<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended JULY 6, 1996
Commission file number 0-24990
WESTERN STAFF SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1266151
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
(510) 930-5300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ____
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 20, 1996
-------------------- ------------------------------
Common Stock, $.01 par value 10,338,116 shares
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
October 28, 1995 and July 6, 1996 3
Condensed Consolidated Statements of Operations -
12 and 36 weeks ended July 8, 1995 and July 6, 1996 4
Condensed Consolidated Statements of Cash Flows -
36 weeks ended July 8, 1995 and July 6, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
OCTOBER 28, JULY 6,
1995 1996
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 3,014 $ 4,920
Trade accounts receivable, less allowance for
doubtful accounts of $823 and $828 53,937 55,842
Due from licensees 7,143 4,397
Deferred income taxes 1,015 4,738
Other current assets 3,143 3,253
---------- ----------
Total current assets 68,252 73,150
Property, plant and equipment, net 16,438 18,267
Deferred income taxes 694 2,028
Intangible assets, net of accumulated
amortization of $4,709 and $5,193 9,476 12,773
Other assets 1,309 1,225
---------- ----------
$ 96,169 107,443
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 12,600 $
Current portion of loans payable 1,770 1,458
Current portion of note payable to related party 2,468 973
Accounts payable and accrued expenses 33,135 29,602
Income taxes payable 930 6,081
Distribution payable to stockholder 5,000
---------- ----------
Total current liabilities 50,903 43,114
Loans payable 3,678 1,989
Note payable to related party 1,945 1,945
Deferred income taxes 299 7,858
Other long-term liabilities 7,552 7,548
---------- ----------
Total liabilities 64,377 62,454
---------- ----------
Commitments and contingencies (Note 3)
Stockholders' equity:
Preferred stock - $.01 par value;
Authorized and unissued: 1,000 shares at
July 6, 1996
Common stock:
Par value: no par value at October 28, 1995;
$.01 at July 6, 1996
Authorized: 15,420 at October 28, 1995;
25,000 at July 6, 1996
Issued and outstanding: 8,838 at
October 28, 1995; 10,338 at July 6, 1996 50 103
Additional paid-in-capital 3,999 29,068
Retained earnings 27,386 15,399
Cumulative currency translation 357 419
---------- ----------
Total stockholders' equity 31,792 44,989
---------- ----------
$ 96,169 $ 107,443
---------- ----------
---------- ----------
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12 WEEKS ENDED 36 WEEKS ENDED
--------------------------- ---------------------------
JULY 8, JULY 6, JULY 8, JULY 6,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales of services $ 90,450 $ 104,494 $ 262,046 $ 297,859
License fees 841 487 2,308 2,087
------------ ------------ ------------ ------------
Total sales of services and license fees 91,291 104,981 264,354 299,946
------------ ------------ ------------ ------------
Costs of services 71,226 82,240 205,258 234,553
Franchise agents' share of gross profit 4,787 4,252 13,964 12,151
Selling and administrative expenses 13,669 15,515 38,211 44,954
------------ ------------ ------------ ------------
Total costs and expenses 89,682 102,007 257,433 291,658
------------ ------------ ------------ ------------
Operating income 1,609 2,974 6,921 8,288
Interest expense 299 162 733 924
Interest income (64) (94) (189) (192)
------------ ------------ ------------ ------------
Income before income taxes 1,374 2,906 6,377 7,556
Provision for income taxes 68 8,137 318 8,401
------------ ------------ ------------ ------------
Net income (loss) $ 1,306 $ (5,231) $ 6,059 $ (845)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
PRO FORMA DATA:
Income before income taxes $ 1,374 $ 2,906 $ 6,377 $ 7,556
Provision for income taxes 467 1,133 2,168 2,913
------------ ------------ ------------ ------------
Net income $ 907 $ 1,773 $ 4,209 $ 4,643
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common share $ 0.10 $ 0.18 $ 0.48 $ 0.50
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares outstanding 8,838 9,999 8,838 9,225
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
36 WEEKS ENDED
----------------------
JULY 8, JULY 6,
1995 1996
------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6,059 $ (845)
Adjustments to reconcile net income (loss)
to net cash flows
from operating activities:
Depreciation 1,838 2,449
Amortization 149 486
Provision for losses on doubtful accounts 384 356
Deferred income taxes 248 2,505
Changes in assets and liabilities:
Trade accounts receivable (89) (2,223)
Due from licensees (1,129) 2,746
Other assets (644) (197)
Accounts payable and accrued expenses (2,866) (3,919)
Income taxes payable 517 5,156
Other long-term liabilities 130 (14)
--------- ---------
Net cash flows from operating activities 4,597 6,500
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for purchases of fixed assets (2,989) (4,430)
Payments for intangibles and other investments (60) (3,821)
Other, net 273 223
--------- ---------
Net cash flows from investing activities (2,776) (8,028)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of
credit agreements 5,600 (12,600)
Proceeds from issuance of loans payable 400
Principal payments on loans payable (1,034) (2,002)
Repayment of note payable to related party (24) (1,495)
Proceeds from issuance of common stock 19,530
Distributions to stockholders (7,275)
--------- ---------
Net cash flows from financing activities (2,333) 3,433
--------- ---------
Effect of exchange rates on cash (8) 1
--------- ---------
Net change in cash and cash equivalents (520) 1,906
Cash and cash equivalents at beginning of period 2,866 3,014
--------- ---------
Cash and cash equivalents at end of period $ 2,346 $ 4,920
--------- ---------
--------- ---------
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Western
Staff Services, Inc. (the Parent) and its domestic and foreign subsidiaries
(together, the Company), as of and for the 12 and 36 week periods ended
July 8, 1995 and July 6, 1996 are unaudited. Material intercompany
accounts and transactions have been eliminated.
Prior to the Company's initial public offering completed May 3, 1996 (the
Offering), the principal stockholder of the Parent owned minority interests
in each of the Parent's foreign and domestic subsidiaries and also owned
Kontorservice, Inc. (Norwegian Branch), a temporary personnel services
company doing business in Norway. Concurrent with the Offering, the Company
issued 202,857 shares valued at $2,840 to the Company's principal
stockholder in exchange for the contribution of each of his minority
interests and the capital stock of the Norwegian Branch. Based on common
control and management, these minority interests and the Norwegian Branch
have been retroactively combined with the Company's financial statements
for all prior periods presented in a manner similar to a pooling of
interests.
The condensed consolidated financial statements, in the opinion of
management, reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has
been condensed or omitted. The accompanying condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Registration
Statement on Form S-1 (File No. 33-85536).
The Company's fiscal year is a fifty-two or fifty-three week period ending
the Saturday nearest the end of October. For interim reporting purposes,
the first three fiscal quarters comprise twelve weeks each while the fourth
fiscal quarter consists of sixteen or seventeen weeks. The results of
operations for the 12 and 36 week periods ended July 6, 1996 are not
necessarily indicative of the results to be expected for the full year or
for any future period.
2. INITIAL PUBLIC OFFERING OF COMMON STOCK AND PRO FORMA INFORMATION
On May 3, 1996, the Company completed an initial public offering of
2,300,000 shares of common stock at $14.00 per share of which 1,500,000
shares were sold by the Company and 800,000 shares were sold by certain of
the Company's stockholders. Prior to the Offering, there was no public
market for the Company's common stock. The common stock is traded on the
Nasdaq National Market under the symbol "WSTF".
The net proceeds to the Company from the sale of the 1,500,000 shares of
common stock, after deduction of associated expenses, were $18,980. A
portion of the net proceeds was used to repay $13,800 outstanding under the
Company's revolving credit facility. A portion of the remaining
6
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
2. INITIAL PUBLIC OFFERING OF COMMON STOCK AND PRO FORMA INFORMATION
(CONTINUED)
balance was used to acquire the operations of one of the Company's
licensees and one of the Company's franchise agents for a combined purchase
price of $2,767. The remaining balance is reserved for acquisitions,
further debt reduction or for working capital and other general corporate
use. The Company did not receive any of the proceeds from the sale of the
shares of common stock offered by the stockholders.
Concurrent with the Offering, the Company effected a 1,542.01 for 1 stock
split, established a par value of $0.01 per share of common stock and
increased the authorized shares of common stock to 25,000,000. In addition,
the Company established a class of preferred stock, $0.01 par value per
share, and authorized 1,000,000 shares. No shares of the preferred stock
are outstanding.
The effect of the Offering on the Company's capital structure was to
increase common stock by $53 (10,338,116 shares issued and outstanding) and
to increase additional paid-in-capital by approximately $18,927.
On April 30, 1996, and in conjunction with the Offering, the Company
elected to terminate its S corporation status. In connection with the
termination, the Company is required by the Internal Revenue Service Code
to change its method of accounting for income tax reporting purposes from
the cash basis to the accrual basis. The termination resulted in a non-
recurring net charge to earnings of $7,460 in the third quarter of fiscal
1996. This charge is due primarily to temporary differences resulting from
the Company's historical use of the cash method of accounting for income
tax purposes and is reflected on the Company's unaudited consolidated
balance sheet at July 6, 1996 through adjustments consisting of an increase
of $12,574 in income taxes payable and deferred income tax liabilities
partially offset by an increase in the Company's deferred tax assets of
$5,114. The income tax liability of $12,574 will be payable in quarterly
installments due over four years. The initial quarterly installment
relating to such tax liability is due on August 15, 1996.
Pro forma net income per common share represents income before income taxes
after a pro forma provision for federal and state income taxes as if the
Company had been subject to federal and state income taxation as a C
corporation during each of the periods presented, divided by the pro forma
weighted average shares of common stock outstanding during the period. No
effect has been given to options outstanding under the Company's Stock
Option Plans as no material dilutive effect would result from the exercise
of these items. The pro forma weighted average shares outstanding for the
12 and 36 weeks ended July 8, 1995 gives effect to the common stock split
and the additional shares issued to the principal stockholder. Historical
net income per share is not presented in view of prior period S corporation
status.
Prior to consummation of the Offering, the Company declared a dividend
payable to its current stockholders consisting of the lesser of the
remaining undistributed earnings of the Company
7
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
2. INITIAL PUBLIC OFFERING OF COMMON STOCK AND PRO FORMA INFORMATION
(CONTINUED)
accumulated from November 1, 1987 to April 30, 1996 (the effective date of
the Company's S corporation termination) which were subject to taxation at
the stockholder level, or $5,000. The final undistributed earnings of the
Company from November 1, 1987 to April 30, 1996 totaled $11,142. The
difference between the actual distribution of $5,000 and the undistributed
earnings of $11,142 has been reclassified for financial reporting purposes
from retained earnings to additional paid-in-capital. The $5,000
stockholder distribution will be paid in quarterly installments over a
one-year period. The first installment of $1,250 was paid on July 15, 1996.
3. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and other actions arising in the ordinary
course of business. Some of these claims and actions have resulted in
lawsuits in which the Company is a defendant. Management believes that the
ultimate obligations, if any, which may result from unfavorable outcomes of
such lawsuits will not have a material adverse effect on the financial
position or results of operations of the Company and that such obligations,
if any, would be adequately covered by insurance.
8
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to the results of
operations and financial condition of Western Staff Services, Inc., together
with its consolidated subsidiaries. This discussion and analysis should be read
in conjunction with the Company's Condensed Consolidated Financial Statements
and Notes thereto included herein and with the Consolidated Financial Statements
and Notes thereto included in the Company's Registration Statement on Form S-1
(File No. 33-85536).
