<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-20540
ON ASSIGNMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4023433
(State of Incorporation) (IRS Employer Identification No.)
26651 WEST AGOURA ROAD, CALABASAS, CA 91302
(Address of principal executive offices)
(Zip Code)
(818) 878-7900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At July 31, 1999, the total number of outstanding shares of the Company's Common
Stock ($0.01 par value) was 10,911,809.
<PAGE> 2
ON ASSIGNMENT, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
<S> <C>
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1999
and December 31, 1998 3
Consolidated Statements of Income for the three months
ended June 30, 1999 and June 30, 1998 4
Consolidated Statements of Income for the six months
ended June 30, 1999 and June 30, 1998 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and June 30, 1998 6, 7
Notes to Consolidated Financial Statements 8, 9, 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11, 12, 13, 14, 15, 16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,182,000 $ 27,706,000
Marketable securities 6,600,000 2,760,000
Accounts receivable, net (Note 4) 19,835,000 18,578,000
Advances and deposits 98,000 70,000
Prepaid expenses 1,213,000 1,149,000
Officer loan receivable 400,000 0
Income taxes receivable 0 254,000
Deferred income taxes 1,491,000 1,310,000
------------ ------------
Total current assets 58,819,000 51,827,000
------------ ------------
Office Furniture, Equipment and
Leasehold Improvements, net (Note 5) 2,733,000 2,703,000
Marketable securities 4,125,000 5,325,000
Deferred income taxes 285,000 235,000
Workers' compensation restricted deposits 166,000 168,000
Goodwill, net (Note 6) 1,166,000 1,215,000
Other assets 895,000 555,000
------------ ------------
TOTAL ASSETS $ 68,189,000 $ 62,028,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 797,000 $ 309,000
Accrued payroll 6,219,000 4,552,000
Deferred compensation 817,000 319,000
Accrued workers' compensation 1,347,000 1,437,000
Income taxes payable 294,000 0
Other accrued expenses 1,044,000 1,185,000
------------ ------------
Total current liabilities 10,518,000 7,802,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock 0 0
Common stock (Notes 7 and 8) 109,000 109,000
Paid-in capital (Note 8) 12,665,000 15,752,000
Retained earnings 44,901,000 38,388,000
Accumulated other comprehensive income (4,000) (23,000)
------------ ------------
Total stockholders' equity 57,671,000 54,226,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 68,189,000 $ 62,028,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
Three Months Ended June 30,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Revenues $39,272,000 $ 32,508,000
Cost of services 26,524,000 22,261,000
----------- ------------
Gross profit 12,748,000 10,247,000
Operating expenses 7,613,000 6,230,000
----------- ------------
Operating income 5,135,000 4,017,000
Interest income 411,000 322,000
----------- ------------
Income before income taxes 5,546,000 4,339,000
Provision for income taxes 2,063,000 1,614,000
----------- ------------
Net income $ 3,483,000 $ 2,725,000
=========== ============
Basic earnings per share (Note 10) $ 0.32 $ 0.25
=========== ============
Weighted average number of common
shares outstanding (Note 10) 11,054,000 10,842,000
=========== ============
Diluted earnings per share (Note 10) $ 0.31 $ 0.24
=========== ============
Weighted average number of common and common
equivalent shares outstanding (Note 10) 11,245,000 11,296,000
=========== ============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------
Three Months Ended June 30,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Net income $ 3,483,000 $ 2,725,000
Other comprehensive income (loss):
Foreign currency translation adjustment 11,000 (10,000)
----------- ------------
Comprehensive income $ 3,494,000 $ 2,715,000
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
Six Months Ended June 30,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Revenues $74,061,000 $ 61,075,000
Cost of services 50,093,000 42,015,000
----------- ------------
Gross profit 23,968,000 19,060,000
Operating expenses 14,404,000 11,627,000
----------- ------------
Operating income 9,564,000 7,433,000
Interest income 806,000 624,000
----------- ------------
Income before income taxes 10,370,000 8,057,000
Provision for income taxes 3,857,000 3,014,000
----------- ------------
Net income $ 6,513,000 $ 5,043,000
=========== ============
Basic earnings per share (Note 10) $ 0.59 $ 0.47
=========== ============
Weighted average number of common
shares outstanding (Note 10) 11,034,000 10,805,000
=========== ============
Diluted earnings per share (Note 10) $ 0.58 $ 0.45
=========== ============
Weighted average number of common and common
equivalent shares outstanding (Note 10) 11,295,000 11,252,000
=========== ============
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -------------------------------------------------------------------------------
Six Months Ended June 30,
-----------------------------
1999 1998
----------- ------------
<S> <C> <C>
Net income $ 6,513,000 $ 5,043,000
Other comprehensive income (loss):
Foreign currency translation adjustment 19,000 (8,000)
----------- ------------
Comprehensive income $ 6,532,000 $ 5,035,000
=========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Six Months Ended June 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,513,000 $ 5,043,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 548,000 441,000
Increase in allowance for doubtful accounts 352,000 237,000
Decrease in income taxes receivable 253,000 111,000
Increase in deferred income taxes (231,000) (189,000)
Loss on disposal of office furniture and equipment 0 17,000
Increase in accounts receivable (1,600,000) (2,883,000)
Increase in accounts payable and accrued expenses 2,421,000 2,821,000
Increase in income taxes payable 722,000 956,000
Decrease (Increase) in workers' compensation deposits 2,000 (107,000)
Increase in prepaid expenses (65,000) (279,000)
Increase in other assets (350,000) (239,000)
------------ ------------
Net cash provided by operating activities 8,565,000 5,929,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (5,495,000) (1,995,000)
Proceeds from the maturity of marketable securities 2,855,000 2,800,000
Acquisition of office furniture, equipment and
leasehold improvements (519,000) (451,000)
Increase in advances and deposits (30,000) (66,000)
------------ ------------
Net cash (used for) provided by investing activities (3,189,000) 288,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 1,156,000 1,461,000
Proceeds from issuance of common stock -
Employee Stock Purchase Plan 129,000 90,000
Repurchases of common stock (4,804,000) 0
Disbursements for officer loan receivable (400,000) 0
------------ ------------
Net cash (used for) provided by financing activities (3,919,000) 1,551,000
------------ ------------
Effect of exchange rate changes on cash and cash equivalents 19,000 (5,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,476,000 7,763,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,706,000 18,339,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,182,000 $ 26,102,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<PAGE> 7
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ON ASSIGNMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
- --------------------------------------------------------------------------------------------
Six Months Ended June 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for income taxes, net of refunds $3,111,000 $2,136,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Six Months Ended June 30,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Tax benefit of disqualifying dispositions $ 431,000 $ 805,000
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1. The accompanying consolidated financial statements have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). This Report on Form 10-Q should be read in conjunction with
the Company's annual report on Form 10-K for the year ended December 31, 1998.
Certain information and footnote disclosures which are normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations.
The information reflects all normal and recurring adjustments which, in the
opinion of the Company's Management, are necessary for a fair presentation of
the financial position of the Company and its results of operations for the
interim periods set forth herein. The results for the three months or the six
months ended June 30, 1999 are not necessarily indicative of the results to be
expected for the full year or any other period.
2. On January 1, 1997, the Company effected a corporate reorganization resulting
in a consolidation of the Company's divisional field operations into Assignment
Ready, Inc., a Delaware corporation and wholly owned subsidiary of the Company,
in order to centralize management functions into one entity, to optimize
regional activities and achieve economies of scale.
