U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to _________________
Commission file number: 0-22600
EMPLOYEE SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Arizona 86-0676898
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6225 N. 24th Street, Phoenix, Arizona 85016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (602) 955-5556
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
-------------------- --------------------
NONE N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
No Par Value Common Stock
Rights to Purchase Shares of Series A Junior Participating Preferred Stock
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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the $.78 closing price of the Registrant's Common Stock
as reported on the NASDAQ SmallCap Market on March 20, 2000, was approximately
$29.9 million. Effective March 22, 2000, the Company's Common Stock is traded on
the OTC Bulletin Board. Shares of Common Stock held by each executive officer
and director and by any person who owns 10% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily conclusive for other
purposes.
The number of outstanding shares of the Registrant's Common Stock as of March
20, 2000, was 38,433,027.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Employee Solutions, Inc. (the "Company") hereby amends its Report on Form 10-K
for the year ended December 31, 1999 by adding thereto Items 10, 11, 12 and 13,
as set forth below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names of the directors and certain information about them are set forth
below.
Name Age Position With Company Director Since
- ---- --- --------------------- --------------
Quentin P. Smith, Jr. 48 Chairman, Chief Executive Officer, 1998
President and Director
David R. Carpenter 61 Director 1998
Jeffery A. Colby 46 Director; President of TEAM Services 1995
Sara R. Dial 36 Director 1998
Kennard F. Hill 59 Director 1999
Robert L. Mueller 72 Director 1995
Quentin P. Smith, Jr. has been a Director of the Company since January
1998, Chairman of the Board of Directors since August 1998, and Chief Executive
Officer and President since February 1999. Mr. Smith was President of Cadre
Business Advisors, LLC, a professional management consulting services company,
from April 1995 to February 1999. Previously, Mr. Smith was Partner-in-Charge of
the Desert Southwest Business Consulting Group of Arthur Andersen LLP from 1993
to 1995 and a co-owner of Data Line Service Company, a data processing service
bureau, from 1988 to 1991. Mr. Smith is a director of Arizona Public Service Co.
David R. Carpenter has been a Director of the Company since October 1998.
Since February 1997, Mr. Carpenter has served as Chairman and CEO of UniHealth
Foundation, a nonprofit healthcare organization based in Burbank, California.
Since 1997, Mr. Carpenter has also served as Chairman and CEO of Paradigm
Partners International, LLC. From 1990 through 1995, Mr. Carpenter served in
various capacities for Transamerica Corporation, including Executive Vice
President and Group Vice President. From 1980 through 1995, Mr. Carpenter served
in various capacities with Transamerica Occidental Life Insurance Company,
including Chairman and Chief Executive Officer. He has also served as a director
of PacifiCare Health Systems, a managed health care services company, since
1989. Mr. Carpenter is a Fellow of the Society of Actuaries.
Jeffery A. Colby has been a Director of the Company since November 1995.
Mr. Colby founded TEAM Services, a PEO in the music and advertising industries,
in 1992 and has been its Chief Executive Officer since 1994 and President since
January 1996. The Company acquired TEAM Services in 1996; see Item 13 --
"Certain Transactions." Since December 1986, Mr. Colby has served as President
of Colbyco, Inc., a Chicago-based company which provides consulting, audit and
freight bill payment services for the transportation industry. From 1975 to
1986, Mr. Colby was a principal at the Chicago-based law firm of Fox & Grove.
Sara R. Dial became a Director of the Company in January 1998. Ms. Dial is
the President and Chief Executive Officer of Sara Dial & Associates, Inc., a
professional business consulting service. Previously, Ms. Dial served as the
Director of the Arizona Department of Commerce from 1993-1996 and Director of
the Financial Services and Housing Division of the Arizona Department of
Commerce from 1991-1993.
