-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ic4Aj1qSnYkVRrR4bHFb5/q7NRm85MBRVCs9VE1mN7m7y4A/8FTc4Vtj27AChNhu 77fxviVp8FAE/+lR9R5KUQ== 0000950116-96-000194.txt : 19960402 0000950116-96-000194.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950116-96-000194 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIGHT MANAGEMENT CONSULTANTS INC CENTRAL INDEX KEY: 0000802806 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 232153729 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15539 FILM NUMBER: 96542400 BUSINESS ADDRESS: STREET 1: 1818 MARKET ST STREET 2: 14TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159881588 MAIL ADDRESS: STREET 1: 1818 MARKET STREET STREET 2: 14TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19454 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1995 OR _______ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 0-15539 RIGHT MANAGEMENT CONSULTANTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-2153729 ----------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1818 Market Street, Philadelphia, Pennsylvania 19103 - ------------------------------------------------ ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 988-1588 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Par Value $0.01 per share) ---------------------------------------- (Title of class) 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 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 as of March 22, 1996 was $125,957,460. The number of shares outstanding of the registrant's Common Stock as of March 22, 1996 was 4,198,582. DOCUMENTS INCORPORATED BY REFERENCE Parts I & II Portions of the Company's 1995 Annual Report to Shareholders for the fiscal year ended December 31, 1995. Part III The Company's definitive proxy statement with respect to its 1996 Annual Meeting of Shareholders to be held on May 9, 1996. PART I Item 1: Business General Right Management Consultants, Inc. (the "Company"), is a Pennsylvania corporation organized in November 1980, doing business under the name "Right Associates(R)," a federally-registered service mark. The Company is one of the world's largest career management consulting firms specializing in career transition (outplacement). Services developed by the Company are currently offered through 126 offices in North America and Western Europe, of which 89 are owned and operated by the Company ("Company Offices") and 37 are operated by 9 independently owned businesses ("Affiliates"). The Company licenses its Affiliates to use its service mark and licenses and trains them to use its proprietary materials and methods. The Company receives fees directly from employers for services rendered by Company Offices and royalties and fees from the Affiliates. Both Company Offices and Affiliates render career management consulting services and human resource consulting services on either an individual or a group basis. See "Business - Individual Career Transition" and "Business - Group Career Transition." Career transition consulting services assists employers with restructuring issues and helps separated employees develop strategies to achieve their career objectives, including re-employment, self-employment or retirement. The Company's fees for such career transition services are paid exclusively by the employer. The Company does not provide its services to employees who are not sponsored by employers, since it is not a "retail" career counseling firm, employment agency, or an executive search firm. Individual Career Transition The major portion of the Company's business (approximately 72% of revenue generated by Company Offices in 1995) consists of providing services, on a one-on-one basis, to the employer-client and the terminated or resigning employee. The Company's individual consulting program for the employer includes advice on conducting the termination interview, terms of severance pay and other termination benefits and identification of termination-related issues for which the employer may wish to seek legal counsel. Services by the Company to terminated employees include assistance in handling the initial difficulties of termination, identifying continuing career goals and options and in planning an alternative career; aiding in developing skills for the search for a new job, such as resume writing, identifying and researching types of potential employers, preparing and rehearsing for interviews; continuing counseling and motivation throughout the job search campaign; assessing new employment offers and methods of accepting such offers (including consideration of relocation issues) and, where appropriate, consulting with the employee's spouse regarding the stresses of the employment search and the positive role the spouse may play in all aspects of the new job search, as well as assisting with financial planning and health maintenance. 