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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 2, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER
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WESTERN STAFF SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1266151
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
(Address of principal executive offices) (Zip Code)
(510) 930-5300
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value per share
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 by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $27,838,809 as of December 28, 1996, based
upon the closing price of the Registrant's Common Stock on the Nasdaq
National Market reported for December 27, 1996, the immediately preceding
trading day. Shares of Common Stock held by each executive officer and
Director and by each person who beneficially owns more than 5% of the
outstanding Common Stock have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
executive officer or affiliate status is not necessarily a conclusive
determination for other purposes.
10,338,116 shares of the Registrant's $0.01 par value Common Stock were
outstanding as of December 28, 1996.
DOCUMENTS INCORPORATED BY REFERENCE.
The following documents (or portions thereof) are incorporated by reference
into the Parts of the Form 10-K.
Definitive Proxy Statement related to the Company's 1997 Annual Meeting of
Stockholders to be filed hereafter (incorporated into Part III hereof).
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PART I
ITEM 1. BUSINESS.
THE FOLLOWING DISCUSSION CONTAINS 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. THESE 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, THE AVAILABILITY OF
SUFFICIENT PERSONNEL, AND OTHER FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE
HEREIN AND IN OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
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. Through its network of
Company-owned, franchise agent and licensed offices, the Company offers a wide
range of temporary staffing solutions, including replacement, supplemental and
on-site programs. The Company has nearly 49 years of experience in the staffing
industry and operates 370 offices in 44 states and five foreign countries. At
November 2, 1996, the end of the Company's fiscal year, approximately 64% of
these offices were owned by the Company, 32% were operated by franchise agents
and 4% were operated by licensees.
The Company was founded in 1948 and incorporated in California in 1954. In
October 1995, the Company reincorporated in Delaware. The Company's executive
offices are located at 301 Lennon Lane, Walnut Creek, California 94598-2453, and
its telephone number is (510) 930-5300. The Company transacts business through
its subsidiaries, the largest of which is Western Staff Services (USA), Inc., a
California corporation.
References in this Prospectus to (i) the "Company" or "Western" refer to
Western Staff Services, Inc., its predecessor and their respective subsidiaries,
unless the context otherwise requires, and (ii) "franchise agents" refer to the
Company's franchisees in their role as limited agents of the Company in
recruiting job applicants, soliciting job orders, filling those orders and
handling collection matters upon request, but otherwise refer to the Company's
franchisees in their roles as independent contractors of the Company.
BUSINESS SERVICES
SERVICES. The Company provides business services personnel to serve light
industrial, clerical and light technical staffing needs of customers through a
network of offices. At November 2, 1996, the Company's business services
comprised 327 offices and represented approximately 91.7% of the Company's
fiscal 1996 sales, excluding license fees. In the light industrial segment, the
Company's temporary personnel perform light-duty, labor intensive tasks, such as
unskilled and semi-skilled assembly, packaging and warehousing, and mail-house
support. The Company's temporary clerical personnel typically perform tasks
such as telemarketing, customer service, word processing, copying, data entry
and reception. The Company's temporary personnel in the light technical segment
provide services such as help desk support, laboratory testing and support and
quality control.
RECRUITING OF EMPLOYEES. The Company's branch offices interview and test
prospective employees using automated testing programs developed by outside
vendors that are widely recognized as leading tools to evaluate the skills of
job applicants. These programs can be customized to meet the particular desires
and needs of each of the Company's customers. In addition, branch office
managers are afforded flexibility in the recruiting process, so that
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the pool of available temporary employees in each office may be tailored to meet
the specific needs of customers in local markets.
As is common in the temporary staffing industry, the Company's engagements
to provide services to its customers are generally non-exclusive, of a
short-term nature and subject to termination by the customer with little or no
notice. During fiscal 1996 and fiscal 1995, no single customer of the Company
accounted for more than 1.5% and 1.9%, respectively, of the Company's sales,
excluding license fees. Nonetheless, the loss of any of the Company's
significant customers would have an adverse effect on the Company's business,
results of operations, cash flows and financial condition. The Company is also
subject to credit risk associated with its trade receivables. Should any of the
Company's principal customers default on a large receivable, the Company's
business, results of operations, cash flows and financial condition could be
adversely affected.
The Company is in the business of employing people and placing them in the
workplace of other businesses. Attendant risks include claims against the
Company by regular staff or temporary employees, or by third persons, for
physical or emotional injury, harassment, discrimination and other claims.
Additional risks include, but are not limited to, fraudulent payroll practices
by regular staff or temporary employees of the Company, by franchise agents and
licensees and their employees and the unlawful employment by the Company of
undocumented workers. Although the Company has policies and guidelines in place
to reduce its exposure to these risks and carries insurance, a failure to follow
these policies and guidelines may result in negative publicity or the payment by
the Company of monetary damages or fines.
The Company competes for customers and qualified temporary personnel with
other full service providers, as well as specialized temporary services firms
and home care providers. Many of these competitors have greater marketing and
financial and other resources than the Company. In addition, a substantial
number of the Company's temporary employees during any given year will terminate
their employment with the Company to accept permanent employment with customers
of the Company. The Company may, in the future, encounter difficulty in
recruiting sufficient temporary employees of the caliber the Company is
committed to providing to its customers. In addition, during periods of
decreased unemployment, the Company may incur increased expenses associated with
recruiting qualified temporary employees. The Company's inability to attract
and retain a sufficient number of additional qualified temporary employees to
support the Company's projected growth or the loss of a significant number of
qualified temporary employees could have a material adverse effect on the
Company's business, results of operations, cash flows and financial condition.
SALES AND MARKETING. The Company markets its temporary personnel services
to local and regional customers through its network of Company-owned, franchise
agent and licensed offices, as well as through its on-site service locations.
The Company coordinates its sales and marketing efforts through its corporate
headquarters in cooperation with branch and regional offices. The Company
targets small to mid-size companies in regional and local markets. The Company
seeks to obtain new customers by focusing on opportunities in regional and local
markets through personal sales presentations, telemarketing, direct mail
solicitation, referrals from other customers and advertising in a variety of
regional and local media, including the Yellow Pages, newspapers, magazines and
trade publications. In addition, the Company selectively utilizes local radio
advertising in certain markets to enhance its name recognition.
INTERNATIONAL OPERATIONS. The Company's international operations consist
of 47 offices, 19 in the United Kingdom, 15 in Australia, 3 in New Zealand, 4 in
Denmark and 6 in Norway. All of these offices are presently Company-owned.
Through these offices, the Company offers temporary personnel in the light
industrial and clerical support areas. In addition, the international offices
supply permanent employment placements. The Company employs a managing director
for each country who oversees all of the Company's operations in that country.
For fiscal 1996, 12.3% of the Company's sales, excluding license fees, were
derived from the Company's international operations, and sales for the
international operations increased 21.3% as compared to fiscal 1995.
International operations are subject to inherent risks, including unexpected
changes in regulatory requirements, tariffs and other
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barriers, fluctuating exchange rates, difficulties in staffing and managing
foreign operations, greater working capital requirements and political and
economic instability. A portion of the Company's sales outside of North America
are denominated in local currencies, and accordingly, the Company is subject to
the risks associated with fluctuations in currency rates. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's future international sales and, consequently, on the Company's
business, operating results, cash flows and financial condition.
SPECIAL PROGRAMS. The Company also conducts its own special programs,
including the Santa Program and the Photo Program. The Santa Program provides
fully costumed and trained Santas and Santa helper personnel to retail stores
and small shopping centers. The Company's Photo Program sells photos and
related items on a retail basis at major shopping centers and malls across the
country utilizing the Company's personnel and digital and instant photography
and video equipment for major seasonal events such as Christmas and Easter. In
total, these programs accounted for less than 1% of the Company's sales,
excluding license fees, during fiscal 1996. However, the Company believes that
these programs provide valuable public relations opportunities and have enhanced
the Company's name recognition.
MEDICAL SERVICES
The Company provides temporary personnel to serve an array of home care and
health care institutions' needs, including registered nurses, licensed
practical/vocational nurses, physical, occupational and speech therapists,
medical social workers, certified home health and personal care aides, home care
companions, and allied health personnel such as pharmacists, medical technicians
and phlebotomists. Approximately half of the medical services division's
personnel are licensed personnel. During fiscal 1996, approximately 68.5% of
the medical services division's health care sales were derived from home care
services and 31.5% were derived from institutional staffing. During fiscal
1996, the medical services division comprised 43 offices and contributed
approximately 8.3% of the Company's sales, excluding license fees.
In home care, a registered nurse or appropriate person initially assesses
the home care case, then devises a plan of treatment for doctor approval,
provides the necessary treatment, examines and records the patient's progress,
and makes periodic reports to the physician or case manager. Physical,
occupational and speech therapists as well as medical social workers provide
specialized treatment as needed to ensure maximum patient recovery. Certified
home health aides are trained to assist the ill, elderly or disabled in their
normal daily functions. Home care companions provide companionship and attend
to other social and personal needs in the patient's home but do not provide
hands-on care. The medical services division provides health care personnel for
institutional staffing in hospitals, nursing homes, clinics, other health care
facilities, and prisons. Institutional staffing consists mainly of RNs,
LPNs/LVNs, certified nurse aides and allied health personnel such as
pharmacists, phlebotomists and x-ray and lab technicians.
The Company's medical services division places temporary personnel in
private homes with limited on-site supervision, thereby subjecting the Company
to the risks of malpractice and other types of claims. Although the Company has
policies and guidelines in place to reduce its exposure to these risks and
carries insurance, a failure to follow these policies and guidelines may result
in negative publicity and the payment by the Company of monetary damages or
fines.
The Company's marketing efforts for health care services are based on a
team approach, with its national medical contracts department working with the
local market operators to identify national, regional and large local sales
opportunities. The Company's national medical contracts department's marketing
efforts principally involve direct sales presentations to large organizations,
including managed health care programs. The branch office's marketing program
consists largely of direct sales presentations to case managers, physicians,
discharge planners, insurance companies, social service agencies and facility
administrators. Sales representatives are employed in most of the branch
offices. The Company advertises in the Yellow Pages, newspapers, magazines and
trade publications,
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and through exhibits at various health care conferences. The Company also has
existing relationships with state and local governmental referral services with
which the medical services division conducts business under non-exclusive
contracts.
In order to maintain quality control, the medical services division sets
policy and procedures for Company-owned, franchise agent and licensed offices
through its Governing Body, an internal oversight authority. These procedures
include guidelines for compliance with local, state and federal regulations,
improving quality of service, hiring criteria, training programs and
professional guidance.
Legislative changes affecting the health care industry have been proposed
from time to time in Congress and various states. Changes in the
government's support of health care services, the methods by which those
services are delivered and the prices therefor may all have a material
adverse effect on the Company's business, results of operations and financial
condition. It is uncertain what the ultimate impact of such changes on
revenue could be. Even if it were to be positive, no assurance can be given
that the costs of adapting to such changes would not have a significant
negative impact on future earnings of the Company.
A number of states have adopted laws regulating companies that provide
health care services. In many of the states, the Company need only be licensed.
The laws of some of these states have the effect of limiting or prohibiting the
Company's ability to provide certain services and to establish or expand its
medical operations. In addition, Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") accreditation has become important in
providing home health care services. As of December 28, 1996, 12 of the
Company-owned offices and 3 franchise agent offices were accredited by JCAHO.
Applications for JCAHO accreditation were pending for one Company-owned
office, one franchise agent office and one licensed office. Failure to obtain
such accreditation or delays in the accreditation process could adversely affect
the ability of the Company to compete in the home health care services area.
The Company began to serve Medicare patients in fiscal 1992. 18.4% of the
Company's medical services sales in fiscal 1996 were attributable to Medicare
services (1.5% of the Company's total sales of services and license fees).
Nearly half the Company-owned offices in the medical services division were
certified to provide home health care services to Medicare patients as of
December 28, 1996.
OPERATIONS
The Company operates through a network of 370 offices in 44 states and five
foreign countries. In addition, the Company establishes from time to time
recruiting offices both for recruiting potential temporary employees and for
testing demand for its services in new market areas. The Company's operations
are decentralized, with branch, area, regional and zone managers and franchise
agents and licensees enjoying considerable autonomy in hiring, business mix and
advertising. The Company seeks highly talented managers and entrepreneurs who
are capable of operating independently and who will succeed within the Company's
decentralized branch office structure. The Company provides its decentralized
branch offices with support from its corporate headquarters in such areas as
billing, payroll, credit granting, receivables aging analysis, collections, risk
management programs, workers' compensation and state unemployment insurance,
marketing support, quality standards, guidance in hiring and training of
temporary personnel, operating procedures, customer services, training materials
and advice on legal and regulatory matters.
The general level of economic activity significantly affects the demand for
temporary personnel. As economic activity has slowed, the use of temporary
employees often has been curtailed before permanent employees have been laid
off. In addition, an economic downturn may adversely affect the demand for
temporary personnel
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and may have a material adverse effect on the Company's business, results of
operations and financial condition. As economic activity has increased,
temporary employees often have been added to the work force before permanent
employees have been hired. During these periods of increased economic activity
and generally higher levels of employment, the competition among temporary
services firms for qualified temporary personnel is intense. Further, the
Company may face increased competitive pricing pressures during such periods.
There can be no assurance that during these periods the Company will be able to
recruit the temporary personnel necessary to fill its customers' job orders or
that such pricing pressures will not adversely affect the Company's business,
results of operations, cash flows and financial condition.
The Company has experienced significant fluctuations in its operating
results and anticipates that these fluctuations may continue. Operating
results may fluctuate due to a number of factors, including the demand for
the Company's services, the competition within its markets, the loss of a
principal customer and the Company's ability to increase the productivity of
its existing offices, to control costs and to expand operations. In
addition, the Company's results of operations could be adversely affected by
severe weather conditions in regions where it operates its business. While
the Company has recorded operating income in each of the past four fiscal
years, there can be no assurance that it will be able to sustain
profitability or that conditions will not have a material adverse effect on
its business, results of operations and financial condition. Due to all of
the foregoing factors, the Company has experienced in the past, and may
possibly experience in the future, results of operations below the
expectations of public market analysts and investors. The occurrence of such
an event has had, and would likely have, a material adverse effect on the
price of the Company's Common Stock.
The Company's results of operations have historically been subject to
seasonal fluctuations. Demand for temporary staffing historically has been
greatest during the Company's fourth fiscal quarter due largely to the planning
cycles of many of its customers. Sales for the first fiscal quarter are
typically lower due to national holidays as well as plant shutdowns during and
after the holiday season. These shutdowns and post holiday season declines
significantly affect job orders received by the Company, particularly in the
light industrial sector.
The Company's performance depends in part upon its ability to identify,
develop and retain qualified employees, particularly branch office, area and
regional managers. The Company recruits such personnel from a limited pool of
available applicants. In addition, given the relatively decentralized nature of
the Company's business, the Company is heavily dependent on the performance and
productivity of its branch office managers. The Company establishes performance
standards for branch office managers, and, to the extent these standards are not
met, its business, results of operations and financial condition could be
adversely affected. From time to time, the Company has terminated branch office
managers who have failed to meet its performance standards. There can be no
assurance that the Company will be able to continue to identify, develop and
retain qualified managers or that existing or new branch office managers will be
able to meet performance standards set by the Company. In addition, in fiscal
1996, the Company introduced new, incentive-based plans for the compensation of
office, area and regional managers. There can be no assurance that the
implementation of these compensation plans will assist the Company in hiring,
developing or retaining qualified managers. Moreover, there can be no assurance
that such compensation plans will not lead to the loss of certain managers by
the Company. The loss of some of its key managers could have a material adverse
effect on the Company's business, results of operations and financial condition,
particularly its ability to establish and maintain customer relationships.
In addition, the Company is highly dependent on its senior executives,
including W. Robert Stover, its Chairman and Chief Executive Officer, Michael K.
Phippen, its President and Chief Operating Officer, Harvey L. Maslin, its Vice
Chairman and Chief Administrative Officer, and Paul A. Norberg, its Executive
Vice President and Chief Financial Officer, and on the other members of its
executive management team. The Company has entered into an employment agreement
with its Chief Executive Officer for continuing employment until he chooses to
retire or until his death. The Company does not have employment agreements with
its other senior executives, but the Company has entered into employment
agreements with certain other members of its executive management team. The
loss of the services of any of these key personnel or the inability to attract,
retain and motivate sufficient
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numbers of qualified key employees could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company plans to pursue acquisitions of independent temporary services
firms. The Company may also consider further acquisitions of franchise agents
and licensees. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired businesses into its operations or expand into new markets.
The Company is unable to predict whether or when any prospective acquisition
candidate will become available or the likelihood that a material acquisition
will be completed should any negotiations commence. If the Company proceeds
with a relatively large acquisition, and the consideration is in the form of
cash, a substantial portion of the Company's cash and surplus borrowing capacity
could be used to consummate such an acquisition. There can be no assurance that
the Company will be able to integrate any such acquisitions in a timely manner
without substantial costs or delays or other problems. Once integrated, the
acquired entities may not achieve levels of sales, profitability or productivity
comparable to the Company's existing offices or perform as otherwise
anticipated. In addition, acquisitions involve a number of special risks, such
as diversion of management's attention, difficulties in the integration of
acquired operations and retention of key personnel, unanticipated problems or
legal liabilities, the integration of management information systems, and the
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's business, results of operations and
financial condition. To date, the acquisitions consummated by the Company have
not been material. If the Company were to proceed with a substantial
acquisition relative to its operations, the risks of integration would be
increased.
The following table sets forth information as to the number of offices in
operation as of the dates indicated.
NOV. 2, OCT. 28, OCT. 29, OCT. 30, OCT. 31,
1996 1995 1994 1993 1992
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Number of Offices: (1)
Company-owned. . . . . . . 237 214 187 179 178
Franchise agent. . . . . . 119 106 99 97 99
Licensed . . . . . . . . . 14 21 16 5 -
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Total. . . . . . . . . 370 341 302 281 277
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---- ---- ---- ---- ----
Business Services:
Domestic . . . . . . . . . 280 263 232 213 210
International. . . . . . . 47 44 41 38 36
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Sub-total. . . . . . . 327 307 273 251 246
Medical Services . . . . . . 43 34 29 30 31
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Total. . . . . . . . . 370 341 302 281 277
---- ---- ---- ---- ----
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(1) Excludes Company-owned recruiting offices.
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COMPANY-OWNED OFFICES
Employees of each Company-owned office report to a manager who is
responsible for day-to-day operations and the profitability of that office.
Office managers generally report to area and/or regional managers. As of
December 28, 1996, there were 2 zone managers and 12 regional managers within
the Company's management structure headquartered in their respective geographic
areas as well as two district managers of the Medical Services Division. In
addition to salary, in the Company's business services branch offices,
commissions may be earned by all employees. These commissions are based on the
gross profit dollars per full-time equivalent employee to motivate employees to
maximize the growth and profitability of their offices. In addition, office,
area and regional managers are eligible to participate in a return on sales
incentive plan that compensates them on a formula based on the net income
achieved in their office, area or region.
FRANCHISE AGENT OFFICES
The Company's franchise agents have the exclusive right by contract to sell
certain of the Company's services and to use the Company's service marks,
business names and systems in a specified territory. The Company's franchise
agent agreements generally allow franchise agents to open multiple offices
within their exclusive territories. As of November 2, 1996, the Company's 69
franchise agents operated 119 franchise agent offices.
Franchise agent and licensed operations comprise a significant portion of
the Company's sales of services and license fees. For fiscal year 1996 and
fiscal year 1995, 31.3% and 41.2% respectively, of the Company's sales of
services and license fees were derived from such operations. The Company's ten
largest franchise agents for fiscal 1996 (based on sales volume) accounted for
12.2% of total Company sales, excluding license fees. The loss of one or more
of the Company's franchise agents or licensees and the associated loss of
customers and sales could have a material adverse effect on the Company's
business, results of operations, cash flows and financial condition.
Since November 1992, 38 new franchise agents and 3 licensees have joined
the Company's network, and 30 franchise agents and one licensee had ceased
their affiliation with, or been purchased by, the Company before the
expiration of their franchise agent or license agreements. The Company's
franchise agent and license agreements contain two-year non-competition
covenants which the Company vigorously seeks to enforce. Efforts to enforce
the non-competition covenants have resulted in litigation brought by the
Company following termination of certain franchise agent agreements. In the
past five fiscal years, the Company has commenced a total of three actions to
enforce the non-competition covenants. All of such actions were resolved in
the Company's favor.
Under the Company's franchise agent program the franchise agent, as an
independent contractor, is responsible for establishing and maintaining an
office and paying related administrative and operating expenses, such as rent,
utilities and salaries of their branch office staff. Each franchise agent
functions as a limited agent of the Company in recruiting job applicants,
soliciting job orders, filling those orders and handling collection matters upon
request, but otherwise functions as an independent contractor. As franchisor,
the Company is the employer of the temporary employees and the owner of the
customer accounts receivable. The Company is responsible for providing start-up
materials and supplies, training the franchise agent and occasionally assisting
on-site, aiding in bids for national accounts and paying the wages of the
temporary employees and all related payroll taxes and insurance. As a result,
the Company provides a substantial portion of the working capital needed for the
franchise agent operations. The Company also provides the use of the Company's
payroll and information services to manage information regarding temporary
employees and customers. In addition, the franchise agent agreements relating
to the medical services division contain a separate agreement that covers home
health agency business, including the sharing of Medicare reimbursement.
Franchise agent agreements have an initial term of five years and are renewable
for multiple five-year terms.
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Sales generated by franchise agent operations and related costs are
included in the Company's consolidated sales of services and cost of
services, respectively. Franchise agents receive a commission from the
Company based on the total hours billed for the services of temporary
employees, which generally ranges from 48.0% to 68.0% of the gross profit
from the franchise agent operation (including a partial reimbursement for
advertising costs). In the medical services division, a new program was
implemented in fiscal 1995, which provides that the Company will receive 8.0%
of gross sales regardless of hours billed (except for Medicare services,
which are cost reimbursed). This sales program also has been implemented for
the light industrial and clerical franchise agent offices. Current franchise
agents have been given the option to change to this program. This program is
being offered as the standard program for new franchise agents, other than
those converting from an independent staffing operation to a franchise. As
of November 2, 1996, nine new clerical and light industrial franchise agents
were participating in this program, one existing clerical and light
industrial franchise agent had elected to convert, and there were nine
medical franchise agents as well as two medical licensees also participating.
The Company has established a corporate training program designed to
provide franchise agents with training in systems and procedures and hands-on
experience in a field operating office, and to allow interaction with Company
management. Franchise agents are trained in established sales techniques and
recruiting methods, operational procedures, and the wide variety of tools
available to build sales volume and a pool of qualified applicants.
Franchise agents are required to follow the Company's operating procedures
and standards in recruiting, screening, classifying and retaining temporary
personnel. Under the Western name, the franchise agent solicits orders for
temporary employees from customers and assigns the Company's temporary employees
to customers in response to such orders. In an effort to control liability
associated with workers' compensation claims, the Company's risk management and
insurance departments work closely with franchise agent offices in evaluating
job assignments and seeking to promote sales while effectively managing risks.
The Company handles all government withholding, quarterly reports and W-2s, and
maintains comprehensive insurance coverage for all temporary employees sent on
assignment by franchise agent offices. In addition, through on-site safety and
quality assurance inspections, franchise agent offices evaluate risks and check
compliance with state and federal safety regulations. In some cases, the
Company may, in conjunction with the Company's insurance carrier, employ the
services of a professional loss control engineer.
LICENSED OFFICES
The Company introduced its licensing program for business services in
fiscal 1993 as an alternative to its franchise agent program. In addition, in
December 1995, the Company began offering the license program through its
medical services division to independent owners who wished to affiliate with the
Company. Under the Company's license program the licensee is the employer of
the temporary employees and the owner of the customer accounts receivable. In
addition, the medical licensee retains the home health agency license and
Medicare certification, if any, in its name. The Company retains 8.0% of the
non-Medicare gross sales as a service fee and charges a management fee per visit
for Medicare services.
