that
could have been acquired upon the maximum exercise or settlement of the
Award; and
(ii) in the case of Performance Share Awards (as hereinafter
defined) providing for payments in excess of 100% of the number of
shares set forth in the Award Agreement, the number of shares granted
shall be deemed to be the maximum number of shares (and/or the cash
equivalent thereof) issuable under the Award at the highest level of
performance.
(c) Shares of Common Stock covered by lapsed, canceled, surrendered or
terminated Awards shall be shares available for regrant under the Plan;
provided, however, that the portion of any Award that has been settled by the
payment of cash or the issuance of shares of Common Stock, or a combination
thereof, shall not be available for re-grant under the Plan, irrespective of the
value of the settlement or the method of its payment. The settlement of an Award
shall not be deemed to be the grant of an Award hereunder.
SECTION 6. TERM
The Plan shall become effective as of October ____, 1996, subject to
approval of the Plan by the holders of a majority of the shares of Common Stock.
No Awards shall be exercisable or payable before approval of the Plan has been
obtained from the Company's shareholders and no Awards may be granted after
December 31, 2006.
SECTION 7. PARTICIPATION
The Committee shall select, from time to time, Participants from those
Key Employees who, in the opinion of the Committee can further the Plan's
purpose and the Committee shall determine the type or types of Awards, if any,
to be made to the Participant. Any selection by the Committee of an employee of
the Company or a Subsidiary to be a Participant in the Plan shall irrevocably
constitute the Committee's concurrent and conclusive determination that such
employee is a Key Employee. In addition, all non-employee Directors shall
participate in the Plan solely in the manner specified in Section 13 hereof. The
terms, conditions and restrictions of each Award shall be set forth in an Award
Agreement, and no Participant shall have any rights to or interest in an Award
unless and until such Participant has exercised and delivered an Award Agreement
with respect to such Award.
SECTION 8. STOCK OPTIONS
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(a) Grants. Awards may be granted in the form of stock options. Stock
options may be incentive stock options within the meaning of section 422 of the
Code or nonqualified stock options (i.e., stock options which are not incentive
stock options), or a combination of both, or any particular type of tax
advantage option authorized by the Code from time to time.
(b) Terms and Conditions of Options. An option shall be exercisable in
whole or in such installments and at such times as may be determined by the
Committee; provided, however, that no stock option shall be exercisable more
than ten years after the date of grant thereof. In the absence of any provision
in an option to the contrary (i) the option will become exercisable as to 20% of
the shares of Common Stock subject to the option upon completion of the first
full year of employment of the Participant after the date of grant thereof and
as to 20% of such shares upon the completion of each full year thereafter prior
to Termination, and (ii) the option will lapse upon the earliest of (A) one year
after Termination of the Participant's relationship with the Company if the
Termination is due to death or disability or if the Participant dies within 90
days of the Termination, or (B) 90 days after Termination if the Termination is
for any reason other than death or disability. The option exercise price shall
be established by the Committee, but such price shall not be less than the per
share fair market value of the Common Stock, as determined by the Committee, on
the date of the stock option's grant subject to adjustment as provided in
Sections 18 or 19 hereof; provided, however, that the option price of any
nonqualified stock option granted within 90 days following the closing of the
IPO may be the IPO Price.
(c) Restrictions Relating to Incentive Stock Options. Stock options
issued in the form of incentive stock options shall, in addition to being
subject to all applicable terms, conditions, restrictions and/or limitations
established by the Committee, comply with section 422 of the Code. Incentive
stock options shall be granted only to those Key Employees who are employees of
the Company and its "subsidiaries" within the meaning of section 424 of the
Code, and shall be granted within ten years after the date the Plan was adopted
by the Board of Directors. The aggregate fair market value (determined as of the
date the option is granted) of shares with respect to which incentive stock
options are exercisable for the first time by an individual during any calendar
year (under this Plan or any other plan of the Company or any Subsidiary which
provides for the granting of incentive stock options) may not exceed $100,000 or
such other number as may be applicable under the Code from time to time. Any
incentive stock option that is granted to any employee who is, at the time the
option is granted, deemed for purposes of section 422 of the Code, or any
successor provision, to own shares of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of shares of the
Company or of a parent or subsidiary of the Company shall have an option
exercise price that is at least 110 percent (110%) of the fair market value of
the shares at the date of grant and shall not be exercisable after the
expiration of 5 years from the date it is granted.