1 Group Career Transition The remaining significant portion of the Company's career transition consulting business consists of providing career transition consulting in group contexts for companies making group reductions in their work force due to reorganization, restructuring or other reasons. The Company's group programs have, as their core, seminars for generally up to 12 employees per group, in sessions extending over one to five days. Often, the group seminar is preceded or followed by individual consulting. These group programs are designed for each employer-client and are generally competitively priced and bid, based on the number of consulting hours, number of employees involved and type of programs to be provided. The group program may also be used for "voluntary separation" due to reorganizations or other reasons. The Company is also providing a combination of individual and group career transition consulting services through a cost reimbursement plus fixed fee contract between the Company and Resource Consultants Inc. ("RCI") for the United States Army. Through this contract, counseling services are provided to United States Army soldiers, civilians and their families who are leaving active duty as a result of planned force reductions. These services are provided through 34 Job Assistance Centers in the United States and abroad, which are staffed by employees of a government division of the Company created for this contract, and RCI, a Vienna, Virginia based consulting firm. The contract contains annual renewal options for RCI and the United States Army to extend through May 1997. All renewal options have been exercised and the Company's anticipated share of the cost plus fixed fee contract revenue will approximate $4,000,000 over the eighteen month period through May 1997. Human Resource Consulting The Company intends to continue to expand its career transition consulting business and believes such business will remain its primary activity and source of revenue in the foreseeable future. Nevertheless, the Company also designs services to meet other human resource consulting needs of the market the Company currently serves. These services assist employers and their employees in identifying and improving areas of job performance, refining communication skills and improving employee productivity. The Company also consults with corporations on restructuring and realignment issues, providing customized services to help manage all aspects of organizational change, including planning, selection, retention strategy and communication issues. Other services are designed to enhance the abilities of executives and managers to evaluate employees' performance in making employment and promotion decisions. The Company is devoting resources to the development of these services; however, the revenue it currently generates through these services comprises only a small portion of total Company revenue. 2 Fees for Services Provided by Company Offices For individual consulting services provided by Company Offices, the Company normally receives a negotiated fee, depending upon the services provided, which generally ranges between 10% and 20% of the terminated employee's annual compensation. Fees for group programs are individually billed depending upon the type of services the employer requests, the amount of consulting time required and the number of employees involved. 3 Organization and Distribution of Company Offices and Affiliates The current network of Company Offices and Affiliates is outlined in the Company's 1995 Annual Report to Shareholders under the caption "The World of Right Associates". Location of offices opened in the past five years: Company Offices Company Offices (continued) 1991 Brussels, Belgium (5) Buffalo, New York Charlotte, N. Carolina (6) Leeds, England Greensboro, N. Carolina (6) Memphis, Tennessee Greenville, S. Carolina (6) Mississauga, Ontario Jackson, Mississippi Oakbrook Terrace, Illinois Lancaster, Pennsylvania Wilmington, Delaware Madison, Wisconsin Raleigh, N. Carolina (6) 1992 Vancouver, British Columbia (7) Boston, Massachusetts (2) Manchester, England 1995 Milwaukee, Wisconsin Charleston, South Carolina Pasadena, California Cupertino, California (17) San Bernardino, California Kingston, Ontario Springfield, Massachusetts Providence, Rhode Island (17) Woodland Hills, California Tulsa, Oklahoma Oklahoma City, Oklahoma (16) 1993 San Antonio, Texas Aberdeen, Scotland Atlanta, Georgia (3) Affiliate offices (1) Burlington, Massachusetts Coventry, England 1990 Hunt Valley, Maryland Jacksonville, Florida (8) Madison, Wisconsin Knoxville, Tennessee New Orleans, Louisiana Overland Park, Kansas (9) Regina, Saskatchewan Saskatoon, Saskatchewan 1991 Tarrytown, New York Boca Raton, Florida (8) Torrance, California Palm Beach, Florida (8) Winnipeg, Manitoba San Juan, Puerto Rico (8) Zurich, Switzerland 1992 Virginia Beach, Virginia (10) 1994 Allentown, Pennsylvania 1993 Antwerp, Belgium (4) Omaha, Nebraska (11) Johnson City, Tennessee (12) Affiliate Offices (continued) 1994 Fort Mitchell, Kentucky (13) Lexington, Kentucky (13) Des Moines, Iowa (16) 1995 Kalamazoo, Michigan (14) Kingsport, Tennessee (15) 4 (1) See "Business - Affiliate Arrangements" for a description of Exclusive Territories and related limitations on activities of Company Offices and Affiliates. (2) Initially opened as an Affiliate in 1984. Acquired as a Company Office in 1992. (3) Initially opened as an Affiliate in 1986. Acquired as a Company Office in 1993. (4) Initially opened by the Brussels Affiliate in 1993. Acquired as a Company Office in 1994 (5) Acquired as a Company Office in 1994. (6) Initially opened and controlled by the Charlotte Affiliate in the following order: Charlotte (1986), Raleigh (1987), Greensboro (1989) and Greenville (1992). Acquired as a Company Office in 1994. (7) Initially opened as an Affiliate in 1990. Acquired as a Company Office in 1994. (8) Controlled by the Fort Lauderdale Affiliate. (9) Initially opened and controlled by the St. Louis Affiliate. Acquired by a new and separate Affiliate (Kansas City) in 1990. (10) Controlled by the Richmond Affiliate. (11) Controlled by the Kansas City Affiliate. (12) Controlled by the Knoxville Affiliate. (13) Controlled by the Cincinnati Affiliate. (14) Controlled by the Detroit Affiliate. (15) Controlled by the Knoxville Affiliate. (16) Controlled by the Kansas City Affiliate. (17) Acquired as Company Offices in 1995. 