The Company grants licensees the exclusive right to establish an office to
market and provide light industrial and clerical temporary personnel, light
technical temporary personnel or medical services temporary personnel within a
designated geographic area. Licensees receive the same basic training from the
Company as franchise agents and attend seminars, participate in marketing
programs and utilize the Company's sales literature. The Company also assists
its licensees in obtaining business from its national accounts and provides them
with national, regional and cooperative local advertising.
Licensees operate within the framework of the Company's policies and
standards. They recruit and employ temporary employees according to Company
guidelines, and pay them using the Company's payroll procedures. However,
licensees must obtain their own workers' compensation, liability, fidelity
bonding and state unemployment coverage, which determine their payroll costs.
The Company bills all licensees' customers and collects their
9.
<PAGE>
remittances. The Company charges a fee to each licensee based on the total
hours worked by their temporary employees, generally ranging from 32.0% to 52.0%
of the gross profit from the licensed operation. This fee is in return for the
exclusive license rights and other services, including billing and payroll
processing services and financing of the receivables. This fee is included in
the Company's Consolidated Financial Statements as license fees. License
agreements are for a term of five years and are renewable for multiple five-year
terms.
As a service to its licensees, the Company finances the licensees'
temporary employee payroll, payroll taxes and insurance. This indebtedness is
secured by a pledge of the licensees' accounts receivable, tangible and
intangible assets, and the license agreements. Borrowings under the lines of
credit bear interest at a rate equal to the reference rate of the Bank of
America NT & SA plus two percentage points. Interest is only charged on the
borrowings if the outstanding balance exceeds certain specified limits.
MANAGEMENT INFORMATION SYSTEMS
BUSINESS SERVICES
The Company believes that its management information systems are critical
to the performance of its operations. The Company's management information
systems include a billing and payroll application which is designed to provide
timely and accurate payment for temporary employees and billings to Company's
customers. The Company provides the ability to print checks at many remote
offices the morning after receipt of the time card. The Company's management
information systems also provide for tax reporting in all states in which
offices are located, including processing all types of gross pay calculations
and deductions. Most of the employees of the domestic Company-owned, franchise
agent and licensed offices are served by the Company's system of remote site
personal computers. All offices that currently are not linked by personal
computer to the system submit billing and payroll information by facsimile or
overnight delivery services to the Company's headquarters for processing. The
remote site system is supported by the Company's in-house technical support
department, which is responsible for computer installations, training and
technical support.
In fiscal 1994 the Company began implementing new management information
systems to enhance billing, payroll and management reporting using Peoplesoft
Payroll and Oracle Financials within an Oracle database. Under this system,
centralized computer server systems, interfaced with Pentium-Registered
Trademark--based computers in branch offices, support branch office operations
with daily, weekly, monthly and quarterly reports that provide information
ranging from customer activity to office profitability. In addition, the system
provides a comprehensive contract administration module to help produce a
standardized graphics presentation package. Office automation will provide the
branch offices with direct access to data for a variety of purposes, such as
mailings, ad hoc customer queries and accounts receivable monitoring. Certain
of the Company's offices serve as processing sites to support the Company's
domestic business services offices. One processing site may support more than
one office.
The Company has completed the conversion of the majority of its domestic
business services processing sites to the payroll and billing portion of the new
system. The original targeted completion date for transitioning to the new
system was early in calendar year 1995. Due to unanticipated software
architecture problems and the turnover of key staff, this schedule was not met.
There are two remaining groups of domestic business services offices with custom
front-end search and retrieval systems that have yet to be converted. Their
conversion has been postponed pending completion of an integrated search and
retrieval module within the existing payroll and billing system. The Company
has purchased a custom search and retrieval program and is currently in the
process of integrating the program into the existing payroll and billing system.
The Company is working to streamline the processing functions of the payroll and
billing system and to develop new modules to enhance the capabilities of the
system. The Company plans to upgrade to a newer version of its payroll software
during fiscal 1997 and also plans to expand its hardware capabilities. Further,
the Company is in the process of reviewing its remaining financial accounting
and reporting systems and intends to spend additional funds in fiscal 1997 and
beyond to upgrade these systems. The Company has incurred and will continue to
incur substantial labor and other costs to operate both the old and new
10.
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systems during the conversion period. The Company believes that the planned
system enhancements will support anticipated revenue growth and will allow
for operating efficiencies in future years; however, there can be no
assurance that these planned enhancements will be successfully implemented.
The Company has in the past discovered software defects when new software
programs or new versions of software programs were installed and as a result
may in the future experience delays or increased costs to correct such
defects. The failure to implement these enhancements or the existence of
software defects or significant delays in the implementation of these
enhancements could have a material adverse effect on the Company's business,
results of operations, cash flows and financial condition.
MEDICAL SERVICES
The medical services division is currently dependent upon the Company's
general information system for a number of its services, including providing
payroll services for its temporary employees and customized billing services
for its customers. The medical services division has begun the migration
from the Company's general information system to a comprehensive, industry
specific clinical and financial accounting and reporting system. The system
was acquired from a nationally known medical information system company. The
medical system is designed to organize and present information in a manner
that facilitates the ability of the Company to obtain appropriate and timely
reimbursement under Medicare and other programs through electronic billing,
while integrating the financial and clinical information which is vital to
future managed care controls. The Company anticipates completion of the
conversion by early calendar year 1998. There can be no assurance that the
system conversion timetable will be met or that the cost of the system
conversion will not exceed current estimates. Any such delay or cost increase
could have a material adverse effect on the Company's business, results of
operations, cash flows and financial condition.
RISK MANAGEMENT PROGRAMS
The Company is responsible for all employee-related expenses for the
Company's temporary staff employees of its Company-owned and franchise agent
offices including workers' compensation, unemployment insurance, social security
taxes, state and local taxes, and other general payroll expenses. In calendar
year 1993, the Company revised its procedures to better correlate accruals with
the actual job-related risks and more accurately assign costs to each office
based on its loss history. In addition, the Company began to emphasize claims
management and return-to-work programs to minimize claim expenses.
The Company self-insures the deductible amount related to workers'
compensation claims under its paid loss retrospective program. The deductible
amount was $350,000 per claim for policy years 1996, 1995 and 1994. The
Company accrues for workers' compensation costs based upon payroll dollars
paid to temporary employees. The accrual rates vary based upon the specific
risks associated with the work performed by the temporary employee. At the
beginning of each policy year, the Company reviews the overall accrual rates
with its outside actuary and makes changes to the rates as necessary based
primarily upon historical loss trends. Each year, the Company adjusts its
historical accruals to the actuarially developed estimate of the ultimate
cost for each open policy year. The overall accounting principles and
procedures applied by the Company and the overall assumptions and methodology
used by the Company's outside actuary to estimate the ultimate costs to be
incurred under the workers' compensation program have been consistent for all
periods presented.
As a result of improvements in loss trends during fiscal 1994 and fiscal
1995, the accrual adjustments resulted in decreased workers' compensation
costs in fiscal 1994 and fiscal 1995. Management adjusted the basic accrual
rates downward for fiscal 1996 as a result of those trends. A preliminary
analysis of the actual fiscal 1996 claim activity indicates that claim counts
have increased at a level that is generally consistent with overall increases
in business activity; however, the average severity of fiscal 1996 claims has
increased compared to previous years resulting in overall higher costs for
fiscal 1996. As a result of these preliminary trends, the Company reached an
agreement in January 1997 with its insurance carrier to settle all fiscal
1996 claims and transfer the risk of possible adverse development to the
insurance carrier. The Company was able to settle the fiscal 1996 claims at a
cost which is equal to the fiscal 1996 accruals resulting in no additional
charges for policy year 1996. However, as a cautionary measure, the Company
plans to increase its basic accrual rates in fiscal 1997 by about 10% (to an
estimated 3.6% of direct labor). The Company is carefully reviewing the 1996
claim trends to determine the specific causes for the increased severity of
the claims. By shifting the fiscal 1996 workers' compensation claim
responsibility to the insurance carrier, the Company plans to re-direct its
risk management resources towards more aggressive loss control programs as
well as intensified claim investigation techniques and settlement tactics for
the remaining open policy years (1992 through 1995) and for the current
policy year (1997). However, there can be no assurance that the Company's
programs to control worker's compensation expenses will be effective or that
loss development trends will not require a charge to costs of services in
future periods to increase worker's compensation accruals.
COMPETITION
The temporary staffing industry is highly competitive and fragmented and
characterized by limited barriers to entry. The Company believes that the
majority of commercial and health care temporary staffing companies are local,
full service or specialized operations with less than five offices. Within
local markets, these companies actively compete with Western for business, and
in most of these markets no single company has a dominant share of the market.
The Company also competes with larger full service and specialized competitors
in national, regional and local markets. The principal national competitors are
Adecco SA, Interim Services, Inc., Kelly Services, Inc., Manpower Inc., Norrell
Corporation, Remedy Temp. Inc., Robert Half International, Inc. and The Olsten
Corporation. Many of the Company's principal competitors have greater
financial, marketing and other resources than the Company. In addition, there
are a number of medium-sized firms which compete with the Company in certain
11.
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markets where they may have a stronger presence, such as regional or specialized
markets. There can be no assurance that the Company will not encounter
increased competition in the future, which could limit the Company's ability to
maintain or increase its market share or maintain gross margins, and which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company believes that the competitive factors in obtaining and
retaining customers include an understanding of customers' specific job
requirements, the ability to provide temporary personnel in a timely manner, the
monitoring of quality of job performance and the price of services. The Company
has experienced pricing pressure in all areas of its business and expects these
pressures to continue. The Company believes that primary competitive factors in
obtaining qualified candidates for temporary employment assignments are wages,
benefits and flexibility of work schedules. There can be no assurance that the
Company will be able to compete successfully with the companies mentioned above
or with new market entrants.
GOVERNMENTAL REGULATION
The Company's sales of franchises and licenses is regulated by the Federal
Trade Commission and by state business opportunity and franchise laws. The
Company has either registered, or been exempted from registration, in 14 of the
15 states which require registration in order to offer franchises or licenses.
In one of the 15 states, the Company has not yet sought registration and is
therefore not currently authorized to offer franchise or license arrangements.
Legislative changes affecting the health care industry have been proposed
from time to time in Congress and various states. Changes in the government's
support of health care services, the methods by which such services are
delivered and the prices for such services could each have a material adverse
effect on the Company's business, results of operations and financial condition.
Of the Company's medical services division sales in fiscal 1996, 18.4% were
attributable to Medicare services (1.5% of the Company's total sales of
services and license fees). Even if the ultimate impact on revenues of such
changes were to be positive, there can be no assurance that the costs of
adapting to such changes would not have a significant negative impact on future
earnings of the Company.
A number of states have adopted laws regulating companies that provide
health care services. In many of the states, the Company need only be
licensed. In 21 states, a certificate of need ("CON") from the state must be
obtained to be a Medicare provider. CON laws restrict the types of care that
may be provided and can limit or prohibit the Company's ability to provide
certain services and to establish or expand its medical operations. CON
requirements and restrictions vary substantially from state to state.
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO")
accreditation has become an important criterion in providing home health care
services. As of December 28, 1996, twelve of the Company-owned offices and
three franchise agent offices were accredited by JCAHO. Applications for
JCAHO accreditation are pending for one Company-owned office, one franchise
agent office and one licensed office. Failure to obtain such accreditation
or delays in the accreditation process could adversely affect the ability of
the Company to compete in the home health care services area.
EMPLOYEES
The Company estimates that at November 2, 1996 it had approximately 33,000
temporary employees on assignment and employed approximately 1,050 regular
staff. The Company believes that its relationships with its employees are good.
The Company, as the employer, is responsible for and pays the regular and
temporary payrolls, Social Security taxes (FICA), federal and state unemployment
taxes, workers' compensation insurance and other direct labor costs relating to
its temporary employees (including temporary employees assigned by franchise
agents). The Company offers various insurance programs and other benefits for
its temporary employees which are made available
12.
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at the option of the branch office managers or franchise agents and licensees.
In addition, temporary employees performing health care services are covered by
professional liability insurance. As part of health care reform, federal and
certain state legislative proposals have included from time to time provisions
which would extend health insurance benefits to temporary employees who are not
currently provided with such benefits. Due to the uncertainty associated with
the ultimate enactment of any such health care reform initiatives and the form
and content of any such initiatives once enacted, the Company is unable to
estimate the impact any extension of health insurance benefits would have on its
business, results of operations and financial condition.
SERVICE MARKS
The Company has various service marks registered with the United States
Patent and Trademark Office, with the State of California and in various
foreign countries. Federal and state service mark registrations may be
renewed indefinitely as long as the underlying mark remains in use. The
Company's service marks include Western Staff Services-Registered
Service Mark-, Western Temporary Services-Registered Service Mark-, Western
Medical Services-Registered Service Mark-, Western Technical
Services-Registered Service Mark-, Westaff-Registered Service Mark-,
Westemp-Registered Service Mark-, Western Accounting Services-Registered
Service Mark-, Western Legal Services-Registered Service Mark- and University of
Santa Claus-Registered Service Mark-. The Company has filed applications to
federally register the service marks Western Independent Living-SM-,
Accountants USA-SM- and Western Medical Services Home Health Agency-SM-. In
addition, applications to federally register the service marks WesCare
Integrated Health Solution-SM- and WesCare-SM- have been filed by Western and
Omnicare, Inc., a provider of infusion and home medical equipment, with which
Western formed a limited liability company in furtherance of a joint venture
to provide home health care and infusion services in the State of Ohio.
ITEM 2. PROPERTIES.
The executive offices of the Company are located at 301 Lennon Lane, Walnut
Creek, California. The Company owns five buildings, consisting of approximately
72,000 square feet, which house its corporate headquarters.
In addition, as of December 28, 1996, the Company leased space for 247
Company-owned offices in the United States and abroad. The leases generally are
for terms of one to five years, and expire at various dates from time to time.
The Company believes that its executive office facilities are adequate for its
needs and does not anticipate any difficulty replacing such facilities or
locating additional facilities, as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any litigation that could have a
material adverse effect on the Company's business, results of operations or
financial condition. However, from time to time the Company has been threatened
with, or named as, a defendant in lawsuits, including countersuits brought by
former franchise agents, and administrative claims and lawsuits brought by
employees.
The Company maintains insurance in such amounts and with such coverages,
deductibles and policy limits as management believes are reasonable and prudent.
The principal risks that the Company insures against are workers' compensation,
comprehensive general liability, automobile liability, professional malpractice
liability, fidelity losses and excess third party liability. The Company
believes that such insurance coverages are adequate for the purposes of its
business.
13.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock commenced trading on the Nasdaq National Market
on April 30, 1996 under the symbol WSTF. The following table indicates the
range of the high and low prices as reported by Nasdaq.
HIGH LOW
---- ---
FISCAL 1996
Third Quarter ended July 6, 1996(1) . . . . $ 18 1/8 $ 13
Fourth Quarter ended November 2, 1996(1) . . $ 15 3/4 $ 11
FISCAL 1997
First Quarter (through January 30, 1997) . . $ 15 1/4 $ 6 3/4
On December 27, 1996, the closing price of the Common Stock on the Nasdaq
National Market was $9.375 per share. As of December 27, 1996, there were 41
holders of record of Common Stock of the Company.
The Company has paid no cash dividends on its Common Stock since the
Offering. The payment of cash dividends depends on the Company's earnings,
financial condition and capital needs and on other factors deemed pertinent by
the Board of Directors. The Board of Directors intends to retain earnings to
finance the operations and expansion of the Company's business. In addition,
the Company's credit agreement contains covenants that prohibit the payment of
dividends under certain circumstances. Accordingly, the Company does not
anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future.
(1) Since the Company's quarters and fiscal year end fall on Saturday,
all high and low prices as reported by Nasdaq are given
for the preceding Friday.
14.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT NUMBER OF OFFICES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales of services and license fees. . . . . . . . . $ 482,073 $ 399,663 $ 337,201 $ 280,512 $ 246,496
Operating income (loss) . . . . . . . . . . . . . . 15,296 12,233 9,556 2,665 (44)
PRO FORMA DATA:
Net income (loss). . . . . . . . . . . . . . . . . . $ 8,771 $ 7,462 $ 5,604 $ 1,327 $ (446)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Net income (loss) per common share . . . . . . . . . $ 0.92 $ 0.84 $ 0.63 $ 0.15 $ (0.05)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital. . . . . . . . . . . . . . . . . . . $ 31,982 $ 17,349 $ 24,293 $ 18,720 $ 15,899
Total assets . . . . . . . . . . . . . . . . . . . . 120,780 96,169 76,367 59,621 55,961
Short-term debt. . . . . . . . . . . . . . . . . . . 11,193 16,838 3,895 4,354 5,640
Long-term debt (excluding current portion) . . . . . 3,603 5,623 4,776 5,093 7,509
Stockholders' equity . . . . . . . . . . . . . . . . 49,252 31,792 29,911 22,308 20,040
OTHER OPERATING DATA:
Number of Offices (at end of period):
Company-owned . . . . . . . . . . . . . . . . . . 237 214 187 179 178
Franchise agent. . . . . . . . . . . . . . . . . . 119 106 99 97 99
Licensed . . . . . . . . . . . . . . . . . . . . . 14 21 16 5
--------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 370 341 302 281 277
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
SYSTEM REVENUE DATA (EXCLUDING LICENSE FEES):
Business Services
Domestic . . . . . . . . . . . . . . . . . . . . . $ 418,546 $ 384,202 $ 327,193 $ 234,251 $ 187,548
International. . . . . . . . . . . . . . . . . . . 58,872 48,528 35,641 26,279 25,541
--------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 477,418 432,730 362,834 260,530 213,089
Medical Services . . . . . . . . . . . . . . . . . 43,907 38,491 36,791 31,501 33,407
--------- ---------- ---------- ---------- ----------
Total system revenue. . . . . . . . . . . . . $ 521,325 $ 471,221 $ 399,625 $ 292,031 $ 246,496
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
15.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 and 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 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 "Business." 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 370
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.
The general level of economic activity significantly affects the demand for
temporary personnel. As economic activity has slowed, the use of temporary
employees often has been curtailed before permanent employees have been laid
off. In addition, an economic downturn may adversely affect the demand for
temporary personnel and may have a material adverse effect on the Company's
business, results of operations and financial condition. As economic
activity has increased, temporary employees often have been added to the work
force before permanent employees have been hired. During these periods of
increased economic activity and generally higher levels of employment, the
competition among temporary staffing firms for qualified temporary personnel
is intense. Further, the Company may face increased competitive pricing
pressures during such periods. There can be no assurance that during these
periods the Company will be able to recruit the temporary personnel necessary
to fill its customers' job orders or that such pricing pressures will not
adversely affect the Company's business, results of operations, cash flows
and financial condition.
INITIAL PUBLIC OFFERING OF COMMON STOCK
On May 3, 1996 the Company completed an initial public offering (the Offering)
of 2.3 million shares of common stock at $14.00 per share, of which 1.5 million
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.
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<PAGE>
The net proceeds to the Company from the sale of the 1.5 million shares of
common stock, after deduction of associated expenses, were $19.0 million. A
portion of the net proceeds was used to repay $13.8 million outstanding under
the Company's revolving credit facility. Approximately $4.1 million has been
used for acquisitions with the remaining balance reserved for further
acquisitions, further debt reduction or for working capital and other general
corporate purposes. 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 25.0 million. In addition, the Company
established a class of preferred stock, $0.01 par value per share, and
authorized 1.0 million shares. No shares of the preferred stock are
outstanding.
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 was required by the Internal Revenue Service Code to change its method
of accounting for income tax reporting purposes from the cash to the accrual
basis. The termination resulted in a non-recurring net charge to earnings of
$7.5 million in the third quarter of fiscal 1996. This charge was due primarily
to temporary differences resulting from the Company's historical use of the cash
method of accounting for income tax purposes. The income tax charge relating to
the change from the cash to accrual method was $12.6 million and is payable in
quarterly installments due over four years, with the initial installment paid on
August 15, 1996. This charge was partially offset by an increase of $5.1
million in the Company's deferred tax assets.
RESULTS OF OPERATIONS
The following table sets forth, for the three most recent fiscal years, certain
statement of operations data as a percentage of sales of services and license
fees. Pro forma net income 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. Historical net income is not presented in view of prior
period S corporation status.
FISCAL YEAR
-------------------------------
1996 1995 1994
---- ---- ----
Sales of services 99.4% 99.1% 99.1%
License fees 0.6% 0.9% 0.9%
--------------------------------
Sales of services and license fees 100.0% 100.0% 100.0%
Costs of services 78.2% 77.5% 78.1%
--------------------------------
Gross margin 21.8% 22.5% 21.9%
Franchise agents' share of gross profit 4.0% 5.2% 5.4%
Selling and administrative expenses 14.6% 14.3% 13.7%
--------------------------------
Operating income 3.2% 3.0% 2.8%
Interest expense 0.2% 0.3% 0.2%
Interest income 0.0% (0.1%) (0.1%)
--------------------------------
Income before income taxes 3.0% 2.8% 2.7%
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Pro forma provision for income taxes 1.2% 1.0% 1.0%
--------------------------------
Pro forma net income 1.8% 1.8% 1.7%
--------------------------------
--------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
SALES OF SERVICES AND LICENSE FEES. Sales of services increased $83.3 million
or 21.0% in fiscal 1996 as compared to fiscal 1995. The increase resulted from
a 19.7% increase in billed hours and a 1.0% 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
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.
Approximately $16.7 million of the sales increase in fiscal 1996 is the result
of this acquisition. Furthermore, fiscal 1996 included fifty-three weeks while
fiscal 1995 included fifty-two weeks. Sales of services for fiscal 1996
increased 23.2%, 21.3% and 3.7%, respectively, for the Company's domestic
business services, international business services and medical services, as
compared to fiscal 1995. The increase in average billing rates reflects
inflationary factors as well as changes in the Company's overall business mix.
License fees are charged to licensed offices based either on a percentage of
sales or of gross profit generated by the licensed offices. License fees
decreased $884,000 or 23.6% for fiscal 1996 as compared to fiscal 1995.
Approximately $1.9 million of the license fees for the fiscal year ended October
28, 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 three new licensees and converted
one franchise agent to the license program during 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 $67.5
million or 21.8% in fiscal 1996 as compared to fiscal 1995. Gross margin
decreased from 22.5% in fiscal 1995 to 21.8% in fiscal 1996 due to downward
competitive pressures on margins, particularly within the light industrial and
clerical segments in which the Company operates, and to the decrease in license
fees noted above. As a result of increased competition within the temporary
staffing industry, the Company anticipates that there will be continued downward
pressure on margins throughout fiscal 1997. In response to these pressures,
during the first quarter of fiscal 1997 the Company implemented a nationwide
program directed toward maximizing gross margins. However, there can be no
assurance that this program will be successful in either increasing gross
margins or eliminating any further decreases in gross margins.
A key component of the Company's costs of services is workers' compensation
costs. Workers' compensation costs were 3.3% of payroll in fiscal 1996 as
compared to 3.2% during fiscal 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.
The Company self-insures the deductible amount related to workers' compensation
claims under its paid loss retrospective program. The deductible amount was
$350,000 per claim for policy years 1996, 1995 and 1994. The Company accrues
for workers' compensation costs based upon payroll dollars paid to
18
<PAGE>
temporary employees. The accrual rates vary based upon the specific risks
associated with the work performed by the temporary employee. At the beginning
of each policy year, the Company reviews the overall accrual rates with its
outside actuary and makes changes to the rates as necessary based primarily upon
historical loss trends. Each year, the Company adjusts it historical accruals
to the actuarially developed estimate of the ultimate cost for each open policy
year. The overall accounting principles and procedures applied by the Company
and the overall assumptions and methodology used by the Company's outside
actuary to estimate the ultimate costs to be incurred under the workers'
compensation program have been consistent for all periods presented.