3. The consolidated financial statements include the accounts of the Company and
its wholly owned domestic and foreign subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
4. Accounts receivable are stated net of an allowance for doubtful accounts of
$1,253,000 and $1,009,000 at June 30, 1999 and December 31, 1998, respectively.
5. Office furniture, equipment and leasehold improvements are stated net of
accumulated depreciation and amortization of $3,937,000 and $3,451,000 at June
30, 1999 and December 31, 1998, respectively.
6. Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired. It is being amortized on a straight-line basis over 15
years. Goodwill is stated net of accumulated amortization of $292,000 and
$243,000 at June 30, 1999 and December 31, 1998, respectively.
7. At June 30, 1999 and December 31, 1998, Common Stock at a par value of $0.01
per share consisted of 25,000,000 shares authorized and 10,901,402 and
10,944,040 shares issued and outstanding, respectively.
8. On April 1, 1999, the Board of Directors authorized the Company to repurchase
up to $15,000,000 of its common stock. The Company plans to make such purchases
primarily in the open market, from time to time, at prevailing prices pursuant
to rules and regulations of the Securities and Exchange Commission. At June 30,
1999, the Company had repurchased 205,000 shares of its common stock at a total
cost of $4,804,000.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (continued)
- --------------------------------------------------------------------------------
9. On February 2, 1999, the Company formed On Assignment UK Limited, a United
Kingdom corporation and wholly owned subsidiary of the Company. On February 16,
1999, On Assignment UK Limited formed Lab Support (UK) Limited, a United Kingdom
corporation and wholly owned subsidiary of On Assignment UK Limited, and
commenced operations as Lab Support UK during the first quarter of 1999.
10. The following is a reconciliation of the shares used to compute basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding used to compute basic
earnings per share 11,054,000 10,842,000 11,034,000 10,805,000
Dilutive effect of stock options 191,000 454,000 261,000 447,000
---------- ---------- ---------- ----------
Number of shares used to compute
diluted earnings per share 11,245,000 11,296,000 11,295,000 11,252,000
========== ========== ========== ==========
</TABLE>
11. Indicated below is the information required to comply with SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information.
The Company has two reportable operating segments: Lab Support and Healthcare
Financial Staffing. The Lab Support operating segment includes the combined
results of the Lab Support and EnviroStaff divisions, as they have similar
economic characteristics and they meet the aggregation criteria of SFAS No. 131.
The Lab Support segment provides temporary and permanent placement services of
laboratory and scientific professionals to the biotechnology, environmental,
chemical, pharmaceutical, food and beverage and petrochemical industries. The
Healthcare Financial Staffing segment provides temporary and permanent placement
services of medical billing and collection professionals to the healthcare
industry.
The Company's management evaluates performance of each segment primarily based
on revenues and operating income (before acquisition costs, interest and income
taxes). The information in the following table is derived directly from the
segments' internal financial reporting used for corporate management purposes.
Certain corporate expenses have not been allocated from the Lab Support segment
to the Healthcare Financial Staffing segment.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ON ASSIGNMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------- ----------- ----------- -----------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Lab Support $29,732,000 $27,435,000 $56,771,000 $52,332,000
Healthcare Financial Staffing 9,540,000 5,073,000 17,290,000 8,743,000
----------- ----------- ----------- -----------
$39,272,000 $32,508,000 $74,061,000 $61,075,000
=========== =========== =========== ===========
Gross Profit:
Lab Support $ 9,620,000 $ 8,584,000 $18,316,000 $16,210,000
Healthcare Financial Staffing 3,128,000 1,663,000 5,652,000 2,850,000
----------- ----------- ----------- -----------
$12,748,000 $10,247,000 $23,968,000 $19,060,000
=========== =========== =========== ===========
Operating Income:
Lab Support $ 3,571,000 $ 3,299,000 $ 6,795,000 $ 6,225,000
Healthcare Financial Staffing 1,564,000 718,000 2,769,000 1,208,000
----------- ----------- ----------- -----------
$ 5,135,000 $ 4,017,000 $ 9,564,000 $ 7,433,000
=========== =========== =========== ===========
</TABLE>
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion in this Report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, the Company's ability to attract,
train and retain qualified Account Managers and temporary employees in the
laboratory, science, financial and environmental fields, management of growth,
particularly in international markets, risks inherent in expansion into new
international markets and new professions, the integration of acquired
operations, and other risks discussed in "Risk Factors That May Affect Future
Results" in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, as well as those discussed elsewhere in this Report and
from time to time in the Company's other reports filed with the Securities and
Exchange Commission.
CHANGES IN RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998:
- --------------------------------------------------------------------------------
REVENUES - Revenues increased by 20.8% from $32,508,000 for the three months
ended June 30, 1998, to $39,272,000 for the three months ended June 30, 1999, as
a result of the increased revenues of the Healthcare Financial Staffing and the
Lab Support divisions, partially offset by a decrease in the revenues of the
EnviroStaff division.
The growth of the Healthcare Financial Staffing division's revenues was
primarily attributable to an increase in the number of temporary employees on
assignment and to a lesser extent to an increase in average hourly billing rates
during the 1999 period. The increase in the number of temporary employees on
assignment was primarily attributable to the strong performance in most of the
markets in which the Healthcare Financial Staffing division has older, better
established branches and to a lesser extent the contribution of new offices
opened in the past year.
The growth of the Lab Support division's revenues was primarily attributable to
an increase in the number of temporary employees on assignment and to a lesser
extent to an increase in average hourly billing rates during the 1999 period.
The increase in the number of temporary employees on assignment was primarily
attributable to the strong performance in most of the markets in which the Lab
Support division has older, better established branches and to a lesser extent
the contribution of new offices opened in the past year.
The decrease in the EnviroStaff division's revenues was primarily attributable
to the continuing transition of the division's business away from serving
clients in the remediation business and the resulting planned decline in
remediation assignments, partially offset by increases in average hourly billing
rates and average weekly hours worked during the 1999 period.
11
<PAGE> 12
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CHANGES IN RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998: (continued)
- --------------------------------------------------------------------------------
COST OF SERVICES - Cost of services consists solely of compensation for
temporary employees and payroll taxes, benefits and employment related expenses
paid by the Company in connection with such compensation. Cost of services
increased 19.2% from $22,261,000 for the three months ended June 30, 1998, to
$26,524,000 for the three months ended June 30, 1999. Cost of services as a
percentage of revenues decreased from 68.5% in the 1998 period to 67.5% in the
1999 period. This decrease was primarily attributable to a decrease in workers'
compensation and state unemployment insurance expense, and an increase in
conversion fee revenue of the Lab Support division in the 1999 period, partially
offset by an increase in employer paid benefits.
OPERATING EXPENSES - Operating expenses include the costs associated with the
Company's network of Account Managers and branch offices, including Account
Manager compensation, rent, other office expenses and advertising for temporary
employees, and corporate office expenses, such as the salaries of corporate
operations and support personnel, management compensation, Account Manager
recruiting and training expenses, corporate advertising and promotion, rent and
other general and administrative expenses. Operating expenses increased 22.2%
from $6,230,000 for the three months ended June 30, 1998, to $7,613,000 for the
three months ended June 30, 1999. Operating expenses as a percentage of revenues
increased from 19.2% in the 1998 period to 19.4% in the 1999 period. This
increase was primarily attributable to increased investments in Account Manager
training and recruiting, expenses for international expansion into Canada and
the U.K., knowledge worker training programs, and an increase in the hiring of
new Account Managers for the opening of new offices and the expansion of
existing offices.