Kennard F. Hill has been Chief Executive Officer and a director of Condor
Technology Solutions, Inc., since January 1997 and its Chairman since February
1998. Condor provides a wide range of information technology ("IT") services and
solutions to middle market organizations, Fortune 1000 companies and public
sector organizations. Mr. Hill was Group President of I-NET, Inc., a network
computing and systems integration services company, from September 1995 to
December 1996. From June 1993 to June 1995, Mr. Hill was President and Chief
Executive Officer of Insource Technology, Inc., an IT consulting firm. From June
1992 to June 1993, Mr. Hill was a private consultant on client/server
acquisition strategy in the healthcare industry. From 1988 to July 1992, Mr.
Hill was Chief Executive Officer of DataLine Inc., a data processing and IT
firm. From 1968 to 1988, Mr. Hill was employed by Electronic Data Systems
Corporation ("EDS"), a full-service IT provider. He served as President of
General Motors-EDS for North America from 1985 to 1988. At EDS, Mr. Hill also
served as chief of the Healthcare Division, having previously served as its
Director of Sales. Mr. Hill also was an officer of EDS's Federal Corp.
subsidiary and a director of its National Heritage Insurance Corp.
<PAGE>
subsidiary, which provides healthcare underwriting for lower-income
policyholders. Mr. Hill attended the University of Texas and served two tours of
duty as a United States Army pilot in Vietnam.
Robert L. Mueller has been a Director of the Company since February 1995.
Mr. Mueller has been an independent consultant since 1993. From 1987 to 1993, he
was the President, Chief Operating Officer and a Director of Proler
International Corp., a steel recycler headquartered in Houston, Texas. From 1983
to 1987, he was President and Chief Executive Officer of Judson Steel Company.
From 1975 to 1983, he was Chairman, President and Chief Executive Officer of
Connors Steel Corp.
Information as to the Company's executive officers is set forth in Item 4A
of this Report on Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Company's directors,
its executive officers, and persons holding more than 10% of the Company's
Common Stock are required to report their initial ownership of the Company's
Common Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to disclose any failure to
file by these dates. All of these filing requirements were satisfied during the
year ended December 31, 1999 except a former executive officer of the Company,
Mark J. Gambill, failed to file one report relating to one post-resignation
transaction. In making these disclosures, the Company has relied solely on
written representations of its directors and executive officers and copies of
the reports that they have filed with the Commission.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, with respect to the years ended December
31, 1999, 1998 and 1997, compensation awarded to, earned by or paid to (i) two
individuals who served as the Company's Chief Executive Officer during 1999;
(ii) four executive officers who were serving as executive officers at December
31, 1999 and whose total salary and bonus exceeded $100,000 in 1999; and (iii)
one individual whose total salary and bonus exceeded $100,000 and who served as
an executive officer during a portion of 1999 but was not serving as such at
December 31, 1999.
<TABLE>
<CAPTION>
Long Term
Annual Compensation in Dollars Compensation
--------------------------------- ----------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options/SARs (1) Compensation (2)
- --------------------------- ---- ------ ----- ------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
James E. Gorman 1999 $105,769 -- (7) -- $ 2,950
Chief Executive Officer, 1998 $174,620 $200,000 $82,288(4) 350,000(5) $ 3,835
President (3) 1997 -- -- -- -- --
Quentin P. Smith, Jr. 1999 $317,308 -- --(7) 274,360 $11,014(8)
Chief Executive Officer, 1998 -- -- -- 12,500 $30,010(8)
President (6) 1997 -- -- -- -- --
Bill C. Hollis 1999 $201,432 -- (7) 35,550 $ 4,482
Senior VP, Operations (9) 1998 $162,757 $ 55,000 (7) 153,125(5) $ 3,898
1997 $136,955 $ 67,167 (7) 87,500 $ 5,607
John V. Prince (10) 1999 $162,847 -- (7) 30,163 $ 7,150
Senior VP, Chief Financial 1998 $104,863 $ 5,000 (7) 40,000(5) $ 6,131
Officer and Treasurer 1997 $ 86,259 $ 2,708 (7) -- $ 5,074
Paul M. Gales (11) 1999 $219,846 -- (7) -- $ 7,974
Senior VP, General Counsel 1998 $214,500 $ 37,500 (7) 215,000(5) $ 6,730
and Secretary 1997 $177,307 -- (7) 50,000 $ 5,949
Lee E. Martin (12) 1999 $136,211 -- $54,717(13) 125,350 $ 5,228
Senior VP, Sales and 1998 -- -- -- -- --
Marketing 1997 -- -- -- -- --
</TABLE>
(1) Consist entirely of stock options; no stock appreciation rights ("SARs")
were granted or are outstanding.