As a result of improvements in loss trends during fiscal 1994 and fiscal
1995, the accrual adjustments resulted in decreased workers' compensation
costs in fiscal 1994 and fiscal 1995. Management adjusted the basic accrual
rates downward for fiscal 1996 as a result of those trends. A preliminary
analysis of the actual fiscal 1996 claim activity indicates that claim counts
have increased at a level that is generally consistent with overall increases
in business activity; however, the average severity of fiscal 1996 claims
has increased compared to previous years resulting in overall higher costs
for fiscal 1996. As a result of these preliminary trends, the Company reached
an agreement in January 1997 with its insurance carrier to settle all fiscal
1996 claims and transfer the risk of possible adverse development to the
insurance carrier. The Company was able to settle the fiscal 1996 claims at
a cost which is equal to the fiscal 1996 accruals resulting in no additional
charges for policy year 1996. However, as a cautionary measure, the Company
plans to increase its basic accrual rates in fiscal 1997 by about 10% (to an
estimated 3.6% of direct labor). The Company is carefully reviewing the 1996
claim trends to determine the specific causes for the increased severity of
the claims. By shifting the fiscal 1996 workers' compensation claim
responsibility to the insurance carrier, the Company plans to re-direct its
risk management resources towards more aggressive loss control programs as
well as intensified claim investigation techniques and settlement tactics for
the remaining open policy years (1992 through 1995) and for the current
policy year (1997). However, there can be no assurance that the Company's
programs to control worker's compensation expenses will be effective or that
loss development trends will not require a charge to costs of services in
future periods to increase worker's compensation accruals.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit represents the net distribution paid to franchise agents based either
on a percentage of sales or of the gross profit generated by the franchise
agents' operation. Franchise agents' share of gross profit decreased $1.5
million or 7.1% for fiscal 1996 as compared to fiscal 1995. As a percentage
of sales of services and license fees, franchise agents' share of gross
profit declined from 5.2% during fiscal 1995 to 4.0% for fiscal 1996. This
decrease is primarily the result of the acquisition by the Company of the
operations of two of its largest franchise agents and the conversion of these
offices to Company-owned offices during the fourth quarter of fiscal 1995.
The operations of one additional franchise agent were acquired during the
fourth quarter of fiscal 1996.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $13.3 million or 23.4% for fiscal 1996 as compared to fiscal 1995.
As a percentage of sales of services and license fees, selling and
administrative expenses increased from 14.3% in fiscal 1995 to 14.6% in
fiscal 1996. The increase in selling and administrative expenses have been
largely due to the acquisitions of franchise agents and conversion of the
franchise agent offices to Company-owned offices, write-off of costs in
fiscal 1995 and costs associated with new management information systems
implemented by the Company.
During the fourth quarter of fiscal 1995, the Company acquired the operations of
two of its largest franchise agents and converted these offices to Company-owned
offices. The Company acquired the
19
<PAGE>
operations of one additional franchise agent during the fourth quarter of fiscal
1996. 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 agent's share of gross
profit. The fiscal 1996 increase in selling and administrative costs resulting
from these conversions was approximately $4.3 million or 0.9% of sales.
Excluding these costs, fiscal 1996 selling and administrative expenses as a
percentage of sales of services and license fees would have been approximately
13.7%.
Selling and administrative expenses included a $940,000 charge during the third
quarter of fiscal 1995 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 14.0% for the
fiscal year ended October 28, 1995.
During the first quarter of fiscal 1995, the Company began to implement the
payroll and billing portion of the Company's new management information
system. Due to the comprehensive scope of the new system, which affects all
major processing functions within the Company, and the need to operate both
the old and new systems during the conversion period, the Company incurred
increased expenses to administer and implement the new system. This resulted
in higher relative selling and administrative expenses in both fiscal 1995
and fiscal 1996. The Company has completed the conversion of the majority of
its domestic business services processing sites to the payroll and billing
portion of the new system. There are two remaining groups of domestic
business services offices with custom front-end search and retrieval systems
that have yet to be converted. Their conversion has been postponed pending
completion of an integrated search and retrieval module within the existing
payroll and billing system. The Company is currently in the process of
integrating a search and retrieval function within the payroll and billing
system, streamlining the processing functions of the payroll and billing
system and developing new modules to enhance the capabilities of the system.
The Company also plans to upgrade to newer versions of its payroll software
during fiscal 1997 and intends to expand its hardware capabilities. Further,
the Company is in the process of reviewing its remaining financial accounting
and reporting systems and plans to spend additional funds in fiscal 1997 and
beyond to upgrade these systems. In addition to the changes in the business
services information systems, the Company is in the process of converting its
medical services offices to a comprehensive clinical and financial accounting
and reporting package. As a result of the ongoing system enhancements being
implemented by the Company and the planned changes to the Company's financial
accounting and reporting systems, management anticipates continued higher
selling and administrative expenses during fiscal 1997. However, the
Company believes that the planned system enhancements will support
anticipated revenue growth and will allow for operating efficiencies in
future years.
At the end of fiscal 1996, in an effort to reduce overhead costs, the Company
extended a number of offers to various corporate staff under a Voluntary
Severance Program. As a result of acceptances of these offers during fiscal
1997, the Company will incur costs of approximately $300,000 during the first
quarter of fiscal 1997 for severance packages. There are no additional
severance offers outstanding.
INTEREST EXPENSE. Interest expense decreased $36,000 or 3.0% for fiscal 1996 as
compared to fiscal 1995, reflecting lower average borrowings outstanding during
the fiscal 1996 period. As a result of increased borrowings required to support
the Company's growth and working capital needs, the Company anticipates higher
interest expense in fiscal 1997.
20
<PAGE>
PRO FORMA PROVISION FOR INCOME TAXES. Pro forma provision for income taxes
increased from $3.8 million for fiscal 1995 to $5.6 million for fiscal 1996, due
primarily to the increase in income before income taxes of $3.1 million. The
pro forma effective income tax rate increased from 34.0% for fiscal 1995 to
39.0% for fiscal 1996. The fiscal 1995 rate was lower due to income tax credits
and the recognition of the benefit of foreign net operating loss carryforwards.
The Company currently estimates that the effective tax rate for fiscal 1997 will
be approximately 40.0%.
FISCAL 1995 COMPARED TO FISCAL 1994
SALES OF SERVICES AND LICENSE FEES. Sales of services and license fees
increased $62.5 million or 18.5% for fiscal 1995 as compared to fiscal 1994.
The increase resulted from a 13.8% increase in billed hours and a 3.8% increase
in average billing rates per hour. The increase in billed hours was due
primarily to increased demand for temporary staffing, increased productivity of
the Company's existing offices and the addition of new offices. The increase in
average billing rates per hour reflected inflationary factors as well as the
relatively higher growth rates in the technical areas and the international
offices which tend to carry higher average billing rates per hour than the
domestic light industrial and clerical offices. The Company had a net increase
of 39 Company-owned and franchise agent and licensed offices at October 28, 1995
as compared to October 29, 1994. The Company's foreign sales increased $12.9
million or 36.2% for fiscal 1995 as compared to fiscal 1994, driven primarily by
increased productivity within existing offices.
License fees increased $623,000 or 19.9% in fiscal 1995 as compared to fiscal
1994 reflecting a 14.9% increase in sales generated by the licensed offices
combined with an increase in licensee gross margin. Approximately $1.9 million
and $1.7 million of the license fees and gross profit for fiscal 1995 and fiscal
1994, respectively, were associated with a major customer of one of the
Company's licensees. This contract was completed on December 31, 1995.
COSTS OF SERVICES. Costs of services for fiscal 1995 increased $46.4 million or
17.6% compared to fiscal 1994. Workers' compensation expense in fiscal 1995 was
approximately $8.5 million or 3.2% of related payroll as compared to
approximately $10.1 million or 5.1% of related payroll in fiscal 1994.
Primarily as a result of the lower workers' compensation costs, gross margin
increased from 21.9% for fiscal 1994 to 22.5% in fiscal 1995. During the second
quarter of fiscal 1995, the Company settled all claims associated with policy
years 1986 through 1991. As a result of this settlement, the Company reduced
its overall workers' compensation accruals in the second quarter resulting in a
gain of $980,000. This gain reflected the difference between the final
settlement payment and the remaining accruals for policy years 1986 through
1991. Furthermore, due to improvements in the overall historical loss
development trends for the Company and decreases in the relative frequency and
average severity of claims during the fourth quarter of fiscal 1995, the
Company reduced its workers' compensation accruals for policy years 1992 through
1994 to reflect the actuarially estimated ultimate costs associated with those
policy years, resulting in a gain of $1.2 million.
FRANCHISE AGENTS' SHARE OF GROSS PROFIT. Franchise agents' share of gross
profit increased $2.7 million or 14.7% for fiscal 1995 as compared to fiscal
1994. Franchise agents' share of gross profit decreased as a percentage of
sales of services and license fees from 5.4% in fiscal 1994 to 5.2% in fiscal
1995. This decrease was due to higher growth rates for Company-owned offices
during fiscal 1995 as compared to franchise agent offices. Furthermore, during
October 1995, the Company bought the operations of two of its franchise agents
and converted these offices to Company-owned offices as noted above.
SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $10.7 million or 23.1% for fiscal 1995 as compared to fiscal 1994.
Included in these costs for fiscal 1995 was a $940,000
21
<PAGE>
non-recurring charge during the third quarter to write off deferred costs
related to the Company's planned IPO that was subsequently postponed. As a
percentage of sales of services and license fees, selling and administrative
expenses increased from 13.7% for fiscal 1994 to 14.3% for fiscal 1995.
Excluding the charge for the IPO costs, fiscal 1995 selling and administrative
expenses as a percentage of sales of services and license fees would have been
14.0%. This overall increase in selling and administrative expenses as a
percentage of sales of services and license fees was primarily due to the
initial implementation of the Company's new payroll and billing system beginning
in the first quarter of fiscal 1995. Due to the comprehensive scope of the new
system, which affects all major processing functions within the Company, and the
need to operate both the old and new systems during the conversion period, the
Company incurred increased administrative expenses in fiscal 1995 to administer
and implement the system.
INTEREST EXPENSE. Interest expense increased $583,000 or 94.0% for fiscal 1995
as compared to fiscal 1994 reflecting higher average borrowings outstanding
during fiscal 1995.
PRO FORMA PROVISION FOR INCOME TAXES. Pro forma provision for income taxes
increased $300,000 for fiscal 1995 as compared to fiscal 1994. The Company's
effective income tax rate decreased to 34.0% for fiscal 1995 from 38.7% for
fiscal 1994. This decrease was primarily due to income tax credits and the
recognition of the benefit of foreign net operating loss carryovers.
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.
Net cash flows from operating activities were $2.2 million, $7.4 million and
$7.6 million in fiscal 1996, fiscal 1995 and fiscal 1994, respectively. Cash
flows from operating activities for fiscal 1996 include a decrease of $7.5
million in net income due to the income tax adjustments noted above. However,
this decrease in cash flows was partially offset by increases in income taxes
payable and deferred income taxes. Accounts receivable balances increased $21.0
million in fiscal 1996 as compared to an increase of $8.1 million in fiscal 1995
and an increase of $9.6 million in fiscal 1994. The fiscal 1995 and fiscal 1994
increases were largely due to sales growth. The increase in fiscal 1996 is due
to the continued growth of the Company's sales along with the acquisition of one
of the Company's licensees during the third quarter of fiscal 1996. This
acquisition resulted in a decrease in due from licensees as collection of the
licensee receivables was used to pay down the due from licensee. However, this
decrease in due from licensees was offset by increases in trade receivables of
approximately $5.0 million as sales and receivables for the acquired operation
increased. Trade receivables at November 2, 1996 were also affected by delays
in payments from the Medicare program. Due to some system changes implemented
by the Company's fiscal intermediary, payments of approximately $3.6 million
were delayed as of the end of fiscal 1996. Due from licensees also decreased
for fiscal 1996 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.
22
<PAGE>
In connection with the settlement of the workers' compensation program for
policy year 1996, the Company will be required to make a payment of $1.6 million
to its insurance carrier in January 1997.
Cash used for capital expenditures, which are generally for software, computers
and peripherals, and office furniture and equipment, totaled $6.4 million, $4.9
million and $6.0 million for fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. The capital expenditures during each of these fiscal years
include expenditures for the implementation of the Company's new management
information systems which totaled approximately $9.8 million through the end of
fiscal 1996. These expenditures include costs for both the payroll and billing
portion of the system as well as costs for system enhancements and for new
modules under development. While the payroll and billing portion of the new
system is in place, the Company expects to make further enhancements to the
system to provide additional search and retrieval capabilities, to implement
additional modules to streamline the processing functions, to upgrade to a newer
version of its payroll software and to expand its hardware capabilities.
Further, the Company is in the process of reviewing its remaining financial
accounting and reporting systems and will likely spend additional funds in
fiscal 1997 and beyond to upgrade these systems. The Company has no other
significant commitments for capital purchases.
During fiscal 1996 and fiscal 1995, cash outflows for new acquisitions and for
contingent payments under existing acquisitions totaled $4.8 million and $2.9
million, respectively. The fiscal 1996 payments include $2.8 million for the
acquisition of the operations of one of the Company's licensees and one of the
Company's franchise agents. Payments due for fiscal 1997, fiscal 1998 and
fiscal 1999 related to acquisitions are $1.3 million, $1.0 million and $1.0
million, respectively, with additional consideration contingent on either sales
or gross profits of the acquired businesses in future periods.
As noted above, net proceeds to the Company from its Offering were approximately
$19.0 million. Net cash used for debt reduction totaled $7.7 million in fiscal
1996 including payments of $1.5 million for the fiscal 1995 acquisition of one
of the Company's franchise agents. During fiscal 1995, the Company increased
borrowings by a net $8.7 million in order to provide working capital to support
the Company's growth, to fund acquisitions and to pay dividends to the Company's
then current stockholders.
Distributions to stockholders totaled $2.5 million in fiscal 1996
representing a portion of the undistributed S corporation earnings of the
Company. The final distribution of S corporation earnings of $2.5 million
will be made in fiscal 1997. Distributions to stockholders in fiscal 1995
totaled $8.7 million, of which $4.8 million was used to fund income tax
obligations. Distributions to stockholders in fiscal 1994 totaled $4.1
million, of which $3.0 million was used by the Company's principal
stockholder to purchase the common stock and certain intercompany receivables
of Western Video Images. Subsequent to the final $2.5 million payment in
fiscal 1997 for the outstanding stockholder distributions, the Company does
not anticipate declaring or paying any dividends on its common stock in the
foreseeable future.
In order to make shares available for the Company's Employee Stock Purchase and
Stock Option Plans, the Company may repurchase up to 100,000 shares of
common stock in the open market at prevailing prices, not to exceed $14 per
share, over the next twelve months.
During the second quarter of fiscal 1996, the Company executed a new term loan
and revolving credit agreement. The credit 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 for acquisitions,
converting on September 30, 1997 to a six-year
23
<PAGE>
fully amortized term loan in an amount up to $21.8 million. As of November 2,
1996, the Company had $38.0 million available under its term loan and revolving
credit facility, consisting of $11.2 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 for acquisitions.
The Company believes that cash provided from operations and available borrowings
under the credit facility will be sufficient to meet anticipated needs for
working capital and capital expenditures at least through the next twelve
months.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data of the Company required by
this item are set forth at the pages indicated at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
25
<PAGE>
PART III
The information required by this item is included under the caption
"Management" in the Company's Proxy Statement for the Company's 1997 Annual
Meeting and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Financial Statements.
Report of Independent Accountants.................................. F-1
Consolidated Balance Sheets -- As of the Fiscal Year Ended
November 2, 1996 and the Fiscal Year Ended
October 28, 1995....................................................F-2
Consolidated Statements of Operations -- For the Three Year
Period Ended November 2, 1996.......................................F-3
Consolidated Statements of Stockholders' Equity -- For
the Three Year Period Ended November 2, 1996........................F-4
Consolidated Statements of Cash Flows - For the Three
Year Period Ended November 2, 1996..................................F-5
Notes to Consolidated Financial Statements..........................F-7
2. Financial Statement Schedule. The following Financial Statement
Schedule of the Registrant is filed as part of this report:
Schedule II - Valuation and Qualifying Accounts..................... 29
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements
or notes thereto.
3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this report:
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 (1)
3.1 The Company's Third Amended and Restated Certificate of
Incorporation.(1)
3.2 The Company's Restated Bylaws.(1)
4.1 Form of Specimen Certificate for the Company's Common
Stock.(1)
10.1 Form of Indemnification Agreement between the Company and
the Officers and Key Employees of the Company.(1)
26
<PAGE>
10.2 Form of Indemnification Agreement between the Company and
the Directors of the Company.(1)
10.3 Employment Agreement between the Company and W. Robert
Stover.(1)
10.3.1 Amendment to the Employment Agreement between the Company
and W. Robert Stover.
10.5 Nonstatutory Stock Option Agreement for fiscal 1989.(1)
10.6 Nonstatutory Stock Option Agreement for fiscal 1990.(1)
10.7 Western Staff Services, Inc. 1996 Stock Option/Stock
Issuance Plan.
10.7.1 Form of Notice of Grant of Stock Option.
10.7.2 Form of Stock Option Agreement.
10.7.3 Form of Addendum to Stock Option Agreement (Involuntary
Termination Following a Corporate Transaction).
10.7.4 Form of Notice of Grant of Automatic Stock Option.
10.7.5 Form of Automatic Stock Option Agreement.
10.7.6 Form of Stock Issuance Agreement.
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.(1)
10.8.1 Waiver and First Amendment to Credit Agreement dated as of
June 9, 1996 (2)
10.8.2 Waiver and Second Amendment to Credit Agreement dated as of
September 30, 1996.
10.9 Deed of Trust & Assignment of Rents dated June 21, 1994 by
and between Western Staff Services, Inc., First Bancorp and
Sanwa Bank California.(1)
10.9.1 Tax Indemnification Agreement by and among the Company and
the current stockholders of the Company.(1)
10.9.2 Amendment of Commercial Credit Agreement and Modification of
Deed of Trust as of June 6, 1996.(2)
10.10 Form of Tax Indemnification Agreement by and among the
Company and certain stockholders of the Company.(1)
10.11 Western Staff Services, Inc. 1996 Employee Stock Purchase
Plan.
10.11.1 Stock Purchase Agreement for 1996 Employee Stock Purchase
Plan.
10.11.2 Form of Enrollment/Change Form for 1996 Employee Stock
Purchase Plan.
10.11.3 International Employee Stock Purchase Plan.
10.11.4 Stock Purchase Agreement for International Employee Stock
Purchase Plan.
10.11.5 Form of Enrollment/Change Form for International Employee
Stock Purchase Plan.
10.12 Exchange Agreement between the Company and W. Robert
Stover.(1)
10.13 Form of Employment Contract with certain Named Executive
Officers.(1)
21.1 Subsidiaries of the Company.(1)
23.1 Consent of Price Waterhouse LLP, independent accountants.
27
<PAGE>
24.1 Power of Attorney (see Page 31)
27.1 Financial Data Schedule.
- -------------------------------------------------
(1) Incorporated herein by reference to the exhibit with the same number filed
with Company's Registration Statement on Form S-1 (File No. 33-85536)
declared effective by the Securities and Exchange Commission on April 30,
1996.
(2) Incorporated herein by reference to the exhibit with the same numbers filed
with the Company's Quarterly Report on Form 10-Q dated July 6, 1996.
(b) Reports on Form 8-K.
There were no Reports on Form 8-K filed by the Company during fiscal
year ended November 2, 1996.
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Western Staff Services, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) and (2) on page 26 present
fairly, in all material respects, the financial position of Western Staff
Services, Inc. and its subsidiaries at November 2, 1996 and October 28,
1995, and the results of their operations and their cash flows for each
of the three years in the period ended November 2, 1996, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
San Francisco, California
December 31, 1996
F-1
<PAGE>
WESTERN STAFF SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOVEMBER 2, OCTOBER 28,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,849 $ 3,014
Trade accounts receivable, less allowance for doubtful
accounts of $769 and $823 74,721 53,937
Due from licensees 3,565 7,143
Deferred income taxes 1,918 1,015
Other current assets 4,075 3,143
------------- -------------
Total current assets 87,128 68,252
Property, plant and equipment, net 18,854 16,438
Deferred income taxes 694
Intangible assets, net of accumulated amortization of $5,537 and $4,709 13,437 9,476
Other assets 1,361 1,309
------------- -------------
$ 120,780 $ 96,169
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,800 $ 12,600
Current portion of loans payable 1,420 1,770
Current portion of note payable to related party 973 2,468
Accounts payable and accrued expenses 38,434 33,135
Income taxes payable 3,019 930
Distributions payable to stockholders 2,500
------------- -------------
Total current liabilities 55,146 50,903
Loans payable 1,658 3,678
Note payable to related party 1,945 1,945
Deferred income taxes 3,847 299
Other long-term liabilities 8,932 7,552
------------- -------------
Total liabilities 71,528 64,377
------------- -------------
Commitments and contingencies (Notes 2, 10 and 12)
Stockholders' equity:
Preferred stock, $.01 par value;
Authorized and unissued: 1,000 shares at November 2, 1996
Common stock:
Par value: $.01 at November 2, 1996; no par value at October 28, 1995
Authorized: 25,000 at November 2, 1996; 15,420 at October 28, 1995
Issued and outstanding: 10,338 at November 2, 1996; 8,838 at October 28, 1995 103 50
Additional paid-in-capital 29,068 3,999
Retained earnings 19,527 27,386
Cumulative currency translation 554 357
------------- -------------
Total stockholders' equity 49,252 31,792
------------- -------------
$ 120,780 $ 96,169
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
WESTERN STAFF SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ------------- ------------
<S> <C> <C> <C>
Sales of services $ 479,205 $ 395,911 $ 334,072
License fees 2,868 3,752 3,129
----------- ------------- ------------
Total sales of services and license fees 482,073 399,663 337,201
----------- ------------- ------------
Costs of services 377,136 309,626 263,190
Franchise agents' share of gross profit 19,341 20,822 18,153
Selling and administrative expenses 70,300 56,982 46,302
----------- ------------- ------------
Total costs and expenses 466,777 387,430 327,645
----------- ------------- ------------
Operating income 15,296 12,233 9,556
Interest expense 1,167 1,203 620
Interest income (251) (274) (210)
----------- ------------- ------------
Income before income taxes 14,380 11,304 9,146
Provision for income taxes 11,097 563 172
----------- ------------- ------------
Net income $ 3,283 $ 10,741 $ 8,974
----------- ------------- ------------
----------- ------------- ------------
Unaudited pro forma data (Notes 2 and 13)
Income before income taxes $ 14,380 $ 11,304 $ 9,146
Provision for income taxes 5,609 3,842 3,542
----------- ------------- ------------
Net income $ 8,771 $ 7,462 $ 5,604
----------- ------------- ------------
----------- ------------- ------------
Net income per common share $ 0.92 $ 0.84 $ 0.63
----------- ------------- ------------
----------- ------------- ------------
Weighted average common shares outstanding 9,582 8,838 8,838
----------- ------------- ------------
----------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WESTERN STAFF SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------------- PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION TOTAL
----------- ----------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 30, 1993 8,838 $ 50 $ 1,800 $ 20,491 $ (33) $ 22,308
Net income 8,974 8,974
Distributions to stockholders (4,112) (4,112)
Currency translation
adjustments 501 501
Stockholder contribution 73 73
Stockholder contribution
related to purchase of WVI 2,167 2,167
----------- ----------- ------------- ------------ ------------- ----------
Balance at October 29, 1994 8,838 50 4,040 25,353 468 29,911
Net income 10,741 10,741
Distributions to stockholders (8,708) (8,708)
Currency translation
adjustments (111) (111)
Other (41) (41)
----------- ----------- ------------- ------------ ------------- ----------
Balance at October 28, 1995 8,838 50 3,999 27,386 357 31,792
Net income 3,283 3,283
Distributions to stockholders (5,000) (5,000)
Transfer of undistributed
S corporation earnings 6,142 (6,142)
Currency translation
adjustments 197 197
Common stock offering 1,500 53 18,927 18,980
----------- ----------- ------------- ------------ ------------- ----------
Balance at November 2, 1996 10,338 $ 103 $ 29,068 $ 19,527 $ 554 $ 49,252
----------- ----------- ------------- ------------ ------------- ----------
----------- ----------- ------------- ------------ ------------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WESTERN STAFF SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,283 $ 10,741 $ 8,974
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 3,855 2,890 2,402
Amortization of intangible assets 825 254 395
Provision for losses on doubtful accounts 466 767 693
Deferred income taxes 3,339 359 (716)
Changes in assets and liabilities:
Trade accounts receivable (21,031) (8,134) (9,620)
Due from licensees 3,578 (3,092) (2,345)
Other assets (838) (21) (2,011)
Accounts payable and accrued expenses 5,267 2,904 9,800
Income taxes payable 2,118 541 (923)
Other long-term liabilities 1,374 142 932
----------- ----------- -----------
Net cash from operating activities 2,236 7,351 7,581
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets and investments 188 120 20
Expenditures for purchases of fixed assets (6,437) (4,913) (5,960)
Payments received on notes receivable 307 787 629
Increase in notes receivable (455) (396) (172)
Net payments from related parties 1,153
Payments for intangibles and other investments (4,825) (2,872) (180)
----------- ----------- -----------
Net cash from investing activities (11,222) (7,274) (4,510)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit
agreements (3,800) 10,100 (500)
Repayments of notes to related parties (1,495) (24)
Proceeds from issuance of loans payable 1,907 2,062
Principal payments on loans payable (2,371) (3,302) (2,355)
Proceeds from issuance of common stock 18,980
Distributions to stockholders (2,500) (8,675) (4,112)
Stockholder contribution 2,240
----------- ----------- -----------
Net cash from financing activities 8,814 6 (2,665)
----------- ----------- -----------
Effect of exchange rate on cash 7 65 351
----------- ----------- -----------
Net change in cash and cash equivalents (165) 148 757
Cash and cash equivalents at beginning of year 3,014 2,866 2,109
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,849 $ 3,014 $ 2,866
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WESTERN STAFF SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,235 $ 1,140 $ 620
Income taxes (net of refunds) 5,096 170 2,979
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Increase in loans payable, accrued liabilities and
intangible assets from acquisitions $ 5,487
Increase in distributions payable to stockholders $ 2,500
</TABLE>
F-6
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND INITIAL PUBLIC OFFERING OF COMMON STOCK
BASIS OF PRESENTATION
Western Staff Services, Inc. (the Parent) and its domestic and foreign
subsidiaries (together, the Company), provide temporary help and staffing
personnel services in the United States, the United Kingdom, Denmark,
Australia, New Zealand and Norway. The consolidated financial statements
include the accounts of Western Staff Services, Inc. and its domestic and
foreign subsidiaries. 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 combined with the Company's
financial statements for all prior periods presented in a manner similar to
a pooling of interests. Material intercompany accounts and transactions
have been eliminated.