INTEREST INCOME - Interest income increased 27.6% from $322,000 for the three
months ended June 30, 1998, to $411,000 for the three months ended June 30,
1999, primarily as a result of interest earned on higher interest-bearing cash,
cash equivalent and marketable security account balances in the 1999 period.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 27.8% from
$1,614,000 for the three months ended June 30, 1998, to $2,063,000 for the three
months ended June 30, 1999. The Company's effective tax rate remained consistent
at 37.2% in the 1998 and 1999 periods.
12
<PAGE> 13
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CHANGES IN RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998:
- --------------------------------------------------------------------------------
REVENUES - Revenues increased by 21.3% from $61,075,000 for the six months ended
June 30, 1998, to $74,061,000 for the six months ended June 30, 1999, as a
result of the increased revenues of the Healthcare Financial Staffing and the
Lab Support divisions, partially offset by a decrease in the revenues of the
EnviroStaff division.
The growth of the Healthcare Financial Staffing division's revenues was
primarily attributable to an increase in the number of temporary employees on
assignment and to a lesser extent to an increase in average hourly billing rates
during the 1999 period. The increase in the number of temporary employees on
assignment was primarily attributable to the strong performance in most of the
markets in which the Healthcare Financial Staffing division has older, better
established branches and to a lesser extent the contribution of new offices
opened in the past year.
The growth of the Lab Support division's revenues was primarily attributable to
an increase in the number of temporary employees on assignment and to a lesser
extent to an increase in average hourly billing rates during the 1999 period.
The increase in the number of temporary employees on assignment was primarily
attributable to the strong performance in most of the markets in which the Lab
Support division has older, better established branches and to a lesser extent
the contribution of new offices opened in the past year.
The decrease in the EnviroStaff division's revenues was primarily attributable
to the continuing transition of the division's business away from serving
clients in the remediation business and the resulting planned decline in
remediation assignments, partially offset by increases in average hourly billing
rates and average weekly hours worked during the 1999 period.
COST OF SERVICES - Cost of services increased 19.2% from $42,015,000 for the six
months ended June 30, 1998, to $50,093,000 for the six months ended June 30,
1999. Cost of services as a percentage of revenues decreased from 68.8% in the
1998 period to 67.6% in the 1999 period. This decrease was primarily
attributable to a decrease in workers' compensation and state unemployment
insurance expense, partially offset by an increase in employer paid benefits.
OPERATING EXPENSES - Operating expenses increased 23.9% from $11,627,000 for the
six months ended June 30, 1998, to $14,404,000 for the six months ended June 30,
1999. Operating expenses as a percentage of revenues increased from 19.0% in the
1998 period to 19.4% in the 1999 period. This increase was primarily
attributable to investments in Account Manager training and recruiting, expenses
for international expansion into Canada and the U.K., knowledge worker training
programs, and an increase in the hiring of new Account Managers for the opening
of new offices and the expansion of existing offices.
13
<PAGE> 14
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CHANGES IN RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998: (continued)
- --------------------------------------------------------------------------------
INTEREST INCOME - Interest income increased 29.2% from $624,000 for the six
months ended June 30, 1998, to $806,000 for the six months ended June 30, 1999,
primarily as a result of interest earned on higher interest-bearing cash, cash
equivalent and marketable security account balances in the 1999 period.
PROVISION FOR INCOME TAXES - Provision for income taxes increased 28.0% from
$3,014,000 for the six months ended June 30, 1998 to $3,857,000 for the six
months ended June 30, 1999. The Company's effective tax rate decreased from
37.4% in the 1998 period to 37.2% in the 1999 period.
14
<PAGE> 15
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------------------------------------------------------
The Company's primary sources of cash for the six months ended June 30, 1998 and
1999 were funds provided by operating activities. For the six months ended June
30, 1998, operating activities provided $5,929,000 of cash compared to
$8,565,000 for the six months ended June 30, 1999. This increase was primarily
attributable to higher net income and a smaller increase in accounts receivable
in the 1999 period. The increase was partially offset by a smaller increase in
accounts payable and accrued expenses and income taxes payable in the 1999
period.
Cash provided by investing activities totaled $288,000 for the six months ended
June 30, 1998, compared to cash used for investing activities of $3,189,000 for
the six months ended June 30, 1999. This was primarily attributable to higher
purchases of marketable securities in the 1999 period.
Cash provided by financing activities was $1,551,000 for the six months ended
June 30, 1998, compared to cash used for financing activities of $3,919,000 for
the six months ended June 30, 1999. The decrease was primarily attributable to
repurchases of common stock and disbursements for an officer loan receivable in
the 1999 period.
On August 28, 1998, the Company renewed its unsecured bank line of credit. The
maximum borrowings allowable under this agreement were $7,000,000 and accrued
interest at the bank's reference rate (7.75% at June 30, 1999). No borrowings
were outstanding under this credit line at June 30, 1999 and the Company
terminated the line of credit on July 1, 1999.
The Company believes that its cash balances, together with funds from operations
and its borrowing ability, will be sufficient to meet its cash requirements
through at least the next twelve months.
YEAR 2000 READINESS DISCLOSURE:
- --------------------------------------------------------------------------------
The Company is continuing the process of assessing Year 2000 issues as they
relate to its systems, business and operations. The Year 2000 issue is the
result of computer systems designed and developed using two digits rather than
four to define the applicable year. Any programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations unless
corrective measures are taken.
The Company has developed a Year 2000 Readiness Plan to address the Year 2000
issues, particularly with respect to its critical systems. Critical systems are
those whose failure poses a risk of disruption to the Company's ability to
provide employment for its temporary employees and temporary staffing services
to its clients. The Company's plan includes five core phases; (1) initiating a
master plan and schedule in which key staff members are notified of their
responsibilities; (2) assessing the impact of mission-critical system failures
on core business processes by performing a complete inventory of software and
both information technology and non-information technology systems, such as
computer hardware containing embedded technology, implementing quality assurance
checks on vendors, and defining failure scenarios; (3) modifying, upgrading or
replacing hardware and software in order to meet compliance standards; (4)
identifying and documenting contingency plans and establishing resumption
procedures for each core business process; (5) validating all contingency plans
by preparing and executing tests. The Company has completed phases 1 and 2,
estimates that it is 50%, 35% and 10% complete on phases 3, 4 and 5,
respectively, and expects to be 100% complete with all phases by September 30,
1999.
15
<PAGE> 16
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR 2000 READINESS DISCLOSURE: (continued)
- --------------------------------------------------------------------------------
The Company does not believe that it will incur material costs or encounter
significant operational issues associated with Year 2000 issues; however, the
Company has not completed its Year 2000 Readiness Plan and there can be no
assurance Year 2000 issues will not result in material costs or significant
operational issues for the Company. In addition, the Company may experience
significant unanticipated problems and costs caused by errors or defects in
internal systems or Year 2000 issues with its customers or vendors. The
worst-case scenario if such problems occur, would be the Company's inability to
employ its temporary employees and record revenue. If any of the Company's
clients, temporary employees or vendors experience Year 2000 problems with
respect to their relationship with the Company, such clients, employees or
vendors could assert claims for damages against the Company. While the Company
is not aware of any significant Year 2000 issues for which it will not be
adequately prepared, there can be no assurance that the Company's business,
operating results or financial condition will not be adversely affected by
issues surrounding the Year 2000 conversion. To date, the costs incurred by the
Company with respect to Year 2000 compliance have not been material. The Company
anticipates that the majority of costs associated to Year 2000 will be related
to ongoing scheduled software and hardware maintenance upgrades and licensing of
phone systems, PC operating systems and business applications. The Company
currently anticipates that the future costs to become Year 2000 compliant will
not be material; however, such future costs are difficult to estimate at the
present stage of the Company's Readiness Plan and, accordingly, there can be no
assurance that such costs will not become material.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in foreign currency
exchange and interest rates, which do not currently subject the Company to
material market risk exposure.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's 1999 annual meeting of stockholders was held on June 8, 1999.