(2) Term life and health insurance premiums unless otherwise specified.
(3) Mr. Gorman served as President and Chief Executive Officer from May 1998
and August 1998, respectively, to February 1999, and as a Director from
August 1998 to April 1999.
(4) Relocation expense.
(5) Option grants in 1998 include the following grants issued upon the
simultaneous cancellation of previously-granted options: Mr. Gorman,
200,000 options surrendered in exchange for 150,000 new options; Mr.
Hollis, 137,500 options surrendered in exchange for 103,125 new options;
Mr. Prince, 30,500 options surrendered in exchange for 30,500 new options;
and Mr. Gales, 220,000 options surrendered in exchange for 165,000 new
options.
(6) Mr. Smith commenced service as Chief Executive Officer and President in
February 1999.
(7) Less than 10% of total of annual salary.
(8) Includes payment pursuant to consulting arrangement in 1998 and 1999 and
term life and health insurance premiums in 1999.
(9) Mr. Hollis commenced service as Senior Vice President, Operations in March
1999.
(10) Mr. Prince commenced service as Senior Vice President and Chief Financial
Officer in March 1999.
(11) Mr. Gales resigned as an executive officer effective January 6, 2000. See
"Employment Agreements, Termination of Employment and Change in Control
Agreements," below.
<PAGE>
(12) Mr. Martin commenced service as Senior Vice President in April 1999.
(13) Relocation expense ($51,717) and automobile reimbursement.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (1)
The following table sets forth information about stock option grants during
the last fiscal year to the executive officers named in the Summary Compensation
Table receiving grants during such period.
<TABLE>
<CAPTION>
Individual Grants
-------------------------- Potential Realizable Dollar
Number of Percent of Value at Assumed Annual
Securities Options/SARs Rates of Stock Price
Underlying Granted to Base Price Appreciation for
Options/SARs Employees in (Dollars Expiration Option Term (2)
Name Granted Fiscal Year (per share) Date 5% 10%
---- ------- ----------- ----------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Quentin P. Smith, Jr. 180,000 21.0 $1.94 02/15/09 $219,600 $336,600
19,360 2.3 $0.84 08/05/09 10,260 25,942
75,000(3) 8.7 $0.56 01/06/10 26,250 66,750
Bill C. Hollis 35,500(3) 4.1 $0.56 01/06/10 12,425 31,595
John V. Prince 30,163(3) 3.5 $0.56 01/06/10 10,557 26,845
Lee E. Martin 90,000 10.5 $1.19 04/30/09 67,500 170,100
35,350(3) 4.1 $0.56 01/06/10 12,372 31,461
</TABLE>
(1) Consist entirely of stock options and do not include SARs.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% or 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The potential
realizable value of the foregoing options is calculated by assuming that
the market price of the underlying security appreciates at the indicated
rate for the entire term of the option and that the option is exercised at
the exercise price and sold on the last day of its term at the appreciated
price.
(3) Options granted in January 2000 based upon 1999 performance.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE TABLE (1)
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning option exercises
during the last fiscal year and the number and value of options outstanding at
the end of the last fiscal year.