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends which may affect the Company's future operating results and financial
position. Such statements are subject to risks and uncertainties that could
cause the Company's actual results and financial position to differ materially
from those anticipated in the forward-looking statements. Such factors include,
but are not limited to: demand for the Company's services, the competition
within its markets, the loss of a principal customer, the Company's ability to
increase the productivity of its existing offices, to control costs and to
expand operations. Due to the foregoing factors, it is possible that in some
future period the Company's results of operations may be below the expectations
of the public market analysts and investors. In addition, the Company's results
of operations have historically been subject to quarterly and seasonal
fluctuations, with demand for temporary staffing historically highest in the
fourth fiscal quarter, due largely to the planning cycles of many of the
Company's customers, and typically lower in the first fiscal quarter, due, in
part, to national holidays as well as to plant shutdowns during and after the
holiday season. These and other risks and uncertainties related to the
Company's business are described in detail in the "Risk Factors" and "Business"
sections of the Company's Registration Statement on Form S-1 (File No. 33-85536)
which is incorporated herein by reference. Readers are cautioned not to place
undue reliance on these forward looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
OVERVIEW
The Company provides traditional temporary staffing services to businesses,
government agencies and health care organizations in regional and local markets
in the United States and selected international markets. The Company was
founded in 1948 with an office in San Francisco, gradually expanding to over 350
offices in the United States, the United Kingdom, Australia, New Zealand,
Denmark and Norway. Beginning in the late 1950s, the Company began its
franchise agent program and in fiscal 1993 introduced its licensing program.
Demand for the Company's temporary staffing services is significantly affected
by the general level of economic activity in the United States and certain
international markets. During periods of economic expansion, temporary
employees are often added before full-time employees are hired, resulting in
strong industry growth. The temporary staffing industry also benefits during
periods of economic uncertainty when employers are reluctant to hire new full-
time workers and instead choose to utilize temporary employees. When economic
activity slows, however, companies often choose to reduce their usage of
temporary employees before laying off regular employees, resulting in a
contraction in the temporary staffing industry.
9
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED JULY 6, 1996 COMPARED TO FISCAL QUARTER ENDED JULY 8, 1995
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $14.0
million or 15.5% for the fiscal quarter ended July 6, 1996 as compared to the
fiscal quarter ended July 8, 1995. The increase resulted from a 14.5% increase
in billed hours and a 0.7% increase in average billing rates per hour. During
the fiscal quarter ended July 6, 1996, the Company purchased the operations of
one of its licensees and converted the offices to Company-owned. Approximately
$2.8 million of the sales increase in the third quarter of fiscal 1996 is the
result of this acquisition. Billed hours also increased due to increased demand
in the Company's existing offices and the addition of new offices. Sales of
services for the third quarter of fiscal 1996 increased 17.1%, 15.9% and 2.9%,
respectively, for the Company's domestic business services, international
business services and medical services, as compared to the third quarter of
fiscal 1995. The increase in average billing rates reflects inflationary
factors as well as changes in the overall business mix.
License fees are charged to licensed offices based upon a percentage of the
gross profit generated by the licensed offices. License fees decreased $354,000
or 42.1% for the fiscal quarter ended July 6, 1996 as compared to the fiscal
quarter ended July 8, 1995. Approximately $465,000 of the license fees and
gross profit for the fiscal quarter ended July 8, 1995 was associated with a
major customer of one of the Company's licensees. The contract with this
licensee's customer was completed on December 31, 1995. License fees also
decreased due to the acquisition of one of the Company's licensees as noted
above. The Company added two new licensees and converted one franchise agent
to the license program during the second quarter of fiscal 1996.
COSTS OF SERVICES. Costs of services include hourly wages of temporary
employees, employer payroll taxes, state unemployment and workers' compensation
insurance and other employee-related costs. Costs of services increased $11.0
million or 15.5% for the third quarter of fiscal 1996 as compared to the third
quarter of fiscal 1995. Gross margin decreased from 22.0% for the third quarter
of fiscal 1995 to 21.7% for the third quarter of fiscal 1996 due largely to the
decrease in license fees noted above. Workers' compensation costs were 3.3% of
payroll in the third quarter of fiscal 1996 as compared to 3.9% during the third
quarter of fiscal 1995.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit represents the net distribution paid to franchise agents based upon a
percentage of gross profit generated by the franchise agents' operation.
Franchise agents' share of gross profit decreased $535,000 or 11.2% for the
third quarter of fiscal 1996 as compared to the third quarter of fiscal 1995.
As a percentage of sales of services and license fees, franchise agents' share
of gross profit declined from 5.2% during the third quarter of fiscal 1995 to
4.1% for the third quarter of fiscal 1996. This decrease is largely the result
of the acquisition by the Company of the operations of two of its ten largest
franchise agents and the conversion of these offices to Company-owned offices
during the fourth quarter of fiscal 1995.
10
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $1.8 million or 13.5% for the fiscal quarter ended July 6, 1996 as
compared to the fiscal quarter ended July 8, 1995. As a percentage of sales of
services and license fees, selling and administrative expenses decreased from
15.0% to 14.8% for the same period. Included in these costs for the third
quarter of fiscal 1995 was a $940,000 non-recurring charge to write-off deferred
costs related to the Company's planned 1994 initial public offering (IPO) that
was subsequently postponed. Excluding the charge for the IPO costs, selling and
administrative expenses as a percentage of sales of services and license fees
would have been 13.9% for the fiscal quarter ended July 8, 1995. The third
quarter fiscal 1996 increase in selling and administrative expenses as a
percentage of sales of services and license fees (after excluding the IPO costs
in fiscal 1995) is principally due to the conversion of franchise agent offices
to Company-owned offices during the fourth quarter of fiscal 1995. When offices
are converted from franchise agent offices to Company-owned offices, the Company
becomes responsible for the operating expenses of the new Company-owned offices,
resulting in an increase in the overall selling and administrative costs and a
decrease in the franchise agents' share of gross profit. Selling and
administrative expenses also increased slightly due to the acquisition of one of
the Company's licensees during the third quarter of fiscal 1996 and the
conversion of the licensed offices to Company-owned.
INTEREST EXPENSE. Interest expense decreased $137,000 or 45.8% for the
fiscal quarter ended July 6, 1996 as compared to the fiscal quarter ended July
8, 1995, reflecting lower average borrowings outstanding during the fiscal 1996
quarter. A portion of the proceeds from the Company's May 3, 1996 Offering were
used to repay borrowings under the Company's line of credit agreement.
PRO FORMA PROVISION FOR INCOME TAXES. Pro forma provision for income taxes
increased from $467,000 for the fiscal quarter ended July 8, 1995 to $1.1
million for the fiscal quarter ended July 6, 1996, due primarily to the increase
in income before income taxes of $1.5 million. The effective income tax rate
increased from 34.0% for the fiscal quarter ended July 8, 1995 to 39.0% for the
fiscal quarter ended July 6, 1996. The fiscal 1995 rate was lower due to income
tax credits and the recognition of the benefit of foreign net operating loss
carryforwards.
36 WEEK PERIOD ENDED JULY 6, 1996 COMPARED TO 36 WEEK PERIOD ENDED JULY 8, 1995
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $35.8
million or 13.7% for the 36 week period ended July 6, 1996 as compared to the 36
week period ended July 8, 1995. The increase resulted from an 11.2% increase in
billed hours and a 2.2% increase in average billing rates per hour. Billed
hours increased primarily due to increased demand in the Company's existing
offices and the addition of new offices as well as the effect of the acquisition
of one of the Company's licensees during the third quarter of fiscal 1996 and
the conversion of the licensee's offices to Company-owned. Sales of services
for the 36 week period ended July 6, 1996 increased 15.1%, 13.5% and 2.3%,
respectively, for the Company's domestic business services, international
business services and medical services as compared to the 36 week period ended
July 8, 1995. The increase in average billing rates reflects inflationary
factors as well as changes in the overall business mix.
License fees decreased $221,000 or 9.6% for the 36 week period ended July 6,
1996 as compared to the 36 week period ended July 8, 1995. Approximately
$470,000 and $1,055,000 of the license fees and
11
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
gross profit for the 36 week periods ended July 6, 1996 and July 8, 1995,
respectively, were associated with a major customer of one of the Company's
licensees. The licensee's contract with this customer was completed on December
31, 1995. License fees also decreased due to the acquisition of one of the
Company's licensees during the third quarter of fiscal 1996. The Company added
two new licensees and converted one franchise agent to the license program
during the second quarter of fiscal 1996.
COSTS OF SERVICES. Costs of services increased $29.3 million or 14.3% for
the 36 week period ended July 6, 1996 as compared to the 36 week period ended
July 8, 1995. Gross margin decreased from 22.4% for the 36 week period ended
July 8, 1995 to 21.8% for the 36 week period ended July 6, 1996. Workers'
compensation costs were 3.3% of payroll for the 36 week period ended July 6,
1996 as compared to 3.4% during the 36 week period ended July 8, 1995. The
fiscal 1995 period included a reduction in workers' compensation costs of
$980,000 due to the settlement of all workers' compensation claims associated
with policy years 1986 through 1991. The $980,000 reflects the difference
between the final settlement payment to the insurance carrier and the remaining
workers' compensation accruals for those policy years.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit decreased $1.8 million or 13.0% for the 36 week period ended July 6, 1996
as compared to the 36 week period ended July 8, 1995. As a percentage of sales
of services and license fees, franchise agents' share of gross profit declined
from 5.3% during the 36 week period ended July 8, 1995 to 4.1% for the 36 week
period ended July 6, 1996. This decrease is the result of the acquisition by
the Company of the operations of two of its ten largest franchise agents and the
conversion of these offices to Company-owned offices during the fourth quarter
of fiscal 1995.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $6.7 million or 17.6% for the 36 week period ended July 6, 1996 as
compared to the 36 week period ended July 8, 1995. As a percentage of sales of
services and license fees, selling and administrative expenses increased from
14.5% to 15.0% over the same period. Included in these costs for the third
quarter of fiscal 1995 was a $940,000 non-recurring charge to write-off deferred
costs related to the Company's planned 1994 IPO that was subsequently postponed.
Excluding the charge for the IPO costs, selling and administrative expenses as a
percentage of sales of services and license fees would have been 14.1% for the
36 week period ended July 8, 1995. The increase in selling and administrative
expenses as a percentage of sales of services and license fees (after excluding
the IPO costs in fiscal 1995) is principally due to the conversion of franchise
agent offices to Company-owned offices during the fourth quarter of fiscal
1995. When offices are converted from franchise agent offices to company-owned
offices, the Company becomes responsible for the operating expenses of the new
Company-owned offices, resulting in an increase in the overall selling and
administrative costs and a decrease in the franchise agents' share of gross
profit.
INTEREST EXPENSE. Interest expense increased $191,000 or 26.1% for the 36
week period ended July 6, 1996 as compared to the 36 week period ended July 8,
1995 reflecting higher average borrowings outstanding during the fiscal 1996
period.
12
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
PRO FORMA PROVISION FOR INCOME TAXES. Pro forma provision for income taxes
increased from $2.2 million for the 36 week period ended July 8, 1995 to $2.9
million for the 36 week period ended July 6, 1996 due to an increase of $1.2
million in income before income taxes and due to a higher effective tax rate for
the fiscal 1996 period. The effective income tax rate increased from 34.0% for
the fiscal 1995 period to 38.6% for the fiscal 1996 period. The fiscal 1995
rate was lower due to income tax credits and the recognition of the benefit of
foreign net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations through cash generated by
operating activities and through various forms of external financing, including
term loans, mortgage financing and bank lines of credit. The principal use of
cash is for financing of accounts receivable, particularly during periods of
growth. Temporary personnel are generally paid on a weekly basis while payments
from customers are generally received 30 to 60 days after billing. As a result
of seasonal fluctuations, accounts receivable balances are historically higher
in the fourth fiscal quarter and are generally at their lowest during the first
fiscal quarter. Short-term borrowings used to finance accounts receivable
follow a similar seasonal pattern.
On May 3, 1996, the Company completed an initial public offering (the Offering)
of 2.3 million shares of Common Stock, 800,000 of which were sold by certain
stockholders of the Company. The Company received net proceeds from the Offering
of approximately $19.0 million. A portion of the net proceeds was used to repay
$13.8 million outstanding under the Company's revolving credit facility. A
portion of the remaining balance was used to acquire the operations of one of
the Company's licensees and one of the Company's franchise agents for a combined
purchase price of $2.8 million. The remaining balance is reserved for
acquisitions, further debt reduction or for working capital and other general
corporate use.