Jonathan S. Holman, who served as a director prior to the annual meeting, was
re-elected as a director by the stockholders. Of the total shares voting on this
matter, 8,827,384 shares voted for the election of Mr. Holman, and 11,412 shares
withheld authority to vote. Karen Brenner, William E. Brock, H. Tom Buelter and
Jeremy M. Jones, all of whom were directors prior to the annual meeting,
continued to serve as directors after the annual meeting.
The following additional matter was submitted to the stockholders for vote at
the annual meeting:
Ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999.
Of the total shares voting on this matter, 8,828,193 shares voted for
the proposal, 6,160 shares voted against the proposal, 4,443 shares
abstained from such vote and there were no broker non-votes.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.2 Restated 1987 Stock Option Plan
(b) Reports on Form 8-K
None
17
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PART II - OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ON ASSIGNMENT, INC.
Date: August 11, 1999 By: /s/ H. Tom Buelter
------------------- ----------------------------------------------
H. Tom Buelter
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1999 By: /s/ Ronald W. Rudolph
------------------- ----------------------------------------------
Ronald W. Rudolph
Senior Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE> 1
EXHIBIT 10.2
ON ASSIGNMENT, INC.
RESTATED 1987 STOCK OPTION PLAN
(As amended and restated June 8, 1999)
ARTICLE ONE
GENERAL
I. PURPOSES OF THE PLAN
A. This Restated 1987 Stock Option Plan (the "Plan") is intended
to promote the interests of On Assignment, Inc., a Delaware corporation (the
"Corporation"), by providing a method whereby eligible individuals may be
offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation and continue to render services to the Corporation (or its parent or
subsidiary corporations). This restatement of the Plan shall become effective on
the date on which the restatement is adopted by the Board, subject to the
approval of the stockholders ("Effective Date").
B. For purposes of the Plan, the following provisions shall be
applicable in determining the parent and subsidiary corporations of the
Corporation:
(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a PARENT corporation of the Corporation, provided each
such corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
II. STRUCTURE OF THE PLAN
A. Option Programs. The Plan shall be divided into two separate
components: the Discretionary Option Grant Program described in Article Two and
the Automatic Option Grant Program described in Article Three. Under the
Discretionary Option Grant Program, eligible individuals may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
in accordance with the provisions of Article Two. Under the Automatic Option
Grant Program, each eligible member of the Corporation's Board of Directors (the
"Board") will automatically receive an option grant to purchase shares of Common
Stock in accordance with the provisions of Article Three.
<PAGE> 2
B. General Provisions. Unless the context clearly indicates
otherwise, the provisions of Articles One and Four of the Plan shall apply to
the Discretionary Option Grant Program and the Automatic Option Grant Program
and shall accordingly govern the interests of all individuals under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Discretionary Option Grant Program shall be administered
by one or more committees comprised of Board members. The primary committee (the
"Primary Committee") shall be comprised of two or more non-employee Board
members and shall have sole and exclusive authority to grant stock options and
stock appreciation rights under the Discretionary Option Grant Program to
officers and employee-directors of the Corporation subject to the short-swing
profit restrictions of the Federal securities laws. Stock options may be granted
under the Discretionary Option Grant Program to all other eligible employees and
consultants by either the Primary Committee or a second committee comprised of
one or more Board members (the "Secondary Committee"). The members of the
Primary Committee and the Secondary Committee shall each serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time.
B. No Board member shall be eligible to serve on the Primary
Committee if such individual has, within the twelve (12)-month period
immediately preceding the date he or she is to be appointed to the Committee,
received an option grant or stock award under this Plan or any other stock plan
of the Corporation, its parent or subsidiary corporation, other than pursuant to
the Automatic Option Grant Program in effect under Article Three.
C. Subject to the limited authority provided the Secondary Committee to
effect option grants in accordance with the provisions of Section III.A of this
Article One, the Primary Committee shall serve as the Plan Administrator and
shall have full power and authority (subject to the express provisions of the
Discretionary Option Grant Program) to establish such rules and regulations as
it may deem appropriate for the proper administration of such program and to
make such determinations under the program and any outstanding option as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties with an interest in the Plan or any outstanding
option under this Discretionary Option Grant Program. Service on the Primary or
Secondary Committee shall constitute service as a Board member, and members of
either Committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on either Committee. No member
of the Primary or Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option granted under the
Plan.
D. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three.
IV. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under Article
Two shall be limited to the following:
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<PAGE> 3
(i) key employees (including officers and directors) of
the Corporation (or its parent or subsidiary corporations) who render
services which contribute to the success and growth of the Corporation
(or its parent or subsidiary corporations) or which may reasonably be
anticipated to contribute to the future success and growth of the
Corporation (or its parent or subsidiary corporations); and
(ii) those consultants or independent contractors who
provide valuable services to the Corporation (or its parent or
subsidiary corporations).
(iii) From and after the first date on which the shares of
the Corporation's common stock are registered under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "IPO Effective
Date"), non-employee members of the Board or the non-employee members
of the board of directors of any parent corporation shall not be
eligible to participate in the Discretionary Option Grant Program or in
any other stock option, stock purchase, stock bonus or other stock plan
of the Corporation (or its parent or subsidiary corporations). However,
non-employee members of the Board shall be eligible to receive
automatic option grants pursuant to the provisions of Article Three.
B. The Plan Administrator shall have full authority to determine which
eligible individuals are to receive option grants under the Discretionary Option
Grant Program, the number of shares to be covered by each such grant, whether
the granted option is to be an incentive stock option ("Incentive Option") which
satisfies the requirements of Section 422 of the Internal Revenue Code or a
non-statutory option not intended to meet such requirements, the time or times
at which each such option is to become exercisable, and the maximum term for
which the option is to be outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the
Corporation's authorized but unissued or reacquired Common Stock. The aggregate
number of shares which may be issued under the Plan shall not exceed 4,000,000
shares, which includes an increase of 1,000,000 shares authorized by the Board
on February 13, 1997 and approved by the Corporation's stockholders at the 1997
Annual Stockholders Meeting. All share numbers in this Plan reflect a stock
dividend that occurred on October 20, 1997 and resulted in a distribution of one
share of Common Stock for each share of Common Stock. The total number of shares
issuable under the Plan shall be subject to adjustment from time to time in
accordance with the provisions of this Section V. In no event may any one
individual participating in the Plan be granted stock options for more than
500,000 shares of Common Stock over the remaining term of the Plan. For purposes
of this limitation, any option grants made prior to December 31, 1993 will not
be taken into account.
