<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997
REGISTRATION NO. 333-37965
================================================================================
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SNELLING AND SNELLING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 7363 23-1488679
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
(972) 239-7575
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
J. RUSSELL CREWS
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
12801 NORTH CENTRAL EXPRESSWAY, SUITE 700
DALLAS, TEXAS 75243
(972) 776-1417
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<C> <C>
KATHERINE M. SEABORN GORDON M. BAVA
RANDALL G. RAY NANCY H. WOJTAS
GARDERE & WYNNE, L.L.P. MANATT, PHELPS & PHILLIPS, LLP
1601 ELM STREET, SUITE 3000 11355 WEST OLYMPIC BOULEVARD
DALLAS, TEXAS 75201 LOS ANGELES, CALIFORNIA 90064
(214) 999-4924 (310) 312-4200
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED NOVEMBER 21, 1997
PROSPECTUS
3,350,000 SHARES
[SNELLING LOGO]
COMMON STOCK
------------------
Of the 3,350,000 shares of Class A Common Stock, $0.01 par value per share
(the "Common Stock"), offered hereby, 2,933,333 are being sold by Snelling and
Snelling, Inc. ("Snelling" or the "Company"), and 416,667 are being sold by a
shareholder of the Company ("the Selling Shareholder"). See "Principal and
Selling Shareholders." The Company has two classes of common shares. The Common
Stock is entitled to one vote per share, and the Class B Common Stock, $0.01 par
value per share (the "Class B Common Stock"), is entitled to ten votes per share
(the Common Stock and the Class B Common Stock are collectively referred to as
the "Common Shares"). See "Description of Capital Stock."
There has been no active public market for the common stock of the Company
since 1990. See "The Company." It is currently estimated that the initial public
offering price of the Common Stock will be between $11.00 and $13.00 per share.
See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Common Stock has been
approved for listing on the Nasdaq National Market under the symbol "SNEL."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) SHAREHOLDER(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(4)................ $ $ $ $
==================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
several Underwriters named herein (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company will not receive any of the proceeds from the sale of the
416,667 shares of Common Stock by the Selling Shareholder.
(4) The Company has granted to the Underwriters a 30-day option to purchase
up to 502,500 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
the over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the offices of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC. RAUSCHER PIERCE REFSNES, INC.
, 1997
<PAGE> 3
[Graphics]
Page 2 of the Prospectus consists of a gatefold with graphics. The inside
front cover, seen when first opening the Prospectus, includes a large
Snelling(R) Personnel Services logo on a white background with the stabilization
language set forth below at the bottom of the page. The first page of the inside
of the gatefold, seen on the left when opening the gatefold, includes the
caption "Providing Clients Integrated," in the middle right of the page, three
photographs of Snelling offices (each captioned with the words "Snelling Office"
and the city and state located), and a photograph of the Snelling corporate
headquarters (captioned with the words "Snelling Corporate Headquarters Dallas,
Texas"). The second page of the inside of the gatefold, seen on the right when
opening the gatefold, includes the caption "Full-Service Staffing Solutions." in
the middle left of the page, four photographs representing Snelling flexible
staffing employees (each captioned with the employee's title) and the
Snelling(R) Personnel Services logo in the lower right corner.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors,"
and the consolidated financial statements of the Company, including the notes
thereto (the "Consolidated Financial Statements"). Unless otherwise indicated,
all references in this Prospectus to "Snelling" or the "Company" shall mean
Snelling and Snelling, Inc., and its subsidiaries on a consolidated basis. In
addition, unless otherwise indicated, the information in this Prospectus (i)
gives effect to the reclassification of Snelling's outstanding common stock into
Class B Common Stock, the equivalent of a 5.415067-for-1 split of the
outstanding shares of Class B Common Stock and the creation of a new Class A
Common Stock, all of which will be effected by amendment and restatement of the
Company's Articles of Incorporation upon the effectiveness of the registration
statement of which this Prospectus forms a part, (ii) assumes that 5,126,904
shares of Class B Common Stock will be outstanding immediately before this
offering and (iii) assumes the Underwriters' over-allotment option will not be
exercised.
THE COMPANY
Snelling is a leading national provider of staffing solutions primarily
targeted to small and mid-sized businesses. As of September 30, 1997, the
Company operated as Snelling(R) Personnel Services through a network of 289
franchise locations and 29 Company-owned branch locations in 42 states, the
District of Columbia and Puerto Rico, as well as three foreign countries, and
had executed an agreement for the opening of one additional franchise location.
The majority of the Company's franchise and branch locations offer the Company's
clients integrated, full-service staffing solutions by providing traditional
flexible staffing, single-source management, temp-to-hire, career placement and
other staffing services from each location.
Founded in 1951, the Company currently provides flexible staffing personnel
for office, clerical and light industrial services. The Company also offers
career placement services in a number of fields, including accounting and
finance, engineering, health care, law, manufacturing, management information
systems and office, sales, marketing and technical services. Flexible staffing
services (which include traditional flexible staffing, single-source management
and temp-to-hire) accounted for approximately 90%, and career placement services
accounted for approximately 10%, of the Company's total system-wide sales for
both the year ended December 31, 1996, and the nine months ended September 30,
1997.
The staffing industry has experienced rapid growth over the past decade as
a result of economic trends and changing approaches to staffing and employment.
According to Staffing Industry Report(R), the U.S. staffing industry has grown
from an estimated $31.4 billion in revenues in 1991 to an estimated $74.4
billion in 1996, representing a compound annual growth rate of approximately
19%. Based on this information, 1996 sales generated by flexible staffing
accounted for 66% of the overall staffing market, professional employer
organizations ("PEOs") accounted for 23% and career placement accounted for 11%.
Traditional flexible staffing for office, clerical and industrial services grew
from approximately $12.1 billion in 1991 to approximately $26.4 billion in 1996,
representing a compound annual growth rate of approximately 17%. Estimated sales
from career placement (in approximate numbers) grew from $3.9 billion in 1991 to
$7.2 billion in 1996, representing a compound annual growth rate of 13%.
Snelling's goal is to enhance its leading position in the staffing industry
through the following business strategy: (i) continue to focus on small and
mid-sized businesses; (ii) offer an integrated, full-service approach to
staffing solutions from each location; (iii) maintain a strong operating
infrastructure; (iv) recruit and retain qualified management and personnel,
including flexible staffing personnel; and (v) control costs through a continued
emphasis on technology and risk management, especially workers' compensation
insurance.
Snelling intends to continue to achieve revenue and earnings growth and
increase market share through the following focused growth strategy: (i) expand
market penetration of its existing franchise and branch locations through
intensive training of sales personnel, investments in technology and the
aggressive pursuit of cross-selling opportunities; (ii) pursue acquisitions of
independent staffing companies and select franchise locations; (iii) establish
alternative distribution channels, such as "co-branding" with other services
providers
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<PAGE> 5
or retailers; (iv) develop new services, such as PEO services, internally or
through strategic acquisitions of related staffing businesses that are
complementary to Snelling's business; and (v) continue to franchise in certain
select markets.
ACQUISITIONS
Consistent with its growth strategy, Snelling began an expansion program in
1994 to acquire independent staffing companies and selected franchise locations.
The Company acquired six franchise locations in 1994 with aggregate annual
revenues of approximately $5.9 million; four franchise locations in 1995, with
aggregate annual revenues of approximately $8.0 million; seven independent
staffing locations and nine franchise locations in 1996, with aggregate annual
revenues of approximately $43.6 million; one franchise location in the first
nine months of 1997, with annual revenues of approximately $3.5 million; one
independent staffing location in October 1997, with annual revenues of
approximately $14.4 million; and one franchise location in November 1997, with
annual revenues of approximately $2.6 million. The aggregate consideration paid
with respect to these acquisitions was approximately $29.1 million and was
financed using a combination of cash, seller financing and bank loans. After
giving effect to the consolidation of certain locations of the acquired
companies, the Company's acquisitions have resulted in a net addition of 26
Company-owned branch locations in 13 states. The Company has one pending
acquisition of an independent staff location with annual revenues of
approximately $2.3 million, which is currently scheduled to be completed in
December 1997. On an ongoing basis, the Company evaluates opportunities to
acquire companies that are complementary to its business, including independent
staffing companies and selected franchises. The Company currently has no plans,
arrangements or understandings, and is not participating in negotiations, with
respect to any material acquisitions.
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered by:
The Company............................. 2,933,333 shares
The Selling Shareholder................. 416,667 shares
Common Shares to be outstanding after the
offering................................ 8,060,237 shares(1)
Voting rights............................. The Common Stock is entitled to one vote per share, and
the Class B Common Stock is entitled to ten votes per
share. See "Risk Factors -- Control of the Company by
the Snelling Family" and "Description of Capital Stock."
Use of proceeds........................... To repay certain indebtedness, including capital lease
commitments, and for working capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol.... SNEL
</TABLE>
- ---------------
(1) Includes 4,710,237 shares of Class B Common Stock currently issued and
outstanding, which are convertible into shares of Common Stock under certain
circumstances. See "Description of Capital Stock -- Common Shares" regarding
the conversion rights and restrictions on transfer of the Class B Common
Stock. Excludes (i) 2,599,238 shares of Class B Common Stock issuable
pursuant to outstanding options under the Company's 1996 Stock Option Plan
at a weighted average exercise price of $3.85 per share and (ii) 357,974
shares of Class B Common Stock issuable pursuant to options to be granted
under the 1996 Stock Option Plan at the initial public offering price upon
completion of this offering. See "Management -- Stock Option Plans."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<TABLE>
<CAPTION>
SEVEN FISCAL NINE MONTHS
FISCAL YEAR MONTHS YEAR ENDED ENDED
ENDED MAY 31, ENDED DEC. 31, SEPTEMBER 30,
------------------------------ DEC. 31, ------------------- -------------------
1992 1993 1994 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.............................. $ 19,023 $ 30,360 $ 70,202 $ 59,309 $122,701 $168,602 $116,864 $165,686
Cost of services...................... 8,260 16,330 47,456 40,221 87,943 122,945 83,957 123,964
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.................. 10,763 14,030 22,746 19,088 34,758 45,657 32,907 41,722
Selling, general and administrative
expenses............................ 11,878 11,832 14,116 8,859 15,384 19,600 13,624 20,421
Franchises' share of gross
profit(1)........................... -- 2,023 8,648 8,659 14,682 19,587 14,835 15,772
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit (loss)....... (1,115) 175 (18) 1,570 4,692 6,470 4,448 5,529
Interest expense...................... 46 34 66 71 379 1,100 602 1,885
Other income.......................... 523 432 348 63 97 105 54 698
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes............................... (638) 573 264 1,562 4,410 5,475 3,900 4,342
Income tax expense (benefit).......... (137) 263 152 704 1,720 2,161 1,564 1,727
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................... $ (501) $ 310 $ 112 $ 858 $ 2,690 $ 3,314 $ 2,336 $ 2,615
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per Common
Share............................... $ (0.07) $ 0.04 $ 0.02 $ 0.12 $ 0.38 $ 0.48 $ 0.33 $ 0.38
======== ======== ======== ======== ======== ======== ======== ========
Weighted average Common Shares
outstanding......................... 7,121 7,118 7,068 7,012 7,007 6,966 6,982 6,909
======== ======== ======== ======== ======== ======== ======== ========
SELECTED OPERATING DATA:
System-wide sales (in thousands)(2)... $117,693 $175,747 $225,270 $166,340 $318,858 $372,999 $273,282 $324,932
Hours billed (in thousands)(3)........ -- 1,181 5,016 5,058 9,526 13,141 9,300 13,345
Average bill rate(3).................. -- $ 10.20 $ 10.60 $ 10.54 $ 11.29 $ 11.44 $ 11.57 $ 11.90
Gross margin per flexible
employee(3)......................... -- 23.4% 24.6% 23.9% 23.8% 23.2% 23.6% 22.3%
Number of branch locations(4)(5)...... 1 1 2 7 9 29 19 29
Number of franchise locations(4)...... 271 253 248 248 274 277 276 289
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
AS
ACTUAL ADJUSTED(6)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $13,943 $20,119
Total assets................................................ 55,302 60,385
Total debt.................................................. 27,407 1,004
Shareholders' equity........................................ 14,885 46,371
</TABLE>
- ---------------
(1) The Company has two types of franchises for purposes of flexible staffing
services revenue recognition. With the first type, the Company records
franchise royalties, based on a contractual percentage of flexible staffing
services billings, in the period in which the franchise collects for the
services provided. The second type of franchises participate in the
Company's pay/bill processing program. With the second type, the Company has
a direct contractual relationship with the clients for the services, holds
title to the related receivables and is the legal employer of the flexible
staffing employees. Revenues generated by these franchises and the related
direct costs of services are included as part of the Company's revenues and
costs of services in the period in which the services are provided. The net
distribution paid to franchises participating in the pay/bill processing
program is an operating expense recorded by the Company as franchises' share
of gross profit and is based on either a percentage of the flexible staffing
services billings or a percentage of the gross profit generated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Organization -- Franchises" and
"Business -- Operations -- Pay/Bill Processing Services."
(2) System-wide sales are equal to the aggregate revenues of all franchise
locations and Company-owned branch locations during the period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Includes franchise locations participating in the Company's pay/bill
processing program and Company-owned branch locations. See
"Business -- Operations -- Pay/Bill Processing Services."
(4) In operation at the end of the period presented.
(5) Branches consist of Company-owned branch locations (including a California
subsidiary, the assets of which were sold in January 1997) and exclude
franchise locations.
(6) As adjusted to reflect the sale of 2,933,333 shares of Common Stock offered
by the Company hereby at an assumed initial offering price of $12.00 per
share (the mid-point of the filing range) and the application of the net
proceeds as set forth in "Use of Proceeds."
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock in this offering involves a
high degree of risk. In addition to the other information in this Prospectus,
the following factors should be carefully considered in evaluating Snelling and
its business before purchasing the Common Stock in this offering. When used in
this Prospectus, the words "anticipate," "estimate," "project," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain assumptions, uncertainties and risks. Should
one or more of these uncertainties or risks materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, projected or expected.
ABILITY TO CONTINUE AND MANAGE GROWTH
The Company's plan for growth, both internal and through the acquisition of
other staffing service businesses, is subject to numerous and substantial risks.
The Company's continued growth depends on many factors, including: (i) the
availability of sufficient working capital to support growth; (ii) the Company's
response to existing and emerging competition; (iii) the Company's ability to
maintain its gross margins in the face of competitive pricing pressures and
changing regulatory environments; (iv) the maintenance and expansion of existing
market share; (v) the hiring, integration and retention of qualified managers in
existing markets as well as new markets; (vi) the recruitment of qualified
flexible staffing personnel; (vii) the development of new client relationships;
(viii) the identification of and expansion into new markets; and (ix) the
development of new service offerings. The Company also could experience
unexpected delays or other problems in the opening of new franchise or branch
locations. Any significant delay in the opening of new locations or the failure
of new locations to achieve anticipated performance levels could adversely
affect the Company's operations and growth plans. See "Business -- Business
Strategy" and "Business -- Growth Strategy."
ACQUISITION RISKS
The Company continually evaluates potential opportunities to acquire other
staffing services firms. Over the last few years, the consolidation of companies
in the staffing industry has been rapid and, in many instances, the Company has
competed for acquisitions with other staffing companies that have recently
raised significant capital or otherwise have greater financial resources than
the Company. The Company's acquisition program will require significant
additional capital resources. There can be no assurance that the Company will be
able to successfully identify suitable acquisition candidates, obtain adequate
capital resources at the time required or on terms acceptable to the Company,
complete acquisitions on terms favorable to the Company or at all, integrate
acquired businesses into its operations or expand into new markets. Once
integrated, acquired firms may not perform as expected. Acquisitions involve a
number of special risks, such as diversion of management's attention from
ongoing operations of the Company, difficulties in the integration of acquired
operations and retention of personnel, failure of acquired businesses to
maintain or increase profitability, operating in markets in which the Company
has little or no prior experience, legal liabilities, maintenance of uniform
standards, controls, procedures and policies, impairment of relationships with
clients of the acquired firm and tax and accounting issues. Any of these risks
could have a material adverse effect on the Company's financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Business -- Growth Strategy" and "Business -- Competition."
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for staffing services is significantly affected by the general level
of economic activity in the United States. When economic activity slows, many
companies hire fewer full-time employees and decrease their usage of flexible
staffing before undertaking layoffs of their full-time employees. A significant
economic downturn, either on a national basis or in regions of the country where
the Company's operations are heavily concentrated, could have a material adverse
effect on the Company's business and results of operations. Adverse changes in
the economy, however, generally have a more negative impact on career placement
activity than on flexible staffing services. As economic activity increases,
flexible staffing personnel are often
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<PAGE> 8
added to the workforce prior to the hiring of full-time employees. During these
periods of increased economic activity and generally higher levels of
employment, the competition among staffing firms for qualified flexible and, to
a lesser extent, full-time personnel is intense. Further, the Company may face
increased pricing pressures during these periods. There can be no assurance
that, during these periods, the Company will be able to recruit and retain
candidates necessary to satisfy its clients' flexible staffing needs or that
these pricing pressures will not adversely affect the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
COMPETITIVE MARKET; LIMITED BARRIERS TO ENTRY
The staffing industry is highly competitive and highly fragmented, and
there are limited barriers to entry. The Company competes with international,
national, regional and local companies providing general and specialized
flexible staffing services, particularly with respect to office, clerical and
light industrial services. Some of these companies have substantially greater
financial and marketing resources than the Company. The Company faces
significant competition in the markets it serves and is likely to face
significant competition in any new markets that it may enter. In particular, the
Company believes the developing practice of large national and regional
companies to make centralized purchasing decisions for flexible staffing
services on a national or regional basis will increase competition in certain
markets. This increasing competition could limit the Company's ability to
maintain or increase its market share or maintain or increase its gross margins,
either of which could have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the Company
will be able to maintain or increase the current prices charged to its clients.
Any decrease in prices could materially adversely affect the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Competition."
AVAILABILITY OF QUALIFIED FLEXIBLE STAFFING PERSONNEL
The Company depends upon its ability to attract and retain qualified
flexible staffing personnel who possess the skills and experience necessary to
meet the staffing requirements of its clients. The Company must continually
evaluate and upgrade its base of available qualified personnel to keep pace with
changing client needs and emerging technologies. The Company competes with other
flexible staffing companies, as well as its clients and other employers, for
qualified personnel. In addition, a substantial number of the Company's flexible
staffing employees during any given year will terminate their employment with
the Company to accept employment with the Company's clients, competitors or
other businesses. There can be no assurance that qualified personnel will
continue to be available to the Company in sufficient numbers and upon economic
terms that are acceptable to the Company. See "Business -- Business Strategy"
and "Business -- Operations -- Recruiting Flexible Staffing Personnel."
INCREASED EMPLOYEE COSTS
Businesses and other organizations use flexible staffing in part to shift
certain employment costs and risks (e.g., workers' compensation and unemployment
insurance) to flexible staffing services companies. Accordingly, the Company is
required to pay a number of federal, state and local payroll and related costs,
including unemployment taxes, workers' compensation insurance, Federal Insurance
Contributions Act ("FICA") and Medicare taxes, among others, with respect to its
flexible staffing personnel. Unemployment taxes are a significant expense to the
Company. Significant increases in the effective rates of any payroll-related
costs would have a material adverse effect upon the Company. The Company is
liable for the first $250,000 of each workers' compensation claim. In addition,
the Company could incur costs related to workers' compensation claims at a
higher rate in the future because of factors such as higher than expected losses
from known claims or an increase in the number and severity of new claims. The
Company's costs could also increase as a result of health care reforms. Recent
federal and state legislative proposals have included provisions extending
health care and other benefits to personnel who currently do not receive these
benefits. These proposals, if enacted, would require the Company to provide
health care benefits to its flexible staffing employees and pay a major portion
of the costs. There can be no assurance that the Company will be able to
increase the fees charged to
7
<PAGE> 9
its clients in a timely manner and in a sufficient amount to cover increased
costs as a result of these proposals or any of the foregoing. In addition,
certain labor unions have recently targeted the reduction or elimination of
part-time employees and third-party staffing solutions by employers. A
substantial increase in labor union activity against third-party staffing
solution providers could have a material adverse effect on the financial
condition and results of operations of the Company. There can also be no
assurance that the Company will be able to adapt to future regulatory changes
made by the Internal Revenue Service, the Department of Labor or other state and
federal regulatory agencies. See "Business -- Regulation."
INTANGIBLE ASSETS
As of September 30, 1997, approximately $21.3 million or 38.5%, of the
Company's total assets were intangible assets. These intangible assets are
primarily goodwill related to acquisitions of businesses. Any impairment in the
value of goodwill could have a material adverse effect on the Company's
financial condition and results of operations.
EMPLOYER LIABILITY RISKS
Providers of staffing services employ and place people in the workplaces of
other businesses. Inherent risks include possible claims of errors and
omissions, misuse of client proprietary information, misappropriation of funds,
discrimination and harassment (including claims relating to actions of the
Company's clients), employment of illegal aliens, theft of client property,
other criminal activity, negligence and other claims. In some instances,
pursuant to written contracts with certain clients, the Company is required to
indemnify the clients against some or all of the foregoing matters. A failure of
any Company employee to observe the Company's policies and guidelines intended
to reduce exposure to these risks, relevant client policies and guidelines, or
applicable federal, state or local laws, rules and regulations, or other
circumstances that cannot be predicted, could result in negative publicity,
injunctive relief, payment of monetary damages or fines or have other material
adverse effects upon the Company. Moreover, the Company could be held
responsible for the actions at a workplace of persons not under the direct
control of the Company. Because of the large number of flexible staffing
employees the Company employs, in addition to its corporate employees, the
Company's exposure to such claims may be significantly greater than
comparably-sized companies in other industries. The Company is also exposed to
potential claims with respect to the career placement process. To reduce its
exposure to the foregoing risks, the Company maintains insurance and fidelity
bonds covering general liability, workers' compensation claims, employee theft,
errors and omissions and employment practices liability. There can be no
assurance that the insurance coverage will be available on an economical basis
and in amounts adequate to cover any liability. In addition, the defense of any
legal proceeding could result in substantial expense to the Company and divert
the attention of management from the Company's operations, which could have a
material adverse effect on the Company's financial condition and results of
operations. There also can be no assurance that the Company will prevail in any
legal proceedings brought against it. See "Business -- Operations -- Risk
Management" and "Business -- Legal and Administrative Proceedings."
CONTROL OF THE COMPANY BY THE SNELLING FAMILY
Upon consummation of the sale of the shares of Common Stock in this
offering, Robert O. Snelling, Sr. (the Company's Chairman of the Board and Chief
Executive Officer), the Company's directors and officers who are members of the
Snelling family or spouses of family members and their respective spouses will
beneficially own approximately 57.3% of the outstanding Common Shares and
control approximately 91.5% of the total voting power of the Company. In
addition, Robert O. Snelling, Sr., will beneficially own approximately 15.4% of
the outstanding Common Shares and control approximately 24.6% of the total
voting power of the Company. Shareholders controlling a majority of the total
voting power can elect all of the directors of the Company and can approve,
delay or prevent certain fundamental corporate transactions, including mergers,
consolidations and the sale of substantially all of the Company's assets. For so
long as these shareholders own a significant percentage of the Common Shares,
including a significant percentage of the Class B Common Stock, they will retain
substantial influence over the affairs of the Company which may
8
<PAGE> 10
result in decisions that do not fully represent the interests of all
shareholders of the Company. These factors, along with the factors described in
"Description of Capital Stock -- Common Shares" and "Description of Capital
Stock -- Certain Provisions of the Charter and By-Laws," may also have the
effect of delaying or preventing a change in management or voting control of the
Company. See "Principal and Selling Shareholders."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business is highly dependent upon the
Company's executive officers and its senior management. The Company is also
dependent on its ability to hire, develop and retain qualified regional and
local managers, as well as on the performance and productivity of its managers.
The Company has entered into noncompetition, nonsolicitation and confidentiality
agreements with its branch managers; however, there can be no assurance that
such agreements will be enforceable in all jurisdictions or for the periods set
forth, or that the Company would not incur significant expense attempting to
enforce these agreements. The loss of key management or the inability of the
Company to attract and retain qualified regional and local management could have
a material adverse effect on the Company's operations and growth. The Company's
continued growth also will depend upon its ability to attract and retain
additional skilled management personnel. See "Management."
FRANCHISING RISKS
During 1996 and for the first nine months of 1997, the Company's ten
largest franchisees (excluding franchise locations that were acquired by the
Company) accounted for 22.5% of the Company's total system-wide sales and 46.5%
and 42.9%, respectively, of the Company's net earnings. In addition, during 1996
and for the first nine months of 1997, the Company's largest franchisee
accounted for 4.7% and 5.0%, respectively, of the Company's total system-wide
sales and 13.8% and 8.5%, respectively, of the Company's net earnings.
Franchisees typically have the option to terminate their agreements upon at
least six months prior written notice to the Company, resulting in the loss of
franchise revenues and corresponding profitability. In most cases, however, the
Company cannot terminate the franchise agreement without good cause. Further,
while the Company's franchise agreements contain noncompetition covenants that
the Company vigorously seeks to enforce, former franchisees may nevertheless
seek to compete with the Company. The Company's offer and sale of franchises is
regulated by the Federal Trade Commission and by state business opportunity and
franchise laws. The Company has disclosed the filing of the registration
statement of which this Prospectus forms a part and will be required to amend
further its franchise registrations with certain state governmental authorities
when this offering is completed. Until the Company has appropriately amended its
uniform franchise offering circular, it will not be able to offer or sell
franchises in the respective states. The Company is also subject to the risk of
franchisee litigation pursuant to state business opportunity or franchise laws
or otherwise. See "Business -- Organization -- Franchises" and
"Business -- Regulation."
RELIANCE ON MANAGEMENT INFORMATION SYSTEMS
The Company's business depends upon its ability to store, retrieve, process
and manage significant databases, and periodically to expand and upgrade its
information processing capabilities. The interruption or loss of the Company's
information processing capabilities through loss of stored data, breakdown or
malfunction of computer equipment and software systems, telecommunications
failure, conversion difficulties or damage to the Company's headquarters and
systems caused by fire, tornado, lightning, electrical power outage or other
disruption could have a material adverse effect on the Company. The Company is
currently in the process of implementing advanced management information
systems, including a disaster recovery site, but full implementation has not yet
been completed. There can be no assurance that implementation will be completed
in accordance with the Company's current schedule, or at all, or that the
different components of the management information systems will be successfully
integrated. See "Business -- Operations -- Management Information Systems."
9
<PAGE> 11
LACK OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no active public market for the Company's common stock since
1990. There can be no assurance that, after this offering, an active public
market for the Common Stock will develop or be sustained or that the market
price for the Common Stock after trading commences will equal or exceed the
initial public offering price set forth on the cover page of this Prospectus.
The market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including quarterly
variations in operating results, the liquidity of the market for the Common
Stock and general economic and market conditions. The initial public offering
price for the Common Stock in this offering was determined by negotiation
between the Company and the Representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after completion
of this offering. In addition, the stock market has experienced substantial
price and volume fluctuations in recent years. These fluctuations have had a
significant effect on the market price of the stock of many companies, often
unrelated to the operating performance of those companies. See "The Company" and
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,350,000 shares of
Common Stock and 4,710,237 shares of Class B Common Stock outstanding. There
will also be outstanding employee stock options to purchase an aggregate of
2,957,212 shares of Class B Common Stock. All of the shares of Common Stock,
which are being sold in this offering, will be freely tradeable without
restriction or further registration under the Securities Act, except for shares
purchased by affiliates of the Company. The shares of Class B Common Stock will
be eligible for sale in the public market upon expiration of the applicable
holding periods, or sooner if registered under the Securities Act, and
conversion to shares of Common Stock. The Company, its officers and directors
and certain shareholders (who will collectively own 4,656,614 shares of Class B
Common Stock immediately following this offering) have agreed not to sell or
otherwise transfer any Common Shares for a period of 180 days after the date of
this Prospectus without the prior written consent of Smith Barney Inc. ("Smith
Barney"), one of the Representatives of the Underwriters. Sales of substantial
amounts of Common Stock in the public market following this offering could
adversely affect the market price of the Common Stock. See "Description of
Capital Stock -- Common Shares," "Shares Eligible for Future Sale" and
"Underwriting."
DILUTION
Purchasers of Common Stock in this offering will experience immediate and
substantial dilution in the net tangible book value of their investment. Based
on an assumed initial offering price of $12.00 per share (the mid-point of the
filing range), new investors will experience immediate dilution of $8.89 per
share. See "Dilution."
10
<PAGE> 12
THE COMPANY
Snelling was organized in 1951 as a Pennsylvania general partnership and
incorporated in Pennsylvania in 1956. The Company initially offered career
placement services and in 1954 began providing flexible staffing services.
In 1969, the Company completed an initial public offering of its common
stock, which was quoted on the predecessor to The Nasdaq Stock Market. In 1990,
the Company completed a plan of reclassification whereby all shareholders with
100 or fewer shares were reclassified and their shares were converted into a
right to receive cash. As a result of the reclassification, the number of
shareholders of the Company fell below 300 and the Company ceased to be a
reporting company under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
As of October 31, 1997, the Company's Common Shares were held by 39 holders
of record. There has been no active public market for the Company's Common Stock
since 1990.
The Company's executive offices are located at 12801 North Central
Expressway, Suite 700, Dallas, Texas 75243, and its telephone number is (972)
239-7575.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,933,333 shares of
Common Stock offered by the Company in this offering are estimated to be $31.5
million ($37.1 million if the Underwriters' over-allotment option is fully
exercised), assuming an initial offering price of $12.00 per share and after
deducting underwriting discounts and commissions to be paid by the Company and
the estimated offering expenses, all of which will be paid by the Company. The
Company intends to use the net proceeds to repay certain outstanding
indebtedness, including capital lease commitments. The remainder of the net
proceeds will be used for working capital and other general corporate purposes.
At September 30, 1997, the Company had approximately $21.1 million in
principal amount of senior indebtedness under its senior secured credit
facilities (the "Senior Credit Facility"). Of this amount, approximately $8.1
million was outstanding under a revolving facility, which matures on January 31,
2001, and is used for working capital financing, and approximately $13.0 million
was outstanding under an acquisition facility, which is being amortized over
five years ending on January 31, 2001, and is used to finance a portion of the
Company's acquisitions. Subsequent to September 30, 1997, the Company acquired
one independent staffing location and one franchise location for an aggregate
purchase price of $6.5 million. The Company used the Senior Credit Facility to
finance $5.0 million of the aggregate purchase price. Indebtedness under the
Senior Credit Facility bears interest at floating rates. As of September 30,
1997, the blended interest rate on the Senior Credit Facility was 8.56%. The
Company intends to repay the outstanding principal balance and accrued and
unpaid interest under the revolving facility and the acquisition facility.
Prepayments of the Senior Credit Facility are not subject to premiums or
prepayment penalties. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Acquisitions."
At September 30, 1997, the Company had outstanding capital lease
commitments under a master lease agreement, which matures in August 2001, of
approximately $1.9 million. The lease commitments bear interest at various rates
ranging from 8.95% to 14.85%. As of September 30, 1997, the weighted average
rate was 12.51%. The Company intends to repay the outstanding commitment balance
and accrued and unpaid interest under the master lease agreement.
At September 30, 1997, the Company also had an aggregate of approximately
$4.4 million in principal amount of seller-financed indebtedness incurred in
connection with certain of the Company's acquisitions. The Company intends to
repay approximately $3.4 million of this principal amount and related accrued
and unpaid interest with the net proceeds. Of the amount to be repaid,
approximately $2.3 million relates to a note issued to the seller in connection
with the Company's acquisition of five franchise locations. This note, which
bears interest at 8.25% per annum, matures on December 31, 2001. Approximately
$0.4 million remains outstanding
11
<PAGE> 13
under a seller note issued in connection with the acquisition of three franchise
locations. This note bears interest at 9.25% per annum and matures on March 17,
1999. Approximately $0.3 million remains outstanding under a seller note issued
in connection with the acquisition of four independent staffing locations. This
note bears interest at 8.25% per annum and matures on March 31, 2000.
Approximately $0.2 million remains outstanding under a seller note issued in
connection with the acquisition of three franchise locations. This note bears
interest at 6.00% per annum and matures on August 1, 1999. Finally,
approximately $0.2 million remains outstanding under a seller note issued in
connection with the acquisition of two franchise locations. This note bears
interest at 8.00% per annum and matures on January 31, 2000. Prepayments of
these seller notes are not subject to premiums or prepayment penalties.
The Company will not receive any of the proceeds from the sale of the
416,667 shares of Common Stock by the Selling Shareholder. See "Principal and
Selling Shareholders."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Shares for the foreseeable future and anticipates that future earnings will be
retained to finance future operations and expansion. The payment of cash
dividends in the future will be at the discretion of the board of directors and
will depend upon such factors as earnings levels, capital requirements, the
Company's financial condition and other factors the board of directors deems
relevant. The Company's Senior Credit Facility prohibits the payment of
dividends by the Company on any Common Shares, other than dividends payable
solely in Common Shares. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the Company's capitalization at September
30, 1997, (i) on a historical basis and (ii) on an as adjusted basis to give
effect to the sale by the Company of 2,933,333 shares of Common Stock in this
offering at an assumed initial offering price of $12.00 per share and the
application of the net proceeds as described in "Use of Proceeds." The data set
forth below should be read in conjunction with the other financial information
presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 648 $ 5,731
======= =======
Short-term borrowings, including current maturities of
long-term debt............................................ $ 1,867 $ 774
======= =======
Long-term debt, less current maturities..................... $25,540 $ 230
------- -------
Shareholders' equity:
Preferred Stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common Stock, $0.01 par value; 100,000,000 shares
authorized; no shares issued and outstanding; 3,350,000
shares issued and outstanding as adjusted(1)........... -- 33
Class B Common Stock, $0.01 par value; 15,000,000 shares
authorized; 5,126,904 shares issued and outstanding;
4,710,237 shares issued and outstanding as
adjusted(2)............................................ 47 47
Capital in excess of par value............................ 197 31,650
Retained earnings......................................... 14,641 14,641
------- -------
Total shareholders' equity........................ 14,885 46,371
------- -------
Total capitalization.............................. $40,425 $46,601
======= =======
</TABLE>
- ---------------
(1) Excludes (i) 1,500,000 shares of Common Stock reserved for issuance under
the Company's 1997 Stock Option Plan, (ii) 150,000 shares of Common Stock
reserved for issuance under the Company's Non-Employee Director Stock Option
Plan and (iii) 800,000 shares of Common Stock the Company intends to reserve
for issuance under a planned stock option offer program for franchisees. See
"Management -- Stock Option Plans."
(2) Excludes (i) 2,599,238 shares of Class B Common Stock issuable pursuant to
outstanding options under the Company's 1996 Stock Option Plan at a weighted
average exercise price of $3.85 per share, (ii) 357,974 shares of Class B
Common Stock issuable pursuant to options to be granted under the 1996 Stock
Option Plan at the initial public offering price upon completion of this
offering and (iii) an additional 21,075 shares of Class B Common Stock
reserved for issuance under the 1996 Stock Option Plan. See
"Management -- Stock Option Plans."
13
<PAGE> 15
DILUTION
The net tangible book value (deficit) of the Company at September 30, 1997,
was $(6.4) million, or $(1.24) per Common Share. Net tangible book value
(deficit) per share is determined by dividing the Company's tangible net worth
(total tangible assets less total liabilities) by the total number of Common
Shares outstanding. After giving effect to the sale by the Company of the
2,933,333 shares of Common Stock to be sold by the Company in this offering at
an assumed initial offering price of $12.00 per share and the application of the
net proceeds as set forth under "Use of Proceeds," the Company's net tangible
book value at September 30, 1997, would have been $25.1 million, or $3.11 per
share. This represents an immediate increase in net tangible book value of $4.35
per share to existing shareholders and an immediate dilution of $8.89 per share
to new investors purchasing shares of Common Stock in this offering. The
following table illustrates this dilution per share of Common Stock:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common
Stock.................................................... $12.00
Net tangible book value (deficit) per Common Share before
this offering............................................ $(1.24)
Increase per Common Share attributable to new investors.... $ 4.35
------
Pro forma net tangible book value per Common Share after
this offering............................................ $ 3.11
------
Dilution in net tangible book value per share of Common
Stock to new investors................................... $ 8.89
======
</TABLE>
The following table sets forth, on an as adjusted basis as of September 30,
1997, the difference between the Common Shares purchased from the Company by
officers, directors and affiliated persons or entities in the preceding five
years (or which they have the right to acquire) and by new investors in the
offering, including the number of Common Shares purchased, the total cash
consideration and the average price per share paid by the officers and directors
and affiliates and by the new investors (assuming an initial offering price of
$12.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION(1) AVERAGE
------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Officers, directors and
affiliates..................... 2,599,238 47.0% $10,016,939 22.2% $ 3.85
New investors.................... 2,933,333 53.0% 35,199,996 77.8% $ 12.00
--------- ------ ----------- ------
5,532,571 100.0% $45,216,935 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Consists solely of 2,599,238 shares of Class B Common Stock issuable
pursuant to outstanding options granted to certain of the officers and
directors under the 1996 Stock Option Plan at a weighted average exercise
price of $3.85 per share and assumes the exercise of these options. Excludes
357,974 shares of Class B Common Stock issuable pursuant to options to be
granted under the 1996 Stock Option Plan at the initial public offering
price upon completion of this offering. See "Management -- Stock Option
Plans."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
The selected historical financial data presented below for the years ended
May 31, 1992, 1993 and 1994, the seven months ended December 31, 1994, and the
years ended December 31, 1995 and 1996, is derived from the Consolidated
Financial Statements of the Company, which have been audited by Grant Thornton
LLP, independent certified public accountants. The consolidated financial data
for the nine months ended September 30, 1996 and 1997, is derived from the
unaudited historical consolidated financial statements. In the opinion of the
Company, the unaudited consolidated financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the financial position and results of operations for the
unaudited periods. The results of operations for the nine months ended September
30, 1996 and 1997, are not necessarily indicative of the results to be expected
for a full year. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEVEN FISCAL NINE MONTHS
FISCAL YEAR MONTHS YEAR ENDED ENDED
ENDED MAY 31, ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ DECEMBER 31, ------------------- -------------------
1992 1993 1994 1994 1995 1996(1) 1996(1) 1997
-------- -------- -------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues.............................. $ 19,023 $ 30,360 $ 70,202 $ 59,309 $122,701 $168,602 $116,864 $165,686
Cost of services...................... 8,260 16,330 47,456 40,221 87,943 122,945 83,957 123,964
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit.................. 10,763 14,030 22,746 19,088 34,758 45,657 32,907 41,722
Selling, general and administrative
expenses............................ 11,878 11,832 14,116 8,859 15,384 19,600 13,624 20,421
Franchises' share of gross
profit(2)........................... -- 2,023 8,648 8,659 14,682 19,587 14,835 15,772
-------- -------- -------- -------- -------- -------- -------- --------
Operating profit (loss)....... (1,115) 175 (18) 1,570 4,692 6,470 4,448 5,529
Interest expense...................... 46 34 66 71 379 1,100 602 1,885
Other income.......................... 523 432 348 63 97 105 54 698
-------- -------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes... (638) 573 264 1,562 4,410 5,475 3,900 4,342
Income tax expense (benefit).......... (137) 263 152 704 1,720 2,161 1,564 1,727
-------- -------- -------- -------- -------- -------- -------- --------
Net earnings (loss)................... $ (501) $ 310 $ 112 $ 858 $ 2,690 $ 3,314 $ 2,336 $ 2,615
======== ======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per Common
Share............................... $ (0.07) $ 0.04 $ 0.02 $ 0.12 $ 0.38 $ 0.48 $ 0.33 $ 0.38
======== ======== ======== ======== ======== ======== ======== ========
Weighted average Common Shares
outstanding......................... 7,121 7,118 7,068 7,012 7,007 6,966 6,982 6,909
======== ======== ======== ======== ======== ======== ======== ========
SELECTED OPERATING DATA:
System-wide sales (in thousands)(3)... $117,693 $175,747 $225,270 $166,340 $318,858 $372,999 $273,282 $324,932
Hours billed (in thousands)(4)........ -- 1,181 5,016 5,058 9,526 13,141 9,300 13,345
Average bill rate(4).................. -- $ 10.20 $ 10.60 $ 10.54 $ 11.29 $ 11.44 $ 11.57 $ 11.90
Gross margin per flexible
employee(4)......................... -- 23.4% 24.6% 23.9% 23.8% 23.2% 23.6% 22.3%
Number of branch locations(5)(6)...... 1 1 2 7 9 29 19 29
Number of franchise locations(5)...... 271 253 248 248 274 277 276 289
</TABLE>
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
--------------------------- --------------------------- SEPTEMBER 30,
1992 1993 1994 1994 1995 1996 1997
------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 3,155 $ 3,860 $ 4,763 $ 4,925 $ 5,466 $ 8,346 $ 13,943
Total assets.......................................... 10,954 12,638 15,579 16,015 23,079 52,055 55,302
Total debt............................................ 1,000 475 1,250 1,917 4,776 29,301 27,407
Shareholders' equity.................................. 5,508 5,796 5,793 6,649 9,332 12,326 14,885
</TABLE>
- ---------------
(1) In 1996, the Company made two significant acquisitions, each of which was
accounted for by the purchase method. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business -- Acquisitions" and the pro forma condensed statement of earnings
appearing elsewhere in this Prospectus.
(2) The Company has two types of franchises for purposes of flexible staffing
services revenue recognition. With the first type, the Company records
franchise royalties, based on a contractual percentage of flexible staffing
services billings, in the period in which the franchise collects for the
services provided. The second type of franchises participate in the
Company's pay/bill processing program. With the second type, the Company has
a direct contractual relationship with the clients for the services, holds
title to the related receivables and is the legal employer of the flexible
staffing employees. Revenues generated by these franchises and the related
direct costs of services are included as part of the Company's revenues and
costs of services in the period in which the services are provided. The net
distribution paid to franchises participating in the pay/bill processing
program is an operating expense recorded by the Company as franchises' share
of gross profit and is based on either a percentage of the flexible staffing
services billings or a percentage of the gross profit generated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Organization -- Franchises" and
"Business -- Operations -- Pay/Bill Processing Services."
(3) System-wide sales are equal to the aggregate revenues of all franchise
locations and Company-owned branch locations during the period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Includes franchise locations participating in the Company's pay/bill
processing program and Company-owned branch locations. See "Business --
Operations -- Pay/Bill Processing Services."
(5) In operation at the end of the period presented.
(6) Branches consist of Company-owned branch locations (including a California
subsidiary, the assets of which were sold in January 1997) and exclude
franchise locations.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Consolidated Financial and Operating Data and the Company's Consolidated
Financial Statements included elsewhere herein.
GENERAL
Snelling is a leading national provider of staffing solutions primarily
targeted to small and mid-sized businesses. As of September 30, 1997, the
Company operated through a network of 289 franchise locations and 29
Company-owned branch locations in 42 states, the District of Columbia, and
Puerto Rico, as well as three foreign countries, and had executed an agreement
for the opening of one additional franchise location. The Company provides
flexible staffing personnel for office, clerical and light industrial services.
The Company also offers career placement services in a number of fields,
including accounting and finance, engineering, health care, law, manufacturing,
management information systems and office, sales, marketing and technical
services. Flexible staffing services (which include traditional flexible
staffing, single-source management and temp-to-hire) accounted for approximately
90%, and career placement services accounted for approximately 10%, of the
Company's total system-wide sales for both the year ended December 31, 1996, and
the nine months ended September 30, 1997.
The Company receives revenues from (i) flexible staffing and career
placement services provided through Company-owned branch locations, (ii)
flexible staffing services provided through franchise locations participating in
the Company's pay/bill processing program and (iii) franchising activities.
Revenues from flexible staffing and career placement services through branch
locations and revenues from flexible staffing services through franchise
locations participating in the Company's pay/bill processing program are
recognized at the time the services are provided. Revenues from franchising
activities consist of initial franchise fees and royalties. Franchise fee
revenues from the sale of franchises are recognized when the franchise begins
operations and a substantial portion of the initial franchise fees are received.
The Company records royalty revenues based on a contractual percentage of the
franchise's cash receipts with respect to (i) flexible staffing services
provided by franchises that do not participate in the Company's pay/bill
processing program and (ii) career placement services provided by any
franchisee. From 1994 through September 30, 1997, revenues from franchising
activities declined as a percentage of total revenues, and the Company believes
that this trend will continue as the Company increases the number of branch
locations and the number of franchise locations participating in the Company's
pay/bill processing program.
In 1990, the Company expanded its services available to franchises to
include pay/bill processing services related to their offering of flexible
staffing services. As a result, the Company has two types of franchises for
purposes of flexible staffing services revenue recognition. With the first type,
the Company records franchise royalties, based on a contractual percentage of
flexible staffing services billings, in the period in which the franchise
collects for the services provided. The second type of franchises participate in
the Company's pay/bill processing program. With the second type, the Company has
a direct contractual relationship with the clients for the services, holds title
to the related receivables and is the legal employer of the flexible staffing
employees. Revenues generated by these franchises and the related direct costs
of services are included as part of the Company's revenues and costs of services
in the period in which the services are provided. The net distribution paid to
franchises participating in the pay/bill processing program is an operating
expense recorded by the Company as franchises' share of gross profit and is
based on either a percentage of the flexible staffing services billings or a
percentage of the gross profit generated. As of September 30, 1997, 130
franchise locations, representing approximately 45% of all franchise locations,
and all branch locations were participating in the Company's pay/bill processing
program. See "Business -- Organization -- Franchises" and
"Business -- Operations -- Pay/Bill Processing Services."
For branch locations and those franchises that participate in the pay/bill
processing program, personnel placed in flexible staffing positions are
employees of the Company. The Company is responsible for the direct costs of the
flexible staffing revenues, including payroll, workers' compensation insurance,
unemployment taxes, FICA and Medicare taxes, other payroll taxes, other general
payroll expenses and commissions. In most
16
<PAGE> 18
circumstances, the Company does not provide health, dental, life or other
insurance benefits to the flexible staffing employees. The Company typically
bills clients for the hourly wages paid to these employees, plus a negotiated
markup. The agreement with the client may also allow for the pass-through of
increases in employee-related expenses, such as workers' compensation insurance
and unemployment taxes. Since the Company generally pays these employees only
for the hours which they actually work, wages and related expenses for flexible
staffing employees are variable costs which fluctuate directly with the related
revenues reported by the Company.
Gross margins for branch locations and for franchise locations
participating in the Company's pay/bill processing program declined in 1995 and
the first nine months of 1997 and remained relatively unchanged from 1995 to
1996. These trends are primarily due to an increase in the proportion of the
Company's revenues attributable to light industrial services, which are
traditionally subject to lower markups and margins. Although an increase or
decrease in the gross margin for these franchise locations affects the Company's
overall gross margin, there is no material impact on the Company's operating
income as a percentage of total revenues. Such changes result in approximately
offsetting increases or decreases in franchises' share of gross profit, an
operating expense.
GROWTH AND EXPANSION
In recent years, the Company has expanded its operations through internal
growth, acquisitions and the sale of new franchises. System-wide sales have
increased from $263.1 million for the twelve months ended December 31, 1994, to
$373.0 million for the year ended December 31, 1996, representing a compound
annual growth rate of approximately 19%.
From January 1, 1994, through September 30, 1997, the Company established a
net total of 29 branch locations through the acquisition of seven locations from
independent staffing companies, the acquisition of 20 locations from existing
franchises, the opening of five new locations, the consolidation of three
locations and the sale of substantially all the assets of its California
subsidiary. Of the 29 branch locations, 10 were acquired or opened in the last
three months of 1996. All acquisitions completed by the Company have been
accounted for under the purchase method of accounting. The Consolidated
Financial Statements include the operating results of the acquired businesses
from the date of acquisition. Subsequent to September 30, 1997, the Company
acquired one location from an independent staffing company and one franchise
location and has a pending acquisition of another independent staffing location
currently scheduled to be completed in December 1997.
The Company has also expanded by continuing to franchise in certain select
markets. During the years ended December 31, 1995 and 1996, and the nine months
ended September 30, 1997, the Company added a net total of 26, three and 12
franchise locations, respectively. As of September 30, 1997, the Company had
executed an agreement for one additional franchise location to be opened by
December 31, 1997.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the indicated periods certain historical
financial data derived from the Consolidated Financial Statements and indicates
the percentage of total revenues represented by each item.
<TABLE>
<CAPTION>
TWELVE MONTHS FISCAL YEAR ENDED DEC. 31, NINE MONTHS ENDED SEPTEMBER 30,
ENDED --------------------------------------- ---------------------------------------
DEC. 31, 1994 1995 1996 1996 1997
----------------- ------------------ ------------------ ------------------ ------------------
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $91,920 100.0% $122,701 100.0% $168,602 100.0% $116,864 100.0% $165,686 100.0%
Cost of services......... 62,702 68.2 87,943 71.7 122,945 72.9 83,957 71.8% 123,964 74.8%
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Gross profit........... 29,218 31.8 34,758 28.3 45,657 27.1 32,907 28.2% 41,722 25.2%
Selling, general and
administrative
expenses............... 15,290 16.6 15,384 12.5 19,600 11.7 13,624 11.7% 20,421 12.3%
Franchises' share of
gross profit........... 12,831 14.0 14,682 12.0 19,587 11.6 14,835 12.7% 15,772 9.5%
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Operating profit....... 1,097 1.2 4,692 3.8 6,470 3.8 4,448 3.8% 5,529 3.4%
Interest expense......... 102 0.1 379 0.3 1,100 0.6 602 0.5% 1,885 1.2%
Other income............. 197 0.2 97 0.1 105 0.1 54 -- 698 0.4%
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Earnings before income
taxes................ 1,192 1.3 4,410 3.6 5,475 3.3 3,900 3.3% 4,342 2.6%
Income tax expense....... 537 0.6 1,720 1.4 2,161 1.3 1,564 1.3% 1,727 1.0%
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net earnings............. $ 655 0.7% $ 2,690 2.2% $ 3,314 2.0% 2,336 2.0% 2,615 1.6%
======= ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenues. Total revenues were $165.7 million for the first nine months of
1997 compared to $116.9 million for the same period in 1996, an increase of
41.8%. Revenues from branch locations increased 128.9% to $55.8 million in the
1997 period from $24.4 million in the 1996 period. This substantial increase in
branch revenues was attributable to a combination of internal sales growth and
acquisitions, which resulted in an increase in the number of branches to 29
locations at September 30, 1997, up from nine locations at December 31, 1995.
Flexible staffing revenues from franchise locations participating in the
Company's pay/bill processing program increased 19.7% to $103.6 million in the
first nine months of 1997 from $86.5 million in the 1996 period. Revenues from
franchising activities increased to $6.1 million in the first nine months of
1997 from $5.7 million for the prior period. This increase in revenues from both
branch and franchise locations reflected increased sales and marketing
activities and strong market conditions.
Gross Profit. Gross profit for the first nine months of 1997 was $41.7
million compared to $32.9 million in the first nine months of 1996, an increase
of 26.8%. The gross margin for the first nine months of 1997 was 25.2% compared
with 28.2% for the 1996 period. The decrease in gross margin is primarily
attributable to three factors: (i) the decrease in revenues from franchising
activities, which have only minimal associated costs, as a percentage of total
revenues; (ii) the implementation of a national accounts program on a limited
basis; and (iii) an increase in the proportion of the Company's revenues
attributable to light industrial services. These factors were partially offset
by the Company's continued emphasis on reducing costs, especially the costs of
risk management and unemployment taxes. Favorable risk management trends
resulted in a reduction in cost of services of approximately $1.5 million and
$0.3 million for the first nine months of 1997 and 1996, respectively. The
reduction was principally attributable to improved claims experience on workers'
compensation and other insurance coverages.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first nine months of 1997 totaled $20.4 million
compared to $13.6 million in the first nine months of 1996, an increase of
49.9%. As a percentage of total revenues, selling, general and administrative
expenses for the first nine months of 1997 were 12.3% compared to 11.7% in the
1996 period. Of the increase in selling, general and administrative expenses in
the 1997 period, approximately $4.3 million was directly attributable to the 18
new branch locations opened or acquired since June 30, 1996. The remainder was
primarily due to continued infrastructure development relating to the
implementation of new information systems and technology.
18
<PAGE> 20
Franchises' Share of Gross Profit. Franchises' share of gross profit
increased to $15.8 million for the first nine months of 1997 from $14.8 million
in the 1996 period. This increase was the result of an increase in flexible
staffing revenues from franchise locations participating in the pay/bill
processing program.
Interest Expense. Interest expense increased to $1.9 million for the first
nine months of 1997 from $0.6 million in the 1996 period, an increase of 213.1%.
The increase is primarily due to borrowings related to acquisitions with an
aggregate purchase price of $17.4 million, which were completed between
September and December 1996 and to additional working capital requirements as a
result of the rapid increase in total revenues. Substantially all of the
Company's indebtedness will be repaid with the net proceeds of this offering.
This is expected to result in a substantial reduction in interest expense
beginning in the first quarter of 1998. The Company's management does not expect
the significant percentage increase in interest expense to continue in future
periods.
Other Income. Other income for the first nine months of 1997 included a
gain of approximately $0.7 million resulting from the January 1997 sale of
substantially all of the assets of a subsidiary that provided union personnel
for flexible staffing assignments at chemical and refinery operations in
California (the "California subsidiary").
Income Tax Expense. Income tax expense was $1.7 million (an effective rate
of 39.8%) for the first nine months of 1997 compared with $1.6 million (an
effective rate of 40.1%) for the 1996 period. See Note (9) to the Consolidated
Financial Statements for an explanation of the decrease in the effective income
tax rate.
Net Earnings. Net earnings for the nine months ended September 30, 1997,
were $2.6 million compared with $2.3 million for the same period in 1996, an
increase of 12.0%. Net earnings as a percentage of total revenues decreased to
1.6% in the 1997 period from 2.0% in the 1996 period.
FISCAL YEAR ENDED DECEMBER 31, 1996, COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1995
Revenues. Total revenues were $168.6 million for 1996 compared to $122.7
million for 1995, an increase of 37.4%. Revenues from branch locations increased
73.4% to $39.0 million in 1996 from $22.5 million in 1995. This substantial
increase in branch revenues was attributable to a combination of internal sales
growth and acquisitions, which resulted in an increase in the number of branches
to 29 locations at December 31, 1996, up from nine locations at the end of 1995.
Flexible staffing revenues from franchise locations participating in the
Company's pay/bill processing program increased 31.2% to $121.1 million in 1996
from $92.3 million in 1995. Revenues from franchising activities increased to
$8.2 million in 1996 from $7.8 million for 1995. This increase in revenues from
both branch and franchise locations reflected increased sales and marketing
activities and strong market conditions.
Gross Profit. Gross profit for 1996 was $45.7 million compared to $34.8
million in 1995, an increase of 31.4%. The gross margin for 1996 was 27.1%
compared with 28.3% for 1995. The decrease in gross margin is primarily
attributable to two factors: (i) the decrease in revenues from franchising
activities, which have only minimal associated costs, as a percentage of total
revenues; and (ii) the implementation of a national accounts program on a
limited basis. These factors were partially offset by the Company's emphasis on
reducing costs, especially the costs of risk management and unemployment taxes,
along with improved pricing of services to clients. Favorable risk management
trends resulted in a reduction in cost of services of approximately $0.5 million
for 1996, which was primarily attributable to improved claims experience on
workers' compensation and other insurance coverages. No similar reduction
occurred in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 totaled $19.6 million compared to $15.4 million
in 1996, an increase of 27.4%. As a percentage of total revenues, selling,
general and administrative expenses for 1996 were 11.7% compared to 12.5% in
1995. This decrease in selling, general and administrative expenses as a
percentage of total revenues reflected increased operating leverage as a result
of the Company's investments in information systems and technology. Of the
increase in selling, general and administrative expenses in 1996, approximately
$3.0 million was directly attributable to the increase in the number of branch
locations, including the hiring of new personnel. The
19
<PAGE> 21
remainder was primarily due to continued infrastructure development relating to
the implementation of new information systems and technology.
Franchises' Share of Gross Profit. Franchises' share of gross profit
increased to $19.6 million for 1996 from $14.7 million in 1995. This increase
was the result of an increase in flexible staffing revenues from franchise
locations participating in the pay/bill processing program.
Interest Expense. Interest expense increased to $1.1 million in 1996 from
$0.4 million in 1995, an increase of 190.4%. The increase was primarily due to
additional borrowings related to acquisitions and working capital requirements
as a result of the rapid increase in total revenues.
Income Tax Expense. Income tax expense was $2.2 million (an effective rate
of 39.5%) for 1996 compared with $1.7 million (an effective rate of 39.0%) for
1995. See Note (9) to the Consolidated Financial Statements for an explanation
of the increase in the effective income tax rate.
Net Earnings. Net earnings for 1996 were $3.3 million compared with $2.7
million in 1995, an increase of 23.2%. Net earnings as a percentage of total
revenues decreased to 2.0% in 1996 from 2.2% in 1995.
FISCAL YEAR ENDED DECEMBER 31, 1995, COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1994
Revenues. Total revenues were $122.7 million for 1995 compared to $91.9
million for 1994, an increase of 33.5%. Revenues from branch locations increased
72.8% to $22.5 million in 1995 from $13.0 million in 1994. This substantial
increase in branch revenues is attributable to a combination of internal sales
growth and the full-year effect in 1995 of the acquisition of five franchise
locations in late 1994, as well as a net addition of two branch locations during
1995. At December 31, 1995, the Company had nine branch locations compared to
seven branch locations at the end of 1994. Flexible staffing revenues from
franchise locations participating in the Company's pay/bill processing program
increased 28.6% to $92.3 million in 1995 from $71.8 million in 1994. Revenues
from franchising activities increased to $7.8 million in 1995 from $6.6 million
in 1994. This increase in revenues from both branch and franchise locations
reflected increased sales and marketing activities and strong market conditions.
Gross Profit. Gross profit for 1995 was $34.8 million compared to $29.2
million in 1994, an increase of 19.0%. The gross margin for 1995 was 28.3%
compared with 31.8% for 1994. The decrease in gross margin is primarily
attributable to three factors: (i) an increase in the proportion of the
Company's revenues attributable to light industrial services; (ii) declining
performance by the California subsidiary, the assets of which were sold in
January 1997; and (iii) the decrease in revenues from franchising activities,
which have only minimal associated costs, as a percentage of total revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1995 totaled $15.4 million compared to $15.3 million
in 1994. As a percentage of total revenues, selling, general and administrative
expenses for 1995 were 12.5% compared to 16.6% in 1994. This decrease in
selling, general and administrative expenses as a percentage of total revenues
reflected increased operating leverage as a result of the Company's investments
in information systems and technology and an overall effort by the Company with
respect to cost control and reduction. The level of selling, general and
administrative expenses was relatively unchanged in 1995 despite the full-year
effect of 1994 acquisitions and additional acquisitions in 1995.
Franchises' Share of Gross Profit. Franchises' share of gross profit
increased to $14.7 million for 1995 from $12.8 million in 1994. This increase
was the result of an increase in flexible staffing revenues from franchise
locations participating in the pay/bill processing program.
Interest Expense. Interest expense increased to $0.4 million in 1995 from
$0.1 million in 1994, an increase of 271.6%. The increase was primarily due to
additional working capital requirements as a result of the rapid increase in
total revenues, the use of capitalized leases to finance certain capital
expenditures and borrowings related to acquisitions.
Income Tax Expense. Income tax expense was $1.7 million (an effective rate
of 39.0%) for 1995 compared with $0.5 million (an effective rate of 45.1%) for
1994. See Note (9) to the Consolidated Financial Statements for an explanation
of the increase in the effective income tax rate.
20
<PAGE> 22
Net Earnings. Net earning for 1995 were $2.7 million compared with $0.7
million in 1994, an increase of 310.9%. Net earnings as a percentage of total
revenues increased to 2.2% in 1995 from 0.7% in 1994.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth selected quarterly unaudited financial
information for 1995, 1996 and the nine months ended September 30, 1997. The
Company believes that such information reflects all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the information set
forth below. The operating results for any quarter are not necessarily
indicative of the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------
1995 1996
--------------------------------------- ---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $24,161 $26,411 $28,120 $44,009 $33,740 $39,303 $43,821 $51,738
Cost of services......... 16,785 18,514 20,272 32,372 24,209 28,159 31,589 38,988
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 7,376 7,897 7,848 11,637 9,531 11,144 12,232 12,750
Selling, general and
administrative
expenses................ 3,663 3,778 3,879 4,064 4,262 4,615 4,747 5,976
Franchises' share of
gross profit............ 3,106 2,879 2,686 6,011 4,320 4,999 5,516 4,752
------- ------- ------- ------- ------- ------- ------- -------
Operating profit........ 607 1,240 1,283 1,562 949 1,530 1,969 2,022
Interest expense......... 45 104 115 115 149 235 218 498
Other income............. 23 18 28 28 21 23 10 51
------- ------- ------- ------- ------- ------- ------- -------
Earnings before income
taxes................. 585 1,154 1,196 1,475 821 1,318 1,761 1,575
Income tax expense....... 265 479 465 511 327 521 716 597
------- ------- ------- ------- ------- ------- ------- -------
Net earnings............. $ 320 $ 675 $ 731 $ 964 $ 494 $ 797 $ 1,045 $ 978
======= ======= ======= ======= ======= ======= ======= =======
Net earnings per Common
Share................... $ 0.05 $ 0.09 $ 0.11 $ 0.13 $ 0.07 $ 0.11 $ 0.15 $ 0.15
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
-----------------------------
1997
-----------------------------
MARCH 31 JUNE 30 SEPT. 30
-------- ------- --------
<S> <C> <C> <C>
Revenues................. $49,479 $56,901 $59,306
Cost of services......... 37,124 42,316 44,524
------- ------- -------
Gross profit............ 12,355 14,585 14,782
Selling, general and
administrative
expenses................ 6,634 6,960 6,827
Franchises' share of
gross profit............ 4,676 5,400 5,696
------- ------- -------
Operating profit........ 1,045 2,225 2,259
Interest expense......... 629 629 627
Other income............. 684 7 7
------- ------- -------
Earnings before income
taxes................. 1,100 1,603 1,639
Income tax expense....... 434 643 650
------- ------- -------
Net earnings............. $ 666 $ 960 $ 989
======= ======= =======
Net earnings per Common
Share................... $ 0.10 $ 0.14 $ 0.14
======= ======= =======
</TABLE>
The volume of career placement services provided by the Company's franchise
and branch locations tends to fluctuate directly with general economic trends,
with volume increasing during periods of economic growth and declining or
growing at a slower pace during recessionary periods. Flexible staffing
services, although affected to some extent, are less subject to fluctuation
based on the overall economy than career placement services. The Company has,
however, historically been subject to quarterly and seasonal fluctuations in
demand for flexible staffing services, especially as a result of summer and
holiday employment trends. Revenues from flexible staffing services and related
net earnings are generally at their lowest levels during the first quarter of
the year and increase throughout the remainder of the year, peaking in the last
two quarters of the year. While the staffing industry is cyclical, the Company
believes that the broad geographic coverage of its operations and the diversity
of services it provides generally mitigate the adverse effects of economic
cycles in a single industry or geographic region.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $13.9 million, $8.3 million and $5.5
million at September 30, 1997, December 31, 1996 and December 31, 1995,
respectively. The Company's cash flow and working capital requirements are
affected primarily by the payment of wages to flexible staffing employees, who
are paid weekly, and by the receipt of payments from clients, which are
generally received 30 to 60 days after billing. Because of seasonal
fluctuations, accounts receivable are historically higher during the fourth
quarter of the fiscal year and are generally at their lowest level during the
first fiscal quarter.
The Company's operating activities used net cash of $1.0 million in the
nine months ended September 30, 1997, and $2.8 million in 1996, and provided net
cash of $0.1 million in 1995. The negative cash flow from operating activities
in 1996 and the first nine months of 1997 relates primarily to the additional
investment in
21
<PAGE> 23
working capital (accounts receivable and prepaid expenses) resulting from the
increase in the number of branch locations during 1996 and the additional
working capital required to fund the increased volume of franchises' flexible
staffing services processed through the Company's pay/bill processing program.
The Company has historically met its cash requirements through a combination of
internally generated funds and bank debt.
Investing activities of the Company provided net cash of $0.7 million in
the first nine months of 1997 and used net cash of $11.7 million in 1996 and
$3.5 million in 1995. For 1997, investing activities included approximately $1.9
million received upon the sale of the California subsidiary. During the first
nine months of 1997, in 1996 and in 1995, the Company invested in acquisitions
with an aggregate purchase price (plus related expenses) of $0.9 million, $19.3
million and $1.4 million, respectively. The aggregate purchase price (plus
related expenses) for the 1996 acquisitions included cash payments of $9.8
million, $7.5 million of which was funded under the acquisition facility of the
Company's Senior Credit Facility. The balance was funded from internal cash flow
and the revolving facility of the Senior Credit Facility. Seller-financed debt
was utilized for the remaining $9.5 million of the aggregate purchase price in
1996. The Company also had capital expenditures of $0.3 million, $2.0 million
and $2.5 million during the first nine months of 1997, in 1996 and in 1995,
respectively. These capital expenditures primarily related to the development of
the Company's new integrated management information system and the upgrading of
the hardware required to support the system. The total cost of the project is
currently estimated at $9.0 million, $6.1 million of which had already been
expended as of September 30, 1997. The remaining cost of the project is expected
to be funded through a combination of internally generated cash, operating
leases and borrowings under the Senior Credit Facility throughout 1997 and 1998.