INITIAL PUBLIC OFFERING OF COMMON STOCK
On May 3, 1996, the Company completed an initial public offering of
2,300,000 shares of common stock at $14 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. The net proceeds to the Company from the sales
of the 1,500,000 shares of common stock, after deduction of associated
expenses, were $18,980. 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".
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.
Prior to the consummation of the Offering, the Company declared a dividend
payable to its then 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 - Note 2) 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.
F-7
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FISCAL YEAR
The Company's fiscal year is a fifty-two or fifty-three week period ending
the Saturday nearest the end of October. Fiscal year 1996 included
fifty-three weeks while fiscal years 1995 and 1994 each included fifty-two
weeks. For interim reporting purposes, the first three fiscal quarters
comprise twelve weeks each while the fourth fiscal quarter consists of
sixteen or seventeen weeks.
CASH AND CASH EQUIVALENTS
The Company considers all investments in time deposits with initial
maturities of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
However, concentrations of credit risk are limited due to the large number
of customers comprising the Company's customer base and their dispersion
across different business and geographic areas. Furthermore, the Company
routinely assesses the financial strength of its customers.
REVENUE RECOGNITION
Revenue from the sale of services is recognized at the time the service is
performed. A portion of the Company's sales of services and license fees
is derived from affiliate operations which consist of franchise agent and
license operations.
F-8
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Revenues generated by franchise agents and related costs of services are
included as part of the Company's consolidated sales of services and costs
of services, respectively, since the Company has the direct contractual
relationships with the customers, holds title to the related customer
receivables and is the legal employer of the temporary employees.
"Franchise agent" refers to the Company's franchisees in their role as
limited agents of the Company in recruiting job applicants, soliciting job
orders, filling those orders and handling collection matters upon request,
but otherwise refers to the Company's franchisees in their role as
independent contractors of the Company. The franchise agent acts as a
limited agent for the Company to market the Company's services within the
franchise agent's territory. The net distribution paid to the franchise
agent for services rendered is based either on a percentage of sales or of
the gross profit generated by the franchise agent's operation and is
reflected as franchise agents' share of gross profit.
During fiscal 1993, the Company implemented a second form of affiliate
program, the licensing program. Under this program, the licensee has the
direct contractual relationships with the customers, holds title to the
related customer receivables and is the legal employer of the temporary
employees. Accordingly, sales and costs of services generated by the
license operation are not included in the Company's consolidated financial
statements. The Company advances funds to the licensee for payroll,
payroll taxes, insurance and other related items. Fees are paid to the
Company based either on a percentage of sales or of gross profit generated
by the licensee and such license fees are recorded by the Company as
license fees. Due from licensees represents advances made under these
financing agreements. These advances are secured by a pledge of the
licensee's trade receivables, tangible and intangible assets and the
license agreement. Advances due from licensees bear interest at prime plus
two percent but only to the extent the aggregate advances exceed the amount
of qualified trade receivables securing the outstanding advances. Under
the terms of a lockbox arrangement between the Company and the licensee,
the advances are reduced as remittances are received related to the
licensee trade accounts receivable. Licensees have pledged trade
receivables of $4,073 and $9,255 at November 2, 1996 and October 28, 1995,
respectively, as collateral for such advances. Sales generated by license
offices were $42,120, $75,310 and $65,553 for fiscal 1996, fiscal 1995 and
fiscal 1994, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. For purposes of the
Company's new payroll and billing system, capitalized costs include
purchased hardware and software, externally-developed software costs and
internally-developed software costs that are both direct and incremental.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which are twenty-five to thirty-one
years for buildings and three to ten years for furniture and equipment.
Major improvements to leased office space are capitalized and amortized
over the shorter of their useful lives or the terms of the leases.
F-9
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
During fiscal 1994, the Company reduced the estimated useful lives of its
computers and computer-related equipment from seven to four years due to
changes in the hardware and software platforms used by the Company in
anticipation of the implementation of the new payroll and billing system in
fiscal 1995. The Company determined that the estimated useful lives of its
computers and computer-related equipment should be four years based upon
the Company's historical retention of such equipment adjusted for
consideration of technological changes that may occur. The effect of this
change was to increase depreciation expense for fiscal 1994 by $642 and to
decrease unaudited pro forma net income and unaudited pro forma net income
per common share by $392 and $0.04, respectively.
ACQUISITION AND AMORTIZATION
Business acquisitions have been accounted for under the purchase method of
accounting. The Company considers acquisitions under its "acquisition and
franchise back" program to be business combinations within the meaning of
Accounting Principles Board Opinion No. 16. Under the terms of these
arrangements, the Company acquires an existing temporary staffing service
business and the acquired business becomes a franchise agent upon
acquisition.
During fiscal years 1996, 1995 and 1994 the Company consummated
acquisitions with total purchase prices of $3,802, $8,239 and $64,
respectively. Tangible assets and specifically identifiable intangible
assets associated with these acquisitions amounted to $2,300 for fiscal
1996 and $271 for fiscal 1995. The remaining purchase prices for these
acquisitions were allocated to goodwill. Specifically identifiable
intangible assets consist primarily of covenants not to compete and are
amortized on a straight-line basis over the stated term of the agreement.
Goodwill ($11,360 and $9,335 at November 2, 1996 and October 28, 1995,
respectively) is amortized over twenty years. Certain of these
acquisitions included additional consideration contingent on either sales
or gross profits of the acquired businesses in future periods. When such
contingencies are earned, the additional cost is added to the affected
intangible assets and amortized over the remaining life of the asset.
Contingencies earned during fiscal 1996 on acquisitions consummated during
fiscal 1995 totaled $531. Unaudited pro forma information regarding
revenues and net income has not been provided since the effect of these
acquisitions was not material.
IMPAIRMENT OF LONG-LIVED ASSETS
Management of the Company assesses the recoverability of its long-lived
assets by determining whether the amortization of the asset's balance over
its remaining life can be recovered through projected undiscounted future
cash flows from operations. Management of the Company continually
evaluates the existence of potential impairment by analyzing operating
results, trends and prospects of its acquired operating offices.
Management also takes into consideration any other events or circumstances
that might indicate potential impairment. Based upon these evaluations,
the Company has determined that no impairment of recorded intangible and
other long-lived assets has occurred.
F-10
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Company is required to adopt the provisions of Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for Long-Lived Assets and
for Long-Lived Assets to be Disposed of" in the first quarter of fiscal
1997. The effect of adopting SFAS No. 121 is not expected to be material.
WORKERS' COMPENSATION
The Company self-insures the deductible amount related to workers'
compensation claims under its paid loss retrospective program. The
deductible amount was $350 per claim for policy years 1996, 1995 and 1994.
The Company accrues the estimated costs of workers' compensation claims
based upon the expected loss rates incurred within the various temporary
employment categories provided by the Company. Annually, the Company
obtains an independent actuarially determined calculation of the estimated
costs of claims incurred and reported and claims incurred but not reported,
based on the Company's historical loss development trends. The amounts
calculated may be subsequently revised by the actuary based on developments
relating to such claims. Improvements in loss development trends for
fiscal years 1992 through 1994 resulted in a reduction of the Company's
accrued liability at October 28, 1995 and October 29, 1994 of approximately
$1,200 and $500, respectively. These adjustments were recorded in cost of
services in the Statement of Operations. In order to give recognition to
obligations associated with the Company's workers' compensation program
which are not expected to be paid in the following fiscal year, the Company
has included $8,500 and $7,100 in other long-term liabilities at November
2, 1996 and October 28, 1995, respectively.
INCOME TAXES
The Company records income taxes using an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events
other than enactments of changes in the tax law or rates.
Beginning with fiscal 1988, the Parent elected to be taxed as an
S corporation for federal and state income tax purposes. Pursuant to this
election, earnings or losses up to the date of the Offering were subject to
tax at the stockholder level rather than the corporate level. Therefore no
provision was made for federal income tax on earnings or losses of the
Parent prior to the Offering. Tax laws relative to S corporations vary by
state. In California, the principal state of operation for the Company,
earnings of S corporations are taxed at 1.5% and prior to the Offering the
Company provided state taxes accordingly. 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 was
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 was
due primarily to temporary differences resulting from the Company's
historical use of the cash
F-11
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
method of accounting for income tax purposes. The income tax charge
relating to the change from the cash to accrual method was $12,574 and will
be payable in quarterly installments due over four years, with the initial
installment paid on August 15, 1996. This charge was partially offset by
an increase in the Company's deferred tax assets in the amount of $5,114.
Prior to April 30, 1996, certain subsidiaries of the Parent had not elected
S corporation status and were subject to federal and state income taxes at
the Company level.
TRANSLATION OF FOREIGN CURRENCIES
All assets and liabilities that are denominated in foreign currencies are
translated into U.S. dollars at year-end exchange rates and all revenue and
expense accounts are translated using weighted average exchange rates.
Translation adjustments and gains or losses on intercompany foreign
currency transactions that are of a long-term investment nature are
included as a separate component of stockholders' equity.
ACCOUNTING FOR STOCK-BASED EMPLOYEE BENEFIT PLANS
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued which establishes accounting and reporting standards for stock-based
compensation plans. The Company is required to adopt this standard in the
first quarter of fiscal 1997. This standard encourages all entities to
adopt the fair value based method of accounting for employee stock option
or similar equity instruments but continues to allow an enterprise to
measure compensation cost for those equity instruments using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees". Under the fair
value based method, compensation cost is measured at the grant date based
on the value of the award. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date or other measurement date over the amount the
employee must pay to acquire the stock. The Company intends to continue
the use of the intrinsic value based method. As a result, adoption of this
standard will not have any effect on the Company's consolidated financial
statements other than to require disclosure of the pro forma effect on net
income of using the fair value based method of accounting.
UNAUDITED PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER COMMON SHARE
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 (Note 13) divided by the
pro forma weighted average of shares of common stock outstanding during the
period. No effect has been given to options outstanding under the
Company's Stock Option Plan as no material dilutive effect would result
from exercise of these options. The pro forma weighted average shares
outstanding gives effect to the common stock split and the additional
shares issued to the principal stockholder (Note 1). Historical net income
per share has not been presented in view of the prior period S corporation
status.
F-12
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Supplemental earnings per share data has not been included since the
dilutive effect is immaterial.
3. TRANSACTIONS WITH RELATED PARTIES
During the fourth quarter of fiscal 1994, the Parent sold the common stock
of, and certain intercompany receivables due from, Western Video Images,
Inc. (WVI), a majority-owned subsidiary of the Company, to the Chairman of
the Board, Chief Executive Officer and principal stockholder of the Parent
for an aggregate purchase price of $3,000. WVI provides complete video
post-production services including digital effects and graphic production
operations and is in an industry unrelated to the Company's principal
business. Furthermore, WVI has historically operated independent of the
Parent and there are no significant shared costs. Therefore, the sale of
this subsidiary has been accounted for as a change in reporting entity and,
accordingly, the historical financial statements of the Company have been
restated for all prior periods as though the Parent never had an investment
in WVI. Of the $3,000 purchase price for WVI, $833 was allocated to reduce
advances to related parties, and the remaining $2,167 was treated as
additional paid-in-capital, essentially representing a contribution by the
principal stockholder back to the Company since the financial statements of
the Company have been restated to eliminate the accounts of WVI.
The Company has a management agreement with WVI whereby the Company
provides certain accounting, tax, legal, administrative and management
services to WVI and charges a fee based upon the gross sales of WVI.
Management fees charged to WVI were $197, $226 and $211, respectively, for
fiscal 1996, fiscal 1995 and fiscal 1994.
As of November 2, 1996, the Company had guaranteed WVI's debt totaling
$1,854. The guarantee was removed in December 1996.
The Parent is also the lessee for one of the facilities in which WVI
operates; however, WVI is charged for all costs of the lease. Future
minimum lease payments under this obligation are as follows: fiscal 1997 -
$427; 1998 - $401; 1999 - $365; 2000 - $304.
During October 1995, the Company bought the operations of one of its
franchise agents for a total purchase price of $5,913. Of this purchase
price, $5,793 was allocated to goodwill, $25 was allocated to covenants not
to compete and $95 was allocated to property, plant and equipment. This
franchise agent became an employee of the Company as a result of this
transaction. The Company paid $1,500 in cash on the closing date and paid
an additional $1,500 during fiscal 1996. The remaining amount is payable
over three years as follows: fiscal 1997 - $973; fiscal 1998 - $973; and
fiscal 1999 - $973. The note payable bears interest at 6.5%. The fair
value of this note approximates the carrying value as of November 2, 1996
based on the current rates available to the Company for debt with similar
terms.
F-13
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Land $ 1,366 $ 1,366
Buildings 7,377 7,200
Equipment, furniture and fixtures 25,570 21,246
------- -------
34,313 29,812
Less accumulated depreciation and amortization (15,459) (13,374)
------- -------
$18,854 $16,438
------- -------
------- -------
</TABLE>
5. SHORT-TERM BORROWINGS AND LOANS PAYABLE
Short-term borrowings and loans payable consist of borrowings under lines
of credit and term obligations with banks, respectively, which are
collateralized by deeds of trust on real property and substantially all of
the Company's personal property, as well as unsecured financing agreements.
The Company's credit agreement provides for a secured revolving line of
credit in the amount of $40,000, with the maximum amount of direct advances
limited to $20,000 and the maximum amount of irrevocable standby letters of
credit limited to $20,000. The facility also provides for a non-revolving
line of credit, to be used for acquisitions, converting on September 30,
1997 to a six-year fully amortized term loan in an amount up to $21,800.
The credit facility contains covenants which, among other things, require
the Company to maintain certain financial ratios and generally restrict,
limit or prohibit the 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. At November 2, 1996, the Company was either
in compliance with these covenants or had obtained the necessary waivers.
The revolving line of credit will mature on March 31, 1998 and any
borrowings under the non-revolving line of credit will mature no later than
September 30, 2003. As of November 2, 1996, there were no borrowings
outstanding under the Company's non-revolving line of credit.
At November 2, 1996, short-term borrowings and loans payable carried
interest at rates ranging from a minimum of 6.5% to a maximum of 8.75%. The
weighted average interest
F-14
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
rate on short-term borrowings was 7.74%, 7.88% and 6.77%, respectively, for
fiscal 1996, fiscal 1995 and fiscal 1994.
SHORT-TERM BORROWINGS
Short-term borrowings outstanding at November 2, 1996 and October 28, 1995
amounted to $8,800 and $12,600, respectively. As of November 2, 1996, the
Company had $11,200 available for direct advances under its revolving line
of credit.
At November 2, 1996, the Company had irrevocable standby letters of credit
totaling $15,000 outstanding as collateral to support the workers'
compensation program. These letters of credit expire on December 31, 1996,
but are automatically renewed for one additional year unless thirty days
prior written notice is given to the holder. As of November 2, 1996, the
Company had $5,000 available for irrevocable standby letters of credit.
LOANS PAYABLE
Loans payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Variable and fixed rate notes payable, collateralized
by deeds of trust, bearing interest from 6.7% to 6.8%,
due monthly from 1994 to 2001 $ 2,781 $ 2,931
Variable rate collateralized note payable to bank, bearing
interest at 7.63% (October 28, 1995) 1,845
Other 297 672
------- -------
3,078 5,448
Less current portion (1,420) (1,770)
------- -------
$ 1,658 $ 3,678
------- -------
------- -------
</TABLE>
Maturities of loans payable for each of the next five fiscal years are as
follows: 1997 - $1,420; 1998 - $100; 1999 - $100; 2000 - $100; and 2001 -
$1,358.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
F-15
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
---------- ----------
Accounts payable $ 2,819 $ 2,039
Checks outstanding in excess of bank balances 6,751 8,017
Accrued payroll and payroll taxes 13,094 10,756
Accrued insurance/workers' compensation 9,060 7,585
Other 6,710 4,738
---------- ----------
$ 38,434 $ 33,135
---------- ----------
---------- ----------
7. INCOME TAXES
The domestic and foreign components of income before income taxes are as
follows:
FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
Domestic $ 12,662 $ 9,857 $ 8,330
Foreign 1,718 1,447 816
---------- ---------- ----------
Income before income taxes $ 14,380 $ 11,304 $ 9,146
---------- ---------- ----------
---------- ---------- ----------
The provision for income taxes consists of the following:
F-16
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
CURRENT:
State and local $ 1,482 $ 256 $ 307
Federal 5,834 (378) 374
Foreign 442 326 207
---------- ---------- ----------
7,758 204 888
---------- ---------- ----------
DEFERRED:
State and local 116 157 (141)
Federal 3,111 277 (575)
Foreign 112 (75)
---------- ---------- ----------
3,339 359 (716)
---------- ---------- ----------
$ 11,097 $ 563 $ 172
---------- ---------- ----------
---------- ---------- ----------
The difference between income taxes at the statutory federal income tax
rate and income taxes reported in the Consolidated Statements of Operations
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory income tax rate 35% 34% 34%
Tax on income of foreign subsidiaries (2) (1)
State taxes, net of federal income tax benefit 4 3 1
S corporation income not subject to federal
income taxes (11) (28) (33)
Effect of termination of S corporation election 52
Effect of IRS examination (2) (3)
Other (1) 1 1
---------- ---------- ----------
Effective income tax rate 77% 5% 2%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-17
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The approximate tax effect of temporary differences and carryforwards that give
rise to deferred tax balances are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Workers' compensation $ 8,008 $ 1,506 $ 1,560
Other liabilities and accruals 1,156 333 196
Foreign net operating loss carryforwards 73 123 496
Alternative minimum tax credit carryforwards 59 42 152
---------- ---------- ----------
Gross deferred tax assets 9,296 2,004 2,404
Valuation allowance (73) (123) (253)
---------- ---------- ----------
9,223 1,881 2,151
---------- ---------- ----------
Depreciation 1,721 207 194
S corporation cash basis accounting adjustment 9,430 264 187
Other 1 1
---------- ---------- ----------
Gross deferred tax liabilities 11,152 471 382
---------- ---------- ----------
Net deferred tax asset (liability) $ (1,929) $ 1,410 $ 1,769
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
No valuation allowance has been established for temporary differences other
than foreign net operating loss carryforwards. Based on historical income,
internal forecasts and industry trends, management believes that it is more
likely than not that the Company will generate future pretax income in
sufficient amounts to realize the full benefit of these temporary
differences.
At November 2, 1996, the Parent had cumulative undistributed earnings from
foreign subsidiaries of approximately $2,575. Income taxes have not been
provided on the undistributed earnings because they have been permanently
reinvested in the foreign subsidiary. These earnings could become subject
to additional tax if they were remitted as dividends, or if foreign
earnings were lent to the Company. However, such income taxes would not be
material to the Company's financial position or results of operations.
Income taxes have not been provided on foreign currency translation
adjustments since such taxes would be immaterial.
F-18
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
8. RETIREMENT PLANS
The Company has a qualified profit-sharing retirement plan in which
full-time domestic employees are eligible to participate beginning on the
first day of the fiscal year following their hire date. The Company
amended the plan effective October 29, 1989 so that employees whose
compensation and conditions of employment deem them to be highly
compensated in accordance with Section 414(q) of the Internal Revenue Code
(IRC) were no longer eligible to participate in the plan. As of the same
date, the Company adopted a nonqualified profit-sharing retirement plan for
those employees deemed to be highly compensated. The contribution to both
plans is at the discretion of the Board of Directors; however, the
contribution to the qualified plan cannot exceed the maximum allowable by
the IRC. Contributions of $325, $325 and $250 were declared for fiscal
1996, 1995 and 1994, respectively, which were allocated to both plans. At
November 2, 1996, both plans were fully funded.
9. STOCKHOLDERS' EQUITY
REINCORPORATION IN DELAWARE
In October 1995, the Parent changed from a California corporation to a
Delaware corporation. In connection with the reincorporation, the total
shares authorized was changed to 10,000 and the outstanding common shares
were reduced to 5,600 based on a conversion ratio of .0004 Delaware common
share to 1 California common share.
STOCK OPTION PLANS
The Company has two stock option plans.
The 1989/1990 Stock Option Plan provides for the granting of non-qualified
options to executives and key employees to purchase the Company's common
stock. The options vested during fiscal 1994 and fiscal 1995 and are
exercisable at $9.60 per share for options granted in fiscal 1989 and
$10.51 per share for options granted in fiscal 1990. The plan has
authorized 310,000 shares of common stock for issuance. Options to purchase
15,111 shares are outstanding at November 2, 1996. No further grants may
be made under the 1989/1990 plan.