On April 30, 1996, and in conjunction with the Offering, the Company elected to
terminate its S corporation status. In connection with the termination, the
Company is required by the Internal Revenue Service Code to change its method of
accounting for income tax reporting purposes from the cash basis to the accrual
basis. The termination resulted in a non-recurring net charge to earnings of
approximately $7.5 million in the third quarter of fiscal 1996. This charge is
due primarily to temporary differences resulting from the Company's historical
use of the cash method of accounting for income tax purposes and is reflected on
the Company's unaudited consolidated balance sheet at July 6, 1996 through
adjustments consisting of an increase of $12.6 million in income taxes payable
and deferred income tax liabilities partially offset by an increase in the
Company's deferred tax assets of $5.1 million. The income tax liability of $12.6
million will be payable in quarterly installments due over four years. The
initial quarterly installment relating to such tax liability is due on August
15, 1996.
Prior to consummation of the Offering, the Company declared a dividend payable
to its current stockholders consisting of the lesser of the remaining
undistributed earnings of the Company accumulated from November 1, 1987 to April
30, 1996, (the effective date of the Company's S corporation termination), which
were subject to taxation at the stockholder level, or $5 million. The final
undistributed earnings of the Company from November 1, 1987 to April 30, 1996
totaled $11.1 million. The difference between the actual distribution of $5.0
million and the undistributed earnings of
13
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
$11.1 million has been reclassified for financial reporting purposes from
retained earnings to additional paid-in-capital. The $5.0 million stockholder
distribution will be paid in quarterly installments over a one-year period. The
first installment of $1.25 million was paid on July 15, 1996.
Net cash flows from operating activities was $6.5 million for the 36 week period
ended July 6, 1996 as compared to $4.6 million for the comparable 1995 period.
Net income decreased by $6.9 million due to the tax adjustments noted above.
However, this decrease in cash flow was offset by increases in income taxes
payable and deferred income taxes. The increase in cash flows from operating
activities for the 36 week period ended July 6, 1996 was also due to decreases
in amounts due from licensees as a result of the completion of the contract for
a major customer of one of the licensees on December 31, 1995 and the collection
of the outstanding receivables from this customer. Cash flows were also
positively impacted by increased depreciation and amortization costs resulting
from recent acquisitions and investments in the Company's payroll and billing
system. These increases in cash flow were partially offset by higher levels of
accounts receivable at July 6, 1996 resulting from sales growth, as well as
decreases in accounts payable and accrued liabilities.
Cash used for capital expenditures, which are generally for software,
computers and peripherals, and office furniture and equipment, totaled $4.4
million for the 36 weeks ended July 6, 1996 and $3.0 million for the 36 weeks
ended July 8, 1995. The fiscal 1996 period included approximately $1.7
million associated with the Company's new management information system,
including costs for both the payroll and billing portion of the system as
well as costs for new modules under development. The Company expects to
spend an additional $100,000 in fiscal 1996 to fully implement the payroll
and billing portion of the new system. The Company has no other significant
commitments for capital purchases. During the 36 weeks ended July 6, 1996,
cash outflows for new acquisitions and for contingent payments under existing
acquisitions totaled $3.8 million, including payments of approximately $2.8
million for the acquisition of the operations of one of the Company's
licensees and one of the Company's franchise agents.
Net cash used for debt reduction totaled $16.1 million for the 36 weeks ended
July 6, 1996, including a payment of $1.5 million for fiscal 1995 acquisitions.
During the 36 week period ended July 8, 1995, the Company increased borrowings
by a net $4.9 million in order to provide working capital to support the
Company's growth and to pay dividends to the Company's stockholders.
Distributions to stockholders totaled $7.3 million for the 36 week period ended
July 8, 1995, of which, approximately $4.4 million was used to fund income tax
obligations.
During the second quarter of fiscal 1996, the Company executed a new term loan
and revolving credit agreement. The facility provides for a secured revolving
line of credit in the amount of $40.0 million, with the maximum amount of direct
advances limited to $20.0 million and the maximum amount of irrevocable standby
letters of credit limited to $20.0 million. The facility also provides for a
non-revolving line of credit, to be used primarily for acquisitions, converting
on March 31, 1997 to a six-year fully amortized term loan in an amount up to
$21.8 million. Amounts borrowed under the facility bear interest at variable
rates based on the prime rate or at fixed rates based on LIBOR plus applicable
margins on the date of borrowing. The credit facility contains covenants which,
among other things, require the Company to maintain certain financial ratios and
generally restrict, limit or prohibit the
14
<PAGE>
WESTERN STAFF SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Company with respect to capital expenditures, disposition of assets, incurrence
of debt, mergers, loans to affiliates and purchases of investments. The
facility also prohibits cash dividend payments on its capital stock. The
revolving line of credit will mature on March 31, 1998 and the term loan will
mature no later than March 31, 2003. As of July 6, 1996, the Company had $46.8
million available under its term loan and revolving credit facility, consisting
of $20.0 million available for direct advances, $5.0 million for irrevocable
standby letters of credit and $21.8 million under the non-revolving line of
credit to be used primarily for acquisitions.
The Company believes that cash provided from operations and available borrowings
under the credit agreement will be sufficient to meet anticipated needs for
working capital and capital expenditures at least through the next twelve
months.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the third fiscal quarter of 1996, the Company favorably
resolved one of the two pending cases it had brought against former
franchise agents. The Company obtained a bankruptcy court decree of
nondischargeability against an individual former franchise agent and
entered into a settlement agreement for dismissal of an appeal from a
state court judgment in it favor and related matters.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement for Purchase and Sale of Stock of Western Video Images, Inc.
and Purchase and Sale of Promissory Notes dated as of October 27, 1994
by and between Western Staff Services (USA), Inc. and W. Robert
Stover. *
3.1 Second Amended and Restated Certificate of Incorporation of Western
Staff Services, Inc. *
3.2 Form of Third Amended and Restated Certificate of Incorporation of
Western Staff Services, Inc. (to be filed with the Delaware Secretary
of State at Closing). *
3.3 Form of By-Laws of Western Staff Services, Inc. *
4.1 Specimen of Stock Certificate. *
10.1 Form of Indemnification Agreement between the Company and officers and
key employees of the Company. *
16
<PAGE>
10.2 Form of Indemnification Agreement between the Company and
directors of the Company.*
10.3 Employment Agreement between the Company and W. Robert Stover.*
10.5 Form of Nonstatutory Stock Option Agreement for fiscal 1989.*
10.6 Form of Nonstatutory Stock Option Agreement for fiscal 1990.*
10.7 Form of Western Staff Services, Inc. 1996 Stock Option/Stock
Issuance Plan.*
10.7.1 Western Staff Services, Inc. 1996 Stock Option/Stock
Issuance Plan.+
10.8 Credit Agreement dated as of February 21, 1996 among Western
Staff Services, Inc., Bank of America National Trust and Savings
Association, Sanwa Bank California and certain other financial
institutions.*
10.8.1 First Amendment to Credit Agreement dated as of June 10, 1996.
10.9 Deed of Trust (Non-Construction) & Assignment of Rents dated June
21, 1994 by and between Western Staff Services, Inc., First
Bancorp and Sanwa Bank California.*
10.9.1 Amendment of Commercial Credit Agreement and Modification of
Deed of Trust as of June 6, 1996.
10.10 Form of Tax Indemnification Agreement by and among the Company
and certain stockholders of the Company.*
10.11 Form of Western Staff Services, Inc. 1996 Employee Stock
Purchase Plan.*
10.11.1 Western Staff Services, Inc. Employee Stock Purchase Plan.+
10.12 Form of Exchange Agreement between the Company and W. Robert
Stover.*
10.13 Form of Employment Contract with certain Named Executive
Officers.*
27.1 Financial Data Schedule
--------------------
* Incorporated by reference to Registrant's Registration Statement on
Form S-1 (File No. 33-85536).
+ Filed with Registrant's Registration Statement on Form S-8 (File No.
333- 10429).
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fiscal quarter
ended July 6, 1996.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN STAFF SERVICES, INC.
August 20, 1996 /S/ PAUL A. NORBERG
- -------------------------- ---------------------------------
Date Paul. A Norberg
Executive Vice President, Chief Financial
Officer and Director
(PRINCIPAL FINANCIAL OFFICER)
18
<PAGE>
EX. 10.7.1
1996 Stock Option/Stock Issuance Plan
<PAGE>
WESTERN STAFF SERVICES, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
ARTICLE ONE
GENERAL
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I. PURPOSE OF THE PLAN
A. This 1996 Stock Option/Stock Issuance Plan (the "Plan") is
intended to promote the interests of Western Staff Services, Inc., a Delaware
corporation (the "Corporation"), by providing eligible individuals with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation (or its parent or subsidiary corporations).
B. The Plan shall become effective immediately upon the execution and
final pricing of the Underwriting Agreement for the initial public offering of
the Corporation's Common Stock. The execution date of such Underwriting
Agreement is hereby designated as the Plan Effective Date.
II. DEFINITIONS
A. For purposes of the Plan, the following definitions shall be in
effect:
BOARD: the Corporation's Board of Directors.
CHANGE IN CONTROL: a change in ownership or control of the Corporation
effected through either of the following transactions:
(i) the acquisition directly or indirectly by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept; or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board
<PAGE>
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in clause (A) who were
still in office at the time such election or nomination was approved by the
Board.
CODE: the Internal Revenue Code of 1986, as amended.
COMMON STOCK: shares of the Corporation's Common Stock, par value of
$0.01 per share.
CORPORATE TRANSACTION: either of the following stockholder-approved
transactions to which the Corporation is a party:
a. a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
b. the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution of
the Corporation.
DOMESTIC RELATIONS ORDER: any judgment, decree or order (including
approval of a property settlement agreement) which provides or otherwise
conveys, pursuant to applicable State domestic relations laws (including
community property laws), marital property rights to any spouse or former spouse
of the Optionee.
EMPLOYEE: an individual who performs services while in the employ of
the Corporation or one or more parent or subsidiary corporations, subject to the
control and direction of the employer entity not only as to the work to be
performed but also as to the manner and method of performance.
EXERCISE DATE: the date on which the Corporation shall have received
written notice of the option exercise.
FAIR MARKET VALUE: the Fair Market Value per share of Common Stock
determined in accordance with the following provisions:
- If the Common Stock is not at the time listed or admitted to trading
on any national stock exchange but is traded on the Nasdaq National
2.
<PAGE>
Market, the Fair Market Value shall be the closing selling price per share
on the date in question, as such price is reported by the National
Association of Securities Dealers, Inc. through the Nasdaq National Market.
If there is no reported closing selling price for the Common Stock on the
date in question, then the closing selling price on the last preceding date
for which such quotation exists shall be determinative of Fair Market
Value.
- If the Common Stock is at the time listed or admitted to trading on
any national securities exchange, then the Fair Market Value shall be the
closing selling price per share on the date in question on the exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the Fair Market Value
shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.
- For purposes of any option grants which are made at the time the
Underwriting Agreement for the initial public offering of the Common Stock
is executed and priced but prior to the time the Common Stock is first
traded on either a national securities exchange or the Nasdaq National
Market, the Fair Market Value per share of Common Stock shall be deemed to
be equal to the price per share at which the Common Stock is to be sold in
the initial public offering pursuant to the Underwriting Agreement.
HOSTILE TAKE-OVER: a change in ownership of the Corporation effected
through the following transaction:
a. the direct or indirect acquisition by any person or related group of
persons (other than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
---
b. the acceptance of more than fifty percent (50%) of the securities so
acquired in such tender or exchange offer from holders other than the
officers and directors of the Corporation subject to the short-swing profit
restrictions of Section 16 of the 1934 Act.
3.
<PAGE>
INCENTIVE OPTION: a stock option which satisfies the requirements of
Code Section 422.
INVOLUNTARY TERMINATION: the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
MISCONDUCT: the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Corporation (or
any parent or subsidiary), or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any parent or
subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
parent or subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any parent or subsidiary).
1934 ACT: the Securities and Exchange Act of 1934, as amended from
time to time.