The Company's financing activities provided net cash of $0.4 million for
the first nine months of 1997 and $14.7 million and $3.5 million in 1996 and in
1995, respectively, as a result of advances under its Senior Credit Facility in
the 1997 period and 1996 and advances under a previous revolving credit line in
1995.
During 1996, the Company negotiated its Senior Credit Facility, which
expires in January 2001, with BankBoston, N.A. ("BankBoston"). The Senior Credit
Facility, which was amended in June and July 1997, currently provides for a
maximum revolving facility of $22.5 million (based on the Company's eligible
receivables) and an acquisition facility of $25.0 million. The Company's ability
to request additional advances under the acquisition facility terminates on
January 31, 1998. Mandatory repayment of amounts borrowed under the Senior
Credit Facility is based on excess cash flow (as defined in the Senior Credit
Facility) for the acquisition facility and on the daily available bank clearings
for the revolving facility. Mandatory quarterly repayments based on a five-year
amortization are also required for the acquisition facility. However, all
payments due on the acquisition facility are required to be funded from the
revolving facility. Optional prepayments are allowed, and any remaining unpaid
balance on either facility is due in January 2001. At the Company's option,
interest is calculated based on a combination of the following: (i) BankBoston's
base rate or the London Interbank Offered Rate ("LIBOR") plus (ii) from 0.5% to
3.0% depending on the facility and certain financial ratios of the Company. At
September 30, 1997, the Company had approximately $21.1 million in principal
amount outstanding under the Senior Credit Facility, of which $8.1 million was
outstanding under the revolving facility and $13.0 million was outstanding under
the acquisition facility. Subsequent to September 30, 1997, the Company acquired
one independent staffing location and one franchise location and used the Senior
Credit Facility to finance $5.0 million of the aggregate purchase price. The
average rate at September 30, 1997, was 8.69% on the acquisition facility and
8.37% on the revolving facility. The Senior Credit Facility requires the Company
to pay a commitment fee from 0.375% to 0.500% per annum on the unused amount of
the credit line. As of September 30, 1997, the Company had $20.2 million of
availability on the Senior Credit Facility. The Senior Credit Facility also
includes financial covenants regarding the Company's working capital,
consolidated net worth, earnings coverage to debt, interest and fixed charges
and limitations on annual capital expenditures. Borrowings under the Senior
Credit Facility are collateralized by substantially all of the Company's assets,
along with an agreement that provides for the pledge by certain shareholders of
the Company of at least 50% of the voting power of the outstanding Common
Shares. The Company intends to repay the outstanding principal balance and
accrued and unpaid interest under the revolving facility and the acquisition
facility with net proceeds from the offering. See "Use of Proceeds."
22
<PAGE> 24
The Company has received a written commitment from NationsBank of Texas,
N.A., ("NationsBank") for a new $75.0 million senior revolving credit facility
(the "New Credit Facility"), which the Company intends to use to replace the
Senior Credit Facility. The New Credit Facility is expected to have a three-year
term and include a $15.0 million sublimit for the issuance of standby and
commercial letters of credit. The Company anticipates that the New Credit
Facility will be secured by all of the Company's assets and the capital stock of
the Company's subsidiaries. Interest is anticipated to be at a rate equal to (i)
LIBOR plus an applicable margin charge or (ii) an alternative base rate, which
is the higher of NationsBank's prime lending rate and the Federal Funds rate
plus an applicable margin charge. The New Credit Facility will include customary
affirmative, negative and financial covenants, including a prohibition or
restriction on the payment of dividends on any Common Shares. The New Credit
Facility is subject to the execution of definitive agreements and the
satisfaction of customary closing conditions. There can be no assurance that the
Company will be successful in finalizing the definitive agreements and obtaining
the New Credit Facility or that, if obtained, the New Credit Facility will be on
the same terms as set forth in the written commitment.
The Company's acquisition program will continue to require significant
additional capital resources. The Company intends to seek capital as necessary
to fund acquisitions through one or more funding sources that may include bank
financing or the issuance of debt or equity securities or both. Cash flow from
operating activities, to the extent available, may also be used to fund
acquisitions. Although management believes that the Company will be able to
obtain sufficient capital to fund acquisitions, there can be no assurance that
sufficient capital will be available to the Company at the time it is required
or on terms acceptable to the Company. The Company currently has no plans,
arrangements or understandings, and is not participating in any negotiations,
with respect to any material acquisitions.
The Company believes that the net proceeds from this offering, combined
with internally generated cash flow and borrowings under its Senior Credit
Facility, or the New Credit Facility if obtained, will satisfy working capital
and capital expenditure requirements for the foreseeable future.
INFLATION
The Company believes the effects of inflation have not had a significant
impact on the results of operations or financial condition.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997; earlier application is not permitted.
SFAS No. 128 requires restatement of all prior-period EPS data presented. The
Company does not believe that the adoption of SFAS No. 128 will have a material
effect on the Company's earnings per share.
23
<PAGE> 25
BUSINESS
GENERAL
Snelling is a leading national provider of staffing solutions primarily
targeted to small and mid-sized businesses. As of September 30, 1997, the
Company operated as Snelling(R) Personnel Services through a network of 289
franchise locations and 29 Company-owned branch locations in 42 states, the
District of Columbia and Puerto Rico, as well as three foreign countries, and
had executed an agreement for the opening of one additional franchise location.
The majority of the Company's franchise and branch locations offer the Company's
clients integrated, full-service staffing solutions by providing traditional
flexible staffing, single-source management, temp-to-hire, career placement and
other staffing services from each location.
Founded in 1951, the Company currently provides flexible staffing personnel
for office, clerical and light industrial services. The Company also offers
career placement services in a number of fields, including accounting and
finance, engineering, health care, law, manufacturing, management information
systems and office, sales, marketing and technical services. Flexible staffing
services (which include traditional flexible staffing, single-source management
and temp-to-hire) accounted for approximately 90%, and career placement services
accounted for approximately 10%, of the Company's total system-wide sales for
both the year ended December 31, 1996, and for the nine months ended September
30, 1997.
The Company supports its franchises and branches with a number of corporate
programs, including ongoing training programs, management information systems
support and risk management services. The Company also provides its franchises
and branches with pay/bill processing services to support payroll and billing
activities and working capital needs related to their offering of flexible
staffing services.
INDUSTRY
The staffing industry has experienced rapid growth over the past decade as
a result of economic trends and changing approaches to staffing and employment.
According to Staffing Industry Report(R), the U.S. staffing industry has grown
from an estimated $31.4 billion in sales in 1991 to an estimated $74.4 billion
in 1996, representing a compound annual growth rate of approximately 19%. Based
on this information, 1996 sales generated by flexible staffing accounted for 66%
of the overall staffing market, PEOs accounted for 23% and career placement
accounted for 11%. According to Staffing Industry Report(R), estimated sales for
flexible staffing have increased (in approximate numbers) from $21.8 billion in
1991 to $49.0 billion in 1996, representing a compound annual growth rate of
18%. Traditional flexible staffing for office, clerical and industrial services
grew from approximately $12.1 billion in sales in 1991 to approximately $26.4
billion in 1996, representing a compound annual growth rate of 17%.
The use of flexible staffing, the largest staffing category, has become
widely accepted by businesses as a valuable tool for managing personnel costs,
supplementing full-time workforces, meeting specialized or fluctuating
employment requirements and selectively recruiting permanent employees through a
temp-to-hire evaluation process. Vacations, illness, resignations and periodic
fluctuations in work volume have historically created demand for flexible
staffing. More recently, the growing cost and difficulty of hiring, laying off
and terminating full-time workers and the desire by businesses to better control
their employee costs has also encouraged a greater use of flexible staffing by
businesses. In addition, employees have become increasingly receptive to
flexible staffing opportunities, which enable them to develop skills in a
variety of work environments and maintain more flexible schedules to meet
personal demands.
Professional employer organizations ("PEOs"), also known as employee
leasing companies, comprise the second largest sector in the staffing industry.
A PEO establishes a "co-employer" relationship with its clients and
contractually assumes substantial employer responsibilities with respect to
worksite employees, including human resource administration, employment
regulatory compliance, workers' compensation coverage, health care and other
employee benefits. The outsourcing of one or more of these various functions to
a PEO benefits clients by allowing them to focus on their core business and
manage their employee-related risks. Because a PEO enters into agreements with
numerous small and mid-sized clients, it can achieve economies of scale and
perform employment-related functions at a level typically available only to
large corporations that have
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substantial resources devoted to human resource management. According to
Staffing Industry Report(R), estimated sales in the PEO industry have increased
(in approximate numbers) from $5.0 billion in 1991 to $17.3 billion in 1996,
representing a compound annual growth rate of 28%.
The career placement market continues to grow, but at a lower rate than
other sectors of the staffing industry and the industry generally. Estimated
sales from career placement (in approximate numbers) grew from $3.9 billion in
1991 to $7.2 billion in 1996, representing a compound annual growth rate of 13%.
Fundamental changes in the employer-employee relationship continue to occur,
with employers developing increasingly stringent criteria for selecting
permanent employees while moving towards project-oriented flexible staffing and
contract hiring. As a result, career placement has taken on a more specialized
and limited role in the staffing process.
The Company believes that the staffing services industry is highly
fragmented and is currently experiencing a trend towards consolidation as a
result of several factors, including increasing competition and the growing
importance of economies of scale and working capital to support increased demand
for alternative staffing services by small companies and centralized staffing
services by large companies.
BUSINESS STRATEGY
Snelling's goal is to expand its position as a leading national provider of
staffing solutions to small and mid-sized businesses. The Company believes that
its strong reputation and brand name recognition will support the Company in
achieving its business strategy, which is comprised of the following key
elements.
Focus on Small and Mid-Sized Businesses. The Company focuses on providing
office, clerical and light industrial staffing solutions to small and mid-sized
businesses, generally with less than 500 full-time employees. According to the
latest data published by U.S. Bureau of the Census, businesses with less than
500 employees comprised the fastest growing business sector in the United States
in 1993. The Company believes that small and mid-sized businesses typically seek
value-added personnel services offered at fair market prices as opposed to
larger businesses that emphasize price and request volume discounts. The Company
believes that it has developed competitive advantages in servicing small and
mid-sized businesses by tailoring its operations to meet local client needs and
by establishing strong client relationships through local marketing efforts,
quality service and community involvement.
Offer Integrated, Full-Service Approach. The Company uses an integrated,
full-service approach to staffing by generally providing its clients with a wide
range of staffing services from each location. This integrated, full-service
approach is designed for small and mid-sized businesses that have fewer
personnel resources than larger companies. With this approach, branch and
franchise locations design customized service packages to meet the client's need
for flexibility in service delivery. This approach also provides clients with
the opportunity to choose from a menu of services that includes employee
screening, applicant testing, credit checks, personality evaluation, drug
testing, on-site supervision, single-source management and temp-to-hire options,
as well as contingency career search services. The Company emphasizes building
long-term relationships with its clients by assuming an ongoing role in the
overall service needs of its flexible staffing and career placement clients.
Maintain Strong Operating Infrastructure. The Company seeks to enhance the
success of its business by maintaining a strong operating infrastructure to
support its entrepreneurial network of franchise and branch locations. The
Company devotes significant resources to the development, establishment and
continuing review of operating systems and procedures for use in the day-to-day
operations of its franchises and branches to ensure the consistent delivery of
quality services to the Company's clients. Snelling supports local operations
through a number of corporate programs, including training, management
information systems development and support, risk management and marketing and
advertising services. The Company also provides franchises and branches with
pay/bill processing services to support payroll and billing activities and
working capital needs related to their offering of flexible staffing services.
Recruit and Retain Qualified Management and Personnel. A key component of
the Company's success is its ability to attract and retain qualified management
and personnel, including flexible staffing personnel. The
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Company strives to recruit and retain high quality corporate management and
branch personnel and to attract qualified and motivated franchisees. Each
franchise and branch location manager is provided with recruiting materials and
training on how to recruit qualified full-time employees in key positions. The
Company also seeks to recruit, screen and maintain a pool of qualified flexible
staffing personnel for entry-level positions. Each franchise and branch location
is provided with a proprietary recruiting manual that outlines use of recruiting
materials, advertising and activities designed to increase applicant flow and
retention and the benefits of participating in community activities. In addition
to the attraction of its strong reputation and brand name, the Company has
developed a system of promotions, employee testing and evaluation in order to
maintain and expand its pool of qualified personnel needed to satisfy ongoing
client demand.
Control Costs Through Emphasis on Risk Management. Given the nature of
flexible staffing services, employee-related costs incurred by the Company are
significant and workers' compensation insurance is the principal component of
these costs. Recognizing that workers' compensation and other insurance
coverages are controllable costs, the Company created a dedicated risk
management department in 1994. The Company provides risk management support to
branch locations and franchise locations participating in its pay/bill
processing program, which is focused on safety and loss prevention to control
employee-related costs. The Company's risk management department also
administers a master insurance program for participating locations. The Company
believes that its emphasis on controlling these costs enables its branches and
participating franchises to price their services competitively.
GROWTH STRATEGY
Snelling intends to achieve revenue and earnings growth and increase market
share through a focused growth strategy employing the following five key
elements:
Increase Market Penetration and Profitability at Existing Locations. The
Company has experienced significant internal growth and believes that a
substantial opportunity exists to further increase its market penetration and
profitability at its existing franchise locations and branch locations. The
Company intends to achieve continued internal growth in sales and profitability
by capitalizing on increasing economies of scale and through ongoing investment
in information systems and technology, intensive training of sales personnel and
aggressive pursuit of cross-selling opportunities.
Pursue Acquisitions. The Company intends to capitalize on the significant
opportunities available in the staffing industry to increase its sales and
market share through acquisitions in new and existing markets. The primary focus
of the Company will be to expand branch locations through acquisitions, with a
long-term objective of achieving an equal number of franchise locations and
branch locations. Additionally, the Company plans to pursue strategic
acquisitions of staffing services businesses that offer complementary services,
thereby expanding its range of services offered. The Company will also consider
selective acquisitions of existing franchise locations. During 1996 and the
first nine months of 1997, the Company acquired seven independent staffing
locations and ten franchise locations, with aggregate annual revenues of
approximately $47.1 million. Subsequent to September 30, 1997, the Company
acquired one independent staffing location with annual revenues of approximately
$14.4 million and one franchise location with annual revenues of approximately
$2.6 million and has a pending acquisition of another independent staffing
location currently scheduled to be completed in December 1997.
Establish Alternative Distribution Channels. The Company intends to
evaluate and establish, where appropriate, alternative distribution channels for
its services. An example of an alternative distribution channel is
"co-branding," which strategically links the Company with another services
provider or a retailer in order to exploit marketing synergies. In 1996, the
Company developed a co-branding relationship with Wal-Mart, Inc. ("Wal-Mart"),
through which the Company opens both branch and franchise locations in selected
Wal-Mart Supercenters, giving Snelling access to the high volume of potential
flexible staffing employees passing through a Wal-Mart store. As of September
30, 1997, the Company had three branch locations and eight franchise locations
in Wal-Mart Supercenters. The Company intends to develop further its
relationship with Wal-Mart and may pursue other co-branding opportunities as
they arise.
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Develop New Services. The Company seeks to add or further develop new
staffing services to complement its existing service offerings and expand its
existing client relationships. As an example, the Company seeks to develop a PEO
service offering. The Company also intends to expand services, such as
single-source management, which it currently provides on a limited basis.
Single-source management gives the Company the opportunity to establish
long-term relationships with clients and to generate a stable and recurring
source of revenue. Further development of new services may be accomplished
internally or through acquisitions.
Expand Through Selective Franchising. The Company intends to continue to
franchise in certain select markets. Through franchising, the Company is able to
broaden its geographic coverage and leverage its existing business with minimal
capital investment. The Company plans to direct the expansion of its franchise
program primarily toward the penetration of smaller markets. During 1996 and the
first nine months of 1997, the Company franchised a net addition of 16 new
locations. As of September 30, 1997, 15 were open and the remaining location was
scheduled to open by December 31, 1997.
ACQUISITIONS
Consistent with its growth strategy, Snelling began an expansion program in
1994 to acquire independent staffing companies and selected franchise locations.
The Company acquired six franchise locations in 1994 with aggregate annual
revenues of approximately $5.9 million; four franchise locations in 1995, with
aggregate annual revenues of approximately $8.0 million; seven independent
staffing locations and nine franchise locations in 1996, with aggregate annual
revenues of approximately $43.6 million; one franchise location in the first
nine months of 1997, with annual revenues of approximately $3.5 million; one
independent staffing location in October 1997, with annual revenues of
approximately $14.4 million; and one franchise location in November 1997, with
annual revenues of approximately $2.6 million. The aggregate consideration paid
with respect to these acquisitions was approximately $29.1 million and was
financed using a combination of cash, seller financing and bank loans. After
giving effect to the consolidation of certain locations of the acquired
companies, the Company's acquisitions have resulted in a net addition of 26
company-owned branch locations in 13 states. The Company has one pending
acquisition of an independent staffing location with annual revenues of
approximately $2.3 million, which is currently scheduled to be completed in
December 1997. On an ongoing basis, the Company evaluates opportunities to
acquire companies that are complementary to its business, including independent
staffing companies and selected franchises. The Company currently has no plans,
arrangements or understandings, and is not participating in any negotiations,
with respect to any material acquisitions.
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The following table lists each of the Company's acquisitions or pending
acquisitions since January 1, 1996, the acquired company's or franchise's
estimated annual revenues and the geographic markets served by the acquired
locations:
<TABLE>
<CAPTION>
ESTIMATED
RELATIONSHIP REVENUES NUMBER OF GEOGRAPHIC
SELLER DATE ACQUIRED TO COMPANY (IN MILLIONS) LOCATIONS MARKETS SERVED
------ ------------- ------------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Phase II Personnel Systems, Inc. Pending Independent $ 2.3 1 Charlotte, NC
Lummus Services, Inc. Nov. 1997 Franchise 2.6 1 Dallas, TX
Cross Temp, Inc.; Cross Personnel Oct. 1997 Independent 14.4 1 New York, NY
Agency, Inc.
JW Personnel, Inc. May 1997 Franchise 3.5 1 West Palm Beach, FL
Help, Inc.; A Help, Inc.; Temp Help, Dec. 1996 Independent 5.6 4 Omaha, NE and Council
Inc. Bluff, IA
B.A.T. Group Holdings, Inc.; KAL Nov. 1996 Franchise 18.3 5 Chicago, IL and
Help Enterprises, Inc.; Par Three Kalamazoo, MI
Help Services, Inc.; Par Four
Services, Inc.; Par Five Services,
Inc.
Fidelity Personnel Services, Inc. Sept. 1996 Independent 6.0 1 Blountville, TN
Personnel Professionals of the Sept. 1996 Independent 4.5 1 Albany, NY
Northeast, Ltd.
Careers Unlimited, Inc. Aug. 1996 Independent 3.5 1 Raleigh-Durham, NC
Richard W. Conley/Timothy J. Crouser Aug. 1996 Franchise 0.9 1 Lancaster, PA
R. C. Management, Inc. Mar. 1996 Franchise 4.8 3 Kansas City, MO and
----- -- Overland Park, KS
Total: $66.4 20
===== ==
</TABLE>
SERVICES
Snelling provides staffing services to over 13,000 businesses, professional
and service organizations, and governmental entities in the United States
through the Company's franchise locations and Company-owned branch locations
participating in its pay/bill processing program. The majority of the Company's
franchise and branch locations offer the Company's clients integrated,
full-service staffing solutions by providing traditional flexible staffing,
single-source management, temp-to-hire, career placement and other staffing
services from each location. Flexible staffing services (which include
traditional flexible staffing, single-source management and temp-to-hire)
accounted for approximately 90% of the Company's total system-wide sales during
each of 1995, 1996 and the first nine months of 1997.
Traditional Flexible Staffing. The Company places flexible staffing
personnel who perform office services and light industrial services. Office
services include general office and clerical positions, such as accounting
assistants, bookkeepers, legal secretaries, administrative assistants, data
processors, typists, receptionists, file clerks, mail clerks and messengers, as
well as other specialized functions. Light industrial work consists of skilled
tasks for nearly every industry, including, engineering, construction,
electronics, manufacturing, warehouse, distribution, delivery and retail.
Traditional flexible staffing personnel may be assigned for either a
specified or indefinite period of time as necessary to meet the needs of
clients. Snelling may provide flexible staffing in response to a continuing
client need or for specific project or peak-period requirements. Through the use
of Snelling's flexible staffing personnel, clients are able to avoid much of the
expense and inconvenience related to recruiting employees, including
advertising, interviewing and testing, conducting reference and background
checks and drug testing. The Company's clients are also able to eliminate or
reduce record keeping and decrease expenses associated with full-time employees,
such as fringe benefits, turnover and related employee costs. A client pays only
for actual hours worked by flexible staffing personnel and may terminate the use
of flexible staffing services without the adverse effects of layoffs.
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Single-Source Management. The Company provides single-source management
services to businesses with a high volume of staffing needs, including national
accounts. This program usually requires the regular presence of a dedicated
Snelling manager on-site at the client's facility. Single-source management
encompasses every facet of coordinating, ordering, planning and tracking all
supplemental staffing personnel, including flexible staffing employees placed by
the Company's competitors. Single-source management represents a cost-effective
solution for employers in industries that require a variable workforce and that
spend a significant amount of administrative and personnel department time
managing employees whose jobs are generally routine and are characterized by
high turnover rates. Examples of the types of clients that might utilize a
single-source management program include customer service centers, distribution
centers, manufacturing and assembly facilities and communications call centers.
Temp-to-Hire. Temp-to-hire is an extension of traditional flexible staffing
that is intended to lead to the placement of permanent employees. Temp-to-hire
affords the client the opportunity to work with and evaluate an employee before
making a permanent hiring commitment. Using this staffing service, the client is
also able to limit traditional recruitment and screening costs. At the same
time, the flexible staffing employee is provided with an opportunity to evaluate
the job duties and understand the client's culture and expectations before
committing to a full-time position.
Career Placement Services. Since 1951, Snelling has provided career
placement services for businesses searching for new full-time employees. As a
result of its years of experience, the Company has developed extensive
recruiting and search capabilities, interview and assessment processes and
information verification procedures designed to result in the placement of
quality candidates that fit its client's needs. The Company provides career
placement services in a number of fields, including accounting and finance,
engineering, health care, law, manufacturing, management information systems and
office, sales, marketing and technical services.
SALES AND MARKETING
Snelling believes it is uniquely positioned to differentiate its services
from most of its competitors by offering integrated, full-service staffing
solutions to its clients, which are predominantly small and mid-sized
businesses. The full-service concept allows the Company to meet its client's
total staffing needs, including flexible staffing, single-source management,
temp-to-hire, career placement and other staffing services from each location.
The Company believes that a majority of its competitors focus on career
placement or flexible staffing, but have not integrated the delivery of these
services from each location.
The Company generates new clients through personal sales presentations,
telemarketing, direct mail solicitations, referrals from other clients and
advertising in a variety of local and national media, including the Yellow
Pages(R), newspapers, magazines and trade publications and the Internet. The
Company's advertising supplements local advertising efforts by Snelling's
franchises and branches. The Company also actively sponsors various community
activities (including, for example, co-sponsoring seminars on human resource-
related issues) in order to increase brand name recognition. The Company's
management personnel are encouraged to participate in national trade
associations, local chambers of commerce and other civic organizations and
conduct public relations activities.
In 1996 and the first nine months of 1997, approximately 13,000 and 12,000
clients, respectively, purchased services from the Company through its
Company-owned branch locations and franchise locations participating in the
Company's pay/bill processing program. The Company's clients are not
concentrated in any industry group or any region of the country. During 1995,
1996 and the first nine months of 1997, the Company's top ten clients in the
aggregate accounted for approximately 11%, 17% and 21%, respectively, of the
Company's revenues. In each of the same periods, the largest single client
(which varied from period to period) accounted for approximately 5% of the
Company's revenues in each period.
The Company's franchise and branch locations devote the majority of their
selling efforts to small and mid-sized businesses. Snelling provides sales and
marketing training to both its franchise and branch locations through corporate
franchise and branch support staffs at the Company's headquarters and in the
field. The support staffs assist local managers in developing sales
opportunities and improving marketing skills.
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The Company also has implemented a national accounts unit on a limited
basis to supplement local sales and marketing. The national accounts unit
targets the single-source management market for large national and international
corporations that is not accessible by individual branch and franchise
locations. The national accounts unit is responsible for lead generation and the
preparation and presentation of proposals for franchise locations and branch
locations. Local franchise and branch locations then provide the service and
sales support for large national clients.
The Company has begun to establish alternative distribution channels for
its services. One such distribution channel is "co-branding," which
strategically links the Company with another services provider or a retailer in
order to exploit marketing synergies. In 1996, the Company developed a
co-branding relationship with Wal-Mart to open both branch and franchise
locations through the leasing of space in selected Wal-Mart Supercenters. This
relationship provides Snelling with access to the high volume of potential
flexible staffing employees passing through a Wal-Mart store as a source of
flexible staffing personnel. For Wal-Mart, a Snelling(R) Personnel Services
location provides an additional attraction to draw customers into the
Supercenter. Pursuant to a master lease, Wal-Mart leases space to the Company
for a Snelling location at a Wal-Mart Supercenter, typically for a three-year
term with a renewal option for an additional three years. The Company may
sublease space to franchisees on identical terms. At September 30, 1997, the
Company had three branch locations and eight franchise locations in Wal-Mart
Supercenters. Snelling's master lease arrangement with Wal-Mart is not
exclusive, and Wal-Mart is not obligated to enter into any specific location
leases. Wal-Mart has entered, and may enter in the future, similar co-branding
relationships with one or more of the Company's competitors. The Company is,
however, free to pursue other co-branding opportunities. There can be no
assurances that the Company will be able to continue its co-branding
relationship with Wal-Mart or to lease space in additional Wal-Mart
Supercenters.
The Company collects an advertising fee from most of its franchisees equal
to 0.5% of cash receipts related to franchise flexible staffing service sales
and 1.0% of cash receipts related to franchise career placement sales. The
Company also contributes an advertising fee at the same rates on behalf of each
of its branches. These advertising fees are placed in a national advertising
fund, which the Company administers. The national advertising fund may be used
to advertise in various media and to promote public relations and is intended to
maximize general public recognition and acceptance of the Snelling brand name to
improve the collective success of the Snelling system. Costs paid out of the
national advertising fund include salaries and other costs of the Company's
corporate marketing department related to national advertising efforts. A
marketing committee of the franchisee's National Executive Council has been
established to provide advice to the Company with respect to the use of the
national advertising fund, but the Company has sole discretion as to the use of
the fund. The Company may also terminate the fund at any time after all monies
have been expended. See "-- Organization -- Franchises."
ORGANIZATION
As of September 30, 1997, Snelling offered its staffing services through a
network of 318 locations, 29 of which were branch locations owned and operated
by the Company and 289 of which were franchise locations owned and operated by
franchisees. The Company has a long-term objective of achieving an even mix
between the number of franchise and branch locations.
Branches. The Company is committed to the expansion of its operations
through the acquisition and opening of new Company-owned branch locations. As of
September 30, 1997, Snelling had 29 Company-owned branch locations in 13 states.
During 1996 and the first nine months of 1997, the Company added a net total of
21 new branch locations. For the nine months ended September 30, 1997,
approximately 98% of branch revenues were derived from flexible staffing
services.
A typical branch location covers 800-1,200 square feet and is staffed with
a branch manager, two account managers and two personnel managers. The branch
manager is generally responsible for sales and operations and reports to one of
four area directors, who have responsibility for marketing, sales, training and
recruiting for a specific group of branch locations. The account managers are
responsible for sales, and the personnel managers are in charge of recruiting
flexible and career personnel.
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Franchises. At September 30, 1997, the Company operated through 289
franchise locations in 42 states, the District of Columbia, Puerto Rico, and
three foreign countries. The Company earns revenue from the sale and continuing
operation of franchises. Upon the sale of a franchise, the Company currently
recognizes initial franchise and training fees of $21,000 when the franchise
begins operations and the fees are collected. The Company has added a net total
of 15 new franchise locations since the beginning of 1996 and has executed an
agreement for one additional franchise location scheduled to open by December
31, 1997.
During 1996 and the first nine months of 1997, the Company's ten largest
franchisees (excluding franchise locations that were acquired by the Company)
accounted for 22.5% of the Company's total system-wide sales and 46.5% and
42.9%, respectively, of the Company's net earnings. In addition, during 1996 and
the first nine months of 1997, the Company's largest franchisee accounted for
4.7% and 5.0%, respectively, of the Company's total system-wide sales and 13.8%
and 8.5%, respectively, of the Company's net earnings.
At September 30, 1997, the Company had 196 franchisees, each of whom had
executed one or more franchise agreements with Snelling that set forth their
respective rights and obligations. Although franchise agreements differ
depending on when the franchise was sold, recently executed franchise agreements
generally provide that the clients serviced by the franchisee and the flexible
staffing employees placed by the franchisee are clients and employees,
respectively, of the Company or become such immediately upon termination of the
franchise agreement.
Snelling franchises differ from typical franchises in two significant
respects. First, a franchisee does not receive an exclusive territory for its
operations and, second, the franchise is granted for as long as the franchisee
continues to operate it. The Company has a right of first refusal with respect
to the sale of a franchise and, in certain limited circumstances, such as the
death of a franchisee or a controlling owner or upon termination of certain
franchises, an option to purchase the franchise. A franchise agreement is,
however, subject to termination by the Company or the franchisee in certain
circumstances, including breaches of the franchise agreement by the franchisee.
A franchisee typically may terminate the franchise agreement upon at least six
months prior written notice and the satisfaction of certain other obligations.
Most of the Company's existing franchise agreements prohibit the franchisee from
competing with Snelling within a defined geographic area for a period of two
years after any termination. The Company's current form of franchise agreement
contains a two-year noncompetition covenant pursuant to which a terminated
franchisee will not contact or do business with any existing Snelling client or
operate any personnel services business within a ten-mile radius of the
franchisee's location or any Snelling location where a principal owner of the
franchise had an interest during the three-year period prior to the termination.
The majority of franchise fee revenues are generated by royalties on the
continuing operations of the franchises. The Company receives monthly royalties
that are generally 4.5% of the flexible staffing services sales and 7.0% of the
career placement sales collected by franchisees each month. In order to
encourage franchisees to place flexible staffing employees on Snelling's
national accounts, which typically result in lower gross margins than the other
clients serviced by the franchises, the franchisee will receive a percentage of
the gross margin of the national account billing. For those franchisees who use
the Company's pay/bill processing services, the related royalties are deducted
from their distribution payments on a weekly basis. The remaining royalty
payments from the franchisees are payable monthly and are due within ten days
following the end of each month. The Company also collects an advertising fee
equal to 0.5% of franchise flexible staffing services sales and 1.0% of
franchise career placement sales. See "-- Sales and Marketing" and
"-- Operations -- Pay/ Bill Processing Services."
The Company has a sales incentive program, which encourages franchisees to
earn a reduction of their effective royalty rate based on the total sales
generated by the franchise. This program currently reduces the effective royalty
received by the Company to approximately 4.0% of flexible staffing sales
collected and approximately 6.0% of career placement sales collected. The
Company will discontinue this program as of January 1, 1998. Beginning January
1, 1998, subject to completion of the offering, the Company intends to implement
a stock option offer program for franchisees, pursuant to which nonqualified
stock options to purchase up to 800,000 shares of Common Stock may be granted to
eligible franchisees with respect to a three-year period. The Company expects
that option grants for each calendar year during the program will be
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determined based on a formula set annually by the compensation committee of the
board of directors. See "Management -- Stock Option Plans -- Franchisee Stock
Option Offer Program."
Also beginning January 1, 1998, subject to completion of the offering, the
Company plans to enter into an expansion investment program with its existing
franchisees to open new franchises. The Company will allocate $5.0 million
toward franchise expansion until the earlier of the 100th franchise expansion
implemented under the program or December 31, 2000. For each approved expansion
location, the Company will invest $50,000 in a new corporate franchisee through
the purchase of preferred stock, which will constitute 5% of the total capital
stock. The existing franchisee must invest an additional $50,000 for the
remaining equity interest in the new corporate franchisee in the form of common
stock. The new corporate franchisee will be required to execute the Company's
then current form of franchise agreement. Snelling will have only limited voting
rights and will not have the right to elect directors; however, Snelling will be
entitled to a 5% preference on net assets in the event of a liquidation or a
change of control.
Snelling offers franchises to qualified individuals and entities to operate
one or more full-service Snelling(R) Personnel Services locations. Franchises
may be sold either to open a new location or convert an existing, independent
staffing business. The Company supplies a franchise with a proprietary system of
management and personnel services training, operational procedures and
techniques, advertising and promotional programs and materials and record
keeping and reporting procedures for operating a Snelling(R) Personnel Services
location. The Company also grants to a franchisee a nonexclusive license to use
Snelling's registered service marks in connection with the operation of the
franchise location. The Company has a franchise support department to assist
franchises with training and business consulting.
Since 1957, the Company has maintained a National Executive Council ("NEC")
made up of 16 franchisee members elected by regions and one representative of
the Company in order to facilitate its relationships and communications with
franchisees. The purpose of the NEC, which generally meets twice a year, is to
act as an advisory group to the Company in the promotion and growth of the
Company's services. Each franchisee owner in good standing, regardless of the
owner's percentage ownership, is entitled to one vote per owned franchise
location for each NEC vacancy to be filled from the owner's region. The Company
believes that its relationships with its franchisees are good.
OPERATIONS
Training of Franchise and Branch Personnel. The Company provides initial
and continuing training to franchise and branch personnel through its "Snelling
University" training courses at the Company's headquarters in Dallas, Texas.
Training programs are generally two weeks in length. Initial training courses
cover a wide range of topics, including sales, operations, telemarketing, human
resources (including recruitment and retention of qualified personnel), sales
management, training, motivation and goal setting, financial management, risk
management, computer software and customer service. A new franchisee and the
manager of the new franchise location, if any, must attend and complete this
initial training program to the Company's satisfaction. Ongoing training is also
provided to other franchise and branch location personnel. Continuing education
is not mandatory for all personnel; however, each local manager is requested to
attend additional training at Snelling headquarters every 24 months.
The Company offers continuing education courses at varying times and at
various locations across the country. Training courses are regularly updated to
keep current with industry trends and modifications to the Snelling system.
Supplemental training is also available in the field through print, video and
audio training courses, system manuals and approved forms, which the Company has
developed and copyrighted.
Recruitment of Flexible Staffing Personnel. The Company seeks to recruit,
screen and maintain a pool of qualified flexible staffing personnel for
entry-level positions. Each franchise and branch location is provided with a
proprietary recruiting manual that outlines community centers of influence, use
of recruiting materials, advertising and activities designed to increase
applicant flow and retention. In addition to the attraction of its strong
reputation and brand name, the Company has developed a system of promotions,
employee testing and evaluation in order to maintain and expand its pool of
qualified personnel needed to satisfy ongoing client demand.
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<PAGE> 34
Flexible staffing personnel are recruited through advertising in local
media and, to a lesser extent, national media, the Yellow Pages(R) and the
Company's Internet web site. In addition, a substantial portion of new employees
are obtained through referrals from other employees of the Company, clients and
various organizations and associations. To encourage employee referrals and
retention, the Company has instituted an incentive program. Flexible staffing
personnel who are enrolled in the Xtra Club(TM) program earn points for hours
worked and for referrals hired. These points are redeemable for various
merchandise found in the Company's Xtra Club(TM) catalog.
The Company interviews, tests, checks references and evaluates the skills
of applicants for flexible employment, utilizing systems and procedures
developed by the Company. Flexible staffing employees are employed by the
Company on an as needed basis dependent upon client demand. Flexible staffing
employees are paid for the time they actually work, but may be eligible for
holiday, vacation, bonus compensation and other benefits.
Pay/Bill Processing Services. Through its wholly owned subsidiary, Advance
Processing Systems, Inc. ("Advance"), the Company offers franchises pay/bill
processing services to support payroll and billing activities and working
capital needs related to their offering of flexible staffing services.
First-time franchisees who have purchased franchises since September 27, 1992,
are contractually obligated to use these services. Other franchisees are
encouraged to participate, but are not required to do so. At September 30, 1997,
130 franchise locations were participating in the Company's pay/bill processing
program. All of the Company's branches also utilize the pay/bill services. The
Company does not currently provide franchises with processing for career
placement services. Flexible staffing services sales of non-pay/bill franchise
locations are only reflected in system-wide sales figures. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
The Company's pay/bill processing program provides franchisees with working
capital financing based on flexible staffing services billings. On a weekly
basis, Advance pays flexible staffing employees, withholds and remits payroll
taxes to the proper government agencies, bills and receives payments from
customers and processes distribution payments to franchisees after deduction of
the related royalties, advertising fees and pay/bill processing fees. If any
flexible staffing services billings remain unpaid for 60 days, the amount billed
is charged back to the franchisee.
Risk Management. The Company is responsible for all employee-related costs
for the flexible staffing employees placed by its branch locations and franchise
locations participating in the pay/bill processing program. These variable
expenses include workers' compensation, unemployment insurance, FICA and
Medicare taxes, state and local taxes and other general payroll expenses, with
workers' compensation representing the principal component. Recognizing that
workers' compensation and other insurance coverages are controllable costs, the
Company created a dedicated risk management department in 1994. The Company
provides risk management support to branch locations and franchise locations
participating in its pay/bill processing services, which is focused on safety
and loss prevention to control employee-related costs. The Company believes that
its emphasis on controlling these costs enables its branches and participating
franchises to price their services competitively.
The Company's risk management department is currently staffed by five
professionals with extensive experience in risk management. The Company's risk
management department administers a master insurance program for participating
locations. Risk management personnel work directly with branch and participating
franchise locations to reduce each location's employee-related costs. Risk
management personnel also provide employee safety and health programming and
training on loss control issues. As part of its risk management policy, the
Company limits the types of assignments that can be accepted based on a risk
analysis of the type of work to be performed. The risk management department
manages risk costs by analyzing premium and loss data from participating
locations in order to identify loss trends and determine appropriate risk
management responses. The risk management department is also responsible for
allocating premiums to participating locations, which is based largely on each
participating location's ratio of incurred losses to premiums contributed.
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<PAGE> 35
Management Information Systems. The Company is committed to fully automate
all of its franchise and branch locations with integrated, company-wide
information systems. Since 1995, Snelling has invested approximately $6.1
million, and intends to invest approximately $2.9 million of additional funds in
the implementation of advanced management information systems. The Company's
goal is to strengthen its ability to service clients by effectively filling work
assignments, accurately generating payroll and billings, monitoring flexible
staffing employee performance and providing costing or other management
reporting requested by its clients. The Company believes the new management
information systems will be fully functional in 1998.
The Company's new corporate management information system is comprised of a
front-office component and a back-office component. The front-office system uses
EmpACT(TM) software, an office automation system that handles sales and
day-to-day operations of branch and franchise locations. The PeopleSoft(R) back
office system is composed of financial and human resource/payroll applications.
As of September 30, 1997, 38 franchise and 24 branch locations had fully
implemented the EmpACT(TM) front office system, and an additional 27 franchise
and one branch location had executed sublicense agreements and implementation
was pending. The Company currently has implemented the payroll, accounts
receivable, accounts payable, general ledger and asset management applications
of PeopleSoft(R).
The EmpACT(TM) system provides full front office functionality to
electronically manage the Company's day-to-day transactions, scheduling and
reporting requirements. The EmpACT(TM) System captures and matches, on a timely
basis, client order requirements with the experience, skills, education,
availability and desires of employees. This software is year 2000 compliant and
is scaleable from one field installation to multiple networked field locations
operating on a single database. The Company networks certain metropolitan
locations to share client and employee information providing the greatest
benefit to sales and service and takes advantage of reporting and communications
capabilities to conduct remote audits of its local operations. The Company has
had EmpACT(TM) software enhanced to provide full service functionality for the
various staffing services offered at each location. The software may be further
customized by the individual end-user as circumstances require.
The PeopleSoft(R) back office system is designed to provide the data needed
to meet the Company's external reporting requirements to, among others,
shareholders, creditors and government agencies and is year 2000 compliant. The
completed back office system will process payroll, billing, accounts receivable,
accounts payable and general ledger, along with other financial applications. It
will provide a full range of reports needed to manage franchise and branch
locations on a daily basis, including payroll cost reports, billing reports,
gross margin analyses, client/personnel profitability and receivable agings.
The Company also established an Internet web site in January 1997 listing
all franchise and branch locations and simultaneously began licensing individual
Internet web sites, hot linked to the Company's main site, to its franchises.
Each individual web site has the ability to post both jobs and active job
seekers and receive and direct job applicants and client inquiries to the
appropriate franchise or branch location. In addition, the Company has begun the
implementation of a corporate intranet web site for the paperless dissemination
of information within Snelling's corporate office and among its franchise and
branch locations.
The Company operates a disaster recovery site for its management
information systems, which is near the Snelling headquarters but is serviced by
a separate electric power utility grid. The Company has implemented a
third-party disaster recovery software to create and assist with the ongoing
maintenance of the disaster recovery plan. The plan will enable the Company to
continue to operate in the event of a natural disaster or other problem
affecting the Snelling headquarters. An Oracle(R) database at the disaster
recovery site is updated hourly from the Company's database at Snelling
headquarters. All other computer information is backed up on a daily basis, and
the ultimate goal is to provide real-time backup. The disaster recovery site has
the necessary computer hardware and software and is physically configured so
that the pay/bill processing services provided by the Company can be run at the
disaster recovery site in the event of a problem with the headquarters system.
In the event of a problem, all remote information from franchise and branch
locations can be rerouted to the disaster recovery site within 30 minutes. The
disaster recovery site has not been fully implemented, but the Company
anticipates final completion and testing during the fourth quarter of 1997.
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<PAGE> 36
Once fully implemented, Snelling believes it will have the ability to fully
recover its core financial and pay/bill processing functions within 48 hours of
a total disaster at its corporate headquarters.
COMPETITION
The U.S. staffing industry is highly competitive and highly fragmented. The
Company believes that there are more than 20,000 staffing offices competing in
the industry. Approximately 1,600 staffing companies are members of the National
Association of Temporary and Staffing Services, the staffing industry's
principal trade association, and over 50 staffing companies are publicly traded.
There are limited barriers to entry, and new competitors frequently enter the
market. Snelling believes that no one firm has more than 5% of the U.S. market
based on system-wide sales. The staffing industry has, however, been undergoing
significant consolidation.
The staffing services provided by the Company are also provided by a number
of companies with national and international operations that have substantially
greater resources than the Company. The Company and other national firms
primarily benefit from having nationally recognized brand names. The Company
believes that other competitive factors include the availability of personnel,
quality of personnel and services, proximity to the client and price.
Since many clients of both the Company's flexible staffing services and
career placement services contract for their staffing services locally,
competition varies from market to market. In most major markets, competitors
generally include many of the large publicly traded companies and, in addition,
numerous regional and local full-service and specialized flexible staffing
service agencies, some of which may operate only in a single market. In most
areas, no single company has a dominant share of the market. Many clients use
more than one staffing services company, and it is common for major corporate
clients to use several staffing services companies at the same time. However, in
recent years, there has been a significant increase in the number of large
clients consolidating their flexible staffing purchases with a single supplier
or with a small number of firms. The trend to consolidate flexible staffing
purchases has in some cases made it more difficult for the Company to gain
business from potential clients who have already contracted to fill their
staffing needs with competitors of the Company. In other cases, the Company has
been able to increase the volume of business with certain clients who choose to
purchase flexible staffing primarily from the Company.
REGULATION
Snelling has a legal compliance program to ensure its operations conform
with applicable laws and regulations. The Company also regularly reviews new and
amended laws and regulations at the federal, state, and local levels to
determine their applicability to the services then offered by the Company.
Staffing firms are generally subject to various types of government laws
and regulations, including (i) regulation of the employer/employee relationship
between a firm and its flexible staff and (ii) registration, licensing, record
keeping and reporting requirements. Staffing firms are the legal employers of
their flexible staffing employees. Therefore, staffing firms are also governed
by laws regulating the employer/employee relationship such as tax withholding or
reporting, social security or retirement, anti-discrimination and workers'
compensation.
In certain states, companies which engage in career placement are subject
to regulations. The Company analyzes the applicability of these state
regulations to its career placement activities and complies with these
requirements, if applicable.
The Company's sale of franchises and licenses is regulated by the Federal
Trade Commission and by authorities in approximately 16 states. The Company must
deliver a franchise offering circular (similar to a prospectus) to prospective
franchisees. The Company has filed either the appropriate registration or
obtained an exemption from registration in states that require franchisors to
register in order to sell franchises. The Company believes these requirements
are expensive and time-consuming and impact the Company's ability to sell
franchises, but to no greater extent than other staffing companies that engage
in franchising.
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<PAGE> 37
As a result of the implementation of its new management information
systems, the Company does not believe it will be using any software after 1998
that is not year 2000 compliant. In addition, the Company believes that any use
of software during the interim implementation period that has not been modified
to be year 2000 compliant will not materially adversely affect the Company's
business or results of operations.
PROPERTIES
Snelling's executive offices are located in approximately 43,000
square-feet of leased space in an office building in Dallas, Texas, pursuant to
two leases. The office leases expire in 2001 and 2002, respectively. The Company
also leases 2,300 square feet of space in Richardson, Texas, for the disaster
recovery site for its management information systems. The disaster recovery site
lease expires in March 2002. The Company's branch locations are located in
leased premises, and the majority are pursuant to leases with fixed monthly
rentals and three- to five-year terms.
INTELLECTUAL PROPERTY
The Company currently has 13 service marks and trademarks registered with
the United States Patent and Trademark Office, including Snelling(R), Snelling
and Snelling(R) and Snelling Temporaries(R). These marks are used by the Company
and its franchisees. Most Snelling locations operate under the name Snelling(R)
Personnel Services. The Company does not believe that the loss of any of the
trademarks or service marks, other than Snelling(R) and Snelling and Snelling(R)
would have a material adverse effect on the Company's financial condition and
results of operations.
The Company has no patents, but has copyrighted its original materials. The
Company has obtained registered copyrights for certain of its training and
operations manuals and claims statutory copyright protection for other original
materials. These original materials include the Company's proprietary Remote
Data Entry software.
The Company believes that the protection of its marks and copyrights is
important because of client recognition of the Snelling brand name and the
unique nature of the Snelling system. Franchise agreements include appropriate
provisions granting nonexclusive licenses to franchisees to use the Company's
trademarks and copyrights. Such use inures to the benefit of the Company. The
Company intends to vigorously defend its marks and copyrights.
EMPLOYEES
At September 30, 1997, Snelling had approximately 300 full-time employees.
None of the Company's employees are covered by collective bargaining agreements.
The Company believes that its relationships with its employees are good.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
Snelling, in the ordinary course of its business, may be threatened with or
named as a defendant in legal or administrative proceedings. In addition, the
Company periodically is subject to government audits and inspections. The
Company is not currently a party to any litigation or administrative proceedings
that could have, individually or in the aggregate, a material adverse effect on
the Company's business, financial condition or results of operations.
The Company maintains insurance in such amount and with such coverages,
deductibles and policy limits as management believes are reasonable and prudent.
The principal risks that the Company insures against are general liability,
workers' compensation, employee theft and fidelity losses, errors and omissions
and employee practices liability. The Company believes that its insurance
coverages are adequate for the purposes of its business.
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<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert O. Snelling, Sr............... 65 Director, Chairman of the Board and
Chief Executive Officer
Timothy J. Loncharich................ 53 Director, President and Chief
Operating Officer
Robert O. Snelling, Jr............... 41 Director and Vice Chairman of the
Board and Senior Vice President
J. Russell Crews..................... 41 Director, Senior Vice President,
Chief Financial Officer and Treasurer
R. Allen Riggs....................... 57 Executive Vice
President -- Operations
Barbara A. McAninch.................. 50 Vice President, Legal, General
Counsel and Secretary
</TABLE>
Robert O. Snelling, Sr., was elected Chairman of the Board in 1968 and a
director in 1956. He was elected Chief Executive Officer in October 1997. Mr.
Snelling joined the Company in 1952 and served as Chief Executive Officer from
1956 to 1994 and President and Chief Operating Officer from 1956 to 1970, 1973
to 1988 and 1993 to 1994. Mr. Snelling has been a pioneer in the flexible
staffing industry since its inception. He has received many honors and awards in
recognition of his contributions to the staffing industry. President Bush
appointed him to the National Employment Commission in 1992.
Timothy J. Loncharich was elected President July 1994, a director in August
1994 and Chief Operating Officer in October 1997. Mr. Loncharich also served as
Chief Executive Officer from July 1994 through September 1997. From 1990 to
April 1994, Mr. Loncharich was President and Chief Executive Officer of
Nursefinders, Inc., a healthcare staffing company and a subsidiary of Adia SA, a
publicly traded staffing company now known as Adecco SA. From 1985 to 1990, he
served as Executive Vice President, Chief Operating Officer, Chief Financial
Officer and a director of Interim Services Inc., a publicly traded staffing
company. Mr. Loncharich has over ten years of experience in the staffing
industry and 15 years of service industry experience.
Robert O. Snelling, Jr., was elected Vice Chairman of the Board and Senior
Vice President in December 1996 and a director in September 1993. Mr. Snelling
joined the Company in 1990 and has served in various management positions with
the Company, including Senior Vice President -- Information Systems from
September 1994 to December 1996, Senior Vice President, Quality Control from
April to September 1994 and Senior Vice President from September 1993 to April
1994. From March 1988 to August 1990, he was a managing member of the executive
committee of General Fasteners Company, a wholesale distribution company. From
January 1983 to February 1988, Mr. Snelling held various management positions
with and became the corporate secretary of Lufasco, Inc., a wholesale
distribution company. Mr. Snelling has more than 14 years of service industry
experience.
J. Russell Crews was elected Senior Vice President, Chief Financial Officer
and Treasurer in January 1989 and a director in June 1993. From 1981 to 1988, he
was a manager with the public accounting firm of Grant Thornton. Mr. Crews, a
certified public accountant, has more than 19 years of service industry
experience.
R. Allen Riggs was elected Executive Vice President -- Operations in August
1997. From June 1997 to August 1997, Mr. Riggs served as President, Franchise
Division, of Holigan Investments, Inc., a home builder. From 1994 to January
1997, he served as Senior Vice President, Franchising, of Pearle Vision, Inc., a
retailer of optical products and services, and, from 1988 to 1994, he was the
Senior Vice President -- U.S. Operations
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<PAGE> 39
for Nursefinders, Inc. Prior to 1984, Mr. Riggs served in senior operations
positions with Curtis Mathes Corporation and Goodyear Tire and Rubber Company.
Barbara A. McAninch was elected Vice President, General Counsel and
Secretary in August 1997. Prior to joining the Company, Ms. McAninch was
employed by Pearle Vision, Inc., a retail and wholesale optical company. She
served as Senior Vice President, Legal and General Counsel from November 1996 to
May 1997, Director, Senior Vice President, Legal, General Counsel and Secretary
from September 1994 to November 1996, Vice President from August 1993 to
September 1994 and Managing Attorney from June 1992 to August 1993.
Robert O. Snelling, Sr., is the father of Robert O. Snelling, Jr. Mr. Crews
is married to a daughter of Anne M. Snelling, the wife of Robert Snelling, Sr.
The Company's board of directors is currently composed of four directors,
all of whom are employees of or otherwise affiliated with the Company. Each of
the current directors serves until the next annual shareholders' meeting or
until his or her successor has been duly elected and qualified. The Company
intends to expand the board of directors within 90 days following the closing of
this offering by adding three independent directors who are not employees of or
otherwise affiliated with the Company (each an "independent director").
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has established an executive committee, which is
composed of the current directors, with Mr. Loncharich serving as Chairman. The
executive committee has the authority, between meetings of the board of
directors, to take all actions with respect to the management of the Company's
business that require action by the board of directors, except with respect to
certain specified matters that by law must be approved by the entire board of
directors.
Following the closing of this offering, the board of directors intends to
create an audit committee and a compensation committee. The audit committee will
be composed of three independent directors. The audit committee will be
responsible for (i) reviewing the scope of, and the fees for, the annual audit,
(ii) reviewing with the independent auditors the corporate accounting practices
and policies and recommending to whom reports should be submitted within the
Company, (iii) reviewing with the independent auditors their final report each
year, (iv) reviewing with internal and independent auditors overall accounting
and financial controls and (v) being available to the independent auditors
during the year for consultation purposes.
The compensation committee will be composed of three independent directors.
The Compensation Committee will determine the nature and amount of the
compensation of the executive officers of the Company and will administer the
Company's 1997 Stock Option Plan and the planned stock option offer program for
franchisees.
DIRECTOR COMPENSATION
Each independent director, who is not an employee or officer of the
Company, will receive a fee of $36,000 annually and $1,500 per board or
committee meeting. Pursuant to the Company's 1997 Non-Employee Directors Stock
Option Plan, each independent director will also receive a grant of options to
purchase 5,000 shares of Common Stock upon his or her election or appointment to
the board of directors and upon his or her reelection to the board of directors
at each annual shareholders' meeting. See "-- Stock Option Plans -- 1997
Non-Employee Directors Stock Option Plan." All directors will be reimbursed for
expenses incurred in connection with attendance at board of director and
committee meetings.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the Company's chief
executive officer and the Company's four other most highly compensated executive
officers for services rendered during 1996 (collectively each a "named executive
officer").
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<PAGE> 40
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) COMPENSATION($)(2) OPTIONS(#)(3) COMPENSATION($)(4)
- --------------------------- --------- ----------- ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Robert O. Snelling, Sr..... $475,736 $ 53,750 -- -- $19,528(5)
Chairman of the Board and
Chief Executive
Officer
Timothy J. Loncharich...... 276,979 273,750 -- 433,206 --
President and Chief
Operating Officer
Robert O. Snelling, Jr..... 157,314 140,750 -- 541,508 --
Vice Chairman of the
Board and Senior Vice
President
J. Russell Crews........... 161,481 140,750 -- 541,508 --
Senior Vice President,
Chief Financial
Officer and Treasurer
</TABLE>
- ---------------
(1) Bonuses paid in 1997 for performance in 1996.
(2) Certain of the Company's executive officers receive personal benefits in
addition to salary and cash bonuses. The aggregate amount of the personal
benefits, however, does not exceed the lesser of $50,000 or 10% of the total
of the annual salary and bonus reported for the named executive officer.
(3) Class B Common Stock.
(4) No restricted stock has been awarded to the named executive officers.
(5) Life insurance premiums paid by the Company.
The following table represents the options granted to the named executive
officers during 1996 and the value of the options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN OR BASE EXPIRATION ---------------------------
NAME GRANTED(#)(1) FISCAL YEAR PRICE($/SH) DATE 5%($) 10%($)
---- ------------- ------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert O. Snelling,
Sr................... -- -- -- -- -- --
Timothy J.
Loncharich........... 433,206 16.7% $3.85 11/01/06 $1,048,890 $2,658,108
Robert O. Snelling,
Jr................... 25,982 1.0% 4.23 11/30/01 17,763 51,197
Robert O. Snelling,
Jr................... 515,526 19.8% 3.85 11/30/06 1,248,205 3,165,215
J. Russell Crews....... 541,508 20.8% 3.85 11/30/06 1,311,114 3,322,638
</TABLE>
- ---------------
(1) Class B Common Stock.
(2) Calculated based on the fair market value of the Company's common stock as
of December 2, 1996, as determined by the board of directors pursuant to,
among other things, an independent valuation and sales of the Company's
common stock. The amounts represent only certain assumed rates of
appreciation mandated by the rules of the Commission. Actual gains, if any,
on stock option exercises and sale of Common Shares cannot be predicted, and
there can be no assurance that the gains set forth in the table will be
achieved.
39
<PAGE> 41
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the board of directors did not have a compensation committee or
other committee performing similar functions. Decisions concerning compensation
of executive officers were made by the board of directors, which included each
of the current directors, Robert R. Paulk (Senior Vice President -- Operations),
Richard H. Spragins (Senior Vice President -- Operations), Melinda S. Paulk
(Vice President -- National Accounts Division) and Anne M. Snelling (Vice
President). Following the election of independent directors to the board of
directors, the board of directors will create a compensation committee that will
be composed of three independent directors.
EMPLOYMENT AGREEMENTS
Chairman of the Board and Chief Executive Officer. The Company entered into
an employment agreement with Robert O. Snelling, Sr., in October 1997, pursuant
to which Mr. Snelling serves as Chief Executive Officer and, at such times as
Mr. Snelling serves on the board of directors, Chairman of the Board. The
employment agreement has a term of 15 years. The employment agreement provides
for a base salary of $475,000 per year, which will increase annually by an
amount determined by the board of directors, but in any event not less than two
times any change in the Consumer Price Index for the previous year. Mr. Snelling
is also entitled to various other benefits, including (i) one demand and two
piggyback registration rights with respect to Common Shares he holds and (ii)
sabbaticals from time to time as he and the Company deem appropriate, including
a planned one-year sabbatical at a time of his choosing.
Mr. Snelling's employment may be terminated prior to the end of the term by
the Company upon his death or disability, by mutual written consent of the
parties, by Mr. Snelling on 30-days' written notice or by the Company for good
cause (as defined in the employment agreement). If his employment is terminated
by the Company for any reason other than good cause, Mr. Snelling is entitled to
receive a severance benefit in an amount equal to two times his base salary paid
during the immediately preceding 12-month period. In addition, if Mr. Snelling's
employment is terminated for any reason or the number of hours he regularly
devotes to the business of the Company is reduced to substantially less than
full time, then he is entitled to receive, for the balance remaining of the
15-year term and for five years thereafter, annual deferred compensation in an
amount equal to 75% of his then base salary. The deferred compensation will be
payable monthly and be subject to minimum annual increases at the discretion of
the board of directors. If Mr. Snelling dies while an employee or while
receiving such deferred compensation, the Company will pay his surviving spouse
an annual death benefit equal to two-thirds of the amount of deferred
compensation Mr. Snelling would otherwise have been entitled to receive and for
the same period Mr. Snelling would have been paid deferred compensation. In
addition, if a change in control (as defined in the employment agreement)
occurs, Mr. Snelling may elect, within 12 months following the change of
control, to (i) have his compensation, including any deferred compensation,
increased by 10% or (ii) require the Company to pay him a lump sum equal to the
then present value of the economic benefits pursuant to the employment agreement
(plus, in either case, an additional gross-up amount in the event of imposition
of any federal excise or similar tax on the payment). If a change of control had
occurred on October 31, 1997, the present value amount payable to Mr. Snelling,
at his election, would have been approximately $6.6 million (plus the additional
gross-up amount, if applicable). The employment agreement also contains a
noncompetition provision, which applies during Mr. Snelling's employment, and a
noninterference provision, which applies during Mr. Snelling's employment and
for 36 months thereafter if Mr. Snelling's employment is terminated for any
reason.
President and Chief Operating Officer. The Company entered into an
employment agreement with Mr. Loncharich in July 1994. As amended, the
employment agreement provides for Mr. Loncharich to serve as President and Chief
Operating Officer of the Company. The employment agreement has an initial term
through December 31, 2001. The employment agreement provides for a base salary
to be determined by the board of directors, with a minimum of $230,000 per year,
as well as an annual performance bonus ranging from 25% to 100% of Mr.
Loncharich's annual base salary based on the percentage of achievement of the
Company's budgeted earnings before income taxes. No performance bonus is payable
unless the Company's earnings before income taxes are at least 80% of budgeted
earnings before income taxes. The employment
40
<PAGE> 42
agreement also originally provided for a long-term incentive bonus plan. An
amendment to the employment agreement in November 1996 replaced an original
long-term incentive bonus plan with a grant of options to purchase 433,206
shares of Class B Common Stock under the Company's 1996 Stock Option Plan.
Mr. Loncharich's employment may be terminated prior to the end of the term
by the Company upon his death or disability, by Mr. Loncharich on 30-days'
written notice or by the Company for good cause (as defined in the employment
agreement) or upon 30-days' written notice. If his employment is terminated by
the Company for reasons other than good cause and upon 30-days' notice, Mr.
Loncharich is entitled to receive his base salary for an additional six months
and a pro rata portion of his performance bonus for that year. The employment
agreement also contains noncompetition and noninterference provisions, which
apply during Mr. Loncharich's employment and for 24 months and 36 months,
respectively, thereafter if Mr. Loncharich's employment is terminated for any
reason.
Senior Vice Presidents. In December 1996, the Company entered into
employment agreements with each of Robert O. Snelling, Jr., and Messrs. Crews,
Paulk and Spragins, pursuant to which each officer serves as a senior vice
president of the Company. In addition, Mr. Snelling, Jr., serves as Vice
Chairman of the Board. Each of the employment agreements has an initial term of
ten years. The employment agreements each provide for a base salary to be
determined by the board of directors, with a minimum of $175,000 per year. The
employment agreements also each provide for an annual performance bonus
generally ranging from 25% to 100% of the officer's annual base salary based on
the percentage of achievement of the Company's budgeted earnings before income
taxes. No performance bonus is payable unless the Company's earnings before
income taxes are at least 80% of budgeted earnings before income taxes. If the
Company's earnings before income taxes exceed 120% of projected earnings before
income taxes, the bonus will be greater than 100% of the officer's annual base
salary based upon a formula set forth in the employment agreements. For purposes
of this bonus calculation, the budgeted earnings before income taxes for any
year must not be less than the previous year's budgeted amount.
Each officer's employment may be terminated prior to the end of the term by
the Company upon the officer's death or disability, by the officer on 30-days'
written notice or by the Company for good cause (as defined in the employment
agreement). If the officer's employment is terminated by the Company for reasons
other than good cause, each officer is entitled to receive a severance benefit
equal to three times the officer's base salary and annual performance bonus
during the immediately preceding 12-month period. In addition, if a change in
control (as defined in the employment agreement) occurs and the officer's
employment is terminated upon the change in control or at any time during the
two-year period immediately following the change in control either by the
Company (except for death, disability, good cause or expiration of the term of
the employment agreement) or by the officer because of a significant reduction
in responsibilities, a reduction of the officer's annual base salary in effect
prior to the change in control, or a job relocation of more than 25 miles, then
the officer is entitled to receive an amount equal to three times the officer's
base salary and three times a pro rata portion of the officer's annual
performance bonus determined through the date of termination (along with an
additional gross-up amount in the event of imposition of any federal excise tax
on the payment). If a change of control had occurred on October 31, 1997, the
amount payable to each of the officers (assuming no annual performance bonus for
1997) would have been approximately $0.5 million. Each officer's employment
agreement also contains a noncompetition provision, which applies during the
officer's employment, and a noninterference provision, which applies during the
officer's employment and for 36 months thereafter if the officer's employment is
terminated for any reason.
Vice Presidents. In December 1996, the Company entered into an employment
agreement with Mrs. Paulk, pursuant to which Mrs. Paulk serves as a vice
president of the Company. The material terms of Mrs. Paulk's employment
agreement are the same as the terms of the employment agreements entered into
with Robert O. Snelling, Jr., and Messrs. Crews, Paulk and Spragins, except that
Mrs. Paulk's employment agreement (i) provides for a base salary of $135,000 per
year and (ii) does not provide for an annual performance bonus.
The Company entered into an employment agreement with Anne M. Snelling in
October 1997, pursuant to which Mrs. Snelling serves as a vice president of the
Company. The material terms of Mrs. Snelling's
41
<PAGE> 43
employment agreement are the same as the terms of Mr. Snelling's employment
agreement, except that Mrs. Snelling's employment agreement (i) provides for a
base salary of $25,000 per year and (ii) does not include any grant of
registration rights. Mrs. Snelling is a part-time employee of the Company.
STOCK OPTION PLANS
1997 Stock Option Plan. Pursuant to the Company's 1997 Stock Option Plan
(the "1997 Stock Option Plan"), options may be granted to eligible employees for
the purchase of an aggregate of 1,500,000 shares of Common Stock. Any shares
that are no longer subject to purchase pursuant to an option by reason of the
expiration of the option or otherwise may be re-offered under the 1997 Stock
Option Plan. Employees eligible under the 1997 Stock Option Plan are those whose
performance and responsibilities are determined to be instrumental to the
Company's success. The 1997 Stock Option Plan is administered by the
compensation committee of the board of directors which determines, in its
discretion, who will receive stock options, the number of shares subject to each
option granted and the related purchase price, and option period. Both
nonqualified stock options and incentive stock options, as defined by the
Internal Revenue Code, may be granted under the 1997 Stock Option Plan.