<TABLE>
<CAPTION>
Number of Securities Dollar Value of Unexercised
Number Underlying Unexercised In-the-Money Options
Shares Dollar Options at FY-End at FY-End (2)
Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Gorman 0 $ 0 0 0 $ 0 $ 0
Quentin P. Smith, Jr. 0 $ 0 5,833 281,027 $ 0 $ 0
Bill C. Hollis 0 $ 0 34,375 104,250 $ 0 $ 0
John V. Prince 0 $ 0 10,167 50,496 $ 0 $ 0
Paul M. Gales 0 $ 0 55,000 110,000 $ 0 $ 0
Lee E. Martin 0 $ 0 0 125,350 $ 0 $ 0
</TABLE>
(1) No SARs are outstanding.
(2) Based on the last reported trade of the Company's Common Stock on December
31, 1999 at $.6875 per share. Excludes options with exercise price of $.56
granted after December 31, 1999 based on 1999 performance.
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company entered into a three-year employment agreement with Quentin P.
Smith, Jr. in connection with his election as President and Chief Executive
Officer in February 1999. The agreement provides for an initial annual base
salary of $375,000, and provides that Mr. Smith is not entitled to receive cash
bonuses. The Company contemporaneously provided incentive compensation to Mr.
Smith in the form of options to acquire 180,000 shares of the Company's Common
Stock, which options vest in equal parts over three years. The agreement
provides for a payment equal to 12 months base salary if the Company terminates
the agreement without cause. If employment is terminated for any reason other
than for cause, by his disability, or by his death, within 12 months from events
which constitute a "change of control" (defined in the agreement to include only
hostile takeovers, as defined), Mr. Smith is entitled to receive a lump sum
payment equal to $5 million minus the value of all of Mr. Smith's vested and
unvested stock options.
The Company entered into a three-year employment agreement dated May 11,
1998 with James E. Gorman, formerly Chief Executive Officer, President and a
director of the Company. Mr. Gorman's base salary under the agreement at the
time he ceased serving as an executive officer of the Company was $275,000. The
agreement included a guaranteed first year bonus of $100,000 and provisions
similar to those in Mr. Smith's agreement in the event of a hostile takeover (as
defined) of the Company. The Company terminated the agreement for cause in May
1999.
The Company entered into a five-year employment agreement with Bill C.
Hollis effective August 1996, which, as amended effective March 1999, provides
that Mr. Hollis will serve as Chief Executive Officer of the Company's Logistics
Personnel subsidiary and as the Company's Senior Vice President -- Operations.
Mr. Hollis' base salary and bonus (if any) is established pursuant to action of
the Company's compensation committee. In the event of termination of the
agreement by the Company without cause, the agreement provides for a payment
equal to the greater of the base salary due under the balance of the term of the
agreement or 12 months base salary, and further provides for the accelerated
vesting of unvested stock options.
The Company entered into an agreement with John V. Prince in July 1997 that
provides for a payment equal to 12 months base salary if the Company terminates
Mr. Prince's employment without cause. The agreement further provides that if
Mr. Prince terminates his employment with the Company for any reason other than
for cause, by his disability, or by his death, within 12 months from events
which constitute a "change of control" (as defined in the agreement), Mr. Prince
will receive a lump sum equal to 2 times a base amount as well as a continuation
of benefits.
The Company entered into a three-year employment agreement with Lee E.
Martin in April 1999 pursuant to which Mr. Martin serves as Senior Vice
President - Sales and Marketing. The agreement provides a monthly base salary of
$16,667 and an incentive compensation plan based on a percentage of
sales-generated commissions. The agreement also provided for reimbursement of
relocation expenses. If the Company terminates Mr. Martin's employment without
cause, Mr. Martin is entitled to severance payments equal to three to 12 months'
base salary depending on the commencement date of new employment.