NON-STATUTORY OPTION: a stock option not intended to meet the
requirements of Code Section 422.
OPTIONEE: a person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
PARTICIPANT: a person who is issued Common Stock under the Stock
Issuance Program.
PERMANENT DISABILITY OR PERMANENTLY DISABLED: the inability of the
Optionee or the Participant to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of
4.
<PAGE>
continuous duration of twelve (12) months or more. However, solely for the
purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
PLAN ADMINISTRATOR: the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
PRIMARY COMMITTEE: the committee of two (2) or more non-employee Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to Section 16 Insiders.
QUALIFIED DOMESTIC RELATIONS ORDER: a Domestic Relations Order which
substantially complies with the requirements of Code Section 414(p). The Plan
Administrator shall have the sole discretion to determine whether a Domestic
Relations Order is a Qualified Domestic Relations Order.
SECONDARY COMMITTEE: a committee of two (2) or more Board members
appointed by the Board to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to eligible persons other than Section 16
Insiders.
SECTION 16 INSIDER: an officer or director of the Corporation subject
to the short-swing profit liabilities of Section 16 of the 1934 Act.
SECTION 12(g) REGISTRATION DATE: the date on which the initial
registration of the Common Stock under Section 12(g) of the 1934 Act becomes
effective.
SERVICE: the performance of services on a periodic basis for the
Corporation (or any parent or subsidiary corporation) in the capacity of an
Employee, a non-employee member of the board of directors or an independent
consultant or advisor, except to the extent otherwise specifically provided in
the applicable stock option or stock issuance agreement.
TAKE-OVER PRICE: the greater of (a) the Fair Market Value per share of
-------
Common Stock on the date the particular option to purchase such stock is
surrendered to the Corporation in connection with a Hostile Take-Over or (b) the
highest reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (a) price per
share.
5.
<PAGE>
B. The following provisions shall be applicable in determining the
parent and subsidiary corporations of the Corporation:
Any corporation (other than the Corporation) in an unbroken chain
of corporations ending with the Corporation shall be considered to be a
PARENT of the Corporation, provided each such corporation in the unbroken
chain (other than the Corporation) owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to
be a SUBSIDIARY of the Corporation, provided each such corporation (other
than the last corporation) in the unbroken chain owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
III. STRUCTURE OF THE PLAN
A. Stock Programs. The Plan shall be divided into three separate
--------------
components: the Discretionary Option Grant Program specified in Article Two, the
Automatic Option Grant Program specified in Article Three and the Stock Issuance
Program specified in Article Four. Under the Discretionary Option Grant
Program, eligible individuals may, at the discretion of the Plan Administrator,
be granted options to purchase shares of Common Stock in accordance with the
provisions of Article Two. Under the Automatic Option Grant Program, each
individual serving as a non-employee Board member on the Plan Effective Date and
each individual who first joins the Board as a non-employee director at any time
after such Plan Effective Date shall at periodic intervals receive option grants
to purchase shares of Common Stock in accordance with the provisions of Article
Three, with the first such grants to be made on the Plan Effective Date. Under
the Stock Issuance Program, eligible individuals may be issued shares of Common
Stock directly, either through the immediate purchase of such shares at a price
per share not less than eighty-five percent (85%) of the fair market value per
share of Common Stock at the time of issuance or as a bonus for past services
rendered the Corporation or the Corporation's attainment of financial
objectives.
B. General Provisions. Unless the context clearly indicates
------------------
otherwise, the provisions of Articles One and Five shall apply to the
Discretionary Option Grant Program, the Automatic Option Grant Program and the
Stock Issuance Program and shall accordingly govern the interests of all
individuals under the Plan.
6.
<PAGE>
IV. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. No non-employee Board member shall be eligible
to serve on the Primary Committee if such individual has, during the twelve
(12)-month period immediately preceding the date of his or her appointment to
the Committee or (if shorter) the period commencing with the Section 12(g)
Registration Date and ending with the date of his or her appointment to the
Primary Committee, received an option grant or direct stock issuance under the
Plan or any other stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any parent or subsidiary), other than pursuant to
the Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
other stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any parent or subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock Issuance Programs and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any stock option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
7.
<PAGE>
F. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the express terms and conditions of Article
Three, and no Plan Administrator shall exercise any discretionary functions with
respect to option grants made pursuant to that program.
V. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant Program under Article Two and the Stock Issuance Program under Article
Four shall be limited to the following:
(i) officers and other key employees of the Corporation (or its
parent or subsidiary corporations) who render services which contribute to
the management, growth and financial success of the Corporation (or its
parent or subsidiary corporations);
(ii) non-employee members of the Board other than those serving
as Plan Administrator; and
(iii) those consultants or other independent advisors who provide
valuable services to the Corporation (or its parent or subsidiary
corporations).
B. The non-employee Board members serving as Plan Administrator shall
not be eligible during such period of service to participate in the
- ---
Discretionary Option Grant and Stock Issuance Programs or in any other stock
option, stock purchase, stock bonus or other stock plan of the Corporation (or
its parent or subsidiary corporations). Such individuals shall, however, be
eligible to receive automatic option grants pursuant to the provisions of
Article Three.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding and (ii) with respect to stock issuances under the
Stock Issuance Program, which eligible persons are to receive stock issuances,
the time or times when such issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid for such shares.
8.
<PAGE>
VI. STOCK SUBJECT TO THE PLAN
A. Shares of Common Stock shall be available for issuance under the
Plan and shall be drawn from either the Corporation's authorized but unissued
shares of Common Stock or from reacquired shares of Common Stock, including
shares repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall not
exceed 1,033,812 shares, subject to adjustment from time to time in accordance
with the provisions of this Section VI.
B. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of Common Stock in the aggregate per calendar year.
C. Should one or more outstanding options under this Plan expire or
terminate for any reason prior to exercise in full (including any option
cancelled in accordance with the cancellation-regrant provisions of Section IV
of Article Two of the Plan), then the shares subject to the portion of each
option not so exercised shall be available for subsequent issuance under the
Plan. Shares subject to any stock appreciation rights exercised under the Plan
and all share issuances under the Plan, whether or not the shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an outstanding option under the Plan be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable under
the Plan be withheld by the Corporation in satisfaction of the withholding taxes
incurred in connection with the exercise of an outstanding option under the Plan
or the vesting of a direct share issuance made under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the share issuance, and not by the net number of shares of Common Stock
actually issued to the holder of such option or share issuance.
D. Should any change be made to the Common Stock issuable under the
Plan by reason of any stock split, stock dividend, recapitalization, combination
of shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, then
appropriate adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which any one individual participating in the Plan may be granted
stock options, separately exercisable stock appreciation rights and direct stock
issuances in the aggregate per calendar year, (iii) the number and/or class of
securities for which automatic option grants are to be subsequently made per
eligible non-employee Board member under the Automatic Option Grant Program and
(iv) the number and/or class of securities and price per share in effect under
each option outstanding under either the Discretionary Option Grant or Automatic
Option Grant Program. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude
9.
<PAGE>
the enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
10.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Discretionary Option Grant Program
shall be authorized by action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Options or non-statutory
options. Individuals who are not Employees of the Corporation or its parent or
subsidiary corporations may only be granted non-statutory options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
--------
with the terms and conditions specified below. Each instrument evidencing an
Incentive Option shall, in addition, be subject to the applicable provisions of
Section II of this Article Two.
A. Option Price.
------------
1. The option price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The option price per share of Common Stock subject to an
Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of such Common Stock on the grant date.
(ii) The option price per share of Common Stock subject to a
non-statutory stock option shall in no event be less than eighty-five
percent (85%) of the Fair Market Value of such Common Stock on the grant
date.
2. The option price shall become immediately due upon exercise of
the option and, subject to the provisions of Section I of Article Five and the
instrument evidencing the grant, shall be payable in one of the following
alternative forms specified below:
(i) full payment in cash or check drawn to the Corporation's
order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
11.
<PAGE>
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) full payment through a broker-dealer sale and remittance
procedure pursuant to which the Optionee shall provide irrevocable written
instructions to (I) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate option price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required to
be withheld by the Corporation in connection with such purchase and (II)
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance procedure is used in
connection with the exercise of the option, payment of the option price for the
purchased shares must accompany such notice.
B. Term and Exercise of Options. Each option granted under this
----------------------------
Discretionary Option Grant Program shall be exercisable at such time or times
and during such period as is determined by the Plan Administrator and set forth
in the instrument evidencing the grant. No such option, however, shall have a
maximum term in excess of ten (10) years from the grant date.
C. Termination of Service.
----------------------
1. The following provisions shall govern the exercise period
applicable to any outstanding options held by the Optionee at the time of
cessation of Service or death.
(i) Should an Optionee cease Service for any reason
(including death or Permanent Disability) while holding one or more
outstanding options under this Article Two, then none of those options
shall (except to the extent otherwise provided pursuant to subparagraph 2
below) remain exercisable for more than a twelve (12)-month period (or such
shorter period determined by the Plan Administrator and set forth in the
instrument evidencing the grant) measured from the date of such cessation
of Service.
(ii) Any option held by the Optionee under this Article Two
and exercisable in whole or in part on the date of his or her
12.
<PAGE>
death may be subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option is
transferred pursuant to the Optionee's will or in accordance with the laws
of descent and distribution. However, the right to exercise such option
shall lapse upon the earlier of (i) the first anniversary of the date of
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the Optionee's death (or such shorter period determined by the Plan
Administrator and set forth in the instrument evidencing the grant) or (ii)
the specified expiration date of the option term. Accordingly, upon the
occurrence of the earlier event, the option shall terminate and cease to
remain outstanding.
(iii) Under no circumstances shall any such option be
exercisable after the specified expiration date of the option term.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
shares (if any) in which the Optionee is vested at the time of his or her
cessation of Service. Upon the expiration of the limited post-Service
exercise period or (if earlier) upon the specified expiration date of the
option term, each such option shall terminate and cease to remain
outstanding with respect to any vested shares for which the option has not
otherwise been exercised. However, each outstanding option shall
immediately terminate and cease to remain outstanding, at the time of the
Optionee's cessation of Service, with respect to any shares for which the
option is not otherwise at that time exercisable or in which the Optionee
is not otherwise vested.
(v) Should (i) the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee under this
Article Two shall terminate immediately and cease to remain outstanding.
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of time
as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or
13.
<PAGE>
more additional installments in which the Optionee would have vested under
the option had the Optionee continued in Service.
D. Stockholder Rights.
------------------
An Optionee shall have no stockholder rights with respect to any
shares covered by the option until such individual shall have exercised the
option, paid the option price for the purchased shares and become the holder of
record of those shares.
E. Limited Transferability
-----------------------
During the lifetime of the Optionee, the option shall be
exercisable only by the Optionee and shall not be assignable or transferable
other than by will or by the laws of descent and distribution following the
Optionee's death. However, a Non-Statutory Option may be assigned in whole or in
part during the Optionee's lifetime in accordance with the terms of a Qualified
Domestic Relations Order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
such Qualified Domestic Relations Order. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior to
such assignment and shall be set forth in such documents issued to the assignee
as the Plan Administrator may deem appropriate.
F. Repurchase Rights.
-----------------
The shares of Common Stock acquired upon the exercise of any
Article Two option grant may be subject to repurchase by the Corporation in
accordance with the following provisions:
(i) The Plan Administrator shall have the discretion to
authorize the issuance of unvested shares of Common Stock under this
Article Two. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase any or all of
those unvested shares at the option price paid per share. The terms and
conditions upon which such repurchase right shall be exercisable (including
the period and procedure for exercise and the appropriate vesting schedule
for the purchased shares) shall be established by the Plan Administrator
and set forth in the instrument evidencing such repurchase right.
(ii) All of the Corporation's outstanding repurchase rights
under this Article Two shall automatically terminate, and all shares
subject to such terminated rights shall immediately vest in full, upon the
occurrence of a Corporate Transaction, except to the extent: (A) any such
repurchase right is expressly assigned to the successor corporation (or
parent thereof) in connection with the Corporate Transaction or (B) such
termination
14.