B. Should an option expire or terminate for any reason prior to
exercise or surrender in full (including options canceled in accordance with the
cancellation-regrant provisions of Section IV of Article Two), the shares
subject to the portion of the option not so
3
<PAGE> 4
exercised or surrendered shall be available for subsequent option grants under
the Plan. Shares subject to any option or portion thereof canceled in accordance
with Section V of Article Two or Section III of Article Three and shares
repurchased by the Corporation pursuant to its repurchase rights under the Plan
shall not be available for subsequent option grants under the Plan. In addition,
should the exercise price of an outstanding option under the Plan be paid with
shares of Common Stock, then the number of shares of Common Stock available for
issuance under the Plan shall be reduced by the gross number of shares for which
the option is exercised, and not by the net number of shares of Common Stock
actually issued to the option holder.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of (a) any Corporate Transaction (as defined in Section
III of Article Two) or (b) any stock split, stock dividend, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then unless such change
results in the termination of all outstanding options under the Plan as a result
of the Corporate Transaction, appropriate adjustments shall be made to (i) the
aggregate class and/or number of shares issuable under the Plan, (ii) the class
and/or number of shares and price per share of the Common Stock subject to each
outstanding option under the Discretionary Option Grant Program, (iii) the
number and/or class of shares per non-employee Board member for which automatic
option grants are subsequently to be made under the Automatic Option Grant
Program, and (iv) the number and/or class of shares and price per share of the
Common Stock in effect under each automatic grant outstanding under the
Automatic Option Grant Program. Such adjustments to the outstanding options are
to be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Article Two shall be authorized
by action of the Plan Administrator and may, at the Plan Administrator's
discretion, be either Incentive Options or non-statutory options. Individuals
who are not Employees may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with and incorporate the terms and conditions specified below. Each instrument
evidencing an Incentive Option shall, in addition, be subject to the applicable
provisions of Section II of this Article Two.
A. Option Price.
1. The option price per share shall be fixed by the Plan
Administrator, provided, however, that in no event shall the option price per
share be less than eighty-five percent (85%) of the fair market value of a share
of Common Stock on the date of the option grant.
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<PAGE> 5
2. The option price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section VI of this Article
Two and the instrument evidencing the grant, be payable in one of the
alternative forms specified below:
(i) cash or check made payable to the Corporation's order;
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date
(as such terms are defined below); or
(iii) through a broker-dealer sale and remittance procedure
pursuant to which the optionee shall provide irrevocable written
instructions (I) to the designated broker-dealer to effect the
immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds an amount equal to the aggregate option price
payable for the purchased shares plus all applicable Federal and state
income and employment taxes required to be withheld by the Corporation
by reason of such purchase and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such broker-dealer.
For purposes of this subparagraph 2, the Exercise Date shall be
the first date on which the Corporation shall have received written notice of
the exercise of the option. Except to the extent the sale and remittance
procedure is utilized in connection with the exercise of the option, payment of
the option price for the purchased shares must accompany such notice.
3. The Fair Market Value of a share of Common Stock on any
relevant date under subparagraph 1 or 2 above (and for all other valuation
purposes under the Plan) shall be determined in accordance with the following
provisions:
- If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the Nasdaq National
Market System, the fair market value shall be the closing price of one
share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers through its
Nasdaq system or any successor system. If there is no closing price for
the Common Stock on the date in question, then the closing price on the
last preceding date for which such quotation exists shall be
determinative of fair market value.
- If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the Fair Market Value
shall be the closing selling price per share of Common Stock on the
date in question on the stock exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on
such exchange. If there is no reported sale of Common Stock on such
exchange on the date in question, then the Fair Market Value shall be
the
5
<PAGE> 6
closing selling price on the exchange on the last preceding date for
which such quotation exists.
- If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded on the Nasdaq
National Market System, or if the Plan Administrator determines that
the value determined pursuant to the preceding paragraphs does not
reflect Fair Market Value, then the Fair Market Value shall be
determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate.
B. Term and Exercise of Options. Each option granted under this
Article Two shall be exercisable at such time or times, during such period, and
for such number of shares as shall be determined by the Plan Administrator and
set forth in the stock option agreement evidencing such option; provided,
however, that no such option shall have a term in excess of ten (10) years from
the grant date. During the lifetime of the optionee, the option shall be
exercisable only by the optionee and shall not be assignable or transferable by
the optionee otherwise than by will or by the laws of descent and distribution.
C. Termination of Service.
1. Except to the extent otherwise provided pursuant to
Section VII of this Article Two, the following provisions shall govern the
exercise period applicable to any options held by the optionee at the time of
cessation of Service or death.
- Should the optionee cease to remain in Service for any
reason other than death or permanent disability, then the period for
which each outstanding option held by such optionee is to remain
exercisable shall be limited to the three (3)-month period following
the date of such cessation of Service.
- In the event such Service terminates by reason of
permanent disability (as defined in Section 22(e)(3) of the Internal
Revenue Code), then the period for which each outstanding option held
by the optionee is to remain exercisable shall be limited to the twelve
(12)-month period following the date of such cessation of Service.
- Should the optionee die while in Service or during the
three (3)-month period following his or her cessation of Service, then
the period for which each of his or her outstanding options is to
remain exercisable shall be limited to the three (3)-year period
following the date of the optionee's cessation of Service. During such
limited period, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons to
whom the option is transferred pursuant to the optionee's will or in
accordance with the laws of descent and distribution.
- Under no circumstances, however, shall any such option be
exercisable after the specified expiration date of the option term.
6
<PAGE> 7
- Each such option shall, during such limited exercise
period, be exercisable for any or all of the shares for which the
option is exercisable on the date of the optionee's cessation of
Service. Upon the expiration of such limited exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be exercisable.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to permit one or more options held by the optionee
under this Article Two to be exercised, during the limited period of
exercisability provided under subparagraph 1 above, not only with respect to the
number of shares for which each such option is exercisable at the time of the
optionee's cessation of Service but also with respect to one or more subsequent
installments of purchasable shares for which the option would otherwise have
become exercisable had such cessation of Service not occurred.
3. For purposes of the foregoing provisions of this
paragraph I.C (and all other provisions of the Plan), unless it is evidenced
otherwise in the specific option agreement evidencing the option grant and/or
the purchase agreement evidencing the purchased optioned shares, the optionee
shall be deemed to remain in SERVICE for so long as such individual renders
services on a periodic basis to the Corporation or any parent or subsidiary
corporation in the capacity of an Employee, a non-employee member of the Board
or an independent consultant or advisor. The optionee shall be considered to be
an EMPLOYEE for so long as such individual remains in the employ of the
Corporation or one or more of its parent or subsidiary corporations subject to
the control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
D. Stockholder Rights. An optionee shall have none of the
rights of a stockholder with respect to any shares covered by the option until
such individual shall have exercised the option, paid the exercise price for the
purchased shares and been issued a stock certificate for such shares.
E. Repurchase Rights. The shares of Common Stock acquired upon
the exercise of options granted under this Article Two may be subject to one or
more repurchase rights of the Corporation in accordance with the following
provisions:
1. The Plan Administrator may in its discretion determine
that it shall be a term and condition of one or more options exercised under
this Article Two that the Corporation (or its assignees) shall have the right,
exercisable upon the optionee's cessation of Service, to repurchase at the
option price all or (at the discretion of the Corporation and with the consent
of the optionee) any portion of the shares of Common Stock previously acquired
by the optionee upon the exercise of such option. Any such repurchase right
shall be exercisable by the Corporation (or its assignees) upon such terms and
conditions (including the establishment of the appropriate vesting schedule and
other provision for the expiration of such right in one or more installments
over the optionee's period of Service) as the Plan Administrator may specify in
the instrument evidencing such right.