The 1997 Stock Option Plan requires that the exercise price for each stock
option must be not less than the fair market value of the Common Stock at the
time the option is granted, as determined by the compensation committee, and
that the option period may not be more than ten years from the date the option
is granted. No incentive stock option, however, may be granted to an employee
who owns more than 10% of the total combined voting power of all classes of
outstanding stock of the Company on the date of grant unless the option price is
at least 110% of the fair market value of the Common Stock on the date of grant
and the option period does not exceed five years. The fair market value of
incentive stock options that may be granted to an employee in any calendar year
is not limited, but no options granted under the 1997 Stock Option Plan to an
employee may be treated as incentive stock options to the extent that the
aggregate fair market value (determined as of the date of grant of such options)
of the options that first become exercisable during a calendar year to purchase
Common Stock exceeds $100,000. An incentive stock option (or an installment
thereof) counts against the annual limitation only in the year it first becomes
exercisable.
Options may be exercised in annual installments as specified by the
compensation committee, and all installments that become exercisable are
cumulative and may be exercised at any time after they become exercisable until
the option expires. Options are not assignable except by will or the laws of
descent and distribution. Full payment for shares purchased upon exercise of an
option must be made at the time of exercise, and no shares may be issued until
full payment is made. The 1997 Stock Option Plan provides that an option
agreement may permit an optionee to tender previously owned Common Shares in
partial or full payment for shares to be purchased on exercise of an option.
Unless sooner terminated by action of the board of directors, the 1997
Stock Option Plan will terminate in 2007. The 1997 Stock Option Plan may be
amended, altered or discontinued in certain respects by the board of directors
without shareholder approval. However, the 1997 Stock Option Plan may not be
amended without the approval of the shareholders (i) to materially increase the
number of securities that may be issued thereunder or (ii) to materially modify
the requirements of eligibility for participation in the 1997 Stock Option Plan.
No options have been granted under the 1997 Stock Option Plan as of the
date of this Prospectus.
1996 Stock Option Plan. Pursuant to the Company's 1996 Stock Option Plan
(the "1996 Stock Option Plan"), options may be granted to eligible employees for
the purchase of an aggregate of 2,978,287 shares of Class B Common Stock. Any
shares that are no longer subject to purchase pursuant to an option by reason of
the expiration of the option or otherwise may be re-offered under the 1996 Stock
Option Plan. Employees eligible under the 1996 Stock Option Plan are those whose
performance and responsibilities are determined to be instrumental to the
Company's success. The 1996 Stock Option Plan is administered by the board of
directors which determines, in its discretion, who will receive stock options,
the number of shares subject to each option granted and the related purchase
price, and option period. Both nonqualified stock options and incentive stock
options may be granted under the 1996 Stock Option Plan.
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<PAGE> 44
The 1996 Stock Option Plan requires that the exercise price for each stock
option must be not less than the fair market value of the Class B Common Stock
at the time the option is granted, as determined by the board of directors, and
that the option period may not be more than ten years from the date the option
is granted. No incentive stock option, however, may be granted to an employee
who owns more than 10% of the total combined voting power of all classes of
outstanding stock of the Company on the date of grant unless the option price is
at least 110% of the fair market value of the Class B Common Stock on the date
of grant and the option period does not exceed five years. The fair market value
of incentive stock options that may be granted to an employee in any calendar
year is not limited, but no options granted under the 1996 Stock Option Plan to
an employee may be treated as incentive stock options to the extent that the
aggregate fair market value (determined as of the date of grant of such options)
of the options that first become exercisable during a calendar year to purchase
Class B Common Stock exceeds $100,000. An incentive stock option (or an
installment thereof) counts against the annual limitation only in the year it
first becomes exercisable.
Options may be exercised in annual installments as specified by the board
of directors, and all installments that become exercisable are cumulative and
may be exercised at any time after they become exercisable until the option
expires. Options are not assignable except by will or the laws of descent and
distribution. Full payment for shares purchased upon exercise of an option must
be made at the time of exercise, and no shares may be issued until full payment
is made. The 1996 Stock Option Plan provides that an option agreement may permit
an optionee to tender previously owned shares of Class B Common Stock in partial
or full payment for shares to be purchased on exercise of an option.
Unless sooner terminated by action of the board or directors, the 1996
Stock Option Plan will terminate in 2006. The 1996 Stock Option Plan may be
amended, altered or discontinued in certain respects by the board of directors
without stockholder approval. However, the 1996 Stock Option Plan may not be
amended without the approval of the stockholders (i) to materially increase the
number of securities that may be issued thereunder or (ii) to materially modify
the requirements of eligibility for participation in the 1996 Stock Option Plan.
During 1996, options to purchase a total of 2,599,238 shares of Class B
Common Stock at a weighted exercise price of $3.85 per share were granted under
the 1996 Stock Option Plan to certain key employees of the Company. The Company
has granted options to purchase an additional 357,974 shares of Class B Common
Stock to other key employees at the initial public offering price upon
completion of this offering, provided the offering is completed before December
31, 1997.
1997 Non-Employee Directors Stock Option Plan. Pursuant to the Company's
1997 Non-Employee Directors Stock Option Plan (the "Directors Stock Option
Plan"), nonqualified stock options are granted to non-employee directors,
assuming there is an adequate number of shares available for grant under the
Directors Stock Option Plan at a specified grant date, under a formula whereby
(i) each non-employee director elected to the board of directors after the
effective date of this offering, at an annual shareholders' meeting who has not
previously served as a director of the Company will be granted an option to
purchase 5,000 shares of Common Stock of the Company, (ii) each non-employee
director appointed after such date to fill a vacancy in the board of directors
who has not previously served as a director of the Company will be granted an
option to purchase 5,000 shares of Common Stock of the Company and (iii) each
other non-employee director of the Company elected at, or continuing to serve
following, each annual shareholders' meeting commencing with the 1998 annual
shareholders' meeting will be granted an option to purchase 5,000 shares of
Common Stock of the Company. The aggregate number of shares of Common Stock that
may be granted during the ten-year term of the Directors Stock Option Plan is
150,000 shares. Unless sooner terminated by action of the board of directors,
the Directors Stock Option Plan will terminate in 2007, and no options may
thereafter be granted under the Directors Stock Option Plan.
The Directors Stock Option Plan requires that the exercise price of each
option must not be less than 100% of the fair market value of the Common Stock
at the time of the grant of the option. The period during which each option is
exercisable will commence six months after the date the option is granted and
will expire five years from the grant date or, if earlier, three months
following the non-employee director's death or
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<PAGE> 45
disability or 30 days following the date a non-employee director ceases to be a
director of the Company. Options are not assignable other than by will or by the
laws of descent and distribution.
No options have been granted under the Directors Stock Option Plan as of
the date of this Prospectus.
Franchisee Stock Option Offer Program. Beginning January 1, 1998, subject
to completion of the offering, the Company intends to implement a stock option
offer program for franchisees, pursuant to which nonqualified stock options to
purchase up to 800,000 shares of Common Stock may be granted to eligible
franchisees with respect to a three-year period. In order to participate in the
program, a franchise will be required to execute a franchisee stock option
program participation agreement. The Company expects that options granted for
each calendar year during the program will be determined based on a formula set
annually by the compensation committee of the board of directors. In general,
options granted to participating franchisees pursuant to this program will have
an exercise price equal to the average of the closing sales price of the Common
Stock for the three trading days prior to the date of the option grant, may be
exercised in annual installments over a five-year period and will have an option
period of not more than 10 years from the date the option is granted. Options
will be granted only to participating franchisees who or which are in
compliance, on the date of grant, with their respective franchise agreement or
agreements and with the option program participation agreement. Options may be
granted for no more than 266,667 shares of Common Stock with respect to each of
1998 and 1999 and no more than 266,666 shares of Common Stock for 2000. Options
may be granted on or before May 1, 2001.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executive officers concerning exercise of stock options during 1996 and
unexercised options held as of the end of 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END(#)(1) FISCAL YEAR-END($)(2)
------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert O. Snelling, Sr.................... -- -- -- --
Timothy J. Loncharich..................... 173,282 259,924 -- --
Robert O. Snelling, Jr.................... 541,508 -- -- --
J. Russell Crews.......................... 541,508 -- -- --
</TABLE>
- ---------------
(1) Class B Common Stock.
(2) Calculated based on the fair market value of the Company's common stock as
of December 31, 1996, as determined by the board of directors pursuant to,
among other things, an independent valuation and sales of the Company's
common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Although the Company has no present intention to do so, it may in the
future enter into other transactions and agreements incident to its business
with its directors, officers, principal shareholders and other affiliates.
Company intends for all such transactions and agreements to be on terms no less
favorable to the Company than those obtainable from unaffiliated third-parties
on an arms-length basis. In addition, all such transactions will be approved by
a majority of the Company's disinterested directors.
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<PAGE> 46
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Shares of the Company, as of October 31, 1997
(the "Ownership Date"), before and after giving effect to the sale of shares of
Common Stock in this offering, by (i) each director, (ii) each named executive
officer, (iii) all directors and executive officers as a group, (iv) each person
known by the Company to own beneficially more than 5% of the outstanding shares
of any class of Common Shares and (v) the Selling Shareholder.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED PERCENTAGE PRIOR PERCENTAGE AFTER
PRIOR TO OFFERING(1) TO OFFERING OFFERING
--------------------- ----------------- NUMBER -----------------
SHARES OF OF SHARES
SHARES OF CLASS B TOTAL TOTAL BEING TOTAL TOTAL
COMMON COMMON COMMON VOTING SOLD IN COMMON VOTING
NAME STOCK STOCK SHARES POWER OFFERING SHARES POWER
---- --------- --------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert O. Snelling, Sr.(2)......... -- 3,825,136 52.4% 52.4% 416,667 33.3% 47.3%
Timothy J. Loncharich(3)........... -- 259,923 4.8% 4.8% -- 3.1% 4.9%
Robert O. Snelling, Jr.(4)......... -- 3,730,958 65.8% 65.8% -- 43.4% 66.8%
J. Russell Crews(5)................ -- 3,072,129 54.2% 54.2% -- 35.7% 55.0%
Krista C. Coppock(6)............... -- 2,488,199 48.5% 48.5% -- 30.9% 49.3%
Lee Alan Coppock, Jr.(7)........... -- 2,450,293 47.8% 47.8% -- 30.4% 48.6%
Leigh S. Crews(8).................. -- 2,485,491 48.5% 48.5% -- 30.8% 49.3%
Charles B. Fulton, Jr.(9).......... -- 487,901 9.5% 9.5% -- 6.1% 9.7%
Melinda S. Paulk(10)............... -- 2,485,491 48.5% 48.5% -- 30.8% 49.3%
Robert R. Paulk(11)................ -- 3,072,123 54.2% 54.2% -- 35.7% 55.0%
Carol A. Snelling(12).............. -- 2,485,491 48.5% 48.5% -- 30.8% 49.3%
Richard H. Spragins(13)............ -- 3,072,123 54.2% 54.2% -- 35.7% 55.0%
Sherri S. Spragins(14)............. -- 2,485,491 48.5% 48.5% -- 30.8% 49.3%
Arimathea Associates, Ltd.(15)..... -- 2,450,293 47.8% 47.8% -- 30.4% 48.6%
All directors and executive
officers as a group (6
persons)(16)..................... -- 7,309,707 96.8% 96.8% 416,667 65.7% 92.2%
</TABLE>
- ---------------
(1) A person is deemed to be the beneficial owner of a security if the person,
directly or indirectly, has or shares the power to vote or direct the
voting of the security or the power to dispose or direct the disposition of
the security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days of the Ownership Date. Accordingly, more than one person may
be deemed to be a beneficial owner of the same securities. Unless otherwise
indicated by footnote, the named individuals have sole voting and
investment power with respect to the Common Shares beneficially owned.
Unless otherwise indicated, the address of any listed principal shareholder
is 12801 North Central Expressway, Suite 700, Dallas, Texas 75243.
(2) Includes (i) 1,035,825 shares of Class B Common Stock over which Mr.
Snelling, Sr., has sole voting and investment power; (ii) 487,901 shares
Class B Common Stock over which Mr. Snelling, Sr., has shared voting and
investment power as a co-trustee along with Charles B. Fulton, Jr.; (iii)
an aggregate of 135,378 shares of Class B Common Stock held by Messrs.
Crews, Paulk, and Spragins over which Mr. Snelling, Sr., has sole voting
power pursuant to an irrevocable, ten-year proxy (the "Snelling Proxy")
granted by such owners on January 15, 1997; and (iv) an aggregate of
2,166,032 shares of Class B Common Stock issuable upon the exercise of
options granted to Robert O. Snelling, Jr., and Messrs. Crews, Paulk and
Spragins under the 1996 Stock Option Plan over which Mr. Snelling, Sr.,
will have sole voting power upon issuance pursuant to the Snelling Proxy.
Mr. Snelling, Sr., disclaims beneficial ownership of the shares of Class B
Common Stock described in clauses (ii), (iii) and (iv) above.
Contemporaneously with the closing of this offering, Mr. Snelling, Sr.,
will convert 416,667 shares of Class B Common Stock into the same number of
shares of Common Stock, which will be sold in the offering. See
"Description of Capital Stock -- Common Stock" regarding the conversion
rights and restrictions on transfer of the Class B Common Stock.
45
<PAGE> 47
(3) Includes 259,923 shares of Class B Common Stock issuable upon the exercise
of options granted under the 1996 Stock Option Plan that are currently
exercisable.
(4) Includes (i) 739,157 shares of Class B Common Stock, of which 35,198 shares
are held by Mr. Snelling, Jr., with his wife, Carol A. Snelling, as tenants
in common; (ii) 2,450,293 shares of Class B Common Stock held by Arimathea
Associates, Ltd., a Texas limited partnership ("Arimathea"), over which Mr.
Snelling, Jr., has shared voting and investment power as a 10.8% limited
partner and a 10% shareholder and director of Arimathea's corporate general
partner, Nehemiah, Inc., a Texas corporation ("Nehemiah"); and (iii)
541,508 shares of Class B Common Stock issuable upon the exercise of
options granted under the 1996 Stock Option Plan that are currently
exercisable, but over which Mr. Snelling, Sr., will have sole voting power
upon issuance pursuant to the Snelling Proxy. Mr. Snelling, Jr., disclaims
beneficial ownership of the shares of Class B Common Stock held by
Arimathea, except to the extent such shares are attributable to his limited
partner interest and indirect general partner interest.
(5) Includes (i) 45,130 shares of Class B Common Stock, the voting power of all
of which has been granted to Mr. Snelling, Sr., pursuant to the Snelling
Proxy; (ii) 35,198 shares of Class B Common Stock held by Mr. Crews and his
wife, Leigh S. Crews, as tenants in common; (iii) 2,450,293 shares of Class
B Common Stock held by Arimathea over which Mr. Crews has shared voting and
investment power as a 7.4% limited partner and a 10% shareholder and
director of Nehemiah; and (iv) 541,508 shares of Class B Common Stock
issuable upon the exercise of options granted under the 1996 Stock Option
Plan that are currently exercisable, but over which Mr. Snelling, Sr., will
have sole voting power upon issuance pursuant to the Snelling Proxy. Mr.
Crews disclaims beneficial ownership of the shares of Class B Common Stock
held by Arimathea, except to the extent such shares are attributable to his
limited partner interest and indirect general partner interest.
(6) Includes (i) 37,906 shares of Class B Common Stock; and (ii) 2,450,293
shares of Class B Common Stock held by Arimathea over which Mrs. Coppock
has shared voting and investment power as a 10.8% limited partner and a 10%
shareholder of Nehemiah. Mrs. Coppock disclaims beneficial ownership of the
shares of Class B Common Stock held by Arimathea, except to the extent such
shares are attributable to her limited partner interest and indirect
general partner interest. Mrs. Coppock's father is Mr. Snelling, Sr. Mrs.
Coppock's address is 3327 S. Manor Way, Osseo, Michigan 49266.
(7) Includes 2,450,293 shares of Class B Common Stock held by Arimathea over
which Mr. Coppock has shared voting and investment power as a 7.4% limited
partner and a 10% shareholder of Nehemiah. Mr. Coppock disclaims beneficial
ownership of the shares of Class B Common Stock held by Arimathea, except
to the extent such shares are attributable to his limited partner interest
and indirect general partner interest. Mr. Coppock's address is 3327 S.
Manor Way, Osseo, Michigan 49266.
(8) Includes (i) 35,198 shares of Class B Common Stock held by Mr. and Mrs.
Crews as tenants in common; and (ii) 2,450,293 shares of Class B Common
Stock held by Arimathea over which Mrs. Crews has shared voting and
investment power as a 10.8% limited partner and a 10% shareholder of
Nehemiah. Mrs. Crews disclaims beneficial ownership of the shares of Class
B Common Stock held by Arimathea, except to the extent such shares are
attributable to her limited partner interest and indirect general partner
interest. Mrs. Crews' mother is Mrs. Snelling, Sr.
(9) Includes 487,901 shares of Class B Common Stock held by the Joan E.
Snelling Trust over which Mr. Fulton has shared voting and investment power
as a co-trustee along with Mr. Snelling, Sr. Mr. Fulton disclaims
beneficial ownership of such shares. Mr. Fulton's address is 1580 Murdock
Road, Marietta, Georgia 30060.
(10) Includes (i) 35,198 shares of Class B Common Stock held by Mrs. Paulk and
her husband, Robert R. Paulk, as tenants in common; and (ii) 2,450,293
shares of Class B Common Stock held by Arimathea over which Mrs. Paulk has
shared voting and investment power as a 10.8% limited partner and a 10%
shareholder and director of Nehemiah. Mrs. Paulk disclaims beneficial
ownership of the shares of Class B Common Stock held by Arimathea, except
to the extent such shares are attributable to her limited partner interest
and indirect general partner interest. Mrs. Paulk's mother is Mrs.
Snelling, Sr.
46
<PAGE> 48
(11) Includes (i) 45,124 shares of Class B Common Stock, the voting power of all
of which has been granted to Mr. Snelling, Sr., pursuant to the Snelling
Proxy; (ii) 35,198 shares of Class B Common Stock held by Mr. and Mrs.
Paulk as tenants in common; (iii) 2,450,293 shares of Class B Common Stock
held by Arimathea over which Mr. Paulk has shared voting and investment
power as a 7.4% limited partner and a 10% shareholder of Nehemiah; and (iv)
541,508 shares of Class B Common Stock issuable upon the exercise of
options granted under the 1996 Stock Option Plan that are currently
exercisable, but over which Mr. Snelling, Sr., will have sole voting power
upon issuance pursuant to the Snelling Proxy. Mr. Paulk disclaims
beneficial ownership of the shares of Class B Common Stock held by
Arimathea, except to the extent such shares are attributable to his limited
partner interest and indirect general partner interest.
(12) Includes (i) 35,198 shares of Class B Common Stock that are held by Mrs.
Snelling and her husband, Robert O. Snelling, Jr., as tenants in common;
and (ii) 2,450,293 shares of Class B Common Stock held by Arimathea over
which Mrs. Snelling has shared investment power as a 7.4% limited partner
and a 10% shareholder of Nehemiah. Mrs. Snelling disclaims beneficial
ownership of the shares of Class B Common Stock held by Arimathea, except
to the extent such shares are attributable to her limited partner interest
and indirect general partner interest.
(13) Includes (i) 45,124 shares of Class B Common Stock, the voting power of all
of which has been granted to Mr. Snelling, Sr., pursuant to the Snelling
Proxy; (ii) 35,198 shares of Class B Common Stock held by Mr. Spragins and
his wife, Sherri S. Spragins, as tenants in common; (iii) 2,450,293 shares
of Class B Common Stock held by Arimathea over which Mr. Spragins has
shared investment power as a 10.8% limited partner and a 10% shareholder
and director of Nehemiah; and (iv) 541,508 shares of Class B Common Stock
issuable upon the exercise of options granted under the 1996 Stock Option
Plan that are currently exercisable, but over which Mr. Snelling, Sr., will
have sole voting power upon issuance pursuant to the Snelling Proxy. Mr.
Spragins disclaims beneficial ownership of the shares of Class B Common
Stock held by Arimathea, except to the extent such shares are attributable
to his limited partner interest and indirect general partner interest. Mr.
Spragins' mother is Mrs. Snelling, Sr.
(14) Includes (i) 35,198 shares of Class B Common Stock held by Mr. and Mrs.
Spragins as tenants in common; and (ii) 2,450,293 shares of Class B Common
Stock held by Arimathea over which Mrs. Spragins has shared voting and
investment power as a 7.4% limited partner and a 10% shareholder of
Nehemiah. Mrs. Spragins disclaims beneficial ownership of the shares of
Class B Common Stock held by Arimathea, except to the extent such shares
are attributable to her limited partner interest and indirect general
partner interest.
(15) Includes 2,450,293 shares of Class B Common Stock over which Nehemiah, as
Arimathea's corporate general partner, has voting and investment power.
(16) Includes options to purchase 2,425,955 shares of Class B Common Stock
issuable upon the exercise of options granted under the 1996 Stock Option
Plan that are currently exercisable. Mr. Snelling, Sr., will have sole
voting power over an aggregate of 2,166,032 of such shares upon issuance
pursuant to the Snelling Proxy.
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<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
Prior to the effectiveness of the registration statement of which this
Prospectus forms a part, the Company will (i) file its Second Amended and
Restated Articles of Incorporation (the "Charter") with the Commonwealth of
Pennsylvania, which will, among other things, reclassify the 946,778 outstanding
shares of its common stock, par value $0.05 per share ("Old Common Stock") into
5,126,904 shares of Class B Common Stock, with any resulting fractional shares
rounded up to the next whole share, and (ii) adopt amended and restated Bylaws
(the "Bylaws"). The actual number of outstanding shares of Class B Common Stock,
which may differ based upon rounding, will not be determined until the effective
date, but is not expected to differ materially. Both the Charter and the Bylaws
will become effective upon the effective date of the registration statement of
which this Prospectus forms a part. The following summary of certain provisions
of the Company's capital stock gives effect to the Charter, including the
reclassification, and the Bylaws. The following summary does not purport to be
complete and is subject to, and qualified in its entirety by, the Charter and
the Bylaws, the forms of which are included as exhibits to the registration
statement of which this Prospectus forms a part, and by provisions of applicable
law.
The Company is authorized to issue up to 100,000,000 shares of Common
Stock, par value $0.01 per share, up to 15,000,000 shares of Class B Common
Stock, par value $0.01 per share, and up to 10,000,000 shares of Preferred
Stock, par value $0.01 per share. Prior to this offering, the Company had issued
and outstanding 946,778 shares of Old Common Stock (5,126,904 shares of Class B
Common Stock after giving effect to the reclassification), which were held, as
of October 31, 1997, by 39 holders of record, and no Common Shares or Preferred
Stock were outstanding. Upon consummation of this offering, 3,350,000 shares of
Common Stock will be outstanding.
PREFERRED STOCK
The board of directors of the Company is authorized (without any further
action by the shareholders) to issue Preferred Stock in one or more series and
to fix voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. The board of directors may issue Preferred
Stock for the consideration and on the terms it deems desirable. Satisfaction of
any dividend preferences of outstanding Preferred Stock would reduce the amount
of funds available for the payment of dividends on Common Shares. Also, holders
of Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of Common Shares. In addition, under certain
circumstances, the issuance of Preferred Stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management. The board of directors of the Company, without shareholder
approval, may issue Preferred Stock with voting and conversion rights which
could adversely affect the holders of Common Shares. The Company has no present
intention to issue any shares of Preferred Stock.
COMMON SHARES
Voting Rights. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters submitted
to a vote of the shareholders. Except as otherwise provided by law, in any
resolution or resolutions of the board of directors of the Company providing for
the issuance of Preferred Stock, or on a vote to alter or change the rights,
privileges, restrictions or powers of the holders of the Common Shares, the
Common Stock and the Class B Common Stock vote together as a single class on all
matters presented for a vote of the shareholders. Any change in the rights,
privileges, restrictions or powers of the holders of the Common Shares requires
a vote of not less than 80% of all votes entitled to be voted by the holders of
each class to be adversely affected, voting as a separate class. The Company's
Common Shares do not have cumulative voting rights.
Dividends, Liquidation Rights and Pre-emptive Rights. The Common Shares
share equally in any dividends when, as and if declared. In the event of any
dissolution, liquidation or winding up of the affairs of
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<PAGE> 50
the Company, after payment or provision for payment of the debts or other
liabilities of the Company, the remaining assets and funds of the Company will
be divided equally among the record holders of the Common Shares. The Common
Shares do not have pre-emptive rights.
Conversion Rights. The Common Stock has no conversion rights. Each share of
Class B Common Stock will be convertible at any time, at the option of and
without cost to the shareholder, into one fully paid and nonassessable share of
Common Stock upon surrender to the Company's transfer agent of the certificate
or certificates evidencing the Class B Common Stock to be converted, together
with a written notice of the election of such shareholder to convert such shares
into Common Stock. Each conversion of shares of Class B Common Stock shall be
deemed to have been effected on the date on which the certificate or
certificates representing such shares shall have been surrendered and such
notice and any required instruments of transfer shall have been received. Upon
any conversion of shares of Class B Common Stock into shares of Common Stock, no
adjustment with respect to dividends shall be made. Shares of Class B Common
Stock converted into Common Stock shall be retired and shall resume the status
of authorized but unissued shares of Class B Common Stock.
Restrictions on Transfer of Class B Common Stock. Shares of Class B Common
Stock are freely transferable among Permitted Transferees (as hereinafter
defined), but any other transfer of Class B Common Stock will result in its
automatic conversion into Common Stock. In the case of a person or entity
holding record ownership of shares of Class B Common Stock (a "Class B Holder")
who is a natural person and the beneficial owner of the shares of Class B Common
Stock to be transferred, a Permitted Transferee consists of the following: (i)
the Class B Holder's spouse (provided, however, that upon divorce any Class B
Common Stock held by the spouse shall automatically be converted into Common
Stock); (ii) any family member of the Class B Holder, which includes any lineal
descendant of a parent of the Class B Holder, any spouse of such lineal
descendant and a lineal descendant of a parent of the spouse of the Class B
Holder, including in each case any adopted children; (iii) the trustee of a
trust for the sole benefit of the Class B Holder or any of the Class B Holder's
family members; (iv) any organization established by the Class B Holder or any
of the Class B Holder's family members, contributions to which are deductible
for federal income, estate or gift tax purposes and a majority of whose
governing board at all times consists of such Class B Holder and/or one or more
Permitted Transferees; (v) the estate of the Class B Holder; (vi) a corporation
wholly owned by, or a partnership in which all of the partners are, and all of
the partnership interests are owned by, such Class B Holder and/or one or more
of the Class B Holder's family members and/or Permitted Transferees (provided,
however, that if there is any change in the shareholders of the corporation or
the partners of the partnership that would cause the corporation or partnership
no longer to be a Permitted Transferee, any Class B Common Stock held by the
corporation or partnership shall automatically be converted into Common Stock);
and (vii) any other Class B Holder who or which is the beneficial owner of
shares of Class B Common Stock.
In the case of a Class B Holder that is a partnership or corporation and
the beneficial owner of the shares of Class B Common Stock, a Permitted
Transferee consists of: (i) the partnership's partners or the corporation's
shareholders, as the case may be; (ii) any transferor to the partnership or
corporation of shares of Class B Common Stock after October 21, 1997 (the
"Record Date"); (iii) any shareholder of such corporation on the Record Date and
who receives shares of Class B Common Stock pro rata to the shareholder's stock
ownership in such corporation through a dividend or through a distribution made
upon liquidation of such corporation; (iv) any Permitted Transferee of any such
person, partner or shareholder referred to in clauses (i), (ii) or (iii); and
(v) the survivor of a merger or consolidation of such corporation if those
persons who beneficially owned sufficient shares entitled to elect at least a
majority of the entire board of directors of such corporation immediately prior
to the merger or consolidation beneficially own sufficient shares entitled to
elect at least a majority of the entire board of directors of the survivor. In
the case of a Class B Holder that is an irrevocable trust on the Record Date, a
Permitted Transferee consists of: (i) any successor trustee of such trust who
meets the requirements set forth in clause (ii) or (iii) below; (ii) any person
to whom or for whose benefit principal may be distributed under the terms of
such trust or any person to whom such trust may be obligated to make future
transfers; and (iii) any lineal descendant of a parent of the creator of such
trust including adopted children and any such descendant's spouse. In the case
of a Class B Holder that is any trust other than an irrevocable trust on the
Record Date, a Permitted Transferee consists of:
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<PAGE> 51
(i) any successor trustee who meets the requirements set forth in clause (ii)
below; and (ii) the person who established such trust and any Permitted
Transferee of such person. In the case of a Class B Holder that is the estate of
a deceased Class B Holder, or that is the estate of a bankrupt or insolvent
Class B Holder, and provided such deceased, bankrupt or insolvent Class B Holder
held record and beneficial ownership of the shares of Class B Common Stock in
question, a Permitted Transferee means a Permitted Transferee of such deceased,
bankrupt or insolvent Class B Holder. In the case of a record, but not
beneficial, owner of Class B Common Stock as nominee for the person who is the
beneficial owner thereof on the Record Date, a Permitted Transferee consists
only of such beneficial owner of the Class B Common Stock and any Permitted
Transferee of such beneficial owner.
The restriction on transfers of shares of Class B Common Stock to other
than a Permitted Transferee may preclude or delay a change in control of the
Company.
CERTAIN PROVISIONS OF THE CHARTER AND BYLAWS
Antitakeover Provisions. The Charter and Bylaws contain certain provisions,
as described below, that, in addition to the voting power of the Class B Common
Stock and the authorization of the Preferred Stock, may reduce the likelihood of
a change in management or voting control of the Company without the consent of
the Company's board of directors. These provisions could have the effect of
delaying, deterring or preventing tender offers or takeover attempts that some
or a majority of the Company's shareholders might consider to be in the
shareholders' best interest, including offers or attempts that might result in a
premium over the market price for the Common Stock.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Company's Bylaws establish advance notice procedures with
regard to shareholder proposals and the nomination, other than by or at the
direction of the board of directors or a committee thereof, of candidates for
election as directors. These procedures provide that the notice of shareholder
proposals and shareholder nominations for the election of directors at an annual
meeting must be in writing and delivered to or mailed and received at the
principal executive offices of the Company not later than the date that
corresponds to 120 days prior to the date the Company's proxy statement was
released to shareholders in connection with the previous year's annual meeting
of shareholders; provided, however, that in the event that the date of the
annual meeting is changed by more than 30 days from such anniversary date,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure of the meeting
date was made. Shareholder proposals and nominations for the election of
directors at a special meeting must be in writing and received by the Secretary
of the Company no later than the close of business on the tenth day following
the day on which notice of the meeting was mailed or public disclosure of the
date of the meeting was made. The notice of director nominations and the notice
of shareholder proposals must set forth certain information as detailed in the
Company's Bylaws.
Certain Effects of Authorized But Unissued Stock. Unissued and unreserved
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital and for facilitating corporate
acquisitions. Except pursuant to certain employee benefit plans described in
this Prospectus, the Company does not currently have any plans to issue
additional shares of Common Stock, Class B Common Stock or Preferred Stock. One
of the effects of unissued and unreserved shares of capital stock may be to
enable the board of directors to render more difficult or discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary obligations, for example,
the board of directors determines that a takeover proposal was not in the
Company's best interests, such shares could be issued by the board of directors
without shareholder approval in one or more private transactions or other
transactions that might prevent or render more difficult or costly the
completion of the takeover transaction by diluting the voting or other rights of
the proposed acquiror or insurgent shareholder group, by creating a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent board of directors, by effecting an acquisition that
might complicate or preclude the takeover or otherwise.
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<PAGE> 52
Removal of Directors. The Charter provides that directors may only be
removed from the board of directors for cause and by the affirmative vote of the
holders of 80% or more of the voting interest of the shareholders of record of
the Company entitled to vote at an annual or special meeting called for that
purpose.
Anti-Greenmail. The Charter contains a so-called "anti-greenmail"
provision, which is intended to discourage speculators who accumulate beneficial
ownership of a significant block of voting shares of the Company and then, under
the threat of making a tender offer or proxy contest or instigating some other
corporate disruption, succeed in extracting from the Company a premium price to
repurchase the shares acquired by the speculator. This tactic has become known
as "greenmail." The anti-greenmail provision entitles the Company to recover any
profit (as defined in the Charter) by a controlling person or group from the
disposition of any shares, or any securities exercisable for or convertible into
shares, of the Company, to any person, including the Company or another member
of the controlling person or group, whether or not the profit is actually
realized by the controlling person or group. This recovery right applies if the
shares or other securities were acquired within 24 months before and 18 months
after the person or group attains the status of a controlling person or group
and the disposition is within 18 months after the person or group attains such
status. The term "controlling person" or group" is defined as follows: (i) a
person or group who has acquired, offered to acquire or, directly or indirectly,
publicly disclosed the intention of acquiring voting power over voting shares of
the Company that would entitle the holder thereof to cast at least 10% of the
votes that all shareholders would be entitled to cast in an election of
directors of the Company; or (ii) a person or group who has otherwise, directly
or indirectly, publicly disclosed or caused to be disclosed that it may seek to
acquire control of the Company through any means. A person or group shall not be
deemed a controlling person or group (absent significant other activities
indicating that the person or group should be deemed a controlling person or
group) if the person or group is one who or which: (A)(i) did not acquire the
voting shares for the purpose, directly or indirectly, of changing or
influencing control of the Company; (ii) if control were acquired, would not be
a person or group or a participant in a group that has control over the Company
and will not receive any disproportionate consideration from such a person or
group; and (iii) if a proxy or consent is given, executes a revocable proxy or
consent given without consideration in response to a proxy or consent
solicitation made in accordance with the rules and regulations under the
Exchange Act; or (B)(i) holds voting power in good faith, and not for the
purpose of circumventing the Company, as an agent or nominee; or (ii) holds
voting power in connection with the solicitation of proxies or consents by or on
behalf of the Company. This anti-greenmail provision does not apply to certain
transactions, including a transfer of equity securities of the Company
consummated before July 31, 1997, and a transfer of equity securities by or to a
person or group that as of July 31, 1997, beneficially owned shares entitling
the person or group to cast at least 10% of the Company's voting shares.
The Charter provides that the affirmative vote of the holders of 80% or
more of the outstanding shares entitled to vote, voting together as a single
class, is required to amend or repeal or adopt any provision inconsistent with
the Company's anti-greenmail provisions.
Limitations on Liability of Directors and Executive Officers. The Charter
limits the liability of directors and executive officers. Specifically,
directors and executive officers will not be held personally liable to the
Company or its shareholders for monetary damages for any action taken, or any
failure to take any action, in their capacity as a director or executive
officer, unless (i) the director or executive officer has breached or failed to
perform the duties of his or her office under the Charter, the Bylaws or
applicable provisions of law and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The limitations on
liability do not apply to the responsibility or liability of a director or an
executive officer pursuant to any criminal statute or for the payment of taxes
pursuant to federal, state or local law.
The principal effect of the limitation of liability provision is that a
shareholder is unable to prosecute an action for monetary damages against a
director or an executive officer of the Company unless the shareholder can
demonstrate one of the specified bases for liability. This provision does not
eliminate the directors' or the executive officers' duty of care, but it may
discourage or deter shareholders or management from bringing a lawsuit against
directors or executive officers for a breach of fiduciary duties, even though
such an action, if successful, might otherwise benefit the Company and its
shareholders. This provision does not eliminate or limit director or executive
officer liability arising in connection with causes of action brought under the
federal
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securities laws. In addition, this provision should not affect the availability
of equitable remedies such as injunction or rescission based upon a director's
breach of the duty of care.
Indemnification. The Bylaws provide that the Company is generally required
to indemnify its directors and officers, and any other person designated as an
indemnified representative by the board of directors, for all judgments, fines,
settlements, legal fees and other expenses incurred in connection with pending
or threatened legal proceedings because of the director's or officer's position
with the Company or another entity that the director, officer or representative
serves at the Company's request, subject to certain conditions, and to advance
funds to its directors, officers and representatives to enable them to defend
against such proceedings upon receipt of any undertaking by or on behalf of the
director, officer or representative to repay the amount if it is ultimately
determined that he is not entitled to be indemnified by the Company as
authorized by the Pennsylvania Business Corporation Law or otherwise. Conditions
that bar indemnification against liabilities arising from conduct include (i)
where the conduct of the indemnified director, officer or representative has
been determined to constitute willful misconduct or recklessness under the
Pennsylvania Business Corporation Law or any superseding provision of law and
(ii) self-dealing, which means the receipt of personal benefit from the
corporation to which the authorized director, officer or representative is not
legally entitled. To receive indemnification, the director, officer or
representative must have been successful in the legal proceeding or acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the Company's best interests.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is Chase
Mellon Shareholder Services LLC.
LISTING
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "SNEL."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,350,000 shares of
Common Stock and 4,710,237 shares of Class B Common Stock outstanding. There
will also be outstanding employee stock options to purchase an aggregate of
2,957,212 shares of Class B Common Stock. All of the shares of Common Stock,
which are being sold in this offering, will be freely transferable without
restriction or further registration under the Securities Act, except that shares
purchased by "affiliates" of the Company may generally be sold only in
compliance with applicable provisions of Rule 144 under the Securities Act. The
shares of Class B Common Stock are, and any shares issued upon the exercise of
stock options will be, "restricted securities" within the meaning of Rule 144
and may not be sold without registration under the Securities Act or an
applicable exemption under the Securities Act, including an exemption pursuant
to Rule 144. Except for private sales involving a limited number of permitted
transferees, any sale of shares of Class B Common Stock will result in the
simultaneous conversion of the shares to shares of Common Stock. See
"Description of Capital Stock -- Common Shares."
Rule 144 as currently in effect provides that an affiliate of the Company
or a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities for at least one year is entitled to sell, commencing 90
days after the date of this Prospectus, within any three-month period, a number
of shares that does not exceed the greater of 1% of the then outstanding shares
of the Common Stock (80,602 shares immediately after this offering) and the
average weekly reported trading volume in the Common Stock during the four
calendar weeks preceding the sale. Sales under Rule 144 also are subject to
certain notice and manner-of-sale requirements and the availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not an affiliate of the Company (in general, a person who is
not a director, officer or principal shareholder of the Company) during the
three months prior to resale and who has beneficially owned the restricted
securities for at least two years is entitled to sell the restricted securities
under Rule 144 without regard to the requirements discussed above.
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Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act may be
relied upon with respect to the resale of shares of Class B Common Stock
originally purchased from the Company by its employees, directors or officers
prior to the date the Company becomes subject to the reporting requirements of
the Exchange Act pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. Shares of Class B Common
Stock issued in reliance on Rule 701 are restricted securities and, commencing
90 days after the date of this Prospectus, may be sold by persons other than
affiliates under Rule 144, subject to the provisions regarding manner of sale
under Rule 144, and by affiliates under Rule 144 without compliance with its
holding period requirements.
The Company, its officers and directors and certain shareholders, who will
collectively own 4,656,614 shares of Class B Common Stock immediately following
this offering, have agreed that for a period of 180 days after the date of this
Prospectus they will not offer, sell, agree to sell, grant any option to
purchase or make any other disposition (excluding certain pledges) of any Common
Shares or any securities convertible into or exchangeable for Common Shares
(except for options granted pursuant to the Company's stock option plans
disclosed in this Prospectus) without the prior written consent of Smith Barney.
There has been no active public market for the Company's common stock since
1990, and no prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of the shares for future sale will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock in the public market following this
offering could adversely affect the market price of the Common Stock.
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UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, each of the Underwriters named below has severally agreed to
purchase, and the Company has agreed to sell to the Underwriters, the respective
number of shares of Common Stock set forth opposite the name of each
Underwriter:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Smith Barney Inc............................................
Rauscher Pierce Refsnes, Inc................................
Total............................................. 3,350,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to accept delivery of the shares of Common Stock offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all shares
of Common Stock offered hereby (other than shares covered by the over-allotment
option described below) if any shares are purchased.
The Underwriters, for whom Smith Barney and Rauscher Pierce Refsnes, Inc.,
are acting as Representatives, propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares to certain dealers at a price
that represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Representatives have advised the Company
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 502,500
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus minus the underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the sale of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company, its officers and directors and certain shareholders, who will
collectively own 4,656,614 shares of Class B Common Stock immediately following
this offering, have agreed that for a period of 180 days after the date of this
Prospectus they will not offer, sell, agree to sell, grant any option to
purchase or make any other disposition (excluding certain pledges) of any Common
Shares or any securities convertible into or exchangeable for Common Shares
(except for options granted pursuant to the Company's stock option plans
disclosed in this Prospectus) without the prior written consent of Smith Barney.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters may engage in over-allotment, stabilizing transactions,
covering transactions and penalty bids in accordance with Regulation M under the
Exchange Act. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions permit
bids for and purchases of the Common Stock so long as the stabilizing bids do
not exceed a specified maximum. Syndicate covering transactions involve
purchases of the Common Stock in the open market in
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<PAGE> 56
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the shares of
Common Stock originally sold by such syndicate member are purchased in a
stabilizing transaction or syndicate covering transaction to cover syndicate
short positions. Such stabilizing transactions, syndicate covering transactions
and penalty bids may cause the price of the Common Stock to be higher than it
would otherwise be in the absence of such transactions. These transactions may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
There has not been any public market for the Company's common stock since
1990. Consequently, the initial public offering price for the shares of Common
Stock included in this offering was determined by negotiations between the
Company and the Representatives. Among the factors considered in determining the
price were the history of and prospects for the Company's business and the
industry in which it competes, an assessment of the Company's management and the
present state of the Company's development, the past and present revenues and
earnings of the Company, the prospects for growth of the Company's revenues and
earnings, the current state of the economy in the United States, the current
level of economic activity in the industry in which the Company competes and in
related or comparable industries and current prevailing conditions in the
securities markets, including current market valuations of publicly traded
companies that are comparable to the Company.
The Common Stock has been approved for listing on the Nasdaq National
Market under the symbol "SNEL".
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock covered by this
Prospectus will be passed upon for the Company by Gardere & Wynne, L.L.P.,
Dallas, Texas. Certain legal matters pertaining to the Common Stock will be
passed upon for the Underwriters by Manatt, Phelps & Phillips, LLP, Los Angeles,
California.
EXPERTS
The Consolidated Financial Statements and related schedules of the Company
as of December 31, 1995 and 1996, and for each of the two fiscal years then
ended, for the seven months ended December 31, 1994, and for the fiscal year
ended May 31, 1994, and the combined financial statements of the B.A.T. Group as
of December 31, 1994 and 1995, and for each of the two years then ended,
appearing in this Prospectus and the registration statement have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their reports thereon appearing elsewhere in this Prospectus, and are included
upon the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which is a part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits filed therewith. For further information concerning the Company and the
Common Stock, reference is made to the registration statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
as to the contents of any contract, agreement or other document are not
necessarily complete, and, in each instance, reference is made to the copy of
the document filed as an exhibit to the registration statement. Copies of the
registration statement and the exhibits may be inspected without charge at the
public reference section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such documents may be obtained from the public reference section of the
Commission upon payment of the prescribed fees or on the Internet at
http://www.sec.gov.
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The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
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<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements -- Snelling and Snelling, Inc.
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Earnings....................... F-4
Consolidated Statement of Changes in Shareholders'
Equity................................................. F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
Financial Statements -- B.A.T. Group
Report of Independent Certified Public Accountants........ F-18
Combined Balance Sheets................................... F-19
Combined Statements of Earnings........................... F-20
Combined Statement of Changes in Stockholders' Equity..... F-21
Combined Statements of Cash Flows......................... F-22
Notes to Combined Financial Statements.................... F-23
Pro Forma Condensed Financial Statement
Pro Forma Condensed Statement of Earnings................. F-29
Notes to Pro Forma Condensed Statement of Earnings........ F-30
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Snelling and Snelling, Inc.
We have audited the consolidated balance sheets of Snelling and Snelling,
Inc. as of December 31, 1995 and 1996, and the related consolidated statements
of earnings, changes in shareholders' equity and cash flows for the year ended
May 31, 1994, the seven months ended December 31, 1994, and the years ended
December 31, 1995 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Snelling and Snelling, Inc. as of December 31, 1995 and 1996, and the
consolidated results of its operations and its consolidated cash flows for the
year ended May 31, 1994, the seven months ended December 31, 1994, and the years
ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
April 25, 1997 (except for Note 11 as to
which the date is October 2, 1997
and Note 16 as to which the date is
December , 1997)
The foregoing report is in the form which will be signed upon consummation
of the transaction described in Note 16 to the financial statements.
/s/ GRANT THORNTON LLP
Dallas, Texas
November 21, 1997
F-2
<PAGE> 60
SNELLING AND SNELLING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................................. $ 369 $ 549 $ 648
Receivables, less allowance for doubtful accounts of $201,
$349 and $681.......................................... 14,321 21,369 24,448
Prepaid expenses and other current assets................. 1,009 2,392 2,008
Refundable and deferred income taxes...................... 540 394 756
------- ------- -------
Total current assets.............................. 16,239 24,704 27,860
Fixed assets, net........................................... 3,736 5,054 4,493
Intangible assets, net...................................... 2,380 20,968 21,267
Other assets................................................ 724 1,329 1,682
------- ------- -------
$23,079 $52,055 $55,302
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 447 $ 4,014 $ 1,863
Short-term borrowings..................................... 2,504 2,876 4
Accounts payable-trade.................................... 846 1,024 1,190
Other current liabilities................................. 6,976 8,444 10,860
------- ------- -------
Total current liabilities......................... 10,773 16,358 13,917
Long-term debt, less current maturities..................... 1,825 22,411 25,540
Other noncurrent liabilities
Deferred rent payable..................................... 899 739 641
Other..................................................... 250 221 319
------- ------- -------
1,149 960 960
------- ------- -------
Total liabilities................................. 13,747 39,729 40,417
Commitments and contingencies............................... -- -- --
Shareholders' equity
Preferred stock, $.01 par value; authorized, 10,000,000
shares; none issued.................................... -- -- --
Class A common stock, $.01 par value; authorized,
100,000,000 shares; none issued........................ -- -- --
Class B common stock, $.01 par value; authorized,
15,000,000 shares; issued, 6,408,840 shares in 1995,
6,324,094 shares in 1996 and 5,126,904 shares in
1997................................................... 59 58 47
Capital in excess of par value............................ 246 243 197
Retained earnings......................................... 11,559 14,696 14,641
------- ------- -------
11,864 14,997 14,885
Less treasury stock, at cost (1,171,853 of Class B common
shares in 1995 and 1,171,474 of Class B common shares
in 1996)............................................... 2,532 2,671 --
------- ------- -------
Total shareholders' equity........................ 9,332 12,326 14,885
------- ------- -------
$23,079 $52,055 $55,302
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 61
SNELLING AND SNELLING, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEVEN
MONTHS YEARS ENDED NINE MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
YEAR ENDED DECEMBER 31, --------------------- -------------------------
MAY 31, 1994 1994 1995 1996 1996 1997
------------ ------------ --------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 70,202 $ 59,309 $ 122,701 $ 168,602 $ 116,864 $ 165,686
Cost of services............. 47,456 40,221 87,943 122,945 83,957 123,964
---------- --------- --------- --------- --------- ---------
Gross profit....... 22,746 19,088 34,758 45,657 32,907 41,722
Selling, general and
administrative expenses.... 14,116 8,859 15,384 19,600 13,624 20,421
Franchises' share of gross
profit..................... 8,648 8,659 14,682 19,587 14,835 15,772
---------- --------- --------- --------- --------- ---------
Operating profit
(loss)........... (18) 1,570 4,692 6,470 4,448 5,529
Other income (expense)
Interest expense........... (66) (71) (379) (1,100) (602) (1,885)
Gain on sale of assets of
subsidiary.............. -- -- -- -- -- 678
Other...................... 348 63 97 105 54 20
---------- --------- --------- --------- --------- ---------
282 (8) (282) (995) (548) (1,187)
---------- --------- --------- --------- --------- ---------
Earnings before
income taxes..... 264 1,562 4,410 5,475 3,900 4,342
Income tax expense........... 152 704 1,720 2,161 1,564 1,727
---------- --------- --------- --------- --------- ---------
NET EARNINGS....... $ 112 $ 858 $ 2,690 $ 3,314 $ 2,336 $ 2,615
========== ========= ========= ========= ========= =========
Earnings per share........... $ 0.02 $ 0.12 $ 0.38 $ 0.48 $ 0.33 $ 0.38
========== ========= ========= ========= ========= =========
Weighted average common and
common equivalent shares... 7,067,662 7,011,698 7,007,062 6,965,843 6,982,234 6,908,741
========== ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 62
SNELLING AND SNELLING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
COMMON SHARES IN EXCESS TREASURY STOCK
------------------- OF PAR RETAINED --------------------
SHARES AMOUNT VALUE EARNINGS SHARES AMOUNT
---------- ------ --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 1, 1993........... 6,475,321 $ 60 $249 $ 8,040 1,138,864 $ 2,553
Net earnings.................... -- -- -- 112 -- --
Purchase of treasury stock...... -- -- -- -- 88,672 115
---------- ---- ---- ------- ---------- -------
BALANCE AT MAY 31, 1994........... 6,475,321 60 249 8,152 1,227,536 2,668
Net earnings.................... -- -- -- 858 -- --
Purchase of treasury stock...... -- -- -- -- 1,083 2
Retirement of treasury stock.... (66,481) (1) (3) (141) (66,481) (145)
---------- ---- ---- ------- ---------- -------
BALANCE AT DECEMBER 31, 1994...... 6,408,840 59 246 8,869 1,162,138 2,525
Net earnings.................... -- -- -- 2,690 -- --
Purchase of treasury stock...... -- -- -- -- 9,715 7
---------- ---- ---- ------- ---------- -------
BALANCE AT DECEMBER 31, 1995...... 6,408,840 59 246 11,559 1,171,853 2,532
Net earnings.................... -- -- -- 3,314 -- --
Purchase of treasury stock...... -- -- -- -- 83,186 320
Retirement of treasury stock.... (84,746) (1) (3) (177) (83,565) (181)
---------- ---- ---- ------- ---------- -------
BALANCE AT DECEMBER 31, 1996...... 6,324,094 58 243 14,696 1,171,474 2,671
Net earnings.................... -- -- -- 2,615 -- --
Purchase and retirement of
stock........................ (20,339) (1) (1) (33) -- --
Purchase of treasury stock...... -- -- -- -- 5,415 21
Retirement of treasury stock.... (1,176,889) (10) (45) (2,637) (1,176,889) (2,692)
---------- ---- ---- ------- ---------- -------
BALANCE AT SEPTEMBER 30, 1997
(unaudited)..................... 5,126,866 $ 47 $197 $14,641 -- $ --
========== ==== ==== ======= ========== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 63
SNELLING AND SNELLING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
SEVEN MONTHS YEARS ENDED ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
YEAR ENDED DECEMBER 31, ------------------ -------------------------
MAY 31, 1994 1994 1995 1996 1996 1997
------------ ------------ ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net earnings........................... $ 112 $ 858 $ 2,690 $ 3,314 $ 2,336 $ 2,615
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization....... 861 403 798 1,449 878 1,504
Provision for losses on
receivables....................... 375 68 74 226 90 539
Provision for loss on investments... 55 120 -- -- -- --
Gain on sale of assets of
subsidiary........................ -- -- -- -- -- (678)
Changes in operating assets and
liabilities
Receivables....................... (3,723) (1,844) (3,461) (7,275) (2,459) (4,747)
Prepaid expenses and other current
assets......................... 213 216 277 (648) (436) 381
Other assets...................... 250 320 (24) (891) (792) (484)
Accounts payable and other current
liabilities.................... 2,229 1,064 (142) 912 (398) 385
Refundable and deferred income
taxes.......................... (325) (271) (9) 308 (15) (421)
Other noncurrent liabilities...... 63 (96) (142) (189) (161) (94)
------- ------- ------- -------- ------- -------
Net cash provided by (used in)
operating activities......... 110 838 61 (2,794) (957) 1,000
Cash Flows From Investing Activities
Proceeds from sale of assets........... 9 3 32 60 3 1,940
Capital expenditures................... (380) (286) (2,527) (2,014) (1,747) (266)
Acquisition of businesses.............. -- (915) (1,002) (9,764) (4,965) (949)
------- ------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities......... (371) (1,198) (3,497) (11,718) (6,709) 725
------- ------- ------- -------- ------- -------
Cash Flows From Financing Activities
Proceeds from bank overdrafts.......... -- -- 1,806 710 1,043 2,324
Proceeds from debt..................... 836 -- 3,033 17,518 8,090 4,587
Repayments of debt..................... (60) (255) (1,288) (3,216) (974) (6,481)
Purchase of stock...................... (115) (2) (7) (320) (320) (56)
------- ------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities......... 661 (257) 3,544 14,692 7,839 374
------- ------- ------- -------- ------- -------
Net Increase (Decrease) In Cash And Cash
Equivalents............................ 400 (617) 108 180 173 99
Cash And Cash Equivalents:
At Beginning Of Period................. 478 878 261 369 369 549
------- ------- ------- -------- ------- -------
At End Of Period....................... $ 878 $ 261 $ 369 $ 549 $ 542 $ 648
======= ======= ======= ======== ======= =======
</TABLE>
See Note 14 for supplemental disclosure of cash flows and noncash investing and
financing transactions.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 64
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Snelling and Snelling, Inc. (Snelling) and all of its
subsidiaries (collectively, the Company). All significant intercompany accounts
and transactions have been eliminated.
BUSINESS AND REVENUE RECOGNITION -- The Company provides career and
flexible staffing services through Company owned and franchised offices located
primarily throughout the United States. The Company services a wide variety of
customers, none with any significant geographic or revenue concentration.
Revenue from services is recognized at the time the services are provided.
Revenue from the sale of franchises is recognized when the franchised office
begins operations and a substantial portion of the sales price is received. The
Company also receives revenues from sales of employment services and from fees
earned on sales of employment services (career placement and flexible staffing)
by its franchise operations.
The Company has two types of franchises for purposes of flexible staffing
services revenue recognition. With the first type, the Company records franchise
royalties, based on a contractual percentage of flexible staffing services
billings, in the period in which the franchise collects for the services
provided. The second type of franchises participate in the Company's pay/bill
processing program. With the second type, the Company has a direct contractual
relationship with the clients for the services, holds title to the related
receivables and is the legal employer of the flexible staffing employees.
Revenues generated by these franchises and the related direct costs of services
are included as part of the Company's revenues and costs of services in the
period in which the services are provided. The net distribution paid to
franchises participating in the pay/bill processing program is an operating
expense recorded by the Company as franchises' share of gross profit and is
based on either a percentage of the flexible staffing services billings or a
percentage of the gross profit generated.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts for cash,
receivables and accounts payable approximate fair value because of the
short-term nature of these items. The fair value for long-term debt approximates
its carrying value because interest rates are tied to market.
FIXED ASSETS -- Fixed assets are stated at cost. Depreciation is provided
using the straight-line method, principally over the following useful lives:
equipment, five to ten years; computer hardware and software, five years.
Amortization of leasehold improvements is provided using the straight-line
method over the life of the lease or the asset, whichever is shorter.
INTANGIBLES -- Intangible assets primarily consist of goodwill related to
acquisitions of businesses. The cost in excess of the fair value of net assets
acquired (goodwill) is amortized by the straight-line method over 40 years.
Other intangible assets consist of covenants not to compete that are amortized
over the term of the agreements.
The Company evaluates the recoverability of its goodwill and other
intangibles in relation to the anticipated cash flows on an undiscounted basis.
Based on this evaluation, the Company believes that no material impairment of
intangible assets exists at December 31, 1996.
F-7
<PAGE> 65
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
WORKERS' COMPENSATION -- The Company is self-insured up to specified limits
for certain risks related to workers' compensation liability. Workers'
compensation costs are accrued based upon the aggregate of the liability for
reported claims and loss adjustment expenses and an actuarially-determined
estimated liability for claims incurred but not reported. The estimated costs of
reported claims are accrued based upon loss development trends and may be
revised in the future based on changes in the value of those claims.
INCOME TAXES -- Deferred tax assets and liabilities are determined based on
the differences between financial statement and income tax bases of assets and
liabilities using the enacted tax rates in effect.
DEFERRED RENT -- The cost of the Company's lease for office space is
accounted for by the straight-line method. The difference between the net cash
requirements of the lease and the straight-line method is reflected on the
balance sheet as deferred rent payable.
STATEMENTS OF CASH FLOWS -- For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments with a maturity
of three months or less at the time of purchase to be cash equivalents.
STOCK OPTIONS -- The Company accounts for stock-based employee compensation
as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and the related interpretations. The pro forma
information required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" is disclosed in Note 12.
ADVERTISING EXPENSE -- Advertising costs are expensed as incurred.
Advertising expense was $153,000 for the year ended May 31, 1994, $57,000 for
the seven months ended December 31, 1994 and $204,000 and $376,000 for the years
ended December 31, 1995 and 1996, respectively, and $225,000 and $574,000 for
the nine months ended September 30, 1996 and 1997, respectively.
CONCENTRATION OF RISK -- The Company provides staffing services on a
national basis. Credit risks are minimized due to the nature of the staffing
business, large number of customers and diversity of industries serviced. The
Company continually analyzes the creditworthiness of its customers.
A single franchisee operates twelve franchise locations from which the
Company currently derives approximately 13.8% of its net earnings. Loss of this
franchisee would have a material adverse effect on results of operations.
EARNINGS PER SHARE -- Earnings per share were computed by dividing net
earnings applicable to common stock by the weighted average number of shares of
common stock and common stock equivalents outstanding during the period after
giving retroactive effect to the common stock reclassification in December 1997
(Note 16). Stock options granted during the twelve months prior to the filing of
the Company's Registration Statement on Form S-1 have been included in the
calculation of common equivalent shares using the treasury stock method as if
they were outstanding for all periods presented. In computing the number of
shares that could have been purchased with the proceeds from exercise, the
estimated initial public offering price was used.
INTERIM STATEMENTS -- In the opinion of management, the unaudited interim
financial statements as of September 30, 1997 and for the nine months ended
September 30, 1996 and 1997 include all adjustments, consisting only of those of
a normal recurring nature, necessary to present fairly the Company's financial
position as of September 30, 1997 and the results of its operations and cash
flows for the nine-month periods ended September 30, 1996 and 1997. The results
of operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
F-8
<PAGE> 66
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 2 -- ACQUISITIONS
From June 1, 1994, through September 30, 1997, the Company acquired 19
franchise locations and seven independent staffing locations.
The acquisitions were accounted for under the purchase method of accounting
and are included in the consolidated financial statements from the dates of
acquisition.
The following table summarizes the Company's acquisition activity since
June 1, 1994. Included in the amounts paid are expenses of the acquisitions:
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED NINE MONTHS
ENDED DECEMBER 31, ENDED
DECEMBER 31, ---------------- SEPTEMBER 30,
1994 1995 1996 1997
------------ ------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash paid.................................. $ 915 $1,002 $ 9,764 $949
Amounts due sellers of business............ 433 400 9,489 --
------ ------ ------- ----
Total............................ $1,348 $1,402 $19,253 $949
====== ====== ======= ====
</TABLE>
Five of the 19 franchise locations acquired are located in the Chicago
area. The locations were purchased from a group of corporations (the B.A.T.
Group Acquisition), which were affiliated, in simultaneous transactions in
November 1996.
Three of the 19 franchise locations acquired, which are located in the
Kansas City area, were purchased from a single corporation in March 1996 (the
Kansas City Acquisition).
The following unaudited pro forma information has been prepared assuming
that the B.A.T. Group and Kansas City Acquisitions had occurred at the beginning
of the periods presented, after including the impact of certain adjustments.
These adjustments include amortization of intangibles, interest expense on
acquisition debt, reflection of changes to the Company's workers' compensation
liability rates and state unemployment tax rates in effect at the time of
acquisition, reduction of executive compensation for sellers who were no longer
employed by the Company subsequent to acquisition, eliminations of intercompany
transactions, and the related effects on income taxes. Pro forma adjustments
reflecting anticipated "efficiencies" in operations are not permitted under
generally accepted accounting principles. As a result of the limitations imposed
with regard to the types of permitted pro forma adjustments, the Company
believes that this unaudited pro forma information is not indicative of future
results of operations, nor the results of historical operations had the B.A.T.
Group and Kansas City Acquisitions been consummated as of the assumed dates.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1995 1996 1996
---------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues......................................... $144,657 $185,396 $131,331
Net earnings..................................... $ 2,991 $ 3,623 $ 2,623
Earnings per share............................... $ .43 $ .52 $ 0.38
</TABLE>
All other acquisitions of franchise locations and independent personnel
service locations were insignificant to the overall financial results of the
periods presented and, therefore are not included in the pro forma information.
F-9
<PAGE> 67
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 3 -- FIXED ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer hardware and software........................... $4,912 $6,855 $6,832
Equipment................................................ 553 654 534
Leasehold improvements................................... 691 710 749
Other.................................................... 321 414 250
------ ------ ------
6,477 8,633 8,365
Less accumulated depreciation and amortization........... 2,741 3,579 3,872
------ ------ ------
$3,736 $5,054 $4,493
====== ====== ======
</TABLE>
Capitalized leases included above were approximately $1,848,000, $2,272,000
and $1,895,000 at December 31, 1995 and 1996 and September 30, 1997,
respectively. These consisted primarily of leases for computer hardware and
software related to systems conversions in the offices of both the Company and
its franchisees.
NOTE 4 -- INTANGIBLES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill................................................ $2,310 $21,228 $21,905
Covenants not to compete................................ 450 575 590
------ ------- -------
2,760 21,803 22,495
Less accumulated amortization........................... 380 835 1,228
------ ------- -------
$2,380 $20,968 $21,267
====== ======= =======
</TABLE>
NOTE 5 -- OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
---- ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan origination fees (net of accumulated amortization of
$147,000 and $275,000 in 1996 and 1997)................. $ -- $ 659 $ 560
Deferred financing costs.................................. -- -- 420
Long-term investments, at cost (net of allowance of
approximately $325,000 in 1995, 1996 and 1997).......... 9 39 56
Cash surrender value of officer life insurance............ 569 624 642
Deferred income taxes..................................... 146 7 2
---- ------ ------
$724 $1,329 $1,680
==== ====== ======
</TABLE>
F-10
<PAGE> 68
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 6 -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank line of credit................................... $1,985 $ -- $ --
Short-term notes financing acquisitions, at interest
rates from 8.25% to 9.25%........................... -- 2,306 --
Other debt, at interest rates from 7.0% to 9.7%....... 519 570 4
------ ------- ------
$2,504 $ 2,876 $ 4
====== ======= ======
Weighted average interest rate........................ 8.38% 8.08% 7.48%
====== ======= ======
</TABLE>
NOTE 7 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit facility............................. $ -- $ 9,013 $ 8,115
Acquisition credit facility........................... -- 7,478 12,963
Acquisition note payable in quarterly installments
through 2001, at 8.25% interest..................... -- 6,058 3,273
Other acquisition notes payable in installments
through 2000, with interest ranging from 6% to
9.25%............................................... 628 1,604 1,157
Capitalized lease obligations, payable in varying
monthly installments through 2001, collateralized by
the related equipment............................... 2,203 2,919 2,311
------ ------- -------
2,831 27,072 27,819
Less amount representing interest on capital lease
obligations, imputed at rates ranging from 8.95% to
17.18%.............................................. 559 647 416
------ ------- -------
2,272 26,425 27,403
Less current maturities............................... 447 4,014 1,863
------ ------- -------
$1,825 $22,411 $25,540
====== ======= =======
</TABLE>
Aggregate maturities of long-term debt for the five years following
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................... $ 4,014
1998........................................... 1,884
1999........................................... 1,942
2000........................................... 1,225
2001........................................... 17,360
-------
$26,425
=======
</TABLE>
During 1996, the Company negotiated a new Senior Credit Facility, which
expires in January 2001, with BankBoston, N.A. ("BankBoston") and a syndicate of
other banks. At December 31, 1996, the Senior Credit Facility provided for a
maximum revolving facility of $15.0 million (based on the Company's eligible
F-11
<PAGE> 69
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
receivables) and a $25.0 million acquisition facility. The Company's ability to
request additional advances under the acquisition facility terminates on January
31, 1998. Optional prepayments are allowed on both facilities, and any remaining
unpaid balance on either facility is due in January 2001. Mandatory repayment of
amounts borrowed under the revolving facility is based on daily bank clearings
of deposits. For the acquisition facility, mandatory repayments included: (1)
quarterly payments based on a five year amortization; and (2) annual payments
based on the Company's excess cash flow (as defined in the Senior Credit
Facility). However, all payments due on the acquisition facility are required to
be funded from the revolving facility. As a result, no portion of either
facility is included in current maturities of debt at December 31, 1996 or
September 30, 1997, since the revolving facility has no current maturity at
either date and there was sufficient availability under the revolving facility
at both dates to fund the mandatory repayments on the acquisition facility
during the following year.
At the Company's option, interest is calculated based on a combination of
the following: (i) BankBoston's base rate or the London Interbank Offered Rate
("LIBOR") plus (ii) from 0.5% to 3.0% depending on the facility and certain
financial ratios of the Company. The average rate at December 31, 1996 was 8.20%
on the acquisition facility and 8.09% on the revolving facility. The Senior
Credit Facility requires the Company to pay a commitment fee ranging from .375%
to .500% per annum depending on certain financial ratios on the unused amount of
the credit line (approximately $23.5 million at December 31, 1996). The Senior
Credit Facility also includes financial covenants regarding the Company's
working capital, consolidated net worth, earnings coverage to debt, interest and
fixed charges and limitations on annual capital expenditures. Borrowings under
the Senior Credit Facility are collateralized by substantially all of the
Company's assets, along with an agreement that provides for the pledge by
certain shareholders of the Company of at least 50% of the voting power of the
outstanding common shares of the Company.