<PAGE>
is precluded by other limitations imposed by the Plan Administrator at the
time the repurchase right is issued.
(iii) The Plan Administrator shall have the discretionary
authority, exercisable either before or after the Optionee's cessation of
Service, to cancel the Corporation's outstanding repurchase rights with
respect to one or more shares purchased or purchasable by the Optionee
under this Article Two and thereby accelerate the vesting of such shares in
whole or in part at any time.
II. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Article Two. Incentive Options may only be
granted to individuals who are Employees. Options which are specifically
designated as "non-statutory" options when issued under the Plan shall not be
---
subject to such terms and conditions.
A. Dollar Limitation. The aggregate Fair Market Value (determined as
-----------------
of the respective date or dates of grant) of the Common Stock for which one or
more options granted to any Employee under this Plan (or any other option plan
of the Corporation or its parent or subsidiary corporations) may for the first
time become exercisable as incentive stock options under the Federal tax laws
during any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2) or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such options as incentive
stock options under the Federal tax laws shall be applied on the basis of the
order in which such options are granted. Should the number of shares of Common
Stock for which any Incentive Option first becomes exercisable in any calendar
year exceed the applicable One Hundred Thousand Dollar ($100,000) limitation,
then that option may nevertheless be exercised in that calendar year for the
excess number of shares as a non-statutory option under the Federal tax laws.
B. 10% Stockholder. If any individual to whom an Incentive Option is
---------------
granted is the owner of stock (as determined under Section 424(d) of the Code)
possessing ten percent (10%) or more of the total combined voting power of all
classes of stock of the Corporation or any one of its parent or subsidiary
corporations, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value per share of Common Stock on the
grant date, and the option term shall not exceed five (5) years, measured from
the grant date.
Except as modified by the preceding provisions of this Section II, the
provisions of Articles One, Two and Five of the Plan shall apply to all
Incentive Options granted hereunder.
15.
<PAGE>
III. CORPORATE TRANSACTIONS/CHANGES IN CONTROL
A. In the event of any Corporate Transaction, each option which is at
the time outstanding under this Article Two shall automatically accelerate so
that each such option shall, immediately prior to the specified effective date
for the Corporate Transaction, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares. However, an outstanding
option under this Article Two shall NOT so accelerate if and to the extent: (i)
such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation or parent thereof, (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the option spread
existing at the time of the Corporate Transaction and provides for subsequent
payout in accordance with the same vesting schedule applicable to such option,
or (iii) the acceleration of such option is subject to other limitations imposed
by the Plan Administrator at the time of the option grant. The determination of
option comparability under clause (i) above shall be made by the Plan
Administrator, and its determination shall be final, binding and conclusive.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
C. Each outstanding option under this Article Two which is assumed in
connection with the Corporate Transaction or is otherwise to continue in effect
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply and pertain to the number and class of securities which would have been
issued to the option holder, in consummation of such Corporate Transaction, had
such person exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the option price
payable per share, provided the aggregate option price payable for such
--------
securities shall remain the same. In addition, the class and number of
securities available for issuance under the Plan on both an aggregate and per
participant basis following the consummation of the Corporate Transaction shall
be appropriately adjusted.
D. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in whole or in part in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Corporate Transaction in which those options are assumed or replaced
and do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
-------
the option term or (ii) the expiration of the twelve (12-month period measured
from the effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.
16.
<PAGE>
E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in whole or in part in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed twelve (12) months) following the effective
date of any Change in Control. Each option so accelerated shall remain
exercisable for fully-vested shares until the earlier of (i) the expiration of
-------
the option term or (ii) the expiration of the twelve (12)-month period measured
from the effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate in whole or in part,
and the shares subject to those terminated rights shall accordingly vest.
F. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Qualified
Option under the Federal tax laws.
G. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article Two and to
grant in substitution new options under the Plan covering the same or different
numbers of shares of Common Stock but with an option price per share not less
than (i) one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the new grant date in the case of a grant of an Incentive Option, (ii)
one hundred ten percent (110%) of such Fair Market Value in the case of a grant
of an Incentive Option to a 10% Stockholder or (iii) eighty-five percent (85%)
of such Fair Market Value in the case of all other grants.
V. STOCK APPRECIATION RIGHTS
A. Provided and only if the Plan Administrator determines in its
discretion to implement the stock appreciation right provisions of this Section
V, one or more Optionees may be granted the right, exercisable upon such terms
and conditions as the Plan Administrator may establish, to surrender all or part
of an unexercised option under this Article Two in exchange for a distribution
from the Corporation in an amount equal to the excess of (i) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (ii) the aggregate exercise price payable for such vested
shares.
17.
<PAGE>
B. No surrender of an option shall be effective hereunder unless it
is approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall accordingly become entitled under
this Section V may be made in shares of Common Stock valued at Fair Market Value
on the option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
C. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(i) five (5) business days after the receipt of the rejection notice or (ii) the
last day on which the option is otherwise exercisable in accordance with the
terms of the instrument evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the date of the option grant.
D. One or more officers of the Corporation subject to the short-swing
profit restrictions of the 1934 Act may, in the Plan Administrator's sole
discretion, be granted limited stock appreciation rights in tandem with their
outstanding options under this Article Two. Upon the occurrence of a Hostile
Take-Over, the officer shall have a thirty (30)-day period in which he or she
may surrender any outstanding options with such a limited stock appreciation
right in effect for at least six (6) months to the Corporation, to the extent
such option is at the time exercisable for fully vested shares of Common Stock.
The officer shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
vested shares of Common Stock at the time subject to each surrendered option (or
surrendered portion of such option) over (ii) the aggregate exercise price
payable for such shares. The cash distribution shall be made within five (5)
days following the date the option is surrendered to the Corporation, and
neither the approval of the Plan Administrator nor the consent of the Board
shall be required in connection with the option surrender and cash distribution.
Any unsurrendered portion of the option shall continue to remain outstanding and
become exercisable in accordance with the terms of the instrument evidencing
such grant.
E. The shares of Common Stock subject to any option surrendered for
an appreciation distribution pursuant to this Section V shall NOT be available
for subsequent issuance under the Plan.
18.
<PAGE>
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. ELIGIBILITY
A. Eligible Optionees. The individuals eligible to receive
------------------
automatic option grants pursuant to the provisions of this Article Three program
shall be limited to those individuals who are serving as non-employee Board
members on the Plan Effective Date or who are first elected or appointed as non-
employee Board members on or after such Effective Date, whether through
appointment by the Board or election by the Corporation's stockholders. Each
non-employee Board member eligible to participate in the Automatic Option Grant
Program pursuant to the foregoing criteria shall be designated an Eligible
Director for purposes of the Plan.
B. Limitation. Except for the option grants to be made pursuant to
----------
the provisions of this Automatic Option Grant Program, Eligible Directors who
are serving as the Plan Administrator shall not be eligible during such period
---
of service to receive any additional option grants or stock issuances under this
Plan or any other stock plan of the Corporation (or any parent or subsidiary
corporation).
II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS
A. Grant Dates. Option grants shall be made under this Article Three
-----------
on the dates specified below:
1. Initial Grant. Each Eligible Director who is a non-employee
-------------
Board member on the Plan Effective Date and each Eligible Director who is first
elected or appointed as a non-employee Board member after such date shall
automatically be granted, on the Plan Effective Date or on the date of such
initial election or appointment (as the case may be), a Non-Statutory Option to
purchase 1,000 shares of Common Stock upon the terms and conditions of this
Article Three. In no event, however, shall a non-employee Board member be
eligible to receive such an initial option grant if such individual has at any
time been in the prior employ of the Corporation (or any parent or subsidiary
corporation).
2. Annual Grant. On the date of each Annual Stockholders
------------
Meeting, beginning with the 1997 Annual Meeting, each individual who will
continue to serve as an Eligible Director shall automatically be granted,
whether or not such individual is standing for re-election as a Board member at
that Annual Meeting, a Non-Statutory Option to purchase an additional 1,000
shares of Common Stock upon the terms and conditions of this Article Three,
provided he or she has served as a non-employee Board member for at least six
(6) months. There shall be no limit on the number of such annual option grants
any one Eligible Director may receive over his or her period of Board service,
19.
<PAGE>
and non-employee Board members who have previously been in the employ of the
Corporation (or any parent or subsidiary corporation) shall be eligible to
receive such annual option grants over their period of continued Board service.
B. Exercise Price. The exercise price per share of Common Stock
--------------
subject to each automatic option grant made under this Article Three shall be
equal to one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the automatic grant date.
C. Payment. The exercise price shall be payable in one of the
-------
alternative forms specified below:
(i) full payment in cash or check drawn to the Corporation's
order;
(ii) full payment in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value on the
Exercise Date (as such term is defined below);
(iii) full payment in a combination of shares of Common Stock
held for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date and cash or check drawn to the
Corporation's order; or
(iv) full payment through a sale and remittance procedure
pursuant to which the Optionee shall provide irrevocable written
instructions to (I) a Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares and
(II) the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
Except to the extent the sale and remittance procedure specified above
is used for the exercise of the option for vested shares, payment of the
exercise price for the purchased shares must accompany the exercise notice.
D. Option Term. Each automatic grant under this Article Three shall
-----------
have a maximum term of ten (10) years measured from the automatic grant date.
E. Exercisability. Each automatic grant shall become fully
--------------
exercisable for the option shares upon the Optionee's completion of one year of
Board service measured from the automatic grant date. The exercisability of
each automatic grant outstanding under
20.
<PAGE>
this Article Three shall be accelerated as provided in Section II.G and Section
III of this Article Three.
F. Limited Transferability. During the lifetime of the Optionee, the
-----------------------
option shall be exercisable only by the Optionee and shall not be assignable or
transferable other than by will or by the laws of descent and distribution
following the Optionee's death. However, the option may also assigned in whole
or in part during the Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion may only be exercised
by the person or persons who acquire a proprietary interest in the option
pursuant to such Qualified Domestic Relations Order. The terms applicable to
the assigned portion shall be the same as those in effect for the option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Corporation may deem appropriate.
G. Effect of Termination of Board Membership.
-----------------------------------------
1. Should the Optionee cease to serve as a Board member for any
reason (other than death or Permanent Disability) while holding one or more
automatic option grants under this Article Three, then such individual shall
have a twelve (12)-month period following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which that option is exercisable at the time of such cessation
of Board service. Each such option shall immediately terminate and cease to be
outstanding, at the time of such cessation of Board service, with respect to any
shares for which the option is not otherwise at that time exercisable.
2. Should the Optionee die within twelve (12) months after
cessation of Board service, then any automatic option grant held by the Optionee
at the time of death may subsequently be exercised, for any or all of the shares
of Common Stock for which such option is exercisable at the time of the
Optionee's cessation of Board membership (less any option shares subsequently
purchased by the Optionee prior to death), by the personal representative of the
Optionee's estate or by the person or persons to whom the option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must occur within twelve (12) months after the
date of the Optionee's cessation of Board service.
3. Should the Optionee die or become Permanently Disabled while
serving as a Board member, then any automatic option grant held by such Optionee
under this Article Three shall accelerate in full, and the Optionee (or the
representative of the Optionee's estate or the person or persons to whom the
option is transferred upon the Optionee's death) shall have a twelve (12)-month
period following the date of the Optionee's cessation of Board membership in
which to exercise such option for any or all of the shares of Common Stock
subject to the option at the time of such cessation of Board membership.
21.
<PAGE>
4. In no event shall any automatic grant under this Article
Three remain exercisable after the expiration date of the ten (10)-year option
term. Upon the expiration of the applicable post-service exercise period under
subparagraph 1, 2 or 3 above or (if earlier) upon the expiration of the ten
(10)-year option term, the automatic grant shall terminate and cease to be
outstanding for any unexercised shares for which the option was otherwise
exercisable at the time of the Optionee's cessation of Board membership.