5 Management of Company Offices and Affiliates The Company believes that a decentralized approach of organizing its business into regional offices, in some cases with satellite offices reporting to them, allows the Company to be responsive to individual clients, as well as allowing it to better serve its local and regional markets. Each Company Office and Affiliate is responsible for marketing and sales, and consulting activities in its assigned region. Through the Company's Affiliate network arrangement, the Company's clients have access to the entire Company network of Company Offices and Affiliates. See "Business - Affiliate Arrangements." A "Regional Managing Principal" oversees each Company and Affiliate regional office and has the authority to develop and implement the regional marketing plan for the Company Offices or Affiliate offices in the region. The Company operates under an operating hub system to oversee its network of Company and Affiliate offices. Under this structure, the Regional Managing Principal reports to a Group Executive Vice President ("Group EVP") responsible for that operating unit. Each Regional Managing Principal of a Company Office currently receives, among other compensation, an annual salary and a bonus based on the operating income achieved in his or her respective region. Affiliate Arrangements The Basic Affiliate Relationship The Company has previously entered into agreements ("Affiliate Agreements") with Affiliates, which are independent franchisee businesses, to provide the Company's career management consulting services within the geographic area defined in each Affiliate Agreement (the "Exclusive Territory"). Affiliates render such services exclusively under the Company's registered service mark, "Right Associates(R)". Under the Affiliate Agreements, the Company assists the Affiliates in various ways in the provision of career management consulting services. See "Business - Affiliate Arrangements - Company Training of Affiliates" and "Affiliates' Payment of Fees and Royalties to Company." Under the Affiliate Agreements, the Company is precluded from establishing or maintaining Company Offices or otherwise soliciting customers, conducting its consulting business or licensing other Affiliates to operate in the Exclusive Territory of a particular Affiliate. In turn, the Affiliate is prohibited from establishing or maintaining its own offices or "satellites," soliciting customers or engaging in career management consulting within Exclusive Territories which the Company currently or in the future grants to other Affiliates or assigns to Company Offices. A Company Office or an Affiliate may, however, on a non-exclusive basis, perform sales and consulting activities in any territory that has not been made the Exclusive Territory of another Company Office or of an Affiliate. There is not a formal Affiliate organization; however, a Management Advisory Committee (the "Advisory Committee") exists which considers matters of general concern to the Affiliates. The Advisory Committee is comprised of four members appointed by the Company's management and three members elected by the Affiliates for a three year term. 6 Company Training of Affiliates The Affiliate Agreement requires the Company to train the Affiliate and its employees in the selling and the delivery of career management consulting services. The Company is responsible for overall guidance and has established Company standards and policies relating to its consulting services. The Company provides proprietary sales and consulting materials, administrative forms (including, among other things, guidelines for consulting client-employers and terminated employees), materials used in conjunction with marketing the consulting services and administration of its office and materials relating to the Company's system of monitoring the progress of terminated employees. The Company provides guidance, if requested by the Affiliates, with respect to the hiring of the Affiliate's employees, the use and development of sales programs and general issues of office operation and sales. The cost of such optional assistance by the Company is paid for by the Affiliate, unless the Company otherwise agrees not to charge for these services. The Company also provides marketing support, public relations advertising and promotional support, consisting of national and international media efforts directed by an in-house marketing staff. Affiliates' Payment of Fees and Royalties to Company In consideration of the Company providing services, training and licensing the use of its federally-registered service mark, the Affiliate generally pays to the Company the following fees (which are not in the order of their contribution to Company revenue): (1) a one-time non-refundable initial Affiliate (franchise) fee; (2) a 10% royalty on the Affiliate's total gross receipts; (3) a fee for services rendered in assisting the Affiliate in selling the Company's programs to the employer-client; and (4) a fee for services rendered in providing consulting services to terminated employees on certain contracts and accounts sold and managed by Affiliates. Term, Supervision and Termination of Affiliate Agreements The Company's Affiliate Agreements provide for an initial term of three or five years and are automatically renewed from year to year unless either party gives the other notice of non-renewal (which may be without cause) at least 120 days prior to the expiration of the then current term (unless a longer notice period is required by local franchise laws). During the term of the Affiliate Agreement, the Company may terminate the arrangement, subject to local franchise laws and cure periods specified in the Affiliate Agreements, for a variety of reasons, including a material breach of such Agreement by the Affiliate, the failure by the Affiliate to achieve at least 75% of the minimum volume of business set forth in its Affiliate Agreement in any year of the Affiliate's operation or the Affiliate's failure to otherwise conduct normal business operations diligently and regularly or to use its best efforts to sell and provide career transition consulting services, or the Affiliate's failure to adhere to the written service standards established by the Company in consultation with the Advisory Committee. Company may also terminate an Affiliate Agreement due to the death, disability or retirement of key Affiliate personnel or of principal stockholders of an Affiliate. 