In June and July, 1997, the Senior Credit Facility was amended to increase
the revolving facility to a maximum of $22.5 million and to modify certain of
its financial covenants.
Availability under the Senior Credit Facility at September 30, 1997 was
$20.2 million.
The Company had outstanding irrevocable standby letters of credit as of
December 31, 1995 and 1996, and September 30, 1997 in the total principal
amounts of $4,176,000, $3,163,000 and $4,163,000, respectively, primarily in
connection with the Company's workers' compensation insurance program.
NOTE 8 -- OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued expenses
Compensation...................................... $2,388 $1,877 $ 934
Taxes, other than income taxes.................... 1,172 1,201 2,150
Insurance......................................... 669 2,148 2,198
Rebates to franchisees............................ 209 250 136
Other expenses.................................... 732 452 602
Cash overdraft.................................... 1,806 2,516 4,840
------ ------ -------
$6,976 $8,444 $10,860
====== ====== =======
</TABLE>
F-12
<PAGE> 70
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 9 -- INCOME TAXES
The provision for income taxes in the consolidated statements of earnings
is comprised of the following:
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED NINE MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30,
MAY 31, DECEMBER 31, --------------- ------------------
1994 1994 1995 1996 1996 1997
---------- ------------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current expense.............. $ 329 $ 922 $1,258 $1,759 $1,267 $1,401
Federal.................... 108 144 199 389 282 323
----- ------ ------ ------ ------ ------
State...................... 437 1,066 1,457 2,148 1,549 1,724
----- ------ ------ ------ ------ ------
Deferred expense (benefit)
Federal.................... (228) (308) 154 10 11 3
State...................... (57) (54) 109 3 4 --
----- ------ ------ ------ ------ ------
(285) (362) 263 13 15 3
----- ------ ------ ------ ------ ------
$ 152 $ 704 $1,720 $2,161 $1,564 $1,727
===== ====== ====== ====== ====== ======
</TABLE>
The income tax provision, reconciled to the tax computed at the statutory
Federal rate, is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS YEARS ENDED NINE MONTHS ENDED
YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30,
MAY 31, DECEMBER 31, ---------------- ------------------
1994 1994 1995 1996 1996 1997
----------- ------------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate....... $ 90 $531 $1,499 $1,861 $1,326 $1,476
State income taxes, net of
Federal benefit........... 12 97 202 258 195 213
Other....................... 50 76 19 42 43 38
---- ---- ------ ------ ------ ------
Total............. $152 $704 $1,720 $2,161 $1,564 $1,727
==== ==== ====== ====== ====== ======
</TABLE>
F-13
<PAGE> 71
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets
Allowance for doubtful accounts....................... $ 78 $135 $ 285
Accrued expenses...................................... 306 346 362
Fixed assets.......................................... 28 -- --
Intangible assets..................................... 42 5 --
---- ---- -----
454 486 647
---- ---- -----
Deferred tax liabilities
Deferred rent......................................... 26 50 72
Fixed assets.......................................... -- 11 70
Intangible assets..................................... -- -- 79
Other................................................. 14 24 28
---- ---- -----
40 85 249
---- ---- -----
Net deferred tax asset.................................. $414 $401 $ 398
==== ==== =====
Balance sheet classifications:
Current deferred tax asset............................ $268 $394 $ 567
Noncurrent deferred tax asset (liability)............. 146 7 (169)
---- ---- -----
$414 $401 $ 398
==== ==== =====
</TABLE>
NOTE 10 -- EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan (the Plan) for employees, under which
employee contributions qualify as salary reductions. The Company is required to
match 25% of the employee's salary reduction contributions and, at its option,
may make discretionary contributions. Substantially all of the full-time
employees of the Company who are not members of a collective bargaining unit, as
well as flexible staffing employees who meet certain requirements regarding
hours worked, are eligible for the Plan after one year of service. Company
contributions become fully vested to participants after five years. Effective
June 1, 1994, the Company suspended all contributions to the Plan. Subsequent to
December 31, 1994, the Plan was amended and both employee and Company
contributions were permitted. Company contributions to the Plan were
approximately $230,000, $25,000, $34,000, $27,000 and $40,000 for the years
ended May 31, 1994, December 31, 1995 and 1996, and the nine months ended
September 30, 1996 and 1997, respectively. There were no contributions for the
seven months ended December 31, 1994.
One of the Company's subsidiaries had a non-contributory, defined
contribution pension plan for employees who work 1,000 hours or more per year.
Pension expense for this plan is computed based upon the number of hours worked
at $.35 per hour for the year ended December 31, 1996 and $.30 per hour for the
year ended December 31, 1995 and for the seven months ended December 31, 1994.
Contributions were approximately $40,000 and $63,000 for the years ended
December 31, 1996 and 1995, $11,000 for the seven months ended December 31,
1994, and $40,000 for the nine months ended September 30, 1996. The operations
and substantially all of the assets of the subsidiary were sold in January 1997.
F-14
<PAGE> 72
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under various noncancellable operating leases for
computer hardware and software, office space and furnishings through 2005. Total
rental expense was approximately $899,000 for the year ended May 31, 1994,
$544,000 for the seven months ended December 31, 1994, and $956,000 and
$1,099,000 for the years ended December 31, 1995 and 1996, respectively, and
$721,000 and $1,570,000 for the nine months ended September 30, 1996 and 1997,
respectively, including short-term automobile and equipment rentals. The future
minimum lease payments under all long-term noncancellable operating leases at
December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997........................................... $1,670
1998........................................... 1,679
1999........................................... 1,443
2000........................................... 1,198
2001........................................... 744
Future years................................... 272
------
$7,006
======
</TABLE>
Legal
Several legal actions arising in the ordinary course of business are
pending or in process against the Company. In the opinion of management, the
eventual disposition of these actions will have no material adverse effect on
the financial position, results of operations or liquidity of the Company.
Employment Agreements
The Company has agreements, expiring between 2001 and 2006, with several
executive officers providing for cash compensation and other benefits in the
event of termination without cause or a change in control of the Company.
In October 1997, the Company entered into a 15-year employment agreement
with its chief executive officer, Robert O. Snelling, Sr. The agreement provides
for annual compensation of $475,000, adjusted for Consumer Price Index changes.
In the event of termination of employment, Mr. Snelling is entitled to receive
annual compensation equal to 75% of his then base salary for the remaining term
plus five years. In the event of death, the spouse of Mr. Snelling is entitled
to receive two-thirds of the amount he would otherwise receive. If there is a
change in control of the Company, Mr. Snelling may elect either to receive a
lump-sum payment equal to the then present value of the economic benefits under
the agreement or to have his compensation, including any deferred compensation,
increased by 10% (plus, in either case, an additional gross-up amount in the
event of imposition of any federal excise or similar tax on payment).
NOTE 12 -- STOCK OPTIONS
The 1996 Stock Option Plan provides for the granting of incentive and
non-qualified stock options. A total of 2,978,286 shares of Class B common stock
is authorized for issuance to certain employees of the Company. The options
granted have ten year terms and have either immediate vesting or graded vesting
over five years. The exercise price may not be less than the fair market value
on the measurement date.
F-15
<PAGE> 73
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
The following table reflects activity under the stock option plan and the
weighted average exercise price per share:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
STOCK OPTIONS PER SHARE
------------- --------------
<S> <C> <C>
Outstanding -- January 1, 1996............................ --
Granted................................................... 2,599,238 $3.85
---------
Outstanding -- December 31, 1996 and September 30, 1997... 2,599,238 $3.85
=========
Options exercisable at December 31, 1996.................. 2,339,314 $3.85
=========
Options exercisable at September 30, 1997................. 2,425,955 $3.85
=========
</TABLE>
The Company accounts for these plans under Accounting Principles Board
Opinion No. 25. Accordingly, no compensation cost has been recognized for the
stock option plan. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123) requires pro forma
disclosures of net earnings and earnings per share based upon the fair value of
options granted. The fair value of each option has been estimated as of the
measurement date, using present value calculations with the following
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.................................... 6%
Dividend yield............................................. 0%
Expected life.............................................. 5 years
Volatility................................................. 36%
</TABLE>
The weighted average fair value of options granted in 1996 was $1.58 per
share. Had compensation for stock options been accounted for under Financial
Accounting Standards No. 123, the effect on the Company's net earnings and
earnings per share for the year ended December 31, 1996 would have been as
follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net earnings (in thousands)................................. $3,314 $1,042
====== ======
Earnings per share.......................................... $ .48 $ .15
====== ======
</TABLE>
NOTE 13 -- REVENUES
Total system-wide placement sales for Company-owned branch locations and
franchise locations were approximately $225.3 million for the year ended May 31,
1994, $166.3 million for the seven months ended December 31, 1994, $318.9
million and $373.0 million for the years ended December 31, 1995 and 1996,
respectively, and $325.0 million for the nine months ended September 30, 1997.
F-16
<PAGE> 74
SNELLING AND SNELLING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
NOTE 14 -- CASH FLOW INFORMATION
Supplemental information on cash flows and noncash investing and financing
transactions is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
SEVEN MONTHS YEAR ENDED ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------- ---------------
1994 1995 1996 1996 1997
------------ ------ ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow information
Interest paid.......................... $ 71 $ 351 $ 843 $ 566 $1,848
===== ====== ======= ====== ======
Income taxes paid...................... $ 561 $2,203 $ 1,853 $1,557 $1,861
===== ====== ======= ====== ======
Supplemental data on noncash investing
and financing activities
Note issued for purchase of insurance
policies............................ $ 488 $ 714 $ 736 $ 269 $ --
===== ====== ======= ====== ======
Purchase of businesses
Fair value of tangible assets
acquired.......................... $ 109 $ 112 $ 210 $ 75 $ 25
Goodwill............................ 1,189 890 18,918 1,450 909
Covenants not to compete............ 50 400 125 25 15
Debt issued......................... (433) (400) (9,489) (675) --
----- ------ ------- ------ ------
Cash paid........................... $ 915 $1,002 $ 9,764 $ 875 $ 949
===== ====== ======= ====== ======
</TABLE>
NOTE 15 -- SALE OF SUBSIDIARY
During January 1997, the Company sold substantially all the assets of a
subsidiary company, realizing a net gain on sale of $678,000.
NOTE 16 -- RECAPITALIZATION
In December 1997, the Company amended its articles of incorporation to
provide for the issuance of 100,000,000 shares of Class A common stock,
15,000,000 shares of Class B common stock and 10,000,000 shares of preferred
stock. This recapitalization had the effect of a 5.415067 for 1 split of its
Class B common shares at that time. No shares of Class A common stock or
preferred stock have been issued. Each share of Class B common stock is entitled
to ten votes, and each share of Class A is entitled to one vote.
The consolidated financial statements, including all references to number
of shares and per share data, have been adjusted to reflect the stock split.
NOTE 17 -- SUBSEQUENT EVENTS (UNAUDITED)
In October 1997, the Company acquired an independent staffing location in
New York City for $6.0 million in total consideration. In November 1997, the
Company acquired a franchise location in Dallas for $0.5 million in total
consideration.
F-17
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
B.A.T. Group Holdings, Inc.,
KAL Help Enterprises, Inc.,
Par Three Help Services, Inc., and
Par Four Services, Inc.
We have audited the combined balance sheets of B.A.T. Group Holdings, Inc.,
KAL Help Enterprises, Inc., Par Three Help Services, Inc. and Par Four Services,
Inc. (collectively, B.A.T. Group) as of December 31, 1994 and 1995, and the
related combined statements of earnings, changes in stockholders' equity and
cash flows for the years then ended. These combined financial statements are the
responsibility of the management of B.A.T. Group. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of B.A.T.
Group as of December 31, 1994 and 1995, and the combined results of its
operations and its combined cash flows for the years then ended, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
August 15, 1997
F-18
<PAGE> 76
B.A.T. GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents........................... $ 1,000 $ 181,848 $ --
Marketable securities available for sale, at market
value (cost -- $410,922 in 1995 and $539,862 in
1996)............................................ -- 420,875 601,175
Receivables -- trade, less allowance for doubtful
accounts of $44,000, $150,000 and $69,000 in
1994, 1995 and 1996.............................. 2,287,025 2,970,338 3,238,461
Prepaid expenses and other current assets........... 23,419 182,498 386,677
---------- ---------- ----------
Total current assets........................ 2,311,444 3,755,559 4,226,313
Equipment and leasehold improvements, net............. 186,028 273,354 281,223
Intangible assets, net................................ 223,097 208,504 286,547
---------- ---------- ----------
Total assets................................ $2,720,569 $4,237,417 $4,794,083
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Cash overdraft...................................... $ 81,713 $ -- $ 210,437
Current maturities of long-term debt................ 128,444 49,604 91,164
Short-term borrowings............................... 780,000 1,302,374 913,991
Payable to franchisor............................... 171,929 211,978 211,694
Workers' compensation insurance accrual............. 110,506 34,250 59,600
Payroll taxes payable............................... 96,800 151,304 --
Accounts payable and other accrued expenses......... 13,208 41,544 94,622
---------- ---------- ----------
Total current liabilities................... 1,382,600 1,791,054 1,581,508
Long-term debt, less current maturities............... 40,268 46,822 86,604
---------- ---------- ----------
Total liabilities........................... 1,422,868 1,837,876 1,668,112
Commitments and contingencies......................... -- -- --
Stockholders' equity
Common stock........................................ 3,000 108,000 108,000
Unrealized gain on securities available for sale.... -- 9,953 61,313
Retained earnings................................... 1,294,701 2,281,588 2,956,658
---------- ---------- ----------
Total stockholders' equity.................. 1,297,701 2,399,541 3,125,971
---------- ---------- ----------
$2,720,569 $4,237,417 $4,794,083
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 77
B.A.T. GROUP
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $13,827,972 $17,683,665 $13,953,776
Cost of services.................................... 11,225,069 13,846,908 10,786,716
----------- ----------- -----------
Gross profit.............................. 2,602,903 3,836,757 3,167,060
Selling, general and administrative expenses........ 1,653,288 2,192,953 1,912,294
Depreciation and amortization....................... 46,186 88,685 82,653
Management fee paid to affiliate.................... -- 136,000 --
----------- ----------- -----------
Operating profit.......................... 903,429 1,419,119 1,172,113
Other expense
Interest.......................................... 64,796 78,638 51,449
Other............................................. -- 7,382 --
----------- ----------- -----------
64,796 86,020 51,449
----------- ----------- -----------
NET EARNINGS.............................. $ 838,633 $ 1,333,099 $ 1,120,664
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 78
B.A.T. GROUP
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
SECURITIES
COMMON AVAILABLE RETAINED
STOCK FOR SALE EARNINGS TOTAL
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1994.................. $ 1,000 $ -- $ 678,710 $ 679,710
Incorporation of KAL Help Enterprises,
Inc....................................... 1,000 -- -- 1,000
Incorporation of Par Three Help Services,
Inc....................................... 1,000 -- -- 1,000
Distributions to stockholders............... -- -- (222,642) (222,642)
Net earnings................................ -- -- 838,633 838,633
-------- ------- ---------- ----------
Balance at December 31, 1994................ 3,000 -- 1,294,701 1,297,701
Incorporation of Par Four Services, Inc..... 105,000 -- -- 105,000
Unrealized gains on securities.............. -- 9,953 -- 9,953
Distributions to stockholders............... -- -- (346,212) (346,212)
Net earnings................................ -- -- 1,333,099 1,333,099
-------- ------- ---------- ----------
Balance at December 31, 1995................ 108,000 9,953 2,281,588 2,399,541
Unrealized gains on securities.............. -- 51,360 -- 51,360
Distributions to stockholders............... -- -- (445,594) (445,594)
Net earnings................................ -- -- 1,120,664 1,120,664
-------- ------- ---------- ----------
Balance at September 30, 1996............... $108,000 $61,313 $2,956,658 $3,125,971
======== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-21
<PAGE> 79
B.A.T. GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings....................................... $ 838,633 $1,333,099 $1,120,664
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization................... 46,186 88,685 82,653
Loss on sale of assets.......................... -- 7,382 --
Changes in operating assets and liabilities
Receivables -- trade.......................... (1,029,464) (683,313) (268,123)
Prepaid expenses and other current assets..... (113,308) (144,476) (204,179)
Accounts payable and accrued expenses......... 322,705 46,633 (73,160)
----------- ---------- ----------
Net cash provided by operating
activities............................... 64,752 648,010 657,855
Cash flows from investing activities
Purchase of marketable securities.................. -- (207,548) (317,871)
Capital expenditures............................... (143,947) (183,403) (168,565)
Acquisition of businesses.......................... (217,791) -- --
----------- ---------- ----------
Net cash used in investing activities...... (361,738) (390,951) (486,436)
Cash flows from financing activities
Net change in short-term borrowings................ 305,000 319,000 (199,452)
Proceeds from bank overdraft....................... 17,146 (81,713) 210,437
Proceeds from long-term borrowings................. 175,507 73,362 81,342
Repayments of long-term borrowings................. (18,468) (145,648) --
Issuance of common stock........................... 2,000 105,000 --
Distributions to stockholders...................... (222,642) (346,212) (445,594)
----------- ---------- ----------
Net cash provided by (used in) financing
activities............................... 258,543 (76,211) (353,267)
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents........................................ (38,443) 180,848 (181,848)
Cash and cash equivalents at beginning of period..... 39,443 1,000 181,848
----------- ---------- ----------
Cash and cash equivalents at end of period........... $ 1,000 $ 181,848 $ --
=========== ========== ==========
</TABLE>
See Note H for supplemental disclosures of cash flow information.
The accompanying notes are an integral part of these statements.
F-22
<PAGE> 80
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Presentation
The accompanying financial statements include the accounts of B.A.T. Group
Holdings, Inc., KAL Help Enterprises, Inc., Par Three Help Services, Inc. and
Par Four Services, Inc. (collectively, B.A.T. Group or the Company). All
significant intercompany accounts and transactions have been eliminated.
Combined financial statements are presented because the companies are under
common control and common management.
Business and Revenue Recognition
The Company provides temporary staffing services to customers in a wide
variety of industries. It operates four locations in Illinois and Michigan under
a franchise arrangement with Snelling and Snelling, Inc.
Revenue from services is recognized at the time the services are provided.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts for cash, receivables and accounts payable approximate
fair value because of the short-term nature of these items. Marketable
securities are carried at market value. Long-term debt bears interest at
floating rates and, therefore, fair value approximates its carrying value.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation is
computed over the estimated useful lives of the assets, principally five to
seven years, using the straight-line method. Amortization of leasehold
improvements is provided using the straight-line method over the life of the
lease or the asset, whichever is shorter.
Intangibles
Intangible assets consist of goodwill and covenants not to compete related
to the acquisition of businesses. The cost in excess of the fair value of net
assets acquired (goodwill) is amortized by the straight-line method over 15
years. Covenants not to compete are amortized over the term of the agreements.
The Company evaluates the recoverability of its goodwill and other
intangibles on an annual basis. Based on these evaluations, the Company believes
that no material impairment of intangible assets exists at December 31, 1995 or
December 31, 1994.
Workers' Compensation
The Company is self-insured up to specified limits for certain risks
related to workers' compensation liability. Workers' compensation costs are
accrued based upon data provided by the insurance companies of the estimated
liability for reported claims and for claims incurred but not reported. The
estimated costs of
F-23
<PAGE> 81
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
reported claims are accrued based upon loss development trends and may be
revised in the future based on changes in the expected losses of those claims.
Income Taxes
The income taxes on the net earnings are payable personally by the
stockholders pursuant to elections as S Corporations under the Internal Revenue
Code not to have the Companies taxed as corporations.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense was
$126,077 and $78,475 for the years ended December 31, 1995 and 1994,
respectively.
Statements of Cash Flows
For purposes of the combined statements of cash flows, the Company
considers all highly liquid investments with a maturity of three months or less
at the time of purchase to be cash equivalents.
NOTE B -- ACQUISITIONS
During 1994 and 1996, the Company acquired franchise operating rights and
certain assets of two and one temporary staffing service businesses,
respectively (See Note H). Each acquisition has been accounted for under the
purchase method of accounting and is included in the combined financial
statements from the date of acquisition.
NOTE C -- EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Computer hardware and software................. $ 90,766 $ 144,878 $ 152,365
Automobiles.................................... 34,608 88,328 92,893
Leasehold improvements......................... 58,759 84,539 88,908
Furniture and fixtures......................... 111,207 138,128 192,772
--------- --------- ---------
295,340 455,873 526,938
Less accumulated depreciation and
amortization....................... (109,312) (182,519) (245,715)
--------- --------- ---------
$ 186,028 $ 273,354 $ 281,223
========= ========= =========
</TABLE>
NOTE D -- INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Goodwill......................................... $212,500 $213,385 $270,885
Covenants not to compete......................... 20,000 20,000 60,000
-------- -------- --------
232,500 233,385 330,885
Less accumulated amortization.......... (9,403) (24,881) (44,338)
-------- -------- --------
$223,097 $208,504 $286,547
======== ======== ========
</TABLE>
F-24
<PAGE> 82
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE E -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
<S> <C> <C> <C>
Bank lines of credit........................... $780,000 $1,099,000 $692,000
Broker loan, collateralized by marketable
securities, with interest at 8.25%........... -- 203,374 221,991
-------- ---------- --------
$780,000 $1,302,374 $913,991
======== ========== ========
</TABLE>
The Company has unused lines of credit aggregating $601,000 at December 31,
1995. Interest is charged on these lines at prime (8.5% at December 31, 1995).
Utilization of the lines of credit is limited to the amount of eligible accounts
receivable, as defined in the loan agreement.
The lines of credit are collateralized by the assets of the Company and by
personal guarantees of the stockholders.
NOTE F -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- ------- -------------
<S> <C> <C> <C>
Notes payable to banks, payable in installments
through 1998, bearing interest at prime rate.... $ 68,205 $96,426 $ 55,422
Acquisition notes................................. 55,834 -- 122,346
Other............................................. 44,673 -- --
-------- ------- --------
168,712 96,426 177,768
Less current maturities................. 128,444 49,604 91,164
-------- ------- --------
$ 40,268 $46,822 $ 86,604
======== ======= ========
</TABLE>
Aggregate maturities of long-term debt for the years following December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1996........................................................ $49,604
1997........................................................ 46,297
1998........................................................ 525
-------
$96,426
=======
</TABLE>
F-25
<PAGE> 83
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE G -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under noncancellable operating lease
agreements expiring at various dates through 1998. Total rental expense was
approximately $89,000 and $50,000 for the years ended December 31, 1995 and
1994, respectively. The future minimum lease payments under these leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- ------------
<S> <C>
1996....................................................... $ 92,168
1997....................................................... 50,915
1998....................................................... 25,326
--------
$168,409
========
</TABLE>
NOTE H -- CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Interest paid.................................... $ 64,796 $ 70,138 $ 51,449
======== ======== =========
Purchase of businesses
Fair value of tangible assets acquired......... $ 72,791 $ -- $ 40,000
Goodwill....................................... 212,500 -- 57,500
Covenants not to compete....................... 20,000 -- 40,000
-------- -------- ---------
Total consideration.............................. 305,291 -- 137,500
Less note payable................................ (87,500) -- (137,500)
-------- -------- ---------
Cash paid........................................ $217,791 $ -- $ --
======== ======== =========
Purchase of marketable securities with broker
loan........................................... $ -- $203,374 $ 18,617
======== ======== =========
</TABLE>
NOTE I -- RELATED PARTY TRANSACTIONS
The Company paid a management fee of $136,000 in 1995 to a related party,
B.A.T. Real Estate, Inc.
NOTE J -- COMMON STOCK
Information on common stock, none of which has a par or stated value, is as
follows:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
AUTHORIZED AND OUTSTANDING AMOUNT
---------- --------------- --------
<S> <C> <C> <C>
B.A.T. Group Holdings, Inc..................... 1,000 1,000 $ 1,000
KAL Help Enterprises, Inc...................... 1,000 1,000 1,000
Par Three Help Services, Inc................... 1,000 100 1,000
Par Four Services, Inc......................... 1,000,000 1,000 105,000
--------
$108,000
========
</TABLE>
F-26
<PAGE> 84
B.A.T. GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND THE NINE MONTHS THEN ENDED
IS UNAUDITED)
NOTE K -- SUBSEQUENT EVENT
In November 1996, the Company sold its franchise operating rights and
certain tangible assets to the franchisor, Snelling and Snelling, Inc.
F-27
<PAGE> 85
SNELLING AND SNELLING, INC.
PRO FORMA CONDENSED FINANCIAL STATEMENT
(UNAUDITED)
The following unaudited pro forma condensed statement of earnings for the
year ended December 31, 1996 is presented for illustrative purposes only and
gives effect to (i) the acquisition on November 4, 1996 of five franchise
locations in the Chicago area (B.A.T. Group Acquisition) for $11.0 million, (ii)
the acquisition on March 17, 1996 of three franchise locations in the Kansas
city area (Kansas City Acquisition) for $1.5 million as though they had been
made on January 1, 1996 and (iii) the pro forma effect of the use of proceeds
from the sale of shares being offered herein to retire debt.
All of the acquisitions have been accounted for using the purchase method
of accounting. The unaudited pro forma condensed statement of earnings combines
the Company's results of operations for the year ended December 31, 1996 with
the operating results of B.A.T. Group Acquisition for the period from January 1,
1996 through November 3, 1996, and the Kansas City Acquisition for the period
from January 1, 1996 through March 16, 1996. The pro forma statement reflects
pro forma adjustments based upon available information and certain assumptions
the Company believes are reasonable. Because of limitations imposed with regard
to the types of permitted pro forma adjustments, no effect has been given to
anticipated efficiencies in operations which may result. Therefore, the Company
believes that this pro forma condensed statement of earnings is not indicative
of future results of operations nor the historical results of operations had the
acquisitions been consummated on January 1, 1996. These pro forma financial
statements should be read in conjunction with the historical financial
statements and related notes of the Company and B.A.T. Group. Certain businesses
acquired have not been included as they are immaterial to results of operations.
F-28
<PAGE> 86
SNELLING AND SNELLING, INC.
PRO FORMA CONDENSED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
B.A.T. KANSAS PRO FORMA PRO FORMA
GROUP CITY PRO FORMA FOR ADJUSTMENTS
COMPANY ACQUISITION ACQUISITION TOTAL ADJUSTMENTS ACQUISITIONS FOR OFFERING
---------- ----------- ----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $ 168,602 $16,341 $884 $185,827 $(431)(1) $ 185,396 $ --
Cost of services.................. 122,945 12,635 650 136,230 (447)(2) 135,783 --
---------- ------- ---- -------- ----- ---------- --------
Gross profit.............. 45,657 3,706 234 49,597 16 49,613 --
Selling, general and
administrative expenses......... 19,600 2,509 115 22,224 (7)(3) 22,217 --
Franchises' share of gross
profit.......................... 19,587 -- -- 19,587 -- 19,587 --
---------- ------- ---- -------- ----- ---------- --------
Operating profit.......... 6,470 1,197 119 7,786 23 7,809 --
Other income (expense)
Interest expense................ (1,100) (58) -- (1,158) (770)(4) (1,928) 1,350(5)
Other........................... 105 -- -- 105 -- 105 --
---------- ------- ---- -------- ----- ---------- --------
(995) (58) -- (1,053) (770) (1,823) 1,350
---------- ------- ---- -------- ----- ---------- --------
Earnings before income
taxes................... 5,475 1,139 119 6,733 (747) 5,986 1,350
Income tax expense................ 2,161 -- -- 2,161 (202)(6) 2,363 533(6)
---------- ------- ---- -------- ----- ---------- --------
NET EARNINGS.............. $ 3,314 $ 1,139 $119 $ 4,572 $(949) $ 3,623 $ 817
========== ======= ==== ======== ===== ========== ========
Earnings per share................ $ .48 $ .52
========== ==========
Weight average common and common
equivalent shares............... 6,965,843 6,965,843 618,280(5)
========== ========== ========
<CAPTION>
PRO FORMA
----------
<S> <C>
Revenues.......................... $ 185,396
Cost of services.................. 135,783
----------
Gross profit.............. 49,613
Selling, general and
administrative expenses......... 22,217
Franchises' share of gross
profit.......................... 19,587
----------
Operating profit.......... 7,809
Other income (expense)
Interest expense................ (578)
Other........................... 105
----------
(473)
----------
Earnings before income
taxes................... 7,336
Income tax expense................ 2,896
----------
NET EARNINGS.............. $ 4,440
==========
Earnings per share................ $ .59
==========
Weight average common and common
equivalent shares............... 7,584,123
==========
</TABLE>
F-29
<PAGE> 87
SNELLING AND SNELLING, INC.
NOTES TO PRO FORMA CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
The pro forma adjustments to the accompanying pro forma statement of
earnings are described below:
(1) Eliminations of royalty revenues received from acquired franchise
locations.
(2) Elimination of the acquired franchise locations' cost of services for
royalties paid to the Company and adjustments to reflect the Company's
workers' compensation rates and state unemployment tax rates in effect
at the time of acquisition, as follows (in thousands):
<TABLE>
<S> <C>
Royalties paid to the Company............................... $431
Reduction in workers' compensation insurance rates.......... 6
Reduction in state unemployment tax rates................... 10
----
$447
====
</TABLE>
(3) Adjustment to compensation expense associated with sellers who were
executive officers of the franchise locations acquired who were not
employed by the Company after acquisition and amortization of the
assets acquired in the B.A.T. Group and Kansas City Acquisitions as
follows (in thousands):
<TABLE>
<S> <C>
Compensation expense........................................ $(174)
Amortization -- B.A.T. Group Acquisition.................... 155
Amortization -- Kansas City Acquisition..................... 12
-----
$ (7)
=====
</TABLE>
(4) Adjustment for interest expense on borrowings of $11.0 million and $1.5
million incurred in connection with the B.A.T. Group and Kansas City
Acquisitions, respectively, and to eliminate interest expense of the
B.A.T. Group Acquisition.
(5) Adjustment to reflect shares being offered to retire debt with an
average balance of $7,900,000 during the year ended December 31, 1996,
and the elimination of the related interest expense along with the pro
forma interest expense of $770,000 of acquisition debt, net of tax, as
though the debt were retired at the beginning of the year.
(6) Tax effects of pro forma adjustments and provision for income taxes,
using the Company's effective tax rate, on the earnings of B.A.T. Group
and the Kansas City Acquisitions, which had S Corporation status for
federal income tax purposes.
F-30
<PAGE> 88
[GRAPHICS]
The inside back cover of the Prospectus includes the caption "Over 300
Locations Serving the United States." in the upper right corner, a photograph of
the Snelling office in Quincy, Illinois (with a caption to that effect) in the
upper left corner of the page, a map of the United States with dots placed to
represent Snelling locations in the lower half of the page (along with the
caption to the right of the map of "318 Snelling Locations* as of September 30,
1997" on two lines and, in a smaller point size below, "* includes eight
locations outside the U.S."), a photograph of a Snelling office in Dallas, Texas
(with a caption to that effect) in the lower left corner and the Snelling(R)
Personnel Services logo in the lower right corner.
<PAGE> 89
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
The Company........................... 11
Use of Proceeds....................... 11
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial and
Operating Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 24
Management............................ 37
Certain Relationships and Related
Transactions........................ 44
Principal and Selling Shareholders.... 45
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 52
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
3,350,000 SHARES
[SNELLING LOGO]
COMMON STOCK
---------------------
PROSPECTUS
, 1997
---------------------
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
======================================================
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with this
offering are as follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 22,652
NASD fee.................................................... 7,475
Nasdaq National Market listing fee.......................... 31,875
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Printing expenses........................................... *
Blue Sky fees and expenses (including legal fees)........... *
Transfer agent's and registrar's fees....................... *
Miscellaneous other expenses................................ *
----------
Total............................................. $1,250,000
==========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741, 1742 and 1743 of the Pennsylvania Business Corporation Law
provide that a Pennsylvania corporation may indemnify any person against
expenses (including attorneys fees), judgments, fines and settlements actually
and reasonably incurred by any such person in connection with a threatened,
pending or completed action, suit or proceeding in which he is involved by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, provided that (i) he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. If the action or suit
is by or in the name of the corporation, the corporation may indemnify any such
person against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
district court of common pleas or the court in which the action or suit is
brought determines upon application that, despite the adjudication of liability
but in light of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper. To
the extent that such a person has been successful on the merits or otherwise in
defense of any such action or proceeding, the person shall be indemnified
against expenses actually and reasonably incurred in connection therewith.
The Bylaws provide that the Company is generally required to indemnify its
directors and officers for all judgments, fines, settlements, legal fees and
other expenses incurred in connection with pending or threatened legal
proceedings because of the director's or officer's position with the Company or
another entity that the director or officer serves at the Company's request,
subject to certain conditions, and to advance funds to its directors and
officers to enable them to defend against such proceedings upon receipt of any
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined that he is not entitled to be indemnified by the
Company as authorized by the Pennsylvania Business Corporation Law or otherwise.
Conditions that bar indemnification against liabilities arising from conduct
include (i) where the conduct of the indemnified director or officer has been
determined to constitute willful misconduct or recklessness under the
Pennsylvania Business Corporation Law or any superseding provision of law and
(ii) self-dealing, which means the receipt of personal benefit from the
corporation to which the authorized director or officer is not legally entitled.
To receive indemnification, the director or officer must have been successful in
the legal
II-1
<PAGE> 91
proceeding or acted in good faith and in what was reasonably believed to be a
lawful manner and in the Company's best interest. See "Description of Capital
Stock -- Certain Provisions of the Charter and Bylaws."
In addition, the Charter limits the liability of directors to the extent
allowed by the Pennsylvania Business Corporation Law. Specifically, directors
will not be held personally liable to the Company or its shareholders for
monetary damages for any action taken, or any failure to take any action, in
their capacity as a director, unless (i) the director has breached or failed to
perform the duties of the director's office under the Charter, By-Laws or
applicable provisions of law and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The limitations on
liability do not apply to the responsibility or liability of a director pursuant
to any criminal statute or for the payment of taxes pursuant to federal, state
or local law. See "Description of Capital Stock -- Certain Provisions of the
Charter and Bylaws."
Section 1747 of the Pennsylvania Business Corporation Law allows the
Company to purchase and maintain insurance on behalf of its directors and
officers against liabilities that may be asserted against, or incurred by, the
directors and officers in any such capacity, whether the Company would have the
authority to indemnify the directors and officers against liability under the
provisions of Sections 1741, 1742 and 1743. The Company maintains a directors'
and officers' liability policy for this purpose.
The Underwriting Agreement filed as Exhibit 1.1 hereto contains reciprocal
agreements of indemnity between the registrant and the Underwriters as to
certain liabilities, including liabilities under the Securities Act and in
certain circumstances provides for indemnification of the registrant's directors
and officers.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Company as described
above, the Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
therefore is unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 2, 1996, the Company granted options to purchase an aggregate
of 2,599,238 shares of Class B Common Stock to certain of its executive officers
pursuant to the 1996 Stock Option Plan. See "Management -- Stock Option Plans.
The options were granted pursuant to private transactions, and the grants were
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) for transactions not involving any public offering and Rule 701 for
offers and sales to employees, directors or officers pursuant to written
compensatory benefit plans or written contracts relating to the compensation of
such persons.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Form of Second Amended and Restated Articles of
Incorporation
*3.2 -- Form of amended and restated Bylaws
**4.1 -- Form of certificate representing shares of Common Stock
**5.1 -- Legal Opinion of Gardere & Wynne, L.L.P., regarding
legality of securities being registered
10.1 -- Employment Agreement, effective as of October 2, 1997, by
and between the Company and Robert O. Snelling, Sr.
10.2 -- Employment Agreement, effective as of July 26, 1994, by
and between the Company and Timothy J. Loncharich
</TABLE>
II-2
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.3 -- Snelling and Snelling, Inc. Long Term Incentive
Performance Bonus Plan for Timothy J. Loncharich,
effective as of July 26, 1994
10.4 -- Amendment Number One to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
August 1, 1994
10.5 -- Amendment Number Two to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
November 1, 1996
10.6 -- Termination Agreement, effective as of November 1, 1996,
by and between the Company and Timothy J. Loncharich
(relating to Long Term Incentive Performance Bonus Plan)
10.7 -- Amendment Number Three to the Employment Agreement
between the Company and Timothy J. Loncharich, effective
as of October 2, 1997.
*10.8 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and Robert O. Snelling, Jr.
10.9 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and J. Russell Crews
*10.10 -- Snelling and Snelling, Inc. 1997 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.11 -- Snelling and Snelling, Inc. 1996 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.12 -- Snelling and Snelling, Inc. Non-Employee Director Stock
Option Plan, including form of Nonqualified Stock Option
Agreement
10.13 -- Credit Agreement, dated as of January 31, 1996, among the
Company, as Borrower, and The First National Bank of
Boston, individually and as Agent, and the lenders named
therein
10.14 -- Security Agreement, dated as of January 31, 1996, by and
between the Company and The First National Bank of
Boston, as agent
10.15 -- Copyright Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.16 -- Trademark Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.17 -- Borrower Pledge Agreement dated as of January 31, 1996,
by and between the Company and The First National Bank of
Boston, as agent
10.18 -- Amendment to Credit Agreement, dated as of August 22,
1996, by and between the Company, Advance, Plant
Maintenance, Inc., Robert O. Snelling, Sr., and Anne M.
Snelling and The First National Bank of Boston,
individually and as agent, and the lenders named therein
10.19 -- Second Amendment to Credit Agreement, dated as of July
25, 1997, by and between the Company, Advance, Robert O.
Snelling, Sr., Anne M. Snelling and Arimathea and
BankBoston, N.A., individually and as agent, and the
lenders named therein
</TABLE>
II-3
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.20 -- Form of Franchise Agreement
*10.21 -- Asset Purchase Agreement dated as of October 16, 1996,
between B.A.T. Holdings, Inc., and Brett S. Hardt and
Jeff Albrecht and the Company
10.22 -- Asset Purchase Agreement dated as of October 16, 1996,
between KAL Help Enterprises, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.23 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Three Help Services, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.24 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Four Services, Inc., and Brett Hardt, Jeff
Albrecht and Scott Wells and the Company
10.25 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Five Services, Inc., and Brett S. Hardt, Jeff
Albrecht and Lila Petrovich and the Company
10.26 -- Asset Purchase Agreement dated as of September , 1997,
Cross Temps, Inc. and Cross Personnel Agency, Inc. and
James A. Zamparelli, Maria Zamparelli, Michael Monda and
John Costa and the Company
11.1 -- Statement regarding computation of per share data
*21.1 -- List of subsidiaries
*23.1 -- Consent of Grant Thornton LLP
**23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (set forth on page II-6 of initial
filing)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
** To be filed by amendment
(b) Financial Statement Schedules
The following financial statement schedules are included in Part II of the
registration statement:
Schedule II -- Valuation and Qualifying Accounts for the year ended May 31,
1994, the seven months ended December 31, 1994, and the
years ended December 31, 1995 and 1996.
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or noted therein.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 94
(b) The undersigned registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names as
required by the representatives of the underwriters to permit prompt delivery to
each purchaser.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas and
State of Texas on the 21st day of November, 1997.
SNELLING AND SNELLING, INC.
By: /s/ J. RUSSELL CREWS
----------------------------------
J. Russell Crews
Senior Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Act, this amendment to
registration statement has been signed below by the following persons and in the
capacities indicated on the 21st day of November, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
* Director, Chairman of the Board and Chief
- ----------------------------------------------------- Executive Officer (principal executive
Robert O. Snelling, Sr. officer)
* Director, President and Chief Operating
- ----------------------------------------------------- Officer
Timothy J. Loncharich
* Director, Senior Vice President, Chief
- ----------------------------------------------------- Financial Officer and Treasurer (principal
J. Russell Crews financial and accounting officer)
* Director, Vice Chairman of the Board and
- ----------------------------------------------------- Senior Vice President
Robert O. Snelling, Jr.
*By: /s/ J. RUSSELL CREWS
------------------------------------------------
J. Russell Crews
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 96
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Snelling and Snelling, Inc.
In connection with our audit of the consolidated financial statements of
Snelling and Snelling, Inc. referred to in our report dated April 25, 1997,
which is included in the Prospectus constituting Part I of this Registration
Statement, we have also audited Schedule II for the periods set forth in Item
16. In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Dallas, Texas
April 25, 1997
S-1
<PAGE> 97
SNELLING AND SNELLING, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B - COLUMN C - COLUMN D - COLUMN E -
-------- ------------ ---------- ---------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF BAD DEBT END OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS PERIOD EXPENSE DEDUCTIONS(1) PERIOD
------------------------------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended May 31, 1994...................... $532 $375 $160 $747
Seven months ended December 31, 1994......... 747 68 637 178
Year ended December 31, 1995................. 178 74 51 201
Year ended December 31, 1996................. 201 226 78 349
</TABLE>
- ---------------
(1) Accounts charged off, net of recoveries.
S-2
<PAGE> 98
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Form of Second Amended and Restated Articles of
Incorporation
*3.2 -- Form of amended and restated Bylaws
**4.1 -- Form of certificate representing shares of Common Stock
**5.1 -- Legal Opinion of Gardere & Wynne, L.L.P., regarding
legality of securities being registered
10.1 -- Employment Agreement, effective as of October 2, 1997, by
and between the Company and Robert O. Snelling, Sr.
10.2 -- Employment Agreement, effective as of July 26, 1994, by
and between the Company and Timothy J. Loncharich
10.3 -- Snelling and Snelling, Inc. Long Term Incentive
Performance Bonus Plan for Timothy J. Loncharich,
effective as of July 26, 1994
10.4 -- Amendment Number One to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
August 1, 1994
10.5 -- Amendment Number Two to the Employment Agreement between
the Company and Timothy J. Loncharich, effective as of
November 1, 1996
10.6 -- Termination Agreement, effective as of November 1, 1996,
by and between the Company and Timothy J. Loncharich
(relating to Long Term Incentive Performance Bonus Plan)
10.7 -- Amendment Number Three to the Employment Agreement
between the Company and Timothy J. Loncharich, effective
as of October 2, 1997.
*10.8 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and Robert O. Snelling, Jr.
10.9 -- Employment Agreement, effective as of December 1, 1996,
by and between the Company and J. Russell Crews
*10.10 -- Snelling and Snelling, Inc. 1997 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.11 -- Snelling and Snelling, Inc. 1996 Stock Option Plan,
including form of Incentive Stock Option Agreement and
Nonqualified Stock Option Agreement
*10.12 -- Snelling and Snelling, Inc. Non-Employee Director Stock
Option Plan, including form of Nonqualified Stock Option
Agreement
10.13 -- Credit Agreement, dated as of January 31, 1996, among the
Company, as Borrower, and The First National Bank of
Boston, individually and as Agent, and the lenders named
therein
10.14 -- Security Agreement, dated as of January 31, 1996, by and
between the Company and The First National Bank of
Boston, as agent
10.15 -- Copyright Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.16 -- Trademark Security Agreement dated as of January 31,
1996, by and between the Company and The First National
Bank of Boston, as agent
10.17 -- Borrower Pledge Agreement dated as of January 31, 1996,
by and between the Company and The First National Bank of
Boston, as agent
</TABLE>
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.18 -- Amendment to Credit Agreement, dated as of August 22,
1996, by and between the Company, Advance, Plant
Maintenance, Inc., Robert O. Snelling, Sr., and Anne M.
Snelling and The First National Bank of Boston,
individually and as agent, and the lenders named therein
10.19 -- Second Amendment to Credit Agreement, dated as of July
25, 1997, by and between the Company, Advance, Robert O.
Snelling, Sr., Anne M. Snelling and Arimathea and
BankBoston, N.A., individually and as agent, and the
lenders named therein
10.20 -- Form of Franchise Agreement
*10.21 -- Asset Purchase Agreement dated as of October 16, 1996,
between B.A.T. Holdings, Inc., and Brett S. Hardt and
Jeff Albrecht and the Company
10.22 -- Asset Purchase Agreement dated as of October 16, 1996,
between KAL Help Enterprises, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.23 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Three Help Services, Inc., and Brett S. Hardt
and Jeff Albrecht and the Company
10.24 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Four Services, Inc., and Brett Hardt, Jeff
Albrecht and Scott Wells and the Company
10.25 -- Asset Purchase Agreement dated as of October 16, 1996,
between Par Five Services, Inc., and Brett S. Hardt, Jeff
Albrecht and Lila Petrovich and the Company
10.26 -- Asset Purchase Agreement dated as of September , 1997,
Cross Temps, Inc. and Cross Personnel Agency, Inc. and
James A. Zamparelli, Maria Zamparelli, Michael Monda and
John Costa and the Company
11.1 -- Statement regarding computation of per share data
*21.1 -- List of subsidiaries
*23.1 -- Consent of Grant Thornton LLP
**23.2 -- Consent of Gardere & Wynne, L.L.P. (included in Exhibit
5.1)
24.1 -- Power of Attorney (set forth on page II-6 of initial
filing)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
** To be filed by amendment
<PAGE> 1
3,350,000 Shares
Snelling and Snelling, Inc.
Class A Common Stock
UNDERWRITING AGREEMENT
__________, 1997
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Snelling and Snelling, Inc., a Pennsylvania corporation (the
"Company") and Robert O. Snelling, Sr., a shareholder of the Company (the
"Selling Shareholder"), propose to issue and sell an aggregate of 3,350,000
shares (the "Firm Shares") of the Company's Class A Common Stock, $0.01 par
value per share (the "Class A Common Stock"), to the several Underwriters named
in Schedule I hereto (the "Underwriters"). Of the 3,350,000 Firm Shares,
2,933,333 are to be sold by the Company and 416,667 are to be sold by the
Selling Shareholder. The Company also proposes to sell to the Underwriters,
upon the terms and conditions set forth in Section 2 hereof, up to an
additional 750,000 shares (the "Additional Shares") of Class A Common Stock.
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "Shares".
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Agreements to Sell and Purchase. The Company and the Selling
Shareholder hereby agree, subject to all the terms and conditions set forth
herein, to issue and sell to each Underwriter and, upon the basis of the
representations, warranties and agreements of the Company and the Selling
Shareholder herein contained and subject to all the terms and conditions set
forth herein, each
1
<PAGE> 2
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholder, at a purchase price of $______ per Share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters
shall have the right to purchase from the Company, at the purchase price per
share, pursuant to an option (the "over-allotment option") which may be
exercised at any time and from time to time prior to 9:00 P.M., New York City
time, on the 30th day after the date of the Prospectus (as hereinafter defined)
(or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when The Nasdaq Stock Market is open for trading), up
to an aggregate of 750,000 Additional Shares. Additional Shares may be
purchased only for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. Upon any exercise of the over-allotment
option, each Underwriter, severally and not jointly, agrees to purchase from
the Company the number of Additional Shares (subject to such adjustments as you
may determine to avoid fractional shares) which bears the same proportion to
the number of Additional Shares to be purchased by the Underwriters as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 10 hereof) bears to the aggregate number of Firm Shares.
2. Terms of Public Offering. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement (as hereinafter
defined) and this Agreement have become effective as in your judgment is
advisable and initially to offer the Shares upon the terms set forth in the
Prospectus.
3. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on _________________, 1997 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than two nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on behalf
2
<PAGE> 3
of the Underwriters to the Company of the Underwriters' determination to
purchase a number, specified in such notice, of Additional Shares. The place
of closing for any Additional Shares and the Option Closing Date for such
Shares may be varied by agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price therefor by wire transfer in immediately available funds.
4. Agreements of the Company. The Company agrees with the
several Underwriters as follows:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares
may commence, the Company will endeavor to cause the Registration Statement or
such post-effective amendment to become effective as soon as possible and will
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective. As used in this Agreement, the term "Registration Statement"
means the registration statement relating to the Shares initially filed by the
Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), as amended at the time when
it was or is declared effective, including all financial schedules and exhibits
thereto and including any information omitted therefrom pursuant to Rule 430A
under the Act and included in the Prospectus and any registration statement
filed with the Commission pursuant to Rule 462(b) under the Act (including the
Registration Statement and any Prepricing Prospectus (as hereinafter defined)
or Prospectus incorporated therein at the time such Registration Statement
becomes effective); the term "Prepricing Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in
the Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means: (A) if the Company relies on
Rule 434 under the Act, the Term Sheet relating to the Shares that is first
filed pursuant to Rule 424(b)(7) under the Act, together with the Prepricing
Prospectus identified therein that such Term Sheet supplements; (b) if the
Company does not rely on Rule 434 under the Act, the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act; or (c) if the
Company does not rely on Rule 434 under the Act and if no prospectus is
3
<PAGE> 4
required to be filed pursuant to Rule 424(b) under the Act, the prospectus
included in the Registration Statement; and the term "Term Sheet" means any
term sheet that satisfies the requirements of Rule 434 under the Act. Any
reference herein to the "date" of a Prospectus that includes a Term Sheet shall
mean the date of such Term Sheet.
(b) The Company will advise you promptly and, if
requested by you, will confirm such advice in writing: (i) of any request by
the Commission for amendment of or a supplement to the Registration Statement,
any Prepricing Prospectus or the Prospectus or for additional information; (ii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, 3
signed copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements and
all exhibits thereto, and will also furnish to you, without charge, such number
of conformed copies of the Registration Statement as originally filed and of
each amendment thereto, but without exhibits, as you may request.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a Prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with such
filing.
4
<PAGE> 5
(e) Prior to the execution and delivery of this
Agreement, the Company has delivered to you, without charge, in such quantities
as you have requested, copies of each form of the Prepricing Prospectus. The
Company consents to the use, in accordance with the provisions of the Act and
with the securities or Blue Sky laws of the jurisdictions in which the Shares
are offered by the several Underwriters and by dealers, prior to the date of
the Prospectus, of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this
Agreement as possible and thereafter from time to time for such period as in
the opinion of counsel for the Underwriters a prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer, the
Company will expeditiously deliver to each Underwriter and each dealer, without
charge, as many copies of the Prospectus (and of any amendment or supplement
thereto) as you may request. The Company consents to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the jurisdictions in
which the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of the
Shares and for such period of time thereafter as the Prospectus is required by
the Act to be delivered in connection with sales by any Underwriter or dealer.
If during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Underwriters is required to be set
forth in the Prospectus (as then amended or supplemented) or should be set
forth therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with the Act or any other law,
the Company will forthwith prepare and, subject to the provisions of paragraph
(d) above, file with the Commission an appropriate supplement or amendment
thereto, and will expeditiously furnish to the Underwriters and dealers a
reasonable number of copies thereof. In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should
be amended or supplemented, the Company, if requested by you, will promptly
issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel
for the Underwriters in connection with the registration or qualification of
the Shares for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject.
5
<PAGE> 6
(h) The Company will make generally available to its
security holders a consolidated earnings statement, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as soon
as practicable after the end of such period, which consolidated earnings
statement shall satisfy the provisions of Section ll(a) of the Act.
(i) During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to stockholders or filed with the Commission, and (ii) from
time to time such other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 or Section 11 hereof) or if
this Agreement shall be terminated by the Underwriters because of any failure
or refusal on the part of the Company to comply with the terms or fulfill any
of the conditions of this Agreement, the Company agrees to reimburse the
Representatives for all out-of-pocket expenses (including fees and expenses of
counsel for the Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale
of the Shares substantially in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will
advise you of the time and manner of such filing.
(m) Except as provided in this Agreement, the Company
will not sell, contract to sell or otherwise dispose of any Class A Common
Stock or any securities convertible into or exercisable or exchangeable for
Class A Common Stock, or grant any options or warrants to purchase Class A
Common Stock or Class B Common Stock of the Company ("Class B Common Stock,"
and together with the Class A Common Stock, the "Common Stock") except with
respect to options granted under the Company's 1997 Stock Option Plan, for a
period of 180 days after the date of the Prospectus, without the prior written
consent of Smith Barney Inc.
(n) The Company has furnished or will furnish to you
"lock-up" letters, in form and substance satisfactory to you, signed by each of
its current officers and directors and each of its stockholders designated by
you.
6
<PAGE> 7
(o) Except as stated in this Agreement and in the
Prepricing Prospectus and Prospectus, the Company has not taken, nor will it
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the
Class A Common Stock listed, subject to notice of issuance, on the national
market tier of The Nasdaq Stock Market concurrently with the effectiveness of
the Registration Statement.
5. Representations and Warranties of the Company.
(a) The Company represents and warrants to each
Underwriter that:
(i) Each Prepricing Prospectus included as part
of the Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424 under the Act, complied
when so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(ii) The Registration Statement in the form in
which it became or becomes effective and also in such form as it may be when
any post-effective amendment thereto shall become effective and the Prospectus
and any supplement or amendment thereto when filed with the Commission under
Rule 424(b) under the Act, complied or will comply in all material respects
with the provisions of the Act and did not or will not at any such times
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(iii) All the outstanding shares of Common Stock of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free of any preemptive or similar rights; the Shares have
been duly authorized and, when issued and delivered to the Underwriters against
payment therefor in accordance with the terms hereof, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar rights; and
the capital stock of the Company conforms to the description thereof in the
Registration Statement and the Prospectus.
(iv) Except as disclosed in the Prospectus (or, if
the Prospectus is not in existence, the most recent Prepricing Prospectus),
there are no outstanding (i) securities or
7
<PAGE> 8
obligations of the Company or the Subsidiaries convertible into or exchangeable
for any capital stock of the Company or any such Subsidiary, (ii) warrants,
rights or options to subscribe for or purchase from the Company or any such
Subsidiary any such capital stock or any such convertible or exchangeable
securities or obligations, or (iii) obligations of the Company or any such
Subsidiary to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or
options.
(v) The Company is a corporation duly organized
and validly existing in good standing under the laws of the State of
Pennsylvania with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus, and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place where the
nature of its properties or the conduct of its business requires such
registration or qualification, except where the failure so to register or
qualify does not have a material adverse effect on the condition (financial or
other), business, properties, net worth or results of operations of the Company
and the Subsidiaries (as hereinafter defined) taken as a whole and is
conducting its business so as to comply with all applicable statutes and
regulations, including without limitation, applicable licensing and franchise
laws and regulations in each of the jurisdictions in which the Company conducts
its business.
(vi) All the Company's subsidiaries (collectively,
the "Subsidiaries") are listed in an exhibit to the Registration Statement.
Each Subsidiary is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing
in each jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth or results
of operations of such Subsidiary and is conducting its business so as to comply
with all applicable statutes and regulations, including without limitation,
applicable licensing and franchise laws and regulations in each of the
jurisdictions in which the Subsidiary conducts its business; all the
outstanding shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and are owned
by the Company directly, or indirectly through one of the other Subsidiaries,
free and clear of any lien, adverse claim, security interest, equity, or other
encumbrance.
(vii) There are no legal or governmental
proceedings pending or, to the best knowledge of the Company, threatened,
against the Company or any of the Subsidiaries, or to which the Company or any
of the Subsidiaries, or to which any of their respective properties is subject,
that are required to be described in the Registration Statement or the
Prospectus but are not described as
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<PAGE> 9
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act.
(viii) Neither the Company nor any of the
Subsidiaries is in violation of its certificate or articles of incorporation or
by-laws, or other organizational documents, or of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries, or in
default in any material respect in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound.
(ix) Neither the issuance and sale of the Shares,
the execution, delivery or performance of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby (A)
requires any consent, approval, authorization or other order of or registration
or filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for the
registration of the Shares under the Act and the Exchange Act and compliance
with the securities or Blue Sky laws of various jurisdictions, all of which
have been or will be effected in accordance with this Agreement) or conflicts
or will conflict with or constitutes or will constitute a breach of, or a
default under, the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of the Subsidiaries or (B)
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound, or violates or will violate
any statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or any of the Subsidiaries or any of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(x) The accountants, Grant Thornton LLP, who have
certified or shall certify the financial statements included in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(xi) The financial statements, together with
related schedules and notes, included in the Registration Statement and the
Prospectus (and any amendment or supplement
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<PAGE> 10
thereto), present fairly the consolidated financial position, results of
operations and changes in financial position of the Company and the
Subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved, except as disclosed therein; and the other financial and
statistical information and data included in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) are accurately presented
and prepared on a basis consistent with such financial statements and the books
and records of the Company and the Subsidiaries.
(xii) The execution and delivery of, and the
performance by the Company of its obligations under, this Agreement have been
duly and validly authorized by the Company, and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws.
(xiii) Except as disclosed in the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
subsequent to the respective dates as of which such information is given in the
Registration Statement and the Prospectus (or any amendment or supplement
thereto), neither the Company nor any of the Subsidiaries has incurred any
liability or obligation, direct or contingent, or entered into any transaction,
not in the ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock, or material increase in the short-term debt or long-term debt, of the
Company or any of the Subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the
Subsidiaries taken as a whole.
(xiv) Each of the Company and the Subsidiaries has
good and marketable title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the
Registration Statement and the Prospectus or in a document filed as an exhibit
to the Registration Statement and all the property described in the Prospectus
as being held under lease by each of the Company and the Subsidiaries is held
by it under valid, subsisting and enforceable leases.
(xv) The Company has not, directly or indirectly
(except for the sale of Shares under this Agreement), (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
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<PAGE> 11
the price of any security of the Company to facilitate the sale or resale of
the Shares or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of,
the Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(xvi) The Company has not distributed and, prior to
the later to occur of (i) the Closing Date and (ii) completion of the
distribution of the Shares, will not distribute any offering material in
connection with the offering and sale of the Shares other than the Registration
Statement, the Prepricing Prospectus, the Prospectus or other materials, if
any, permitted by the Act.
(xvii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xviii) To the Company's best knowledge, neither the
Company nor any of its Subsidiaries nor any employee or agent of the Company or
any Subsidiary has made any payment of funds of the Company or any Subsidiary
or received or retained any funds in violation of any law, rule or regulation,
which payment, receipt or retention of funds is of a character required to be
disclosed in the Prospectus.
(xix) No labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the Company's knowledge, is
threatened or imminent that could result in a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company and the Subsidiaries taken as a whole, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Prepricing Prospectus).
(xx) The Company and each of the Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; and neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverageas and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company
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<PAGE> 12
and the Subsidiaries taken as a whole, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Prepricing Prospectus).
(xxi) The Company and each of the Subsidiaries have
filed all tax returns required to be filed, which returns are complete and
correct, and neither the Company nor any Subsidiary is in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto.
(xxii) No holder of any security of the Company has
any right to require registration of shares of Common Stock or any other
security of the Company because of the filing of the registration statement or
consummation of the transactions contemplated by this Agreement.
(xxiii) The Company and the Subsidiaries own or
possess all patents, trademarks, trademark registrations, service marks,
service mark registrations, trade names, copyrights, licenses, inventions,
trade secrets and rights described in the Prospectus as being owned by them or
any of them or necessary for the conduct of their respective businesses, and
the Company is not aware of any claim to the contrary or any challenge by any
other person to the rights of the Company and the Subsidiaries with respect to
the foregoing.
(xxiv) The Company is not now, and after sale of the
Shares to be sold by it hereunder and application of the net proceeds from such
sale as described in the Prospectus under the caption "Use of Proceeds" will
not be, an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
(xxv) The Company has complied with all provisions
of Florida Statutes, Section 517.075, relating to issuers doing business with
Cuba.
(b) Any certificate signed by an officer of the Company
and delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company, to each Underwriter, as to
the matters covered thereby.
6. Representations and Warranties of the Selling Shareholder.
(a) The Selling Shareholder represents and warrants to,
and agrees with, the several Underwriters that:
(i) The Selling Shareholder has, and on the
Closing Date will have, good and marketable title to the Firm Shares proposed
to be sold by the Selling Shareholder hereunder on
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<PAGE> 13
such Closing Date and full right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver such Firm Shares hereunder,
free and clear of all voting trust arrangements, liens, encumbrances, equities,
security interests, restrictions and claims whatsoever; and upon delivery of
and payment for such Firm Shares hereunder, the Selling Shareholder will convey
to the Underwriters good and marketable title thereto, free and clear of all
liens, encumbrances, equities, claims, restrictions, security interests, voting
trusts or other defects of title whatsoever.
(ii) The Selling Shareholder has executed and
delivered a Power of Attorney and caused to be executed and delivered on its
behalf a Custody Agreement (hereinafter collectively referred to as the
"Shareholder's Agreement"), and in connection herewith the Selling Shareholder
further represents, warrants and agrees that the Selling Shareholder has
deposited in custody, under the Shareholder's Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable form for the
Firm Shares to be sold hereunder by the Selling Shareholder, for the purpose of
further delivery pursuant to this Agreement. The Selling Shareholder agrees
that the Firm Shares to be sold by such Selling Shareholder on deposit with the
Agent are subject to the interests of the Company and the Underwriters to the
extent set forth herein and in the Shareholder's Agreement, that the
arrangements made for such custody are to that extent irrevocable, and that the
obligations of the Selling Shareholder hereunder shall not be terminated,
except as provided in this Agreement or in the Shareholder's Agreement, by any
act of the Selling Shareholder, by operation of law, by the termination or
revocation of the trust agreement or other governing documents of the Selling
Shareholder or by the occurrence of any other event. If the Selling
Shareholder is declared mentally incapacitated or dies before the delivery of
the Firm Shares hereunder, the documents evidencing the Firm Shares then on
deposit with the Agent shall be delivered by the Agent in accordance with the
terms and conditions of this Agreement and the Shareholder's Agreement as if
such incapacitation, death or other similar event had not occurred, regardless
of whether or not the Agent shall have received notice thereof. This Agreement
and the Shareholder's Agreement have been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder and constitute valid and
legally binding agreements of the Selling Shareholder, enforceable against the
Selling Shareholder in accordance with their terms, except as rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws. The form of the Shareholder's Agreement has been delivered to
you.
(iii) The performance of this Agreement and the
Shareholder's Agreement and the consummation of the transactions contemplated
hereby and by the Shareholder's Agreement will not result in a breach or
violation by the Selling Shareholder of any of the terms or provisions of, or
constitute a default by the Selling Shareholder under any material indenture,
mortgage, deed of trust, trust (constructive or other), loan agreement, lease,
franchise, license or other agreement or instrument to which the Selling
Shareholder is a party or by which the Selling Shareholder or any of his
properties is bound, or any judgment, decree, order, rule or regulation of any
court or
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<PAGE> 14
governmental agency or body applicable to the Selling Shareholder or any of his
properties, except (x) for any violation, breach, or default that could not
have an adverse effect on the Selling Shareholder's sale of the Firm Shares to
be sold hereunder or the Selling Shareholder's performance of any of his other
obligations hereunder or under the Shareholder's Agreement and (y) that the
Selling Shareholder makes no representation or warranty hereunder with respect
to federal or state securities or "blue sky" laws or any similar laws in
applicable foreign jurisdictions.
(iv) The Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or resale
of the Firm Shares.
(v) Each Prepricing Prospectus that has been
distributed by the Underwriters or the Company to prospective investors and the
Prospectus, insofar as they include or reflect information with respect to the
Selling Shareholder, has conformed in all material respects to the requirements
of the Act and the rules and regulations of the Commission thereunder and has
not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made; and neither the Registration
Statement nor the Prospectus (or, if the Prospectus is not in existence, the
most recent Prepricing Prospectus), nor any amendment or supplement thereto,
insofar as they include or reflect information with respect to the Selling
Shareholder, will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(vi) The Selling Shareholder is not aware that
any of the representations or warranties of the Company set forth in Section 5
above is untrue or inaccurate in any material respect.
(vii) All stock transfer or other taxes (other
than income taxes), if any, that are required to be paid in connection with the
sale and transfer of the Firm Shares proposed to be sold by the Selling
Shareholder to the several Underwriters pursuant to this Agreement will be
fully paid or provided for by the Selling Shareholder.
(viii) No consent, approval, authorization or order
of, or any filing with, any court or governmental agency or body is required
for the consummation by the Selling Shareholder of the transactions on his part
contemplated in this Agreement, the Power of Attorney or the Custody Agreement,
except as may be required under the Act or state securities or "blue sky" laws
or similar laws in applicable foreign jurisdictions.
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<PAGE> 15
(ix) Other than as permitted by the Act and the
rules and regulations of the Commission thereunder, the Selling Shareholder has
not distributed and will not distribute any Prepricing Prospectus, the
Prospectus or any other offering material in connection with the offering and
sale of the Firm Shares proposed to be sold by the Selling Shareholder.
(b) The Selling Shareholder agrees with the Company and
the Underwriters not to offer to sell, sell or contract to sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable for any shares of Common Stock in accordance with the terms of
separate letter agreements between the Selling Shareholder and the
Representatives.
(c) Any certificate signed by the Selling Shareholder and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Selling Shareholder, to each
Underwriter, as to the matters covered thereby.
7. Indemnification and Contribution.
(a) The Company and the Selling Shareholder jointly and
severally agree to indemnify and hold harmless each of you and each other
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any Prepricing Prospectus or in the Registration Statement or the Prospectus or
in any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending; provided,
further, that the Selling Shareholder's
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<PAGE> 16
liability hereunder shall in any event be limited to the amount of net proceeds
received by the Selling Shareholder from the sale of the Shares sold by it
hereunder. The foregoing indemnity agreement shall be in addition to any
liability which the Company or the Selling Shareholder may otherwise have.