The Company entered into an employment agreement with Paul M. Gales in
February 1997 pursuant to which the employee's base salary was set through
annual review by the Company's compensation committee. The agreement provided
for a payment equal to 12 months base salary if the Company terminated the
agreement without cause and for certain payments in the event of termination
following a "change of control" (as defined in the agreement). Mr. Gales
resigned as an executive officer of the Company effective January 2000, at which
time the employment agreement was terminated and the parties entered into an
agreement pursuant to which Mr. Gales continued employment for three months and
is entitled to received six months' base salary (payable in monthly
installments) as severance in exchange for specified services.
The Company's 1995 Option Plan provides that in the event of a merger,
consolidation or reorganization with another corporation in which the Company is
not the surviving corporation (an "Acquisition"), appropriate provision shall be
made with respect to outstanding and unexercised options to either (a)
substitute on an equitable basis appropriate shares of the surviving corporation
for such options or (b) cancel such options upon payment of the fair market
value of such options to the respective holders. The Company's 1993 Option Plan
provides that in the event of an Acquisition, appropriate provision shall be
made with respect to outstanding and unexercised options to either (a)
substitute on an equitable basis appropriate shares of the surviving corporation
for such options or (b) accelerate the vesting and permit the exercise of all
such options prior to such Acquisition.
<PAGE>
COMPENSATION OF DIRECTORS
The Company's directors who do not receive a salary or commissions from the
Company receive a quarterly retainer of $2,500 plus a fee of $500 per each board
or committee meeting attended. Directors also are reimbursed for reasonable
out-of-pocket expenses incurred in attending Board of Directors' meetings.
Non-employee directors of the Company are eligible for the grant of stock
options pursuant to the 1993 Option Plan, and are eligible under certain
circumstances for option grants under a formula grant provision of the 1995
Option Plan. Under the formula grant provisions of the 1995 Option Plan, options
for up to 50,000 shares of Common Stock are granted automatically to each
Director upon initial election, with subsequent automatic grants of options for
2,500 shares of Common Stock at the date of each annual meeting at which the
non-employee director is re-elected. Non-employee directors also are eligible to
receive supplemental option grants pursuant to an amendment to the 1995 Option
Plan effected in 1999. Non-employee directors elected prior to June 1996 are not
eligible to receive options under the formula grant provision until the year
2000 annual meeting of shareholders.
Ms. Dial and Messrs. Carpenter and Hill each were granted options for 2,500
shares of Common Stock at the 1999 Annual Meeting of Shareholders pursuant to
the formula grant provision described above. Mr. Hill was granted options for
10,000 shares upon his initial election to the Board in April 1999 and 40,000
shares pursuant to the supplemental grant provision in May 1999. Messrs. Smith,
Carpenter and Mueller and Ms. Dial each were granted options for 19,360 shares
pursuant to the supplemental grant provision in August 1999. All options have an
exercise price equal to the fair market value of the Common Stock on the date of
grant.
The Company entered into a two-year consulting agreement with Marvin D.
Brody commencing August 1998 that provided monthly payments of $16,375. The
agreement also provided a monthly office expense allowance of $1,250 per month
through September 1999. The agreement included confidentiality and
non-competition provisions. The agreement was terminated in November 1999 in
connection with Mr. Brody's resignation from the Board of Directors, at which
time payment of remaining amounts was made and Mr. Brody agreed that he would
not seek re-election to the Board. Mr. Brody received $ 320,935 under this
agreement in 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, the following individuals served on the Human Resources
Committee (which functions as the Company's Compensation Committee) at various
times: Mr. Mueller, Ms. Dial, Mr. Smith and Mr. Carpenter. Certain relationships
and related transactions with the Company are described immediately above in
"Compensation of Directors." The subheading "Certain Transactions" also
describes certain other relationships and transactions with current or former
board members.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock at March 31, 2000 with respect to (i)
each director of the Company, (ii) each of the executive officers listed in the
Summary Compensation Table below and (iii) all directors and executive officers
of the Company as a group.