7 The Company has offered and implemented with substantially all of its existing North American Affiliates an addendum to their respective Affiliate Agreements. Under the terms of the addendum, the Company relinquishes its right to give notice of non-renewal of the Affiliate's Affiliate Agreement upon the expiration of its initial or one of its renewal terms. However, the Advisory Committee is empowered to terminate, upon specified grounds, the Affiliate Agreement of Affiliates who sign the addendum. In addition, the addendum permits the Company to terminate the Affiliate Agreement of any Affiliate if certain trends in the volume of business generated by the Affiliate deviate by more than specified amounts below the comparably defined trends for all North American offices of the Company and its Affiliates measured as a group. An Affiliate may terminate the Affiliate Agreement at any time (after a specified cure period) upon a material breach of the Affiliate Agreement by the Company. The Company has agreed with substantially all of its existing North American Affiliates that in the event the Company offers to any other North American Affiliate any provision in the Affiliate Agreement with such other North American Affiliate which is more beneficial to such other North American Affiliate than the terms of the existing Affiliate Agreements with the rest of the current North American Affiliates, then the new provision will be offered to all existing North American Affiliates, except for provisions added or deleted to (a) comply with a particular state or provincial law or regulation; (b) maintain in force prior agreements with specific Affiliates; or (c) address the unique nature or character of other businesses or activities engaged in by a specific Affiliate. Affiliates' Right of First Refusal Pursuant to the Affiliate Agreements, the Affiliates may have a right of first refusal to purchase shares of the Company's Common Stock in case of certain proposed sales or exchanges of the Company's Common Stock. Under the terms of the Affiliate Agreements, in the event that 51% or more of the Common Stock of the Company is proposed to be sold by one or more stockholders of the Company in a single transaction (exclusive of a corporate merger or consolidation in which the Company is not the surviving party and transactions in which the common stock of another company is exchanged for the Common Stock of the Company), the Affiliates may have a right of first refusal to acquire the Common Stock of the Company being sold under the same terms as the proposed transaction. 8 Acquisitions During 1995, the Company completed three separate acquisitions of outplacement consulting firms. Two of the transactions resulted in the Company acquiring the assets of former Affiliates of the Company, located in Cupertino, California and Providence, Rhode Island. The third transaction resulted in the Company acquiring the outstanding stock of LM&P, SA located in Paris, France. The total purchase price for these acquisitions aggregated approximately $8,150,000, including costs of acquisition. The acquisitions were consummated through combinations of cash, assumption of incomplete outplacement contracts and obligations to pay certain defined incentives based upon the results of the acquired entities subsequent to the transactions. During the period 1991 through 1994, the Company completed eight separate acquisitions of outplacement consulting firms for combinations of cash, future defined incentives, incomplete outplacement contracts and other considerations. The total purchase price for these transactions aggregated approximately $12,542,000 including costs of acquisition. Competition The Company competes against other providers of career transition consulting services and other human resource consulting services. The Company believes that, based on revenue, it, together with its Affiliates, is the second largest provider of career management services in the world, behind Drake Beam Morin, Inc., a subsidiary of Harcourt General, Inc. The Company believes that the principal methods of competition in its industry are quality of service, professional staff and price. On a regional basis, the Company competes against several outplacement and other human resource consulting firms that concentrate and are well-established in a particular region. The Company believes that the cost for its services is competitive, based on the quality and value of services offered. The Company may also face competition from future expansion by other entities into the career transition consulting services and other human resource consulting businesses. Government Regulation The offering of Affiliate Agreements to prospective Affiliates by the Company and certain aspects of the on-going relationship between the Company and the Affiliates are subject to the franchise regulations of the Federal Trade Commission (the "FTC") and to various franchise laws enacted by certain of the states in which the Company's Affiliates are located. FTC regulations require the Company to make