H. Stockholder Rights. The holder of an automatic option grant under
------------------
this Article Three shall have none of the rights of a stockholder with respect
to any shares subject to such option until such individual shall have exercised
the option, paid the exercise price for the purchased shares and become the
holder of record of those shares.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, each automatic option
grant at the time outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Corporate Transaction, become fully exercisable with
respect to the total number of shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of such shares.
Immediately after the consummation of the Corporate Transaction, all automatic
option grants under this Article Three shall terminate and cease to be
outstanding, except to the extent assumed by the successor entity or its parent
company.
B. In connection with any Change in Control, each automatic option
grant at the time outstanding under this Article Three shall automatically
accelerate so that each such option shall, immediately prior to the specified
effective date for the Change in Control, become fully exercisable with respect
to the total number of shares of Common Stock at the time subject to such option
and may be exercised for all or any portion of such shares. Any option
accelerated in connection with the Change in Control shall remain fully
exercisable until the expiration or sooner termination of the option term.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
option held by him or her under this Article Three for a period of at least six
(6) months. The Optionee shall in return be entitled to a cash distribution
from the Corporation in an amount equal to the excess of (i) the Take-Over Price
of the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. Neither the approval of the Plan Administrator
nor the consent of the Board shall be required in connection with such option
surrender and cash distribution. The shares of Common Stock subject to each
option surrendered in connection with the Hostile Take-Over shall NOT be
available for subsequent issuance under the Plan.
22.
<PAGE>
D. The automatic option grants outstanding under this Article Three
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS
The provisions of this Automatic Option Grant Program, together with
the automatic option grants outstanding under this Article Three, may not be
amended at intervals more frequently than once every six (6) months, other than
to the extent necessary to comply with applicable Federal income tax laws and
regulations.
V. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
23.
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ARTICLE FOUR
STOCK ISSUANCE PROGRAM
----------------------
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate purchases without any intervening stock option
grants. The issued shares shall be evidenced by a Stock Issuance Agreement
("Issuance Agreement") that complies with the terms and conditions of this
Article Four.
A. Consideration.
-------------
1. Shares of Common Stock drawn from the Corporation's
authorized but unissued shares of Common Stock ("Newly Issued Shares") shall be
issued under the Stock Issuance Program for one or more of the following items
of consideration which the Plan Administrator may deem appropriate in each
individual instance:
a. full payment in cash or check made payable to the
Corporation's order;
b. a promissory note payable to the Corporation's order in
one or more installments, which may be subject to cancellation in whole or
in part upon terms and conditions established by the Plan Administrator;
or
c. past services rendered to the Corporation or any parent or
subsidiary corporation.
2. Newly Issued Shares may, in the absolute discretion of the
Plan Administrator, be issued for consideration with a value less than one
hundred percent (100%) of the Fair Market Value of such shares at the time of
issuance, but in no event less than eighty-five percent (85%) of such Fair
Market Value.
3. Shares of Common Stock reacquired by the Corporation and
held as treasury shares ("Treasury Shares") may be issued under the Stock
Issuance Program for such consideration (including one or more of the items of
consideration specified in subparagraph 1 above) as the Plan Administrator may
deem appropriate, whether such consideration is in an amount less than, equal to
or greater than the Fair Market Value of the Treasury Shares at the time of
issuance. Treasury Shares may, in lieu of any cash consideration, be issued
subject to such vesting requirements tied to the Participant's period of future
Service or the Corporation's attainment of specified performance objectives as
the Plan Administrator may establish at the time of issuance.
24.
<PAGE>
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the absolute discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
a. the Service period to be completed by the Participant or
the performance objectives to be achieved by the Corporation,
b. the number of installments in which the shares are to
vest,
c. the interval or intervals (if any) which are to lapse
between installments, and
d. the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Issuance
Agreement executed by the Corporation and the Participant at the time such
unvested shares are issued.
2. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to him or her under the Plan,
whether or not his or her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to receive any regular
cash dividends paid on such shares. Any new, additional or different shares of
stock or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
his or her unvested shares by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration or by reason of any Corporate Transaction shall be
issued, subject to (i) the same vesting requirements applicable to his or her
unvested shares and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock under the Stock Issuance
Program, then those shares shall be immediately surrendered to the Corporation
for cancellation, and the Participant shall have no further stockholder rights
with respect to those shares. To the extent the surrendered shares were
previously issued to the Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money promissory note), the
Corporation shall repay to the Participant the cash consideration paid for the
surrendered shares and shall cancel the unpaid principal balance of any
outstanding
25.
<PAGE>
purchase-money note of the Participant attributable to such surrendered shares.
The surrendered shares may, at the Plan Administrator's discretion, be retained
by the Corporation as Treasury Shares or may be retired to authorized but
unissued share status.
4. The Plan Administrator may in its discretion elect to waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Upon the occurrence of any Corporate Transaction, all unvested
shares of Common Stock at the time outstanding under this Stock Issuance Program
shall immediately vest in full and the Corporation's repurchase/cancellation
rights shall terminate, except to the extent: (i) any such is expressly assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction or (ii) such termination is precluded by other limitations
imposed in the Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within
twelve (12) months following the effective date of any Corporate Transaction in
which those repurchase/cancellation rights are assigned to the successor
corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase/cancellation rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's Service
should subsequently terminate by reason of an Involuntary Termination within
twelve (12) months following the effective date of any Change in Control.
III. TRANSFER RESTRICTIONS/SHARE ESCROW
A. Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing such unvested shares. To the extent an
escrow arrangement is utilized, the unvested shares and
26.
<PAGE>
any securities or other assets distributed with respect to such shares (other
than regular cash dividends) shall be delivered in escrow to the Corporation to
be held until the Participant's interest in such shares (or the distributed
securities or assets) vests. If the unvested shares are issued directly to the
Participant, the restrictive legend on the certificates for such shares shall
read substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE UNVESTED AND
ARE ACCORDINGLY SUBJECT TO (I) CERTAIN TRANSFER RESTRICTIONS
AND (II) CANCELLATION OR REPURCHASE IN THE EVENT THE
REGISTERED HOLDER (OR HIS/HER PREDECESSOR IN INTEREST) CEASES
TO REMAIN IN THE CORPORATION'S SERVICE. SUCH TRANSFER
RESTRICTIONS AND THE TERMS AND CONDITIONS OF SUCH CANCELLATION
OR REPURCHASE ARE SET FORTH IN A STOCK ISSUANCE AGREEMENT
BETWEEN THE CORPORATION AND THE REGISTERED HOLDER (OR HIS/HER
PREDECESSOR IN INTEREST) DATED ________________, 199__,
A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."
B. The Participant shall have no right to transfer any unvested
shares of Common Stock issued to him or her under the Stock Issuance Program.
For purposes of this restriction, the term "transfer" shall include (without
limitation) any sale, pledge, assignment, encumbrance, gift or other disposition
of such shares, whether voluntary or involuntary. Upon any such attempted
transfer, the unvested shares shall immediately be cancelled in accordance with
substantially the same procedure in effect under Section I.B.3 of this Article
Four, and neither the Participant nor the proposed transferee shall have any
rights with respect to such cancelled shares. However, the Participant shall
have the right to make a gift of unvested shares acquired under the Stock
Issuance Program to his or her spouse or issue, including adopted children, or
to a trust established for such spouse or issue, provided the donee of such
shares delivers to the Corporation a written agreement to be bound by all the
provisions of the Stock Issuance Program and the Issuance Agreement applicable
to the gifted shares.
27.
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
-------------
IV. LOANS OR INSTALLMENT PAYMENTS
A. The Plan Administrator may, in its discretion, assist any
Optionee or Participant (including an Optionee or Participant who is an officer
of the Corporation) in the exercise of one or more options granted to such
Optionee under the Discretionary Option Grant Program or the purchase of one or
more shares issued to such Participant under the Stock Issuance Program,
including the satisfaction of any Federal and state income and employment tax
obligations arising therefrom, by (i) authorizing the extension of a loan from
the Corporation to such Optionee or Participant or (ii) permitting the Optionee
or Participant to pay the option price or purchase price for the purchased
Common Stock in installments over a period of years. The terms of any loan or
installment method of payment (including the interest rate and terms of
repayment) shall be upon such terms as the Plan Administrator specifies in the
applicable option or issuance agreement or otherwise deems appropriate at the
time such option price or purchase price becomes due and payable. Loans or
installment payments may be authorized with or without security or collateral.
In all events, the maximum credit available to the Optionee or Participant may
not exceed the option or purchase price of the acquired shares (less the par
value of such shares) plus any Federal, state and local income and employment
tax liability incurred by the Optionee or Participant in connection with the
acquisition of such shares.
B. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under this financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Plan Administrator may deem appropriate.
V. AMENDMENT OF THE PLAN AND AWARDS
A. The Board has complete and exclusive power and authority to amend
or modify the Plan (or any component thereof) in any or all respects whatsoever.
However, (i) no such amendment or modification shall adversely affect rights and
obligations with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any Participant with respect to Common Stock
issued under the Stock Issuance Program prior to such action, unless the
Optionee or Participant consents to such amendment, and (ii) any amendment made
to the Automatic Option Grant Program (or any options outstanding thereunder)
shall be in compliance with the limitation of Section IV of Article Three. In
addition, the Board may not, without the approval of the Corporation's
stockholders, amend the Plan to (i) materially increase the maximum number of
shares issuable under the Plan or the number of shares for which options may be
granted to newly elected or continuing Eligible Directors under Article Three of
the Plan or the maximum number of shares for which any one individual
participating in the Plan may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances in
28.
<PAGE>
the aggregate per calendar year, except for permissible adjustments under
Section VI.C. of Article One, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. (i) Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant Program and (ii) shares of Common Stock may
be issued under the Stock Issuance Program, which are in both instances in
excess of the number of shares then available for issuance under the Plan,
provided any excess shares actually issued under the Discretionary Option Grant
Program or the Stock Issuance Program are held in escrow until stockholder
approval is obtained for a sufficient increase in the number of shares available
for issuance under the Plan. If such stockholder approval is not obtained
within twelve (12) months after the date the first such excess option grants or
excess share issuances are made, then (I) any unexercised excess options shall
terminate and cease to be exercisable and (II) the Corporation shall promptly
refund the purchase price paid for any excess shares actually issued under the
Plan and held in escrow, together with interest (at the applicable Short Term
Federal Rate) for the period the shares were held in escrow.
VI. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options for such shares or the vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income tax and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion and in accordance
with the provisions of this Section III of Article Five and such supplemental
rules as the Plan Administrator may from time to time adopt (including the
applicable safe-harbor provisions of Rule 16b-3 of the Securities and Exchange
Commission), provide any or all holders of non-statutory options (other than the
automatic grants made pursuant to Article Three of the Plan) or unvested shares
under the Plan with the right to use shares of Common Stock in satisfaction of
all or part of the Federal, state and local income and employment tax
liabilities incurred by such holders in connection with the exercise of their
options or the vesting of their shares (the "Taxes"). Such right may be
provided to any such holder in either or both of the following formats:
1. Stock Withholding: The holder of the non-statutory option or
-----------------
unvested shares may be provided with the election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such non-statutory option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the applicable Taxes (not to exceed one hundred percent
(100%)) designated by the holder.
2. Stock Delivery: The Plan Administrator may, in its
--------------
discretion, provide the holder of the non-statutory option or the unvested
29.
<PAGE>
shares with the election to deliver to the Corporation, at the time the
non-statutory option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such individual (other than in
connection with the option exercise or share vesting triggering the Taxes)
with an aggregate Fair Market Value equal to the percentage of the Taxes
incurred in connection with such option exercise or share vesting (not to
exceed one hundred percent (100%)) designated by the holder.
VII. EFFECTIVE DATE AND TERM OF PLAN
A. Provided this Plan is approved by the Corporation's stockholders
on or before the Plan Effective Date, this Plan shall become effective
immediately upon such Plan Effective Date.
B. The Plan shall terminate upon the earlier of (i) ten (10) years
-------
following the Plan Effective Date or (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to the exercise of
the options granted under the Plan or the issuance of shares (whether vested or
unvested) under the Stock Issuance Program. If the date of termination is
determined under clause (i) above, then all option grants and unvested share
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants or issuance.