(d) Additional Terms and Conditions. The Committee may, in any manner
not inconsistent with the Plan, by way of the Award Agreement or otherwise,
establish such other terms, conditions, restrictions and/ or limitations, if
any, on any stock option Award and the exercise thereof.
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(e) Payment. Upon exercise, a Participant may pay the option exercise
price of a stock option (i) in cash, (ii) in shares of Common Stock, or (iii) a
combination thereof, or (iv) in the sole discretion of the Committee, through a
cashless exercise procedure involving a broker; provided, however, that such
method and time for payment shall be permitted by and be in compliance with
applicable law, or (v) such other consideration as the Committee may deem
appropriate. The Committee shall establish appropriate methods for accepting
Common Stock and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a stock option.
SECTION 9. STOCK APPRECIATION RIGHTS
(a) Grants. Awards may be granted in the form of stock appreciation
rights ("SARs"). SARs shall entitle the recipient to receive a payment equal to
the appreciation in market value of a stated number of shares of Common Stock
from the price stated in the Award Agreement to the market value of the Common
Stock on the date of exercise or surrender. A SAR may be granted in tandem with
all or a portion of a related stock option under the Plan ("Tandem SARs"), or
may be granted separately ("Freestanding SARs"): provided, however, that
Freestanding SARs may be granted only to Key Employees who are foreign nationals
or are employed outside of the United States, or both, and as to whom the
Committee determines the interests of the Company could not as conveniently be
served by the grant of other forms of Awards under the Plan. Tandem SARs shall
permit the optionee to surrender a stock option or portion thereof and to
receive the payment to which he is entitled under the SAR Award Agreement with
respect to the shares of Common Stock subject to the surrendered stock option or
portion thereof. A Tandem SAR may be granted either at the time of the grant of
the related stock option or at any time thereafter during the term of the stock
option. A Freestanding SAR granted to a Section 16 Officer may be exercised no
sooner than six months after it is granted.
(b) Terms and Conditions of Tandem SARs. A Tandem SAR shall be
exercisable to the extent, and only to the extent, that the related stock option
is exercisable. The appreciation in value of a Tandem SAR shall be the
appreciation in fair market value from an amount not less than the option
exercise price of the related stock option or portion thereof being surrendered
to the market value of the Common Stock on the date of exercise. Upon exercise
of a Tandem SAR as to some or all of the shares covered by an Award, the related
stock option shall be canceled automatically to the extent of the number of SARs
exercised, and such shares shall not thereafter be eligible for grant under
Section 5 hereof.
(c) Terms and Conditions of Freestanding SARs. Freestanding SARs shall
be exercisable in whole or in such installments and at such times as may be
determined by the Committee. The base price of a Freestanding SAR shall also be
determined by the Committee; provided, however, that such price shall not be
less that the fair market value of the Common Stock on the date of the award of
the Freestanding SAR.
(d) Deemed Exercise. The Committee may provide that an SAR shall be
deemed to be exercised at the close of business on the scheduled expiration date
of such SAR, if at such time
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the SAR by its terms is otherwise exercisable and, if so exercised, would result
in a payment to the Participant.
(e) Additional Terms and Conditions. The Committee may, in any manner
not inconsistent with the Plan, by way of the Award Agreement or otherwise,
determine such other terms, conditions, restrictions and/or limitations, if any,
on any SAR Award.
SECTION 10. RESTRICTED STOCK AWARDS
(a) Grants. Awards may be granted in the form of Restricted Stock
Awards. Restricted Stock Awards consist of shares of Common Stock bearing
restrictions on their transfer or otherwise as authorized by Section 10(b),
below, and may be awarded to a Key Employee with or without payment of
consideration by the Key Employee.
(b) Award Restrictions. Restricted Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the Committee deems
appropriate including, by way of illustration but not by way of limitation,
restrictions on transferability, requirements of continued employment or
individual performance or the financial performance of the Company. The
Committee may modify, or accelerate the termination of, the restrictions
applicable to a Restricted Stock Award under such circumstances as it deems
appropriate.