certain specified disclosures to a prospective Affiliate prior to the consummation of any Affiliate arrangements. These disclosures generally relate to the Company, the business which is subject to the Affiliate Agreement and the terms of the Affiliate Agreement. The provisions and scope of the state laws vary. In some states, the Company is required to register the offering of the Affiliate Agreements with regulatory agencies and to license Company personnel who are directly involved in offering the Affiliate Agreement to prospective Affiliates. Some states also regulate certain terms of the Affiliate Agreement, primarily the terms upon which the Company can terminate an Affiliate Agreement for cause or can decline to renew an Affiliate Agreement after it expires. Other states' laws impose on the Company general duties of fair dealing with the Affiliates and prohibit unfair discrimination among or against Affiliates. As a result of such laws regulating relationships with the Affiliates in certain states, the Company has less flexibility than it would otherwise have in structuring such relationships. 9 Information Relating to Foreign Operations See the Company's Consolidated Financial Statements, Note J, "Geographic Segments", contained in the Company's Annual Report to Shareholders, for information regarding the Company's foreign operations. This information is responsive to Item 101(d) of Regulation S-K and is incorporated by reference herein. Employees At February 29, 1996, the Company and its subsidiaries employed 759 persons full-time, including 15 in senior management, 85 in other managerial and professional roles, 369 in field operations as consultants, and 290 in clerical capacities. In addition, the Company employed 264 persons on a part-time basis as professional consultants. Consultants are generally required to have prior executive or management experience and are provided Company training. None of the Company's employees are subject to collective bargaining agreements. The Company believes that its employee relations are good. Item 2: Properties The Company leases approximately 22,618 square feet for its corporate headquarters in the 1818 Market Street Building in Philadelphia, Pennsylvania. The initial term of the lease expires December 15, 2005 and is at an annual base rent of approximately $509,000, subject to annual operating expense escalation clauses. The Company has the option to extend the lease for an additional term of five years on the same terms and conditions, except that the rent will be changed to the then current market rate for the building. All office space for Company Offices is leased. The leases typically have three to five year terms and some have renewal options. The Company leases approximately 526,000 square feet for all Company Offices, including the corporate headquarters, at an aggregate base yearly rental of approximately $11,301,000. Most of these leases are also subject to annual operating expense escalation clauses. The Company believes its facilities are adequate. Item 3: Legal Proceedings The Company is not a party to, nor is its property the subject of, any material pending legal proceedings. Item 4: Submission of Matters to a Vote of Security Holders Not applicable. 10 Item 4a: Executive Officers of the Registrant Each of the following executive officers of the Company has been appointed by the Board of Directors and serves at the discretion of the Board. All of the executive officers are expected to devote their full business time to the Company's affairs.
Name Age Positions ----- --- --------- Richard J. Pinola 50 Chairman of the Board of Directors and Chief Executive Officer Frank P. Louchheim 72 Founding Chairman and Director Joseph T. Smith 60 President, Chief Operating Officer and Director G. Lee Bohs 36 Executive Vice President, Chief Financial Officer, Secretary and Treasurer Joseph E. Jannotta, Jr. 68 Executive Vice President, Career Management Consulting and Director Manville D. Smith 57 Executive Vice President of Business Development Larry A. Evans 53 Executive Vice President and Director Nancy N. Geffner 56 Group EVP - Greater New York Region and Director Victor V. Coppola 53 Group EVP - Mid-Atlantic U.S. Region Peter J. Doris 49 Group EVP - Southeast U.S. Region David S. Orr 61 Group EVP - North Central U.S. Region Warren R. Radtke 60 Executive Vice President - Northeast U.S. Region Gary L. Saenger 51 Executive Vice President - Southwest U.S. Region Terry W. Szwec 45 Executive Vice President - Canadian Region George L. Whitwell 55 Executive Vice President - Northwest and South Central U.S. Regions
11 Mr. Pinola was elected as a Director by the Board in October 1989. Mr. Pinola is a Certified Public Accountant and joined Penn Mutual Life Insurance Company in 1969 and was appointed Senior Vice President, Insurance Business in 1984. He was promoted to Executive Vice President of Insurance, Pensions and Marketing in 1987 and was appointed President and Chief Operating Officer in 1988, which positions he held until his resignation in September 1991. Mr. Pinola was a financial consultant to various organizations from September 1991 until July 1992, at which time he was appointed President and Chief Executive Officer of the Company. Effective January 1, 1994, Mr. Pinola was appointed Chairman of the Board of Directors and continues as Chief Executive Officer. Mr. Pinola also serves as a director on the Board of K-Tron International, a publicly held company. Mr. Louchheim was one of the founders of the Company and from November 1980 until September 1987, Mr. Louchheim served as President, Chief Executive Officer and Chairman of the Board of Directors of the Company. From January 1992 to December 