VIII. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to option grants or share issuances under the Plan shall be used for
general corporate purposes.
IX. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option under
the Plan, the issuance of any shares under the Stock Issuance Program, and the
issuance of Common Stock upon the exercise or surrender of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which stock of the same class is then listed.
30.
<PAGE>
X. NO EMPLOYMENT/SERVICE RIGHTS
Neither the action of the Corporation in establishing the Plan, nor
any action taken by the Plan Administrator hereunder, nor any provision of the
Plan shall be construed so as to grant any individual the right to remain in the
employ or service of the Corporation (or any parent or subsidiary corporation)
for any period of specific duration, and the Corporation (or any parent or
subsidiary corporation retaining the services of such individual) may terminate
such individual's employment or service at any time and for any reason, with or
without cause.
XI. MISCELLANEOUS PROVISIONS
A. The right to acquire Common Stock or other assets under the Plan
may not be assigned, encumbered or otherwise transferred by any Optionee or
Participant.
B. The provisions of the Plan relating to the exercise of options
and the vesting of shares shall be governed by the laws of the State of
California, as such laws are applied to contracts entered into and performed in
such State.
C. The provisions of the Plan shall inure to the benefit of, and be
binding upon, the Corporation and its successors or assigns, whether by
Corporate Transaction or otherwise, and the Participants and Optionees, the
legal representatives of their respective estates, their respective heirs or
legatees and their permitted assignees.
31.
<PAGE>
EXH. 10.8.1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "AMENDMENT"), dated
as of June 10, 1996, is entered into by and among WESTERN STAFF SERVICES, INC.
(the "BORROWER"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
agent for itself and the Banks (the "AGENT"), and the several financial
institutions party to the Credit Agreement (collectively, the "BANKS").
RECITALS
A. The Borrower, Banks, and Agent are parties to a Credit Agreement
dated as of February 21, 1996 (the "CREDIT AGREEMENT") pursuant to which the
Agent and the Banks have extended certain credit facilities to the Borrower.
B. The Borrower has requested that the Banks agree to certain
amendments of the Credit Agreement.
C. The Banks are willing to amend the Credit Agreement, subject to
the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) Subsection 8.11 (b) of the Credit Agreement is amended by
changing "Two Million Five Hundred Thousand Dollars ($2,500,000)" to
"Two Million Seven Hundred Thousand Dollars ($2,700,000)."
(b) Subsection 8.11 (h) of the Credit Agreement is amended by
the addition thereto of the following:
It is provided, however, that the requirements set forth in this
subsection 8.11 (h) shall not apply with respect to the Acquisition of
Western Temporary Services of South Central Illinois, Inc.
(c) Subsection 9.01 (c) of the Credit Agreement is amended by
changing "sixty (60) days" to "one hundred eight (108) days."
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Agent and the Banks as
-1-
<PAGE>
follows:
(a) No Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate
and other action and do not and will not require any registration
with, consent or approval of, notice to or action by, any Person
(including any Governmental Authority) in order to be effective and
enforceable. The Credit Agreement as amended by this Amendment
constitutes the legal, valid and binding obligations of the Borrower,
enforceable against it in accordance with its respective terms,
without defense, counterclaim, or offset.
(c) All representations and warranties of the Borrower contained
in the Credit Agreement are true and correct.
(d) The Borrower is entering into this Amendment on the basis of
its own investigation and for its own reasons, without reliance upon
the Agent and the Banks or any other Person.
4. EFFECTIVE DATE. This Amendment will become effective as of
June 9, 1996 (the "EFFECTIVE DATE"), PROVIDED that each of the following
conditions precedent is satisfied:
(a) The Agent has received from the Borrower and each of the
Banks a duly executed original (or, if elected by the Agent, an
executed facsimile copy) of this Amendment, together with a duly
executed Guarantor Acknowledgment and Consent in the form attached
hereto (the "CONSENT").
5. RESERVATION OF RIGHTS. The Borrower acknowledges and agrees
that the execution and delivery by the Agent and the Banks of this Amendment
shall not be deemed to create a course of dealing or otherwise obligate the
Agent or the Banks to forbear or execute similar amendments under the same or
similar circumstances in the future.
6. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force
and effect and all references therein to such Credit Agreement shall
henceforth refer to the Credit Agreement as amended by this Amendment.
This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
-2-
<PAGE>
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and thereto and their respective
successors and assigns. No third party beneficiaries are intended in
connection with this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of California.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same
instrument. Each of the parties hereto understands and agrees that
this document (and any other document required herein) may be
delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be
followed promptly by mailing of a hard copy original, and that receipt
by the Agent of a facsimile transmitted document purportedly bearing
the signature of a Bank or the Borrower shall bind such Bank or the
Borrower, respectively, with the same force and effect as the delivery
of a hard copy original. Any failure by the Agent to receive the hard
copy executed original of such document shall not diminish the binding
effect of receipt of the facsimile transmitted executed original of
such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, together with the Credit Agreement, contains
the entire and exclusive agreement of the parties hereto with
reference to the matters discussed herein and therein. This Amendment
supersedes all prior drafts and communications with respect thereto.
This Amendment may not be amended except in accordance with the
provisions of Section 11.01 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision
shall be invalidated without affecting the remaining provisions of
this Amendment or the Credit Agreement, respectively.
(g) The Borrower covenants to pay to or reimburse the Agent and
the Banks, upon demand, for all costs and expenses (including allocated
costs of in-house counsel) incurred in connection with the
development, preparation, negotiation, execution and delivery of this
Amendment and the administration of the Existing Defaults, including
without limitation appraisal, audit, search and filing fees incurred
in connection therewith.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
WESTERN STAFF SERVICES, INC.
By /s/ Paul A. Norberg
-------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
-------------------------
Michael W. Ehresman
Vice President and Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By /s/ Daniel G. Farthing
-------------------------
for Wendy Young
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank and as Issuing Bank
By /s/ Lori Mazzera
-------------------------
Lori Mazzera
Vice President
SANWA BANK CALIFORNIA, as a
Bank and as Co-Agent
By /s/ Julanne O'Neil
-------------------------
Julanne O'Neil
Vice President
-4-
<PAGE>
COMERICA BANK-CALIFORNIA, as a
Bank
By /s/ Lori Edwards
-------------------------
Lori S. Edwards
First Vice President and
Group Manager
-5-
<PAGE>
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor or third party pledgor with respect
to the Borrower's obligations to the Agent and the Banks under the Credit
Agreement, each hereby (i) acknowledges and consents to the execution, delivery
and performance by Borrower of the foregoing First Amendment to Credit
Agreement ("the AMENDMENT"), and (ii) reaffirms and agrees that the respective
guaranty, third party pledge or security agreement to which the undersigned is
party and all other documents and agreements executed and delivered by the
undersigned to the Agent and the Banks in connection with the Credit Agreement
are in full force and effect, without defense, offset or counterclaim.
(Capitalized terms used herein have the meanings specified in the Amendment.)
WESTERN STAFF SERVICES (USA),
INC.
Dated: 7/26/96 By /s/ Paul A. Norberg
------- -------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
-------------------------
Michael W. Ehresman
Vice President and Treasurer
WESTERN STAFF SERVICES (NY), INC.
Dated: 7/26/96 By /s/ Paul A. Norberg
------- -------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
-------------------------
Michael W. Ehresman
Vice President and Treasurer
-6-
<PAGE>
WESTERN TECHNICAL SERVICES, INC.
Dated: 7/26/96 By /s/ Paul A. Norberg
------- -------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
-------------------------
Michael W. Ehresman
Vice President and Treasurer
MEDIAWORLD INTERNATIONAL
Dated: 7/26/96 By /s/ Paul A. Norberg
------- -------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
-------------------------
Michael W. Ehresman
Vice President and Treasurer
WESTERN PERMANENT SERVICES
AGENCY, INC.
Dated: 7/26/96 By /s/ Paul A. Norberg
------- -------------------------
Paul A. Norberg
Executive Vice President and
Chief Financial Officer
By /s/ Michael W. Ehresman
-------------------------
Michael W. Ehresman
Vice President and Treasurer
-7-
<PAGE>
RECORDING REQUESTED BY,
AND WHEN RECORDED, MAIL TO:
SANWA BANK CALIFORNIA
CONCORD COMMERCIAL BANKING CENTER
1800 SUTTER STREET, SUITE 360
CONCORD, CA 94520
EXH. 10.9.1
ATTN:
- -------------------------------------------------------------------------------
AMENDMENT OF COMMERCIAL CREDIT AGREEMENT
AND MODIFICATION OF DEED OF TRUST
This Amendment of Commercial Credit Agreement ("Amendment") is made and entered
into this 3rd day of July 1996 by and between SANWA BANK CALIFORNIA (the "Bank")
and WESTERN STAFF SERVICES, INC. (the "Borrower") with respect to the following:
This Amendment shall be deemed to be a part of and subject to that certain
commercial credit agreement between the parties hereto and dated as of June 21,
1994, as it may have been or be amended from time to time, and any and all
addenda, riders, exhibits and schedules thereto (collectively, the "Agreement").
Unless otherwise defined herein, all terms used in this Amendment shall have the
same meanings as in the Agreement. To the extent that any of the terms or
provisions of this Amendment conflict with those contained in the Agreement, the
terms and provisions contained herein shall control.
WHEREAS, the Agreement is secured by a certain deed of trust (the "Deed of
Trust") dated June 21, 1994 and which is recorded as follows: Recorded on June
22, 1994 as Instrument #94 164625, pages 1 through 6 in the county of Contra
Costa. The Deed of Trust encumbers certain real property described in the
attached Exhibit "A" and provides that it secures indebtedness evidenced by the
Agreement as the Agreement may be modified or extended; and
WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or
modify the Agreement.
NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the
Bank agree as follows:
1. MODIFICATION OF SECTION 2.02.B. Variable Rate. The first paragraph of
Section 2.02.B of the Agreement is hereby modified and amended to read as
follows: "Interest shall accrue on the outstanding principal balance under this
Term Loan at a variable rate equal to the Bank's Reference Rate per annum, as it
may change from time to time. (Such rate is referred to in this Section 2.02 as
the "Variable Rate".) The Variable Rate shall be adjusted concurrently with any
change in the Reference Rate. Interest shall be calculated on the basis of 360
days per year but charged on the actual number of days elapsed.
2. MODIFICATION OF SECTION 2.02.B EURODOLLAR RATE. The second paragraph of
Section 2.02.B of the Agreement is hereby amended to read as follows: The
Borrower may from time to time (elect by notice to the Bank as provided
below) that the entire amount of the outstanding principal balance under the
Term Loan (individually a "Term Balance" and collectively "Term Balances")
shall accrue interest on the amount of such Term Balance at a fixed rate
quoted by the Bank for 30, 60, 90, 120 or 180 days or for such other period
of time that the Bank may quote and offer (provided that any such period of
time does not extend beyond March 30, 2001) [the "Eurodollar Interest Period"].
Such interest rate shall be a percentage approximately equivalent to
1.00%, increasing to 1.75% on March 30, 1997, in excess of the Bank's
Eurodollar Rate which is that rate determined by the Bank's Treasury Desk as
being the approximate rate at which the Bank could purchase offshore U.S.
dollar deposits in an amount approximately equal to the amount of the
relevant Term Balance and for a period of time approximately equal to the
relevant Eurodollar Interest Period (adjusted for any and all assessments,
surcharges and reserve requirements pertaining to the purchase by the Bank of
such U.S. dollar deposits) [the "Eurodollar Rate"].
3. MODIFICATION OF DEED OF TRUST. The Deed of Trust is hereby modified and
amended to provide that the Indebtedness secured by the Deed of Trust includes
the indebtedness pursuant to the Agreement as modified and/or extended by this
Amendment.
4. INCORPORATION INTO AGREEMENT. On and after the effective date of this
Amendment, each reference in the Agreement to "this Agreement", "hereunder",
"hereof, "herein" or words of like import referring to the Agreement shall mean
and be referenced to the Agreement as amended by this Amendment.