Shares Beneficially Owned (1)
-----------------------------
Number Percent
------ -------
Quentin P. Smith (2) 171,000 *
David R. Carpenter (2) 77,667 *
Jeffery A. Colby (2) 86,695 *
Sara R. Dial (2) 38,333 *
Kennard F. Hill (2) 17,500 *
Robert L. Mueller (2)(3) 101,667 *
Paul M. Gales (2)(4) 60,679 *
John V. Prince (2) 20,167 *
Bill C. Hollis (2) 66,375 *
Lee E. Martin (2) 37,400 *
James E. Gorman (5) 2,656 *
All executive officers and directors
as a group (9 persons) (2)(3) 606,804 1.6%
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC") and generally includes voting or
investment power with respect to securities. In accordance with SEC rules,
shares which may be acquired upon conversion or exercise of stock options,
warrants or convertible securities which are currently exercisable or which
become exercisable within 60 days are deemed beneficially owned by the
optionee. Except as indicated by footnote, and subject to community
property laws where applicable, the persons or entities named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Includes the following shares that may be acquired upon the exercise of
stock options: Mr. Smith, 67,500 shares; Mr. Carpenter, 4,167 shares; Mr.
Colby, 86,567 shares; Ms. Dial, 8,333 shares; Mr. Hill, 17,500 shares; Mr.
Mueller, 1,667 shares; Mr. Gales, 55,000 shares; Mr. Hollis, 59,375 shares;
Mr. Martin, 30,000 shares; and Mr. Prince, 10,167 shares.
(3) Voting and investment power with respect to 90,000 shares shared with
spouse.
(4) Includes 2,040 shares owned by spouse.
(5) Beneficial ownership information is based on Form 4 filed for the month of
February 1999.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Colby, a member of the Company's Board of Directors since November
1995, was the controlling shareholder of TEAM Services at the time of its June
1996 acquisition by the Company, and served as Chief Executive Officer of TEAM
Services since 1993. In connection with the TEAM Services acquisition, Mr. Colby
entered into a three-year employment agreement with the Company pursuant to
which he continued to act as TEAM Services' President. The Company entered into
a new three-year employment agreement with Mr. Colby in November 1999 pursuant
to which Mr. Colby continues to serve as President of TEAM Services. The
agreement provides for an annual base salary of $210,000 and incentive
compensation to be determined based primarily on TEAM Services' performance. If
the agreement is terminated by the Company without cause or if Mr. Colby resigns
under specified circumstances, Mr. Colby is entitled to receive payments
totaling 12 months base salary (or, if such termination occurs after a change in
control, as defined, payments equal to Mr. Colby's total compensation during the
preceding 12 months).
In addition, under the 1996 agreements by which the Company acquired all
the outstanding capital stock of TEAM services, the Company agreed to a total
purchase price of four times total TEAM Services' pre-tax income for the
12-month period ending June 30, 1999. The purchase price was payable in the form
of net assumed liabilities (approximately $825,000 assumed at closing) and
unregistered Common Stock. The Company issued 2,157,753 shares of Common Stock
in payment of such purchase price in December 1999, of which 592,362 were issued
to Mr. Colby. The Company has been advised by the sellers of TEAM Services that
they are considering initiating an arbitration action against the Company for
unspecified damages based on the Company's alleged breach of the 1996 agreement.
The Company has entered into an agreement with Paradigm Partners
International, LLC ("Paradigm") which, as amended, provides for the payment of
5% of any fees or commissions paid to the Company by American Heritage Life
throughout the term of the Company's relationship with American Heritage Life.
The Company agreed to pay such amount in consideration of Paradigm's assistance
in arranging the Company's relationship with American Heritage Life. No amounts
were paid under such agreement in 1999. David R. Carpenter, a member of the
Company's Board of Directors, is Chairman and CEO of Paradigm.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated this 1st day of May, 2000
EMPLOYEE SOLUTIONS, INC.
By /s/ John V. Prince
-------------------------------------
John V. Prince
Chief Financial Officer