(b) If any action, suit or proceeding shall be brought
against any Underwriter or any person controlling any Underwriter in respect of
which indemnity may be sought against the Company or the Selling Shareholder,
such Underwriter or such controlling person shall promptly notify the Company
or the Selling Shareholder, and the Company or the Selling Shareholder shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses. Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Underwriter or such controlling
person unless (i) the Company or the Selling Shareholder has agreed in writing
to pay such fees and expenses, (ii) the Company or the Selling Shareholder has
failed to assume the defense and employ counsel, or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the Company or the Selling
Shareholder and such Underwriter or such controlling person shall have been
advised by its counsel that representation of such indemnified party and the
Company or the Selling Shareholder by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the Company or the
Selling Shareholder shall not have the right to assume the defense of such
action, suit or proceeding on behalf of such Underwriter or such controlling
person). It is understood, however, that the Company or the Selling
Shareholder shall, in connection with any one such action, suit or proceeding
or separate but substantially similar or related actions, suits or proceedings
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Underwriters and controlling persons not having actual or potential
differing interests with you or among themselves, which firm shall be
designated in writing by Smith Barney Inc., and that all such fees and expenses
shall be reimbursed as they are incurred. The Company or the Selling
Shareholder shall not be liable for any settlement of any such action, suit or
proceeding effected without its written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the Company and the Selling Shareholder agree to
indemnify and hold harmless any Underwriter, to the extent provided in the
preceding paragraph, and any such controlling person from and against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act
16
<PAGE> 17
and the Selling Shareholder, to the same extent as the foregoing indemnity from
the Company and the Selling Shareholder to each Underwriter, but only with
respect to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, any such controlling
person or the Selling Shareholder based on the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph (c), such Underwriter shall have the
rights and duties given to the Company and the Selling Shareholder by paragraph
(b) above (except that if the Company or the Selling Shareholder shall have
assumed the defense thereof such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such Underwriter's
expense), and the Company, its directors, any such officer, any such
controlling person and the Selling Shareholder shall have the rights and duties
given to the Underwriters by paragraph (b) above. The foregoing indemnity
agreement shall be in addition to any liability which the Underwriters may
otherwise have.
(d) If the indemnification provided for in this Section 7
is unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
indemnifying party or parties on the one hand and the indemnified party or
parties on the other hand from the offering of the Shares, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of indemnifying
party or parties on the one hand and the indemnified party or parties on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by indemnifying party
or parties on the one hand and the indemnified party or parties on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company or the Selling
Shareholder, as the case may be, bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the
indemnifying party or parties on the one hand and the indemnified party or
parties on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or parties on the one hand or by
the indemnified party or parties on the other hand
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<PAGE> 18
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company, the Selling Shareholder and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by a pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in paragraph (d) above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in paragraph (d) above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating any claim
or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective numbers of Firm Shares set forth opposite their names in Schedule I
hereto (or such numbers of Firm Shares increased as set forth in Section 10
hereof) and not joint.
(f) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of each of the Company and the Selling
Shareholder set forth in this Agreement shall remain operative and in full
force and effect, regardless of (i) any investigation made by or on behalf of
any Underwriter or any person controlling any Underwriter, the Company, its
directors or officers, or any person controlling the Company, or the Selling
Shareholder (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any Underwriter or any
person controlling any Underwriter, or to the
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<PAGE> 19
Company, its directors or officers, or any person controlling the Company, or
the Selling Shareholder shall be entitled to the benefits of the indemnity,
contribution, and reimbursement agreements contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares
may commence, the Registration Statement or such post-effective amendment shall
have become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you, and all filings, if any, required by Rules 424 and 430A under the Act
shall have been timely made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the Registration Statement or the
prospectus or otherwise) shall have been complied with to your satisfaction.
(b) (i) No stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock (other than pursuant to the
exercise of employee stock options disclosed in the Registration Statement or
Prospectus and outstanding as of the date of the Prospectus) of the Company nor
any material increase in the short-term or long-term debt of the Company (other
than in the ordinary course of business) from that set forth or contemplated in
the Registration Statement or the Prospectus (or any amendment or Supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and
the Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall
not have any liabilities or obligations, direct or contingent (whether or not
in the ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all the representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date, and you shall
have received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief
19
<PAGE> 20
financial officer of the Company (or such other officers as are acceptable to
you), to the effect set forth in this Section 8(b) and in Section 8(g) hereof.
(c) You shall have received on the Closing Date, an
opinion of Gardere & Wynne, L.L.P., counsel for the Company, dated the Closing
Date and addressed to you, as Representatives of the several Underwriters, to
the effect that:
(i) The Company and each of the Subsidiaries have
been duly organized and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good standing
under the laws of all other jurisdictions where the ownership or leasing of
their respective properties or the conduct of their respective businesses
requires such qualification, except where the failure to be so qualified does
not result in a material adverse effect on the condition (financial or other),
business, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole ("Material Adverse Effect").
(ii) The Company and each of the Subsidiaries
have corporate power to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Prepricing Prospectus); and the Company has the necessary power and authority
to enter into this Agreement and to carry out all the terms and provisions
hereof to be carried out by each of them;
(iii) The issued shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned by the Company free and clear of any
perfected security interests that have been in existence for at least 21 days
preceding the date of such opinion or, to the best knowledge of such counsel,
any other security interests, liens, encumbrances or claims;
(iv) The Company has an authorized, issued and
outstanding capitalization as set forth in the Prospectus; all of the issued
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to the best knowledge of such
counsel, were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; and, to the best
knowledge of such counsel, no holders of securities of the Company are entitled
to have such securities registered under the Registration Statement;
(v) To the best knowledge of such counsel, (1)
no legal or governmental proceedings are pending to which the Company or any of
the Subsidiaries is a party or to which the property of the Company or any of
the Subsidiaries is subject that are required to be described in the
20
<PAGE> 21
Registration Statement or the Prospectus and are not described therein, and no
such proceedings have been threatened against the Company or any of the
Subsidiaries or with respect to any of their respective properties and (2) no
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein or filed as required;
(vi) To the best knowledge of such counsel,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, (1) the Company and its Subsidiaries
have not incurred any material liability or obligation, direct or contingent,
nor entered into any material transaction not in the ordinary course of
business; and (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock, except in each case as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Prepricing Prospectus);
(vii) The offering and sale of certain of the
Shares by the Company to the Underwriters pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (1) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and such as may
be required under state securities or "blue sky" laws or similar laws in
applicable foreign jurisdictions and by the NASD or The Nasdaq Stock Market,
Inc., (2) conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, lease or other agreement or instrument known to such counsel to which
the Company or any of the Subsidiaries is a party or by which the Company or
any of the Subsidiaries or any of their respective properties are bound, or, so
far as it is known to such counsel, any statute or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator having jurisdiction over the Company or any of the Subsidiaries, in
each case, where such conflict, breach, violation or default would have a
Material Adverse Effect or (3) conflict with or violate any of the terms and
provisions of the trust agreement, charter documents or by-laws of the Company;
(viii) The Registration Statement is effective under
the Act; any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has been made in
the manner and within the time period required by Rules 434 and 424(b); and, to
such counsel's best knowledge, no stop order suspending the effectiveness of
the Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or are
contemplated by the Commission;
21
<PAGE> 22
(ix) The Registration Statement originally filed
with respect to the Securities and each amendment thereto, any Rule 462(b)
Registration Statement and the Prospectus (in each case, other than the
financial statements and notes thereto, schedules and reports thereon and other
financial, numerical, statistical and accounting data and information contained
therein, as to which such counsel need express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and the rules
and regulations of the Commission thereunder;
(x) The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xi) The Shares have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and free of any preemptive, or to the best knowledge of such
counsel after reasonable inquiry, similar rights that entitle or will entitle
any person to acquire any Shares upon the issuance thereof by the Company;
(xii) The form of certificates for the Shares
conforms to the requirements of the Pennsylvania Business Corporation Law;
(xiii) The Company has corporate power and authority
to enter into this Agreement and to issue, sell and deliver the Shares to the
Underwriters as provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and is a valid, legal and binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy;
(xiv) Neither the Company nor any of the
Subsidiaries is in violation of its respective certificate or articles of
incorporation or bylaws;
(xv) The Registration Statement and the Prospectus
and any supplements or amendments thereto (except for the financial statements
and the notes thereto and the schedules and other financial and statistical
data included therein, as to which such counsel need not express any opinion)
comply as to form in all material respects with the requirements of the Act;
(xvi) The statements in the Registration Statement
and Prospectus, insofar as they are descriptions of contracts, agreements or
other legal documents, or refer to statements of law or legal conclusions, are
accurate and present fairly the information required to be shown;
22
<PAGE> 23
Although counsel has not undertaken, except as otherwise indicated in
their opinion, to determine independently, and does not assume any
responsibility for, the accuracy or completeness of the statements in the
Registration Statement, such counsel has participated in the preparation of the
Registration Statement and the Prospectus, including review and discussion of
the contents thereof, and nothing has come to the attention of such counsel
that has caused it to believe that the Registration Statement at the time the
Registration Statement became effective, or the Prospectus, as of its date and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that any amendment or supplement to the Prospectus, as of its
respective date, and as of the Closing Date or the Option Closing Date, as the
case may be, contained any untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and the notes thereto and the schedules and other
financial and statistical data included in the Registration Statement or the
Prospectus).
(d) You shall have received on the Closing Date, an
opinion of Locke Purnell Rain Harrell, counsel for the Selling Shareholder,
dated the Closing Date and addressed to you, as Representatives of the several
Underwriter, to the effect that:
(i) The Selling Shareholder has good and
marketable title to the Firm Shares to be sold by the Selling Shareholder
hereunder and full right, power and authority to enter into this Agreement and
to carry out all the terms and provisions hereof to be carried out by him, and
to sell, assign, transfer and deliver such Firm Shares hereunder, free and
clear of all voting trust arrangements, liens, encumbrances, equities, security
interests, restrictions and claims whatsoever;
(ii) The offering and sale of certain of the
Shares by the Selling Shareholder to the Underwriters pursuant to this
Agreement, the compliance by the Selling Stockholder with the other provisions
of this Agreement and the consummation of the other transactions herein
contemplated do not (1) require the consent, approval, authorization,
registration or qualification of or with any governmental authority, except
such as have been obtained and such as may be required under state securities
or "blue sky" laws or similar laws in applicable foreign jurisdictions and by
the NASD or The Nasdaq Stock Market, Inc., or (2) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other agreement
or instrument known to such counsel to which the Selling Stockholder is a party
or by which the Selling Stockholder or any of his respective properties are
bound, or, so far as it is known to such counsel, any statute or any judgment,
decree, order, rule or regulation of any court or other governmental authority
or any arbitrator having jurisdiction over the Selling Stockholder, where such
conflict, breach, violation or default would have a Material Adverse Effect;
23
<PAGE> 24
(iii) Upon delivery of certificates for the Firm
Shares to be sold by the Selling Shareholder pursuant to the Underwriting
Agreement, as evidenced by the executed receipt for such securities by the
Underwriter, and payment for such Firm Shares as provided herein, valid and
marketable title to such Shares shall pass to the Underwriters, severally, free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
restriction on transfer, claim or equity, known to such counsel, provided that
the Underwriters are without notice of any defect in the title of such Shares
and take such Shares in good faith;
(iv) This Agreement has been duly authorized,
executed and delivered by the Selling Shareholder and is a valid, legal and
binding agreement of the Selling Shareholder, enforceable against the Selling
Shareholder in accordance with its terms, except as enforcement of rights to
indemnity and contribution hereunder may be limited by federal or state
securities laws or principles of public policy;
(e) You shall have received on the Closing Date an
opinion of Manatt, Phelps & Phillips, LLP, counsel for the Underwriters, dated
the Closing Date and addressed to you, as Representatives of the several
Underwriters, with respect to the matters referred to in clauses (ix), (xiii),
(xv), (xvii) and the last paragraph of the foregoing Section 8(c) and such
other related matters as you may request.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Grant Thornton LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(g) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(h) You shall have received a certificate, dated the
Closing Date, of the Selling Shareholder to the effect set forth in Sections
8(g) and (h), with respect to the Selling Shareholder.
(i) The Shares shall have been listed or approved for
listing upon notice of issuance on the national market tier of The Nasdaq Stock
Market.
(j) The Company shall have furnished or caused to be
furnished to you such further certificates and documents as you shall have
requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and your counsel.
24
<PAGE> 25
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option
Closing Date of the conditions set forth in this Section 8, except that, if any
Option Closing Date is other than the Closing Date, the certificates, opinions
and letters referred to in paragraphs (c) through (g) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the original issuance and sale of the Shares; (iv) the
printing (or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares;
(v) the registration of the Class A Common Stock under the Exchange Act and the
listing of the Shares on the national market tier of The Nasdaq Stock Market;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the NASD; (viii) the transportation and other
expenses incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Shares; (ix) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the Registration Statement or a post-effective amendment thereto
25
<PAGE> 26
to be declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the Registration Statement or such
post-effective amendment has been released by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by the
Company, by notifying you, or by you, as Representatives of the several
Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate number of Shares which the Underwriters
are obligated to purchase on the Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule I hereto bears to the aggregate
number of Firm Shares set forth opposite the names of all non-defaulting
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in
securities generally on
26
<PAGE> 27
the New York Stock Exchange, the American Stock Exchange or The Nasdaq Stock
Market shall have been suspended or materially limited, (ii) a general
moratorium on commercial banking activities in New York or Texas shall have
been declared by either federal or state authorities, or (iii) there shall have
occurred any outbreak or escalation of hostilities or other international or
domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States
is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Shares at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts
for the resale of the Shares by the Underwriters. Notice of such termination
may be given to the Company by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 8 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of
the Company at 12801 North Central Expressway, Suite 700, Dallas, Texas 75243,
Attention: J. Russell Crews, Senior Vice President; or (ii) if to you, as
Representatives of the several Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall include a purchaser from any Underwriter of any of the Shares
in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
27
<PAGE> 28
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
SNELLING AND SNELLING, INC.
By
---------------------------
Chairman of the Board
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
RAUSCHER PIERCE REFSNES, INC.
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By
--------------------------
Managing Director
28
<PAGE> 29
SCHEDULE I
SNELLING AND SNELLING, INC.
<TABLE>
<CAPTION>
Number of Number of
Underwriter Firm Shares Additional Shares
----------- ------------ -----------------
<S> <C> <C>
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . .
Rauscher Pierce Refsnes, Inc. . . . . . . . . . . . . . .
Total . . . . . .
=================
</TABLE>
29
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SNELLING AND SNELLING, INC.
FIRST. The name of the Corporation is Snelling and Snelling, Inc.
SECOND. The location and post office address of its registered office
in this Commonwealth is c/o CT Corporation System, 123 South Broad Street,
Philadelphia, Pennsylvania 19109.
THIRD. The purposes of the Corporation are to engage in, and to do any
lawful act concerning, any or all lawful business for which corporations may be
incorporated under the Business Corporation Law of the Commonwealth of
Pennsylvania, including but not limited to, manufacturing, processing, owning,
using and dealing in personal property of every class and description, engaging
in research and development, furnishing employment and other services of all
kinds, dealing in franchises, and acquiring, owning, using and disposing of
real property of any nature whatsoever.
FOURTH. The term for which the Corporation is to exist is perpetual.
FIFTH. Section 1. Reclassification. Upon the effective date of the
Corporation's initial public offering of its Class A Common Stock (as defined
in Section 2 below) on Form S-1 of the Securities and Exchange Commission (the
"Effective Time"), 946,778 shares of the issued and outstanding common stock,
par value $0.05 per share, of the Corporation ("Old Common Stock") shall be
reclassified, automatically and without any action on the part of the
respective holders thereof, into that number of shares of Class B Common Stock
(as hereinafter defined) as shall be determined by multiplying 946,778 times
5.415067 with any resulting fractional shares, as determined on an outstanding
certificate by certificate basis, rounded up to the next whole share. The
aforementioned 946,778 shares of Old Common Stock constitute all of the shares
of capital stock of the Corporation issued and outstanding or reserved for
issuance or held in the Corporation's treasury at the Effective Time.
Section 2. Authorized Capital Stock. The aggregate number of shares
that the Corporation shall have authority to issue is 125,000,000 shares,
consisting of (1) 100,000,000 shares of Class A Common Stock, par value of
$0.01 per share, ("Class A Common Stock"), (2) 15,000,000 of Class B Common
Stock, par value $0.01 per share, ("Class B Common Stock") and (3) 10,000,000
shares of preferred stock, par value of $.01 per share ("Preferred Stock").
The number of authorized shares of any class or classes of capital
stock of the Corporation may be increased or decreased (but not below the
number of shares thereof then outstanding) in accordance with Section
2B(2)(a)(iii) below. Except as otherwise required by law or expressly provided
for herein, the rights, powers, and preferences of the shares of Class A Common
Stock and Class B Common Stock (collectively referred to herein as the "Common
Stock"), and the qualification, limitations, or restrictions thereof, shall be
in all respects identical.
<PAGE> 2
The following is a statement of the relative rights, preferences and
limitations with respect to the shares of each class of capital stock of the
Corporation, insofar as the same are fixed in these Articles of Incorporation,
and of the authority expressly vested in the Board of Directors of the
Corporation (the "Board of Directors") to divide the Preferred Stock into
series and to fix and determine the variations in the relative rights and
preferences as between series:
A. Preferred Stock
1. The Preferred Stock may, from time to time, be
divided into and issued in one or more series. The
shares of each series may have such designations, par
values, preferences, limitations and relative rights,
including voting rights, as are stated herein and in
one or more resolutions providing for the issue of
such series adopted by the Board of Directors as
hereinafter provided and upon filing of an amendment
to these Articles in accordance with the
Pennsylvania Business Corporation Law, or any
successor statute authorizing the issuance of
Preferred Stock.
2. To the extent that these Articles of Incorporation do
not fix and determine the variations in the relative
rights and preferences of the Preferred Stock, in
relation to the Common Stock, any class of Common
Stock, or series of Preferred Stock, the Board of
Directors is expressly vested with the authority to
divide the Preferred Stock into one or more series
and, within the limitations set forth in these
Articles of Incorporation, to fix and determine the
designation, preferences, limitations and relative
rights of the shares of any series so established,
and, with respect to each such series, to fix by one
or more resolutions providing for the issue of such
series, the following:
(a) the maximum number of shares to constitute
such series and the distinctive designation
thereof;
(b) the annual dividend rate, if any, on the
shares of such series and the date or dates
from which dividends shall commence to accrue
or accumulate as herein provided, and whether
dividends shall be cumulative;
(c) the price at and the terms and conditions on
which the shares of such series may be
redeemed, including, without limitation, the
time during which shares of the series may be
redeemed, the premium, if any, over and above
the par value thereof and any accumulated
dividends thereon that the holders of shares
of such series shall be entitled to receive
upon the redemption thereof, which premium
may vary at different dates and may also be
different with respect to shares redeemed
through the operation of any retirement or
sinking fund;
(d) the liquidation preference, if any, over and
above the par value thereof, and any
accumulated dividends thereon, that the
holders of shares of such series shall be
entitled to receive upon the voluntary or
involuntary liquidation, dissolution or
winding up of the affairs of the Corporation;
2
<PAGE> 3
(e) whether or not the shares of such series
shall be subject to the operation of a
retirement or sinking fund, and, if so, the
extent and manner in which any such
retirement or sinking fund shall be applied
to the purchase or redemption of the
shares of such series for retirement or for
other corporate purposes, and the terms and
provisions relative to the operations of such
retirement or sinking fund;
(f) the terms and conditions, if any, on which
the shares of such series shall be
convertible into, or exchangeable for, shares
of any other class or classes of capital
stock of the Corporation or any series of any
other class or classes, or of any other
series of the same class, including the price
or prices or the rate or rates of conversion
or exchange and the method, if any, of
adjusting the same, provided that shares of
such series may not be convertible into
shares of a series or class that has prior or
superior rights and preferences as to
dividends or distribution of assets of the
Corporation upon voluntary or involuntary
liquidation, dissolution or winding up of the
affairs of the Corporation;
(g) the voting rights, if any, on the shares of
such series; and
(h) any or all other preferences and relative,
participating, optional or other special
rights, or qualifications, limitations or
restrictions thereof, as shall not be
inconsistent with the law or with this
Article FIFTH;
all as may be determined from time to time by
the Board of Directors and stated in the
resolution or resolutions providing for the
issuance of such Preferred Stock.
3. All shares of any one series of Preferred Stock shall
be identical with each other in all respects, except
that shares of any one series issued at different
times may differ as to the dates from which dividends
thereon, if any, shall be cumulative; and all series
shall rank equally and be identical in all respects,
except as provided in Paragraph 1. of this Section 2A
and except as permitted by the foregoing provisions
of Paragraph 2 of this Section 2A.
4. Except to the extent restricted or otherwise provided
in the resolution or resolutions adopted by the Board
of Directors providing for the issue of any series of
Preferred Stock, no dividends (other than dividends
payable in Common Stock) on any class or classes of
capital stock of the Corporation ranking, with
respect to dividends, junior to the Preferred Stock,
or any series thereof, shall be declared, paid or set
apart for payment, until and unless the holders of
shares of Preferred Stock of each senior series shall
have been paid, or there shall have been set apart
for payment, cash dividends, when and as declared by
the Board of Directors out of funds of the
Corporation legally available therefor, at the annual
rate, and no more, fixed in the resolution or
resolutions adopted by the Board of Directors
providing for the issue of such series.
3
<PAGE> 4
5. To the extent provided in the resolution or
resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred
Stock, upon the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation before any payment or distribution of the
assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the
holders of any class or classes of capital stock of
the Corporation ranking junior, as to liquidation
rights, to the Preferred Stock, or any series
thereof, the holders of the shares of the Preferred
Stock shall be entitled to receive payment at the
rate fixed in the resolution or resolutions adopted
by the Board of Directors providing for the issue of
the respective series. Unless otherwise provided in
the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of
Preferred Stock, for the purposes of this Paragraph 5
and Paragraph 2(d) of this Section 2A, neither the
consolidation nor the merger of the Corporation with
one or more other corporations shall be deemed to be
a liquidation, dissolution or winding up.
6. The Corporation, at the option of the Board of
Directors, may redeem, unless otherwise provided in
the resolution establishing a series of Preferred
Stock, at such time as is fixed (and if not so fixed,
at any time) in the resolution or resolutions adopted
by the Board of Directors providing for the issue of
a series, the whole or, from time to time, any part
of the Preferred Stock of any series then
outstanding, at the par value thereof, plus in every
case an amount equal to all accumulated dividends, if
any (whether or not earned or declared), with respect
to each share so redeemed and, in addition thereto,
the amount of the premium, if any, payable upon such
redemption fixed in the resolution or resolutions
adopted by the Board of Directors providing for the
issue of such series. The Board of Directors shall
have full power and authority, subject to the
limitations and provisions contained herein and in
the Pennsylvania Business Corporation Law, to
prescribe the terms and conditions upon which the
Preferred Stock shall be redeemed from time to time.
7. Shares of Preferred Stock that have been redeemed,
purchased or otherwise acquired by the Corporation or
that, if convertible or exchangeable, have been
converted into or exchanged for shares of capital
stock of any other class or classes or any series of
any other class or classes or of any other series of
the same class, shall be canceled and such shares may
not under any circumstances thereafter be reissued as
Preferred Stock, and the Corporation shall from time
to time cause all such acquired shares of Preferred
Stock to be canceled in the manner provided by law.
8. Nothing herein contained shall limit any legal right
of the Corporation to purchase any shares of the
Preferred Stock.
B. Common Stock
1. Shares of Common Stock may be issued by the
Corporation from time to time for such consideration
as may lawfully be fixed by the Board of Directors.
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<PAGE> 5
2. Except to the extent otherwise provided below, the
shares of Class A Common Stock and the shares of
Class B Common Stock shall have the same powers,
designations, preferences and participation rights
and privileges. The shares of Class A Common Stock
and the shares of Class B Common Stock shall have the
following specific powers, designations, preferences,
and relative participating rights and privileges from
and after the Effective Time:
(a) Voting Rights.
(i) Each share of Class A Common Stock shall be
entitled to one vote, and each share of Class
B Common Stock shall be entitled to ten
votes, on all matters submitted to a vote of
the shareholders. Except as otherwise
provided herein or by law or in any
resolution or resolutions of the Board of
Directors of the Corporation providing for
the issuance of Preferred Stock, all actions
submitted to a vote of the shareholders of
the Corporation shall be voted on by the
record holders of the Class A Common Stock
and the Class B Common Stock (as well as the
holders of any series of Preferred Stock, if
any, entitled to vote thereon), voting
together as a single class.
(ii) A quorum shall be present when the majority
of all votes entitled to be voted by the
record holders of Class A Common Stock and
Class B Common Stock, taken as a whole (as
well as the record holders of any series of
Preferred Stock, if any, entitled to vote
thereon), is present in person or by proxy.
(iii) In addition to any other vote required by
law, the Corporation may not alter or change,
by increase, diminution, or otherwise, the
relative rights, preferences, privileges,
restrictions, dividend rights, voting power
or other powers given to the holders of Class
A Common Stock and Class B Common Stock
pursuant to this Article FIFTH other than by
the affirmative vote of not less than 80% of
all the votes entitled to be voted by the
record holders of each class of stock to be
adversely affected thereby voting as a
separate class, except that the Corporation
may increase the total number of authorized
shares of Class A Common Stock that may be
issued by the Corporation by the affirmative
vote of a majority of all the votes entitled
to be cast by the record holders of Class A
Common Stock and Class B Common stock voting
together, without regard to class. If the
Board of Directors declares a dividend or
distribution payable in the Common Stock of
the Corporation and there are an insufficient
number of authorized Class B Common Stock
shares available to distribute in accordance
with Paragraph (b) immediately below, then
the record holders of Class B Common Stock
may vote on an amendment to these Articles of
Incorporation increasing the number of
authorized
5
<PAGE> 6
shares of such class to the number sufficient
to permit the issuance of the stock dividend
or distribution, without submitting such vote
for approval by record holders of the Class A
Common Stock.
(b) Dividends. After dividends have been declared
and set aside for payment or paid on any
series of Preferred Stock having a preference
over the Common Stock with respect to payment
of such dividends, the holders of Common
Stock shall be entitled to receive and to
share equally in, when, as and if declared by
the Board of Directors of the Corporation,
dividends per share, out of the funds legally
available therefore, in such amounts as the
Board of Directors may from time to time fix
and determine, in its sole and absolute
discretion.
(c) Conversion Rights.
(i) The Class A Common Stock has no
conversion rights. Each share of
Class B Common Stock is convertible
at any time, and from time to time,
at the option of and without cost to
the record holder thereof, into one
fully paid and nonassessable share
of Class A Common Stock on and
subject to the terms and conditions
set forth herein; provided, however,
shares of Class B Common Stock shall
be automatically converted, without
any action on the part of the record
holder thereof, into shares of Class
A Common Stock on the occurrence of
the events described in Subsection
(f) of this Section B2.
If any record holder of any shares of
Class B Common Stock (a "Class B
Holder") desires to convert any of
such shares into shares of Class A
Common Stock, such Class B Holder
shall present and surrender the
certificate or certificates
representing such shares during
usual business hours at any office
or agency of the Corporation
maintained for the transfer of Class
B Common Stock and shall deliver a
written notice ("Conversion Notice")
of the election of such Class B
Holder to convert the shares
represented by such certificate or
any portion thereof as specified in
the Conversion Notice. The
Conversion Notice shall state the
name or names (with addresses) in
which the certificate or
certificates representing shares of
Class A Common Stock issuable on
such conversion shall be registered.
If so required by the Corporation,
any certificate representing shares
of Class B Common Stock surrendered
for conversion shall be accompanied
by instruments of transfer, in form
satisfactory to the Corporation,
duly executed by the record holder
of such shares or his authorized
representative. Each conversion of
shares of Class B Common Stock shall
be deemed to have been effected on
the date (the "conversion date") on
which the certificate or
certificates representing such
shares shall have been surrendered
and such notice and any required
6
<PAGE> 7
instruments of transfer shall have
been received as aforesaid. The
person or persons in whose name or
names any certificate or
certificates representing shares of
Class A Common Stock are issuable
upon such conversion shall be, for
the purpose of receiving dividends
and for all other corporate purposes
whatsoever, deemed to have become
the holder or holders of record of
the shares of Class A Common Stock
represented thereby on the
conversion date.
As promptly as practicable after the
conversion date, the Corporation
shall issue and deliver at such
office or agency, to or upon the
written order of the record holder
thereof, certificates for the number
of shares of Class A Common Stock
issuable upon such conversion.
Subject to the provisions of
Subsection (d) of this Section B2,
if any certificate representing
shares of Class B Common Stock shall
be surrendered for conversion of a
part only of the shares represented
thereby, the Corporation shall
deliver at such office or agency, to
or upon the written order of the
record holder thereof, a certificate
or certificates for the number of
shares of Class B Common Stock
represented by such surrendered
certificate that are not being
converted. The issuance of
certificates representing shares of
Class A Common Stock issuable upon
the conversion of shares of Class B
Common Stock by the record holder
thereof shall be made without charge
to the converting holder for any tax
imposed on the Corporation in
respect to the issue thereof. The
Corporation shall not, however, be
required to pay any tax that may be
payable with respect to any transfer
involved in the issue and delivery
of any certificate in a name other
than that of the record holder of
the shares being converted, and the
Corporation shall not be required to
issue or deliver any such
certificate unless and until the
person requesting the issue thereof
shall have paid to the Corporation
the amount of such tax or has
established to the satisfaction of
the Corporation that such tax has
been paid or that no such tax will
be imposed.
Upon any conversion of shares of
Class B Common Stock into shares of
Class A Common Stock pursuant
hereto, no adjustment with respect
to dividends shall be made; only
those dividends shall be payable on
the shares so converted as may be
declared and are payable to holders
of record of shares of Class B
Common Stock on a date prior to the
conversion date with respect to the
shares so converted; and only those
dividends shall be payable on shares
of Class A Common Stock issued upon
such conversion as may be declared
and are payable to holders of record
of shares of Class A Common Stock on
or after such conversion date.
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<PAGE> 8
In case of any consolidation or
merger of the Corporation as a
result of which the record holders
of Class A Common Stock shall be
entitled to receive cash, stock,
other securities, or other property
with respect to or in exchange for
Class A Common Stock or in case of
any sale or conveyance of all or
substantially all of the property or
business of the Company as an
entirety, each record holder of any
share of Class B Common Stock shall
have the right thereafter, so long
as the conversion right hereunder
shall exist, to convert such share
into the kind and amount of cash,
shares of stock, and other
securities and properties as are
receivable upon such consolidation,
merger, sale or conveyance by each
record holder of one share of Class
A Common Stock and shall have no
other conversion rights with regard
to such share. The provisions of
this paragraph shall similarly apply
to successive consolidations,
mergers, sales or conveyances.
Shares of Class B Common Stock
converted into Class A Common Stock
as provided in this Subsection 2(c)
shall be retired and shall resume
the status of authorized but
unissued shares of Class B Common
Stock.
Such number of shares of Class A
Common Stock as may from time to
time be required for such purpose
shall be reserved for issuance upon
conversion of outstanding shares of
Class B Common Stock and for
issuance upon exercise of options,
if any.
(d) Liquidation Rights. In the event of any
dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary
or involuntary, after payment or provision
for payment of the debts or other liabilities
of the Corporation and the amount to which
the record holders of the Preferred Stock
shall be entitled has occurred, the remaining
assets and funds of the Corporation, if any,
shall be divided among and paid ratably to
the record holders of Class A Common Stock
and of Class B Common Stock (considered for
this purpose as one class). A merger or
consolidation of the Corporation with or into
any other corporation, a merger or
consolidation of any other corporation into
or with the Corporation or a sale, conveyance
or lease of all or any part of the assets of
the Corporation (which shall not in fact
result in the liquidation of the Corporation
and the distribution of assets to
shareholders) shall not be deemed to be a
voluntary or involuntary liquidation,
dissolution or winding up of the Corporation
within the meaning of this Subsection 2(d).
(e) Pre-emptive Rights. Subject to any conversion
rights of the record holders of Class B
Common Stock, no record holder of either
Class A Common Stock or Class B Common Stock
of the Corporation shall be entitled as of
right to subscribe for or receive any part of
the authorized stock of the Corporation or
any part of any new, additional or increased
issues of stock
8
<PAGE> 9
of any class or of any obligations convertible
into any class or classes of stock, but the
Board of Directors may issue and sell any
such stock to such persons and for such
considerations permitted by law as it may
from time to time in its absolute discretion
determine.
(f) Restrictions on Transfer of Class B Common
Stock.
(i) No record holder of any shares of
Class B Common Stock (a "Class B
Holder") may transfer, and the
Corporation shall not register the
transfer of, such shares of Class B
Common Stock, whether by sale,
assignment, gift, bequest,
appointment or otherwise, except to
a Permitted Transferee (as
hereinafter defined).
(1) In the case of a Class B
Holder who is a natural
person and the beneficial
owner of the shares of Class
B Common Stock proposed to be
transferred, a "Permitted
Transferee" consists only of:
(A) such Class B Holder's
spouse; provided,
however, that upon
divorce any Class B
Common Stock held
by such spouse shall
immediately and
automatically be
converted into Class A
Common Stock;
(B) any lineal descendant
of a parent of such
Class B Holder,
including adopted
children, and any such
descendant's spouse
(such descendants and
their spouses, together
with such Class B
Holder's spouse, are
referred to herein as
"family members");
(C) the trustee or
trustees of a trust
(including voting
trust) solely for the
benefit of such Class B
Holder and /or any of
such Class B Holder's
family members, except
that such trust may
also grant a general or
special power of
appointment to one or
more of such Class B
Holder's family members
and may permit trust
assets to be used to
pay taxes, legacies and
other obligations of
the trust or the
estates of one or more
of such Class B
Holder's family
members payable by
reason of the death of
any such family
members; provided,
however, that if at any
time such trust fails
to meet the
requirements of this
subparagraph (C), all
such shares of Class B
Common Stock then held
by such trustee or
trustees shall
immediately
9
<PAGE> 10
and automatically be
converted into Class A
Common Stock on a
share-for-share basis,
and stock certificates
formerly representing
such shares of Class B
Common Stock shall
thereupon and
thereafter be deemed
to represent a like
number of shares of
Class A Common Stock;
(D) a corporation wholly
owned by, or a
partnership in which
all of the partners
are, and all of the
partnership interests
are owned by such Class
B Holder and/or one or
more of such Class B
Holder's family members
and/or one or more of
his or her Permitted
Transferees, provided
that if by reason of
any change in the
partners of or owners
of partnership
interests in such
partnership or in the
ownership of such
stock, such corporation
or partnership no
longer qualifies as a
Permitted Transferee of
such Class B Holder,
all shares of Class B
Common Stock then held
by such corporation or
partnership shall,
immediately and
automatically be
converted into Class A
Common Stock on a
share-for-share basis,
and stock certificates
formerly representing
such shares of Class B
Common Stock shall
thereupon and
thereafter be deemed to
represent the like
number of shares of
Class A Common Stock;
(E) any organization
established by such
Class B Holder and/or
such Class B Holder's
family members,
contributions to which
are deductible for
federal income, estate,
or gift tax purposes (a
"charitable
organization") and a
majority of whose
governing board at all
times consists of such
Class B Holder and/or
one or more of the
Permitted Transferees
of such Class B Holder,
or any successor to
such charitable
organization meeting
the requirements of
this subparagraph (E);
provided that if there
is any change in the
composition of the
governing board of such
charitable organization
that causes such
charitable organization
no longer to qualify as
a Permitted Transferee
of such Class B Holder,
all shares of Class B
Common Stock then held
by such charitable
organization shall
immediately and
automatically be
converted into Class A
Common Stock on a
share-for-share basis,
and stock certificates
formerly representing
such shares of
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<PAGE> 11
Class B Common Stock
shall thereupon and
thereafter be deemed to
represent a like number
of shares of Class A
Common Stock;
(F) the estate of such
Class B Holder; and
(G) any other Class B
Holder who or which is
the beneficial owner
of shares of Class B
Common Stock.
(2) In the case of a Class B
Holder holding the shares of
Class B Common Stock in
question as trustee pursuant
to a trust other than a trust
described in paragraph (3)
below, "Permitted Transferee"
consists only of (A) any
successor trustee of such
trust who meets the
requirements set forth in
subsection (B) of this
paragraph; and (B) the person
who established such
trust and any Permitted
Transferee of such person.
(3) In the case of a Class B
Holder holding the shares of
Class B Common Stock in
question as trustee pursuant
to a trust that was
irrevocable on October 21,
1997, (the "Record Date"),
"Permitted Transferee"
consists only of (A) any
successor trustee of such
trust who meets the
requirements set forth in
subsection (B) or (C) of this
paragraph; (B) any person to
whom or for whose benefit the
principal or income may be
distributed under the
terms of such trust or any
person to whom such trust may
be obligated to make future
transfers, provided such
obligation exists prior to the
date such trust becomes a
holder of Class B Common
Stock; and (C) any lineal
descendant of a parent of the
creator of such trust
including adopted
children and any such
descendant's spouse.
(4) In the case of a Class B
Holder that is a corporation
or partnership and the
beneficial owner of the shares
of Class B Common Stock
proposed to be transferred,
"Permitted Transferee"
consists only of:
(A) any partner of such
partnership, or shareholder
of such corporation, on the
Record Date;
(B) any shareholder of such
corporation who held any share
thereof on the Record Date and
who receives shares of Class B
Common Stock pro rata to his
stock ownership in such
corporation through a
dividend or through a
distribution made upon
liquidation of such
corporation;
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<PAGE> 12
(C) any person transferring shares of
Class B Common Stock to such
corporation or partnership after the
Record Date; provided, however, that
such transferor may not receive shares
of Class B Common Stock in excess of
the shares of Class B Common Stock
transferred by the transferor to such
corporation or partnership;
(D) any Permitted Transferee of any
person meeting the requirements set
forth in subparagraph (A), (B) or (C)
of this paragraph, but not in excess of
the number of shares such shareholder
or person is entitled to receive
pursuant to this paragraph; and
(E) the survivor of a merger or
consolidation of such corporation
if those persons who owned beneficially
sufficient shares entitled to elect at
least a majority of the entire board of
directors of such constituent
corporation immediately prior to the
merger or consolidation own
beneficially sufficient shares entitled
to elect at least a majority of the
entire board of directors of the
surviving corporation, provided that if
by reason of any change in the
ownership of such stock of the
surviving corporation such surviving
corporation would no longer qualify as
a Permitted Transferee of such Class B
Holder, all shares of Class B Common
Stock then held by such surviving
corporation shall immediately and
automatically be converted into Class A
Common Stock on a share-for-share
basis, and stock certificates formerly
representing such shares of Class B
Common Stock shall thereupon and
thereafter be deemed to represent a
like number of shares of Class A Common
Stock.
(5) In the case of a Class B Holder
that is the estate of a deceased Class
B Holder, or that is the estate of a
bankrupt or insolvent Class B Holder,
and provided such deceased, bankrupt or
insolvent Class B Holder, as the case
may be, held record or beneficial
ownership of the shares of Class B
Common Stock in question, "Permitted
Transferee" consists only of a
Permitted Transferee of such deceased,
bankrupt or insolvent Class B Holder as
determined pursuant to paragraph (1) or
(4) above, as the case may be.
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<PAGE> 13
(6) In the case of a record (but
not beneficial) owner of Class B Common
Stock as nominee for the person who is
the beneficial owner thereof on the
Record Date, a Permitted Transferee
consists only of such beneficial owner
of the Class B Common Stock and any
Permitted Transferee of such beneficial
owner.
(7) Shares of Class B Common Stock
are freely transferrable among
Permitted Transferees.
(ii) Notwithstanding anything to the
contrary set forth herein, any Class B Holder
may pledge such holder's shares of Class B
Common Stock to a pledgee pursuant to a bona
fide pledge of such shares as collateral
security for indebtedness due to the pledgee,
provided that such shares shall not be
transferred of record to or registered in the
name of the pledgee and shall remain subject to
the provisions of this Subsection (ii). In the
event of foreclosure or other similar action by
the pledgee, such pledged shares of Class B
Common Stock may only be transferred to a
Permitted Transferee of the pledgor or
converted into shares of Class A Common Stock,
as the pledgee may elect.
(iii) For purposes of this Section 2B:
(1) The relationship of any person that is
derived by or through legal adoption
shall be considered a natural one.
(2) Each joint owner of shares of Class B
Common Stock shall be considered a
"Class B Holder" of such shares.
(3) A minor for whom shares of Class B
Common Stock are held pursuant to a
Uniform Gifts to Minors Act or similar
law shall be considered a Class B
Holder of such shares.
(4) Unless otherwise specified, the term
"person" means both natural persons and
legal entities.
(5) Without derogating from the election
conferred upon the Corporation pursuant
to Subsections (iv) and (vi) below,
each reference to a corporation shall
include any successor corporation
resulting from merger or consolidation;
each reference to a partnership shall
include any successor partnership
resulting from the death or withdrawal
of a partner; and each reference to a
trustee shall include any successor
trustee.
(6) Unless otherwise specified, the term
"holder" means record holder.
(7) A "beneficial owner" of any shares of
Class B Common Stock shall mean a
person who, or an entity which,
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<PAGE> 14
possesses the power, either singly or
jointly, to direct the voting or
disposition of such shares.
(iv) Unless a different time is specified in the
provisions of Subsection 2B(2)(f), any transfer
of shares of Class B Common Stock not permitted
hereunder shall result in the conversion of the
transferee's shares of Class B Common Stock
into shares of Class A Common Stock, effective
upon the earlier to occur of (1) the date on
which certificates representing such shares are
presented for transfer on the books of the
Corporation, or (2) the date on which the
Corporation gives written notice to the
transferor of such shares of Class B Common
Stock that conversion has occurred, and the
stock certificates formerly representing such
shares of Class B Common Stock are thereupon
and thereafter deemed to represent the like
number of shares of Class A Common Stock.
(v) The Corporation may, in connection with
preparing a list of shareholders entitled to
vote at any meeting of shareholders, or as a
condition to the transfer or the registration
of shares of Class B Common Stock on the
Corporation's books, require the furnishing of
such affidavits or other proof as it deems
necessary to establish that any person is the
beneficial owner of shares of Class B Common
Stock or is a Permitted Transferee.
(vi) Shares of Class B Common Stock may be
registered in "street" or "nominee" name on
behalf of the beneficial owner or owners
thereof, provided that such beneficial owners
must give written notice to the Corporation of
the identity and address of the record holder
of the shares of Class B Common Stock and the
certificate numbers of such shares, held of
record by such record holder, and provided
further, that the beneficial owner or owners
must give written notice containing the same
information as required in the original notice
to the Corporation of any subsequent change in
the record holder of such shares. Failure to
give such written notice to the Corporation on
or before the date that is 180 days following
the date that the shares of Class B Common
Stock are registered in "street" or "nominee"
name shall, upon the election of the
Corporation given by written notice to the
record holder of such Class B Common Stock
convert such shares of Class B Common Stock
into shares of Class A Common Stock, without
further act on anyone's part, effective upon
the date of the giving of such notice, and
stock certificates formerly representing such
shares of Class B Common Stock shall thereupon
and thereafter be deemed to represent the like
number of shares of Class A Common Stock.
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<PAGE> 15
(vii) The Corporation shall note by reference hereto
on the certificates for shares of Class B
Common Stock the restrictions on transfer and
registration of transfer imposed by this
Section 2B(2)(f).
SIXTH. Section 1. Definitions. The following words and phrases when
used in this Article SIXTH shall have the meanings set forth below:
A. "Affiliate" and "Associate" shall have the meanings ascribed
to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on May 1,
1997.
B. "Beneficial owner." A person shall be a "beneficial owner" of
any stock that:
1. such individual, firm, corporation or other entity
("Person") or any of its Affiliates or Associates
beneficially owns directly or indirectly; or
2. such Person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right
to vote pursuant to any agreement, arrangement or
understanding (whether or not in writing); or
3. is beneficially owned, directly or indirectly, by any
other Person with which such Person or any of its
Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares
of such stock.
C. "Control." The power, whether or not exercised, to direct or
cause the direction of the management and policies of a
person, whether through the ownership of voting shares, by
contract or otherwise.
D. "Controlling Person or Group."
1. (a) A person or group who acquires, offers to
acquire or, directly or indirectly, publicly
discloses or causes to be disclosed (unless
clearly for a purpose other than
circumventing the intent of this Article
SIXTH) the intention of acquiring voting
power over securities, which would entitle
the holder thereof to cast at least 10% of
the votes that all shareholders of the
Corporation would be entitled to cast in an
election of directors of the Corporation; or
(b) a person or group who has otherwise, directly
or indirectly, publicly disclosed or caused
to be disclosed (other than for the purposes
of circumventing the intent of this Article
SIXTH) that it may seek to acquire control of
a Corporation through any means.
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2. Two or more persons acting in concert, whether or not
pursuant to an express agreement, arrangement,
relationship or understanding, including a
partnership, limited partnership, syndicate, or
through any means of affiliation whether or not
formally organized, for the purpose of acquiring,
holding, voting or disposing of equity securities of
a corporation shall be deemed a group for purposes of
this Article SIXTH. Notwithstanding any other
provision of this Article SIXTH to the contrary, and
regardless of whether a group has been deemed to
acquire beneficial ownership of an Equity Security
under this Article SIXTH, each person who
participates in a group, where such group is a
Controlling Person or Group as defined in this
Article SIXTH, shall also be deemed to be a
Controlling Person or Group for the purposes of this
Article SIXTH, and a direct or indirect transferee
solely pursuant to a transfer or series of transfers
of an Equity Security acquired from any person or
group that is or becomes a Controlling Person or
Group, shall be deemed, with respect to such Equity
Security, to be acting in concert with the
Controlling Person or Group, and shall be deemed to
have acquired such Equity Security in the same
transaction (at the same time, in the same manner and
from the same person) as its acquisition by the
Controlling Person or Group.
E. "Equity Security." Any security, including all shares, stock
or similar security, and any security convertible into (with
or without additional consideration) or exercisable for any
such shares, stock or similar security, or carrying any
warrant, right or option to subscribe to or purchase such
shares, stock or similar security or any such warrant, right,
option or similar instrument.
F. "Profit." The positive value, if any, of the difference
between:
1. the consideration received from the disposition of
Equity Securities less only the usual and customary
broker's commissions actually paid in connection with
such disposition; and
2. the consideration actually paid for the acquisition
of such Equity Securities plus only the usual and
customary broker's commissions actually paid in
connection with such acquisition.
G. "Proxy." Includes any proxy, consent or authorization.
H. "Proxy solicitation" or "solicitation of proxies." Includes
any solicitation of a proxy, including a solicitation of a
revocable proxy of the nature and under the circumstances
described in this Article SIXTH (relating to Controlling
Person or Group Safe Harbor).
I. "Publicly disclosed or caused to be disclosed." Includes, but
is not limited to, any disclosure (whether or not required by
law) that becomes public made by a person:
1. with the intent or expectation that such disclosure
become public; or
2. to another whether the disclosing person knows, or
reasonably should have known, that the receiving
person was not under obligation to refrain from
making such
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disclosure, directly or indirectly, to the public and
such receiving person does make such disclosure,
directly or indirectly, to the public.
J. "Transfer." Acquisition or disposition.
K. "Voting Stock." The term shall have the meaning specified in
Article SIXTH of these Amended and Restated Articles of
Incorporation.
Section 2. Controlling Person or Group Safe Harbor.
A. For the purpose of this Article SIXTH, a person or group shall
not be deemed a Controlling Person or Group, absent
significant other activities indicating that a person or group
should be deemed a Controlling Person or Group, by reason of
voting or giving a proxy or consent as a shareholder of the
Corporation if the person or group is one who or which:
1. did not acquire any voting shares of the Corporation
with the purpose of changing or influencing control
of the Corporation or seeking to acquire control of
the Corporation or in connection with or as a
participant in any agreement, arrangement,
relationship, understanding or otherwise having any
such purpose;
2. if control were acquired, would not be a person or
group or a participant in a group that has control
over the Corporation and will not receive, directly
or indirectly, any consideration from a person or
group that has control over the Corporation other
than consideration offered proportionately to all
holders of voting shares of the Corporation; and
3. if a proxy or consent is given, executes a revocable
proxy or consent given without consideration in
response to a proxy or consent solicitation made in
accordance with the applicable rules and regulations
under the Exchange Act under circumstances not then
reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report) by the person or
group who gave the proxy or consent.
B. For the purpose of this Article SIXTH, a person or group shall
not be deemed a Controlling Person or Group under the
definition of "Controlling Person or Group" in Section 1 of
this Article SIXTH (relating to definitions) if such person or
group holds voting power:
1. in good faith and not for the purpose of
circumventing this Article, as an agent, bank,
broker, nominee or trustee for one or more beneficial
owners who do not individually or, if they are a
group acting in concert, as a group have the voting
power specified in the definition of "Controlling
Person or Group" in Section 1 of this Article SIXTH;
2. in connection with the solicitation of proxies or
consents by or on behalf of the Corporation in
connection with shareholder meetings or actions of
the Corporation; or
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3. in the amount specified in the definition of
"Controlling Person or Group" in Section 1 of this
Article SIXTH as a result of the solicitation of
revocable proxies or consents with respect to voting
shares if such proxies or consents both:
(a) are given without consideration in response
to a proxy or consent solicitation made in
accordance with the applicable rules and
regulations under the Exchange Act; and
(b) do not empower the holder thereof, whether or
not this power is shared with any other
person, to vote such shares except on the
specific matters described in such proxy or
consent and in accordance with the
instructions of the giver of such proxy or
consent.
C. In determining whether a person or group would be a
Controlling Person or Group within the meaning of this Article
SIXTH, there shall be disregarded voting power, and the
seeking to acquire control of a Corporation to the extent
based upon voting power arising from a contingent right of the
holders of one or more classes or series of preference shares
to elect one or more members of the Board of Directors upon or
during the continuation of a default in the payment of
dividends on such shares or another similar contingency.
Section 3. Ownership by Corporation of Profits Resulting From Certain
Transactions. Any Profit realized by any person or group, who is or was a
Controlling Person or Group with respect to the Corporation, from the
disposition of any Equity Security of the Corporation to any person including,
without limitation, to the Corporation or to another member of the Controlling
Person or Group, shall belong to and be recoverable by the Corporation, whether
the Profit is realized by such person or group:
A. from the disposition of such Equity Security of the
Corporation within 18 months after the person or group
obtained the status of a Controlling Person or Group; and
B. the Equity Security had been acquired by the Controlling
Person or Group within 24 months prior to or 18 months
subsequent to the obtaining by the person or group of the
status of a Controlling Person or Group.
Any transfer by a Controlling Person or Group of the ownership of any
Equity Security of the Corporation may be suspended on the books of
the Corporation, and certificates representing such securities may be
duly legended, to enforce the rights of the Corporation under this
Article SIXTH.
Section 4. Enforcement Actions. Actions to recover any profit due
under this Article SIXTH may be commenced in any court of competent
jurisdiction by the Corporation issuing the Equity Security or by any holder of
any Equity Security of the Corporation in the name and on behalf of the
Corporation if the Corporation fails or refuses to bring the action within 60
days after written request by a holder or shall fail to prosecute the action
diligently. If a judgment requiring the payment of any such profits is entered,
the party bringing such action shall recover all costs, including reasonable
attorney fees, incurred in connection with enforcement of this Article SIXTH.
By engaging in the activities necessary to become a Controlling Person
or Group and thereby become a Controlling Person or Group, the person or group
and all persons participating in the group consent to
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personal jurisdiction in the courts of the State of Texas for enforcement of
this Article SIXTH. Courts of the State of Texas may exercise personal
jurisdiction over the Controlling Person or Group in actions to enforce this
Article SIXTH. The terms of this Article SIXTH shall be supplementary to the
provisions of 42 Pennsylvania Civil Statute Sections 5301 (relating to persons)
through 5322 (relating to bases of personal jurisdiction over persons outside
the State of Pennsylvania and for the purpose of this Article SIXTH, 42
Pennsylvania Civil Statute Section 5322(7)(xiv) shall be deemed to include a
Controlling Person or Group as defined in Paragraph A of this Article SIXTH
(relating to definitions). Service of process may be made upon such persons
outside the State of Pennsylvania in accordance with the procedures specified
by 42 Pennsylvania Civil Statute Section 5323 (relating to service of process
on persons outside the State of Pennsylvania).
Any action to enforce this Article SIXTH shall be brought within two
years from the date any Profit recoverable by the Corporation was realized.
Section 5. Exceptions. Notwithstanding any other provisions of these
Articles of Incorporation or the Bylaws of the Corporation, this Article SIXTH
shall not apply to any transfer of an Equity Security:
A. Consummated before July 31, 1997;
B. Constituting:
1. In the case of a person or group that, as of July 31,
1997, beneficially owned shares entitling the person
or group to cast at least 10% of the votes that all
shareholders would be entitled to cast in an election
of directors of the Corporation:
(a) the disposition of Equity Securities of the
Corporation by such person or group; and
(b) subsequent dispositions of any or all Equity
Securities of the Corporation disposed of by
such person or group where such subsequent
dispositions are effected by the direct
purchaser of the securities from such person
or group, if as a result of the acquisition
by the purchaser of the securities from such
person or group, the purchaser, immediately
following the acquisition, is entitled to
cast at least 10% of the votes that all
shareholders would be entitled to cast in an
election of directors of the Corporation.
2. The transfer of the beneficial ownership of the
Equity Security by:
(a) gift, devise, bequest or otherwise through
the laws of inheritance or descent;
(b) a settlor to a trustee under the terms of a
family, testamentary or charitable trust; and
(c) a trustee to a trust beneficiary or a trustee
to a successor trustee under the terms of a
family, testamentary or charitable trust.
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3. The addition, withdrawal or demise of a beneficiary
or beneficiaries of a family, testamentary or
charitable trust.
4. The appointment of a guardian or custodian with
respect to the Equity Security.
5. The transfer of the beneficial ownership of the
Equity Security from one spouse to another by reason
of separation or divorce or pursuant to community
property laws or other similar laws of any
jurisdiction.
6. The transfer of record or the transfer of a
beneficial interest or interests in the Equity
Security where the circumstances surrounding the
transfer clearly demonstrate that no material change
in beneficial ownership has occurred;
C. Consummated by:
1. The Corporation or any of its subsidiaries.
2. Any savings, stock ownership, stock option or other
benefit plan of the Corporation or any of its
subsidiaries, or any fiduciary with respect to any
such plan when acting in such capacity, or by any
participant in any such plan with respect to any
Equity Security acquired pursuant to any such plan or
any Equity Security acquired as a result of the
exercise or conversion of any Equity Security
(specifically including any options, warrants or
rights) issued to such participant by the Corporation
pursuant to any such plan.
3. A person engaged in business as an underwriter of
securities who acquires the Equity Securities
directly from the Corporation or an Affiliate or
Associate, as defined herein, of the Corporation
through his or her participation in good faith in a
firm commitment underwriting registered under the
Securities Act of 1933; and
D. Where the:
1. acquisition of the Equity Security has been approved
by a resolution adopted prior to the acquisition of
the Equity Security; or
2. disposition of the Equity Security has been approved
by a resolution adopted prior to the disposition of
the Equity Security if the Equity Security at the
time of the adoption of the resolution is
beneficially owned by a person or group that is or
was a Controlling Person or Group with respect to the
Corporation and is in control of the Corporation if:
the resolution in either Subparagraph D(1) or
D(2) immediately above is approved by the
Board of Directors of the Corporation and
ratified by the affirmative vote of the
shareholders entitled to cast at least a
majority of the votes that all shareholders
are entitled to cast thereon and identifies
the specific person or group that proposes
such acquisition or disposition, the specific
purpose of such acquisition or disposition
and the specific number
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of Equity Securities that are proposed to be
acquired or disposed of by such person or
group.
Section 6. Effect of Distributions. For purposes of this Article
SIXTH, Equity Securities acquired by a holder as a result of a stock split,
stock dividend or other similar distribution by the Corporation of Equity
Securities issued by the Corporation not involving a sale of the securities
shall be deemed to have been acquired by the holder in the same transaction (at
the same time, in the same manner and from the same person) in which the holder
acquired the existing Equity Security with respect to which the Equity
Securities were subsequently distributed by the Corporation.
Section 7. Formation of Group. For the purposes of this Article
SIXTH, if there is no change in the beneficial ownership of an Equity Security
held by a person, then the formation of or participation in a group involving
the person shall not be deemed to constitute an acquisition of the beneficial
ownership of such Equity Security by the group.
Section 8. Amendment to Article SIXTH. Notwithstanding any other
provisions of these Articles of Incorporation or the Bylaws of the Corporation
(and notwithstanding the fact that a lesser percentage may be specified by law,
these Articles of Incorporation or the Bylaws of the Corporation), the
affirmative vote of not less than 80% of all votes entitled to be cast, voting
together as a single class, shall be required to amend or repeal, or adopt any
provision inconsistent with, this Article SIXTH or any provision hereof.
SEVENTH. No shareholder of the Corporation shall have the right to
cumulate votes in the election of directors of the Corporation.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of not
less than 80% of all votes entitled to be cast, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article SEVENTH or any provision hereof.
EIGHTH. All actions of the shareholders must be taken at an annual or
special meeting of shareholders and may not be taken by a consent or consents
in writing.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of not
less than 80% of all votes entitled to be cast, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article EIGHTH or any provision hereof.
NINTH. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors, but the number of directors shall
never be less than five and shall never be more than twenty.
Any vacancy or vacancies in the Board of Directors because of death,
resignation, removal under the provisions of the Bylaws of the Corporation,
disqualification, an increase in the number of directors, or any other cause,
may be filled by a vote of the majority of the remaining members of the Board
of Directors though less than a quorum, at any regular or special meeting; and
the director or directors so elected shall
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continue in office until the next annual election of directors of the
Corporation and until their successors shall have been elected and qualified,
or until their death, resignation or removal.
Any director may be removed, at any time, only with cause, by the
affirmative vote of not less than 80% of all votes entitled to be cast, given
at an annual meeting or at a special meeting of the shareholders called for
that purpose. The vacancy in the Board of Directors caused by any such removal
shall be filled by the Board of Directors as provided in the Bylaws of the
Corporation.
Advance notice of shareholder nominations for the election of
directors and of business to be brought by shareholders before any meeting of
the shareholders of the Corporation shall be given in the manner provided in
the Bylaws of the Corporation.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of not
less than 80% of all votes entitled to be cast, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article NINTH or any provision hereof.
TENTH. Section 1. Directors and Officers as Fiduciaries. A
director or officer of the Corporation shall stand in a fiduciary relation to
the Corporation and shall perform his or her duties as a director or officer,
including his or her duties as a member of any committee of the board upon
which he or she may serve, in good faith, in a manner he or she reasonably
believes to be in the best interests of the Corporation, and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing his or her
duties, a director or officer shall be entitled to rely in good faith on
information, opinions, reports or statements, including financial statements
and other financial data, in each case prepared or presented by one or more
officers or employees of the Corporation whom the director or officer
reasonably believes to be reliable and competent with respect to the matters
presented, legal counsel, public accountants or other persons as to matters
that the director or officer reasonably believes to be within the professional
or expert competence of such person, or a committee of the board of directors
upon which the director or officer does not serve, duly designated in
accordance with law, as to matters within its designated authority, which
committee the director or officer reasonably believes to merit confidence. A
director or officer shall not be considered to be acting in good faith if he or
she has knowledge concerning the matter in question that would cause his or her
reliance to be unwarranted. Absent breach of fiduciary duty, lack of good faith
or self-dealing, actions taken as a director or officer of the Corporation or
any failure to take action shall be presumed to be in the best interests of the
Corporation.
In addition to any other considerations that the Board of Directors
may lawfully take into account, in determining whether to take or to refrain
from taking corporate action on any matter, including proposing any matter to
the shareholders of the Corporation, the Board of Directors may take into
account the effects of any action upon any or all groups affected by such
action, including shareholders, employees, suppliers, customers and creditors
of the Corporation, and upon communities in which offices or other
establishments of the Corporation or its subsidiaries are located, the
short-term and long-term plans of the Corporation and the possibility that
these interests may be best served by the continued independence of the
Corporation, the resources, intent and conduct (past, stated and potential) of
any person seeking to acquire control of the Corporation and all other
pertinent factors.
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The Board of Directors, committees of the Board, and individual
directors and officers shall not be required, in considering the best interests
of the Corporation or the effects of any action, to regard any corporate
interest or the interests of any particular group affected by such action as a
dominant or controlling interest or factor.
Section 2. Personal Liability of Directors. Except as provided in the
first sentence of Section 4 of this Article TENTH, a director of the
Corporation shall not be personally liable for monetary damages as such
(including, without limitation, any judgment, amount paid in settlement,
penalty, punitive damages or expense of any nature (including, without
limitation, attorneys' fees and disbursements)) for any action taken, or any
failure to take action, unless the director has breached or failed to perform
the duties of his or her office under these Articles, the Bylaws of the
Corporation or applicable provisions of law and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness.
Section 3. Personal Liability of Executive Officers. Except as
provided in the first sentence of Section 4 of this Article TENTH, an executive
officer of the Corporation shall not be personally liable to the Corporation or
its shareholders for monetary damages as such (including, without limitation,
any judgment, amount paid in settlement, penalty, punitive damages or expenses
of any nature (including, without limitation, attorneys' fees and
disbursements)) for any action taken, or any failure to perform the duties of
his or her office under these Articles, the Bylaws of the Corporation or
applicable provisions of law and the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
Section 4. Interpretation of Articles. The provisions of Sections 2
and 3 of this Article TENTH shall not apply to the responsibility or liability
of a director or officer, as such, pursuant to any criminal statute or for the
payment of taxes pursuant to local, state or federal law. The provisions of
this Article TENTH have been adopted pursuant to the authority of Sections
1306(b) and 1718 of the Pennsylvania Business Corporation Law, shall be deemed
to be a contract with each director or officer of the Corporation who serves as
such at any time while this Article is in effect, and such provisions are
cumulative of and shall be in addition to and independent of any and all other
limitations on the liabilities of directors or officers of the Corporation, as
such, or rights of indemnification by the Corporation to which a director or
officer of the Corporation may be entitled, whether such limitations or rights
arise under or are created by any statute, rule of law, Bylaw, agreement, vote
of shareholders or disinterested directors or otherwise. Each person who serves
as a director or officer of the Corporation while this Article TENTH is in
effect shall be deemed to be doing so in reliance on the provisions of this
Article. No amendment to or repeal of this Article TENTH, nor the adoption of
any provisions of these Articles inconsistent with this Article, shall apply to
or have any effect on the liability or alleged liability of any director or
officer of the Corporation for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment, repeal or adoption of
any inconsistent provision. In any action, suit or proceeding involving the
application of the provisions of this Article TENTH, the party or parties
challenging the right of a director or officer to the benefits of this Article
shall have the burden of proof.
ELEVENTH. Special meetings of the shareholders of the Corporation may
be called only by the Chairman of the Board of Directors, the Chief Executive
Officer, the President or a majority of the Board of Directors of the
Corporation. At any annual meeting or special meeting of shareholders of the
Corporation, only such business will be conducted or considered as has been
brought before such meeting in the manner provided in the Bylaws of the
Company.
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Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of 80% or
more of all votes eligible to be cast shall be required to amend or repeal, or
adopt any provision inconsistent with, this Article ELEVENTH any provision
hereof.
TWELFTH. Except as provided in Section 1504(b) of the Pennsylvania
Business Corporation Law, the Board of Directors of the Corporation only shall
have the power to make, alter or repeal the Bylaws of the Corporation.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of not
less than 80% of all votes entitled to be cast, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article TWELFTH or any provision hereof.
THIRTEENTH. Every amendment to the Articles of Incorporation shall be
proposed by the adoption by the Board of Directors of a resolution setting
forth the proposed amendment. Shareholders shall not be entitled to petition to
amend the Articles of Incorporation.
Notwithstanding any other provisions of these Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Articles of
Incorporation or the Bylaws of the Corporation), the affirmative vote of not
less than 80% of all votes entitled to be cast, voting together as a single
class, shall be required to amend or repeal, or adopt any provision
inconsistent with, this Article THIRTEENTH or any provision hereof.
FOURTEENTH. Subchapter E, entitled "Control Transactions", of Chapter
25 of the Pennsylvania Business Corporation Law shall not be applicable to the
Corporation.
FIFTEENTH. Subchapter F, entitled "Business Combinations", of Chapter
25 of the Pennsylvania Business Corporation Law shall not be applicable to the
Corporation.
SIXTEENTH. Subchapter G, entitled "Control-Share Acquisition", of
Chapter 25 of the Pennsylvania Business Corporation Law shall not be applicable
to the Corporation.
SEVENTEENTH. Subchapter H, entitled "Disgorgement by Certain
Controlling Shareholders Following Attempts to Acquire Control", of Chapter 25
of the Pennsylvania Business Corporation Law shall not be applicable to the
Corporation.