5. NO WAIVER. The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any provision
of, or operate as a waiver of any right, power or remedy of the Bank under, the
Agreement.
6. CONFIRMATION OF OTHER TERMS AND CONDITIONS. Except as specifically provided
in this Amendment, all other terms, conditions and covenants of the Agreement
and the Deed of Trust which are unaffected by this Amendment shall remain
unchanged and shall continue in full force and effect and the Borrower hereby
covenants and agrees to perform and observe all terms, covenants and agreements
provided for in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of
the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA WESTERN STAFF SERVICES, INC.
By: /s/ Julanne O'Neil By: /s/ Paul A. Norberg
----------------------------------- ------------------------------
Julanne O'Neil, Authorized Officer Paul A. Norberg, Executive
Vice President and
Chief Financial Officer
By: /s/ Michael W. Ehresman
------------------------------
Michael W. Ehresman, Vice
President and Treasurer
<PAGE>
[LETTERHEAD]
EXHIBIT "A"
DESCRIPTION OF REAL PROPERTY
Amendment of Commercial Credit Agreement
All that real property located in Contra Costa County, State of California and
legally described as follows:
Parcel B, as said Parcel is shown on the Parcel Map filed September 1,
1972, Book 23 of Parcel Maps, Page 48, Contra Costa Records.
A.P. No.: 143-040-066
<PAGE>
EX 10.11.1
1996 Employee Stock Purchase Plan
<PAGE>
WESTERN STAFF SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Western Staff Services, Inc. by providing eligible employees with the
opportunity to acquire a proprietary interest in the Corporation through
participation in a payroll-deduction based employee stock purchase plan designed
to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed Five Hundred
Thousand (500,000) shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
<PAGE>
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. The initial offering period shall commence on the first business
day in October 1996 and terminate on the last business day in June 1998. The
next offering period shall commence on the first business day in July 1998 and
terminate on the last business day in June 2000. Subsequent offering periods
shall commence as designated by the Plan Administrator.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in January each year to the last business day in June of the same
year and from the first business day in July each year to the last business day
in December of the following year. However, the first Purchase Interval in
effect under the initial offering period shall commence on the first business
day in October 1996 and terminate on the last business day in December 1996.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new
offering period shall have a duration of twenty four (24) months, unless a
shorter duration is established by the Plan Administrator within five (5)
business days following the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any offering period under the Plan may enter that offering period on such start
date or on any subsequent Semi-Annual Entry Date within that offering period,
provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after the
start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock during an offering period may be any
multiple of one percent (1%) of the Base Salary paid to the Participant during
each Purchase Interval within that offering period, up to a maximum of ten
percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering period,
reduce his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator.
The Participant may not, however, effect more than one (1) such reduction
per Purchase Interval.
(ii) The Participant may, prior to the commencement of any new
Purchase Interval within the offering period, increase the rate of his or
her payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the ten percent (10%)
maximum) shall become effective as of the start date of the first Purchase
Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive
3.
<PAGE>
installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement embodying
such terms and such other provisions (not inconsistent with the Plan) as the
Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose payroll deductions
have previously been refunded pursuant to the Termination of Purchase Right
provisions below) on each such Purchase Date. The purchase shall be effected by
applying the Participant's payroll deductions for the Purchase Interval ending
on such Purchase Date to the purchase of whole shares of Common Stock at the
purchase price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall not be less than eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
- -----
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Purchase Date. However, for each Participant
whose Entry Date is other than the start date of the offering period, the clause
(i) amount shall in no event be less than the Fair Market Value per share of
Common Stock on the start date of that offering period.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed seven hundred fifty (750) shares, subject to periodic adjustments in the
event of certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
-------------------------
the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
4.
<PAGE>
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next scheduled
Purchase Date in the offering period, terminate his or her outstanding
purchase right by filing the appropriate form with the Plan Administrator
(or its designate), and no further payroll deductions shall be collected
from the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date. If
no such election is made at the time such purchase right is terminated,
then the payroll deductions collected with respect to the terminated right
shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent offering period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before his or her scheduled Entry Date into that
offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the Participant's payroll
deductions for the Purchase Interval in which the purchase right so
terminates shall be immediately refunded. However, should the Participant
cease to remain in active service by reason of an approved unpaid leave of
absence, then the Participant shall have the right, exercisable up until
the last business day of the Purchase Interval in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf for that Purchase Interval or (b) have such funds held
for the purchase of shares on his or her behalf on the next scheduled
Purchase Date. In no event, however, shall any further payroll deductions
be collected on the Participant's behalf during such leave. Upon the
Participant's return to active service, his or her payroll deductions under
the Plan shall automatically resume at the rate in effect at the time the
leave began, unless the Participant withdraws from the Plan prior to his or
her return.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Interval in which such Corporate Transaction occurs to the
purchase of whole shares of Common
5.
<PAGE>
Stock at a purchase price per share not less than eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the
-----
Participant's Entry Date into the offering period in which such Corporate
Transaction occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Corporate Transaction. However,
the applicable limitation on the number of shares of Common Stock purchasable
per Participant shall continue to apply to any such purchase, and the clause (i)
amount above shall not, for any Participant whose Entry Date for the offering
period is other than the start date of that offering period, be less than the
Fair Market Value per share of Common Stock on that start date.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
----------------------------
of Common Stock to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
-------------
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
6.
<PAGE>
B. For purposes of applying such accrual limitations to the purchase
rights granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue in a series of installments on each successive
Purchase Date during the offering period on which such right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis
of the Fair Market Value per share on the date or dates of grant) for each
calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on April 25, 1996 and shall
become effective on the first business day in October 1996, provided no purchase
--------
rights granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect, and all sums collected
from Participants during the initial offering period hereunder shall be
refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in June 2006, (ii) the date on
--------
which all shares
7.
<PAGE>
available for issuance under the Plan shall have been sold pursuant to purchase
rights exercised under the Plan or (iii) the date on which all purchase rights
are exercised in connection with a Corporate Transaction. No further purchase
rights shall be granted or exercised, and no further payroll deductions shall be
collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Purchase
Interval. However, the Board may not, without the approval of the Corporation's
stockholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Western Staff Services, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the (i) regular base salary paid to a
-----------
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus (ii)
any pre-tax contributions made by the Participant to any Code Section 401(k)
salary deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate. The
following items of compensation shall NOT be included in Base Salary: (i) all
overtime payments, bonuses, commissions (other than those functioning as base
salary equivalents), profit-sharing distributions and other incentive-type
payments and (ii) any and all contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate under any employee benefit or welfare
plan now or hereafter established.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean Western Staff Services, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Western Staff Services, Inc. which shall by
appropriate action adopt the Plan.
A-1.
<PAGE>
H. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
-----------------
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
I. ENTRY DATE shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the first business day in October
1996.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
L. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
N. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
----
set forth in this document.
A-2.
<PAGE>
O. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
P. PURCHASE DATE shall mean the last business day of each Purchase
-------------
Interval. The initial Purchase Date shall be December 31, 1996.
Q. PURCHASE INTERVAL shall mean each successive six (6)-month period
-----------------
within the offering period at the end of which there shall be purchased shares
of Common Stock on behalf of each Participant.
R. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
----------------------
January and July each year on which an Eligible Employee may first enter an
offering period.
S. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
A-3.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JULY 6, 1996, THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 36 WEEKS ENDED JULY 6, 1996, AND
THE CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE 36 WEEKS ENDED JULY
6, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> JUL-06-1996
<CASH> 4,920
<SECURITIES> 0
<RECEIVABLES> 56,670
<ALLOWANCES> 828
<INVENTORY> 0
<CURRENT-ASSETS> 73,150
<PP&E> 33,730
<DEPRECIATION> 15,463
<TOTAL-ASSETS> 107,443
<CURRENT-LIABILITIES> 43,114
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 44,886<F1><F2><F3><F4>
<TOTAL-LIABILITY-AND-EQUITY> 107,443
<SALES> 297,859
<TOTAL-REVENUES> 299,946
<CGS> 234,553
<TOTAL-COSTS> 291,658
<OTHER-EXPENSES> (192)
<LOSS-PROVISION> 356
<INTEREST-EXPENSE> 924
<INCOME-PRETAX> 7,556
<INCOME-TAX> 8,401<F1><F2><F3><F4>
<INCOME-CONTINUING> (845)<F1><F2><F3><F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (845)<F1><F2><F3><F4>
<EPS-PRIMARY> 0<F1><F2><F3><F4>
<EPS-DILUTED> 0
<FN>
<F1> On May 3, 1996, the Company completed an initial public offering of
2,300,000 shares of common stock at $14.00 per share of which 1,500,000
shares were sold by the Company and 800,000 shares were sold by certain of
the Company's stockholders. Prior to the Offering, there was no public
market for the Company's common stock. The common stock is traded on the
Nasdaq National Market under the symbol "WSTF".
The net proceeds to the Company from the sale of the 1,500,000 shares of
common stock, after deduction of associated expenses, were $18,980. A portion
of the net proceeds was used to repay $13,800 outstanding under the Company's
revolving credit facility. A portion of the remaining balance was used to
acquire the operations of one of the Company's licensees and one of the
Company's franchise agents for a combined purchase price of $2,767. The
remaining balance is reserved for acquisitions, further debt reduction or for
working capital and other general corporate use. The Company did not receive
any of the proceeds from the sale of the shares of common stock offered by
the stockholders.
Concurrent with the Offering, the Company effected a 1,542.01 for 1 stock
split, established a par value of $0.01 per share of common stock and
increased the authorized shares of common stock to 25,000,000. In addition,
the Company established a class of preferred stock, $0.01 par value per
share, and authorized 1,000,000 shares. No shares of the preferred stock
are outstanding.
The effect of the Offering on the Company's capital structure was to
increase common stock by $53 (10,338,116 shares issued and outstanding) and
to increase additional paid-in-capital by approximately $18,927.
<F2> On April 30, 1996, and in conjunction with the Offering, the Company
elected to terminate its S corporation status. In connection with the
termination, the Company is required by the Internal Revenue Service Code to
change its method of accounting for income tax reporting purposes from the
cash basis to the accrual basis. The termination resulted in a
non-recurring net charge to earnings of $7,460 in the third quarter of fiscal
1996. This charge is due primarily to temporary differences resulting from
the Company's historical use of the cash method of accounting for income tax
purposes and is reflected on the Company's unaudited consolidated balance
sheet at July 6, 1996 through adjustments consisting of an increase of
$12,574 in income taxes payable and deferred income tax liabilities partially
offset by an increase in the Company's deferred tax assets of $5,114. The
income tax liability of $12,574 will be payable in quarterly installments due
over four years. The initial quarterly installment relating to such tax
liability is due on August 15, 1996.
<F3> Pro forma net income per common share represents income before income
taxes after a pro forma provision for federal and state income taxes as if
the Company had been subject to federal and state income taxation as a C
corporation during each of the periods presented, divided by the pro forma
weighted average shares of common stock outstanding during the period.
No effect has been given to options outstanding under the Company's Stock
Option Plans as no material dilutive effect would result from the exercise of
these items. The pro forma weighted average shares outstanding for the 12
and 36 weeks ended July 8, 1995 gives effect to the common stock split and
the additional shares issued to the principal stockholder. Historical net
income per share is not presented in view of prior period S corporation
status.
<F4> Prior to consummation of the Offering, the Company declared a dividend
payable to its current stockholders consisting of the lesser of the remaining
undistributed earnings of the Company accumulated from November 1, 1987 to
April 30, 1996 (the effective date of the Company's S corporation
termination) which were subject to taxation at the stockholder level, or
$5,000. The final undistributed earnings of the Company from November 1,
1987 to April 30, 1996 totaled $11,142. The difference between the actual
distribution of $5,000 and the undistributed earnings of $11,142 has been
reclassified for financial reporting purposes from retained earnings to
additional paid-in-capital. The $5,000 stockholder distribution will be
paid in quarterly installments over a one-year period. The first
installment of $1,250 was paid on July 15, 1996.
</FN>
</TABLE>