The 1996 Stock Option/Stock Issuance Plan provides for the granting of
incentive and non-qualified stock options and stock appreciation rights.
The plan has authorized 1,033,812 shares of common stock for issuance.
Options to purchase 418,000 shares are outstanding at November 2, 1996 with
exercise prices ranging from $14.00 to $14.25 per share. Incentive stock
options may be granted at a price not less than 100% of the fair market
value of the Company's common stock at the date of grant. Non-qualified
options may be granted at a price not less than 85% of the fair market
value of the Company's common stock at the date
F-19
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
of grant. Stock appreciation rights allow the holder to exercise the right
instead of the underlying option. When the right is exercised, the
underlying option is canceled with respect to that number of shares. On
exercising a right, the holder receives an amount in cash, or cash and
common stock, equal to the difference between the market value of the
shares at the time of exercise and the exercise price of the underlying
options. No stock appreciation rights have been granted under the plan.
The options' vesting schedules vary subject to the participant's period of
future service or to the Company's or the option holder's attainment of
designated performance goals, or otherwise at the discretion of the Board
of Directors.
The following summarizes the transactions under the two plans for the
fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996.
Balances and transactions have been retroactively restated for the October
1995 .0004 for 1 stock split (see Reincorporation in Delaware above), and
for the May 1995 1,542.01 for 1 stock split (see Note 1 - Basis of
Presentation and Initial Public Offering of Common Stock).
Option Price
Shares Per Share
---------- ----------------
Options outstanding - October 30, 1993 17,579 $ 9.60 to 10.51
Cancelled (1,234) 10.51
--------------------------------------------------------------------------
Options outstanding - October 29, 1994 16,345 9.60 to 10.51
Cancelled (1,234) 10.51
--------------------------------------------------------------------------
Options outstanding - October 28, 1995 15,111 9.60 to 10.51
Granted 429,000 14.00 to 14.25
Cancelled (11,000) 14.00
--------------------------------------------------------------------------
Options outstanding - November 2, 1996 433,111 $ 9.60 to 14.25
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Exercisable - November 2, 1996 15,111
----------
----------
Available for grant - November 2, 1996 619,193
----------
----------
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1996 Employee Stock Purchase Plan, eligible employees
may authorize payroll deductions of up to 10% of eligible compensation for
the purchase of stock during each semi-annual purchase period. The
purchase price will equal the lower of 85% of the fair market value at the
beginning of the purchase period or on the last day of the purchase period.
The plan provides for the issuance of up to 500,000 shares of the Company's
common stock. There have been no shares issued under the plan as of
November 2, 1996.
F-20
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
10. LEASES
The Company leases real and personal property under operating leases which
expire on various dates through 2001. Some of these leases have renewal
options for periods ranging from one to five years and contain provisions
for escalation based on increases in certain costs incurred by the landlord
and on Consumer Price Index adjustments. U.S. rental expense amounted to
$3,102 in fiscal 1996, $2,535 in fiscal 1995 and $2,385 in fiscal 1994.
Rental expense for foreign subsidiaries was $937 in fiscal 1996, $770 in
fiscal 1995 and $550 in fiscal 1994. The Company also receives rental
income from owned property and subleases which expire on various dates.
Sublease income was not material to the Company's results of operations for
any periods presented.
Future minimum lease payments for all leases at November 2, 1996 are as
follows:
FISCAL YEAR
1997 $ 3,518
1998 2,419
1999 1,324
2000 673
2001 421
Thereafter 136
--------
Total minimum lease payments $ 8,491
--------
--------
11. GEOGRAPHIC INFORMATION
The following is a summary of sales of services and license fees, operating
income and identifiable assets by geographic region. There are no
intercompany sales of services and license fees between the domestic and
foreign operations. Operating income excludes income taxes, interest income
and interest expense. The foreign operations generally operate as
autonomous units and there are no general corporate costs other than
interest income and expense. Royalties are charged by the domestic company
to the foreign entities and are included in the operating expenses of the
foreign entities and the operating income of the domestic company.
Royalties charged are shown below for each period.
F-21
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SALES OF SERVICES AND LICENSE FEES
Domestic $ 423,201 $ 351,135 $ 301,560
Foreign 58,872 48,528 35,641
---------- ---------- ----------
Total sales of services and license fees $ 482,073 $ 399,663 $ 337,201
---------- ---------- ----------
---------- ---------- ----------
OPERATING INCOME
Domestic $ 13,449 $ 10,689 $ 8,649
Foreign 1,847 1,544 907
---------- ---------- ----------
Total operating income $ 15,296 $ 12,233 $ 9,556
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS
Domestic $ 107,200 $ 85,295 $ 66,916
Foreign 13,580 10,874 9,451
---------- ---------- ----------
Total identifiable assets $ 120,780 $ 96,169 $ 76,367
---------- ---------- ----------
---------- ---------- ----------
FOREIGN ROYALTIES $ 206 $ 171 $ 132
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
12. 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 where 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, results of operations or cash flows of the Company and that such
obligations, if any, would be adequately covered by insurance.
At the end of the fourth quarter of fiscal 1996, the Company implemented a
Voluntary Severance Program in an effort to reduce overhead costs. As a
result of acceptances of the voluntary severance offers, the Company will
make payments amounting to approximately $300 during the first quarter of
fiscal 1997. As these offers were not accepted until fiscal 1997, no
accrual has been made for the voluntary termination agreements.
F-22
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
13. UNAUDITED PRO FORMA INFORMATION
On April 30, 1996 and in conjunction with the Offering, the Company elected
to terminate its S corporation status. The pro forma provision for income
taxes reflects provisions for state and federal 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.
The pro forma income tax provision consists of the following:
FISCAL YEAR ENDED
----------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
---------- ---------- ----------
CURRENT:
State and local $ 1,161 $ 909 $ 1,347
Federal 5,109 2,916 4,346
Foreign 442 326 207
---------- ---------- ----------
6,712 4,151 5,900
---------- ---------- ----------
DEFERRED:
State and local (195) 8 (351)
Federal (1,020) (242) (2,007)
Foreign 112 (75)
---------- ---------- ----------
(1,103) (309) (2,358)
---------- ---------- ----------
$ 5,609 $ 3,842 $ 3,542
---------- ---------- ----------
---------- ---------- ----------
The reconciliations of pro forma income taxes computed at the federal
statutory income tax rate to the pro forma income taxes as reported in the
Consolidated Statements of Operations are as follows:
F-23
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory income tax rate 35% 34% 34%
Tax on income of foreign subsidiaries (2) (1)
State taxes, net of federal income tax benefit 5 5 6
Nondeductible items including goodwill 1
Income tax credits (2) (2)
Other (1) (1) 1
----------- ----------- -----------
Effective income tax rate 39% 34% 39%
----------- ----------- -----------
</TABLE>
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for
the fiscal years ended November 2, 1996 and October 28, 1995. The fourth
quarter of fiscal years 1996 and 1995 consist of 17 and 16 weeks, respectively.
All other quarters consist of 12 weeks.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED NOVEMBER 2, 1996
Sales of services and license fees $ 98,025 $ 96,940 $ 104,981 $ 182,127
Gross profit 21,346 21,306 22,741 39,544
Net income (loss) (1) 2,379 2,006 (5,231) 4,129
Pro forma net income 1,587 1,282 1,773 4,129
Pro forma net income per common share 0.18 0.15 0.18 0.40
FISCAL YEAR ENDED OCTOBER 28, 1995
Sales of services and license fees $ 84,029 $ 89,034 $ 91,291 $ 135,309
Gross profit (2) 18,319 20,712 20,065 30,941
Net income (2) 2,000 2,753 1,306 4,682
Pro forma net income 1,389 1,913 907 3,253
Pro forma net income per common share 0.16 0.21 0.10 0.37
</TABLE>
(1) During the third quarter of fiscal 1996, the Company recorded a net
income tax charge of $7,460 as a result of the Company's termination
of its S corporation status.
F-24
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
- --------------------------------------------------------------------------------
(2) During the second quarter of fiscal 1995, the Company recorded a
decrease of $980 to costs of services due to the Company's settlement
of all workers' compensation claims associated with policy years 1986
through 1991. During the third quarter of fiscal 1995, the Company
recorded a $940 charge to selling and administrative expenses relating
to the Company's postponed initial public offering. During the fourth
quarter of fiscal 1995, the Company reduced costs of services by
$1,200 by reducing its workers' compensation accruals for policy years
1992 through 1994 due to improvements in the overall historical loss
development trends and decreases in the relative frequency and average
severity of claims.
F-25
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
----------- ------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Fiscal Year Ended October 29, 1994
Allowance for doubtful accounts $ 545 $ 693 $ 0 $ 415 $ 823
Reserve on notes receivable 654 28 0 64 618
Valuation allowance on deferred tax asset 363 0 0 110 253
Fiscal Year Ended October 28, 1995
Allowance for doubtful accounts $ 823 $ 767 $ 0 $ 767 $ 823
Reserve on notes receivable 618 30 0 28 620
Valuation allowance on deferred tax asset 253 0 0 130 123
Fiscal Year Ended November 2, 1996
Allowance for doubtful accounts $ 823 $ 466 $ 0 $ 520 $ 769
Reserve on notes receivable 620 0 0 570 50
Valuation allowance on deferred tax asset 123 0 0 50 73
</TABLE>
29
<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.
By: /s/ W. Robert Stover
----------------------------------------
W. Robert Stover
Chairman of the Board of Directors and
Chief Executive Officer
30
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Western Staff Services,
Inc., a Delaware corporation, do hereby constitute and appoint Harvey L. Maslin
and Paul A. Norberg, and each of them, the lawful attorneys-in-fact, each with
full power of substitution, for him or her in any and all capacities, to sign
any amendments to this report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ W. Robert Stover
- -------------------- Chairman of the Board of Directors January 31, 1997
W. Robert Stover and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael K. Phippen
- -------------------- President, Chief Operating January 31, 1997
Michael K. Phippen Officer and Director
/s/ Harvey L. Maslin
- -------------------- Vice Chairman of the Board January 31, 1997
Harvey L. Maslin of Directors, Chief Administrative
Officer and Director
/s/ Paul A. Norberg
- -------------------- Executive Vice President, January 31, 1997
Paul A. Norberg Chief Financial Officer and
Director
(Principal Financial Officer)
/s/ Dirk A. Sodestrom
- -------------------- Vice President and Controller January 31, 1997
Dirk A. Sodestrom (Principal Accounting Officer)
/s/ Gilbert L. Sheffield
- -------------------- Director January 31, 1997
Gilbert L. Sheffield
- -------------------- Director January , 1997
Jack D. Samuelson ---
31
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ----
10.3.1 Amendment to the Employment Agreement between the Company
and W. Robert Stover.
10.7 Western Staff Services, Inc. 1996 Stock Option/Stock Issuance
Plan.
10.7.1 Form of Notice of Grant of Stock Option.
10.7.2 Form of Stock Option Agreement.
10.7.3 Form of Addendum to Stock Option Agreement (Involuntary
Termination Following a Corporate Transaction).
10.7.4 Form of Notice of Grant of Automatic Stock Option.
10.7.5 Form of Automatic Stock Option Agreement.
10.7.6 Form of Stock Issuance Agreement.
10.8.2 Waiver and Second Amendment to Credit Agreement
dated as of September 30, 1996.
10.11 Western Staff Services, Inc. 1996 Employee Stock
Purchase Plan.
10.11.1 Stock Purchase Agreement.
10.11.2 Form of Enrollment/Change Form.
10.11.3 International Employee Stock Purchase Plan.
10.11.4 Stock Purchase Agreement.
10.11.5 Form of Enrollment/Change Form.
23.1 Consent of Price Waterhouse LLP, independent
accountants.
27.1 Financial Data Schedule
32
<PAGE>
EXHIBIT 10.3.1
AMENDMENT
TO
EMPLOYMENT AGREEMENT
BETWEEN
WESTERN STAFF SERVICES, INC.
AND
W. ROBERT STOVER
The Employment Agreement by and between Western Staff Services, Inc.
("Employer") and W. Robert Stover ("Employee") is hereby amended as follows
effective November 2, 1996:
1. Section 3(a) is hereby amended to reflect the current annual
compensation of $250,000 payable by Employer to Employee.
2. Section 4(b) is hereby deleted in its entirety.
All other terms and conditions of the above-referenced Employment Agreement
shall remain in full force and effect unless otherwise amended herein.
EMPLOYER:
Western Staff Services, Inc.
By: /s/ Harvey L. Maslin
---------------------------------------------------
Harvey L. Maslin
Vice Chairman and Chief Administrative Officer
By: /s/ Paul A. Norberg
----------------------------------------------------
Paul A. Norberg
Executive Vice President and Chief Financial Officer
EMPLOYEE:
/s/ W. Robert Stover
- ----------------------------
W. Robert Stover
<PAGE>
EXHIBIT 10.7
1996 Stock Option/Stock Issuance Plan
<PAGE>
WESTERN STAFF SERVICES, INC.
1996 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL
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.
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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.
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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.
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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.
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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
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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.
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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);
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(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
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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
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
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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
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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.
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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.
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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.
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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.
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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,
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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
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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.
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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.
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EXHIBIT 10.7.1
Form of Notice of Grant of Stock Option
<PAGE>
WESTERN STAFF SERVICES, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Western Staff Services, Inc. (the
"Corporation"):
OPTIONEE: 1-
GRANT DATE: 2-
VESTING COMMENCEMENT DATE: 3-
EXERCISE PRICE: $4- per share
NUMBER OF OPTION SHARES: 5- shares
EXPIRATION DATE: 6-
TYPE OF OPTION: ______ Incentive Stock Option
______ Non-Statutory Stock Option
EXERCISE SCHEDULE: The Option shall become exercisable with respect to (i)
twenty-five percent (25%) of the Option Shares upon Optionee's completion
of one (1) year of Service measured from the Vesting Commencement Date and
(ii) the balance of the Option Shares in thirty-six (36) successive equal
monthly installments upon Optionee's completion of each month of Service
over the thirty-six (36) month period measured from the first anniversary
of the Vesting Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's cessation of
Service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the Western Staff Services, Inc. 1996 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound by
the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official prospectus
for the Plan in the form attached hereto as Exhibit B. A copy of the Plan is
available upon request made to the Corporate Secretary at the Corporation's
principal offices.
<PAGE>
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Stock Option Agreement or in the Plan shall confer upon Optionee any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining Optionee) or of Optionee, which
rights are hereby expressly reserved by each, to terminate Optionee's Service at
any time for any reason, with or without cause.
DEFINITIONS. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Stock Option Agreement.
________________________, 199__
Date
WESTERN STAFF SERVICES, INC.
By: __________________________________
Title: _______________________________
______________________________________
OPTIONEE
Address: _____________________________
______________________________________
ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE>
EXHIBIT 10.7.2
Form of Stock Option Agreement
<PAGE>
WESTERN STAFF SERVICES, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Corporation has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or the board
of directors of any Parent or Subsidiary and consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion shall be exercisable
only 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 this 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.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes
<PAGE>
exercisable for such installments, those installments shall accumulate and the
option shall remain exercisable for the accumulated installments until the
Expiration Date or sooner termination of the option term under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while this option is
outstanding, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which to
exercise this option, but in no event shall this option be exercisable at
any time after the Expiration Date.
(ii) Should Optionee die while this option is outstanding, then
the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in
accordance with the laws of descent and distribution shall have the right
to exercise this option. Such right shall lapse, and this option shall
cease to be outstanding, upon the EARLIER of (A) the expiration of the
twelve (12)-month period measured from the date of Optionee's death or (B)
the Expiration Date.
(iii) Should Optionee cease Service by reason of Permanent
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation of
Service) during which to exercise this option. In no event shall this
option be exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain
outstanding.
(v) During the applicable post-Service exercise period, this
option may not be exercised in the aggregate for more than the number of
vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such exercise
period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any vested Option Shares for
which the option has not been exercised. However, this option shall,
immediately upon Optionee's cessation of Service for any reason, terminate
and cease to be outstanding with respect to any Option Shares in which
Optionee is not otherwise at that time vested or for which this option is
not otherwise at that time exercisable.
2.
<PAGE>
6. SPECIAL ACCELERATION OF OPTION.
(a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
the Corporate Transaction, become exercisable for all of the Option Shares at
the time subject to this option and may be exercised for any or all of those
Option Shares as fully-vested shares of Common Stock. No such acceleration of
this option, however, shall occur if and to the extent: (i) this 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) or (ii) this option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the Option
Shares at the time of the Corporate Transaction (the excess of the Fair Market
Value of those Option Shares over the aggregate Exercise Price payable for such
shares) and provides for subsequent pay-out in accordance with the option
exercise schedule set forth in the Grant Notice. The determination of option
comparability under clause (i) shall be made by the Plan Administrator, and such
determination shall be final, binding and conclusive.
(b) Immediately following the Corporate Transaction, this option,
to the extent not previously exercised, shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof) in connection with the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, PROVIDED the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any 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.
7. ADJUSTMENT IN OPTION SHARES. 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 total number
and/or class of securities subject to this option and (ii) the Exercise in order
to reflect such change and thereby a dilution or enlargement of benefits
hereunder.
3.
<PAGE>
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance
with Paragraph 13;
(C) shares of Common Stock held by Optionee (or any other
person or persons exercising the option) 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; or
(D) to the extent this option is exercised for vested Option
Shares, through a special sale and remittance procedure pursuant to
which Optionee (or any other person or persons exercising the option)
shall concurrently provide irrevocable written instructions (I) to 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 plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (II) to 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
utilized in connection with the option exercise, payment of the
Exercise Price must
4.
<PAGE>
accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than Optionee)
have the right to exercise this option.
(iv) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the satisfaction
of all Federal, state and local income and employment tax withholding
requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the
5.
<PAGE>
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note
payable to the Corporation. The terms of any such promissory note (including
the interest rate, the requirements for collateral and the terms of repayment)
shall be established by the Plan Administrator in its sole discretion.
14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (A) more than three (3) months
after the date Optionee ceases to be an Employee for any reason other than
death or Permanent Disability or (B) more than twelve (12) months after the
date Optionee ceases to be an Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for favorable
tax treatment as an Incentive Option if (and to the extent) the aggregate
Fair Market Value (determined at the Grant Date) of the Common Stock for
which such installment first becomes exercisable hereunder would,
when added to the aggregate value (determined as of the respective date or
dates of grant) of the Common Stock or other securities for which this
option or any other Incentive Options granted to Optionee prior to the
Grant Date (whether under the Plan or any other option plan of
6.
<PAGE>
the Corporation or any Parent or Subsidiary) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. Should such One Hundred Thousand Dollar
($100,000) limitation be exceeded in any calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar year
as a Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon
a Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which
this option first becomes exercisable in the calendar year in which the
Corporate Transaction occurs does not, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common
Stock or other securities for which this option or one or more other
Incentive Options granted to Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed
One Hundred Thousand Dollars ($100,000) in the aggregate. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in
the calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year as a
Non-Statutory Option.
(d) Should Optionee hold, in addition to this option, one or more
other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options
shall be applied on the basis of the order in which such options are
granted.
18. LEAVE OF ABSENCE. The following provisions shall apply upon the
Optionee's commencement of an authorized leave of absence:
(a) The exercise schedule in effect under the Grant Notice shall
be frozen as of the first day of the authorized leave, and the option shall
not become exercisable for any additional installments of the Option Shares
during the period Optionee remains on such leave.
(b) Should Optionee resume active Employee status within sixty
(60) days after the start date of the authorized leave, Optionee shall, for
purposes of the exercise schedule set forth in the Grant Notice, receive
Service credit for the entire period of such leave. If Optionee does not
resume active Employee status within such sixty (60)-day period, then no
Service credit shall be given for the period of the leave.
7.
<PAGE>
(c) If the option is designated as an Incentive Stock Option in
the Grant Notice, then the following additional provision shall apply:
If the leave of absence continues for more than ninety (90)
days, then the option shall automatically convert to a Non-Statutory
Option under the federal tax laws on the ninety-first (91st) day of
such leave, unless the Optionee's reemployment rights are guaranteed
by statute or by written agreement. Following any such conversion of
the option, all subsequent exercises of such option, whether effected
before or after Optionee's return to active Employee status, shall
result in an immediate taxable event, and the Corporation shall be
required to collect from Optionee the federal, state and local income
and employment withholding taxes applicable to such exercise.
(d) In no event shall this option become exercisable for any
additional Option Shares or otherwise remain outstanding if Optionee does
not resume Employee status prior to the Expiration Date of the option term.
8.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Western Staff Services, Inc. (the "Corporation") that
I elect to purchase _____________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $___________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1996 Stock Option/Stock Issuance Plan on
____________________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price for any Purchased Shares in which I am at the time vested.
______________________, 199__
Date
______________________________________
Optionee
Address: _____________________________
______________________________________
Print name in exact manner
it is to appear on the
stock certificate: ______________________________________
Address to which certificate
is to be sent, if different
from address above: ______________________________________
______________________________________
Social Security Number: ______________________________________
Employee Number: ______________________________________
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
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, with par value
of $0.01 per share.
E. 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 Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. CORPORATION shall mean Western Staff Services, Inc., a Delaware
corporation.
G. DOMESTIC RELATIONS ORDER shall mean 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.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
A-1.
<PAGE>
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. 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 the 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.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee 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 Optionee or any other
individual in the Service of the Corporation (or any Parent or Subsidiary).
A-2.
<PAGE>
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
R. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
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.
V. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
W. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.
X. PLAN ADMINISTRATOR shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for the
administration of the Plan.
Y. QUALIFIED DOMESTIC RELATIONS ORDER shall mean 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.
Z. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor.
AA. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
AB. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty
A-3.
<PAGE>
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
A-4.
<PAGE>
EXHIBIT 10.7.3
Form of Addendum to Stock Option Agreement
(Involuntary Termination Following a Corporate Transaction)
<PAGE>
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are hereby made
a part of, that certain Stock Option Agreement dated 2- (the "Option Agreement")
by and between Western Staff Services, Inc. (the "Corporation") and 1-
("Optionee") evidencing the stock option (the "Option") granted on such date to
Optionee under the terms of the Corporation's 1996 Stock Option/Stock Issuance
Plan, and such provisions shall be effective immediately. All capitalized terms
in this Addendum, to the extent not otherwise defined herein, shall have the
meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed or replaced with a comparable option in accordance
with Paragraph 6 of the Option Agreement, the Option shall not accelerate upon
the occurrence of that Corporate Transaction, and the Option shall accordingly
continue, over Optionee's period of Service after the Corporate Transaction, to
become exercisable for the Option Shares in one or more installments in
accordance with the provisions of the Option Agreement. However, immediately
upon an Involuntary Termination of Optionee's Service within twelve (12) months
following such Corporate Transaction, the Option, to the extent outstanding at
the time but not otherwise fully exercisable, shall automatically accelerate so
that the Option shall become immediately exercisable for all the Option Shares
at the time subject to the Option and may be exercised for any or all of those
Option Shares as fully vested shares. The Option shall remain so exercisable
until the EARLIER of (i) the Expiration Date or (ii) the expiration of the one
(1)-year period measured from the date of the Involuntary Termination.
2. For purposes of this Addendum, an INVOLUNTARY TERMINATION shall mean
the termination of Optionee's Service by reason of:
(i) Optionee's involuntary dismissal or discharge by the Corporation
for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change in
Optionee's position with the Corporation (or Parent or Subsidiary employing
Optionee) which materially reduces Optionee's level of responsibility, (B)
a reduction in Optionee's level of compensation (including base salary,
fringe benefits and participation in any corporate-performance based bonus
or incentive programs) by more than fifteen percent (15%) or
<PAGE>
(C) a relocation of Optionee'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 Optionee's consent.