31, 1993, he served as the full-time Chairman of the Board of Directors. Effective January 1, 1994, Mr. Louchheim was appointed Founding Chairman and continues as a Director. From 1963 to 1980, Mr. Joseph Smith was employed at the Penn Mutual Life Insurance Company, where he worked in increasingly responsible positions. He was appointed Second Vice President of Administrative Services in 1973, and in 1976 was promoted to Vice President of Administration and Human Resources. From 1981 to 1984, Mr. Smith worked as an independent consultant offering a range of consulting services to businesses. He joined the Company as a Senior Consultant in Professional Services in August 1984 and, from August 1988 until September 1992, held the position of Regional Managing Principal of the Company's Philadelphia Office. Mr. Smith was elected as a Director in May 1991. From September 1992 through December 1993, Mr. Smith served as the Company's Chief Operating Officer. Effective January 1, 1994, Mr. Smith was appointed President and continues as Chief Operating Officer. From June 1981 to January 1987, Mr. Bohs was employed at the regional Certified Public Accounting firm of Asher & Company, Ltd., initially as a staff accountant, and then as an accounting and auditing manager. He joined the Company as Manager of Financial Reporting in January 1987, and was elected Treasurer in December 1987 and Vice President, Finance, effective January 1989. From March 1991 until December 1995, Mr. Bohs served as Senior Vice President and Chief Financial Officer. He was appointed Secretary by the Board of Directors in May 1995. Effective January 1996, he was promoted to Executive Vice President and continues to serve as Chief Financial Officer. Mr. Joseph E. Jannotta was appointed Director by the Board in October 1994. For 25 years Mr. Jannotta worked for Jewel Companies, Inc., a multibillion retailing conglomerate. He had roles in sales and management development, and he spent his last five years as Vice President of Human Resources of Osco Drug, the second largest U.S. drug store chain. From 1975 to 1978, Mr. Jannotta was an owner and operator of a Company that introduced Yoplait Yogurt to the U.S., until it was sold to General Mills in 1978. In 1978, Mr. Jannotta founded Jannotta, Bray & Associates, Inc. a $17 million career management consulting firm where he served as Chairman until the Company acquired it in September 1994. 12 Mr. Manville Smith worked for the 3M Company where he had a twenty year career in a variety of positions, including Managing Director for several international subsidiaries and operations. Subsequently, Mr. Smith went to work for the Parker Pen Company where he served as Vice President of Strategic Planning from July 1980 to April 1981. In April 1981, Mr. Smith was promoted to President of the Parker Pen Company with worldwide responsibility for this manufacturer of quality writing instruments, where he served until July 1984. From July 1984 until July 1988, Mr. Smith provided strategic planning consulting to various organizations. In 1988, Mr. Smith joined the operations of the Company's Florida Affiliate as Executive Director, where he provided consulting services. In July 1994, Mr. Smith joined the Company as Executive Vice President, Business Development, responsible for strategic business development on a worldwide basis. Prior to May 1978, Mr. Evans was professionally involved in the international finance and venture capital industries. From May 1978 to November 1980, Mr. Evans was employed as an independent outplacement consultant for Bernard Haldane Associates, Inc., reporting to Mr. Louchheim. Since November 1980, Mr. Evans has served as Executive Vice President and a Director of the Company. In January 1988, Mr. Evans was named Regional Sales Manager of the New York City Office and, in January 1990, Mr. Evans was named Regional Managing Principal of the Company's Stamford, Connecticut Office. From September 1992 until April 1995, Mr. Evans held the position of Regional Managing Principal of the Company's Philadelphia Office. In May 1995 Mr. Evans joined the Company's Corporate office where he works together with the Company's regional offices in marketing to major national and international accounts. From August 1979 to February 1981, Ms. Geffner was a Career Consultant with Bernard Haldane Associates, Inc. Since March 1981, Ms. Geffner has served as Regional Managing Principal of the Company's New York City Office. In June 1983, Ms. Geffner was elected to the Board of Directors and in December 1983 was named an Executive Vice President of the Company. In 1993, Ms. Geffner took on the additional responsibilities of directing the Company's Key Executive Service program, the consulting program for senior executives, throughout the United States and Canada. Effective January 1996, Ms. Geffner resigned from this role and was appointed Group EVP for the Greater New York Region. From 1967 to 1995, Mr. Coppola was employed by Coopers & Lybrand LLP, where he served in various capacities including Human Resources Partner at the New York office, Managing Partner at the firm's Baltimore office, National Director of Middle Market Business Services and finally, Partner in the Middle Market Group in the Philadelphia office. Mr. Coppola is a co-author of the book Coopers & Lybrand Guide to Growing Your Business and the recipient of the Blair Thompson Award for his support of entrepreneurism in the Philadelphia metropolitan area. In May 1995, Mr. Coppola joined the Company as the Regional Managing Principal of the Company's Philadelphia region. In addition to this role, effective January 1, 1996, Mr. Coppola was appointed Group EVP for the Mid-Atlantic U.S. Region. Prior to joining Right Associates, Mr. Doris was Senior Vice President of Human Resources for a large New York City based bank. From 1986 to 1990, Mr. Doris was Senior Vice President, Sales and Operations of the Company. Effective January 1991, he became a Group EVP in which capacity he is currently responsible for the Southeast U.S. Region. 