(c) Rights as Shareholders. During the period in which any shares of
Common Stock are subject to the restrictions imposed under this Section 10, the
Committee may, in its discretion, grant to the Participant to whom such
restricted shares have been awarded, all or any of the rights of a shareholder
with respect to such shares, including, by way of illustration but not by way of
limitation, the right to vote such shares and to receive dividends.
(d) Evidence of Award. Any Restricted Stock Award granted under the
Plan may be evidenced in such manner as the Committee deems appropriate,
including, without limitation, book entry registration or issuance of a stock
certificate or certificates.
(e) Additional Terms and Conditions. The Committee may, in any manner
not inconsistent with the Plan, by way of Award Agreement or otherwise,
determine such other terms, conditions, restrictions or limitations, if any, on
any Award of Restricted Stock.
SECTION 11. PHANTOM STOCK
(a) Grants. Awards may be granted in the form of Phantom Stock Awards.
Phantom Stock Awards shall entitle the Participant to receive the market value
or the appreciation in value of a stated number of shares of Common Stock on a
settlement date determined by the Committee.
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(b) Terms and Conditions. The Committee may, in any manner not
inconsistent with the Plan, by way of Award Agreement or otherwise, determine
such terms, conditions, restrictions or limitations, if any, on any Award of
Phantom Stock.
SECTION 12. PERFORMANCE SHARES
(a) Grants. Awards may be granted in the form of performance shares.
"Performance Shares" means interests the entitlement to which is based upon the
attainment of pre-determined Performance Targets as hereinafter defined during a
Performance Period as hereinafter defined. At the end of the Performance Period,
Performance Shares shall be converted into Common Stock (or Common Stock and
cash, as determined by the Award Agreement) and distributed to Participants
based upon such entitlement.
(b) Performance Criteria. The Committee may grant an Award of
Performance Shares to Participants as of the first day of each Performance
Period. As used herein, the term "Performance Period" means the period during
which a Performance Target is measured and the term "Performance Target" means
the predetermined goals established by the Committee. A Performance Target will
be established at the beginning of each Performance Period. If at the end of the
Performance Period, the Performance Target is fully met, the Performance Shares
will be converted 100% into shares of Common Stock (or the cash equivalent
thereof, as determined by the Award Agreement) and issued to the Participant.
Award payments in excess of 100% shall be permitted based upon an attainment in
excess of 100% of the Performance Target. If the Performance Target has not been
fully met, Performance Shares will be converted and delivered only to the
extent, if any, provided at the time of the grant of such Award for conversion
based upon partial attainment of the Performance Target and the balance of the
Performance Shares will be forfeited to the Company and available for reissuance
pursuant to Section 5 hereof.
(c) Additional Terms and Conditions. The Committee may, in any manner
not inconsistent with the terms of this Plan, by way of the Award Agreement or
otherwise, determine the manner of payment of Awards of Performance Shares and
other terms, conditions, restrictions or limitations, if any, on any Award of
Performance Shares.
SECTION 13. DIRECTORS' STOCK OPTIONS
(a) Grants. Awards may be granted to non-employee Directors only in the
form of stock options satisfying the requirements of this Section 13. All stock
options granted under this Section 13 shall be nonqualified stock options.
(b) Option Exercise Price. The option exercise price of all stock
options granted under this Section 13 shall be the per share fair market value
of the outstanding shares of the Common Stock on the date such options are
granted; provided, however, that the option price of any nonqualified stock
option granted within 90 days following the closing of the IPO may be the IPO
Price. Payment of the option exercise price may be made in cash or in shares of
Common
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Stock or a combination of cash and Common Stock to the extent provided in the
Award Agreement.
(c) Administration. Subject to the express provisions of this Section
13, the Committee shall have conclusive authority to construe and interpret any
Stock Option Award granted under this Section 13 and to adopt Administrative
Policies with respect thereto; provided, however, that no action shall be taken
which would prevent the options granted under this Section 13 or any Award
granted under the Plan from meeting the requirements for exemption from Section
16(b) of the Exchange Act, or subsequent comparable statute, as set forth in
Rule 16b-3 of the Exchange Act or any subsequent comparable rule.