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<PAGE> 8
2. All of the Corporation's outstanding repurchase rights
shall automatically terminate, and all shares subject to such terminated rights
shall immediately vest in full, upon the occurrence of any Corporate Transaction
under Section III of this Article Two; provided, however, that no such
termination of the repurchase rights or immediate vesting of the shares shall
occur if (and to the extent): (i) the Corporation's outstanding repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with the Corporate Transaction or (ii) such termination of repurchase
rights and acceleration of vesting are precluded by other limitations imposed by
the Plan Administrator at the time of the option grant.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to
all Incentive Options granted under this Article Two. Incentive Options may only
be granted to individuals who are Employees. Options which are specifically
designated as "non-statutory" options when issued under the Plan shall not be
subject to such terms and conditions.
A. Option Price. The option price per share of the Common Stock
subject to an Incentive Option shall in no event be less than one hundred
percent (100%) of the Fair Market Value of a share of Common Stock on the date
of grant.
B. Dollar Limitation. The aggregate Fair Market Value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee under this Plan (or any other
option plan of the Corporation or its parent or subsidiary corporations) may for
the first time become exercisable as Incentive Options under the Federal tax
laws during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability thereof as Incentive Options
under the Federal tax laws shall be applied on the basis of the order in which
such options are granted.
C. 10% Stockholder. If any individual to whom an Incentive
Option is to be granted pursuant to the provisions of the Plan is on the date of
grant the owner of stock (as determined under Section 424(d) of the Internal
Revenue Code) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation or any one of its parent
or subsidiary corporations (such person to be herein referred to as a 10%
Stockholder), then the option price per share shall not be less than one hundred
and ten percent (110%) of the Fair Market Value per share of Common Stock on the
date of grant and the option term shall not exceed five (5) years measured from
the grant date.
Except as modified by the preceding provisions of this Section
II, all the provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.
III. CORPORATE TRANSACTIONS
A. In the event of any of the following stockholder-approved
transactions (a "Corporate Transaction"):
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(i) a merger or consolidation in which the Corporation is
not the surviving entity, except for a transaction the principal
purpose of which is to change the state of the Corporation's
incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation; or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the
Corporation's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to such
merger,
then each option outstanding under this Article Two shall be automatically
accelerated so that each such option shall, immediately prior to the specified
effective date for such Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock purchasable under such
option and may be exercised for all or any portion of such shares. However, no
option shall be so accelerated if and to the extent (i) such option is to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of such successor
corporation or parent thereof or (ii) such acceleration is subject to other
applicable limitations imposed by the Plan Administrator in the relevant option
agreement.
B. In connection with any such Corporate Transaction, the
exercisability as an incentive stock option under the Federal tax laws of any
accelerated options under this Article Two shall remain subject to the
applicable dollar limitation of paragraph II.B of this Article Two.
C. The grant of options under this Article Two shall in no way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
D. Upon the consummation of the Corporate Transaction, all
outstanding options under this Article Two shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation or its
parent company.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two and to
grant in substitution therefor new options under the Plan covering the same or
different numbers of shares of Common Stock but having an option price per share
not less than eighty-five percent (85%) of Fair Market Value (one hundred
percent (100%) of such Fair Market Value in the case of an Incentive Option or
one hundred and ten percent (110%) of such Fair Market Value in the case of an
Incentive Option granted to a 10% Stockholder) on the date of grant.
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V. SURRENDER OF OPTIONS FOR CASH OR STOCK
A. Provided and only if the Plan Administrator determines in
its discretion to implement the stock appreciation right provisions of this
Section V, one or more optionees may be granted the right, exercisable upon such
terms and conditions as the Plan Administrator may establish at the time of the
option grant or at any time thereafter, to surrender all or part of an
unexercised option under this Article Two in exchange for a distribution from
the Corporation, payable in cash or in shares of Common Stock, equal in amount
to the excess of (i) the Fair Market Value (at date of surrender) of the number
of shares in which the optionee is at the time vested under the surrendered
option or portion thereof over (ii) the aggregate option price payable for such
vested shares.
B. No surrender of an option shall be effective hereunder
unless it is approved by the Plan Administrator. If the surrender is so
approved, then the distribution to which the optionee shall accordingly become
entitled under this Section V may be made in shares of Common Stock valued at
Fair Market Value at date of surrender, in cash, or partly in shares and partly
in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the optionee shall retain whatever rights the optionee had
under the surrendered option (or surrendered portion thereof) on the date of
surrender and may exercise such rights at any time prior to the later of (i)
five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised at any time after ten (10) years (or five (5) years in the case of
a 10% Stockholder) after the date of the option grant.
D. One or more officers of the Corporation subject to the
short-swing profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited stock appreciation rights in
tandem with their outstanding options under this Article Two. Each outstanding
option with such a limited stock appreciation right in effect for at least six
(6) months shall automatically be canceled, to the extent exercisable for vested
shares of Common Stock, upon the occurrence of a Hostile Take-Over, and the
optionee shall in return be entitled to a cash distribution from the Corporation
in an amount equal to the excess of (i) the Take-Over Price of the number of
shares in which the optionee is at the time vested under the canceled option or
canceled portion over (ii) the aggregate option price payable for such vested
shares. Such cash distribution shall be made within five (5) days following the
consummation of the Hostile Take-Over. Neither the approval of the Plan
Administrator nor the consent of the Board shall be required in connection with
such option cancellation and cash distribution. The balance (if any) of each
such option shall continue in full force and effect in accordance with the terms
and conditions of the instrument evidencing such grant.
E. For purposes of paragraph V.D, the following definitions
shall be in effect:
A Hostile Take-Over shall be deemed to occur in the event
(i) any person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Corporation) directly or indirectly
acquires beneficial ownership (within the
10
<PAGE> 11
meaning of Rule 13d-3 of the Securities and Exchange Act of 1934, as
amended (the "1934 Act")) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept and (ii) more than fifty percent
(50%) of the securities so acquired in such tender or exchange offer
are accepted from holders other than Corporation officers and directors
participating in the Plan.
The Take-Over Price per share shall be deemed to be equal to
the greater of (a) the Fair Market Value per share on the date of
cancellation, as determined pursuant to the valuation provisions of
paragraph I.A.3 of this Article Two, or (b) the highest reported price
per share paid in effecting such Hostile Take-Over. However, if the
canceled option is an Incentive Option, the Take-Over Price shall not
exceed the clause (a) price per share.
F. The shares of Common Stock subject to any option surrendered
or canceled for an appreciation distribution pursuant to this Section V shall
NOT be available for subsequent option grants under the Plan.
VI. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may assist any optionee (including
any officer or director) in the exercise of one or more options under this
Article Two by (a) authorizing the extension of a loan to such optionee from the
Corporation or (b) permitting the optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
loan or installment method of payment (including the interest rate and terms of
repayment) will be established by the Plan Administrator in its sole discretion.
Loans and installment payments may be granted without security or collateral
(other than loans to optionees who are consultants or independent contractors,
which must be adequately secured by collateral other than the purchased shares),
but the maximum credit available to the optionee shall not exceed the sum of (i)
the aggregate option price payable for the purchased shares (less the par value)
plus (ii) any Federal and state income and employment tax liability incurred by
the optionee in connection with the exercise of the option.
B. The Plan Administrator may, in its absolute discretion,
determine that one or more loans extended under Section VI.A above shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator in its discretion deems appropriate.