3. The provisions of Paragraph 1 of this Addendum shall govern the
period for which the Option is to remain exercisable following the Involuntary
Termination of Optionee's Service within twelve (12) months after the Corporate
Transaction and shall supersede any provisions to the contrary in Paragraph 5 of
the Option Agreement.
IN WITNESS WHEREOF, Western Staff Services, Inc. has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
WESTERN STAFF SERVICES, INC.
By: _____________________________
Title: __________________________
_________________________________
1-, OPTIONEE
EFFECTIVE DATE: ______________, 199__
2.
<PAGE>
EXHIBIT 10.7.4
Form of Notice of Grant of Automatic Stock Option
<PAGE>
WESTERN STAFF SERVICES. INC.
NOTICE OF GRANT OF NON-EMPLOYEE DIRECTOR
AUTOMATIC STOCK OPTION
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Western Staff Services, Inc. (the
"Corporation"):
OPTIONEE: 1-
GRANT DATE: 2-
EXERCISE PRICE: $3- per share
NUMBER OF OPTION SHARES: 4- shares
EXPIRATION DATE: 5-
TYPE OF OPTION: Non-Statutory Stock Option
EXERCISE SCHEDULE: The option shall become fully exercisable for the Option
Shares upon Optionee's completion of one (1) year of service as a member of
the Corporation's Board of Directors (the "Board") measured from the Grant
Date. In no event shall the Option become exercisable for any additional
Option Shares after Optionee's cessation of Board service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the automatic option grant program under the
Western Staff Services, Inc. 1996 Stock Option/Stock Issuance Plan (the "Plan").
Optionee further agrees to be bound by the terms of the Plan and the terms of
the Option as set forth in the Automatic Stock Option Agreement attached hereto
as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official prospectus
for the Plan in the form attached hereto as Exhibit B. A copy of the Plan is
available upon request made to the Corporate Secretary at the Corporation's
principal offices.
DEFINITIONS. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Automatic Stock Option
Agreement.
<PAGE>
NO IMPAIRMENT OF RIGHTS. Nothing in this Notice or the attached
Automatic Stock Option Agreement or in the Plan shall interfere with or
otherwise restrict in any way the rights of the Corporation and the
Corporation's stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
DATED: __________________, 199___
WESTERN STAFF SERVICES, INC.
By:
-----------------------------------------
Title:
--------------------------------------
--------------------------------------------
OPTIONEE
--------------------------------------------
Address:
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ATTACHMENTS
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
2.
<PAGE>
EXHIBIT A
AUTOMATIC STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE>
EXHIBIT 10.7.5
Form of Automatic Stock Option Agreement
<PAGE>
WESTERN STAFF SERVICES, INC.
AUTOMATIC STOCK OPTION AGREEMENT
RECITALS
A. The Corporation has implemented an automatic option grant program
under the Plan pursuant to which eligible non-employee members of the Board will
automatically receive special option grants at periodic intervals over their
period of Board service in order to provide such individuals with a meaningful
incentive to continue to serve as members of the Board.
B. Optionee is an eligible non-employee Board member, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the automatic option grant to purchase shares of Common Stock
under the Plan.
C. The granted option is intended to be a non-statutory option which does
NOT meet the requirements of Section 422 of the Internal Revenue Code.
D. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, a Non-Statutory Option to purchase up to the number of Option
Shares specified in the Grant Notice. The Option Shares shall be purchasable
from time to time during the option term specified in Paragraph 2 at the
Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 7.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may be assigned in
whole or in part during Optionee's lifetime in accordance with the terms of a
Qualified Domestic Relations Order. The assigned portion of the option shall be
exercisable only 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 this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Corporation may deem appropriate.
<PAGE>
4. EXERCISABILITY. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Exercise Schedule
set forth in the Grant Notice. As the option becomes exercisable for such
installments, those installments shall accumulate and the option shall remain
exercisable for the accumulated installments until the Expiration Date or the
sooner termination of the option term under Paragraph 5, 6 or 7.
5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
(i) Should Optionee cease to serve as a Board member
for any reason (other than death or Permanent Disability) while
holding this option, then the period for exercising this option
shall be reduced to twelve (12)-month period (commencing with
the date of such cessation of Board service), but in no event
shall this option be exercisable at any time after the
Expiration Date. During such limited period of exercisability,
this option may not be exercised in the aggregate for more than
the number of Option Shares (if any) for which the option is
exercisable on the date Optionee ceases service as a Board
member. Upon the earlier of (A) the expiration of such twelve
(12)-month period or (B) the specified Expiration Date, the
option shall terminate and cease to be exercisable with
respect to any exercisable Option Shares for which the option
has not been exercised.
(ii) Should Optionee die during the twelve (12)-month period
following his or her cessation of Board service, then the personal
representative of Optionee's estate or the person or persons to whom the
option is transferred pursuant to Optionee's will or in accordance with the
laws of descent and distribution shall have the right to exercise this
option for any or all of the Option Shares in which Optionee is vested at
the time of Optionee's cessation of Board service (less any Option Shares
purchased by Optionee after such cessation of Board service but prior to
death). Such right of exercise shall terminate, and this option shall
accordingly cease to be exercisable for such vested Option Shares, upon the
EARLIER of (i) the expiration of the twelve (12)-month period measured from
the date of Optionee's cessation of Board service or (ii) the specified
Expiration Date of the option term.
(iii) Should Optionee cease service as a Board
member by reason of death or Permanent Disability, then this
option shall immediately become exercisable for all the Option
Shares at the time subject to this option so that Optionee (or
the personal representative of Optionee's estate or the person
or persons to whom the option is transferred upon Optionee's
death) shall have the right to exercise this option for any or
all of
2.
<PAGE>
those Option Shares as fully-vested shares of Common Stock at
any time prior to the EARLIER of (A) the expiration of the
twelve (12)-month period measured from the date of Optionee's
death or Permanent Disability or (B) the specified Expiration
Date.
(iv) Upon Optionee's cessation of Board service for
any reason other than death or Permanent Disability, this
option shall immediately terminate and cease to be outstanding
with respect to any and all Option Shares for which this option
is not otherwise at that time exercisable in accordance with
the normal Exercise Schedule or the special acceleration
provisions of Paragraph 6 or 7 below.
6. CORPORATE TRANSACTION.
(a) In the event of a Corporate Transaction, this option, to the
extent outstanding but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the Option Shares at the
time subject to the option and may be exercised for any or all of those Option
Shares as fully-vested shares of Common Stock. Immediately following the
Corporate Transaction, this option shall terminate and cease to be exercisable
except to the extent assumed by the successor corporation (or parent thereof) in
connection with such Corporate Transaction.
(b) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, PROVIDED the aggregate Exercise Price shall remain the same.
7. CHANGE IN CONTROL/HOSTILE TAKE-OVER.
(a) In the event of a Change in Control, this option, to the
extent outstanding but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
such Change in Control, become exercisable for all the Option Shares at the time
subject to the option and may be exercised for any or all of those Option Shares
as fully-vested shares of Common Stock. This option shall, immediately prior to
the effective date of a Change in Control, automatically accelerate and become
exercisable for all the Option Shares at the time subject to this option, and
this option may thereupon be exercised for any or all of those Option Shares as
fully-vested shares of Common Stock. This option shall remain exercisable for
such fully-
3.
<PAGE>
vested Option Shares until the earliest to occur of (i) the Expiration Date,
(ii) the sooner termination of this option in accordance with Paragraph 5 or 6
or (iii) the surrender of the option in connection with a Hostile Take-Over.
(b) Provided this option has been outstanding for at least six
(6) months prior to the occurrence of a Hostile Take-Over, Optionee shall have
the unconditional right (exercisable during the thirty (30)-day period
immediately following the consummation of such Hostile Take-Over) to surrender
this option to the Corporation in exchange for a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
Option Shares at the time subject to the surrendered option (whether or not
those Option Shares are otherwise at the time vested) over (ii) the aggregate
Exercise Price payable for such shares. This Paragraph 7(b) limited stock
appreciation right shall in all events terminate upon the expiration or sooner
termination of the option term and may not be assigned or transferred by
Optionee.
(c) To exercise the Paragraph 7(b) limited stock appreciation
right, Optionee must, during the applicable thirty (30)-day exercise period,
provide the Corporation with written notice of the option surrender in which
there is specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy of
this Agreement, together with any written amendments to such Agreement. The cash
distribution shall be paid to Optionee within five (5) days following such
delivery date, and no approval or consent of the Board shall be required in
connection with such option surrender and cash distribution. Upon receipt of
such cash distribution, this option shall be cancelled with respect to the
Option Shares subject to the surrendered option (or the surrendered portion) and
Optionee shall cease to have any further right to acquire those Option Shares
under this Agreement. The option shall, however, remain outstanding for the
balance of the Option Shares (if any) in accordance with the terms of this
Agreement, and the Corporation shall accordingly issue a new stock option
agreement (substantially in the same form as this Agreement) for those remaining
Option Shares.
8. ADJUSTMENT IN OPTION SHARES. 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 number and/or
class of securities subject to this option and (ii) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
9. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
4.
<PAGE>
10. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation,
(B) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) 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, or
(C) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (I) to 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 plus all applicable Federal, state and local
income taxes required to be withheld by the Corporation by reason of
such exercise and (II) to the Corporation to deliver the certificates
for the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
5.
<PAGE>
(iv) Make appropriate arrangements with the Corporation
for the satisfaction of all Federal, state and local income tax withholding
requirements applicable to the option exercise.
(b) As soon after the Exercise Date as practical, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
14. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below
6.
<PAGE>
Optionee's signature line on the Grant Notice. All notices shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, postage
prepaid and properly addressed to the party to be notified.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the automatic option grant program in effect under
the Plan and are in all respects limited by and subject to the terms of such
program.
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
7.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Western Staff Services, Inc. (the "Corporation") that
I elect to purchase __________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $___________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1996 Stock Option/Stock Issuance Plan on
____________________, 199___.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price for any Purchased Shares.
DATE ____________, 199__
-------------------------------------------------
Optionee
-------------------------------------------------
Address:
Print name in exact manner
it is to appear on the
stock certificate:
Address to which certificate
is to be sent, if different
from address above:
Social Security Number:
----------------------------
8.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Automatic Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean 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
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 the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
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
A-1.
<PAGE>
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Western Staff Services, Inc., a Delaware
corporation.
H. DOMESTIC RELATIONS ORDER shall mean 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 Optionee.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 10 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
K. EXERCISE SCHEDULE shall mean the schedule specified in the Grant
Notice, pursuant to which the option is to become exercisable for the Option
Shares in a series of annual installments over the Optionee's period of Board
service, subject to acceleration in accordance with the provisions of the
Agreement.
L. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
M. 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 average of the high and low
selling prices per share of Common Stock on the date in question, as such
prices are reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there are no
selling prices quoted for the Common Stock on the date in question, then
the Fair Market Value shall be the average of the high and low selling
prices on the last preceding date for which such quotations exist.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the average of the high and low selling
prices per share of Common Stock on the date in question on the Stock
Exchange serving as the primary market for the Common Stock, as such prices
are officially quoted in the composite tape of transactions on such
A-2.
<PAGE>
exchange. If there are no selling prices quoted for the Common Stock on
the date in question, then the Fair Market Value shall be the average of
the high and low selling prices on the last preceding date for which such
quotations exist.
N. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
O. GRANT NOTICE shall mean the Notice of Grant of Non-Employee Director
Automatic Stock Option accompanying the Agreement, pursuant to which Optionee
has been informed of the basic terms of the option evidenced hereby.
P. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
effected through the following transaction:
(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, AND
(ii) more than fifty percent (50%) of the acquired securities are
accepted from persons other than the officers and directors of the
Corporation subject to the short-swing profit restrictions of Section 16 of
the 1934 Act.
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. NOTICE OF EXERCISE shall mean the written notice of the option
exercise on the form provided by the Corporation for such purpose.
T. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
U. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
A-3.
<PAGE>
V. PERMANENT DISABILITY shall mean the inability of Optionee 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.
W. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.
X. QUALIFIED DOMESTIC RELATIONS ORDER shall mean 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.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
12.
<PAGE>
EXHIBIT 10.7.6
Form of Stock Issuance Agreement
<PAGE>
WESTERN STAFF SERVICES, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made as of this ______ day of _____________ 199___, by and
between Western Staff Services, Inc., a Delaware corporation, and
_____________________________, a Participant in the Corporation's 1996 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases _____________ unvested
shares of Common Stock (the "Purchased Shares") pursuant to the provisions of
the Stock Issuance Program at the purchase price of $______ per share (the
"Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to the
Corporation, Participant shall pay the Purchase Price for the Purchased Shares
in cash or check payable to the Corporation and shall deliver a duly-executed
blank Assignment Separate from Certificate (in the form attached hereto as
Exhibit I) with respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation exercises
the Repurchase Right, Participant (or any successor in interest) shall have all
the rights of a stockholder (including voting, dividend and liquidation rights)
with respect to the Purchased Shares, subject, however, to the transfer
restrictions of Article B.
4. COMPLIANCE WITH LAW. Under no circumstances shall shares of
Common Stock or other assets be issued or delivered to Participant pursuant to
the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its suc cessors, there shall have been compliance with all
applicable requirements of the Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market if
applicable) on which the Common Stock is at the time listed for trading and all
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery.
B. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Participant shall not transfer, assign, encumber or otherwise dispose of any of
the Purchased Shares which are subject to the Repurchase Right.
<PAGE>
2. RESTRICTIVE LEGEND. The stock certificates for the Purchased
Shares shall be endorsed with the following restrictive legend:
"The shares represented by this certificate are
unvested and are subject to a repurchase right granted to
the Corporation and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed of
except in conformity with the terms of a written agreement
dated ____________, 199__ between the Corporation and the
registered holder of the shares (or the predecessor in
interest to the shares). A copy of such agreement is
maintained at the Corporation's principal corporate offices."
3. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
the Repurchase Right to the same extent such shares would be so subject if
retained by Participant.
C. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule (such shares to be hereinafter referred
to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation prior to
the close of business on the date specified for the repurchase. Concurrently
with the receipt of such stock certificates, the Corporation shall pay to Owner,
in cash or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph C.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Participant vests in accordance with the following Vesting
Schedule:
2.
<PAGE>
(i) Upon Participant's completion of one (1) year of Service
measured from ______________, 199__, Participant shall acquire a vested
interest in, and the Repurchase Right shall lapse with respect to, twenty-
five percent (25%) of the Purchased Shares.
(ii) Participant shall acquire a vested interest in, and the
Repurchase Right shall lapse with respect to, the remaining Purchased
Shares in successive equal monthly installments upon Participant's
completion of each additional month of Service over the thirty-six (36)-
month period measured from the initial vesting date under subparagraph (i)
above.
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right, but
only to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; PROVIDED, however, that the aggregate purchase price shall remain the
same.
5. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety,
except to the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payments) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; PROVIDED, however, that
the aggregate purchase price shall the same.
(c) The Repurchase Right shall automatically lapse in its
entirety, and all the Purchased Shares shall immediately vest in full, upon an
Involuntary Termination of Participant's Service within twelve (12) months
following the effective date of a Corporate Transaction in which the Repurchase
Right has been assigned.
3.
<PAGE>
D. SPECIAL TAX ELECTION
1. SECTION 83(B) ELECTION . Under Code Section 83, the excess of
the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be
filed with the Internal Revenue Service within thirty (30) days after the date
of this Agreement. Even if the fair market value of the Purchased Shares on the
date of this Agreement equals the Purchase Price paid (and thus no tax is
payable), the election must be made to avoid adverse tax consequences in the
future. THE FORM FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO.
PARTICIPANT UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE
THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(B), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
E. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right to
any person or entity selected by the Board, including (without limitation) one
or more stockholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Participant any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4.
<PAGE>
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
7. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
5.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
WESTERN STAFF SERVICES, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
Address:
-----------------------------------------
-----------------------------------------
PARTICIPANT
Address:
-----------------------------------------
6.
<PAGE>
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________________ hereby sell(s), assign(s)
and transfer(s) unto Western Staff Services, Inc. (the "Corporation"),
______________________ (_______) shares of the Common Stock of the Corporation
standing in his or her name on the books of the Corporation represented by
Certificate No. ___________________ herewith and do(es) hereby irrevocably
constitute and appoint _______________________________ Attorney to transfer the
said stock on the books of the Corporation with full power of substitution in
the premises.
Dated: ________________
Signature
--------------------------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
7.
<PAGE>
EXHIBIT II
SECTION 83(B) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
-------------------------------------------
Address:
----------------------------------------
Taxpayer Ident. No.:
----------------------------
(2) The property with respect to which the election is being made is
____________ shares of the common stock of Western Staff Services, Inc.
(3) The property was issued on _____________, 199___.
(4) The taxable year in which the election is being made is the calendar year
199__.
(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of installments over a four
(4)-year period ending on ________________________, 199___.
(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $____________ per share.
(7) The amount paid for such property is $____________ per share.
(8) A copy of this statement was furnished to Western Staff Services, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________________________, 199__.
Spouse (if any)
-------------------------
Taxpayer
- -----------------------------------------
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
8.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
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 TRANSACTION shall mean either of the following stockholder-
approved transactions:
(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 Corporation's assets in complete liquidation or dissolution of
the Corporation.
F. CORPORATION shall mean Western Staff Services, Inc., a Delaware
corporation.
G. INVOLUNTARY TERMINATION shall mean the termination of Participant's
Service which occurs by reason of:
(i) Participant's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) Participant's voluntary resignation following (A) a change in
Participant's position with the Corporation which materially reduces
Participant's level of responsibility, (B) a reduction in Participant's
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 Participant'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
Participant's consent.
A-1.
<PAGE>
H. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Participant, any unauthorized use or disclosure by Participant
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by Participant 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
Participant or any other person in the Service of the Corporation (or any Parent
or Subsidiary).
I. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
J. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
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.
K. PARTICIPANT shall mean the person to whom shares are issued under the
Stock Issuance Program.
L. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, PROVIDED AND ONLY IF Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
M. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.
N. PLAN ADMINISTRATOR shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for
administration of the Plan.
O. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
P. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
Q. RECAPITALIZATION shall mean 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.
A-2.
<PAGE>
R. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not the
surviving entity,
(ii) a sale, transfer or other disposition of all or substantially
all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company structure.
S. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article C.
T. SERVICE shall mean the Participant's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant or independent advisor.
U. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program under the
Plan.
V. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
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.
W. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph C.3, subject to the acceleration provisions upon an Involuntary
Termination following a Corporate Transaction.
X. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph C.1.
A-3.
<PAGE>
EXHIBIT 10.8.2
WAIVER AND SECOND AMENDMENT TO CREDIT AGREEMENT
-----------------------------------------------
THIS WAIVER AND SECOND AMENDMENT TO CREDIT AGREEMENT ("WAIVER AND
AMENDMENT"), dated as of September 30, 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, and an amendment thereto dated as of June 9, 1996
(collectively, the "CREDIT AGREEMENT") pursuant to which the Agent and the Banks
have extended certain credit facilities to the Borrower.
B. The Borrower has reported to the Agent and the Banks the
existence of certain events of default under the Credit Agreement. The Borrower
has requested that the Banks waive certain events of default and agree to
certain amendments of the Credit Agreement.
C. The Banks are willing to waive certain defaults under the Credit
Agreement, and to amend the Credit Agreement, subject to the terms and
conditions of this Waiver and 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. DEFAULTS AND WAIVER.
(a) For purposes of this Waiver and Amendment, the "Existing
Defaults" shall mean:
(i) the default existing on this date under Section 8.04 of
the Credit Agreement solely as a consequence of an investment by the
Borrower in the amount of Five Thousand Dollars ($5,000) in a new
subsidiary incorporated in Kansas and known as Western Staff Services
(Guam), Inc.;
(ii) the default existing on this date under Section 8.08 of
the Credit Agreement solely as a consequence of the issuance by the
Borrower of its guaranty in the approximate amount of One Hundred
Seventy Five Thousand Dollars ($175,000) in support of
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<PAGE>
certain lease obligations of Gain Personnel Limited, a recently-
acquired subsidiary of the Borrower located in New Zealand;
(iii) the default existing on this date under Subsection
8.08(c) of the Credit Agreement solely as a consequence of the
Borrower's failure to obtain release of a guaranty supporting the
indebtedness of Western Video Images, Inc. to MetLife Capital
Corporation; and
(iv) the default existing on this date under Subsection
9.01(c) of the Credit Agreement consisting of the Borrower's failure
to comply with the financial covenants set forth in Section 8.14
through 8.18 of the Credit Agreement solely as a consequence of the
Borrower's completion of an initial public offering of its capital
stock.
(b) Subject to and upon the terms and conditions hereof, the
Banks hereby waive the Existing Defaults.
(c) Nothing contained herein shall be deemed a waiver of (or
otherwise affect the Agent's or the Banks' ability to enforce) any other
default or Event of Default, including without limitation (i) any default
or Event of Default as may now or hereafter exist and arise from or
otherwise be related to the Existing Defaults (including without limitation
any cross-default arising under the Credit Agreement by virtue of any
matters resulting from the Existing Defaults), and (ii) any default or
Event of Default arising at any time after the Effective Date and which is
the same as any of the Existing Defaults.
3. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "Consolidated Tangible Net Worth" in
Section 1.01 of the Credit Agreement shall be amended to read as follows in
its entirety:
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date, the sum of
(a) Consolidated Total Assets, PLUS (b) subordinated indebtedness of
the Borrower or any Subsidiary, LESS (c) intangible assets,(including,
without limitation, trade names, trademarks, copyrights, covenants not
to compete, organization costs, goodwill, investments in Affiliates,
and loans, advances, notes and accounts receivable from shareholders,
Affiliates and Franchisees) of the Borrower and its Subsidiaries, as
determined and computed in accordance with GAAP, or as otherwise
permitted in this Agreement LESS (d) Consolidated Total Liabilities.
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<PAGE>
(b) The definition of "Fixed Charge Coverage Ratio" in Section
1.01 of the Credit Agreement shall be amended to read as follows in its
entirety:
"FIXED CHARGE COVERAGE RATIO" as determined on the last day of
any fiscal quarter on a consolidated basis for the Borrower and its
subsidiaries, means the ratio obtained by dividing (a) the sum of (1)
NPAT, PLUS (2) Non Cash Charges, PLUS (3) Interest Expense, PLUS (4)
Operating Lease Expense, LESS (5) Permitted Dividends and other cash
dividends paid during the preceding four (4) fiscal quarters (but
excluding the Five Million Dollar ($5,000,000) dividend payment made
to existing shareholders in April, 1996), by (b) the sum of (1)
Scheduled Debt, PLUS (2) Interest Expense, PLUS (3) Operating Lease
Expense, PLUS (4) 12-1/2% of Revolving Loans and L/C Obligations
outstanding as of the date of determination. For purposes of this
definition, the following capitalized terms have the meanings
indicated:
"NPAT", as determined on the last day of any fiscal quarter,
means the amount of gross revenues for the preceding four (4)
fiscal quarters, LESS all expenses and taxes for such period, as
determined and computed in accordance with GAAP. It is provided,
however, that NPAT for the fiscal year ending November 2, 1996,
shall not include the one-time deferred tax charge resulting from
the Borrower's conversion from an S corporation to a C
corporation during the 1996 fiscal year.
"NON-CASH CHARGES", as determined on the last day of any
fiscal quarter, means the amount equal to the sum of (a)
depreciation for the preceding four (4) fiscal quarters, PLUS (b)
amortization for the preceding four (4) fiscal quarters, PLUS
(c) loss on sale of assets for the preceding four (4) fiscal
quarters, LESS (d) gain on sale of assets for the preceding four
(4) fiscal quarters.
"INTEREST EXPENSE", as determined on the last day of any
fiscal quarter, means the amount of interest paid during the
preceding four (4) fiscal quarters as determined and computed in
accordance with GAAP.