(d) Option Agreement. The options granted hereunder shall be evidenced
by an option agreement, dated as of the date of the grant, which agreement shall
be in such form, consistent with the terms and requirements of this Section 13,
as shall be approved by the Committee from time to time and executed on behalf
of the Company by the President. The Option Agreement shall require the optionee
to refrain from selling or otherwise disposing of shares so acquired for at
least 120 days following the exercise of such option.
(e) Option Period. Options granted under this Section 13 will become
exercisable at such times as the Committee shall approve.
(f) Limitations on Exercise. Directors' Stock Options shall become
exercisable at such times and to such extent as the Committee shall approve. To
the extent an option is not otherwise exercisable at the date of the Director's
retirement as a Director as required under any plan or policy of the Company, it
shall become fully exercisable upon such retirement; provided, however, that
Director Stock Options shall not become exercisable under this sentence prior to
the expiration of six months from the date of grant. Upon such retirement such
options shall be exercisable for a period of three years, subject to any shorter
original term thereof. Options not otherwise exercisable at the time of the
death of a Director during continued service with the Company shall become fully
exercisable upon his death. Upon the death of a Director while in service as a
Director, such options shall remain exercisable for a period of one year after
the date of death. To the extent an option is exercisable on the date a Director
ceases to be a Director (other than by reason of death or retirement as a
Director under any plan or policy of the Company), the option shall continue to
be exercisable (subject to the original term of the option) for a period of
ninety (90) days thereafter.
SECTION 14. PAYMENT OF AWARDS
Except as otherwise provided herein Award Agreements may provide that,
at the discretion of the Committee, payment of Awards may be made in cash,
Common Stock, a combination of cash and Common Stock, or any other form of
property as the Committee shall determine. The terms of Award Agreements may
provide for payment of Awards in the form of a lump sum or installments, as
determined by the Committee. In connection with transactions involving the
exercise and cancellation of an Award (under this Section 14 or Section 25, or
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otherwise) held by or through a Director or a Section 16 Officer (whether or not
the transaction also involves the related surrender and cancellation of a stock
option) and the receipt of cash in complete or partial settlement of the Award,
or the cash settlement of an equity security to satisfy the tax withholding
consequences of a Derivative Security, the Committee may require that such
transaction be consummated in compliance with Rule 16b-3(e) under the Exchange
Act, as such rule may be amended or superseded from time to time, unless the
holder of such Award waives such compliance in a writing executed by such holder
and delivered to the Committee and the Committee consents to such waiver.
SECTION 15. DIVIDENDS AND DIVIDEND EQUIVALENTS
If an Award is granted in the form of a Restricted Stock Award, Phantom
Stock Award or a Freestanding SAR, the Committee may choose, at the time of the
grant of the Award, to include as part of such Award an entitlement to receive
dividends or dividend equivalents, subject to such terms, conditions,
restrictions or limitations, if any, as the Committee may establish. Dividends
and dividend equivalents shall be paid in such form and manner and at such time
as the Committee shall determine. All dividends or dividend equivalents which
are not paid currently may, at the Committee's discretion, accrue interest or be
reinvested into additional shares of Common Stock.
SECTION 16. TERMINATION OF EMPLOYMENT
The Committee may adopt Administrative Policies determining the
entitlement of Participants who cease to be employed by either the Company or a
Subsidiary whether because of death, disability, resignation, termination or
retirement pursuant to an established retirement plan or policy of the Company
or of its applicable Subsidiary.
SECTION 17. ASSIGNMENT AND TRANSFER; HOLDING PERIOD
An equity security of the Company granted or awarded to a Director or
Section 16 Officer as an Award under the Plan shall not be assigned, sold,
encumbered, transferred or otherwise disposed of prior to the elapse of six
months from the date of grant, and neither a Derivative Security granted or
awarded to a Director or Section 16 Officer as an Award under the Plan, nor the
underlying equity security with respect to such Derivative Security, shall be
assigned, sold, encumbered, transferred or otherwise disposed of prior to the
elapse of six months from the date of acquisition of the Derivative Security to
the date of disposition of the Derivative Security (other than upon exercise or
conversion) or such underlying equity security, unless, in either case, the
holder of such equity security or Derivative Security requests waiver of such
restrictions in a writing delivered to the Committee and the Committee consents
to such waiver.