VII. EXTENSION OF EXERCISE PERIOD
The Plan Administrator shall have full power and authority,
exercisable in its sole discretion to extend, either at the time when the option
is granted or at any time while the option remains outstanding, the period of
time for which any option granted under this Article Two is to remain
exercisable following the optionee's cessation of Service from the period set
forth in the option agreement to such greater period of time as the Plan
Administrator shall deem appropriate;
11
<PAGE> 12
provided, however, that in no event shall such option be exercisable after the
specified expiration date of the option term.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. ELIGIBILITY
The individuals eligible to receive automatic option grants
pursuant to the provisions of this Article Three shall be limited to the
following:
(1) each individual who is serving as a non-employee member
of the Board on the IPO Effective Date; and
(2) each individual who is first appointed or elected as a
non-employee Board member at any time after the IPO Effective Date.
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants will be made under this Article
Three on the dates specified below:
(i) Each individual who has not previously been an Employee,
and who first becomes a non-employee Board member at any time after the
IPO Effective Date, whether through election at an Annual Stockholders
Meeting or through appointment by the Board, shall automatically be
granted, at the time of such initial election or appointment, a
non-statutory stock option to purchase 18,000 shares of Common Stock.
(ii) Commencing with the 1993 Annual Stockholders Meeting
and each subsequent Annual Stockholders Meeting until 1996, each
individual who is at the time serving as a non-employee member of the
Board shall receive a grant of a non-statutory option to purchase 3,000
shares of Common Stock, provided such individual has been a member of
the Board for at least six (6) months.
(iii) Commencing with the 1996 Annual Stockholders Meeting
and each subsequent Annual Stockholders Meeting until 1999, each
individual who is at the time serving as a non-employee member of the
Board shall receive a grant of a non-statutory option to purchase 6,000
shares of Common Stock, instead of the 3,000 shares under Section
II.A(ii) above.
(iv) Commencing with the 1999 Annual Stockholders Meeting,
each individual who is at the time serving as a non-employee member of
the Board shall receive a grant of a non-statutory option to purchase
12,000 shares of Common Stock, instead of the 6,000 shares under
Section II.A(iii) above; provided, however, that a non-employee member
of the Board shall only receive
12
<PAGE> 13
this 12,000-share option grant at every other Annual Stockholders
Meeting, commencing with the 1999 Annual Stockholders Meeting. Thus,
each non-employee member of the Board who receives a 12,000-share
option grant at the 1999 Annual Stockholders Meeting will be eligible
to receive the next 12,000-share option grant at the 2001 Annual
Stockholders Meeting. Similarly, if a non-employee member of the Board
receives a 12,000-share option grant at the 2000 Annual Stockholders
Meeting, he or she will be eligible to receive the next 12,000-share
option grant at the 2002 Annual Stockholders Meeting.
The 18,000-share limitation, 3,000-share limitation,
6,000-share limitation and 12,000-share limitation on the automatic option grant
to be made to each non-employee Board member shall be subject to periodic
adjustment pursuant to the applicable provisions of Section V.C of Article One.
B. Exercise Price. The exercise price per share shall be
equal to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the automatic grant date.
C. Payment.
The exercise price shall be payable in one of the
alternative forms specified below:
(i) cash or check made payable to the Corporation's order;
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date
(as such terms are defined in paragraph I.A of Article Two); or
(iii) through a broker-dealer sale and remittance procedure
pursuant to which the optionee shall provide irrevocable written
instructions (I) to the designated broker-dealer to effect the
immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds an amount equal to the aggregate option price
payable for the purchased shares plus all applicable Federal and state
income and employment taxes required to be withheld by the Corporation
by reason of such purchase and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such broker-dealer.
Except to the extent the sale and remittance procedure specified
above is utilized for the exercise of the option, payment of the exercise price
for the purchased shares must accompany the written notice of option exercise.
D. Option Term. Each automatic grant under this Article Three
shall have a maximum term of ten (10) years measured from the automatic grant
date.
13
<PAGE> 14
E. Exercisability. Each annual automatic grant for 3,000 shares
shall be immediately exercisable in full for the option shares. Each annual
automatic grant for 6,000 shares shall be immediately exercisable in full for
the option shares, provided that the optionee has been a member of the Board for
six (6) months on the annual automatic grant date; if the optionee has not been
a member of the Board for six (6) months on the annual automatic grant date,
such automatic option grant shall become exercisable in full for the option
shares on the date six (6) months following the annual automatic grant date.
Each annual automatic grant for 12,000 shares shall be immediately exercisable
in full for the option shares. Each initial automatic grant for 18,000 shares
shall become exercisable for the option shares in three (3) installments as
follows:
(i) The option shall become exercisable for one-third (1/3)
of the option shares upon completion of twelve (12) months of Board
service measured from the automatic grant date.
(ii) The option shall become exercisable for an additional
one-third (1/3) of the option shares upon the completion of twenty-four
(24) months of Board service measured from the automatic grant date.
(iii) The option shall become exercisable for the final
one-third (1/3) of the option shares upon the completion of thirty-six
(36) months of Board service measured from the automatic grant date.
As the option becomes exercisable for one or more installments of
the option shares, the installments shall accumulate, and the option shall
remain exercisable for the accumulated installments until the expiration or
sooner termination of the option term. The option, however, shall not become
exercisable for any additional option shares following the optionee's cessation
of Board service, except to the extent the option is otherwise to become
exercisable in accordance with the provisions of Section III of this Article
Three.
F. Non-Transferability. During the lifetime of the optionee,
the option shall be exercisable only by the optionee and shall not be assignable
or transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's death.
G. Effect of Termination of Board Membership.
1. Should the optionee cease to be a Board member for any
reason (other than death) while holding an automatic option grant under this
Article Three, then such optionee shall have a six (6)-month period following
the date of such cessation of Board membership in which to exercise such option
for any or all of the shares of Common Stock for which the option is exercisable
at the time the optionee ceases service as a Board member.
2. Should the optionee die while serving as a Board member
or during the six (6)-month period following his or her cessation of Board
service, then the option may subsequently be exercised, for any or all of the
shares of Common Stock for which the option is exercisable at the time of the
optionee's cessation of Board membership, by the personal representative of the
optionee's estate or by the person or persons to whom the option is
14
<PAGE> 15
transferred pursuant to the optionee's will or in accordance with the laws of
descent and distribution. Any such exercise must, however, occur within three
(3) years after the date of the optionee's cessation of Board service.
3. In no event shall any automatic grant under this
Article Three remain exercisable after the specified expiration date of the ten
(10)-year option term. Upon the expiration of the applicable exercise period in
accordance with subparagraphs 1 and 2 above or (if earlier) upon the expiration
of the ten (10)-year option term, the automatic grant shall terminate and cease
to be exercisable.
H. Stockholder Rights. The holder of an automatic option grant
under this Article Three shall have no stockholder rights with respect to any
shares covered by such option until such individual shall have exercised the
option, paid the exercise price for the purchased shares and been issued a stock
certificate for such shares.
I. Remaining Terms. The remaining terms and conditions of each
automatic option grant shall be as set forth in the prototype Non-Employee
Director Automatic Grant Agreement.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction (as such term is
defined in Section III of Article Two), then the exercisability of each
automatic option grant outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares. Upon the
consummation of the Corporate Transaction, all automatic option grants under
this Article Three shall terminate and cease to be outstanding.
B. In connection with any Change in Control of the Corporation,
the exercisability of each automatic option grant at the time outstanding under
this Article Three shall automatically accelerate so that each such option
shall, immediately prior to the specified effective date for the Change in
Control, become fully exercisable with respect to the total number of shares of
Common Stock at the time subject to such option and may be exercised for all or
any portion of such shares. For purposes of this Article Three, a Change in
Control shall be deemed to occur in the event:
(i) any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept; or
15
<PAGE> 16
(ii) there is a change in the composition of the Board over
a period of twenty-four (24) consecutive months or less such that a
majority of the Board members (rounded up to the next whole number)
cease, by reason of one or more proxy contests for the election of
Board members, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B)
have been elected or nominated for election as Board members during
such period by at least two-thirds of the Board members described in
clause (A) who were still in office at the time such election or
nomination was approved by the Board.