"OPERATING LEASE EXPENSE", as determined on the last day of
any fiscal quarter, means the amount of operating lease payments
made during the preceding four (4) fiscal quarters as determined
and computed in accordance with GAAP.
"SCHEDULED DEBT", as determined on the last
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<PAGE>
day of any fiscal quarter, means the total amount of scheduled
repayments with respect to the "Current Portion of Long-Term
Debt" ("CURRENT PORTION OF LONG TERM DEBT" means, as of any date,
obligations for the repayment of borrowed money which are
scheduled to be paid within one fiscal year from such date) and
deferred tax liabilities resulting from the Borrower's conversion
from an S corporation to a C corporation required to be paid over
the upcoming four (4) fiscal quarters following such date. For
purposes of calculating the Fixed Charge Coverage Ratio for any
fiscal quarter falling within the 1997 fiscal year, the Current
Portion of Long Term Debt shall be determined without taking into
consideration any Excess Acquisition Financing obtained after
October 1, 1996.
(c) A new definition of "Minor Acquisition" is added to Section
1.01 of the Credit Agreement reading as follows:
"MINOR ACQUISITION" has the meaning specified in Section 8.11.
(d) The definition of "Term Maturity Date" in Section 1.01 of
the Credit Agreement shall be amended by substituting "September 30, 2003"
for "March 31, 2003".
(e) Subsection 2.01(a) of the Credit Agreement shall be amended
by substituting "September 30, 1997" for "March 31, 1997".
(f) Subsection 2.03(a) of the Credit Agreement shall be amended
by substituting "11:00 a.m." for "10:00 a.m." in the first place where such
time appears therein.
(g) Subsection 2.03(b) of the Credit Agreement shall be amended
by substituting "12:00 noon" for "11:30 a.m.".
(h) Subsection 2.03(e) of the Credit Agreement shall be amended
by substituting "eight (8)" for "five (5)".
(i) Subsection 2.04(b) of the Credit Agreement shall be amended
by substituting "11:00 a.m." for "10:00 a.m.".
(j) Subsection 2.06 of the Credit Agreement shall be amended by
substituting "11:00 a.m." for "10:00 a.m.".
(k) Subsection 2.07(b) of the Credit Agreement shall be amended
to read as follows in its entirety:
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<PAGE>
(b) EXCESS ACQUISITION FINANCING. If on or after October
1 1996, the Borrower or any of its Subsidiaries shall obtain
Acquisition Financing in excess of the amount, of any Acquisition
Financing outstanding as of September 30, 1996, (such amount in excess
of the amount outstanding as of September 30, 1996 being referred to
herein as the "EXCESS ACQUISITION FINANCING"), then the Borrower shall
promptly notify the Agent of such Excess Acquisition Financing, and
(i) if the Excess Acquisition Financing is obtained pursuant to an
Acquisition completed on or before September 30, 1997, the Aggregate
Term Commitment shall be automatically reduced by the amount of such
Excess Acquisition Financing, and the Borrower shall promptly prepay
the portion of any outstanding Term Loans which exceed the Aggregate
Term Commitment as reduced, or (ii) if the Excess Acquisition
Financing is obtained pursuant to an Acquisition completed after
September 30, 1997, the Borrower shall promptly prepay outstanding
Term Loans in an aggregate amount equal to the amount, if any, by
which such Excess Acquisition Financing (plus the amount of any
Acquiree Indebtedness resulting from the same Acquisition) exceeds the
Unutilized Aggregate Term Commitment. The prepayments required under
clause (ii) shall be applied to the Term Loans in the inverse order of
their stated maturity.
(l) Subsection 2.07(c) of the Credit Agreement shall be amended
to read as follows in its entirety:
(c) ACQUIREE INDEBTEDNESS. If any Acquiree Indebtedness
results following an Acquisition by the Borrower or any of its
subsidiaries (other than Acquiree Indebtedness secured by purchase
money security interest in the Property of the Acquiree to the extent
such security interests are permitted under clause (ii) of Subsection
8.11(d) and so long as the principal amount of Indebtedness of all
Acquirees secured by such purchase money security interests do not
exceed One Million Dollars ($1,000,000) in the aggregate at any one
time), then the Borrower shall promptly notify the Agent of such
Acquiree Indebtedness and (i) if the Acquiree Indebtedness results
from an Acquisition which is completed on or before September 30,
1997, the Aggregate Term Commitment shall be automatically reduced by
the amount of such Acquiree Indebtedness, and the Borrower shall
promptly prepay the portion of any outstanding Term Loans which exceed
the Aggregate Term Commitment as reduced, or (ii) if the Acquiree
Indebtedness results from an Acquisition which is completed after
September 30, 1997, the Borrower shall promptly prepay outstanding
Term Loans in an aggregate amount equal to the amount, if any, by
which such Acquiree Indebtedness exceeds the Unutilized
-5-
<PAGE>
Aggregate Term Commitment; PROVIDED, THAT, if with respect to an
Acquisition completed after September 30, 1997, Acquiree Indebtedness
and Excess Acquisition Financing result from the same Acquisition, the
amount of the required prepayment of outstanding Term Loans shall be
determined pursuant to clause (ii) of subsection 2.07(b). The
prepayments required under clause (ii) shall be applied to the Term
Loans in the inverse order of their stated maturity.
(m) Subsection 2.08(a) of the Credit Agreement shall be amended
by substituting "September 30, 1997" for "March 31, 1997" and by
substituting "October 31, 1997" for "April 30, 1997".
(n) Subsection 7.02(c) of the Credit Agreement shall be amended
by the addition of the following to the end of that subsection:
it is provided, however, that the Banks accept the Borrower's delivery
of a CPA letter dated April 26, 1996, from Price Waterhouse LLP to the
Audit Committee in lieu of a management letter for the fiscal year
ending October 28, 1995.
(o) Subsection 7.11(b) of the Credit Agreement shall be amended
to read as follows in its entirety:
(b) Term Loans shall be used to finance Acquisitions in
compliance with the provisions of Section 8.11 (including the
refinance of the cash portion of Non-Stock Consideration paid for
Acquisitions made after November 1, 1995), to repay Acquisition
Financing (including Acquisition Financing existing on the Closing
Date), and to repay the principal balance of the term loan outstanding
under the Existing Credit Agreement; and
(p) Section 8.02 of the Credit Agreement shall be amended by the
addition of a new subsection (f) thereto reading as follows:
(f) any transfers of Property between or among domestic
Subsidiaries of the Borrower; PROVIDED, THAT the domestic Subsidiary
which is the transferee of the Property is a Guarantor or, prior to
the occurrence of any such transfer of Property, executes and delivers
a guaranty, security agreement, and such other documentation as may be
reasonably requested by Banks pursuant to the provisions of Section
7.13.
(q) Subsection 8.04(e) of the Credit Agreement shall be amended
to read as follows in its entirety:
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<PAGE>
(e) loans to and investments in foreign Subsidiaries or
Affiliates in an aggregate amount not exceeding Four Million Six
Hundred Thousand Dollars ($4,600,000) at any one time; provided,
however, that if Western Staff Services Pty. Ltd., Australia, enters
into the proposed contract with Telstra Corporation Limited, the
foregoing limit shall be increased to Eight Million Dollars
($8,000,000);
(r) Section 8.04 of the Credit Agreement shall be amended by the
addition of a new subsection (k) thereto reading as follows:
(k) investments in new domestic Subsidiaries or Affiliates
in an aggregate amount not exceeding ONE Hundred Thousand Dollars
($100,000) at any one time.
(s) Subsection 8.05(h) of the Credit Agreement shall be amended
by the addition of the following sentence to the end of subsection (h):
It is provided, however, that the requirements of clause (ii) above
shall not apply with respect to Acquiree Indebtedness secured by
purchase money security interest in the Property of the Acquiree to
the extent such security interests are permitted under clause (ii) of
Subsection 8.11(d) and so long as the principal amount of Indebtedness
of all Acquirees secured by such purchase money security interests do
not exceed One Million Dollars ($1,000,000) in the aggregate at any
one time.
(t) Subsection 8.08(c) shall be amended to read as follows in
its entirety:
(c) Contingent Obligations of the Borrower and its
Subsidiaries existing as of the Closing Date and listed in SCHEDULE
8.08; PROVIDED, HOWEVER, that the existing guaranty issued by the
Borrower in support of the obligations of Western Video Images to
MetLife Capital Corporation shall be released no later than November
30, 1996;
(u) Section 8.08 of the Credit Agreement shall be amended by the
addition of new subsections (f) and (g) thereto reading as follows:
(f) guaranties of performance from time to time executed by
the Borrower in respect of the obligations of its Subsidiaries arising
under real property leases entered into by its Subsidiaries; and
(g) additional Contingent Obligations of the Borrower and
its Subsidiaries in an aggregate amount
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<PAGE>
not exceeding Three Hundred Thousand Dollars ($300,000) at any one
time.
(v) Subsection 8.11(b) of the Credit Agreement shall be amended
by substituting "fiscal year" for "twelve (12) month period".
(w) Subsection 8.11(d) of the Credit Agreement shall be amended
to read as follows in its entirety:
(d) The assets of Acquiree shall not be subject to any
Liens as of the Acquisition date, other than (i) Permitted Liens of
the types described in subsections 8.01(c), 8.01(d) and 8.01(e), and
(ii) purchase money security interests on any Property acquired or
held by the Acquiree in the Ordinary Course of Business securing
Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such Property, PROVIDED THAT the
principal amount of Indebtedness of all Acquirees secured by such
purchase money security interests shall not exceed One Million Dollars
($1,000,000) in the aggregate at any one time.
(x) Subsection 8.11(j) of the Credit Agreement shall be amended
by substituting "September 30, 1997" for "March 31, 1998" and by
substituting "Twenty Seven Million Dollars ($27,000,000)" for "Fifteen
Million Two Hundred Thousand Dollars ($15,200,000)".
(y) Section 8.11 of the Credit Agreement shall be amended by the
addition of the following to the end of that section:
For the purpose of determining the aggregate amount of Non-Stock
Consideration and Stock Consideration paid by the Borrower and its
Subsidiaries for an Acquisition, the aggregate amount of such
consideration shall include the estimated value of the "contingent
earnout" to be paid to the seller on the basis of the Acquiree's
future performance.
Notwithstanding the foregoing, the conditions set forth in subsections
(b), (c) and (h) above shall not be applicable to a Minor Acquisition,
provided that the aggregate amount of Non-Stock Consideration and
Stock Consideration paid by the Borrower and its Subsidiaries for all
Minor Acquisitions made after June 30, 1996, does not exceed Two
Million Six Hundred Thousand Dollars ($2,600,000). A "MINOR
ACQUISITION" means an Acquisition for an aggregate amount of Non-Stock
Consideration and Stock Consideration of Seven Hundred Fifty Thousand
Dollars ($750,000) or less.
-8-
<PAGE>
(z) Section 8.12 of the Credit Agreement shall be amended by the
addition of the following sentence to the end of that section:
It is further provided that, notwithstanding the foregoing
restrictions, any wholly-owned Subsidiary of the Borrower may declare
and make dividend payments to the Borrower, whether in cash or in the
form of other Property of the Subsidiary.
(aa) The second sentence of Section 8.13 of the Credit Agreement
shall be amended to read as follows:
For purposes of computing compliance with this section, (a) the unused
portion of permitted Capital Expenditures shall not be carried forward
from one fiscal year to a succeeding fiscal year, and (b) fixed or
capital assets acquired through Acquisitions completed on or before
September 30, 1997, shall not be included in the foregoing
limitations.
(bb) Section 8.14 of the Credit Agreement shall be amended by
substituting "1.35:1.0" for "1.15:1.0".
(cc) Section 8.15 of the Credit Agreement shall be amended to
read as follows in its entirety:
8.15 CONSOLIDATED TANGIBLE NET WORTH. The Borrower shall
not permit its Consolidated Tangible Net Worth to be less than:
(a) as determined on November 1, 1996, Thirty-Four Million
Dollars ($34,000,000); and
(b) as determined on January 25, 1997, Sixteen Million Five
Hundred Thousand Dollars ($16,500,000); and
(c) as determined on April 18, 1997, Eighteen Million Five
Hundred Thousand Dollars ($18,500,000); and
(d) as determined on July 12, 1997, Twenty Million Five
Hundred Thousand Dollars ($20,500,000); and
(e) as determined on October 31, 1997, Twenty Five Million
Dollars ($25,000,000); and
(f) as determined on the last day of each fiscal quarter
after the 1997 fiscal year end, an amount equal to (1) Consolidated
Tangible Net Worth as of the last day of the immediately preceding
fiscal year, PLUS (2) ninety-five percent (95%) of Net Profit
-9-
<PAGE>
After Tax earned on a cumulative fiscal year-to-date basis, PLUS (3)
one hundred percent (100%) of the net proceeds from any equity
securities issued after October 31, 1997.
(dd) Section 8.16 of the Credit Agreement shall be amended to
read as follows in its entirety:
8.16 DEBT TO NET WORTH RATIO. The Borrower shall not permit (as
of the end of each fiscal quarter indicated below) its Debt to Net
Worth Ratio to be greater than the ratio set forth below with respect
to such fiscal quarter end:
Fiscal Quarter Ending Ratio
--------------------- -----
July 6, 1996 2.20:l.0
November 2, 1996 5.20:1.0
January 25, 1997 5.20:1.0
April 19, 1997 4.70:1.0
July 12, 1997 4.20:1.0
October 31, 1997, through
and including the fiscal
quarter ending July 11, 1998 3.75:1.0
October 31, 1998, and each
fiscal quarter thereafter 3.50:l.0
(ee) Section 8.17 of the Credit Agreement shall be amended to
read as follows in its entirety:
8.17 FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain a
Fixed Charge Coverage Ratio, calculated for the four (4) fiscal
quarter period immediately preceding the last day of the fiscal
quarter then ended, of not less than the ratio set forth below with
respect to such fiscal quarter:
Fiscal Quarter Ending Ratio
--------------------- -----
July 6, 1996, and each
fiscal quarter thereafter
through and including the
fiscal quarter ending
April 19, 1997 1.15:l.0
July 12, 1997, and each
fiscal quarter thereafter
through and including the
-10-
<PAGE>
fiscal quarter ending
July 11, 1998 1.25:l.0
October 31 1998, and each
fiscal quarter thereafter 1.35:1.0
(ff) Section 8.18 of the Credit Agreement shall be amended to
read as follows in its entirety:
8.18 PROFITABILITY. The Borrower shall maintain Consolidated Net
Income of not less than zero on a cumulative basis as of the end of
the first, second and third quarters of each fiscal year, and not less
than Nine Million Dollars ($9,000,000) for each fiscal year commencing
with the fiscal year ending November 2, 1996. "CONSOLIDATED NET
INCOME" means, as determined on the last day of any fiscal quarter,
net after-tax income of Borrower and its consolidated Subsidiaries
determined and computed in accordance with GAAP, excluding, however,
gain(s) attributable to extraordinary items and including, however,
loss(es) attributable to extraordinary items. It is provided, however,
that Consolidated Net Income for the fiscal year ending November 2,
1996, shall not include the one-time deferred tax charge resulting
from the Borrower's conversion from an S corporation to a C
corporation during the 1996 fiscal year.
(gg) Subsection 9.01(m) of the Credit Agreement shall be amended
to read as follows in its entirety:
(m) OWNERSHIP. Any Person (other than W. Robert Stover or
any trust or foundation established by or controlled by W. Robert
Stover) acquires in excess of thirty percent (30%) of the issued and
outstanding capital stock of the Borrower entitled to vote for the
election of members of the Board of Directors of the Borrower, or the
composition of the Board of Directors of the Borrower changes by more
than thirty-three percent (33%) from the composition existing as of
the Closing Date; or
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Agent and the Banks as follows:
(a) Other than the Existing Defaults, no Event of Default has
occurred and is continuing.
(b) The execution, delivery and performance by the Borrower of
this Waiver and 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
-11-
<PAGE>
enforceable. The Credit Agreement as amended by this Waiver and 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) Subject to the Existing Defaults, all representations and
warranties of the Borrower contained in the Credit Agreement are true and
correct.
(d) The Borrower is entering into this Waiver and 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.
5. EFFECTIVE DATE. This Waiver and Amendment will become effective
as of September 30, 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 Waiver and Amendment, together with a duly executed
Guarantor Acknowledgment and Consent in the form attached hereto (the
"CONSENT").
(b) All representations and warranties contained herein are true
and correct as of the Effective Date.
(c) The Borrower has paid to the Agent for the ratable account
of the Banks, as determined by each Bank's Commitment Percentage, a term
loan extension fee in the amount of Twenty Two Thousand Dollars ($22,000).
6. RESERVATION OF RIGHTS. The Borrower acknowledges and agrees that
neither the Agent's nor the Banks' forbearance in exercising their rights and
remedies in connection with the Existing Defaults, nor the execution and
delivery by the Agent and the Banks of this Waiver and Amendment, shall be
deemed (i) to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar waivers under the same or similar
circumstances in the future, or (ii) to waive, relinquish or impair any right of
the Agent or the Banks to receive any indemnity or similar payment from any
Person or entity as a result of any matter arising from or relating to the
Existing Defaults.
7. 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
-12-
<PAGE>
the Credit Agreement as amended by this Waiver and Amendment. This Waiver
and Amendment shall be deemed incorporated into, and a part of, the Credit
Agreement.
(b) This Waiver and 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 Waiver and Amendment.
(c) This Waiver and Amendment shall be governed by and construed
in accordance with the law of the State of California.
(d) This Waiver and 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 Waiver and 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
Waiver and Amendment supersedes all prior drafts and communications with
respect thereto. This Waiver and 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 Waiver and Amendment shall
be deemed prohibited by or invalid under any applicable law, such provision
shall be invalidated without affecting the remaining provisions of this
Waiver and 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 Waiver and
Amendment and the administration of the Existing Defaults, including
without limitation appraisal, audit, search and
-13-
<PAGE>
filing fees incurred in connection therewith.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Waiver and 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
---------------------------------
Leandro Balidoy
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank and as Issuing Bank
By
---------------------------------
Lori Mazzera.
Vice President
SANWA BANK CALIFORNIA, as a
Bank and as Co-Agent
By
---------------------------------
Karen S. Fluegge
Vice President
-14-
<PAGE>
COMERICA BANK-CALIFORNIA, as a
Bank
By
---------------------------------
Lori S. Edwards
First Vice President and
Group Manager
-15-
<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 Waiver and Second Amendment to
Credit Agreement ("WAIVER AND 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
Waiver and Amendment.)
WESTERN STAFF SERVICES (USA), INC.
Dated: 12/6/96 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: 12/6/96 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
-16-
<PAGE>
WESTERN TECHNICAL SERVICES, INC.
Dated: 12/6/96 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: 12/6/96 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: 12/6/96 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
-17-
<PAGE>
EXHIBIT 10.11
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 and of the International
Employee Stock Purchase Plan (the "International 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 and the International 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. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive purchase 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.
B. Each purchase period shall have a duration of six (6) months.
Purchase
<PAGE>
periods shall run from the first business day in February to the last business
day in July each year and from the first business day in August each year to the
last business day in January of the following year. However, the first purchase
period shall begin on November 3, 1996 and end on the last business day in
January 1997.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any purchase period shall be eligible to participate in the Plan for that
purchase period.
B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before the start date of the purchase period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Earnings paid to the Participant during each purchase
period, up to a maximum of ten percent (10%). The deduction rate so authorized
shall continue in effect for the entire purchase period. The Participant may
not increase his or her rate of payroll deduction during a purchase period.
However, the Participant may, at any time during the purchase 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 period.
B. Payroll deductions shall begin on the first pay day following the
start date of the purchase period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of the purchase 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.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right on the start date of each purchase period in which he or
she participates. The purchase right shall provide the Participant with the
right to purchase shares of Common Stock on the Purchase Date 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
2.
<PAGE>
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 on the Purchase Date, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than any
Participant whose payroll deductions have previously been refunded pursuant to
the Termination of Purchase Right provisions below) on such date. The purchase
shall be effected by applying the Participant's payroll deductions for the
purchase period ending on such Purchase Date to the purchase of shares of Common
Stock (subject to the limitation on the maximum number of shares purchasable per
Participant on any one Purchase Date) at the purchase price in effect for that
purchase period.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date shall
be equal to eighty-five percent (85%) of the LOWER of (i) the Fair Market Value
per share of Common Stock on the start date of the purchase period or (ii) the
Fair Market Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date shall be the number of
whole shares obtained by dividing the amount collected from the Participant
through payroll deductions during the purchase period ending with that Purchase
Date by the purchase price in effect 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.
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 last day
of the purchase 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 period 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,
3.
<PAGE>
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 purchase
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent purchase period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before the start date of the new purchase 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 period 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 period in which such leave commences,
to (a) withdraw all the payroll deductions collected to date on his or her
behalf during such purchase period or (b) have such funds held for the
purchase of shares 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 period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the LOWER of (i) the Fair Market Value per share of
Common Stock on the start date of the purchase 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.
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 which are 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.
4.
<PAGE>
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 of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue on the Purchase Date in effect for the purchase
period for which such right is granted.
(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 period, then the payroll
deductions which the Participant made during that purchase period 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 November 3, 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
5.
<PAGE>
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 purchase period
hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the EARLIEST to occur of (i) the last business day in January 2007, (ii)
the date on which all shares 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 period.
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.
6.
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF NOVEMBER 3, 1996
Western Staff Services, Inc., a Delaware corporation
Western Staff Services (USA), Inc., a California corporation
Western Staff Services (NY), Inc., a New York corporation
Western Technical Services, Inc., a California corporation
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS 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 plus (iii)
all overtime payments, bonuses, commissions, current profit-sharing
distributions and other incentive-type payments. However, Cash Earnings shall
NOT include any 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.
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.
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
<PAGE>
(5) months per calendar year for earnings considered wages under Code Section
3401(a).
I. 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.
J. 1933 ACT shall mean the Securities Act of 1933, as amended.
K. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
L. 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 November 3, 1996 effective date
are listed in attached Schedule A.
M. PLAN shall mean the Corporation's Employee Stock Purchase Plan,
as set forth in this document.
N. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the Plan.
O. PURCHASE DATE shall mean the last business day of each purchase
period. The initial Purchase Date shall be January 31, 1997.
P. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
<PAGE>
Page 1 of 2
EXHIBIT 10.11.1
WESTERN STAFF SERVICES, INC.
STOCK PURCHASE AGREEMENT
I hereby elect to participate in the Employee Stock Purchase Plan (the
"ESPP") beginning with the purchase period specified below, and I hereby
subscribe to purchase shares of Common Stock of Western Staff Services, Inc.
(the "Corporation") in accordance with the provisions of this Agreement and the
ESPP. I hereby authorize payroll deductions from each of my paychecks following
my entry into the ESPP in the 1% multiple of my earnings (not to exceed a
maximum of 10%) specified in my attached Enrollment Form.
Purchase periods under the ESPP will run from the first business day in
February to the last business day in July each year, and from the first business
day in August each year to the last business day in January of the following
year. The initial purchase period under the ESPP will begin on November 3, 1996
and end on January 31, 1997. My participation will automatically remain in
effect from one purchase period to the next in accordance with this Agreement
and my payroll deduction authorization, unless I withdraw from the ESPP or
change the rate of my payroll deduction or unless my employment status changes.
I may reduce the rate of my payroll deductions once per purchase period, and I
may increase the rate of my payroll deductions to become effective at the start
of any subsequent purchase period.
My payroll deductions will be accumulated for the purchase of shares of the
Corporation's Common Stock on the last business day of each purchase period.
The purchase price per share shall be equal to 85% of the lower of (i) the fair
market value per share of Common Stock on the start date of the purchase period
or (ii) the fair market value per share on the last day of that purchase period.