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SECTION 18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding shares of Common Stock by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or shares of the Company, the maximum aggregate number and
class of shares as to which Awards may be or are required to be granted under
the Plan, and the shares issuable pursuant to and the exercise or purchase price
payable under then outstanding Awards, shall be appropriately adjusted by the
Committee whose determination shall be final. Any such adjustments may be
provided for in Award Agreements.
SECTION 19. EXTRAORDINARY DISTRIBUTIONS AND PRO RATA REPURCHASES
In the event the Company shall at any time when an Award is outstanding
make an Extraordinary Distribution (as hereinafter defined) in respect of Common
Stock or effect a Pro Rata Repurchase of Common Stock (as hereinafter defined),
the Committee may consider the economic impact of the Extraordinary Distribution
or Pro Rata Repurchase on Participants and make such adjustments as it deems
equitable under the circumstances. The determination of the Committee shall,
subject to revision by the Board of Directors, be final and binding upon all
Participants.
(a) As used herein, the term "Extraordinary Distribution" means any
dividend or other distribution by the Company of:
(i) cash, where the aggregate amount of such cash dividend or
distribution together with the amount of all cash dividends and
distributions made during the twelve months preceding the date of
payment of such dividend or other distribution, when combined with the
aggregate amount of all Pro Rata Repurchases (for this purpose,
including only that portion of the aggregate purchase price of such Pro
Rata Repurchases which is in excess of the fair market value (as
determined by the Committee) of the Common Stock repurchased during
such twelve month period), exceeds ten percent (10%) of the aggregate
fair market value (as determined by the Committee) of all shares of
Common Stock outstanding on the record date for determining the
shareholders entitled to receive such Extraordinary Distribution; or
(ii) any shares of capital stock of the Company (other than
shares of Common Stock), other securities of the Company (including
evidences of indebtedness of the Company), or any other investments,
assets or property of the Company (including shares of any Subsidiary
of the Company), or any combination thereof.
(b) As used herein "Pro Rata Repurchase" means any purchase of shares
of Common Stock by the Company or any Subsidiary thereof, pursuant to any tender
offer or exchange offer subject to section 13(e) of the Exchange Act or any
successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however, that
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no purchase of shares of the Company or any Subsidiary thereof made in open
market transactions shall be deemed a Pro Rata Repurchase.
SECTION 20. WITHHOLDING TAXES
The Company or the applicable Subsidiary shall be entitled to deduct
from any payment under the Plan, regardless of the form of such payment, the
amount of all applicable income and employment tax required by law to be
withheld with respect to such payment or may require the Participant to pay to
it such tax prior to and as a condition of the making of such payment. In
accordance with any applicable Administrative Policies it establishes, the
Committee may allow a Participant to pay the amount of taxes required by law to
be withheld from an Award by withholding from any payment of Common Stock due as
a result of such Award, or by permitting the Participant to deliver to the
Company shares of Common Stock having a fair market value, as determined by the
Committee, equal to the amount of such required withholding taxes.
SECTION 21. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary, the
Company shall have no obligation to issue or deliver certificates of Common
Stock evidencing Restricted Stock Awards or any other Award payable in Common
Stock prior to (a) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable, (b) the admission of such shares to trading on the Applicable Market
and (c) the completion of any registration or other qualification of said shares
under any state or Federal law or ruling of any governmental body which the
Company shall, in its sole discretion, determine to be necessary or advisable.
The Company shall have the right to require that any certificate for Common
Stock issued pursuant to the Plan or an Award bear any restrictive legend
required by law and/or to evidence restrictions on the transfer of the shares
under applicable law, the Award Agreement or the Plan.
SECTION 22. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Company or any Subsidiary. The Company or, in the
case of employment with a Subsidiary, the Subsidiary, reserves the right to
terminate the employment of any Key Employee at any time, subject to the terms
of any employment agreement with such Key Employee. The adoption of this Plan
shall not be deemed to give any Key Employee or any other individual any right
to be selected as a Participant, to be granted any Awards hereunder or, if
granted an Award, to receive any additional Awards at any subsequent time.