C. Upon the occurrence of a Hostile Take-Over, each automatic
option grant which has been outstanding under this Article Three for a period of
at least six (6) months shall automatically be canceled in return for a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to the
canceled option (whether or not the option is otherwise at the time exercisable
for such shares) over (ii) the aggregate exercise price payable for such shares.
The cash distribution payable upon such cancellation shall be made within five
(5) days following the consummation of the Hostile Take-Over. Neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such option cancellation and cash distribution.
D. For purposes of this Article Three, Hostile Take-Over shall
have the meaning assigned to such term in paragraph V.E of Article Two. The
Take-Over Price per share shall be deemed to be equal to the greater of (a) the
Fair Market Value per share on the date of cancellation, as determined pursuant
to the valuation provisions of paragraph I.A.3 of Article Two, or (b) the
highest reported price per share paid in effecting such Hostile Take-Over.
E. The shares of Common Stock subject to each option canceled
in connection with the Hostile Take-Over shall NOT be available for subsequent
issuance under this Plan.
F. The automatic option grants outstanding under this Article
Three shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, including
any automatic option grants outstanding under this Article Three, may not be
amended at intervals more frequently than once every six (6) months, other than
to the extent necessary to comply with applicable Federal income tax laws and
regulations.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
16
<PAGE> 17
The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever; provided,
however, that (i) no such amendment or modification shall, without the consent
of the holders, adversely affect rights and obligations with respect to options
at the time outstanding under the Plan and (ii) any amendment to the Automatic
Option Grant Program (or any options outstanding thereunder) shall be in
compliance with the limitation of Section IV of Article Three. In addition, the
Board shall not, without the approval of the stockholders of the Corporation (i)
increase the maximum number of shares issuable under the Plan, except for
permissible adjustments under Section V.C of Article One, (ii) materially modify
the eligibility requirements for the grant of options under the Plan or (iii)
otherwise materially increase the benefits accruing to participants under the
Plan.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan was restated on June 22, 1992 to be effective on
the IPO Effective Date, and the Corporation's stockholders approved the
restatement on September 4, 1992. Article One, Section III of the Plan was
subsequently amended to permit the establishment of a secondary committee to
administer the Plan. Such amendment became effective on the September 30, 1992
date of its approval by the Board. The Plan was restated on October 13, 1993 to
(i) amend the automatic grant program under the Option Plan to increase to
18,000 from 6,000 the number of shares awarded to non-employee directors upon
initial election or appointment and to delete vesting restrictions for the
annual 3,000-share automatic option grants and (ii) limit the maximum number of
shares for which any individual participant may be granted stock options over
the remaining term of the Option Plan. The Plan was restated on December 7, 1995
to (i) amend the automatic grant program under the Option Plan to increase to
6,000 from 3,000 the number of shares awarded to each non-employee director upon
each annual meeting of the Corporation's stockholders and (ii) eliminate the
six-month service requirement for receiving such automatic annual grants,
provided that the annual option grants to non-employee directors who have not
served as Board members for at least six (6) months prior to the date of such
annual grant shall become exercisable six (6) months after the date of such
grant. The Plan was restated on February 13, 1997 to increase by 1,000,000 the
number of shares of the Corporation's Common Stock reserved for issuance under
the Plan from 3,000,000 shares to 4,000,000 shares. The Corporation's
stockholders approved of the share increase at the 1997 Annual Stockholders
Meeting. The Plan was restated on June 8, 1999 to (i) reflect the stock dividend
that occurred on October 20, 1997 and resulted in a distribution of one share of
Common stock for each share of Common Stock; and (ii) increase to 12,000 from
6,000 the number of shares awarded to each non-employee director upon each
annual meeting of the Corporation's stockholders, provided that each such grant
shall only be made to a non-employee member of the Board at every other annual
meeting of the Corporation's stockholders.
B. The provisions of this 1997 restatement shall apply only to
options granted under the Plan from and after the Effective Date. Each option
issued and outstanding under the Plan immediately prior to the Effective Date
shall continue to be governed by the terms and conditions of the Plan (and the
instrument evidencing such grant) as in effect on the date each such option was
previously granted, and nothing in this restatement shall be deemed to affect or
otherwise modify the rights or obligations of the holders of such prior options
with respect to the acquisition of shares of Common Stock thereunder.
17
<PAGE> 18
C. The option acceleration provisions of Section III of Article
Two relating to Corporate Transactions may, in the Plan Administrator's
discretion, be extended to one or more outstanding stock options under the Plan
which were granted prior to the IPO Effective Date and which do not otherwise
provide for such acceleration.
D. The sale and remittance procedure authorized for the
exercise of outstanding options under this Plan shall be available for all
options granted under this Plan on or after the IPO Effective Date and all
non-statutory options outstanding under the Plan.
E. The Plan shall terminate upon the earlier of (i) June 21,
2002 or (ii) the date on which all shares available for issuance under the Plan
shall have been issued or canceled pursuant to the exercise or surrender of
options granted hereunder. If the date of termination is determined under clause
(i) above, then options outstanding on such date shall thereafter continue to
have force and effect in accordance with the provisions of the instruments
evidencing such options.
F. Options may be granted under this Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and within one year thereafter such amendment is approved by the
stockholders of the Corporation and (ii) each option granted is not to become
exercisable, in whole or in part, at any time prior to the obtaining of such
stockholder approval.
III. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
IV. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise
or surrender of any options granted under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
V. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option
or surrender right hereunder, and the issuance of stock upon the exercise or
surrender of any such option shall be subject to the procurement by the
Corporation of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options granted under it and the stock
issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued
or delivered under the Plan, unless and until, in the opinion of counsel for the
Corporation (or its successor in the event of any Corporate Transaction), there
shall have been compliance with all applicable requirements of the Federal and
state securities exchange on which stock of the same class is
18
<PAGE> 19
then listed, and all other requirements of law or of any regulatory bodies
having jurisdiction over such issuance and delivery.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing this Plan,
nor any action taken by the Board or the Plan Administrator hereunder, nor any
provision of this Plan shall be construed so as to grant any individual the
right to remain in the employ or Service of the Corporation (or any parent or
subsidiary corporation) for any period of specific duration, and the Corporation
(or any parent or subsidiary corporation retaining the services of such
individual) may terminate such individual's employment or Service at any time
and for any reason, with or without cause.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 29,348,000
<SECURITIES> 10,725,000
<RECEIVABLES> 21,088,000
<ALLOWANCES> 1,253,000
<INVENTORY> 0
<CURRENT-ASSETS> 58,819,000
<PP&E> 6,670,000
<DEPRECIATION> 3,937,000
<TOTAL-ASSETS> 68,189,000
<CURRENT-LIABILITIES> 10,518,000
<BONDS> 0
0
0
<COMMON> 109,000
<OTHER-SE> 57,562,000
<TOTAL-LIABILITY-AND-EQUITY> 68,189,000
<SALES> 0
<TOTAL-REVENUES> 74,061,000
<CGS> 0
<TOTAL-COSTS> 50,093,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 352,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,370,000
<INCOME-TAX> 3,857,000
<INCOME-CONTINUING> 6,513,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,513,000
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.58
</TABLE>