I will also be subject to ESPP restrictions (i) limiting the maximum number of
shares which I may purchase on any one purchase date to 750 shares, for a
maximum of 1,500 shares per calendar year and (ii) prohibiting me from
purchasing more than $25,000 worth of Common Stock for each calendar year my
purchase right remains outstanding.
I may withdraw from the ESPP at any time prior to the last business day of
a purchase period and elect either to have the Corporation refund all my payroll
deductions for that purchase period or to have those payroll deductions applied
to the purchase of shares of the Corporation's Common Stock at the end of such
period. However, I may not rejoin that particular purchase period at any later
date. Upon the termination of my employment for any reason, including death or
disability, or my loss of eligible employee status, my participation in the ESPP
will immediately cease and all my payroll deductions for the purchase period in
which my employment terminates or my loss of eligibility occurs will
automatically be refunded.
If I take an unpaid leave of absence, my payroll deductions will
immediately cease, and any payroll deductions for the purchase period in which
my leave begins will, at my election, either be refunded or applied to the
purchase of shares of Common Stock at the end of that purchase period. Upon my
return to active service, my payroll deductions will automatically resume at the
rate in effect when my leave began.
A stock certificate for the shares purchased on my behalf at the end of
each purchase period will automatically be deposited into a brokerage account
which the Corporation will designate and open on my behalf. I will notify the
Corporation of any sale or disposition of my ESPP shares, and I will satisfy all
applicable income and employment tax withholding requirements at the time of
such sale or disposition.
The Corporation has the right, exercisable in its sole discretion, to amend
or terminate the ESPP at any time, with such amendment or termination to become
effective immediately following the exercise of outstanding purchase rights at
the end of any current purchase period. Should the Corporation elect to
terminate the ESPP, I will have no further rights to purchase shares of Common
<PAGE>
Page 2 of 2
Stock pursuant to this Agreement.
I have received a copy of the official Plan Prospectus summarizing the
major features of the ESPP. I have read this Agreement and the Prospectus and
hereby agree to be bound by the terms of both this Agreement and the ESPP. The
effectiveness of this Agreement is dependent upon my eligibility to participate
in the ESPP.
Date: _____________, 199___ _______________________________________
Signature of Employee
Entry Date: _____________, 199___ Printed Name: _________________________
<PAGE>
Page 1 of 2
Exhibit 10.11.2
WESTERN STAFF SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<CAPTION>
<S> <C> <C>
Action Complete Sections:
------ -----------------
- --------------
| SECTION 1: | [_] New Enrollment 2, 3, 6, 7 AND sign attached
- -------------- Stock Purchase Agreement
ACTIONS
[_] Payroll Deduction Change 2, 4, 7
[_] Terminate Payroll Deductions 2, 5, 7
[_] Beneficiary Change 2, 6, 7
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 2: |
- --------------
Name ___________________________________________________________________
Last First MI Dept.
PERSONNEL
DATA Home or Mailing Address ________________________________________________
Street
________________________________________________________________________
City State Zip Code
Social Security #: [_][_][_] - [_][_] - [_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 3: |
- --------------
Effective with the Purchase Period Beginning: Payroll Deduction Amount: ____ % of cash earnings*
[_] February _, 199_
NEW [_] August _, 199_ * Must be a multiple of 1% up to maximum of 10% of
ENROLLMENT cash earnings
[_] Initial Purchase Period -- November 3, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 4: |
- --------------
PAYROLL Effective with the I authorize the following new level of payroll
DEDUCTION Pay Period Beginning: ____________________________ deduction: __________% of cash earnings
CHANGE Month, Day and Year
* Must be a multiple of 1% up to a
maximum of 10% of cash earnings
NOTE: You may reduce your rate of payroll deductions once per purchase period to become effective as soon as possible
following the filing of the change form. You may also increase your rate of payroll deductions to become
effective as of the start date of the next purchase period.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 5: |
- --------------
Effective with the Your election to terminate your payroll deductions
TERMINATE Pay Period Beginning: ____________________________ for the balance of the purchase period cannot be changed,
PAYROLL Month, Day and Year and you may not rejoin the purchase period at a later
DEDUCTIONS date. You will not be able to resume participation in
the ESPP prior to the commencement of the next
purchase period.
In connection with my voluntary termination of payroll deductions (or an approved leave of absence), I elect the
following action regarding my ESPP payroll deductions to date in the current purchase period:
[_] Purchase shares of Western Staff Services, Inc. at end of the period
OR
[_] Refund ESPP payroll deductions collected
NOTE: If your employment terminates for any reason or your eligibility status changes (less than 20 hrs/wk or less than 5
months/yr), you will immediately cease to participate in the ESPP, and your ESPP payroll deductions collected in
<PAGE>
Page 2 of 2
that purchase period will automatically be refunded to you.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 6: |
- --------------
Beneficiary(ies) Relationship of Beneficiary(ies)
---------------- --------------------------------
BENEFICIARY
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 7: |
- --------------
AUTHORIZATION
I WOULD LIKE MY CERTIFICATE TO BE ISSUED AS FOLLOWS: (PRINT NAME(S) EXACTLY AS THEY SHOULD APPEAR.)
[_] My name only, _________________________________________________________.
[_] My name, _______________________, and my spouse, __________________________________, [_] AS COMMUNITY
PROPERTY OR [_] AS JOINT TENANTS.
[_] Issued in street name and delivered to the Corporation-designated brokerage account maintained on my behalf.
- ----------------------------- ----------------------------------------------
Date Signature of Employee
</TABLE>
<PAGE>
Exhibit 10.11.3
WESTERN STAFF SERVICES, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This International Employee Stock Purchase Plan is intended to promote
the interests of Western Staff Services, Inc. by providing eligible employees of
the Corporation's Foreign Subsidiaries with the opportunity to acquire a
proprietary interest in the Corporation through the purchase of shares of the
Corporation's Common Stock at periodic intervals.
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. 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 and the U.S. 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 and the U.S. 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. PURCHASE PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive purchase periods until such time as (i) the
maximum number
<PAGE>
of shares of Common Stock available for issuance under the Plan shall have been
purchased or (ii) the Plan shall have been sooner terminated.
B. Each purchase period shall have a duration of six (6) months.
Purchase periods shall run from the first business day in February to the last
business day in July and from the first business day in August to the last
business day in January of the following year. However, the first purchase
period shall begin on November 3, 1996 and end on the last business day in
January 1997.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of
any purchase period shall be eligible to participate in the Plan for that
purchase period. However, each individual who is an Eligible Employee of a
Foreign Subsidiary which designates an Effective Date that is not the start date
of a purchase period shall be eligible to participate in the Plan for the
purchase period during which the Effective Date occurs beginning with such
Effective Date.
B. To participate in the Plan for a particular purchase period, the
Eligible Employee must complete the enrollment form(s) prescribed by the Plan
Administrator and file such form(s) with the Plan Administrator (or its
designate) on or before the start date of the purchase period.
VI. PAYMENT FOR THE SHARES
A. Except to the extent otherwise provided in the Plan (or any
Addendum thereto) or authorized by the Plan Administrator, the purchase price
for the shares of Common Stock acquired under the Plan shall be paid from
accumulated payroll deductions authorized by the Participant.
B. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Earnings paid to the Participant during each purchase
period, up to a maximum of ten percent (10%). The deduction rate so authorized
shall continue in effect for the entire purchase period. The Participant may
not increase his or her rate of payroll deduction during a purchase period.
However, the Participant may, at any time during the purchase 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 period.
C. Payroll deductions shall begin on the first pay day following the
start date of the purchase period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of the purchase period. The payroll deductions so collected shall
be credited to the Participant's book account under
2.
<PAGE>
the Plan, initially in the currency in which paid by the Foreign Subsidiary.
Except to the extent otherwise provided by the Plan Administrator (or any
Addendum to the Plan), no interest shall be paid on the balance from time to
time outstanding in such account and 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.
D. The payroll deductions credited to each Participant's book
account during each purchase period shall be converted into U.S. Dollars on
the Exchange Date for that purchase period on the basis of the exchange rate
in effect on such date. The Plan Administrator shall have the absolute
discretion to determine the applicable exchange rate to be in effect for each
Exchange Date by any reasonable method (including, without limitation, the
exchange rate actually available in the ordinary course of business on such
date). Any changes or fluctuations in the exchange rate at which the payroll
deductions collected on the Participant's behalf are converted into U.S.
Dollars on each Exchange Date shall be borne solely by the Participant.
E. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
F. 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.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right on the start date of each purchase period in which he or
she participates. The purchase right shall provide the Participant with the
right to purchase shares of Common Stock on the Purchase Date 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 on the Purchase Date, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than any
Participant whose payroll deductions have previously been refunded pursuant to
the Termination of Purchase Right provisions below) on such date. The purchase
shall be effected by applying the
3.
<PAGE>
Participant's payroll deductions (as converted into U.S. Dollars) for the
purchase period ending on such Purchase Date to the purchase of shares of Common
Stock (subject to the limitation on the maximum number of shares purchasable per
Participant on any one Purchase Date) at the purchase price in effect for that
purchase period.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date shall
be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value
per share of Common Stock on the start date of the purchase period or (ii) the
Fair Market Value per share of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date shall be the number of
whole shares obtained by dividing the amount collected from the Participant
through payroll deductions (as converted into U.S. Dollars) during the purchase
period ending with that Purchase Date by the purchase price in effect 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 in the currency in which collected.
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 last day of
the purchase 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 period in which such termination occurs
shall, at the Participant's election, be immediately refunded in the
currency in which collected 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.
4.
<PAGE>
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the purchase
period for which the terminated purchase right was granted. In order to
resume participation in any subsequent purchase period, such individual
must re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before the start date of the new purchase 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 period in which the purchase right so
terminates shall be immediately refunded in the currency in which
collected. 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 period in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf during
such purchase period or (b) have such funds held for the purchase of shares
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. TRANSFER OF EMPLOYMENT. In the event that a Participant who is
an Employee of a Foreign Subsidiary is transferred and becomes an Employee of
the Corporation during a purchase period under the Plan, such individual shall
continue to remain a Participant in the Plan and payroll deductions shall
continue to be collected until the next purchase date as if the Participant had
remained an Employee of the Foreign Subsidiary.
In the event that an Employee of the Corporation who is a participant
in the U.S. Plan is transferred and becomes an Employee of a Foreign Subsidiary
during a purchase period in effect under the U.S. Plan, such individual shall
automatically become a Participant under the Plan for the duration of the
purchase period in effect at that time under the Plan and the balance in such
individual's book account maintained under the U.S. Plan shall be transferred as
a balance to a book account opened for such individual under the Plan. Such
balance, together with all other payroll deductions collected from such
individual by the Foreign Subsidiary for the remainder of the purchase period
under the Plan (as converted into U.S. Dollars), shall be applied on the next
purchase date to the purchase of Stock under the Plan.
5.
<PAGE>
H. 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 (as converted into
U.S. Dollars) of each Participant for the purchase period in which such
Corporate Transaction occurs to the purchase of whole shares of Common Stock at
a purchase price per share equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the start date of the
purchase 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. Payroll deductions not yet converted into U.S. Dollars at
the time of the Corporate Transaction shall be converted from the currency in
which paid by the Foreign Subsidiary into U.S. Dollars on the basis of the
exchange rate in effect as determined by the Plan Administrator at the time of
the Corporate Transaction.
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.
I. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
of Common Stock which are 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 (and each Participant in the U.S. Plan),
to the extent in excess of the aggregate purchase price payable for the Common
Stock pro-rated to such individual, shall be refunded.
J. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
K. 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-
6.
<PAGE>
Five Thousand U.S. Dollars (U.S. $25,000) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value of
such stock on the date or dates such rights are granted) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding
purchase right shall accrue on the Purchase Date in effect for the purchase
period for which such right is granted.
(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 U.S. Dollars (U.S. $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 period, then the payroll
deductions which the Participant made during that purchase period 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 October 15, 1996 and
shall become effective on November 3, 1996, provided no purchase rights
granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until 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
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 purchase period hereunder shall be refunded.
7.
<PAGE>
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest to occur of (i) the last business day in January 2007, (ii)
the date on which all shares 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
period.
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. Except to the extent otherwise provided in any Addendum to the
Plan, 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.
D. A Foreign Subsidiary or the Plan Administrator, as the case may
be, shall have the right to deduct from any payment to be made under this Plan,
or to otherwise require, prior to the issuance or delivery of any shares of
Common Stock or the payment of any cash, payment by each Participant of any tax
required by applicable law to be withheld.
E. Additional provisions for individual Foreign Subsidiaries may be
incorporated in one or more Addenda to the Plan. Such Addenda shall have full
force and effect with respect to the Foreign Subsidiaries to which they apply.
In the event of a conflict between the provisions of such an Addendum and one or
more other provisions of the Plan, the provisions of the Addendum shall be
controlling.
8.
<PAGE>
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF NOVEMBER 3, 1996
Western Staff Services (U.K.) Limited
Western Service A/S (effective February 1, 1997)
Kontorservice A/S
Kontorservice, Inc.
Western Staff Services (N.Z.) Limited
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CASH EARNINGS shall mean the (i) regular base salary paid to a
Participant by one or more Foreign Subsidiaries during such individual's period
of participation in one or more purchase periods under the Plan plus (ii) all
overtime payments, bonuses, commissions, current profit-sharing distributions
and other incentive-type payments. However, Cash Earnings shall NOT include any
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.
C. CODE shall mean the U.S. 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, 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.
H. EFFECTIVE DATE shall mean November 3. 1996. Any Foreign
Subsidiary which elects, with the approval of the Board, to extend the benefits
of this Plan to its employees after such Effective Date shall designate a
subsequent Effective Date with respect to its employee-Participants.
A-1.
<PAGE>
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation as a regular staff employee (and not temporary) 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).
J. EXCHANGE DATE shall mean the last U.S. business day of each
purchase period, on which date the foreign currency payroll deductions
collected on behalf of the Participants during that period are to be
converted into U.S. Dollars.
K. 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.
L. FOREIGN SUBSIDIARY shall mean any non-U.S. 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 Foreign Subsidiaries
participating in the Plan as of the Effective Date are listed in attached
Schedule A.
M. 1933 ACT shall mean the Securities Act of 1933, as amended.
N. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
O. PLAN shall mean the Corporation's International Employee Stock
Purchase Plan, as set forth in this document.
A-2.
<PAGE>
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each purchase
period. The initial Purchase Date shall be January 31, 1997.
R. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
S. U.S. PLAN shall mean the Western Staff Services, Inc. Employee
Stock Purchase Plan.
A-3.
<PAGE>
Exhibit 10.11.4
WESTERN STAFF SERVICES, INC.
STOCK PURCHASE AGREEMENT
I hereby elect to participate in the International Employee Stock Purchase
Plan (the "Plan") beginning with the purchase period specified below, and I
hereby subscribe to purchase shares of Common Stock of Western Staff Services,
Inc. (the "Corporation") in accordance with the provisions of this Agreement and
the Plan. I hereby authorize my employer to make payroll deductions from each
of my paychecks following my entry into the Plan in the 1% multiple of my
earnings (not to exceed a maximum of 10%) specified in my attached Enrollment
Form.
Purchase periods under the Plan will run from the first business day in
February to the last business day in July each year and from the first business
day in August each year to the last business day in January of the following
year. The initial purchase period under the Plan will begin on November 3, 1996
and end on the last business day in January 1997. My participation will
automatically remain in effect from one purchase period to the next in
accordance with this Agreement and my payroll deduction authorization, unless I
withdraw from the Plan or change the rate of my payroll deduction or unless my
employment status changes. I may reduce the rate of my payroll deductions once
per purchase period, and I may increase the rate of my payroll deductions to
become effective at the start of any subsequent purchase period.
My payroll deductions will be converted into U.S. Dollars on the last U.S.
business day of each month. My payroll deductions as so converted will be
accumulated for the purchase of shares of Common Stock on the last U.S. business
day of each purchase period. The purchase price per share will be equal to 85%
of the LOWER of (i) the fair market value per share of Common Stock on the start
date of the purchase period or (ii) the fair market value per share on the last
day of that purchase period. I will also be subject to Plan restrictions (i)
limiting the maximum number of shares which I may purchase on any one purchase
date to 750 shares, for a maximum of 1,500 shares per calendar year and (ii)
prohibiting me from purchasing more than U.S. $25,000 worth of Common Stock for
each calendar year my purchase right remains outstanding.
I may withdraw from the Plan at any time prior to the last business day of
a purchase period and elect either to have the Corporation refund all my payroll
deductions for that purchase period or to have those payroll deductions applied
to the purchase of shares of the Corporation's Common Stock at the end of such
period. However, I may not rejoin that particular purchase period at any later
date. Upon the termination of my employment for any reason, including death or
disability, or my loss of eligible employee status, my participation in the Plan
will immediately cease and all my payroll deductions for the purchase period in
which my employment terminates or my loss of eligibility occurs will
automatically be refunded.
If I take an unpaid leave of absence, my payroll deductions will
immediately cease, and any payroll deductions for the purchase period in
which my leave begins will, at my election, either be refunded or applied to
the purchase of shares of Common Stock at the end of that purchase period.
Upon my return to active service, my payroll deductions will automatically
resume at the rate in effect when my leave began.
A stock certificate for the shares purchased on my behalf at the end of
each purchase period will automatically be deposited into a brokerage account
which the Corporation will designate and open on my behalf. I will notify the
Corporation of any sale or disposition of my Plan shares, and I will satisfy all
applicable tax withholding requirements at the time of such sale or
disposition.
The Corporation has the right, exercisable in its sole discretion, to amend
or terminate the Plan at any time, with such amendment or termination to become
effective immediately following the exercise of outstanding purchase rights at
the end of any current purchase period. Should the Corporation elect to
terminate the Plan, I will have no further rights to purchase shares of Common
Stock pursuant to this Agreement.
<PAGE>
I have received a copy of the Plan Summary and Prospectus summarizing the
major features of the Plan. I have read this Agreement and the Prospectus and
hereby agree to be bound by the terms of both this Agreement and the Plan. The
effectiveness of this Agreement is dependent upon my eligibility to participate
in the Plan.
I acknowledge that I have received and may continue to receive the
opportunity to purchase Common Stock under the Plan. I understand that the
grant of a purchase right in one year or at one time does not in any way
obligate the Corporation or my employer to make a grant or award in any future
year or in any given amount. I acknowledge and understand that the Plan is
wholly discretionary in nature and is not to be considered part of my normal or
expected compensation subject to severance, resignation, redundancy or similar
pay.
I hereby authorize and direct my employer to disclose to the Corporation or
any of its subsidiaries such information regarding my employment, the nature and
amount of my compensation and the fact and conditions of my participation in the
Plan as my employer deems necessary to facilitate the administration of such
Plan.
Date: _____________, 199___ ________________________________
Signature of Employee
Entry Date: _____________, 199___ Printed Name: __________________
<PAGE>
Page 1 of 2
Exhibit 10.11.5
WESTERN STAFF SERVICES, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN ("IESPP")
ENROLLMENT/CHANGE FORM
<TABLE>
<CAPTION>
<S> <C> <C>
Action Complete Sections:
------ -----------------
- --------------
| SECTION 1: | [_] New Enrollment 2, 3, 6, 7 AND sign attached
- -------------- Stock Purchase Agreement
ACTIONS
[_] Payroll Deduction Change 2, 4, 7
[_] Terminate Payroll Deductions 2, 5, 7
[_] Beneficiary Change 2, 6, 7
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 2: |
- --------------
Name ___________________________________________________________________
Last First MI Dept.
PERSONNEL
DATA
Home or Mailing Address ________________________________________________
Street
________________________________________________________________________
City State Zip Code
Social Security #: [_][_][_] - [_][_] - [_][_][_][_]
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 3: |
- --------------
Effective with the Purchase Period Beginning: Payroll Deduction Amount: ______ % of cash earnings*
[_] February _, 199_
NEW [_] August _, 199_ * Must be a multiple of 1% up to a maximum of 10% of
ENROLLMENT cash earnings
[_] Initial Purchase Period -- November 3, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 4: |
- --------------
PAYROLL Effective with the I authorize the following new level of payroll
DEDUCTION Pay Period Beginning: ____________________________ deduction: __% of cash earnings
CHANGE Month, Day and Year
* Must be a multiple of 1% up to a
maximum of 10% of cash earnings
NOTE: You may reduce your rate of payroll deductions once per purchase period to become effective as soon as possible
following the filing of the change form. You may also increase your rate of payroll deductions to become
effective as of the start date of the next purchase period.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 5: |
- --------------
Effective with the Your election to terminate your payroll deductions
TERMINATE Pay Period Beginning: ____________________________ for the balance of the purchase period cannot be changed,
PAYROLL Month, Day and Year and you may not rejoin the purchase period at a later
DEDUCTIONS date. You will not be able to resume participation in the
IESPP prior to the commencement of the next
purchase period.
<PAGE>
Page 2 of 2
In connection with my voluntary termination of payroll deductions (or an approved leave of absence), I elect the
following action regarding my IESPP payroll deductions to date in the current purchase period:
[_] Purchase shares of Western Staff Services, Inc. at end of the period
OR
[_] Refund IESPP payroll deductions collected
NOTE: If your employment terminates for any reason or your eligibility status changes (less than 20 hrs/wk or less
than 5 months/yr), you will immediately cease to participate in the IESPP, and your IESPP payroll deductions
collected in that purchase period will automatically be refunded to you.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 6: |
- --------------
Beneficiary(ies) Relationship of Beneficiary(ies)
---------------- --------------------------------
BENEFICIARY
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------
| SECTION 7: |
- --------------
AUTHORIZATION
I WOULD LIKE MY CERTIFICATE TO BE ISSUED AS FOLLOWS: (PRINT NAME(S) EXACTLY AS THEY SHOULD APPEAR.)
[_] My name only, ___________________________________________________.
[_] My name, ____________________________, and my spouse, _____________________________________________, [_] AS COMMUNITY
PROPERTY OR [_] AS JOINT TENANTS.
[_] Issued in street name and delivered to the Corporation-designated brokerage account maintained on my behalf.
- ----------------------------- -----------------------------------------
Date Signature of Employee
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
Western Staff Services, Inc.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-10429) of Western Staff Services, Inc. of our
report dated December 31, 1996, appearing on page F-1 of this Annual
Report on Form 10-K.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
San Francisco, California
January 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 2, 1996; THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1996; AND THE CONSOLIDATED
STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> NOV-02-1996
<CASH> 2849
<SECURITIES> 0
<RECEIVABLES> 75490
<ALLOWANCES> 769
<INVENTORY> 0
<CURRENT-ASSETS> 87128
<PP&E> 34313
<DEPRECIATION> 15459
<TOTAL-ASSETS> 120780
<CURRENT-LIABILITIES> 55146
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 49149<F1><F2><F3><F4>
<TOTAL-LIABILITY-AND-EQUITY> 120780
<SALES> 479205
<TOTAL-REVENUES> 482073
<CGS> 377136
<TOTAL-COSTS> 466777
<OTHER-EXPENSES> (251)
<LOSS-PROVISION> 466
<INTEREST-EXPENSE> 1167
<INCOME-PRETAX> 14380
<INCOME-TAX> 11097<F1><F2><F3><F4>
<INCOME-CONTINUING> 3283<F1><F2><F3><F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3283<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. 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.
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".
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.
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.
<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 was due
primarily to temporary differences resulting from the Company's historical use
of the cash method of accounting for income tax purposes. The income tax charge
relating to the change from the cash to accrual method was $12,574 and will be
payable in quarterly installments due over four years, with the initial
installment paid on August 15, 1996. This charge was partially offset by an
increase in the Company's deferred tax assets in the amount of $5,114.
<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 give 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 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 combined with the
Company's financial statements for all prior periods presented in a manner
similar to a pooling of interests.
</FN>
</TABLE>