SECTION 23. RIGHTS AS SHAREHOLDER
No Participant shall have any rights as a shareholder as a result of
participation in the Plan until the date of issuance of and only as the holder
of a stock certificate in his name except,
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in the case of Restricted Stock Awards, to the extent such rights are granted to
the Participant under Section 10(c) hereof. To the extent any person acquires a
right to receive payments from the Company under this Plan, such rights shall be
no greater than the rights of an unsecured creditor of the Company.
SECTION 24. RESPONSIBILITY AND INDEMNIFICATION
No member of the Board of Directors or the Committee shall be liable to
the Company, any Participant or any third party for any action or determination
made in good faith with respect to the Plan and Awards thereunder, or for any
matter as to which the Company's articles of incorporation or code of
regulations, or any valid contract between the Company and such member, limits
or negates the liability of Directors. Such members shall be entitled to
indemnification and reimbursement in the manner provided in the Company's
articles of incorporation and code of regulations, in any valid contract between
the Company and such member, and under any directors' and officers' liability
insurance coverage which may be in effect from time to time.
SECTION 25. SUBSTITUTION, EXTENSION, RENEWAL AND REGRANT OF AWARDS
Awards may be granted under the Plan from time to time in substitution
for stock options and other rights or awards held by employees of organizations
who become or are about to become Key Employees of the Company or a Subsidiary
as the result of a merger or consolidation of the employing organization with
the Company or a Subsidiary, or the acquisition by the Company or a Subsidiary
of the assets of the employing organization, or the acquisition by the Company
or a Subsidiary of equity interests in the employing organization as the result
of which it becomes a Subsidiary. The Committee may extend or renew outstanding
Awards granted under the Plan on terms not inconsistent with the Plan.
The Committee may accept the surrender or cancellation of outstanding
Awards (to the extent not theretofore exercised, paid or settled) and grant or
award new Awards in substitution therefor, which new Awards may be different
types of Awards than the Awards so surrendered and/or canceled.
SECTION 26. AMENDMENT
The Committee may suspend, reinstate and terminate the Plan or any
portion thereof at any time. In addition, the Committee may, from time to time,
amend the Plan in any manner, but may not without shareholder approval adopt any
amendment (i) which would (a) materially increase the benefits accruing to
Participants under the Plan, (b) materially increase the number of shares of
Common Stock which may be issued under the Plan (except as specified in Section
18), or (c) materially modify the requirements as to eligibility for
participation in the Plan, or (ii) that requires shareholder approval in order
for the Plan to comply with Section 162(m) of the Code. Notwithstanding the
foregoing, the provisions of Section 13 relating to the eligibility for, and the
amount, price and timing of, Awards to Directors thereunder shall not be
amended,
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nor shall the operation of Section 13 be suspended or reinstated, more than once
every six months other than to comport with changes in the Code, ERISA, or the
rules thereunder.
SECTION 27. CORPORATE CHANGES; USE OF FUNDS
The grant of an Award pursuant to the Plan shall not affect the right
or power of the Company to make adjustments, reclassifications, reorganizations,
or changes of its stock, securities, capital or business structure, or to merge,
consolidate, dissolve, or liquidate, or to sell, lease or transfer all or any
part of its business or assets. The funds received by the Company upon any
exercise or settlement of an Award may be used by the Company for any corporate
purpose or purposes.
SECTION 28. CHANGE IN CONTROL
(a) Stock Options. In the event of a Change in Control, options not
otherwise exercisable at the time of a Change in Control shall become fully
exercisable upon such Change in Control; provided, however, that options shall
not become exercisable under this provision prior to the expiration of six
months from the date of grant.
(b) Stock Appreciation Rights. In the event of a Change in Control,
Tandem SARs not otherwise exercisable upon a Change in Control shall become
exercisable to the extent that the related Stock Option is exercisable.
Freestanding SARs not otherwise exercisable upon a Change in Control shall also
become fully exercisable upon such Change in Control.
(i) The Company shall make payment to Participants with
respect to SARs in cash in an amount equal to the appreciation in the value of
the SAR from the base price specified in the Award Agreement to the Change in
Control Price.