EIGHTEENTH. Subchapter I, entitled "Severance Compensation For
Employees Terminated Following Certain Control- Share Acquisition", of Chapter
25 of the Pennsylvania Business Corporation Law shall not be applicable to the
Corporation.
NINETEENTH. Subchapter J, entitled "Business Combination
Transactions--Labor Contracts", of Chapter 25 of the Pennsylvania Business
Corporation Law shall not be applicable to the Corporation.
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EXHIBIT 3.2
BYLAWS
OF
SNELLING AND SNELLING, INC.
A PENNSYLVANIA CORPORATION
(AS AMENDED AND RESTATED ON NOVEMBER 12, 1997)
(EFFECTIVE ON ,1997)
----------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
OFFICES AND FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.03. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
<TABLE>
<S> <C>
ARTICLE II
MEETINGS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.01. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.02. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.03. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.04. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.05. Quorum, Manner of Acting and Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.06. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.07. Director Nomination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.08. New Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.09. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.10. Voting Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.11. Judges of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.12. Determination of Shareholders of Record . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE III
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.01. Powers; Personal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.02. Qualification and Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.03. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.04. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.05. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.06. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.07. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.08. Organization Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.09. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.10. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.11. Quorum, Manner of Acting, and Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.12. Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.13. Additional Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.14. Actions not Permitted by Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.15. Interested Directors or Officers; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.16. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
NOTICE; WAIVERS; MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.01. Notice, What Constitutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.02. Waivers of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.03. Conference Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V
OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.01. Number, Qualifications and Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.02. Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.03. Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.04. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.05. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.06. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.07. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.08. The Chairman and Vice Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.09. The President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.10. The Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.11. The Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.12. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.13. Officers' Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.14. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI
CERTIFICATES OF STOCK; TRANSFER; ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.01. Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.02. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.03. Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.04. Record Holder of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.05. Lost, Destroyed or Mutilated Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII
INDEMNIFICATION OF DIRECTORS; OFFICERS; ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.01. Scope of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.02. Proceedings Initiated by Indemnified Representatives . . . . . . . . . . . . . . . . . . . 13
Section 7.03. Advancing Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.04. Securing of Indemnification Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.05. Payment of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.06. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.07. Discharge of Duty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.08. Contract Rights; Amendment or Repeal . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.09. Scope of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.10. Reliance on Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.11. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.01. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.02. Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.03. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.04. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.05. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.06. Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8.07. Inapplicability of Subchapters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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ARTICLE I
OFFICES AND FISCAL YEAR
Section 1.01. Registered Office. The registered office of the
Corporation in the Commonwealth of Pennsylvania shall be c/o CT Corporation
System, 123 South Broad Street, Philadelphia, Pennsylvania 19109, until
otherwise established by a vote of the majority of the Board of Directors in
office, and a statement of such change is filed with the Department of State.
Section 1.02. Other Offices. The Corporation may also have offices
at such other places both within and without the Commonwealth of Pennsylvania
as the Board of Directors may from time to time determine or the business of
the Corporation may require.
Section 1.03. Fiscal Year. The fiscal year of the Corporation
shall begin on the 1st day of January in each year.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.01. Place of Meeting. All meetings of the shareholders
of the Corporation shall be held at the registered office of the Corporation
unless another place is designated by the Board of Directors in the notice of
such meeting.
Section 2.02. Annual Meeting. The Board of Directors may fix the
date and time of the annual meeting of the shareholders, but if no such date
and time is fixed by the Board the meeting for any calendar year shall be held
on the third Tuesday of August in such year, if not a legal holiday under the
laws of Pennsylvania, and, if a legal holiday, then on the next succeeding
business day, not a Saturday, at 9:00 o'clock A.M. and at said meeting the
shareholders then entitled to vote shall elect directors and shall transact
such other business as may properly be brought before the meeting. If the
annual meeting shall not have been called and held within nine months after the
designated time, any shareholder may call the meeting at any time thereafter.
Section 2.03. Special Meetings. At any time, upon written request
of any person or persons who have duly called a special meeting, in accordance
with the Articles of Incorporation, which written request shall state the
object of the meeting, it shall be the duty of the Secretary to fix the date of
the meeting at such date and time as the Secretary may fix, not less than five
nor more than sixty days after the receipt of the request, and to give due
notice thereof on or before the seventh day following the request. If the
Secretary shall neglect or refuse to fix the date and time of such meeting and
give notice thereof, the person or persons calling the meeting may do so.
Section 2.04. Notice of Meetings. Written notice of every meeting
of the shareholders, whether annual or special, shall be given to each
shareholder of record entitled to vote at the meeting, at least ten days prior
to the day named for the meeting. Every notice of a special meeting shall state
briefly the purpose or purposes thereof, and no business, other than that
specified in such notice and matters germane thereto, shall be transacted at
any special meeting without further notice to shareholders not present in
person or by proxy.
Whenever the language of a proposed resolution is included in a
written notice of a meeting of shareholders the resolution may be adopted at
such meeting with such clarifying or other amendments as do not enlarge its
original purpose without further notice to shareholders not present in person
or by proxy.
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Section 2.05. Quorum, Manner of Acting and Adjournment. The
presence in person or by proxy of shareholders entitled to cast a majority of
the votes which all shareholders are entitled to cast on the particular matter
shall constitute a quorum for the purpose of considering such matter. Treasury
shares shall not be counted in determining the total number of outstanding
shares for voting purposes at any given time. The shareholders present in
person or by proxy at a duly organized meeting can continue to do business
until adjournment, notwithstanding withdrawal of enough shareholders to leave
less than a quorum.
If a meeting cannot be organized because a quorum has not attended,
the shareholders entitled to vote and present in person or represented by proxy
may adjourn the meeting to such time and place as they may determine. At any
such adjourned meeting at which a quorum may be present such business may be
transacted as might have been transacted at the meeting as originally called.
No notice of any adjourned meeting of the shareholders of the Corporation shall
be required to be given, except by announcement at the meetings. In case of any
meeting called for the election of directors, those who attend the second of
such adjourned meetings, although less than a quorum, shall nevertheless
constitute a quorum for the purpose of electing directors. Any meeting at which
directors are to be elected shall be adjourned only from day to day, or for
such longer periods not exceeding fifteen days each, as may be directed by
shareholders who are present in person or by proxy and who are entitled to cast
at least a majority of the votes which all such shareholders would be entitled
to cast at an election of directors, until such directors are elected.
Except as otherwise specified in the Articles of Incorporation or
these Bylaws or provided by statutes, the acts, at a duly organized meeting, of
the shareholders present, in person or by proxy, entitled to cast at least a
majority of the votes which all shareholders present in person or by proxy are
entitled to cast shall be the acts of the shareholders.
Section 2.06. Organization. At every meeting of the shareholders,
the Chairman of the Board, if there be one, or in the case of vacancy in office
or absence of the Chairman of the Board, one of the following officers present
in the order stated: the Vice Chairman of the Board, if there be one, the
President, the Vice Presidents in their order of rank and seniority, or a
Chairman chosen by the shareholders entitled to cast a majority of the votes
which all shareholders present in person or by proxy are entitled to cast,
shall act as Chairman, and the Secretary, or, in his absence, an Assistant
Secretary, or in the absence of both the Secretary and Assistant Secretaries, a
person appointed by the Chairman, shall act as Secretary.
Section 2.07. Director Nomination. Only persons who are nominated
in accordance with the procedures set forth in these Bylaws shall be eligible
to serve as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote for the election of
directors at the meeting and who complies with the notice procedures set forth
in this Bylaw.
Nominations by shareholders shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation (a) in the case of an annual meeting, not less than
120 days prior to the date the Corporation's proxy statement was released to
shareholders in connection with the previous year's annual meeting of
shareholders; provided, however, that in the event that the date of the annual
meeting is changed by more than 30 days from such anniversary date, notice by
the shareholder to be timely must be so received not later than the close of
business on the 10th day following the earlier of the day on which notice of
the date of the meeting was mailed or public disclosure of the meeting date was
made, and (b) in the case of a special meeting at which directors are to be
elected, not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was
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mailed or public disclosure of the meeting date was made. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to the shareholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such shareholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by such shareholder and also which are
owned of record by such shareholder; and (c) as to the beneficial owner, if
any, on whose behalf the nomination is made, (i) the name and address of such
person and (ii) the class and number of shares of the Corporation which are
beneficially owned by such person. At the request of the Board of Directors,
any person nominated by the Board of Directors for election as a director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a shareholder's notice of nomination which pertains to the nominee.
No person shall be eligible to serve as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Bylaw. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Bylaw.
Section 2.08. New Business. At an annual meeting of shareholders,
only such new business shall be conducted, and only such proposals shall be
acted upon, as shall have been properly brought before the annual meeting. For
any new business proposed by the Board of Directors to be properly brought
before the annual meeting, such new business shall be approved by the Board of
Directors and shall be stated in writing and filed with the Secretary of the
Corporation at least five days before the date of the annual meeting, and all
business so approved, stated and filed shall be considered at the annual
meeting. Any shareholder may make any other proposal at the annual meeting, but
unless properly brought before the annual meeting such proposal shall not be
acted upon at the annual meeting. For a proposal to be properly brought before
an annual meeting by a shareholder, the shareholder must have given proper and
timely notice thereof in writing to the Secretary of the Corporation as
specified herein. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
later than the date that corresponds to 120 days prior to the date the
Corporation's proxy statement was released to shareholders in connection with
the previous year's annual meeting of shareholders; provided, however, that in
the event that the date of the annual meeting is changed by more than 30 days
from such anniversary date, notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting date was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business and any other
shareholders known by such shareholder to be supporting such proposal, (c) the
class and number of shares of the stock that are held of record, beneficially
owned and represented by proxy on the date of such shareholder notice and on
the record date of the meeting (if such date shall have been made publicly
available) by the shareholder and by any other shareholders known by such
shareholder to be supporting such proposal on such dates, (d) any financial
interest of the shareholder in such proposal and (e) all other information that
would be required to be filed with the Securities and Exchange Commission
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if, with respect to any such item of business, such shareholder or shareholders
were participants in a solicitation subject to Section 14 of the Securities
Exchange Act of 1934, as amended.
The Board of Directors may reject any shareholder proposal not made
strictly in accordance with the terms of this Section 2.08. Alternatively, if
the Board of Directors fails to consider the validity of any shareholder
proposal, the presiding officer of the annual meeting shall, if the facts
warrant, determine and declare at the annual meeting that the shareholder
proposal was not made in strict accordance with the terms of this Section 2.08
and, if he should so determine, he shall so declare at the annual meeting and
any such business or proposal not properly brought before the annual meeting
shall not be acted upon at the annual meeting. This provision shall not prevent
the consideration and approval or disapproval at the annual meeting of reports
of officers, directors and committees of the Board of Directors, but, in
connection with such reports, no new business shall be acted upon at such
annual meeting unless stated, filed and received as herein provided.
Section 2.09. Voting. Every shareholder entitled to vote at a
meeting of shareholders may authorize another person or persons to act for him
by proxy. Every proxy shall be executed in writing by the shareholder or by his
duly authorized attorney in fact and filed with the Secretary of the
Corporation. A proxy, unless coupled with an interest, shall be revocable at
will, notwithstanding any other agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be effective until notice
thereof has been given to the Secretary of the Corporation. No unrevoked proxy
shall be valid after eleven months from the date of its execution, unless a
longer time is expressly provided therein, but in no event shall any proxy,
unless coupled with an interest, be voted on after three years from the date of
its execution. A proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote is counted or the authority is exercised, written
notice of such death or incapacity is given to the Secretary of the
Corporation. A shareholder shall not sell his vote or execute a proxy to any
person for any sum of money or anything of value. A proxy coupled with an
interest shall include an unrevoked proxy in favor of a creditor of a
shareholder and such a proxy shall be valid as long as the debt owed by him to
the creditor remains unpaid.
Every shareholder of record except the holder of shares which have
been called for redemption and with respect to which an irrevocable deposit of
funds has been made, shall have the right, at every shareholders' meeting, to
such a vote for every share, and to such a fraction of a vote with respect to
every fractional share, of stock of the Corporation standing in his name on the
books of the Corporation as may be provided in the Articles of Incorporation,
and to one vote for every share, and to a fraction of a vote equal to every
fractional share, if no express provision for voting rights is made in the
Articles of Incorporation. Treasury shares shall not be voted, directly or
indirectly, at any meeting of shareholders.
Section 2.10. Voting Lists. The officer or agent of the
Corporation having charge of the transfer books for shares of the Corporation
shall make, at least five days before each meeting of shareholders, a complete
list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list shall be kept on file at the registered office of the Corporation,
and shall be subject to inspection by any shareholder at any time during usual
business hours. If the Corporation has less than 5,000 shareholders, such list
shall also be produced and kept open at the time and place of the meeting, and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share ledger or transfer book, or a duplicate
thereof, kept in Texas, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book, or
to vote, in person or by proxy, at any meeting of shareholders.
Section 2.11. Judges of Election. The vote upon any matter,
including the election of directors, need not be by ballot. In advance of any
meeting of shareholders the Board of Directors may appoint judges
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of election, who need not be shareholders, to act at such meeting or any
adjournment thereof. If judges of election are not so appointed the Chairman of
any such meeting may, and upon the demand of any shareholder or his proxy at
the meeting and before voting begins, shall appoint judges of election. The
number of judges shall be either one or three, as determined, in the case of
judges appointed upon demand of a shareholder, by shareholders present entitled
to cast a majority of the votes which all shareholders present are entitled to
cast thereon. No person who is a candidate for office shall act as a judge. In
case any person appointed as judge fails to appear or fails or refuses to act,
the vacancy may be filled by appointment made by the Board of Directors in
advance of the convening of the meeting, or at the meeting by the Chairman of
the meeting.
If judges of election are appointed as aforesaid, they shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all
shareholders. If there be three judges of election, the decision, act or
certificate of a majority shall be effective in all respects as the decision,
act or certificate of all.
On request of the Chairman of the meeting or of any shareholder or his
proxy, the judges shall make a report in writing of any challenge or question
or matter determined by them, and execute a certificate of any fact found by
them.
Section 2.12. Determination of Shareholders of Record. The Board
of Directors may fix a date, not more than fifty days preceding the date of any
meeting of shareholders, or the date fixed for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or go into effect, as a
record date for the determination of the shareholders entitled to notice of, or
to vote at, any such meeting, or entitled to receive payment of any such
dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares; and in such case, if otherwise entitled, all shareholders of record on
the date so fixed, and no others, shall be entitled to notice of, or to vote
at, such meeting, or to receive payment of such dividend or distribution or to
receive such allotment of rights, or exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation
after any such record date fixed as aforesaid.
Unless a record date is fixed by the Board of Directors for such
purpose, transferees of shares which are transferred on the books within ten
days next preceding the date of such meeting shall not be entitled to notice
of, or to vote at, such meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Powers; Personal Liability.
(a) The Board of Directors shall have full power to conduct, manage,
and direct the business and affairs of the Corporation; and all powers of the
Corporation, except those specifically reserved or granted to the shareholders
by statute or by the Articles of Incorporation or these Bylaws are hereby
granted to and vested in the Board of Directors.
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(b) A director of the Corporation shall not be personally liable
for monetary damages as such, except to the extent provided in the Articles of
Incorporation of the Corporation. The provisions of this subsection shall be
effective January 27, 1987, but shall not apply to any action filed prior to
that date nor to any breach of performance of duty or any failure of
performance of duty by a director occurring prior to that date.
Section 3.02. Qualification and Election. All directors of the
Corporation shall be natural persons of full age, but need not be residents of
Pennsylvania. All directors of the Corporation shall hold an equity interest
in the Corporation, either by record or beneficial ownership of capital stock
or by the right to acquire record or beneficial ownership of such capital stock
within a specified time. Except in the case of vacancies, directors shall be
elected by the shareholders. Upon the demand of any shareholder or his proxy at
any meeting of shareholders for the election of directors the Chairman of the
meeting shall call for and shall afford a reasonable opportunity for the making
of nominations for the office of director. If the Board of Directors is
classified with respect to the power to elect directors or with respect to the
terms of directors and if, due to a vacancy or vacancies, or otherwise,
directors of more than one class are to be elected, each class of directors to
be elected at the meeting shall be nominated and elected separately. Any
shareholder or his proxy may nominate as many persons for the office of
director as there are positions to be filled. If nominations for the office of
director have been called for as herein provided only candidates who have been
nominated in accordance therewith shall be eligible for election.
Unless otherwise provided in the Articles of Incorporation or these
Bylaws, directors of the Corporation shall be elected by a plurality of the
votes cast by the holders of shares entitled to vote at an election of
directors at a meeting of shareholders at which a quorum is present.
Section 3.03. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if there be one, or, in the case of a
vacancy in the office or absence of the Chairman of the Board, one of the
following officers present in the order stated: the Vice Chairman of the Board,
if there be one, the President, the Vice Presidents in their order of rank and
seniority, or a Chairman chosen by a majority of the directors present, shall
preside, and the Secretary, or, in his absence, an Assistant Secretary, or in
the absence of the Secretary and the Assistant Secretaries, any person
appointed by the Chairman of the meeting, shall act as Secretary.
Section 3.04. Resignations. Any director of the Corporation may
resign at any time by giving written notice to the President or the Secretary
of the Corporation. Such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3.05. Vacancies. The Board of Directors may declare vacant
the office of the director if he be declared of unsound mind by an order of
court, or convicted of felony, or for any other proper cause, or if within
sixty days after notice of his election, he does not accept such office either
in writing or by attending a meeting of the Board of Directors.
Section 3.06. Removal. Any director may be removed, at any time,
only with cause, by the affirmative vote by written ballot of 80% of the voting
interest of the shareholders of record of the Corporation entitled to vote,
given at an annual meeting or at a special meeting of the shareholders called
for that purpose. The vacancy in the Board of Directors caused by any such
removal shall be filled by the Board of Directors as provided in Section 3.05
of this Article III.
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Section 3.07. Place of Meeting. The Board of Directors may hold
its meetings at such place or places as the Board of Directors may from time to
time appoint, or as may be designated in the notice calling the meeting.
Section 3.08. Organization Meeting. Immediately after each annual
election of directors, the newly elected Board of Directors shall meet for the
purpose of organization, election of officers, and the transaction of other
business, at the place where said election of directors was held. Notice of
such meeting need not be given. Such organization meeting may be held at any
other time or place which shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors.
Section 3.09. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated from time
to time by resolution of the Board of Directors. If the date fixed for any such
regular meeting be a legal holiday under the laws of the State where such
meeting is to be held, then the same shall be held on the next succeeding
business day, not a Saturday, or at such other time as may be determined by
resolution of the Board of Directors. At such meetings, the directors shall
transact such business as may properly be brought before the meeting. Notice of
regular meetings need not be given.
Section 3.10. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the President or by two or more of
the directors. Notice of each such meeting shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone)
or 48 hours (in the case of notice by telegram) or five days (in the case of
notice by mail) before the time at which the meeting is to be held. Every such
notice shall state the time and place of the meeting.
Section 3.11. Quorum, Manner of Acting, and Adjournment. A
majority of the directors in office shall be present at each meeting in order
to constitute a quorum for the transaction of business. Except as otherwise
specified in the Articles of Incorporation or these Bylaws or provided by
statute, the acts of a majority of the directors present at a meeting at which
a quorum is present shall be the acts of the Board of Directors. In the absence
of a quorum, a majority of the directors present may adjourn the meeting from
time to time until a quorum be present, and no notice of any adjourned meeting
need be given, other than by announcement at the meeting. The directors shall
act only as a board and the individual directors shall have no power as such,
provided, however, that any action which may be taken at a meeting of the board
may be taken without a meeting if a consent or consents in writing setting
forth the action so taken shall be signed by all of the directors and shall be
filed with the Secretary of the Corporation.
Section 3.12. Executive Committee. The Board of Directors may, by
resolution adopted by a majority of the entire Board, create an Executive
Committee which shall consist of three or more Directors and shall have and
exercise the authority of the Board over the business of the Corporation
between meetings of the Board, except as restricted by Section 3.14 hereof.
Section 3.13. Additional Committees. The Board of Directors may,
by resolution adopted by a majority of the whole board, designate one or more
additional committees, each such committee to consist of two or more directors
of the Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. To the extent provided in the resolution
designating the committee, any such committee shall have and exercise the
authority of the Board of Directors in the management of the business and
affairs of the Corporation. The action of a majority of the members of any such
committee shall constitute the action of such committee. Any such committee may
fix the time and place of its meetings unless the Board of Directors shall
otherwise provide. The Board of Directors shall have the power at any time to
change the membership of, to fill vacancies in, or to dissolve any such
committee. Any power or authority stated in these
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Bylaws to be exercisable by the Board of Directors may, unless otherwise
provided in these Bylaws, be exercisable by any committee designated pursuant
to this section to which such power or authority has been delegated.
A majority of the directors in office designated to a committee, or
directors designated to replace them as provided in this section, shall be
present at each meeting to constitute a quorum for the transaction of business
and the acts of a majority of the directors in office designated to a committee
or their replacements shall be the acts of the committee.
Sections 3.09, 3.10 and 3.11 of this Article III shall be applicable
to committees of the Board.
Section 3.14. Actions not Permitted by Committees. No Committee
shall have power of authority as to the following:
(1) The submission to shareholders of any action requiring approval of
shareholders;
(2) The creation or filling of vacancies in the Board;
(3) The adoption, amendment or repeal of the By-laws;
(4) The amendment or repeal of any resolution of the Board that by its
terms is amendable or repealable only by the Board; or
(5) Action on matters committed by the By-laws or resolution of the
Board to another committee of the Board.
Section 3.15. Interested Directors or Officers; Quorum. Except as
provided in the Articles of Incorporation, no contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of the Corporation's directors or officers
are directors or officers, or have a financial interest, shall be void or
voidable solely for such reason, or solely because the director or officer is
present at or participates in the meeting of the board which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose, if:
(1) The material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors and the Board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though the
disinterested directors are less than a quorum; or
(2) The material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified, by the Board of Directors or
the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors which authorizes a
contract or transaction specified in this section.
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Section 3.16. Fees. Each director shall be paid such reasonable
fee, if any, as shall be fixed by the Board of Directors for each meeting of
the Board of Directors or committee of directors which he shall attend and may
be paid such other compensation for his services as a director as may be fixed
by the Board of Directors.
ARTICLE IV
NOTICE; WAIVERS; MEETINGS
Section 4.01. Notice, What Constitutes. Whenever written notice is
required to be given to any person under the provisions of the Articles of
Incorporation, these Bylaws or applicable statutes, it may be given to such
person, either personally or by sending a copy thereof by first class or
express mail, postage prepaid, or by telegram (with messenger service
specified), telex or TWX (with answer back received) or courier service,
charges prepaid, or by facsimile transmission, to his address (or to his telex,
TWX or facsimile number) appearing on the books of the Corporation or, in the
case of directors, supplied by him to the Corporation for the purpose of
notice. If the notice is sent by mail, telegraph or courier service, it shall
be deemed to have been given to the person entitled thereto when deposited in
the United States mail or with a telegraph office or courier service for
delivery to that person or, in the case of telex or TWX, when dispatched. A
notice of a meeting shall specify the place, day and hour of the meeting and
any other information required by the Articles of Incorporation, these Bylaws
or applicable statutes.
Section 4.02. Waivers of Notice. Whenever any written notice is
required to be given under the provisions of the Articles of Incorporation,
these Bylaws or applicable statutes, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Except
in the case of a special meeting of shareholders, neither the business to be
transacted at, nor the purpose of, the meeting need be specified in the waiver
of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting was not lawfully called or convened.
Section 4.03. Conference Telephone Meetings. One or more directors
or shareholders may participate in a meeting of the Board, of a committee of
the Board or of the shareholders by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
ARTICLE V
OFFICERS AND DIRECTORS
Section 5.01. Number, Qualifications and Designation. The officers
of the Corporation shall be a Chairman of the Board, a Vice Chairman of the
Board, a President, one or more Vice Presidents, a Secretary and a Treasurer,
and such other officers as may be elected in accordance with the provisions of
Section 5.03 of this Article V. Any number of offices may be held by the same
person. The Chairman of the Board and the Vice Chairman of the Board shall be
elected from the members of the Board, but need not be shareholders. Other
officers may, but need not, be directors or shareholders of the Corporation.
The Chairman of the Board, the Vice Chairman of the Board, the President and
the Secretary shall be natural persons of full age. The Treasurer, however, may
be a Corporation, but if a natural person shall be of full age.
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Section 5.02. Election and Term of Office. The Chairman of the
Board, the Vice Chairman of the Board, the President, one or more Vice
Presidents, the Secretary and the Treasurer shall be elected at the initial
organization meeting of the Board of Directors and each officer so elected
shall hold office until the next annual meeting of the directors and until his
successor shall have been duly chosen and qualified, or until his death,
resignation, or removal. All Vice Presidents, the Secretary and the Treasurer
shall be elected from one or more nominees for each such office submitted to
the Board by the President after his election at such annual meeting.
Section 5.03. Subordinate Officers. The Board of Directors may
from time to time elect such subordinate officers or agents as the business of
the Corporation may require, including one or more Assistant Secretaries, and
one or more Assistant Treasurers, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine. By
resolution, the Board of Directors may delegate to any officer the power to
elect, fill vacancies in the offices of and remove, with or without cause,
whenever in the judgment of such officer the best interests of the Corporation
will be served thereby, subordinate officers or agents and to prescribe the
salaries and the authority and duties of such subordinate officers or agents.
Section 5.04. Resignations. Any officer or agent may resign at any
time by giving written notice to the Board of Directors, or to the President or
the Secretary of the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 5.05. Removal. Any officer or agent of the Corporation may
be removed, with or without cause, by the Board of Directors whenever in the
judgment of the Board the best interests of the Corporation will be served
thereby.
Section 5.06. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by
the Board of Directors. Vacancies in the office of any Vice President, the
Secretary and the Treasurer shall be filled from one or more nominees for each
such office submitted to the Board by the President. If the office is one of
which these Bylaws prescribe a term, the vacancy shall be filled for the
unexpired portion of the term.
Section 5.07. General Powers. All officers of the Corporation as
between themselves and the Corporation, shall, respectively, have such
authority and perform such duties in the management of the property and affairs
of the Corporation as may be determined by resolution of the Board of
Directors, or in the absence of controlling provisions in a resolution of the
Board of Directors, as may be provided in these Bylaws.
Section 5.08. The Chairman and Vice Chairman of the Board. The
Chairman of the Board or in his absence, the Vice Chairman of the Board, shall
preside at all meetings of the shareholders and of the Board of Directors, and
shall perform such other duties as prescribed in his employment agreement, if
any, and if no such employment agreement exists, such other duties as may from
time to time be requested of him by the Board of Directors.
Section 5.09. The President. The President shall be the Chief
Executive Officer of the Corporation and shall have general supervision over
the business and operations of the Corporation, subject, however, to the
control of the Board of Directors. In the absence of the Chairman and the Vice
Chairman of the Board, the President shall preside at all meetings of the
shareholders and of the Board of Directors. He shall sign, execute and
acknowledge, in the name of the Corporation, deeds, mortgages, bonds, contracts
or other
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instruments, authorized by the Board of Directors, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors, or by these Bylaws, to some other officer or agent of the
Corporation; and, in general, shall perform all duties incident to the office
of President, and such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 5.10. The Vice Presidents. The Vice Presidents shall
perform the duties of the President in his absence and such other duties as may
from time to time be assigned to them by the Board of Directors or by the
President.
Section 5.11. The Secretary. The Secretary or an Assistant
Secretary shall attend all meetings of the shareholders and of the Board of
Directors and shall record all the votes of the shareholders and of the
directors and the minutes of the meetings of the shareholders and of the Board
of Directors and of committees of the Board in a book or books to be kept for
that purpose; shall see that notices are given and records and reports properly
kept and filed by the Corporation as required by law; shall be the custodian of
the seal of the Corporation and see that it is affixed to all documents to be
executed on behalf of the Corporation under its seal; and, in general, shall
perform all duties incident to the office of Secretary, and such other duties
as may from time to time be assigned to him by the Board of Directors or the
President.
Section 5.12. The Treasurer. The Treasurer or an Assistant
Treasurer shall have or provide for the custody of the funds or other property
of the Corporation and shall keep a separate book account of the same to his
credit as Treasurer; shall collect and receive or provide for the collection
and receipt of moneys earned by or in any manner due to or received by the
Corporation; shall deposit all funds in his custody as Treasurer in such banks
or other places of deposit as the Board of Directors may from time to time
designate; shall, whenever so required by the Board of Directors, render an
account showing his transactions as Treasurer, and the financial condition of
the Corporation; and, in general, shall discharge such other duties as may from
time to time be assigned to him by the Board of Directors or the President.
Section 5.13. Officers' Bonds. Any officer shall give a bond for
the faithful discharge of his duties in such sum, if any, and with such surety
or sureties as the Board of Directors shall require.
Section 5.14. Salaries. The salaries of the officers and agents of
the Corporation shall be fixed from time to time by the Board of Directors or
by such officer as may be designated by resolution of the Board. No officer
shall be prevented from receiving such salary or other compensation by reason
of the fact that he is also a director of the Corporation.
ARTICLE VI
CERTIFICATES OF STOCK; TRANSFER; ETC.
Section 6.01. Issuance. The share certificates of the Corporation
shall be numbered and registered in the share ledger and transfer books of the
Corporation as they are issued. They shall be signed by the Chairman of the
Board or the President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, and shall bear the corporate seal, which
may be a facsimile, engraved or printed; but where such certificate is signed
by a transfer agent officer or the registrar the signature of any corporate
officer upon such certificate may be a facsimile, engraved or printed. In case
any officer who has signed, or whose facsimile signature has been placed upon
any share certificate shall have ceased to be such officer because of death,
resignation or otherwise, before the certificate is issued, it may be issued
with the same effect as if the officer had not ceased to be such at the date of
its issue.
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Section 6.02. Transfer. Transfers of shares shall be made on the
books of the Corporation upon surrender of the certificates therefor, endorsed
by the person named in the certificate or by an attorney lawfully constituted
in writing. No transfer shall be made inconsistent with the provisions of the
Uniform Commercial Code, 12A P.S. Section 101 et seq., and its amendments and
supplements.
Section 6.03. Share Certificates. Certificates for shares of the
Corporation shall be in such form as provided by statute and approved by the
Board of Directors. The share record books and the blank share certificate
books shall be kept by the Secretary or by any agency designated by the Board
of Directors for that purpose. Every certificate exchanged or returned to the
Corporation shall be marked "Cancelled", with the date of cancellation.
Section 6.04. Record Holder of Shares. The Corporation shall be
entitled to treat the person in whose name any share or shares of the
Corporation stand on the books of the Corporation as the absolute owner
thereof, and shall not be bound to recognize any equitable or other claim to,
or interest in, such share or shares on the part of any other person.
Section 6.05. Lost, Destroyed or Mutilated Certificates. The
holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate therefor,
and the Board of Directors may, in its discretion, cause a new certificate or
certificates to be issued to him, in case of mutilation of the certificate,
upon the surrender of the mutilated certificate, or, in case of loss or
destruction of the certificate, upon satisfactory proof of such loss or
destruction, and, if the Board of Directors shall so determine, the deposit of
a bond in such form and in such sum, and with such surety or sureties, as it
may direct.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS; OFFICERS; ETC.
Section 7.01. Scope of Indemnification.
(a) The Corporation shall indemnify an indemnified representative
against any liability incurred in connection with any proceeding in which the
indemnified representative may be involved as a party or otherwise, by reason
of the fact that such person is or was serving in an indemnified capacity,
including, without limitation, liabilities resulting from any actual or alleged
breach or neglect of duty, error, misstatement or misleading statement,
negligence, gross negligence or act giving rise to strict or products
liability, except where such indemnification is expressly prohibited by
applicable law or where the conduct of the indemnified representative has been
determined pursuant to Section 7.06 of this Article VII to constitute willful
misconduct or recklessness, within the meaning of Section 1746(b) of the
Pennsylvania Business Corporation Law or any superseding provision of law, or
self-dealing as defined herein, in either case sufficient in the circumstances
to bar indemnification against liabilities arising from the conduct.
"Self-dealing" shall mean the receipt of personal benefit from the Corporation
to which the authorized representative is not legally entitled.
(b) If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the Corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.
(c) The termination of a proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the indemnified representative
is not entitled to indemnification.
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(d) For purposes of this Article VII:
(1) "indemnified capacity" means any and all past,
present and future service by an indemnified representative in one or
more capacities as a director, officer, employee or agent of the
Corporation, or, at the request of the Corporation, as a director,
officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise;
(2) "indemnified representative" means any and all
directors and officers of the Corporation and any other person
designated as an indemnified representative by the Board of Directors
of the Corporation (which may, but need not, include any person
serving at the request of the Corporation, as a director, officer,
employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture trust, employee benefit plan or other
entity or enterprise);
(3) "liability" means any damage, judgment, amount paid
in settlement, fine, penalty, punitive damages, excise tax assessed
with respect to an employee benefit plan, or cost or expense of any
nature (including, without limitation, attorneys' fees and
disbursements); and
(4) "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of any nature,
whether civil, criminal, administrative or investigative, whether
formal or informal, and whether brought by or in the right of the
Corporation, a class of its security holders or otherwise.
Section 7.02. Proceedings Initiated by Indemnified
Representatives. Notwithstanding any other provision of this Article VII, the
Corporation shall not indemnify under this Article VII an indemnified
representative for any liability incurred in a proceeding initiated (which
shall not be deemed to include counter-claims or affirmative defenses) or
participated in as an intervener or amicus curiae by the person seeking
indemnification unless such initiation of or participation in the proceeding is
authorized, either before or after its commencement, by the affirmative vote of
a majority of the directors in office. This section does not apply to
reimbursement of expenses incurred in successfully prosecuting or defending an
arbitration under Section 7.06 of this Article VII or otherwise successfully
prosecuting or defending the rights of an indemnified representative granted by
or pursuant to this Article VII.
Section 7.03. Advancing Expenses. The Corporation shall pay the
expenses (including attorneys' fees and disbursements) incurred in good faith
by an indemnified representative in advance of the final disposition of a
proceeding described in Sections 7.01 or 7.02 of this Article VII upon receipt
of an undertaking by or on behalf of the indemnified representative to repay
such amount if it shall ultimately be determined pursuant to Section 7.06 of
this Article VII that such person is not entitled to be indemnified by the
Corporation pursuant to this Article VII. The financial ability of an
indemnified representative to repay an advance shall not be a prerequisite to
the making of such advance.
Section 7.04. Securing of Indemnification Obligations. To further
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the Corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs and
upon such other terms and conditions as the Board of Directors shall deem
appropriate. Absent fraud, the determination of the Board of Directors with
respect to such amounts, costs, terms and conditions shall be conclusive
against all security holders, officers and directors and shall not be subject
to voidability.
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Section 7.05. Payment of Indemnification. An indemnified
representative shall be entitled to indemnification within 30 days after a
written request for indemnification has been delivered to the Secretary of the
Corporation.
Section 7.06. Arbitration. Any dispute related to the right to
indemnification, contribution or advancement of expenses as provided under this
Article VII, except with respect to indemnification for liabilities arising
under the Securities Act of 1933, as amended, that the Corporation has
undertaken to submit to a court for adjudication, shall be decided only by
arbitration in the metropolitan area in which the principal executive offices
of the Corporation are located, in accordance with the commercial arbitration
rules then in effect of the American Arbitration Association, before a panel of
three arbitrators, one of whom shall be selected by the Corporation, the second
of whom shall be selected by the indemnified representative and the third of
whom shall be selected by the other two arbitrators. In the absence of the
American Arbitration Association, or if for any reason arbitration under the
arbitration rules of the American Arbitration Association cannot be initiated,
or if one of the parties fails or refuses to select an arbitrator, or if the
arbitrators selected by the Corporation and the indemnified representative
cannot agree on the selection of the third arbitrator within 30 days after such
time as the Corporation and the indemnified representative have each been
notified of the selection of the other's arbitrator, the necessary arbitrator
or arbitrators shall be selected by the presiding judge of the court of general
jurisdiction in such metropolitan area. Each arbitrator selected as provided
herein is required to be or have been a director or executive officer of a
corporation whose shares of common stock were listed during at least one year
of such service on the New York Stock Exchange or the American Stock Exchange
or quoted on the National Association of Securities Dealers Automated
Quotations System. The party or parties challenging the right of an indemnified
representative to the benefits of this Article VII shall have the burden of
proof. The Corporation shall reimburse an indemnified representative for the
expenses (including attorneys' fees and disbursements) incurred in successfully
prosecuting or defending such arbitration. Any award entered by the arbitrators
shall be final, binding and nonappealable and judgment may be entered thereon
by any party in accordance with applicable law in any court of competent
jurisdiction. This arbitration provision shall be specifically enforceable.
Section 7.07. Discharge of Duty. An indemnified representative
shall be deemed to have discharged such person's duty to the Corporation if he
or she has relied in good faith on information, opinions, reports or
statements, including financial statements and other financial data, in each
case prepared or presented by any of the following:
(1) one or more officers or employees of the Corporation
whom the indemnified representative reasonably believes to be reliable
and competent with respect to the matter presented;
(2) legal counsel, public accountants or other persons as
to matters that the indemnified representative reasonably believes are
within the person's professional or expert competence; or
(3) a committee of the Board of Directors on which he or
she does not serve as to matters within its area of designated
authority, which committee he or she reasonably believes to merit
confidence.
Section 7.08. Contract Rights; Amendment or Repeal. All rights
under this Article VII shall be deemed a contract between the Corporation and
the indemnified representative pursuant to which the Corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights
or obligations then existing.
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Section 7.09. Scope of Article. The rights granted by this Article
VII shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in an indemnified capacity and as to action in any other capacity.
The indemnification and advancement of expenses provided by or granted pursuant
to this Article VII shall continue as to a person who has ceased to be an
indemnified representative in respect of matters arising prior to such time,
and shall inure to the benefit of the heirs, executors, administrators and
personal representatives of such a person.
Section 7.10. Reliance on Provisions. Each person who shall act as
an indemnified representative of the Corporation shall be deemed to be doing so
in reliance upon the rights provided by this Article VII.
Section 7.11. Interpretation. The provisions of this Article VII
have been adopted by the shareholders of the Corporation and are intended to
constitute Bylaws authorized by Section 1504 of the Pennsylvania Business
Corporation Law.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Corporate Seal. The Corporation shall have a
corporate seal in the form of a circle containing the name of the Corporation
and, in addition, the words and figures, "Incorporated - Pennsylvania", with
the year of incorporation.
Section 8.02. Checks. All checks, notes, bills of exchange or
other orders in writing shall be signed by such person or persons as the Board
of Directors may from time to time designate.
Section 8.03. Contracts. Except as otherwise provided in these
Bylaws, the Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or to execute or deliver any instrument on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
Section 8.04. Deposits. All funds of the Corporation shall be
deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by
such one or more officers or employees as the Board of Directors shall from
time to time determine.
Section 8.05. Reports. The Board of Directors shall present at the
annual meeting of shareholders a report of the financial condition of the
Corporation as of the closing date of the preceding fiscal year. Such report
shall be in such form as shall be approved by the Board of Directors and shall
be available for the inspection of shareholders at the annual meeting, but the
Board of Directors shall not be required to cause such report to be sent to the
shareholders. The Board of Directors may, but shall not be required to, have
such report prepared and verified by an independent certified public accountant
or by a firm of practicing accountants.
Section 8.06. Corporate Records. There shall be kept at the
registered office or principal place of business of the Corporation an original
or duplicate record of the proceedings of the shareholders and of the
directors, and the original or a copy of the Bylaws including all amendments or
alterations thereto to date, certified by the President or the Secretary of the
Corporation. An original or duplicate share register shall also be kept at the
registered office or principal place of business of the Corporation, or at the
office of a transfer agent or registrar, giving the names of the shareholders,
their respective addresses and the number
15
<PAGE> 19
and class of shares held by each. The Corporation shall also keep appropriate,
complete and accurate books or records of account, which may be kept at its
registered office or at its principal place of business.
Every shareholder shall, upon written demand under oath stating the
purpose thereof, have a right to examine, in person or by agent or attorney,
during the usual hours for business, for any proper purpose, the share
register, books or records of account, and records of the proceedings of the
shareholders and directors, and make copies or extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such person's interest as a
shareholder. In every instance where an attorney or other agent shall be the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing which authorizes the
attorney or other agent to so act on behalf of the shareholder. The demand
under oath shall be directed to the Corporation at its registered office in
Pennsylvania or at its principal place of business. Where the shareholder seeks
to inspect the books and records of the Corporation, other than its share
register or list of shareholders, he shall first establish (1) that he has
complied with the provisions of this section respecting the form and manner of
making demand for inspection of such document and (2) that the inspection he
seeks is for a proper purpose. Where the shareholder seeks to inspect the share
register or list of shareholders of the Corporation and he has complied with
the provisions of this section respecting the form and manner of making demand
for inspection of such documents, the burden of proof shall be upon the
Corporation to establish that the inspection he seeks is for an improper
purpose.
Section 8.07. Inapplicability of Subchapters. Pursuant to the
Pennsylvania Business Corporation Law of 1988 (the "BCL"), the provisions of
Subchapters I and J of the BCL shall not be applicable to the Corporation.
16
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
BETWEEN
SNELLING AND SNELLING, INC.
AND
ROBERT O. SNELLING, JR.
Effective: December 1, 1996
<PAGE> 2
EMPLOYMENT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Employment . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Duties and Functions as Employee . . . . . . . . . . . . . . . 1
A. Positions . . . . . . . . . . . . . . . . . . . . . . . 1
B. General Duties and Functions as Employee . . . . . . . 1
3. Extent of Employee Services . . . . . . . . . . . . . . . . . . 1
4. Satisfaction of Employer . . . . . . . . . . . . . . . . . . . 2
5. Employee's Compensation and Benefits . . . . . . . . . . . . . 2
A. Base Salary . . . . . . . . . . . . . . . . . . . . . . 2
B. Annual Performance Bonus . . . . . . . . . . . . . . . 2
C. Stock Options . . . . . . . . . . . . . . . . . . . . . 4
D. Home Office . . . . . . . . . . . . . . . . . . . . . . 4
E. Other Benefits . . . . . . . . . . . . . . . . . . . . 4
6. Employee Covenants . . . . . . . . . . . . . . . . . . . . . . 4
A. Employee Representations . . . . . . . . . . . . . . . 5
B. Non-Competition . . . . . . . . . . . . . . . . . . . . 7
C. Non-Interference . . . . . . . . . . . . . . . . . . . 7
D. Disclosure of Information . . . . . . . . . . . . . . . 7
E. Return of Records . . . . . . . . . . . . . . . . . . . 8
F. Remedies . . . . . . . . . . . . . . . . . . . . . . . 8
7. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 9
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . 9
B. Disability . . . . . . . . . . . . . . . . . . . . . . 9
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . 10
D. By Employee . . . . . . . . . . . . . . . . . . . . . . 10
E. For "Good Cause" . . . . . . . . . . . . . . . . . . . 10
F. December 31, 2006 . . . . . . . . . . . . . . . . . . . 10
9. Payments upon Termination; Severance . . . . . . . . . . . . . 11
A. Death . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Disability . . . . . . . . . . . . . . . . . . . . . . 11
C. Mutual Consent . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
EMPLOYMENT AGREEMENT -i-
<PAGE> 3
<TABLE>
<S> <C> <C>
D. By Employee . . . . . . . . . . . . . . . . . . . . . . 11
E. For Good Cause . . . . . . . . . . . . . . . . . . . . 11
F. Expiration of Agreement . . . . . . . . . . . . . . . . 11
G. Additional Benefits . . . . . . . . . . . . . . . . . . 12
H. Change in Control . . . . . . . . . . . . . . . . . . . 12
10. References and Gender . . . . . . . . . . . . . . . . . . . . . 13
11. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Insurance; Medical Exam . . . . . . . . . . . . . . . . . . . . 14
14. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . 14
15. Nonassignability . . . . . . . . . . . . . . . . . . . . . . . 14
16. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 14
17. Laws Governing . . . . . . . . . . . . . . . . . . . . . . . . 14
18. Succession . . . . . . . . . . . . . . . . . . . . . . . . . . 15
19. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . 15
20. Waivers and Consents . . . . . . . . . . . . . . . . . . . . . 15
21. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
EMPLOYMENT AGREEMENT -ii-
<PAGE> 4
EMPLOYMENT AGREEMENT
This Agreement made this 30th day of December, 1996, effective as of
December 1, 1996, by and between Snelling and Snelling, Inc., a Pennsylvania
corporation (the "Employer") and Robert O. Snelling, Jr. ("Employee").
R E C I T A L S:
A. Employee desires employment as an Employee of the Employer.
B. The Employer desires to employ Employee under the terms and conditions
hereof.
C. In consideration of the mutual covenants herein contained, the parties
agree as follows:
AGREEMENT
1. EMPLOYMENT. The Employer hereby employs Employee and Employee
hereby accepts such employment upon the terms and conditions of this Agreement.
2. DUTIES AND FUNCTIONS AS EMPLOYEE. Employee is engaged by the
Employer to perform the following duties and functions:
A. POSITIONS. Employee will serve as Vice Chairman of
the Board of Directors and Senior Vice President.
B. GENERAL DUTIES AND FUNCTIONS AS EMPLOYEE. Employee
agrees to render to Employer his services as Vice Chairman of the Board of
Directors and Senior Vice President and his duties will be those customarily
performed by persons acting in such capacity of a company of a size and nature
comparable to Employer and those designated by the Chief Executive Officer or
the Board of Directors of the Employer (the "Board") consistent with the
position of Vice Chairman. Employee shall also serve, upon request and without
additional compensation, as an officer or director, or both, of any subsidiary,
division or affiliate of the Employer or any other entity in which the Employer
holds an equity interest.
3. EXTENT OF EMPLOYEE SERVICES. Employee shall devote his full
working time, attention, efforts, and energies to the business and affairs of
the Employer and its affiliated companies. Employee during the term of this
Agreement shall not engage in any other business activity similar to the
Employer's business without the Employer's consent, whether or not that
business activity is pursued for gain, profit, or other pecuniary advantages,
nor shall Employee be interested, directly or indirectly, in any form, fashion,
or manner, as partner, officer, director, stockholder, advisor, employee,
investor, or in any other form or capacity in such other business; provided,
however, that nothing herein contained shall be deemed to prevent or limit the
right of Employee to invest any of his personal funds in securities of any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee, after any
EMPLOYMENT AGREEMENT -1-
<PAGE> 5
such investment, owns less than one percent (1%) of any class of such
corporation's outstanding securities. Notwithstanding the foregoing, Employee
may, with the permission of the Board, sit on the boards of corporations
(public and private) and devote time and attention to nonprofit organizations
and academic institutions, provided such activities shall be consistent with
Employee's commitments to the Employer and not affect Employee's performance of
Employee's obligations under this Agreement. During the term of Employee's
employment, Employee's principal residence shall be in Dallas County, Texas, or
a county contiguous thereto.
4. SATISFACTION OF EMPLOYER. Employee agrees that he will
faithfully, promptly, and to the best of his ability, experience, and talent,
perform all of the duties that may be required of and from him pursuant to the
express and implicit terms hereof. Such duties shall be rendered at Dallas,
Texas or a county contiguous thereto (the "Dallas Area"). Employee shall not
be required to travel outside of the Dallas Area with respect to the
performance of his services under this Agreement in excess of 10% of his time
incurred in performing such services.
5. EMPLOYEE'S COMPENSATION AND BENEFITS. For all services
rendered by Employee during his employment hereunder, the Employer shall
compensate Employee as follows:
A. BASE SALARY. During the term of Employee's
employment with Employer pursuant to this Agreement, the Employer shall pay
Employee for his services a minimum annual base salary of $175,000, payable in
accordance with the Employer's payroll practices as in effect from time to
time, and subject to such withholding as is required by law. Employee's base
salary will be reviewed annually and subject to increase at the discretion of
the Board. Employee's annual base salary in effect from time to time,
exclusive of any other compensation hereunder, is hereinafter called "Base
Salary".
B. ANNUAL PERFORMANCE BONUS. In addition to Base
Salary, Employee shall receive an "Annual Performance Bonus" (herein so
called), which shall be the greater of (1) an amount determined by the Board of
Directors of Employer at the end of a fiscal year, or (2) the amount determined
in accordance with the following formulation:
(1) FORMULATION. The Annual Performance Bonus
will be determined from Employer's earnings
before state and federal taxes ("Before Tax
Earnings"). The Board shall each year during
the term of this Agreement establish a
Performance Bonus Criteria (herein so called)
which shall be Employer's budgeted Before Tax
Earnings for that year and which shall not be
less than the Performance Bonus Criteria for
the immediately preceding year.
(a) If Before Tax Earnings are less than
80% of Performance Bonus Criteria,
Employee shall earn no Annual
Performance Bonus. If Before Tax
Earnings are equal to at least 80%
of the Performance Bonus Criteria,
Employee shall earn an
EMPLOYMENT AGREEMENT -2-
<PAGE> 6
Annual Performance Bonus as
determined under Paragraphs
5(B)(1)(b), (c) and (d) below, as
applicable.
(b) If Before Tax Earnings are 80%-99%
of the Performance Criteria,
Employee shall earn an Annual
Performance Bonus in an amount
ranging between 25% and 48.75 % of
Employee's Base Salary, determined
on a prorated basis. For example,
if Before Tax Earnings are 92% of
the Performance Bonus Criteria,
Employee shall earn an Annual
Performance Bonus equal to 40% of
Employee's Base Salary.
(c) If Before Tax Earnings are 100%-119%
of the Performance Criteria,
Employee shall earn an Annual
Performance Bonus in an amount
ranging between 50% and 97.5% of
Employee's Base Salary, determined
on a prorated basis. For example,
if Before Tax Earnings are 110% of
the Performance Criteria, Employee
shall earn an Annual Performance
Bonus equal to 75% of Employee's
Base Salary.
(d) If Before Tax Earnings are 120% or
greater of the Performance Bonus
Criteria, Employee shall earn an
Annual Performance Bonus equal to
100% of Employee's Base Salary, plus
an additional 2% of Employee's Base
Salary for each 1% above 120% of the
Performance Bonus Criteria.
(2) SOURCE OF FINANCIAL INFORMATION AND
CALCULATION. Before Tax Earnings shall be
determined on an accrual basis based on the
Employer's audited annual financial
statements for its fiscal tax year. The
determination of Employer's Before Tax
earnings by the Employer's independent
auditors will be final and binding on all
parties.
(3) MID-YEAR CALCULATION. If employment is
started or terminated during a fiscal year of
the Employer and Employee is entitled to the
Annual Performance Bonus hereunder, the
Annual Performance Bonus determination will
be made at the end of such fiscal year and
prorated based on the number of days Employee
was employed during that year; provided, in
the case of Employee's termination of
employment, Employee in his sole discretion
may elect to determine the Annual Performance
Bonus based on Before Tax
EMPLOYMENT AGREEMENT -3-
<PAGE> 7
Earnings annualized through the last day of
the month preceding the date of Employee's
termination of employment.
(4) PAYMENT. Except as otherwise provided for
herein, the Annual Performance Bonus will be
paid no later than 30 days following the
independent auditor's completion of the
Employer's audited annual financial
statements.
C. STOCK OPTIONS. During Employee's employment under
this Agreement, Employee will be eligible to participate in the Snelling and
Snelling, Inc. 1996 Stock Option Plan or such other stock option plans as may
be adopted by the Employer during the term of this Agreement (the "Stock Option
Plan") at a level specified by the Board, or by a committee designated by the
Board, when the Board (or committee) grants options to employees of the
Employer. The terms of each option granted to Employee will be governed by the
Stock Option Plan and the written option agreement entered into between the
Employer and Employee in accordance with the Stock Option Plan.
D. HOME OFFICE. Upon the request of Employee at any
time during the term of this Agreement, the Employer at its expense will equip
a home office for Employee's use and fulfillment of his duties and functions
hereunder. Such home office will be equipped as determined to be appropriate
by the Employer, and shall include on-line electronic access to the files,
records, internal and external communications and other information appropriate
to assist Employee with the fulfillment of his duties hereunder. Employee
agrees that as soon as practicable following termination of this Agreement, he
shall return any and all equipment requested to be returned by the Employer and
that his on-line access to the Employer's information shall cease.
E. OTHER BENEFITS. The Employer shall, at its expense,
furnish Employee with such other benefits as are from time to time provided by
the Employer for the benefit of its executives generally during the term of
this Agreement, including, without limitation, vacation pay, an automobile
allowance and fees for serving on the Board of Directors in amounts not less
than the previous year. In addition, Employer shall at its expense provide the
Employer with long-term disability insurance and umbrella liability insurance
in amounts as determined by the Board and life insurance of two times
Employee's compensation or such other amount as available to the Employer's
employees under its group term life insurance program. All benefits provided
to Employee shall be subject to the provisions of applicable law. During the
term of this Agreement, the benefits provided to Employee for a particular
year, or the economic equivalent thereof, shall not be less than the benefits
provided to Employee for the immediately preceding year.
6. EMPLOYEE COVENANTS. The parties recognize that the services
to be rendered as an employee under this Agreement by Employee are special,
unique, and of an extraordinary character and, therefore, Employee in
consideration for the employment hereunder makes the following representations
and covenants (the "Covenants") for the benefit of Employer.
EMPLOYMENT AGREEMENT -4-
<PAGE> 8
A. EMPLOYEE REPRESENTATIONS.
(1) PROPRIETARY INFORMATION. Employee is aware
and acknowledges that Employer has developed
a special competence in its Business
(hereinafter defined) and has accumulated
Confidential Information (hereinafter
defined) not generally known to others in the
field which is of unique value in the conduct
and growth of Employer's Business and which
Employer treats as proprietary.
(2) ACCESS TO CONFIDENTIAL INFORMATION. In the
course of Employee's employment, Employee
will be employed in a position or positions
with Employer in which Employee may receive
or contribute to the Confidential Information
of Employer. Employee recognizes the optimum
progress of Employer's Business cannot take
place unless Confidential Information is
entrusted to Employee.
(3) PROTECTION OF GOODWILL. Employee
acknowledges that in the course of carrying
out, performing, and fulfilling his
responsibilities to Employer, Employee has
and will have access to and be entrusted with
Confidential Information relating to
Employer's Business and Clients (hereinafter
defined). Employee recognizes that (i) the
goodwill of Employer depends upon, among
other things, its keeping the Confidential
Information confidential and that
unauthorized disclosure of the Confidential
Information would irreparably damage
Employer, and (ii) disclosure of any
Confidential Information to competitors of
Employer or to the general public would be
highly detrimental to Employer. Employee
further acknowledges that in the course of
performing his obligations to Employer, he
will be a representative of Employer to many
of Employer's Clients and in some instances
Employer's primary contact with the Client,
and as such will be responsible for
maintaining or enhancing the business and
goodwill of Employer with those Clients.
(4) MEANINGS OF TERMS. Employee acknowledges
that the following terms shall have the
following meanings:
a. BUSINESS shall mean Employer's
present business of providing
personnel services, including but
not limited to, temporary help
services, employee placement,
employee search, employee leasing,
and as such business may be expanded
and diversified in the future
through acquisitions by Employer or
future development or
diversification, including any
business which Employer has targeted
or
EMPLOYMENT AGREEMENT -5-
<PAGE> 9
discussed to be targeted by officers
or board members for acquisition or
entry during the Restricted Period
(as defined below).
b. EMPLOYER shall refer to Snelling and
Snelling, Inc. and its subsidiaries
and any other business or entity in
which Employer has or acquires an
equity interest.
c. CLIENTS means any individual,
principal, proprietorship,
partnership, corporation,
association, or other entity that
has been served by Employer as a
customer or franchise during the
term of Employee's employment,
including those who were (or became)
Client(s) of Employer at the time of
(or at any time during) Employee's
employment.
d. COMPETING BUSINESS means any
business, firm, undertaking,
company, or organization, other than
Employer, which competes in any
state in the United States in which
the Employer's business is located
(the "Restricted Area") with
Employer's Business.
e. CONFIDENTIAL INFORMATION means
information disclosed to or known to
Employee as a direct or indirect
consequence of, or through his
employment with Employer, about
Employer's business methods,
operations, and services, including,
but not limited to, all information,
written or oral, including without
limitation, manuals, videos, audios,
and internal publications not
generally known, or proprietary to
Employer, about Employer's
manufacturing, marketing, pricing,
accounting, merchandising, and
information gathering techniques and
methods, and all accumulated data,
listings, or similar recorded matter
used or useful in Employer's
Business, including but not limited
to, Employer's Client lists,
Employer's franchisees' Client
lists, reports, business forms,
advertisements, and marketing
reports and presentation materials.
Without regard to whether any or all
of the foregoing matters would be
deemed confidential, material, or
important, the parties hereto
stipulate that as between them, the
same are important, material, and
confidential and gravely affect the
effective and successful conduct of
the business of the Employer, and
its goodwill.
EMPLOYMENT AGREEMENT -6-
<PAGE> 10
B. NON-COMPETITION. Employee agrees that during his
employment with Employer, Employee shall not within the Restricted Area, either
through any kind of ownership (other than ownership of securities any
corporation whose securities are regularly traded on any public exchange or
regulated market of which Employee owns less than one percent (1 %) of any
class of such corporation's outstanding securities), or as a director, officer,
principal, agent, employee, employer, advisor, consultant, co-partner, or in
any individual or representative capacity whatsoever, either for Employee's own
benefit or for the benefit of any other person or firm, partnership,
association, corporation, or other entity, without the prior written consent of
Employer, participate, directly or indirectly, in a Competing Business
involving any Client.
C. NON-INTERFERENCE. During his employment with the
Employer and for a period of thirty-six (36) months after the termination of
his employment, irrespective of the time, manner, or cause of his termination,
Employee shall not:
(1) SOLICITATION. Directly or indirectly, either
as principal, agent, employee, employer,
stockholder, co-partner, or in any other
individual or representative capacity
whatsoever induce, solicit, or attempt to
induce or solicit any existing Client or
induce, solicit or attempt to induce or
solicit any existing Client to terminate its
relationship with Employer, either for
Employee's own benefit or for the benefit of
any other person, firm, or corporation
competitive with that of the Employer.
(2) SOURCES. Directly or indirectly, request or
advise any present or future merchandise
resource, supply resource, financial
resource, or service resource of the Employer
or any existing Client to withdraw, curtail,
or cancel the furnishing or sales of
merchandise, supplies, or services to the
Employer or any existing Client.
(3) EMPLOYEES. Directly or indirectly, induce or
attempt to influence any employee of the
Employer or employee of any existing Client
to terminate employment with the Employer or
the existing Client, as the case may be, or
hire any former employee of the Employer who
has resigned.
D. DISCLOSURE OF INFORMATION. Unless compelled to
disclose information in a legal proceeding, Employee expressly covenants and
agrees that he will not, during or after the termination of his employment with
the Employer, irrespective of the time, manner or cause of the termination,
directly or indirectly use, disclose, copy, or assist any other person or firm
in the use, disclosure, or copying of, any Confidential Information, except
with the written consent of or at the written request of Employer.
EMPLOYMENT AGREEMENT -7-
<PAGE> 11
E. RETURN OF RECORDS. Upon termination of his
employment, Employee will surrender to the Employer all lists, books, and
records of or in connection with the Employer's Clients, customers, suppliers,
prospective customers, or businesses and all copies thereof and all other
property belonging to the Employer, whatsoever, including, without limitation,
all Confidential Information. Employee shall have no right to copy or
otherwise reproduce lists, books or accounts, records or other property of the
Employer.
F. REMEDIES.
(1) ENFORCEMENT OF COVENANTS. Employee agrees
that a violation on his part of any Covenant
in this Paragraph 6 will cause such damage to
the Employer as will be irreparable and for
that reason, Employee further agrees that the
Employer shall be entitled, as a matter of
right, to an injunction out of any court of
competent jurisdiction, restraining any
further violation of the Covenants by
Employee, his employer, employees, partners,
or agents. In addition to the foregoing
remedy, in the event of a violation by
Employee of any Covenant in this Paragraph 6,
Employee shall be liable to the Employer for
actual damages. Such right to injunction and
actual damages shall be cumulative and in
addition to whatever other remedies the
Employer may have.
(2) INDEPENDENT COVENANTS. Each of the Covenants
contained in this Paragraph 6 shall be
construed as covenants or agreements
independent of any other provision of this
Paragraph 6 of this Agreement and the
allegation or existence of any claim or cause
of action of Employee against the Employer,
whether predicated on this Agreement or
otherwise, shall not constitute a defense to
the enforcement by the Employer of the
Covenants contained herein.
(3) INTERPRETATION. It is the intent of the
parties that the provisions contained in
Paragraph 6 shall, to the fullest extent
permissible under law and public policy, be
enforced by the courts of each state and
jurisdiction in which enforcement is sought
and that the unenforceability (or the
modification necessary to conform with such
law and public policy) of any part of
Paragraph 6 shall not be deemed to render
unenforceable any other part of Paragraph 6.
Accordingly, if any part of Paragraph 6 shall
be adjudicated to be invalid or unenforceable
in any action or proceeding in which
Employee, his heirs, executors,
administrators and the Employer, its
successors, or assigns, are parties, whether
in its entirety or except as modified as to
duration, territory, accounts, employees, or
otherwise, then that part shall be deemed
deleted or amended, as the case may be, from
the Agreement in order to render the
EMPLOYMENT AGREEMENT -8-
<PAGE> 12
remainder of Paragraph 6 both valid and
enforceable. Any such deletion or amendment
shall apply only where the court rendering
the same has jurisdiction.
(4) SURVIVAL. Notwithstanding any provision in
this Agreement to the contrary, the
representations of Employee contained in
Paragraph 6A and the rights of the Employer
hereunder relating to such representations
shall not terminate upon the termination of
this Agreement but shall continue to remain
in full force and effect for a period of
thirty-six (36) months after the termination
of Employee's employment with the Employer,
irrespective of the time, manner or cause of
his termination.
(5) NOTICE REQUIRED. Employee expressly agrees
to notify any prospective employer or
affiliate in a Competing Business of the
Covenants, and authorizes Employer to make
contact with, and discuss the nature and
obligations of these Covenants with, any
person or affiliate reasonably believed by
Employer to be engaged or about to be engaged
in an act that would constitute a violation
of the Covenants. Employee hereby waives and
releases Employer from, any claims whatsoever
arising in connection with Employer's contact
or discussions with such person or affiliate.
7. TERM. Subject to the provisions for termination as provided
elsewhere herein the term of Employee's employment under this Agreement shall
commence on December 1, 1996, and terminate on December 31, 2006.
8. TERMINATION. Notwithstanding anything herein contained to the
contrary (including Paragraph 7 hereof), this Agreement shall terminate upon
the first to occur of any of the following events:
A. DEATH. Upon the death of Employee.
B. DISABILITY. Upon the final and binding determination
of disability of Employee, whether by mutual agreement or in accordance with
the procedures set forth in this Subparagraph 8B. For purposes of this
Agreement, Employee shall be subject to a "disability" when he is unable to
continue substantially all of his normal duties of employment by reason of a
physical or mental impairment. In determining whether Employee is subject to a
disability, Employer's determination shall be based upon the opinion of any
licensed physician of the appropriate recognized field of medicine or
psychiatric practice who has examined Employee and who agrees and opines that
the Employee is disabled; provided, however, if Employee disagrees with such
determination, then Employee and Employer shall agree upon an independent
qualified physician to review the case and make a final determination of
disability. If the parties cannot agree upon an independent physician to make
such determination, then each party shall appoint
EMPLOYMENT AGREEMENT -9-
<PAGE> 13
a physician and those two physicians shall select a third physician who shall
then make a final and binding determination with respect to Employee's
disability.
C. MUTUAL CONSENT. By mutual written consent of the
parties.
D. BY EMPLOYEE. By Employee by giving 30 days' written
notice of termination to Employer.
E. FOR "GOOD CAUSE". By Employer upon written notice
for "good cause," which shall mean for purposes of this Agreement, Employee's
(i) conviction of a felony or any other criminal act which the Board considers
materially damaging to the reputation of the Employer, (ii) conviction of
fraud, (iii) conviction of dishonesty, self- dealing, or embezzlement, (iv)
willful and intentional violation of Employer's published policies, (v) gross
or intentional neglect of duty, or (vi) failure or unwillingness to perform
substantially and faithfully Employee's duties hereunder (other than a failure
due to Employee's disability); provided, however, in the event "good cause"
relates to items (iv) through (vi) above, then Employer shall notify Employee
of such cause, and, if such violation can be cured, Employee shall have 30 days
from receipt of notice to cure such violation.
F. DECEMBER 31, 2006.
The effective date of termination under the foregoing provisions shall be as
follows:
(1) PARAGRAPH 8A, the date of death.
(2) PARAGRAPH 8B, the date of written notice from
the Employer to Employee of his "disability"
termination.
(3) PARAGRAPH 8C, the date determined under the
written mutual consent of the parties.
(4) PARAGRAPH 8D, the termination date as
provided in Employee's written notice;
provided that the Employer may accelerate the
termination so that it occurs at any time
during the 30-day notice period, while
continuing Employee's Base Salary for the
remainder of the 30-day notice period.
(5) PARAGRAPH 8E, the termination shall be
immediate upon the delivery by Employer of
written notice or the end of the cure period
if cure is possible but is not effected.
(6) PARAGRAPH 8F, December 31, 2006.
EMPLOYMENT AGREEMENT -10-
<PAGE> 14
Notwithstanding the foregoing, Employer may terminate Employee's use of
Employer's offices, equipment and supplies at any time after notice of
termination of employment is given by Employer or Employee.
9. PAYMENTS UPON TERMINATION; SEVERANCE.
A. DEATH. In the event termination of employment is the
result of death under Paragraph 8A above, Employee shall be paid his Base
Salary through the end of the month in which death occurred; Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the month in which death occurs in accordance with the provisions of
Paragraph 5B(3); and the right of Employee's representative to exercise stock
options, if any, will be determined in accordance with the terms of the Stock
Option Plan.
B. DISABILITY. In the event of termination of
employment for disability under Paragraph 8B above, Employee shall be paid his
Base Salary through the date of termination of employment; Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the month in which the termination of employment occurs in accordance
with the provisions of Paragraph 5B(3); and the right of Employee or Employee's
representative to exercise stock options, if any, will be determined in
accordance with the terms of the Stock Option Plan.
C. MUTUAL CONSENT. If termination of employment is by
mutual consent under Paragraph 8C above, the parties shall agree to the
payments to be made, if any, to Employee upon such termination.
D. BY EMPLOYEE. In the event of termination of
employment by Employee under Paragraph 8D, Employee shall be paid his Base
Salary through the date of termination of employment. Employee's Annual
Performance Bonus will be determined through the last day of the month
preceding the date of termination of his employment in accordance with the
provisions of Paragraph 5B(3). Employee's right to exercise stock options, if
any, will be determined in accordance with the terms of the Stock Option Plan.
E. FOR GOOD CAUSE. In the event of a termination of
employment for good cause under Paragraph 8E, Employee will be entitled to
receive his Base Salary through the date of termination of employment.
Employee will not be entitled to receive any Annual Performance Bonus or to
exercise any unexercised stock options under the Stock Option Plan.
F. EXPIRATION OF AGREEMENT. In the event of termination
of employment in connection with the termination of the Agreement under
Paragraph 8F, Employee shall be paid his Base Salary and Annual Performance
Bonus through December 31, 2006, and will be entitled to exercise stock
options, if any, under the terms of the Stock Option Plan.
EMPLOYMENT AGREEMENT -11-
<PAGE> 15
G. ADDITIONAL BENEFITS. In the event Employer
terminates Employee's employment prior to the date set forth in Paragraph 8F,
other than for good cause under Paragraph 8E, Employee will be entitled to
receive, in addition to other amounts, if any, payable to Employee under this
Agreement, a severance benefit in an amount equal to three times his Base
Salary and Annual Performance Bonus paid by Employer during the twelve month
period immediately preceding his termination of employment, reduced by the Base
Salary and Annual Performance Bonus payments, if any, payable to Employee under
other provisions of this Agreement or a result of Employee's termination of
employment.
H. CHANGE IN CONTROL.
(1) Notwithstanding anything else stated in this
Paragraph 9, if (A) a Change in Control, as
defined in subparagraph H(2), occurs during
the term of this Agreement, and (B) if on or
at any time during the two-year period
immediately following a Change in Control,
the Employee's employment with the Employer
is terminated, either:
(i) by the Company for any reason other
than the occurrence of one of the
events set forth in Subparagraphs
8A, 8B, 8C, 8E or 8F; or
(ii) by the Employee as the result of and
on or before the expiration of 60
days following: (a) a significant
reduction by the Employer of
Employee's job responsibilities with
the Employer, or (b) a reduction by
the Employer of Employee's Base
Salary as in effect immediately
prior to the Change in Control, or
(c) because of a move of Employee's
job location by more than 25 miles;
then the Employer shall pay to the Employee, within 30 days after the effective
date of Employee's termination of employment, an amount equal to three times
Employee's Base Salary and three times a pro rata portion of Employee's Annual
Performance Bonus determined through the date of termination of employment, and
the Employer shall take such actions as are lawfully permitted to have all
options to purchase shares under the Stock Option Plan that are not then
exercisable, become immediately exercisable. The Employer may withhold from
such payment any federal, state, city, county or other taxes. If amounts paid
pursuant to this paragraph 9H become subject to the excise tax (the "Excise
Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended, the Employer shall pay to Employee an additional amount such that the
net amount retained by Employee, after deduction of any Excise Tax on the
amounts payable under this Paragraph 9H, shall be equal to the full amount
payable under this Paragraph 9H with regard to the Excise Tax.
(2) "Change in Control" for purposes of this
Paragraph means the first to occur of any of
the following events:
EMPLOYMENT AGREEMENT -12-
<PAGE> 16
(A) the effective date of any
transaction or series of
transactions (other than a
transaction to which only the
Employer and one or more of its
subsidiaries are parties) pursuant
to which (i) the Employer becomes a
subsidiary of another corporation,
or (ii) Employer is merged or
consolidated with, or assets or more
than 51% of the outstanding voting
securities of the Employer are sold
to or acquired by, another person,
another corporation or another group
of associated persons acting in
concert; provided, however, that for
purposes of this subparagraph
H(2)(A), in the case of a "series of
transactions" as described herein,
the effective date of the final
transaction shall be deemed to be
the date of the final transaction
upon which one of the results set
forth above occurs; or
(B) the date upon which any person,
corporation or group of associated
persons acting in concert, excluding
any persons or groups who have then
been directors, officers or holders
of greater than five percent of the
outstanding voting securities of the
Employer for a continuous period of
at least five years, become a direct
or indirect beneficial owner of
voting securities of the Employer
representing an aggregate of more
than 20% of the votes then entitled
to be cast at an election of the
Employer's Board of Directors; or
(C) the date upon which the persons who
were members of the Employer's Board
of Directors, as of the effective
date of this Agreement (the
"Original Directors"), cease to
constitute a majority of the Board
of Directors; provided, however,
that any new director whose
nomination or selection has been
approved by the affirmative vote of
at least a majority of the Original
Directors then in office shall also
be deemed an Original Director.
Except for the foregoing payments, Employee shall not be entitled to receive
any other benefits except as may be required by law.
10. REFERENCES AND GENDER. All references to "paragraphs" or
"subparagraphs" contained herein are, unless specifically indicated otherwise,
references to paragraphs or subparagraphs of this Agreement. Whenever herein
the singular number is used, the same shall include the plural where
appropriate, and words of any gender shall include each other gender where
appropriate. The terms "herein" and "hereof" as used in this Agreement are
references to this Agreement, unless the context indicates otherwise.
EMPLOYMENT AGREEMENT -13-
<PAGE> 17
11. CAPTIONS. The captions, headings, and arrangements used in
this Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
12. NOTICES. Whenever this Agreement requires or permits any
consent, approval, notice, request, or demand from one party to another, the
consent, approval, notice, request, or demand must be in writing to be
effective, including, without limitation, telex, or telegraphic communications,
and shall be deemed to have been given on the earlier of receipt or the third
day after it is enclosed in an envelope, addressed to the Employee at the
address set forth for the Employee on the payroll records of the Employer and
to the Employer at the address stated below or at such other address as the
Employer may designate for all purposes as its corporate headquarters, properly
stamped, sealed, and deposited in the United States mail. The address of
Employer as of the effective date of this Agreement is as set forth on the
signature page hereof.
13. INSURANCE; MEDICAL EXAM. Employee agrees to take a physical
examination to be performed by a medical doctor selected by the Employer. The
cost of such exam will be borne by the Employer. During the term of this
Agreement, Employee shall be required as a condition of employment to take an
annual physical exam at the expense of the Employer. In addition, Employee
agrees to take such physical examinations as may be required by the Employer in
order for the Employer to purchase insurance on Employee's life in such amount
or amounts as the Employer deems appropriate.
14. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term, including renewals, of this Agreement, such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
15. NONASSIGNABILITY. Neither this Agreement, nor any rights or
obligations of either party hereunder may be transferred or assigned except
that the Employer may assign this entire Agreement to any successor to all or
substantially all of the Employer's business and assets.
16. ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties hereto. No modification or amendment of any of the
terms, conditions, or provisions herein may be made otherwise than by written
agreement signed by the parties hereto, or in any event by the parties sought
to be bound hereby.
17. LAWS GOVERNING. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
EMPLOYMENT AGREEMENT -14-
<PAGE> 18
18. SUCCESSION. This Agreement shall inure to the benefit of and
be binding upon the parties hereto, and upon their successors in interest of
any kind whatsoever.
19. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, including but not limited to claims based on or
arising from an alleged tort, shall at the request of any party be determined
by arbitration, under the auspices and rules of the American Arbitration
Association, in accordance with the Texas General Arbitration Act if
applicable, otherwise in accordance with the United States Arbitration Act.
Judgment upon the award rendered by the arbitrator shall be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration. Nothing contained in this paragraph is intended to
prevent a party from bringing an action in State or Federal court in Dallas
County, Texas, or such other county and state in which Employer then has its
principal place of business, to (i) enforce that party's right to arbitrate
under this Agreement or (ii) to obtain relief by way of Specific Performance to
enforce the Covenants contained in Paragraph 6 hereof. The arbitration shall
be commenced by filing a demand for arbitration upon the other party or parties
and the American Arbitration Association. The arbitrator shall be a person who
is qualified to make decisions in legal matters. The arbitration proceeding
shall be held in Dallas County, Texas. The arbitrator shall maintain the
privacy of the hearings, and shall have the power to exclude witnesses, other
than a party, during the testimony of any other witness. The prevailing party
in the arbitration proceeding shall be entitled to reasonable attorney's fees,
costs, and necessary expenses incurred in connection with such proceeding, as
determined by the arbitrator.
20. WAIVERS AND CONSENTS. One or more waivers of any covenant,
term, or provision of this Agreement by any party shall not be construed as a
waiver of a subsequent breach of the same covenant, term, or provision, nor
shall it be considered a waiver of any other then existing or subsequent breach
of a different covenant, term, or provision. The consent or approval by either
party to or of any act by the other party requiring such consent or approval
shall not be deemed to waive or render unnecessary consent to or approval of
any subsequent similar act. No custom or practice of either party shall
constitute a waiver of either party's rights to insist upon strict compliance
with the terms hereof.
21. MULTIPLE COUNTERPARTS. This Agreement has been executed in a
number of identical counterparts, each of which, for all purposes, is to be
deemed an original, and all of which constitute, collectively, an agreement;
but in making proof of this Agreement, it shall not be necessary to produce or
account for more than one such counterpart.
(The signature page is the next following page)
EMPLOYMENT AGREEMENT -15-
<PAGE> 19
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
EMPLOYEE: EMPLOYER:
SNELLING AND SNELLING, INC.
/s/ ROBERT O. SNELLING, JR. By: /s/ ROBERT O. SNELLING, SR.
- ----------------------------- ---------------------------------
Robert O. Snelling, Jr. Robert O. Snelling, Sr.
Chairman of the Board
ADDRESS: ADDRESS:
1305 Savannah Drive 12801 N. Central Expressway
Plano, TX 75093 Suite 700
Dallas, Texas 75243
EMPLOYMENT AGREEMENT -16-
<PAGE> 1
EXHIBIT 10.10
SNELLING AND SNELLING, INC.
1997 STOCK OPTION PLAN
INTRODUCTION
On October 10, 1997, the Board of Directors of the Company adopted the
Snelling and Snelling, Inc. 1997 Stock Option Plan as set forth herein:
1. PURPOSE. The purpose of the Plan is to provide key employees
with a proprietary interest in the Company through the granting of options
which will:
(a) create stockholder value by providing incentives to selected
key employees who contribute, and are expected to contribute,
materially to the success of the Company;
(b) provide a means of rewarding outstanding performance by such
key employees;
(c) enhance the interests of such key employees in the Company's
continued success and progress; and
(d) enhance the Company's ability to maintain a competitive
position in attracting and retaining qualified key personnel
necessary for the continued success and progress of the
Company.
2. ADMINISTRATION. The Plan shall be administered by the
Committee.
3. PARTICIPANTS. The Committee shall, from time to time, select
the particular key employees of the Company and its Subsidiaries (as defined
herein) to whom options are to be granted, and who will, upon such grant,
become participants in the Plan. For purposes of the Plan, "key employees" are
those officers and employees (including officers and key employees who are
members of the Board) whose performance and responsibilities are determined by
the Committee to be influential to the success of the Company.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted
to an employee who owns more than 10% of the voting power of all classes of
stock of the Company or its Subsidiaries. This limitation will not apply if the
option price is at least 110% of the fair market value of the stock at the time
<PAGE> 2
the Incentive Option is granted and the Incentive Option is not exercisable
more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Committee may not grant options
under the Plan for more than 1,500,000 shares of Class A Common Stock, $0.01
par value, or grant options under the Plan to any single key employee in excess
of such number of shares; provided, however, that this number may be adjusted
to reflect, if deemed appropriate by the Committee, any stock dividend, stock
split, share combination, recapitalization or the like, of or by the Company.
Shares to be optioned and sold may be made available from either authorized but
unissued Class A Common Stock or Class A Common Stock held by the Company in
its treasury. Shares that by reason of the expiration of an option or otherwise
are no longer subject to purchase pursuant to an option granted under the Plan
may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Class A Common Stock that
any employee is first eligible to purchase in any calendar year by exercise of
Incentive Options granted under this Plan and all incentive stock option plans
of the Company or its Subsidiaries shall not exceed $100,000. For this purpose,
the fair market value (determined at the respective date of grant of each
option) of the stock purchasable by exercise of an Incentive Option (or an
installment thereof) shall be counted against the $100,000 annual limitation
for an employee only for the calendar year such stock is first purchasable
under the terms of the option.
7. ALLOTMENT OF SHARES. The Committee shall determine the number
of shares of Class A Common Stock to be offered from time to time by grant of
options to employees of the Company or its Subsidiaries. The grant of an option
to an employee shall not be deemed either to entitle the employee to, or to
disqualify the employee from, participation in any other grant of options under
the Plan.
8. GRANT OF OPTIONS. All options granted under the Plan shall be
granted by the Committee, which is authorized to grant Incentive Options,
Nonqualified Options, or a combination of both, under the Plan. The grant of
options shall be evidenced by stock option agreements containing such terms
-2-
<PAGE> 3
and provisions as are approved by the Committee, but not inconsistent with the
Plan, including provisions that may be necessary to assure that any option that
is intended to be an Incentive Option will comply with Section 422 of the Code.
The Company shall execute stock option agreements upon instructions from the
Committee. The terms of any stock option agreement executed by the Company
shall not be amended, modified, or changed without the written consent of both
the Company and the employee. The Plan shall be submitted to the Company's
shareholders for approval. The Committee may grant options under the Plan prior
to the time of shareholder approval, which options will be effective when
granted, but if for any reason the shareholders of the Company do not approve
the Plan prior to one year from the date of adoption of the Plan by the Board,
all options granted under the Plan will be terminated and of no effect, and no
option may be exercised in whole or in part prior to such shareholder approval.
9. OPTION PRICE. The option price for an option granted pursuant
to the Plan shall not be less than 100% of the fair market value per share of
the Class A Common Stock on the date the option is granted. The Committee shall
determine the fair market value of the Class A Common Stock on the date of
grant and shall set forth the determination in its minutes, using any
reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Committee authorizes the option
unless the Committee specifies a later date. Subject to the provisions of
Section 4, no option may terminate later than ten years from the date the
option is granted. Subject to the provisions hereof, specifically including,
but not limited to, the provisions of Sections 4, 5, 6 and 9, the Committee may
provide for the exercise of options in installments and upon such terms,
conditions and restrictions as it may determine. The Committee may provide for
termination of the option in the case of termination of employment or any other
reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies
or becomes disabled [within the meaning of Section 22(e)(3) of the Code] prior
to termination of his right to exercise an option in accordance with the
provisions of his stock option agreement without having totally exercised the
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<PAGE> 4
option, the option agreement may provide that it may be exercised, to the
extent of the shares with respect to which the option could have been exercised
by the participant on the date of the participant's death or disability, (i) in
the case of death, by the participant's estate or by the person who acquired
the right to exercise the option by bequest or inheritance or by reason of the
death of the participant, or (ii) in the case of disability, by the participant
or his personal representative, provided the option is exercised prior to the
date of its expiration or 365 days from the date of the participant's death or
disability, whichever first occurs. The date of disability of a participant
shall be determined by the Committee.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or by tendering shares of either Class
A Common Stock or Class B Common Stock, par value $0.01 per share, of the
Company at the fair market value per share at the time of exercise, or on such
other terms as are set forth in the applicable option agreement. No shares may
be issued until full payment of the purchase price therefor has been made, and
a participant will have none of the rights of a shareholder until shares are
issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth in
the applicable stock option agreements, including, if deemed appropriate by the
Committee, the execution of an employee- shareholder agreement setting forth
restrictions on transfer and other restrictions and limitations relating to the
Class A Common Stock and the Company's repurchase rights. In no event may an
option be exercised or shares be issued pursuant to an option if any requisite
action, approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options shall not have been taken or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares
of Class A Common Stock covered by each outstanding option granted under the
Plan and the option price may be adjusted to reflect, as deemed appropriate by
the Committee, any stock dividend, stock split, share
-4-
<PAGE> 5
combination, exchange of shares, recapitalization, merger, consolidation,
separation, reorganization, liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than
by will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Committee shall interpret the Plan and
shall prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the Plan.
The Committee may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the shareholders of the
Company, except that any amendment that would (a) materially increase the
number of securities that may be issued under the Plan, or (b) materially
modify the requirements of eligibility for participation in the Plan must be
approved by the shareholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any
action of the Board or the Committee shall be deemed to give any officer or
employee any right to be granted an option to purchase Class A Common Stock or
any other rights except as may be evidenced by the stock option agreement, or
any amendment thereto, duly authorized by the Committee and executed on behalf
of the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, this
Plan will terminate on June 30, 2007. The Board may not grant options under the
Plan after that date, but options granted before that date will continue to be
effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
-5-
<PAGE> 6
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the committee of two or more members of the
Board appointed by the Board to administer the Plan, or in the
absence of such a committee, shall mean the entire Board.
(d) "Class A Common Stock" means the Class A Common Stock, par
value $0.01 per share, which as of the date hereof the Board
of Directors of the Company has authorized and approved and
which, subject to the filing of the Company's Articles of
Amendment with the Department of State of the Commonwealth of
Pennsylvania to amend and restate its Articles of
Incorporation, and upon the effectiveness of the Company's
initial public offering, the Company will be authorized to
issue, or such other common stock as may in the future be
authorized to be issued (as long as the common stock varies
from the Class A Common Stock, if at all, only in amount of
par value).
(e) "Company" means Snelling and Snelling, Inc., a Pennsylvania
corporation.
(f) "Incentive Option" means an option granted under the Plan
which meets the requirements of Section 422 of the Code.
(h) "Nonqualified Option" means an option granted under the Plan
which is not intended to be an Incentive Option.
(h) "Option Period" means the period during which an option may be
exercised.
(i) "Plan" means this 1997 Stock Option Plan, as amended from time
to time.
(j) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the
granting of the option, each of the corporations other than
the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the
chain, and "Subsidiaries" means more than one of any such
corporations.
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<PAGE> 7
SNELLING AND SNELLING, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Snelling and Snelling, Inc.
1997 Stock Option Plan (the "Plan") for key employees of Snelling and Snelling,
Inc. (the "Company") and its subsidiaries, the Company grants to
-------------------------
(the "Option Holder")
an incentive option to purchase from the Company a total of __________ shares
of Class A Common Stock, $0.01 par value, of the Company (the "Common Stock")
at $_______ per share (being at least the fair market value per share of the
Common Stock on the date of this grant), in the amounts, during the periods and
upon the terms and conditions set forth in this Agreement. This option is
intended to constitute an incentive option within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except only as specifically provided
elsewhere in this Agreement, this option is exercisable in the following
cumulative installments:
First installment. Up to 20% of the total number of optioned shares at
any time on or after a date that is 365 days from the grant date set
forth in Section 14 hereof.
Second installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is two years from
the grant date set forth in Section 14 hereof.
Third installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is three years from
the grant date set forth in Section 14 hereof.
Fourth installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is four years from
the grant date set forth in Section 14 hereof.
<PAGE> 8
Fifth installment. Up to an additional 20% of the total number of optioned
shares at any time on or after a date that is five years from the grant date set
forth in Section 14 hereof.
If an installment covers a fractional share, such installment will be rounded
off to the next highest share, except the final installment, which will be for
the balance of the total optioned shares. Upon the termination of the Option
Holder's employment for any reason, with or without good cause, this option
will be exercisable only to the extent and for the number of shares for which
the Option Holder could have exercised it on the date of his termination of
employment.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Common Stock of the Company. If
requested by the Option Holder and approved by the committee (the "Committee")
appointed pursuant to the terms of the Plan by the Board of Directors of the
Company (the "Board) to administer the Plan, the Option Holder may exercise
this option or any portion hereof by tendering shares of Common Stock, in lieu
of cash payment for the option shares being purchased, with the number of
shares tendered to be determined based on the closing price per share of the
Common Stock on the date of exercise, as quoted on the Nasdaq National Market
or successor stock exchange thereto, or if not so quoted, as determined by the
Committee.
4. Subject to Plan. This option and the grant and exercise thereof
are subject to the terms and conditions of the Plan, which are incorporated
herein by reference and made a part hereof, but the terms of the Plan shall not
be considered an enlargement of any benefits under this Agreement. In
addition, this option is subject to any rules and regulations promulgated
pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the following:
(a) 5 p.m. on ______________, 20__.
(b) 5 p.m. on the date 365 days following the date of the Option
Holder's death or disability (as described in Section 6).
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<PAGE> 9
(c) 5 p.m. on the date three months following the date the Option
Holder's employment with the Company terminates for reasons
other than "good cause" (as hereinafter defined) or for a reason
described in Section 5(b) above.
(d) Upon the termination of the Option Holder's employment with the
Company for "good cause", this option will terminate immediately
and the Option Holder will forfeit any right to exercise any
portion of this option. As used in this Agreement, "good cause"
shall mean Option Holder's (i) commission of a felony or any
other criminal act which the Board considers materially damaging
to the reputation of the Company, (ii) fraud, (iii) dishonesty,
self-dealing, or embezzlement, (iv) violation of the Company's
published policies, (v) gross or intentional neglect of duty,
(vi) failure or unwillingness to perform substantially and
faithfully Option Holder's duties hereunder (other than a
failure due to Option Holder's disability, as described in
Section 6); provided, however, in the event "good cause" relates
to items (iv) through (vi) above, then the Company shall notify
Option Holder of such cause, and if such violation can be cured,
Option Holder shall have 30 days from receipt of notice to cure
such violations.
6. Who May Exercise. During the lifetime of the Option Holder,
this option may be exercised only by the Option Holder. If the Option Holder
dies or becomes disabled [within the meaning of Section 22(e)(3) of the Code]
prior to the termination date specified in Section 5 hereof without having
exercised the option as to all of the shares covered hereby, the option may be
exercised on the date of his death or disability at any time prior to the
earlier of the dates specified in Sections 5(a) and (b) hereof by (i) the
Option Holder's estate or a person who acquired the right to exercise the
option by bequest or inheritance or by reason of the death of the Option Holder
in the event of the Option Holder's death, or (ii) the Option Holder or his
personal representative in the event of the Option Holder's disability, subject
to the other terms of this Agreement, the Plan and applicable laws, rules and
regulations. For purposes of this Agreement, the Committee shall determine the
date of disability of the Option Holder.
7. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall be
delivered, if any requisite approval or consent of any
government authority of any kind having jurisdiction over the
exercise of options shall not have been secured; and
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<PAGE> 10
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and ending
on the date three months prior to the date of exercise the
Option Holder was an employee of either the Company or a
subsidiary of the Company; provided, however, if the Option
Holder's continuous employment is terminated by disability or
death, or if the Option Holder dies within said three-month
period, the option may be exercised in accordance with Section
5(b), or if the Option Holder's continuous employment is
terminated for good cause, the option will terminate as provided
in Section 5(d).
8. Manner of Exercise. Subject to such administrative regulations
as the Committee may from time to time adopt, the Option Holder or, if
applicable, Option Holder's beneficiary shall, in order to exercise this
option:
(a) give written notice to the Committee of the exercise price and
the number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Committee of the exercise price and
the number of shares for which he is requesting approval from
the Committee to tender other shares of Common Stock in exchange
for option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Committee in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in part, of the option evidenced by this
Agreement, (ii) to determine whether registration is then required under the
Securities Act of 1933, or any other law, as then in effect, and (iii) to
comply with or satisfy the requirements of the Securities Act of 1933, or any
other law, as then in effect.
In addition, if an exercise under paragraph (b) above is requested, the
notice shall include an undertaking to tender to the Company (i) promptly after
receipt of denial by the Committee of the paragraph (b) request, full payment
in United States dollars of the option exercise price for the shares being
purchased hereunder or (ii) promptly after receipt of approval by the Committee
of exercise of this option or portion thereof by payment of Common Stock, full
payment in Common Stock in exchange for the shares being purchased hereunder.
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<PAGE> 11
The Committee shall advise the Option Holder or beneficiary in writing,
within ten business days after the first meeting of the Committee following the
date of exercise, whether the Committee approves the exchange of Common Stock
for option stock being purchased. The Company must receive full payment in
United States dollars or the appropriate number of shares of Common Stock,
whichever applies, of the option exercise price within five business days after
the date of the Committee's notice, unless the Committee extends the time of
payment.
9. Non-Assignability. This option is not assignable or
transferable by the Option Holder except by will or by the laws of descent and
distribution.
10. Rights of Shareholder. The Option Holder will have no rights as
a shareholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
11. Capital Adjustments; Antidilution. The number of shares of
Common Stock covered by this option, and the option price thereof, shall be
subject to such adjustment as the Board deems appropriate to reflect any stock
dividend, stock split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganization, liquidation or the like, of
or by the Company.
12. Change in Control of the Company. In the event (i) the Company
sells more than 51% of its assets, (ii) becomes a party to any merger,
consolidation or corporate reorganization, and as the result of which the
Company shall not be the surviving corporation, or (iii) any other person or
entity makes a tender or exchange offer for Common Stock of the Company whereby
such other person or entity would own more than 51% of the outstanding Common
Stock of the Company (the surviving corporation, purchaser, or tendering person
being collectively referred to as the "purchaser", and the applicable action
being referred to as the "transaction"), then the Board may, at its election,
(a) reach an agreement with the purchaser that
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<PAGE> 12
the purchaser will assume the obligation of the Company under the option; (b)
reach an agreement with the purchaser that the purchaser will convert the
option into an option of at least equal value, determined as of the date of the
transaction, as to stock of the purchaser; or (c) not later than twenty days
prior to the effective date of such transaction, notify the Option Holder and
afford to the Option Holder a right for ten days after the date of such notice
to exercise all or any portion of the shares of Common Stock covered by this
option that have not been exercised and that the time for exercising such
shares of Common Stock has not expired pursuant to this Agreement. Within the
ten-day period described in clause (c) above, the Option Holder may exercise
any portion of the shares described in the preceding sentence as he may desire
and deposit with the Company the requisite cash to purchase in full the Common
Stock thereby exercised, in which case the Company shall, prior to the
effective date of the transaction, transfer to the Option Holder all shares of
Common Stock thus exercised, which shall be treated as owned by the Option
Holder for purposes of the transaction.
13. Law Governing. This Agreement is intended to be performed in
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
14. Date of Grant. The date of grant of this option is ___________,
_________.
15. Shareholder Approval. This option is subject to the approval of
the Plan, prior to ______________, 1998, by the shareholders of the Company.
Subject to such approval, this option is effective on the date of grant
specified in Section 14. If the Plan is not so approved, this option will be
of no effect. No portion of this option may be exercised prior to such
approval.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Option Holder, to evidence his consent
and approval of all the terms hereof, has duly executed this Agreement, as of
the date specified in Section 14 hereof.
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<PAGE> 13
SNELLING AND SNELLING, INC.
By
-------------------------------
---------------------------------
Option Holder
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<PAGE> 14
SNELLING AND SNELLING, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Snelling and Snelling, Inc. 1997
Stock Option Plan (the "Plan") for key employees of Snelling and Snelling, Inc.
(the "Company") and its subsidiaries, the Company grants to
-----------------------
(the "Option Holder")
a nonqualified option to purchase from the Company a total of ____________
shares of Class A Common Stock, $0.01 par value, of the Company (the "Common
Stock") at $______ per share (representing at least the fair market value of
the Common Stock on the date of this grant), in the amounts, during the periods
and upon the terms and conditions set forth in this Agreement. This option is
not intended to constitute an incentive option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except only as specifically provided elsewhere
in this Agreement, this option is exercisable in the following cumulative
installments:
First installment. Up to 20% of the total number of optioned shares at
any time on or after a date that is 365 days from the grant date set
forth in Section 14 hereof.
Second installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is two years from
the grant date set forth in Section 14 hereof.
Third installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is three years
from the grant date set forth in Section 14 hereof.
Fourth installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is four years from
the grant date set forth in Section 14 hereof.
Fifth installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is five years from
the grant date set forth in Section 14 hereof.
<PAGE> 15
If an installment covers a fractional share, such installment will be rounded
off to the next highest share, except the final installment, which will be for
the balance of the total optioned shares. Upon the termination of the Option
Holder's employment for any reason, with or without good cause, this option
will be exercisable only to the extent and for the number of shares for which
the Option Holder could have exercised it on the date of his termination of
employment.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Common Stock of the Company. If
requested by the Option Holder and approved by the committee (the "Committee")
appointed pursuant to the terms of the Plan by the Board of Directors of the
Company (the "Board") to administer the Plan, the Option Holder may exercise
this option or any portion hereof by tendering shares of Common Stock, in lieu
of cash payment for the option shares being purchased, with the number of
shares tendered to be determined based on the closing price per share of the
Common Stock on the date of exercise, as quoted on the Nasdaq National Market
or successor stock exchange thereto, or if not so quoted, as determined by the
Committee.
4. Subject to Plan. This option and the grant and exercise thereof
are subject to the terms and conditions of the Plan, which are incorporated
herein by reference and made a part hereof, but the terms of the Plan shall not
be considered an enlargement of any benefits under this Agreement. In
addition, this option is subject to any rules and regulations promulgated
pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the following:
(a) 5 p.m. on ____________, 20___.
(b) 5 p.m. on the date 365 days following the date of the Option
Holder's death or disability (as described in Section 6).
(c) 5 p.m. on the date three months following the date the Option
Holder's employment with the Company terminates for reasons
other than "good cause" (as hereinafter defined) or for a
reason described in Section 5(b) above.
(d) Upon the termination of the Option Holder's employment with
the Company for "good cause", this option will terminate
immediately and the Option Holder will forfeit any right
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<PAGE> 16
to exercise any portion of this option. As used in this
Agreement, "good cause" shall mean Option Holder's (i)
commission of a felony or any other criminal act which the
Board considers materially damaging to the reputation of the
Company, (ii) fraud, (iii) dishonesty, self-dealing, or
embezzlement, (iv) violation of the Company's published
policies, (v) gross or intentional neglect of duty, (vi)
failure or unwillingness to perform substantially and
faithfully Option Holder's duties hereunder (other than a
failure due to Option Holder's disability, as described in
Section 6); provided, however, in the event "good cause"
relates to items (iv) through (vi) above, then the Company
shall notify Option Holder of such cause, and, if such
violation can be cured, Option Holder shall have 30 days from
receipt of notice to cure such violation.
6. Who May Exercise. During the lifetime of the Option Holder, this
option may be exercised only by the Option Holder. If the Option Holder dies
or becomes disabled [within the meaning of Section 22(e)(3) of the Code] prior
to the termination date specified in Section 5 hereof without having exercised
the option as to all of the shares covered hereby, the option may be exercised
to the extent the Option Holder could have exercised the option on or after the
date of his death or disability at any time prior to the earlier of the dates
specified in Sections 5(a) and (b) hereof by (i) the Option Holder's estate or
a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the Option Holder in the event of the
Option Holder's death, or (ii) the Option Holder or his personal representative
in the event of the Option Holder's disability, subject to the other terms of
this Agreement, the Plan and applicable laws, rules and regulations. For
purposes of this Agreement, the Committee shall determine the date of
disability of the Option Holder.
7. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no certificates
representing shares subject to such option shall be delivered,
if any requisite approval or consent of any government
authority of any kind having jurisdiction over the exercise of
options shall not have been secured; and
(c) must be exercised prior to the date specified in Section 5(a)
and may be exercised only if at all times during the period
beginning with the date of the granting of the option and
ending on the date that is 365 days prior to the date of
exercise the Option Holder was an employee of either the
Company or a subsidiary of the Company; provided, however, if
the
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<PAGE> 17
Option Holder's continuous employment is terminated for good
cause, the option will terminate as provided in Section 5(c).
8. Manner of Exercise. Subject to such administrative regulations as
the Committee may from time to time adopt, the Option Holder or, if applicable,
Option Holder's beneficiary shall, in order to exercise this option:
(a) give written notice to the Committee of the exercise price and
the number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Committee of the exercise price and
the number of shares for which he is requesting approval from
the Committee to tender other shares of Common Stock in
exchange for option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Committee in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in part, of the option evidenced by this
Agreement, (ii) to determine whether registration is then required under the
Securities Act of 1933, or any other law, as then in effect, and (iii) to
comply with or satisfy the requirements of the Securities Act of 1933, or any
other law, as then in effect.
In addition, if an exercise under paragraph (b) above is requested,
the notice shall include an undertaking to tender to the Company (i) promptly
after receipt of denial by the Committee of the paragraph (b) request, full
payment in United States dollars of the option exercise price for the shares
being purchased hereunder or (ii) promptly after receipt of approval by the
Committee of exercise of this option or portion thereof by payment of Common
Stock, full payment in Common Stock in exchange for the shares being purchased
hereunder. In addition, the Option Holder shall tender payment of the amount
that may be requested pursuant to Section 15 by the Company for the purpose of
satisfying its liability to withhold federal, state or local income or other
taxes incurred by reason of the exercise of this option.
The Committee shall advise the Option Holder or beneficiary in
writing, within ten business days after the first meeting of the Committee
following the date of exercise, whether the Committee approves the
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<PAGE> 18
exchange of Common Stock for option stock being purchased. The Company must
receive full payment in United States dollars or the appropriate number of
shares of Common Stock, whichever applies, of the option exercise price within
five business days after the date of the Committee's notice, unless the
Committee extends the time of payment.
9. Non-Assignability. This option is not assignable or transferable
by the Option Holder except by will or by the laws of descent and distribution.
10. Rights of Shareholder. The Option Holder will have no rights as
a shareholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
11. Capital Adjustments; Antidilution. The number of shares of
Common Stock covered by this option, and the option price thereof, shall be
subject to such adjustment as the Board deems appropriate to reflect any stock
dividend, stock split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganization, liquidation or the like, of
or by the Company.
12. Change in Control of the Company. In the event (i) the
Company sells more than 51% of its assets, (ii) becomes a party to any merger,
consolidation or corporate reorganization, and as the result of which the
Company shall not be the surviving corporation, or (iii) any other person or
entity makes a tender or exchange offer for Common Stock of the Company whereby
such other person or entity would own more than 51% of the outstanding Common
Stock of the Company (the surviving corporation, purchaser, or tendering person
being collectively referred to as the "purchaser", and the applicable action
being referred to as the "transaction"), then the Board may, at its election,
(a) reach an agreement with the purchaser that the purchaser will assume the
obligation of the Company under the option; (b) reach an agreement with the
purchaser that the purchaser will convert the option into an option of at least
equal value, determined as of the date of the transaction, as to stock of the
purchaser; or (c) not later than twenty days prior to the effective
-5-
<PAGE> 19
date of such transaction, notify the Option Holder and afford to the Option
Holder a right for ten days after the date of such notice to exercise all or
any portion of the shares of Common Stock covered by this option that have not
been exercised and that the time for exercising such shares of Common Stock has
not expired pursuant to this Agreement. Within the ten-day period described in
clause (c) above, the Option Holder may exercise any portion of the shares
described in the preceding sentence as he may desire and deposit with the
Company the requisite cash to purchase in full the Common Stock thereby
exercised, in which case the Company shall, prior to the effective date of the
transaction, transfer to the Option Holder all shares of Common Stock thus
exercised, which shall be treated as owned by the Option Holder for purposes of
the transaction.
13. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
14. Date of Grant. The date of grant of this option is
- -------------, -------.
15. Withholding. It shall be a condition to the obligation of the
Company to issue or transfer shares of stock upon exercise of this option that
the Option Holder pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying its liability to
withhold federal, state or local income or other taxes incurred by reason of
the exercise of this option. If the amount requested is not paid, the Company
may refuse to issue or transfer shares of stock upon exercise of this option.
-6-
<PAGE> 20
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Option Holder, to evidence his
consent and approval of all the terms hereof, has duly executed this Agreement,
as of the date specified in Section 14 hereof.
SNELLING AND SNELLING, INC.
By
--------------------------------
----------------------------------
Option Holder
-7-
<PAGE> 1
EXHIBIT 10.11
SNELLING AND SNELLING, INC.
1996 STOCK OPTION PLAN
INTRODUCTION
On September 30, 1996, the Board of Directors of the Company adopted
the Snelling and Snelling, Inc. 1996 Stock Option Plan as set forth herein:
1. PURPOSE. The purpose of the Plan is to provide key employees with
a proprietary interest in the Company through the granting of options which
will:
(a) create stockholder value by providing incentives to selected
key employees who contribute, and are expected to contribute,
materially to the success of the Company;
(b) provide a means of rewarding outstanding performance by such
key employees;
(c) enhance the interests of such key employees in the Company's
continued success and progress; and
(d) enhance the Company's ability to maintain a competitive
position in attracting and retaining qualified key personnel
necessary for the continued success and progress of the
Company.
2. ADMINISTRATION. The Plan shall be administered by the Committee.
3. PARTICIPANTS. The Committee shall, from time to time, select the
particular key employees of the Company and its Subsidiaries to whom options
are to be granted, and who will, upon such grant, become participants in the
Plan. For purposes of the Plan, "key employees" are those officers and
employees (including officers and key employees who are members of the Board)
whose performance and responsibilities are determined by the Committee to be
influential to the success of the Company.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted to
an employee who owns more than 10% of the voting power of all classes of stock
of the Company or its Subsidiaries. This
<PAGE> 2
limitation will not apply if the option price is at least 110% of the fair
market value of the stock at the time the Incentive Option is granted and the
Incentive Option is not exercisable more than five years from the date it is
granted.
5. SHARES SUBJECT TO PLAN. The Committee may not grant options under
the Plan for more than 550,000 shares of Common Stock, but this number may be
adjusted to reflect, if deemed appropriate by the Committee, any stock
dividend, stock split, share combination, recapitalization or the like, of or
by the Company. Shares to be optioned and sold may be made available from
either authorized but unissued Common Stock or Common Stock held by the Company
in its treasury. Shares that by reason of the expiration of an option or
otherwise are no longer subject to purchase pursuant to an option granted under
the Plan may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Common Stock which any
employee is first eligible to purchase in any calendar year by exercise of
Incentive Options granted under this Plan and all incentive stock option plans
of the Company or its Subsidiaries shall not exceed $100,000. For this
purpose, the fair market value (determined at the respective date of grant of
each option) of the stock purchasable by exercise of an Incentive Option (or an
installment thereof) shall be counted against the $100,000 annual limitation
for an employee only for the calendar year such stock is first purchasable
under the terms of the option.
7. ALLOTMENT OF SHARES. The Committee shall determine the number of
shares of Common Stock to be offered from time to time by grant of options to
employees of the Company or its Subsidiaries. The grant of an option to an
employee shall not be deemed either to entitle the employee to, or to
disqualify the employee from, participation in any other grant of options under
the Plan.
8. GRANT OF OPTIONS. All options granted under the Plan shall be
granted by the Committee, which is authorized to grant Incentive Options,
Nonqualified Options, or a combination of both, under the Plan. The grant of
options shall be evidenced by stock option agreements containing such terms and
provisions as
2
<PAGE> 3
are approved by the Committee, but not inconsistent with the Plan, including
provisions that may be necessary to assure that any option that is intended to
be an Incentive Option will comply with Section 422 of the Code. The Company
shall execute stock option agreements upon instructions from the Committee.
The Plan shall be submitted to the Company's shareholders for approval. The
Committee may grant options under the Plan prior to the time of shareholder
approval, which options will be effective when granted, but if for any reason
the shareholders of the Company do not approve the Plan prior to one year from
the date of adoption of the Plan by the Board, all options granted under the
Plan will be terminated and of no effect, and no option may be exercised in
whole or in part prior to such shareholder approval.
9. OPTION PRICE. The option price for an option granted pursuant to
the Plan shall not be less than 100% of the fair market value per share of the
Common Stock on the date the option is granted. The Committee shall determine
the fair market value of the Common Stock on the date of grant and shall set
forth the determination in its minutes, using any reasonable valuation method.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Committee authorizes the option
unless the Committee specifies a later date. No option may terminate later
than ten years from the date the option is granted. The Committee may provide
for the exercise of options in installments and upon such terms, conditions and
restrictions as it may determine. The Committee may provide for termination of
the option in the case of termination of employment or any other reason.
11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies or
becomes disabled [within the meaning of Section 22(e)(3) of the Code] prior to
termination of his right to exercise an option in accordance with the
provisions of his stock option agreement without having totally exercised the
option, the option agreement may provide that it may be exercised, to the
extent of the shares with respect to which the option could have been exercised
by the participant on the date of the participant's death or disability, (i) in
the case of death, by the participant's estate or by the person who acquired
the right to exercise the option by bequest or inheritance or by reason of the
death of the participant, or (ii) in the case of disability, by the
3
<PAGE> 4
participant or his personal representative, provided the option is exercised
prior to the date of its expiration or 365 days from the date of the
participant's death or disability, whichever first occurs. The date of
disability of a participant shall be determined by the Committee.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or by tendering shares of Common Stock
at the fair market value per share at the time of exercise, or on such other
terms as are set forth in the applicable option agreement. No shares may be
issued until full payment of the purchase price therefor has been made, and a
participant will have none of the rights of a shareholder until shares are
issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth in
the applicable stock option agreements, including,if deemed appropriate by the
Committee, the execution of an employee- shareholder agreement setting forth
restrictions on transfer and other restrictions and limitations relating to the
Common Stock and the Company's repurchase rights. In no event may an option be
exercised or shares be issued pursuant to an option if any requisite action,
approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options shall not have been taken or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and the
option price may be adjusted to reflect, as deemed appropriate by the
Committee, any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
4
<PAGE> 5
16. INTERPRETATION. The Committee shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it determines to be advisable for the administration of the Plan. The
Committee may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the shareholders of the
Company, except that any amendment that would (a) materially increase the
number of securities that may be issued under the Plan, or (b) materially
modify the requirements of eligibility for participation in the Plan must be
approved by the shareholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action
of the Board or the Committee shall be deemed to give any officer or employee
any right to be granted an option to purchase Common Stock or any other rights
except as may be evidenced by the stock option agreement, or any amendment
thereto, duly authorized by the Committee and executed on behalf of the Company
and then only to the extent and on the terms and conditions expressly set forth
therein.
19. TERM. Unless sooner terminated by action of the Board, this Plan
will terminate on October 1, 2006. The Committee may not grant options under
the Plan after that date, but options granted before that date will continue to
be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the committee of two or more members of the
Board appointed by the Board to administer the Plan, or in the
absence of such a committee, shall mean the entire Board.
5
<PAGE> 6
(d) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be
authorized to issue (as long as the common stock varies from
that currently authorized, if at all, only in amount of par
value).
(e) "Company" means Snelling and Snelling, Inc., a Pennsylvania
corporation.
(f) "Incentive Option" means an option granted under the Plan
which meets the requirements of Section 422 of the Code.
(g) "Nonqualified Option" means an option granted under the Plan
which is not intended to be an Incentive Option.
(h) "Option Period" means the period during which an option may be
exercised.
(i) "Plan" means this 1996 Stock Option Plan, as amended from time
to time.
(j) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the
granting of the option, each of the corporations other than
the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the
chain, and "Subsidiaries" means more than one of any such
corporations.
6
<PAGE> 7
SNELLING AND SNELLING, INC.
INCENTIVE STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Snelling and Snelling, Inc.
1996 Stock Option Plan (the "Plan") for key employees of Snelling and Snelling,
Inc. (the "Company") and its subsidiaries, the Company grants to
----------------------------------------------
(the "Option Holder")
an incentive option to purchase from the Company a total of ______________
shares of Common Stock, $0.05 par value, of the Company (the "Common Stock") at
$______________________ per share (being at least the fair market value per
share of the Common Stock on the date of this grant), in the amounts, during
the periods and upon the terms and conditions set forth in this Agreement.
This option is intended to constitute an incentive option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Time of Exercise. Except only as specifically provided
elsewhere in this Agreement, this option is exercisable in whole or in part at
any time on or after the date of grant. If an exercise covers a fractional
share, such exercise will be rounded off to the next highest share, except the
final exercise, which will be for the balance of the total optioned shares.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Common Stock of the Company. If
requested by the Option Holder and approved by the Company, the Option Holder
may exercise this option or any portion hereof by tendering shares of Common
Stock, in lieu of cash payment for the option shares being purchased, with the
number of shares tendered to be determined by the fair market value per share
of the Common Stock on the date of exercise, as determined by the Board of
Directors of the Company (the "Board").
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<PAGE> 8
4. Subject to Plan. This option and the grant and exercise thereof
are subject to the terms and conditions of the Plan, which are incorporated
herein by reference and made a part hereof, but the terms of the Plan shall not
be considered an enlargement of any benefits under this Agreement. In
addition, this option is subject to any rules and regulations promulgated
pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the following:
(a) 5 p.m. on ___________________________________, 20___.
(b) 5 p.m. on the date 365 days following the date of the Option
Holder's death or disability.
(c) 5 p.m. on the date three months following the date the Option
Holder's employment with the Company terminates for reasons
other than good cause (as hereinafter defined) or for a reason
described in Section 5(b) above.
(d) Upon the termination of the Option Holder's employment with the
Company for "good cause", this option will terminate immediately
and the Option Holder will forfeit any right to exercise any
portion of this option. As used in this Agreement, "good cause"
shall mean Employee's (i) commission of a felony or any other
criminal act which the Board considers materially damaging to
the reputation of the employer, (ii) fraud, (iii) dishonesty,
self-dealing, or embezzlement, (iv) violation of Employer's
published policies, (v) gross or intentional neglect of duty,
(vi) failure or unwillingness to perform substantially and
faithfully Employee's duties hereunder, or (vii) any act or
failure to act which undermines or besmirches the Employer's
business reputation; provided, however, in the event "good
cause" relates to items (iv) through (vi) above, then Employer
shall notify Employee of such cause, and, if such violation can
be cured, Employee shall have 30 days from receipt of notice to
cure such violation.
6. Who May Exercise. During the lifetime of the Option Holder,
this option may be exercised only by the Option Holder. If the Option Holder
dies or becomes disabled [within the meaning of Section 22(e)(3) of the Code]
prior to the termination date specified in Section 5 hereof without having
exercised the option as to all of the shares covered hereby, the option may be
exercised to the extent the Option Holder could have exercised the option on
the date of his death or disability at any time prior to the earlier of the
dates specified in Sections 5(a) and (b) hereof by (i) the Option Holder's
estate or a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the Option Holder in the event of the
Option Holder's death, or (ii) the Option Holder or his personal representative
in the event of the Option Holder's
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<PAGE> 9
disability, subject to the other terms of this Agreement, the Plan and
applicable laws, rules and regulations. For purposes of this Agreement, the
Company shall determine the date of disability of the Option Holder.
7. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall be
delivered, if any requisite approval or consent of any
government authority of any kind having jurisdiction over the
exercise of options shall not have been secured; and
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and ending
on the date three months prior to the date of exercise the
Option Holder was an employee of either the Company or a
subsidiary of the Company; provided, however, if the Option
Holder's continuous employment is terminated by disability or
death, or if the Option Holder dies within said three-month
period, the option may be exercised in accordance with Section
5(b), or if the Option Holder's continuous employment is
terminated for good cause, the option will terminate as provided
in Section 5(d).
8. Manner of Exercise. Subject to such administrative regulations
as the Board may from time to time adopt, the Option Holder or beneficiary
shall, in order to exercise this option:
(a) give written notice to the Board of the exercise price and the
number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Board of the exercise price and the
number of shares for which he is requesting approval from the
Board to tender other shares of Common Stock in exchange for
option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Board in its discretion shall deem necessary (i) to evidence
such exercise, in whole or in part, of the option evidenced by this Agreement,
(ii) to determine whether registration is then required under the Securities
Act of 1933, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, or any other law, as
then in effect.
In addition, if an exercise under paragraph (b) above is requested, the
notice shall include an undertaking to tender to the Company (i) promptly after
receipt of denial by the Board of the paragraph (b) request, full
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<PAGE> 10
payment in United States dollars of the option exercise price for the shares
being purchased hereunder or (ii) promptly after receipt of approval by the
Board of exercise of this option or portion thereof by payment of Common Stock,
full payment in Common Stock in exchange for the shares being purchased
hereunder.
The Board shall advise the Option Holder or beneficiary in writing,
within ten business days after the first meeting of the Board following the
date of exercise, whether the Board approves the exchange of Common Stock for
option stock being purchased. The Company must receive full payment in United
States dollars or the appropriate number of shares of Common Stock, whichever
applies, of the option exercise price within five business days after the date
of the Board's notice, unless the Board extends the time of payment.
9. Non-Assignability. This option is not assignable or
transferable by the Option Holder except by will or by the laws of descent and
distribution.
10. Rights of Shareholder. The Option Holder will have no rights as
a shareholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
11. Capital Adjustments; Antidilution. The number of shares of
Common Stock covered by this option, and the option price thereof, shall be
subject to such adjustment as the Board deems appropriate to reflect any stock
dividend, stock split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganization, liquidation or the like, of
or by the Company.
12. Change in Control of the Company. In the event (i) the Company
sells more than 51% of its assets, (ii) becomes a party to any merger,
consolidation or corporate reorganization, and as the result of which the
Company shall not be the surviving corporation, or (iii) any other person or
entity makes a tender or exchange offer for Common Stock of the Company whereby
such other person or entity would own more than 51% of the outstanding Common
Stock of the Company (the surviving corporation, purchaser, or tendering person
being collectively referred to as the "purchaser", and the applicable action
being referred to as the
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<PAGE> 11
"transaction"), then the Board may, at its election, (a) reach an agreement
with the purchaser that the purchaser will assume the obligation of the Company
under the option; (b) reach an agreement with the purchaser that the purchaser
will convert the option into an option of at least equal value, determined as
of the date of the transaction, as to stock of the purchaser; or (c) not later
than twenty days prior to the effective date of such transaction, notify the
Option Holder and afford to the Option Holder a right for ten days after the
date of such notice to exercise all or any portion of the shares of Common
Stock covered by this option that have not been exercised and that the time for
exercising such shares of Common Stock has not expired pursuant to this
Agreement, regardless of whether such Optioned Shares otherwise would then be
exercisable under the Agreement. Within the ten-day period described in clause
(c) above, the Option Holder may exercise any portion of the shares described
in the preceding sentence as he may desire and deposit with the Company the
requisite cash to purchase in full the Common Stock thereby exercised, in which
case the Company shall, prior to the effective date of the transaction,
transfer to the Option Holder all shares of Common Stock thus exercised, which
shall be treated as owned by the Option Holder for purposes of the transaction.
13. Shareholder's Agreement. As a condition precedent to the
issuance of shares pursuant to the terms of this option, the Option Holder, or
his guardian or personal representative must execute a Shareholder Agreement in
the form of Exhibit "A" attached hereto and made a part hereof and hereby agree
to comply with all of the terms of such agreement. Concurrent with the
issuance of such shares, the Option Holder, his personal representative, or his
guardian shall execute such Shareholder Agreement and deliver such executed
agreement to the Company. Thereafter, the Board shall promptly cause the
officers of the Company to execute the Shareholder Agreement on behalf of the
Company. The Shareholder Agreement attached as Exhibit "A" may be modified
upon agreement of the Company and the Option Holder, but either party may
require the other to execute the form of agreement attached to this Agreement.
14. Law Governing. This Agreement is intended to be performed in
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
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<PAGE> 12
15. Date of Grant. The date of grant of this option is
________________________, 1996.
16. Shareholder Approval. This option is subject to the approval of
the Plan, prior to_______________________ _____, 1997, by the shareholders of
the Company. Subject to such approval, this option is effective on the date of
grant specified in Section 15. If the Plan is not so approved, this option
will be of no effect. No portion of this option may be exercised prior to such
approval.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Option Holder, to evidence his consent
and approval of all the terms hereof, has duly executed this Agreement, as of
the date specified in Section 15 hereof.
SNELLING AND SNELLING, INC.
By
----------------------------------
------------------------------------
Option Holder
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<PAGE> 13
SNELLING AND SNELLING, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Snelling and Snelling, Inc.
1996 Stock Option Plan (the "Plan") for key employees of Snelling and Snelling,
Inc. (the "Company") and its subsidiaries, the Company grants, as of the
effective date of the Company's initial public offering of its capital stock
(the "Grant Date"), to
[Name]
(the "Option Holder")
a nonqualified option to purchase from the Company such number of shares of
Class B Common Stock, $0.01 par value ("Class B Common Stock"), as shall be
equivalent to [Shares] shares of the Company's currently issued and outstanding
common stock, $0.05 par value ("Old Common Stock"), at a price per share that
shall equal the initial public offering price per share of the Class A Common
Stock of the Company, $0.01 per share ("Class A Common Stock"), offered in the
IPO (as hereinafter defined), and otherwise in the amounts, during the periods
and upon the terms and conditions set forth in this Agreement. This option is
not intended to constitute an incentive option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant of
this option is contingent upon the occurrence of an initial public offering of
the Company's new Class A Common Stock, par value $0.01, on or before December
31, 1997 (the "IPO").
2. The IPO. The Option Holder hereby acknowledges and agrees that
the Company is currently preparing for an initial public offering of its
capital stock, and that as part of these preparations, the Company intends to
effect a reclassification of its Old Common Stock. Pursuant to such
reclassification, the Old Common Stock will, automatically and without any
action on the part of the respective holders thereof, be reclassified on a
share for share basis into Class B Common Stock and a new class of common
stock, the Class A Common Stock will be created (collectively the Class A
Common Stock and the Class B Common Stock are
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<PAGE> 14
referred to in this Agreement as the "New Common Stock"). The Company intends
to offer its Class A Common Stock in the IPO at a price per share to be
determined on or about the effective date of the IPO.
3. Time of Exercise. Except only as specifically provided
elsewhere in this Agreement, this option is exercisable in the following
cumulative installments:
First installment. Up to 20% of the total number of optioned shares at
any time on or after a date that is 180 days from the Grant Date.
Second installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is 365 days from
the Grant Date.
Third installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is two years from
the Grant Date.
Fourth installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is three years
from the Grant Date.
Fifth installment. Up to an additional 20% of the total number of
optioned shares at any time on or after a date that is four years from
the Grant Date.
If an installment covers a fractional share, such installment will be rounded
off to the next highest share, except the final installment, which will be for
the balance of the total optioned shares. Upon the termination of the Option
Holder's employment for any reason, with or without good cause, this option
will be exercisable only to the extent and for the number of shares for which
the Option Holder could have exercised it on the date of his termination of
employment.
4. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Class B Common Stock of the Company. If
requested by the Option Holder and approved by the Company, the Option Holder
may exercise this option or any portion hereof by tendering shares of Class A
Common Stock or Class B Common Stock, in lieu of cash payment for the option
shares being purchased, with the number of shares tendered to be determined by
the fair market value per share of the Class A Common Stock on the date of
exercise, as quoted on the Nasdaq National Market or successor stock exchange
thereto, or if not so quoted, as determined by the Board of Directors of the
Company (the "Board").
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<PAGE> 15
5. Subject to Plan. This option and the grant and exercise
thereof are subject to the terms and conditions of the Plan, which are
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, this option is subject to any rules and regulations
promulgated pursuant to the Plan, now or hereafter in effect.
6. Term. This option will terminate at the first of the
following:
(a) 5 p.m. on the date that is ten years from the Grant Date.
(b) 5 p.m. on the date that is 365 days from the date of the
Option Holder's death or disability (as described in Section
6).
(c) 5 p.m. on the date that is 90 days from the date that the
Option's Holder's employment with the Company terminates for
any reason other than "good cause" (as hereinafter defined).
(d) Upon the termination of the Option Holder's employment with
the Company for "good cause", this option will terminate
immediately and the Option Holder will forfeit any right to
exercise any portion of this option. As used in this
Agreement, "good cause" shall mean Option Holder's (i)
commission of a felony or any other criminal act which the
Board considers materially damaging to the reputation of the
employer, (ii) fraud, (iii) dishonesty, self-dealing, or
embezzlement, (iv) violation of Company's published policies,
(v) gross or intentional neglect of duty, (vi) failure or
unwillingness to perform substantially and faithfully Option
Holder's duties to the Company, (vii) breach of the terms of
this Agreement, or (viii) any act or failure to act which
undermines or besmirches the Company's business reputation;
provided, however, in the event "good cause" relates to items
(iv) through (vii) above, then Company shall notify Option
Holder of such cause, and, if such violation can be cured,
Option Holder shall have 30 days from receipt of notice to
cure such violation.
7. Who May Exercise. During the lifetime of the Option Holder,
this option may be exercised only by the Option Holder. If the Option Holder
dies or becomes disabled [within the meaning of Section 22(e)(3) of the Code]
prior to the termination date specified in Section 6 hereof without having
exercised the option as to all of the shares covered hereby, the option may be
exercised to the extent the Option Holder could have exercised the option on
the date of his death or disability at any time prior to the earlier of the
dates specified in Sections 6(a) and (b) hereof by (i) the Option Holder's
estate or a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the Option Holder in the event of the
Option Holder's death, or (ii) the Option Holder or his personal representative
in the event of the Option
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<PAGE> 16
Holder's disability, subject to the other terms of this Agreement, the Plan and
applicable laws, rules and regulations. For purposes of this Agreement, the
Company shall determine the date of disability of the Option Holder.
8. Restrictions on Exercise. This option:
(a) may be exercised only with respect to full shares of Class B
Common Stock and no fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no certificates
representing shares subject to such option shall be delivered,
if any requisite approval or consent of any government
authority of any kind having jurisdiction over the exercise of
options shall not have been secured; and
(c) must be exercised prior to the date specified in Section 6(a)
and may be exercised only if at all times during the period
beginning with the Grant Date and ending on the date that is
365 days prior to the date of exercise, the Option Holder was
an employee of either the Company or a subsidiary of the
Company; provided, however, if the Option Holder's continuous
employment is terminated for "good cause", the option will
terminate as provided in Section 6(c).
9. Manner of Exercise. Subject to such administrative regulations
as the Board may from time to time adopt, the Option Holder or beneficiary
shall, in order to exercise this option:
(a) give written notice to the Board of the exercise price and the
number of shares which he will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Board of the exercise price and the
number of shares for which he is requesting approval from the
Board to tender other shares of New Common Stock in exchange
for option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Board in its discretion shall deem necessary (i) to evidence
such exercise, in whole or in part, of the option evidenced by this Agreement,
(ii) to determine whether registration is then required under the Securities
Act of 1933, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, or any other law, as
then in effect.
In addition, if an exercise under paragraph (b) above is requested,
the notice shall include an undertaking to tender to the Company (i) promptly
after receipt of denial by the Board of the paragraph (b)
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<PAGE> 17
request, full payment in United States dollars of the option exercise price for
the shares being purchased hereunder or (ii) promptly after receipt of approval
by the Board of exercise of this option or portion thereof by payment of New
Common Stock, full payment in New Common Stock in exchange for the shares being
purchased hereunder. In addition, the Option Holder shall tender payment of the
amount that may be requested pursuant to Section 16 by the Company for the
purpose of satisfying its liability to withhold federal, state or local income
or other taxes incurred by reason of the exercise of this option.
The Board shall advise the Option Holder or beneficiary in writing, on
or before ten business days after the first meeting of the Board following the
date of exercise, whether the Board approves the exchange of New Common Stock
for option stock being purchased. The Company must receive full payment in
United States dollars or the appropriate number of shares of New Common Stock,
whichever applies, of the option exercise price within five business days after
the date of the Board's notice, unless the Board extends the time of payment.
10. Non-Assignability. This option is not assignable or
transferable by the Option Holder except by will or by the laws of descent and
distribution.
11. Rights of Shareholder. The Option Holder will have no rights
as a shareholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 12 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
12. Capital Adjustments; Antidilution. The number of shares of New
Common Stock covered by this option, and the option price thereof, shall be
subject to such adjustment as the Board deems appropriate to reflect any stock
dividend, stock split, share combination, exchange of shares, recapitalization,
merger, consolidation, separation, reorganization, liquidation or the like, of
or by the Company.
13. Change in Control of the Company. In the event (i) the Company
sells more than 51% of its assets, (ii) becomes a party to any merger,
consolidation or corporate reorganization, and as the result of which
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<PAGE> 18
the Company shall not be the surviving corporation, or (iii) any other person
or entity makes a tender or exchange offer for the New Common Stock of the
Company whereby such other person or entity would own more than 51% of the
outstanding New Common Stock of the Company (the surviving corporation,
purchaser, or tendering person being collectively referred to as the
"purchaser", and the applicable action being referred to as the "transaction"),
then the Board may, at its election, (a) reach an agreement with the purchaser
that the purchaser will assume the obligation of the Company under the option;
(b) reach an agreement with the purchaser that the purchaser will convert the
option into an option of at least equal value, determined as of the date of the
transaction, as to capital stock of the purchaser; or (c) not later than twenty
days prior to the effective date of such transaction, notify the Option Holder
and afford to the Option Holder a right for ten days after the date of such
notice to exercise all or any portion of the shares of Class B Common Stock
covered by this option that have not been exercised and that the time for
exercising such shares of Class B Common Stock has not expired pursuant to this
Agreement, regardless of whether such optioned shares otherwise would then be
exercisable under this Agreement. Within the ten-day period described in clause
(c) above, the Option Holder may exercise any portion of the shares described
in the preceding sentence as he may desire and deposit with the Company the
requisite cash to purchase in full the Class B Common Stock thereby exercised,
in which case the Company shall, prior to the effective date of the
transaction, transfer to the Option Holder all shares of Class B Common Stock
thus exercised, which shall be treated as owned by the Option Holder for
purposes of the transaction.
14. Law Governing. This Agreement is intended to be performed in
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
15. Date of Grant. The date of grant of this option is the
effective date of the initial public offering of the Class A Common Stock,
provided that such initial public offering occurs on or before December 31,
1997.
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<PAGE> 19
16. Withholding. It shall be a condition to the obligation of the
Company to issue or transfer shares of stock upon exercise of this option that
the Option Holder pay to the Company, upon its demand, such amount as may be
requested by the Company for the purpose of satisfying its liability to
withhold federal, state or local income or other taxes incurred by reason of
the exercise of this option. If the amount requested is not paid, the Company
may refuse to issue or transfer shares of stock upon exercise of this option.
17. Prior Agreement. This Agreement is in substitution of and
supercedes all prior stock option agreements between the Company and [Name].
All prior grants of stock options by the Company to [Name] and all stock option
agreements dated prior to the date of this agreement are null and void and
without effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Option Holder, to evidence his
consent and approval of all the terms hereof, has duly executed this Agreement,
as of the date specified below.
SNELLING AND SNELLING, INC.
By
--------------------------------------
----------------------------------------
[Name] Option Holder
Date:
-----------------------------------
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<PAGE> 1
EXHIBIT 10.12
SNELLING AND SNELLING, INC.
1997 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
INTRODUCTION
As of July 3, 1997, the Board of Directors of Snelling and Snelling,
Inc. (the "Company") adopted the following 1997 Non-Employee Directors Stock
Option Plan:
1. Purpose. The purpose of the Plan is to provide Non-Employee
Directors of the Company with a proprietary interest in the Company through the
granting of options which will:
(a) increase the interest of the Non-Employee Directors in the
Company's welfare;
(b) furnish an incentive to the Non-Employee Directors to continue
their services for the Company; and
(c) provide a means through which the Company may attract able
persons to serve on the Board.
2. Administration. The Plan will be administered by the Board.
3. Participants. All Non-Employee Directors of the Company are to
be granted options under the Plan, and upon such grant will become participants
in the Plan.
4. Shares Subject to Plan. Options may not be granted under the
Plan for more than 150,000 shares of Class A Common Stock of the Company, but
this number shall be adjusted to reflect, if deemed appropriate by the Board,
any stock dividend, stock split, share combination, recapitalization or the
like, of or by the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Class A Common Stock or Class A
Common Stock held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase pursuant
to an option granted under the Plan may be re-offered under the Plan.
<PAGE> 2
5. Allotment of Shares. Subject to approval by the Company's
shareholders pursuant to Section 5(d), grants of options under the Plan shall
be as described in this Section 5:
(a) Each Non-Employee Director of the Company, elected after the
effective date of the Company's initial public offering on
Form S-1 of its Class A Common Stock (the "Effective Date") at
an annual meeting of shareholders, who has not previously
served as a director of the Company shall be granted an
option, effective as of the Grant Date, to purchase 5,000
shares of Class A Common Stock of the Company.