(ii) Such cash payments to Participants shall be due and
payable, and shall be paid by the Company, immediately upon the occurrence of
such Change in Control; and
(iii) After the payment provided for in (ii) above,
Participants shall have no further rights under SARs outstanding at the time of
such Change in Control.
(c) Restricted Stock Awards. In the event of a Change in Control, all
restrictions previously established with respect to Restricted Stock Awards will
conclusively be deemed to have been satisfied. Participants shall be entitled to
have issued to them the shares of Common Stock described in the applicable Award
Agreements, free and clear of any restriction or restrictive legend, except that
if upon the advice of counsel to the Company, shares of Common Stock cannot
lawfully be issued without restriction, then the Company shall make payment to
Participants in cash in an amount equal to the Change in Control Price of the
Common Stock that otherwise would have been issued:
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(i) Such cash payments to Participants shall be due and
payable, and shall be paid by the Company, immediately upon the occurrence of
such Change in Control; and
(ii) After the payment provided for in (i) above, Participants
shall have no further rights under Restricted Stock Awards outstanding at the
time of such Change in Control of the Company.
(d) Phantom Stock. In the event of a Change in Control:
(i) all restrictions and conditions, if any, previously
established with respect to Phantom Stock Awards will conclusively be deemed to
have been satisfied and fulfilled. Participants shall be entitled to receive
Common Stock in satisfaction of their rights under Phantom Stock Awards in
accordance with the amounts otherwise payable by the Company pursuant to the
Award Agreement.
(ii) Such Common Stock shall be issued to Participants by the
Company immediately upon the occurrence of such Change in Control; and
(iii) After the payment provided for in (ii) above, the
Participants shall have no further rights under Phantom Stock Awards outstanding
at the time of such Change in Control of the Company.
(e) Performance Shares. In the event of a Change in Control:
(i) All previously established Performance Targets will be
conclusively deemed to have been met. Participants shall be entitled to a pro
rata proportion of the shares of Common Stock which would have been issued to
them upon conversion of any outstanding Performance Shares at the end of the
Performance Period (based upon the applicable Performance Targets which are
conclusively deemed to have been met by reason of the Change in Control),
payable in the manner specified in subsection (ii) hereof. The pro rata
proportion of the shares of Common Stock to be issued shall be equal to a
fraction, the numerator of which is the duration of the Performance Period prior
to such Change in Control and the denominator of which is the original length of
the Performance Period;
(ii) In lieu of issuing shares of Common Stock upon such
conversion of Performance Shares, the Company shall make payment to Participants
in cash in an amount equal to the Change in Control Price of the shares of
Common Stock that would have been issued under paragraph (i) above;
(iii) Such cash payments to Participants shall be due and
payable, and shall be paid by the Company, immediately upon the occurrence of
such Change in Control; and
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(iv) After the payment provided for in (ii) above, the
Participants shall have no further rights under awards of Performance Shares
outstanding at the time of such Change in Control of the Company.
(f) Directors' Stock Options. Directors' Stock Options not otherwise
exercisable at the time of a Change in Control shall become fully exercisable
upon such Change in Control; provided, however, that options shall not become
exercisable under this provision prior to the expiration of six months from the
date of grant.
(i) The Company shall make payment to Directors with respect
to Options in cash in an amount equal to the appreciation in the value of the
Option from the option exercise price specified in the Award Agreement to the
Change in Control Price.
(ii) Such cash payments to Directors shall be due and payable,
and shall be paid by the Company, immediately upon the occurrence of such Change
in Control; and
(iii) After the payment provided for in (i) above,
Participants shall have no further rights under Options outstanding at the time
of such Change in Control.
(g) Miscellaneous. Upon a Change in Control, no action shall be taken
which would adversely affect the rights of any Participant or the operation of
the Plan with respect to any Award to which the Participant may have become
entitled hereunder on or prior to the date of the Change in Control or to which
he may become entitled as a result of such Change in Control.
SECTION 29. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of Ohio, except as preempted by applicable Federal law.
SECTION 30. INTERPRETATION
The Plan is designed and intended to comply with Rule 16b-3 promulgated
under the Exchange Act and, to the extent applicable, with Section 162(m) of the
Code and all provisions hereof shall be construed in a manner to so comply.
[End of Plan]
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