(b) Each Non-Employee Director of the Company appointed after the
Effective Date to fill a vacancy in the Board who has not
previously served as a director of the Company shall be
granted an option, effective as of the Grant Date, to purchase
5,000 shares of Class A Common Stock of the Company.
(c) Each other Non-Employee Director of the Company elected at, or
continuing to serve following, each annual shareholders
meeting, commencing with the 1998 annual meeting, shall be
granted an option, effective as of the Grant Date, to purchase
5,000 shares of Class A Common Stock of the Company.
(d) The Plan shall be submitted to the Company's shareholders for
approval. The Board may grant options under the Plan prior to
the time of shareholder approval, which options will be
effective when granted, but if for any reason the shareholders
of the Company do not approve the Plan prior to one year after
the date of adoption of the Plan by the Board, all options
granted under the Plan will be terminated and of no effect,
and no option may be exercised in whole or in part prior to
such shareholder approval.
6. Grant of Options. All options under the Plan shall be
automatically granted as provided in Section 5. The grant of options shall be
evidenced by stock option agreements containing such terms and
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<PAGE> 3
provisions as are approved by the Board, but not inconsistent with the Plan.
The Company shall execute stock option agreements upon instructions from the
Board.
7. Option Price. The exercise price of each share of Class A
Common Stock covered by an option under the Plan shall be equal to the Fair
Market Value of a share of Class A Common Stock on the Grant Date.
8. Option Period. The Option Period will begin on the Grant Date
and will terminate at the first of the following:
(a) 5 p.m. on the fifth anniversary of the Grant Date.
(b) 5 p.m. on the date three months following the date of the
Non-Employee Director's death or disability.
(c) 5 p.m. on the date thirty (30) days following the date the
Non-Employee Director ceases to be a director of the Company
for any reason other than death or disability.
9. Rights in Event of Death or Disability. If a participant dies
or becomes disabled prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without having
totally exercised the option, the option may be exercised to the extent the
participant could have exercised the option on the date of his death or
disability at any time prior to the earlier of the dates specified in Section
8(a) or (b) hereof by (i) the participant's estate or by the person who
acquired the right to exercise the option by bequest or inheritance or by
reason of the death of the participant in the event of the participant's death,
or (ii) the participant or his personal representative in the event of the
participant's disability, subject to the other terms of the Plan and applicable
laws, rules and regulations. For purposes of the Plan, the Board shall
determine the date of disability of a participant.
10. Payment. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or by tendering shares of Class A
Common Stock at the Fair Market Value per share at the time of exercise, or on
such other terms as are set forth in the applicable option agreement. No shares
may be
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<PAGE> 4
issued until full payment of the purchase price therefor has been made, and a
participant will have none of the rights of a shareholder until shares are
issued to him. In addition, the participant shall tender payment of the amount
as may be requested by the Company for the purpose of satisfying its liability
to withhold federal, state or local income or other taxes incurred by reason of
the exercise of an option.
11. Vesting.
(a) Each option will become fully vested and exercisable on the
date which is six months after the Grant Date.
(b) In no event may an option be exercised or shares be issued
pursuant to an option if any requisite action, approval or
consent of any governmental authority of any kind having
jurisdiction over the exercise of options shall not have been
taken or secured.
12. Capital Adjustments and Reorganizations. The number of shares
of Class A Common Stock covered by each outstanding option granted under the
Plan and the option price thereof, and the number of shares to be granted
pursuant to Section 5 and the option price thereof, shall be adjusted to
reflect, as deemed appropriate by the Board, any stock dividend, stock split,
share combination, exchange of shares, recapitalization, merger, consolidation,
separation, reorganization, liquidation or the like, of or by the Company.
If (a) the Company shall be party to a merger or consolidation in
which (i) the Company is not the surviving entity, or (ii) the Company survives
only as a subsidiary of an entity other than a previously-owned subsidiary of
the Company, or (iii) the Company survives but the Common Stock is exchanged or
converted into any securities or property, (b) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any person or entity (other than a wholly-owned subsidiary of the
Company) or (c) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "Corporate Change"), then effective as of the
earlier of (A) the date of approval by the shareholders of the Company of such
Corporate Change or (B) the date of such Corporate Change, (1) in the event of
any such
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<PAGE> 5
merger or consolidation and upon any exercise of any outstanding option, the
participant shall be entitled to purchase, in lieu of the number of shares of
Class A Common Stock as to which such option shall then be exercisable, the
number and class of shares of stock or other securities or property to which
the participant would have been entitled pursuant to the terms of the agreement
of merger or consolidation if, immediately prior to such merger or
consolidation the participant had been the holder of record of the number of
shares of Class A Common Stock as to which such option is then exercisable, and
(2) in the event of any such sale, lease or exchange of assets or dissolution,
each participant shall surrender his options to the Company and the Company
shall cancel such options and pay to each participant an amount of cash per
share equal to the excess of the per share price offered to shareholders of the
Company in any such sale, lease or exchange of assets or dissolution
transaction for the shares subject to such options over the exercise price(s)
under such options for such shares.
13. Non-Assignability. Options may not be transferred other than
by will or by the laws of descent and distribution. Except as otherwise
provided in the Plan, during a participant's lifetime, options granted to a
participant may be exercised only by the participant.
14. Interpretation. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it determines to be advisable for the administration of the Plan. The
Board may rescind and amend its rules and regulations.
15. Amendment or Discontinuance. The Plan may be amended or
discontinued by the Board without the approval of the shareholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) increase the number of
securities that may be issued under the Plan, or (c) materially modify the
requirements of eligibility for participation in the Plan, must be approved by
the shareholders of the Company. In addition, the Plan shall not be amended
more than once every six months, other than to comport with changes in the
Internal Revenue Code
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<PAGE> 6
of 1986, as amended, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
16. Effect of Plan. Neither the adoption of the Plan nor any
action of the Board shall be deemed to give any director any right to be
granted an option to purchase Class A Common Stock of the Company or any other
rights except as may be evidenced by the stock option agreement, or any
amendment thereto, duly authorized by the Board and executed on behalf of the
Company, and then only to the extent and on the terms and conditions expressly
set forth therein.
17. Term. Unless sooner terminated by action of the Board, the
Plan will terminate on the tenth anniversary of the Effective Date. The Board
may not grant options under the Plan after that date, but options granted
before that date will continue to be effective in accordance with their terms.
18. Definitions. For the purposes of the Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the board of directors of the Company or any
committee of the Board appointed by the Board to administer
the Plan or any portion of the Plan.
(b) "Class A Common Stock" means the Class A Common Stock, par
value $0.01 per share, of the Company, which as of the date
hereof, the Board of Directors of the Company has authorized
and approved and which, subject to shareholder approval, the
Company will be authorized to issue.
(c) "Fair Market Value" means, as of any specified date, the
average between the high and low sales price of the Common
Stock on any national securities exchange. If the Common Stock
is not then listed on any national securities exchange but is
traded over the counter at the time a determination of its
Fair Market Value is required to be made hereunder, its Fair
Market Value shall be deemed to be equal to the average
between the reported high and low sales prices of Common Stock
on the specified date. If the Common Stock is not publicly
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<PAGE> 7
traded at the time a determination of its value is required to
be made hereunder, the determination of its Fair Market Value
shall be made by the Board in such manner as it deems
appropriate.
(d) "Grant Date" means, with respect to an option, the date of the
annual shareholders meeting at which the Non-Employee Director
is elected or the date of the Board meeting at which the
Non-Employee Director is appointed to fill a vacancy in the
Board, whichever is applicable, and, as a consequence thereof,
is granted that option.
(e) "Non-Employee Director" means a director of the Company who
(i) is not an employee of the Company or of any of its
subsidiaries, and (ii) is not serving on the Board pursuant to
a contractual obligation of the Company or at the request of a
shareholder of the Company.
(f) "Option Period" means the period during which an option may be
exercised.
(g) "Plan" means this 1997 Non-Employee Directors Stock Option
Plan, as amended from time to time.
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<PAGE> 8
SNELLING AND SNELLING, INC.
1997 NON-EMPLOYEE DIRECTORS
NONQUALIFIED STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the Snelling and Snelling, Inc.
1997 Non-Employee Directors Stock Option Plan (the "Plan") for non-employee
directors of Snelling and Snelling, Inc. (the "Company"), the Company grants to
----------------------------------------
(the "Option Holder")
an option to purchase from the Company a total of _________ shares of Class A
Common Stock, $0.01 par value, of the Company at $______ per share (being at
least the fair market value per share of the Class A Common Stock on the date
of this grant), in the amounts, during the periods, and upon the terms and
conditions set forth in this Agreement.
2. Time of Exercise. Except only as specifically provided
elsewhere in this Agreement, this option shall be fully vested and exercisable
in whole or in part, at any time after the date that is six months after the
date of grant specified in Section 13 of this Agreement. No fractional shares
will be issued; if an installment covers a fractional share, such installment
will be rounded off to the next highest share, except the final installment,
which will be for the balance of the total optioned shares. In no event may
this option be exercised in whole or in part after its date of termination
specified in Section 5 hereof.
3. Exercise of Option. The exercise of this option shall entitle
the Option Holder to purchase shares of Class A Common Stock of the Company. If
elected by the Option Holder, the Option Holder may
<PAGE> 9
exercise this option or any portion hereof by tendering shares of Class A
Common Stock, or Class B Common Stock, $0.01 par value, in lieu of cash payment
for the option shares being purchased, with the number of shares tendered to be
determined by the Fair Market Value per share of the Class A Common Stock on
the date of exercise, as defined in the Plan.
4. Subject to Plan. This option and the grant and exercise
thereof are subject to the terms and conditions of the Plan, which is
incorporated herein by reference and made a part hereof, but the terms of the
Plan shall not be considered an enlargement of any benefits under this
Agreement. In addition, this option is subject to any rules and regulations
promulgated pursuant to the Plan, now or hereafter in effect.
5. Term. This option will terminate at the first of the
following:
(a) 5 p.m. on the fifth anniversary of the date of grant specified
in Section 13 of this Agreement.
(b) 5 p.m. on the date 180 days following the date of the Option
Holder's death or disability.
(c) 5 p.m. on the date 90 days following the date the Option
Holder ceases to be a director of the Company for any reason
other than death or disability.
6. Who May Exercise. During the lifetime of the Option Holder,
this option may be exercised only by the Option Holder. If the Option Holder
dies or becomes disabled prior to the termination date specified in Section 5
hereof without having exercised the option as to all of the shares covered
thereby, the option may be exercised to the extent the Option Holder could have
exercised the option on the date of his death or disability at any time prior
to the earlier of the dates specified in Section 5(a) and (b) hereof by (i) the
Option Holder's estate or a person who acquired the right to exercise the
option by bequest or inheritance or by reason of the death of the Option Holder
in the event of the Option Holder's death, or (ii) the Option Holder or his
personal representative in the event of the Option Holder's disability, subject
to the other terms of this Agreement and applicable laws, rules and
regulations. For purposes of this Agreement, the Company shall determine the
date of disability of the Option Holder.
7. Restrictions on Exercise. The option evidenced by this
Agreement:
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<PAGE> 10
(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;
(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall be
delivered, if any requisite approval or consent of any
governmental authority of any kind having jurisdiction over the
exercise of options shall not have been secured; and
(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and ending
on the date 90 days prior to the date of exercise the Option
Holder was a director of the Company; provided, if the Option
Holder's continuous directorship is terminated by death or
disability, or if the Option Holder dies within said 90-day
period, the option may be exercised in accordance with Section
6.
8. Manner of Exercise. Subject to such administrative regulations
as the Board of Directors of the Company may from time to time adopt, the
Option Holder or beneficiary shall, in order to exercise this option
(a) give written notice to the Company of the exercise price and the
number of shares which he or she will purchase and furnish an
undertaking to make payment of such exercise price in United
States dollars before issuance of such shares; or
(b) give written notice to the Company of the exercise price and the
number of shares for which he or she is electing to tender other
shares of Class A Common Stock or Class B Common Stock, par
value $0.01 per share, in exchange for option shares.
Any notice shall include an undertaking to furnish or execute such
documents as the Company in its discretion shall deem necessary (i) to evidence
such exercise, in whole or in part, of the option evidenced by this Agreement,
(ii) to determine whether registration is then required under the Securities
Act of 1933, or any other law, as then in effect, and (iii) to comply with or
satisfy the requirements of the Securities Act of 1933, or any other law, as
then in effect. In addition, the Option Holder shall tender payment of the
amount, if any, as may be requested pursuant to Section 14 by the Company for
the purpose of satisfying its liability to withhold federal, state or local
income or other taxes incurred by reason of the exercise of this option.
9. Non-Assignability. This option is not assignable or transferable
by the Option Holder except by will or by the laws of descent and distribution.
3
<PAGE> 11
10. Rights of Shareholder. The Option Holder will have no rights as
a shareholder with respect to any shares covered by this option until the
issuance of a certificate or certificates to the Option Holder for the shares.
Except as otherwise provided in Section 11 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
issuance of such certificate or certificates.
11. Capital Adjustments. The number of shares of Class A Common
Stock covered by this option, and the option price thereof, shall be subject to
such adjustment as the Board of Directors of the Company deems appropriate to
reflect any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
If (a) the Company shall be party to a merger or consolidation in which
(i) the Company is not the surviving entity, or (ii) the Company survives only
as a subsidiary of an entity other than a previously-owned subsidiary of the
Company, or (iii) the Company survives but the Common Stock is exchanged or
converted into any securities or property, (b) the Company sells, leases or
exchanges or agrees to sell, lease or exchange all or substantially all of its
assets to any person or entity (other than a wholly-owned subsidiary of the
Company) or (c) the Company is to be dissolved and liquidated (each such event
is referred to herein as a "Corporate Change"), then effective as of the
earlier of (A) the date of approval by the shareholders of the Company of such
Corporate Change or (B) the date of such Corporate Change, (1) in the event of
any such merger or consolidation and upon any exercise of any outstanding
option, the Option Holder shall be entitled to purchase, in lieu of the number
of shares of Class A Common Stock as to which such option shall then be
exercisable, the number and class of shares of stock or other securities or
property to which the Option Holder would have been entitled pursuant to the
terms of the agreement of merger or consolidation if, immediately prior to such
merger or consolidation the Option Holder had been the holder of record of the
number of shares of Class A Common Stock as to which such option is then
exercisable, and (2) in the event of any such sale, lease or exchange of assets
or dissolution, each Option Holder shall surrender his options
4
<PAGE> 12
to the Company and the Company shall cancel such options and pay to each Option
Holder an amount of cash per share equal to the excess of the per share price
offered to shareholders of the Company in any such sale, lease or exchange of
assets or dissolution transaction for the shares subject to such options over
the exercise price(s) under such options for such shares.
12. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.
13. Date of Grant. The date of grant of this option is
________________, 199__.
14. Withholding. It shall be a condition to the obligation of the
Company to issue or transfer shares of stock upon exercise of this option that
the Option Holder pay to the Company, upon its demand, such amount, if any, as
may be requested by the Company for the purpose of satisfying its liability to
withhold federal, state or local income or other taxes incurred by reason of
the exercise of this option. If the amount requested is not paid, the Company
may refuse to issue or transfer shares of stock upon exercise of this option.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Option Holder, to evidence his consent
and approval of all the terms hereof, has duly executed this Agreement, as of
the date specified in Section 13 hereof.
SNELLING AND SNELLING, INC.
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
, Option Holder
5
<PAGE> 1
EXHIBIT 10.21
ASSET PURCHASE AGREEMENT
between
B.A.T. Holdings, Inc.
(the "Sellers")
and Brett S.Hardt and Jeff Albrecht
-----------------------------------
(the "Stockholders")
and
SNELLING AND SNELLING, INC. ("Purchaser")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions............................................................................................... 5
2. Sale and Transfer of Assets................................................................................7
3. Assumption of Liabilities..................................................................................7
4. Purchase Price.............................................................................................8
5. Allocation of Purchase Price...............................................................................9
6. Allocation of Expenses....................................................................................10
7. Collection of Accounts Receivable.........................................................................10
8. Closing Deliveries by the Sellers and Stockholders........................................................11
9. Closing Deliveries by Purchaser...........................................................................14
10. Representations and Warranties of the Sellers and the Stockholders........................................15
11. Covenants of the Sellers and the Stockholders.............................................................20
12. Representations and Warranties of Purchaser...............................................................23
13. Covenants of Purchaser...................................................................................24
14. Indemnity by the Sellers and the Stockholders.............................................................25
15. Indemnity by Purchaser....................................................................................26
16. Termination of Agreements.................................................................................26
17. Loss or Destruction.......................................................................................27
18. Conditions Precedent to Purchaser's Obligation to Close...................................................27
19. Conditions Precedent to the Sellers' Obligation to Close..................................................28
20. Additional Post-Closing Responsibilities..................................................................29
21. Notices...................................................................................................32
22. Termination...............................................................................................33
23. General Provisions........................................................................................34
24. Mediation and Arbitration.................................................................................35
25. Confidentiality...........................................................................................36
26. Bulk Transfer Laws........................................................................................37
27. Release by Sellers and Stockholders.......................................................................37
28. Release by Purchaser......................................................................................38
29. Survival of Representations...............................................................................39
</TABLE>
<PAGE> 3
SCHEDULES
Schedule I - Tangible Assets
Schedule 2 - Assumed Contracts
Schedule 3 - List of Receivables to be Delivered at Closing
Schedule 4 - Allocation of Purchase Price
Schedule 5 - Encumbrances
Schedule 6 - Employees
Schedule 7 - Promissory Note
Schedule 8 - Subordination Agreement
3
<PAGE> 4
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into effective
as of this__________ day of__________ , 1996, by and among B.A.T. Holdings,
Inc., an Illinois corporation (the "Sellers"), and Brett S. Hardt and Jeff
Albrecht (the "Stockholders"), on one hand, and SNELLING AND SNELLING, INC.
("Purchaser"), a Pennsylvania corporation, on the other hand.
RECITALS
WHEREAS Sellers are operating one (1) "Snelling Personnel Services" office
(the "Office") pursuant to a certain franchise agreement with Purchaser at the
following location:
Office No. Location of Office. Date of Franchise Agreement,
---------- ------------------- ---------------------------
F0016 Snelling Plaza June 29, 1990
3995 Algonquin
Rolling Meadows, IL 60008
WHEREAS, Stockholders are the owners of one hundred percent (100%) of the
issued and outstanding common stock of Sellers;
WHEREAS, Sellers desire to sell, transfer, convey and assign to Purchaser,
and Purchaser desires to purchase, under the terms and conditions set forth
herein, all of the assets of Sellers associated with the Office, including the
trademarks, service marks, and trade names, if any, and the good will
associated with the Office;
4
<PAGE> 5
WHEREAS, Sellers' franchise agreement with Purchaser is referred to in
this Agreement as the "Franchise Agreement."
WHEREAS, Purchaser also desires to obtain assignments of certain contracts
and agreements relating to the operation of Sellers' Office and agrees to
assume certain of Sellers' obligations and liabilities.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises contained
herein, the parties agree as follows:
1. Definitions. The following words shall have the following meanings when
used in this Agreement:
(a) "Assets" shall mean all of the rights, title and interest of Sellers
in the assets, properties, rights, claims and contracts of every kind,
character and description, whether real or personal, tangible or intangible,
which are used or usable in, or relate to, the operation of the Office, without
regard to whether reflected on the Sellers' financial statements or books.
Specifically excluded from the Assets being sold hereunder are any accounts
receivable of the Sellers related to work performed or services provided
through the close of business of the day immediately prior to the Closing Date.
Assets being acquired by Purchaser are:
(i) the tangible assets set forth and identified as being acquired
by Purchaser in Schedule I to this Agreement;
5
<PAGE> 6
(ii) all contracts and relationships of Sellers with clients and
with temporary employees (as those terms are defined in the Franchise
Agreement);
(iii) Sellers' rights in and to the telephone numbers and telephone
directory advertising for the Office, and all other intangible property, trade
secrets, rights under Assumed Contracts (as defined in Section 3), permits, and
licenses associated with the Office;
(iv) any Internet names registered by Sellers;
(v) all of Sellers' trade names, trademarks, or service marks used,
or available for use, in Sellers' business;
(vi) the rights of the Sellers under the assumption of the Lease of
real property relating to the Office (the "Lease");
(vii) all inventory and supplies on hand as of the Closing Date;
(viii) all business papers and records pertaining to the Office,
including but not limited to personnel records (including payroll records)
concerning each employee of the Sellers who will become employed by the
Purchaser after the Closing Date, client records, vendor lists, and operations
manuals; and
(ix) all Placement Receipts, if any, (as that term is defined in
the Franchise Agreement) except for those for which the employee has both been
offered permanent employment by a client and accepted such offer of employment
on or before the Closing Date.
6
<PAGE> 7
(b) "Closing" shall mean the events which take place for the purpose of
consummating the transactions contemplated by this Agreement, commencing at
9:00 a.m. on Monday, November 4, 1996, at Chicago, Illinois, or at another
acceptable time and location to which the parties agree; and
(c) "Closing Date" shall mean 12:01 a.m. on Monday, November 4, 1996.
2. Sale and Transfer of Certain Assets. Upon the terms and subject to the
conditions set forth in this Agreement, the Sellers agree to sell, transfer,
assign, grant, convey and deliver the tangible Assets listed on Schedule I and
all other Assets listed in Subsection I(a) to Purchaser on the Closing Date,
free and clear of all mortgages, liens, security interests, pledges, charges
and other encumbrances. Notwithstanding any language that may be stated in this
Agreement, Sellers' accounts receivable as that term is described herein, are
not an Asset being sold, transferred, assigned, granted, or conveyed to
Purchaser.
3. Assumption of Liabilities. Purchaser has not assumed, and shall not
assume, any liability or obligation of any nature, known or unknown, existing
or contingent, of the Sellers, except that, at Closing: (i) Purchaser shall
assume the Lease unless Purchaser notifies Sellers in writing within ten (10)
days of the Closing that Purchaser will not assume the Lease; and (ii) the
other written contracts and obligations specifically identified in Schedule 2
to this Agreement (the "Assumed Contracts"). Sellers shall assume and make
payments for the obligations for unused vacation and unused sick leave, if any,
accrued through the Closing Date by each employee of the Sellers. The Sellers
acknowledge that Purchaser does not assume any obligation in connection with
any actual or alleged breach or default of Lease or Assumed Contracts
7
<PAGE> 8
occurring at any time through the Closing Date. Except for the items specified
in clauses (i) and (ii) above, all obligations, liens, encumbrances, and
liabilities of the Sellers shall continue to be the sole responsibility of the
Sellers and Sellers shall hold Purchaser harmless.
4. Purchase Price. In reliance upon the representations and warranties for
the assets named herein, Purchaser shall pay the Sellers Four Million One
Hundred Twenty-Five Thousand Dollars ($4,125,000) (the "Purchase Price") plus
interest as provided in Subsection 4(b)(i) below. The Purchase Price shall be
paid as follows:
(a) At Closing, Purchaser shall pay the Sellers One Million Thirty-Two
Thousand Dollars ($1,032,000) in cash by certified check;
(b) At Closing, Purchaser shall deliver to Sellers a subordinated
promissory note (the "Note") in the amount of Three Million Ninety-Three
Thousand Dollars ($3,093,000). Terms of the Note are as follows:
(i) Interest at prime based upon the prime rate listed in the Wall
Street Journal on the last business day preceding the Closing;
(ii) One (1) payment in the amount of Eight Hundred Eighty-Eight
Thousand Dollars ($888,000) plus interest from the Closing Date to be paid on
January 2, 1997. The payment shall be by certified check sent overnight by the
close of business; and
8
<PAGE> 9
(iii) One (1) payment in the amount of Two Hundred Thousand Dollars
($200,000) plus interest from the Closing Date to be paid on February 3, 1997.
The payment shall be by certified check sent overnight by the close of
business.
(c) Twenty (20) equal payments of the remaining principal balance of Two
Million Five Thousand Dollars ($2,005,000), plus interest from the Closing
Date, to be paid quarterly on the last business day of the month beginning on
March 31, 1997, with a final payment to be made on December 31, 2001.
5. Allocation of Purchase Price. In accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended, the Purchase Price shall be
allocated in the manner set forth in Schedule 4 to this Agreement. The Sellers,
the Stockholders, and Purchaser each covenant and warrant to each other that:
(i) in no tax return filed by the parties or any of their respective successors
or assigns shall the allocation of the Purchase Price be treated or reported
inconsistently with or differently from the allocation of the Purchase Price
set forth in Schedule 4, unless such change in allocation is the result of a
determination by a governing authority for that year or a preceding year; and
(ii) in no tax audit, tax examination, tax or compliance review or tax
litigation will the parties or any of their respective successors or assigns
claim or assert that the allocation of the Purchase Price is or should be
inconsistent with or different from that set forth in Schedule 4, unless as a
result of a determination made by a governing authority in a preceding year.
The parties agree to file all appropriate Internal Revenue Service Forms with
their respective Federal income tax returns for their respective tax year in
which the Closing occurs.
9
<PAGE> 10
6. Allocation of Expenses. All real estate taxes, personal property taxes,
rents, telephone charges, utilities, and other costs and expenses of owning or
operating the Assets which relate to periods both before and after the Closing
Date (the "Prorated Costs") shall be prorated on a per diem basis as of the
Closing Date, with the Sellers responsible for the portion of all such items
which relates to the period through the Closing Date, and Purchaser responsible
for the portion of all such items which relates to the period after the Closing
Date. Prorated Costs shall be settled between Purchaser and Sellers either at
Closing or as soon as practicable thereafter; and
(a) Any sales tax, use tax, excise tax, transfer tax, recording fee or
other tax or fee imposed on the transfer of the Assets from Sellers to
Purchaser shall be paid by Sellers.
7. Collection of Accounts Receivable. With respect to the accounts
receivable for the placement of employees, Sellers shall be entitled to all
monies owed Sellers, as evidenced by the accounts receivable list at time of
Closing covering all work completed through Friday, October 25, 1996, to be
followed by a subsequent report covering accounts receivable up to Closing,
which shall be due Purchaser by Thursday, November 7, 1996. Purchaser shall be
entitled to all monies received from the generation of accounts receivable
subsequent to November 3, 1996; and
(a) As described above, Sellers shall provide at Closing or immediately
thereafter, a list of placement and temporary accounts receivable due Sellers
on the Closing Date. For ninety (90) days
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subsequent to the Closing, Purchaser shall be responsible for the collection of
such accounts receivable and shall provide Sellers a weekly report accompanied
by all monies due Sellers in accordance with Sellers' Franchise Agreements with
Purchaser except that Sellers shall be responsible for all collection efforts
with inactive clients' accounts receivable which are over sixty (60) days old.
Inactive client shall be defined as a client who has not utilized the services
of Sellers within six (6) months of the Closing Date. Purchaser shall return to
Sellers at the end of the ninety (90) day period all uncollected accounts
receivable for further collection efforts by Sellers. Purchaser shall incur no
liability to Sellers for the uncollectibility of said accounts receivable.
Thereafter, Sellers shall submit to Purchaser monthly reports of all collection
activity accompanied by all monies due Purchaser in accordance with the
provisions of the Franchise Agreement. Sellers shall receive credit for all
collections subsequent to Closing, whether by Sellers or Purchaser, under the
Sales Incentive Program Agreement ("SIP") and shall receive payment in
accordance with SIP; and
(b) Sellers shall have access to all records to assist
Sellers in the collection of certain accounts receivable or for litigation or
government filing purposes.
8. Closing Deliveries by the Sellers and the Stockholders. The Sellers and
the Stockholders agree to execute and deliver at Closing, or cause to be
executed and delivered at Closing, the following:
(a) Such instruments of transfer, assignment and conveyance as shall be
necessary or desirable in the judgment of Purchaser to vest in Purchaser good
and marketable title to the Assets free and
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clear of all mortgages, liens, security interests, pledges, charges and other
encumbrances. Such instruments of transfer shall include:
(i) A Bill of Sale from the Sellers, in the form furnished to
the Sellers by Purchaser;
(ii) The written consent of the lessor to the assignment and
assumption of the Lease provided, however, if Sellers cannot obtain any such
assignment and assumption, Sellers shall assign any and all rights they have in
the Lease. Sellers shall indemnify and hold harmless Purchaser from any and all
damages and costs incurred by Purchaser if the lessor rejects the Sellers'
assignment of its rights to Purchaser and either reforms the Lease or
terminates the Lease, so long as lessor's action is based upon the assignment
and not a breach by Purchaser of any of the terms of the Lease Purchaser
accepted from Sellers. Sellers shall use their best efforts to obtain all such
assignments and assumptions;
(iii) Cooperation of parties to receive written consents of third
parties under the Assumed Contracts to the assignment and assumption of the
Assumed Contracts as soon as possible;
(iv) Form UCC-3 termination statements, signed by the creditor, to
cancel any financing statements disclosed in Schedule 5 to this Agreement
(other than financing statements filed in connection with Assumed Contracts);
(v) Unanimous written consents, signed by all Stockholders of the
Sellers, in a form consistent with the Sellers' bylaws and state laws,
approving the transactions contemplated hereunder, and any other duly executed
corporate and other documents which Purchaser may have reasonably requested
hereunder, satisfactory in form and substance, in the reasonable judgment of
Purchaser, and where appropriate certified by the proper corporate or
governmental authorities; and
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(vi) The written consents of any other persons whose approval or
consent to the execution, delivery, and performance of this Agreement by the
Sellers is legally or contractually required.
(b) The originals of the Lease, and (if written) the Assumed Contracts;
(c) A certificate signed by the president of Sellers to the effect that
all representations and warranties of Sellers contained in this Agreement are
true at and as of Closing, that Sellers have performed all agreements on its
part required to be performed hereunder, and that Sellers are not in default
under any of the provisions of this Agreement;
(d) Copies of insurance policies conforming to Subsection 10(m);
(e) A letter to the telephone company servicing Sellers requesting
transfer to Purchaser of the telephone number (including numbers for facsimile
machines and modems) and listings applicable to the Office;
(f) List of accounts receivable as of the Closing Date as provided in
Section 7;
(g) Any names or addresses Sellers have registered for use on the
Internet; and
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(h) No later than five (5) days prior to Closing, Sellers shall submit
to Purchaser such other instruments, documents or affidavits, in form and
substance reasonably acceptable to Purchaser, as may be necessary to effect the
Closing.
9. Closing Deliveries by Purchaser. In addition to delivery of the amount
required under Subsection 4(a) above, Purchaser agrees to execute and deliver
at the Closing, or cause to be executed and delivered at Closing:
(a) Immediately available funds in the amount provided in
Subsection 4(a);
(b) A Promissory Note in accordance with 4(b);
(c) Such instruments as shall be necessary or desirable in the judgment
of the Sellers to effect the assumption by Purchaser of the Lease and the
Assumed Contracts;
(d) Certified copy of resolutions duly adopted by the Board of Directors
of Purchaser authorizing the execution and delivery of this Agreement and
consummation of transactions described herein, which shall be in full force and
effect at the time of delivery;
(e) A certificate signed by the president of Purchaser to the effect
that all representations and warranties of Purchaser contained in this
Agreement are true at and as of Closing, that Purchaser has
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performed all agreements on its part required to be performed hereunder, and
that Purchaser is not in default under any of the provisions of this Agreement;
(f) Written consent from the bank, approving the transactions herein;
(g) Certified copy of resolutions authorizing Richard H. Spragins to act
or sign documents on behalf of Purchaser as an authorized agent; and
(h) With respect to Lease deposits, Sellers shall not seek nor accept
the return of the Lease deposit, or any part thereof, and Purchaser shall pay
to Sellers at Closing, among other payments, an amount sufficient to cover
Sellers' Lease deposit with Lessor. In the event lessor terminated the Lease
agreement and the termination is based upon the change of lessees, Sellers
shall request return of Lease deposit from lessor and return to Purchaser the
amount received from lessor.
10. Representations and Warranties of the Sellers and the Stockholders.
The Sellers and the Stockholders, jointly and severally, represent and warrant
as follows:
(a) The Sellers have been duly organized and are validly existing and
in good standing under the laws of the State of Illinois;
(b) The Stockholders together own all of the issued and outstanding
stock of the Sellers. The execution, delivery, and performance of this
Agreement have been duly authorized by the Board of
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Directors of the Sellers, and all necessary Stockholders action under the
Sellers' bylaws and Illinois law has been taken for approval of the execution
and delivery of this Agreement by the Sellers, their performance of the terms
of this Agreement, and the consummation of the transactions contemplated
hereunder;
(c) The execution and delivery of this Agreement, the Sellers'
performance hereunder, and the consummation of the transactions herein
contemplated, do not, and to the best of the Stockholders' knowledge will not
immediately or with the passage of time, the giving of notice or otherwise,
result in the breach of, constitute a default or violation under, or accelerate
any obligation under any agreement or other instruments to which either the
Sellers or any of the Stockholders are a party, or may be bound, so as to give
or create any rights in third parties with respect to the Assets;
(d) The Sellers have good title and right to use of all trade names,
trademarks or service marks used or available for use in Sellers' Office, and
neither the Sellers nor the Stockholders have notice of any claim concerning a
violation of or infringement upon the rights of any third party with respect to
the use of any trade name, trademark, service mark, copyright or patent;
(e) This Agreement and the other agreements and transactions
contemplated herein to which the Sellers are or will be a party will each, upon
execution and delivery, be a legal, valid, and binding obligation of the
Sellers, enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally;
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(f) Except as disclosed in Schedule 5, the Sellers have good and
marketable title to the Assets free and clear of all mortgages, liens, security
interests, pledges, charges, obligations and other encumbrances;
(g) The Sellers have previously delivered to Purchaser the Sellers'
most recent federal income tax returns, balance sheets as of June 30, 1996,
together with the Sellers' income statements for the fiscal year then ended,
and the interim balance sheets and income statements of the Sellers, June 30,
1996, (collectively, the "Financial Statements"). The Financial Statements
reflect or provide for all material claims against, and all material debts and
liabilities relating to, the Office, fixed or contingent, as of the dates of
the Financial Statements. There has not been any change since the date of the
most recent Financial Statements which materially and adversely affected the
Office or the Assets or the financial condition or results of the operation of
the Sellers. The Financial Statements are true, correct and complete and were
prepared in good faith in accordance with a cash basis of accounting which
system is a comprehensive accounting method used by Sellers;
(h) The Sellers have filed all federal, state, and local tax returns
including income, sales, and payroll, which were required to be filed prior to
the date of this Agreement and have made payment of all taxes shown by those
returns to be due and payable;
(i) The Sellers have all requisite power and all known necessary
permits, certificates, contracts, approvals and other authorizations required
by federal, state, city, county or other municipal
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bodies to own, lease, and use the Assets to operate the Office in the manner in
which they are presently operated;
(j) In connection with the operation of the Office and ownership and
use of the Assets, there are not now and have not been any material failures to
comply with any applicable known local, state or federal laws, regulations,
ordinances or administrative or judicial orders, and no allegations have been
made of any such failure;
(k) Sellers are not subject to any order of any court or governmental
authority; any pending or, to the best of the Sellers' and the Stockholders'
knowledge, threatened action, suit, proceeding, inquiry or investigation at law
or in equity; or any proceeding before any court, arbitrator, public board or
body, in which an unfavorable decision, ruling or finding would, in any way,
prevent the carrying out of this Agreement or any of the transactions
contemplated hereunder, declare unlawful any such transactions, cause such
transactions to be rescinded, have a material adverse effect on the Office or
the financial condition of the Sellers;
(l) Except for the Lease and the Assumed Contracts, and the
encumbrances listed in Schedule 5, there are no agreements, Lease, contracts,
charges, encumbrances or restrictions which may restrict Purchaser's use or
right to use any of the Assets or which create obligations for which Purchaser
could be liable;
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(m) The Sellers have maintained liability insurance for any claims
which may have arisen or cause of action which may have accrued during Sellers'
ownership and/or operation of the Assets and the Office. Such liability
insurance is of the "occurrence" type, so that if the policies are discontinued
by the Sellers after the Closing Date, liability insurance coverage will
nevertheless continue (subject to the terms and conditions of such policies)
with respect to such claims and causes of action;
(n) Neither this Agreement nor any Exhibit, Schedule, or attachment
hereto, nor any certificate or other information or document furnished by or on
behalf of the Sellers or the Stockholders knowingly contains any untrue
statement of a material fact, or knowingly omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading;
(o) Schedule 6 to this Agreement is a list of all persons currently
employed by the Sellers. Schedule 6 accurately and completely shows the listed
employees' current rates of compensation. Sellers have no employment agreements
with any of its employees which Purchaser will be required to assume and has no
oral or written understandings with any of its employees which relate to terms
or conditions of such employee's employment which Purchaser will be required to
assume. Purchaser has agreed to employ under employment at will agreements for
Sellers' staff employees; and
(p) The Sellers have no pension sharing plans or employee benefit plans
(as that term is defined in the federal law commonly known as the Employees'
Retirement Income Security Act, as amended) for any of its employees, which
Purchaser will be required to assume.
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11. Covenants of the Sellers and the Stockholders. The Sellers and the
Stockholders covenant that, between the date of this Agreement and the Closing,
they will:
(a) Carry on the business of the Office in the ordinary course;
(b) With Sellers' approval which will not be unreasonably withheld and
subject to any attorney client privilege, give Purchaser and its attorneys,
auditors and other representatives full access during normal business hours to
the Office and to the properties, books, contracts, commitments and records
pertaining to the Office;
(c) With Sellers' approval which will not be unreasonably withheld and
subject to any attorney client privilege, provide Purchaser with access to such
information concerning the affairs of the Office as Purchaser may reasonably
request, including authorizing the Sellers' auditors, attorneys and other
representatives to cooperate with Purchaser's auditors and attorneys and other
representatives and authorizing the Sellers' auditors to give Purchaser's
auditors full access to their files and working papers with respect to the
Office;
(d) Do all reasonable things and cause all reasonable things to be done
to ensure that the warranties and representations of the Sellers and the
Stockholders contained in this Agreement remain true and correct throughout the
period until Closing, as if such representations and warranties were
continuously made throughout such period;
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(e) Not enter into any new contracts, commitments or transactions
pertaining to the Office, except in the ordinary course of business;
(f) Not sell, agree to sell, or otherwise dispose of any of the Assets
(other than supplies used or sold in the ordinary course of business), without
the prior written consent of Purchaser;
(g) Use best efforts to obtain the releases of all mortgages, liens,
security interests, pledges, charges, obligations, and other encumbrances set
forth in Schedule 5;
(h) Not create or assume any new pledge, lien, or encumbrance with
respect to the Assets;
(i) Maintain the Assets in as good repair, order, and condition as they
were in as of the date of this Agreement, reasonable wear and use and damage by
fire, acts of God, or other casualty excepted;
(j) Not incur any indebtedness, obligations, or liability with respect
to the Office or Assets or make any payment in respect thereof, except in the
ordinary course of business;
(k) Pay, satisfy, and discharge the current obligations and liabilities
of the Office in the ordinary course of business, including but not limited to
royalties accruing under the Franchise Agreements and any other amounts payable
to Purchaser and its affiliates;
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(l) File all federal, state, and local tax returns which become due
prior to the Closing, and pay all taxes shown by those returns to be due and
payable, together with any interest or penalties which may be assessed by
taxing authorities on any taxes which were not timely paid;
(m) Maintain or cause to be maintained in full force and effect all of
the fire and other insurance on property and all of the liability and other
casualty insurance (including any bonds on personnel) that was in effect with
respect to the Office as of the date of this Agreement;
(n) Use reasonable efforts to preserve intact the Sellers' business
organization and the goodwill of the Sellers' Clients and suppliers;
(o) Conduct advertising and promotion for the Office consistent with
the amount and type of such advertising and promotion conducted during the
twelve months prior to the date of this Agreement;
(p) Maintain the books of account and records of the Office in the
usual manner;
(q) Promptly, at Purchaser's request, join and cooperate in any
application which Purchaser may make in order to ensure the timely transfer of
any licenses, permits, or certificates to Purchaser at Closing;
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(r) Promptly advise Purchaser in writing of any material adverse change
with respect to the Office, the Assets, or the financial condition of the
Sellers; and
(s) Deliver to Purchaser prompt written notice of any event or
condition known to either the Sellers or to any of the Stockholders which, if
it had existed on the date of execution of this Agreement, would have
constituted a breach of any of their representations and warranties under this
Agreement.
12. Representations and Warranties of Purchaser. Purchaser represents and
warrants as follows:
(a) Purchaser has been duly organized and is validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. Purchaser is
qualified to do business and is in good standing under the laws of the State of
Texas, where it has its headquarters. Purchaser's wholly owned subsidiary
Advance Processing Systems, Inc. is qualified to do business and is in good
standing under the laws of the State of Illinois;
(b) The execution, delivery and performance of this Agreement have been
duly authorized by the Board of Directors of Purchaser, and Purchaser has the
complete and unrestricted power and authority to, and has taken all corporate
action necessary to enter into, execute and deliver this Agreement and to
perform all of its obligations hereunder and to consummate all transactions
contemplated herein; and
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(c) This Agreement and the other agreements and transactions
contemplated herein to which Purchaser is or will be a party will each, upon
execution and delivery, be a legal, valid and binding obligation of Purchaser
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally. This Agreement does not conflict with any other
agreement affecting Purchaser.
13. Covenants of Purchaser. Purchaser covenants that, between the date
of this Agreement and the Closing:
(a) Purchaser will offer to hire the employees of the Sellers
listed on Schedule 6, subject to Purchaser's ordinary pre-employment and
post-employment standards and conditions, at rates of pay and with benefits
consistent with those of similarly-situated employees of Purchaser. Purchaser
shall have no obligation to offer employment to any specific individual listed
in Schedule 6 who does not meet Purchaser's ordinary standards and conditions,
or to offer any individual on Schedule 6 pay or benefits comparable to those
identified in such Schedule. Purchaser assumes no liability for any wages or
other benefits (including but not limited to bonuses, vacations, sick leave,
retirement benefits, and medical benefits) accrued by any person listed in
Schedule 6 during such person's employment by the Sellers. Purchaser shall
recognize the original date of hire of employees shown on Schedule 6 and
employed after Closing by Purchaser for purpose of service related benefits by
Purchaser;
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(b) Purchaser shall use reasonable efforts to assist the Sellers in
obtaining necessary consents and approvals to the assignment of the Lease and
the Assumed Contracts and any other rights which are to be assumed by Purchaser
in accordance with this Agreement;
(c) Purchaser shall make applications to such governmental authorities
and agencies as Purchaser deems appropriate to ensure that licenses, permits,
and certificates held by the Sellers are transferred to Purchaser as of the
Closing, and at the request of the Sellers shall join and cooperate in any such
application which the Sellers may make; and
(d) Purchaser shall do all reasonable things and cause all reasonable
things to be done to ensure that the warranties and representations of
Purchaser contained in this Agreement remain true and correct throughout the
period until Closing, as if such representations and warranties were
continuously made throughout such period.
14. Indemnity by the Sellers and the Stockholders. Without limiting any of
their other obligations under this Agreement, the Sellers and the Stockholders,
individually agree to indemnify and hold harmless Purchaser and its affiliates,
Officers, directors, Stockholders and employees against and from any loss,
liability, damages, cost or expense incurred by them (including, but not
limited to, reasonable attorneys' and accounting fees and expenses) based upon,
arising out of, or relating to: (i) any materially inaccurate, untruthful or
erroneous representation or warranty of the Sellers or the Stockholders set
forth in this Agreement or any certificate or document delivered pursuant to Ns
Agreement; (ii) any material failure
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to perform with respect to any of the covenants, conditions or agreements of
the Sellers or the Stockholders set forth in this Agreement, or any transaction
contemplated in this Agreement, except that each Stockholder shall be liable to
Purchaser only for Sellers' or such Stockholders' individual conduct and
compliance with the non-compete provisions of this Agreement subsequent to the
Closing; or (iii) the ownership or operation of the Office through the Closing
Date.
15. Indemnity by Purchaser. Purchaser agrees to indemnify and hold
harmless the Sellers and the Stockholders against and from any loss, liability,
damages, cost or expense incurred by them (including but not limited to
reasonable legal, attorneys' and accounting fees and expenses) based upon,
arising out of, or relating to: (i) any breach of any representation or
warranty of Purchaser set forth in this Agreement or any certificate or
document delivered pursuant to this Agreement; (ii) the breach of any covenant
or agreement of Purchaser set forth in this Agreement; or (iii) the ownership
or operation of the Office after the Closing Date.
16. Termination of Agreements.The Sellers and the Purchaser agree, that
upon completion of the Closing, the Franchise Agreements and any other
agreements relating to the Franchise will terminate without separate notice to
any party as of the Closing Date, subject to the post-termination obligations
of the Sellers and Purchaser under the Franchise Agreement and any other
agreements, including but not limited to SIP. If the parties fail to Close for
any reason, the Franchise Agreement, SIP Agreement, and any other agreements
thereto, shall remain in full force and effect in accordance with their terms.
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17. Loss or Destruction. Sellers shall continue to own and operate the
Offices until the Closing Date. Sellers shall assume all risk of loss,
destruction, or damage due to fire or other casualty until such date. Purchaser
shall have the right to cancel this Agreement if the Offices are interrupted
prior to said date by loss, destruction, or damage due to fire or other
casualty. If Purchaser does not exercise its right to cancel, as stated herein,
Purchaser shall take the Assets in the existing condition, together with any
insurance proceeds payable by virtue of such loss or damage.
18. Conditions Precedent to Purchaser's Obligation to Close. The
obligation of Purchaser to consummate the transactions herein contemplated is,
at Purchaser's option, subject to the following express conditions precedent:
(a) The Assets shall be free and clear of all mortgages, liens,
security interests, pledges, charges, obligations and other encumbrances;
(b) The representations and warranties of the Sellers and the
Stockholders contained in this Agreement shall be true in all material respects
at and as of Closing, as though such representations and warranties had been
made at and as of the Closing;
(c) The Sellers and the Stockholders shall have delivered all of the
items to be delivered by them to Purchaser at Closing pursuant to Subsection 8
above, and shall not be in default under any other provision of this Agreement
at or prior to Closing;
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(d) The Assets shall not have been damaged as the result of any act of
God, fire, flood, war, labor disturbance or similar calamity (unless Purchaser
has waived the event), and there shall have been no material adverse changes in
the Assets, the Office, or the financial condition of the Sellers since the
execution of this Agreement;
(e) Purchaser has obtained approval of its Senior Lenders for this
transaction; and
(f) Sellers shall have delivered to Purchaser executed UCC-3 statements
for any liens on Sellers' Assets.
19. Conditions Precedent to the Sellers' Obligation to Close. The
obligation of the Sellers to consummate the transactions contemplated herein at
Closing is, at the option of the Sellers, subject to the following express
conditions precedent:
(a) The representations and warranties of Purchaser contained in this
Agreement were true when made and shall be true in all material respects at and
as of Closing, as though such representations and warranties had been made at
and as of Closing; and
(b) Purchaser shall have delivered all of the items to be delivered by
it to the Sellers and the Stockholders at Closing pursuant to Subsection 9
above, and shall not be in default under any other provisions of this Agreement
at or prior to Closing.
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20. Additional Post-Closing Responsibilities. The parties shall comply
with the following obligations after the Closing:
(a) At Purchaser's request, without further consideration, the Sellers
and the Stockholders will execute and deliver after Closing such further
instruments of conveyance and transfer and take such other action as Purchaser
may reasonably require for the transfer of the Assets;
(b) At the request of Sellers, without further consideration, Purchaser
will execute and deliver after Closing such further evidence as the Sellers may
reasonably require of Purchaser's assumption of the Lease and the Assumed
Contracts;
(c) For ninety (90) days after the Closing Date at Purchaser's requests
the Sellers and the Stockholders shall assist Purchaser in every reasonable
manner in billing and collection efforts and in maintaining the business
relationships presently enjoyed by the Sellers and the Stockholders with
respect to the Office;
(d) Except for assisting Professional Staffing Services initially in
the implementation of Spectrum Software, the Sellers and the Stockholders agree
that for a period of three (3) years after the Closing Date, they will not,
directly or indirectly:
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(i) own, operate, manage, be employed by, engage in, provide
assistance to, or have a financial interest in any temporary employment
services business, permanent placement business, or similar business within the
county(s) of Cook, DuPage. and McHenry in the State of Illinois and within the
county(s) of Kalamazoo , in the State of Michigan, so long as Purchaser, or a
person or entity deriving title from Purchaser to operate the Office, continues
to operate the Office. For purposes of this provision "temporary employment
services business" includes, but is not limited to, "employee leasing,"
"temp-to-hire," and "contract temporary" services;
(ii) solicit employment services business from any client with
whom the Office did business, if such client placed an order with Sellers
within the three (3) year period prior to the Closing Date; or
(iii) for a period of three (3) years employ or seek to employ any
employee of the Office or Purchaser or in any other manner attempt, directly or
indirectly, to influence, induce or encourage any employee to leave the
employment of the Office or Purchaser.
(e) Within fourteen (14) days subsequent to Closing, Sellers shall
provide to Purchaser an affidavit stating that all state and local taxes due
through the Closing Date have been paid. Sellers shall timely file all federal,
state and local tax returns relating to the period through the Closing Date
which become due after the Closing Date; shall timely pay all taxes shown by
such returns to be due and payable, together with any interest or penalties
which may be assessed by taxing authorities on any taxes which were not timely
paid; and shall deliver to Purchaser copies of all tax clearance letters and
closing notices received from government authorities which relate to the
Office; and
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(f) Provide Sellers with the quarterly compliance report provided
Purchaser's senior lenders in accordance with Purchaser's loan agreement,
contemporaneous with submission to the senior lenders.
(g) (i) Sellers and Brett S. Hardt ("Hardt") hereby each acknowledges,
covenants, agrees and authorizes, that if Hardt breaches or causes Sellers to
breach Subsection 20(d) of this Agreement, Purchaser shall have the right to
withhold payment under the Rolling Meadows Note, the Kalamazoo Note, the Des
Plaines Note and all other amounts otherwise payable by Purchaser to Sellers
and the Stockholders, whether or not evidenced by a note (collectively, the
"Note Amounts"); and upon determination of the amount of any damages sustained
by Purchaser because of such breach of Subsection 20(d), Purchaser shall have
the right to offset and retain such damages against an aggregate amount, which
shall equal fifty percent (50%) of the aggregate amount of all outstanding
principal due and owing under and pursuant to the Note Amounts.
(ii) Sellers and Jeff Albrecht ("Albrecht") hereby each
acknowledges, covenants, agrees and authorizes, that if Albrecht breaches or
causes Sellers to breach Subsection 20(d) of this Agreement, Purchaser shall
have the right to withhold payment under the Rolling Meadows Note, the
Kalamazoo Note, the Des Plaines Note and all other amounts otherwise payable by
Purchaser to Sellers and the Stockholders, whether or not evidenced by a note
(collectively, the "Note Amounts"); and upon determination of the amount of any
damages sustained by Purchaser because of such breach of Subsection 20(d),
Purchaser shall have the right to offset and retain such damages against an
aggregate amount,
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which shall equal fifty percent (50%) of the aggregate amount of all
outstanding principal due and owing under and pursuant to the Note Amounts.
(iii) Sellers and Stockholders each hereby further acknowledge,
covenant and agree that Purchaser shall retain the above-stated rights of
offset and that Purchaser shall not be in breach of the terms of this Agreement
until resolution of the breach of Subsection 20(d) occurs, whether by
agreement, compromise, settlement or final unappealable judgment.
(iv) The withholding of Note payments to either or both
Stockholders and the establishment of actual damages shall be in addition to
all other rights of Purchaser whether at law or in equity.
21. Notices. All notices pursuant to this Agreement shall be sent in
writing to addresses set forth below, unless changed by written notice in
accordance with this Section 21. Any notice sent by telecopy shall be confirmed
by mail.
To Sellers and/or the Stockholders: BRETT HARDT
21839 WEST RIVERIA COURT
IVANHOE, ILLINOIS 60060
JEFF ALBRECHT
412 HILL COURT
WAUCONDA, ILLINOIS 60084
32
<PAGE> 33
To Purchaser:
SNELLING AND SNELLING, INC.
12801 N. CENTRAL EXPRESSWAY
SUITE 700
DALLAS, TEXAS 75243
ATTN: RICHARD H. SPRAGINS
Telecopy No.: (214)239-6879
22. Termination. (a) The Sellers or Purchaser may terminate this Agreement
by written notice
to the other in the event the transactions contemplated herein have not closed
by November 15, 1996; and
(b) This Agreement may also be terminated at any time prior to the
Closing date:
(i) By mutual consent of Purchaser and Sellers;
(ii) By the Purchaser, if any of the conditions of its
obligations hereunder shall not have been satisfied at or prior to the Closing
on the Closing Date and shall not have been waived by it; and
(iii) By the Sellers, if any of the conditions of its
obligations hereunder shall not have been satisfied at or prior to the Closing
on the Closing Date, or if the senior lender approval by this Agreement shall
not have been obtained by Purchaser and the requirements shall not have been
waived by it.
(c) Such notice of termination shall be effective as to all parties
to this Agreement, whether or not they receive notice individually. If this
Agreement is terminated by the Sellers or by Purchaser for the reason stated
above without consummation of the transactions contemplated herein, such
termination shall be without liability or further obligation by any party to
any other party to this Agreement.
33
<PAGE> 34
23. General Provisions. (a) Each party shall bear its own legal and other
costs and expenses in connection with the negotiation, preparation and
execution of this Agreement, and the performance of the transactions
contemplated hereby;
(b) This Agreement and the documents referred to herein constitute
the entire agreement among the parties with respect to the sale and purchase of
the Assets and supersede all previous written or oral negotiations,
commitments, and writing concerning the same subject matter;
(c) This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument;
(d) This Agreement may be amended only in writing and executed by
all of the parties;
(e) This Agreement will inure to the benefit of, and bind, the
respective heirs, personal representatives, successors and permitted assigns of
the parties;
(f) The parties represent that no person is entitled to any
brokerage commission, finder's fee, or any other like payment in connection
with any transaction contemplated by this Agreement, by reason of the action of
any party to this Agreement; and
(g) This Agreement shall be governed by the laws of the State of
Texas.
34
<PAGE> 35
24. Mediation and Arbitration. THE PARTIES AGREE THAT ANY AND ALL DISPUTES,
CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
SUBMITTED TO J.A.M.S/ENDISPUTE, OR ITS SUCCESSOR, FOR MEDIATION, AND IF THE
MATTER IS NOT RESOLVED THROUGH MEDIATION, THEN IT SHALL BE SUBMITTED TO
J.A.M.S./ENDISPUTE, OR ITS SUCCESSOR, FOR FINAL AND BINDING ARBITRATION. EITHER
PARTY MAY COMMENCE MEDIATION BY PROVIDING TO J.A.M.S/ENDISPUTE, AND THE OTHER
PARTY A WRITTEN REQUEST FOR MEDIATION, SETTING FORTH THE SUBJECT OF THE DISPUTE
AND THE RELIEF REQUESTED. THE PARTIES WILL COOPERATE WITH J.A.M.S/ENDISPUTE AND
WITH ONE ANOTHER IN SELECTING A MEDIATOR FROM J.A.M.S/ENDISPUTE'S PANEL OF
NEUTRALS, AND IN SCHEDULING THE MEDIATION PROCEEDINGS. THE PARTIES COVENANT
THAT THEY WILL PARTICIPATE IN THE MEDIATION IN GOOD FAITH, AND THAT THEY WILL
SHARE EQUALLY IN ITS COSTS. AR OFFERS, PROMISES, CONDUCT AND STATEMENTS,
WHETHER ORAL OR WRITTEN, MADE IN THE COURSE OF THE MEDIATION BY ANY OF THE
PARTIES, THEIR AGENTS, EMPLOYEES, EXPERTS AND ATTORNEYS, AND BY THE MEDIATOR OR
ANY J.A.M.S/ENDISPUTE EMPLOYEES, ARE CONFIDENTIAL, PRIVILEGED AND INADMISSIBLE
FOR ANY PURPOSE, INCLUDING IMPEACHMENT, IN ANY ARBITRATION OR OTHER PROCEEDING
INVOLVING THE PARTIES, PROVIDED THAT EVIDENCE THAT IS OTHERWISE ADMISSIBLE OR
DISCOVERABLE SHALL NOT BE RENDERED INADMISSIBLE OR NON-DISCOVERABLE AS A RESULT
OF ITS USE IN THE MEDIATION. THE PARTIES AGREE THAT ANY AND ALL DISPUTES,
CLAIMS OR CONTROVERSIES ARISING OUT OF OR RELATING TO THIS AGREEMENT THAT ARE
NOT RESOLVED BY THEIR MUTUAL AGREEMENT OR MANDATORY OR REASONABLE MEDIATION SET
FORTH ABOVE, SHALL BE SUBMITTED TO FINAL AND BINDING ARBITRATION BEFORE
J.A.M.S/ENDISPUTE, OR ITS SUCCESSOR, PURSUANT TO THE UNITED STATES ARBITRATION
ACT, 9 U.S.C. SEC. 1 ET SEQ. EITHER PARTY MAY COMMENCE THE ARBITRATION PROCESS
CALLED FOR IN THIS AGREEMENT BY FILING A WRITTEN DEMAND FOR
35
<PAGE> 36
ARBITRATION WITH J.A.M.S/ENDISPUTE, WITH A COPY TO THE OTHER PARTY. THE
ARBITRATION WILL BE CONDUCTED IN ACCORDANCE WITH THE PROVISION OF
J.A.M.S/ENDISPUTE'S COMPREHENSIVE ARBITRATION RULES AND PROCEDURES IN EFFECT AT
THE TIME OF FILING OF THE DEMAND FOR ARBITRATION. THE PARTIES WILL COOPERATE
WITH J.A.M.S/ENDISPUTE AND WITH ONE ANOTHER IN SELECTING AN ARBITRATOR FROM
J.A.M.S/ENDISPUTE'S PANEL OF NEUTRALS, AND IN SCHEDULING THE ARBITRATION
PROCEEDINGS. THE PARTIES COVENANT THAT THEY WILL PARTICIPATE IN THE ARBITRATION
IN GOOD FAITH, AND THAT THEY WILL SHARE EQUALLY IN ITS COSTS. THE PROVISIONS OF
THIS PARAGRAPH MAY BE ENFORCED BY ANY COURT OF COMPETENT JURISDICTION, AND THE
PARTY SEEKING ENFORCEMENT SHALL BE ENTITLED TO AN AWARD OF ALL COSTS, FEES AND
EXPENSES, INCLUDING ATTORNEYS FEES, TO BE PAID BY THE PARTY AGAINST WHOM
ENFORCEMENT IS ORDERED.
25. Confidentiality. Neither Purchaser nor Sellers, nor any of their
respective Stockholders, affiliates, Officers, employees, agents or
representatives shall: (a) make any press releases or any published statement
concerning the transactions contemplated herein without the prior written
consent of all of the parties hereto, which consent shall not be withheld where
such press releases or statement is required by applicable law; or (b) disclose
the terms or existence of this Agreement to any person or entity, other than to
their respective attorneys and other representatives, and to those parties such
as bankers and lessors with whom they must communicate in order to consummate
the proposed transactions. Purchaser and Sellers shall be permitted to discuss
the transactions contemplated herein with their respective suppliers and
vendors, provided that they instruct such suppliers and vendors to keep all
such communications confidential.
36
<PAGE> 37
26. Bulk Transfer Laws. The parties waive compliance with the requirements
of the bulk transfer or bulk sales law of any jurisdiction in connection with
the sale of the Assets to Purchaser under this Agreement. Sellers shall
indemnify and hold Purchaser harmless against any and all losses incurred by
Purchaser as a result of noncompliance with any such laws.
27. Release by Sellers and Stockholders. The Sellers and each Stockholder,
for themselves and on behalf of their officers, directors, employees,
successors, representatives, and agents, do hereby irrevocably and
unconditionally release, acquit, and forever discharge (the "Release")
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents from any and all claims, debts, damages, demands,
liabilities, suits in equity, complaints, grievances, obligations, promises,
agreements, rights, controversies, consents, losses, damages, attorneys' fees
and expenses, punitive damages and other compensation, suits, appeals, actions,
and causes of actions, of whatever kind of character, whether heretofore or
hereafter accruing, whether known or unknown, suspected or unsuspected,
specified or unspecified, fixed or contingent, liquidated or unliquidated, for
or because of any matter or thing done, omitted, or suffered to be done by,
Purchaser, its officers, directors, stockholders, employees, successors,
representatives, and agents, for any incidents, including those past and
present, which may have existed prior to, or contemporaneously with, the
execution of this Agreement, or subsequent to the execution of this Agreement
if arising out of conduct occurring before the execution of this Agreement. The
Sellers and each Stockholder hereby represent that nothing which is released
hereunder has been transferred, assigned, or given away prior to the date
hereof to any person, firm, or entity.
37
<PAGE> 38
(a) It is the intention of the Sellers and each Stockholder in
executing this Agreement that the Release shall be effective as a bar to each
and every claim, demand, and cause of action hereinabove specified, and the
Sellers and each Stockholder hereby knowingly and voluntarily waive any and all
rights and benefits. The Sellers and each Stockholder expressly consent that,
this release shall be given full force and effect according to each and all of
its express terms and provisions, including those relating to unknown and
unspecified claims, demands, and causes of action. The Sellers and each
Stockholder acknowledge and agree that this waiver is an essential and material
term of the Release of this Agreement and without the waiver of transaction
contemplated by this Agreement would not be consummated.
28. Release by Purchaser. The Purchaser, for itself and on behalf of their
officers, directors, employees, successors, representatives, and agents, do
hereby irrevocably and unconditionally release, acquit, and forever discharge
(the "Release") the Sellers and Stockholders, its officers, directors,
employees, successors, representatives, and agents from any and all claims,
debts, damages, demands, liabilities, suits in equity, complaints, grievances,
obligations, promises, agreements, rights, controversies, consents, losses,
damages, attorneys' fees and expenses, punitive damages and other compensation,
suits, appeals, actions, and causes of actions, of whatever kind of character,
whether heretofore or hereafter accruing, whether known or unknown, suspected
or unsuspected, specified or unspecified, fixed or contingent, liquidated or
unliquidated, for or because of any matter or thing done, omitted, or suffered
to be done by, the Sellers and Stockholders, its officers, directors,
employees, successors, representatives, and agents, for any incidents,
including those past and present, which may have existed prior to, or
contemporaneously with, the execution of this Agreement, or subsequent to the
execution of this Agreement if arising out of conduct occurring
38
<PAGE> 39
before the execution of this Agreement. The Purchaser hereby represents that
nothing which is released hereunder has been transferred, assigned, or given
away prior to the date hereof to any person, firm, or entity.
(a) It is the intention of the Purchaser in executing this
Agreement that the Release shall be effective as a bar to each and every claim,
demand, and cause of action hereinabove specified, and the Purchaser hereby
knowingly and voluntarily waives any and all rights and benefits. The Purchaser
expressly consents that, this release shall be given full force and effect
according to each and all of its express terms and provisions, including those
relating to unknown and unspecified claims, demands, and causes of action. The
Purchaser acknowledges and agrees that this waiver is an essential and material
term of the Release of this Agreement and without the waiver of transaction
contemplated by this Agreement would not be consummated.
29. Survival of Representations. All representations, warranties and
agreements made by the parties hereto, shall survive Closing.
39
<PAGE> 40
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
under seal of the date first written above.
B.A.T. HOLDINGS, INC. Stockholders:
By: By:
--------------------------------- -------------------------
Brett S. Hardt Brett S. Hardt
President
By:
-------------------------
Jeff Albrecht
SNELLING AND SNELLING, INC.
By:
---------------------------------
Richard H. Spragins
Senior Vice President
40
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated April 25, 1997 accompanying the
consolidated financial statements and schedule of Snelling and Snelling, Inc.
and our report dated August 15, 1997 accompanying the financial statements of
B.A.T. Group contained in the Registration Statement and Prospectus. We consent
to the use of the aforementioned reports in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
Dallas, Texas
November 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 648 549
<SECURITIES> 0 0
<RECEIVABLES> 25,129 21,718
<ALLOWANCES> 681 349
<INVENTORY> 0 0
<CURRENT-ASSETS> 27,860 24,704
<PP&E> 8,365 8,633
<DEPRECIATION> 3,872 3,579
<TOTAL-ASSETS> 55,302 52,055
<CURRENT-LIABILITIES> 13,917 16,358
<BONDS> 0 0
0 0
0 0
<COMMON> 47 58
<OTHER-SE> 14,838 15,185
<TOTAL-LIABILITY-AND-EQUITY> 55,302 52,055
<SALES> 0 0
<TOTAL-REVENUES> 165,686 168,602
<CGS> 0 0
<TOTAL-COSTS> 123,964 122,945
<OTHER-EXPENSES> 36,193 38,856
<LOSS-PROVISION> 539 226
<INTEREST-EXPENSE> 1,885 1,100
<INCOME-PRETAX> 4,342 5,475
<INCOME-TAX> 1,727 2,161
<INCOME-CONTINUING> 2,615 3,314
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,615 3,314
<EPS-PRIMARY> .38 .48
<EPS-DILUTED> .38 .48
</TABLE>