13 Prior to 1990, Mr. Orr had a thirty one year career in the telecommunications industry in which he was a senior officer for Indiana Bell, Vice President - Regional Business Services for AT&T, Vice President - Marketing Planning with Ameritech Services and, finally, President of Ameritech Communications. In 1990, Mr. Orr joined Jannotta, Bray & Associates as an Executive Program Consultant, a position he held until it was acquired by the Company in September 1994. Subsequent to the acquisition, Mr. Orr served as Regional Managing Principal for the Chicago Region of Right/Jannotta Bray until February 1995 when he was promoted to Group EVP in which capacity he is currently responsible for the North Central U.S. Region. From 1965 to 1980, Mr. Radtke was the owner of an independent human resource consulting firm specializing in executive outplacement, performance appraisal systems, career management, organizational development and management assessments. He joined the Right Associates(R) network in 1980 as the Regional Managing Principal of the Boston, Massachusetts Affiliate office. Mr. Radtke joined the Company in December 1992 and through December 31, 1993 served as the Regional Managing Principal of the Company's Boston region. Effective January 1, 1994, Mr. Radtke became Group EVP for the Northeast U.S. Region and continues to serve as Regional Managing Principal of the Company's Boston region. Mr. Saenger spent over ten years with American Hospital Supply Corporation, where he served in various human resources functions at the senior management level. From 1982 to 1985, Mr. Saenger was with Transaction Technology Incorporated, a subsidiary to CitiCorp, where he managed the human resources function. From 1985 to 1991, Mr. Saenger was Senior Vice President of Security Pacific Automation Company, Inc., a subsidiary of Security Pacific Corporation, where had full responsibility for human resource policy and implementation. In 1991, Mr. Saenger joined the Company as the Regional Managing Principal of the Company's Los Angeles region. Effective February 1995, Mr. Saenger became Group EVP for the Southwest U.S. Region. Mr. Saenger has an M.A. in Personnel from Idaho State University. Mr. Szwec was employed as Product Manager for Bristol Myers Canada, Ltd. from 1969 until 1970, when he left to become Manager of Training and Development for de Havillard Aircraft, Ltd. In 1976, Mr. Szwec became Director of Human Resources for Control Data Canada, Ltd., where he stayed until 1986 when he began his own consulting practice specializing in executive training and development, human resources effectiveness and career planning. Mr. Szwec joined the Right Associates(R) network in 1987 as then Regional Managing Principal of the Toronto Affiliate office. Mr. Szwec joined the Company in November 1990 as Regional Managing Principal of the Company's Toronto region. Effective January 1, 1994, Mr. Szwec became Group EVP for the Canadian Region and continues to serve as the Regional Managing Principal of the Company's Toronto region. From July 1968 to February 1983, Mr. Whitwell held various management positions, including Director of Outplacement for Fox-Morris Associates, Inc., a Philadelphia, Pennsylvania-based personnel consulting firm. From February 1983 to June 1986, Mr. Whitwell served as Senior Vice President, Field Operations, of the Company. Mr. Whitwell was a Director of the Company from March 1985 to May 1991 and from June 1986 to September 1987 was Executive Vice President, Field Operations of the Company. For the period October 1987 through December 1990, Mr. Whitwell served as the Regional Managing Principal of the Company's Parsippany, New Jersey office. Effective January 1991, he became a Group EVP in 14 which capacity he is currently responsible for the Northwest and South Central U.S. Regions. Mr. Whitwell also serves as the Regional Managing Principal of the Company's San Francisco region. Each executive officer has been elected for a term expiring with the first Board of Directors' meeting held after the next annual meeting of shareholders. PART II Item 5: Market for Registrant's Common Equity and Related Stockholder Matters Incorporated by reference is the information appearing under the caption "Common Stock Data" in the Company's 1995 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 6: Selected Financial Data Incorporated by reference is the information appearing under the caption "Selected Financial Data" in the Company's 1995 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this report. Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference is the information appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1995 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 8: Financial Statements and Supplementary Data Incorporated by reference is the information appearing under the caption "Consolidated Balance Sheets", "Consolidated Statements of Income", Consolidated Statements of Stockholders' Equity", Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" in the Company's 1995 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 15 PART III The information called for by Items 10 through 13 of Form 10-K (except for the information set forth on pages 11-14 with respect to Executive Officers of the Registrant) is hereby incorporated by reference to the information set forth under the captions "Election of Directors", "Executive Compensation", "Voting Securities, Voting Rights and Security Ownership" and "Ratification of Appointment of Independent Certified Public Accountants" contained in the Company's definitive Proxy Statement with respect to its 1996 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year. PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial statements The following is a list of financial statements which have been incorporated by reference from the Company's 1995 Annual Report to Shareholders, as set forth in Item 8: Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Income for each of the three years in the period ended December 31, 1995 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1995 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1995 Notes to Consolidated Financial Statements 2. Financial statement schedule Report of Independent Public Accountants Schedule II - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, not required, or because the required information is contained in the Company's consolidated financial statements or the notes thereto. 3. Exhibits required to be filed by Item 601 of Regulation S-K: 16 INDEX TO EXHIBITS Exhibit No. 3.1. Company's Articles of Incorporation, together with all amendments thereto, (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 3.2. Company's By-Laws (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1988, filed March 30, 1989). 10.01 Agreement among Right Management Consultants, Inc. and Right Human Resources Consultants, Inc., dated December 26, 1984 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.02 Agreement among Right Management Consultants, Inc. and Midwest Reemployment Consultants, Inc. dated February 15, 1985 (incorporated by reference the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.03 Agreement among Right Management Consultants, Inc. and Human Resources, Inc., dated December 26, 1984 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.04 Form of Incentive Stock Option Plan, adopted by the Company's shareholders on November 24, 1986, to be effective as of September 8, 1986 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 10.05 Non-Qualified Stock Option Plan, adopted, as of April 30, 1984 (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). 10.06 1986 Shareholders' Agreement (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 10.07 401(k) Savings Plan (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). * 10.08 Amendment to Employment Agreement between Right Management Consultants, Inc. and Frank P. Louchheim, dated January 1, 1992 (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1991, filed March 30, 1992). * 10.09 Supplemental Deferred Compensation Plan for Richard J. Pinola, dated July 1, 1992 (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1991, filed March 30, 1992). * 10.10 Further Amendment to Amended and Restated Employment Agreement between Right Management Consultants, Inc. and Frank P. Louchheim dated February 16, 1993. * 10.11 1993 Stock Option Plan (incorporated by reference as Exhibit 4 filed in the Company's report on Form S-8 (File No. 33-58698), filed February 23, 1993). * 10.12 Purchase Agreement dated September 1, 1994 by and between Registrant and Jannotta, Bray and Associates, Inc. (Schedules omitted) (incorporated by reference to the Company's Form 8-K, dated September 1, 1994). 10.13 Employment Agreement dated September 1, 1994 by and between Registrant and Joseph E. Jannotta, Jr. (incorporated by reference to the Company's Form 8-K, dated September 1, 1994). * * These documents are compensatory plans or agreements required to be filed as Exhibits. 17 10.14 Employment Agreement dated September 1, 1994 by and between Registrant and Harold B. Bray, Jr. (incorporated by reference to the Company's Form 8-K, dated September 1, 1994). * 10.15 Employment Agreement dated September 1, 1994 by and between Registrant and David Maguire (incorporated by reference to the Company's Form 8-K, dated September 1, 1994).* 10.16 Restrictive Covenant dated September 1,1994 by and between Registrant and Joseph E. Jannotta, Jr. (incorporated by reference to the Company's Form 8-K, dated September 1, 1994). * 10.17 Restrictive Covenant dated September 1,1994 by and between Registrant and Harold B. Bray, Jr. (incorporated by reference to the Company's Form 8-K, dated September 1, 1994). * 10.18 Amended and Restated Revolving Credit and Term Loan Agreement between Right Management Consultants, Inc., et al and PNC Bank, National Association, dated June 30, 1994, with modifications dated August 26, 1994 and November 16, 1994. 10.19 $5,000,000 Term Note between Right Management Consultants, Inc. and its wholly-owned subsidiaries and PNC Bank, National Association, dated August 26, 1994. 10.20 Lease Agreement between Metropolitan Life Insurance Company and Right Management Consultants, Inc., dated October 18, 1983 and amended on August 12, 1986; November 6, 1987; and July 15, 1991. 10.21 Purchase Agreement dated February 15, 1995 by and between Registrant and Worth Associates, Inc. and Robert A. Fish (incorporated by reference to the Company's report on Form 10-Q for the quarter ended March 15, 1595, filed May 15, 1995). 10.22 1993 Stock Incentive Plan, as amended (incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders held on May 4, 1995).* 10.23 Director's Stock Option Plan of the Company (incorporated by reference to the Company's Proxy Statement for Annual Meeting of Shareholders held on May 4, 1995).* 10.24 Fifth Modification Agreement to the June 30, 1994 Amended and Restated Revolving Credit and Term Loan Agreement between Right Management Consultants, Inc., et al and PNC Bank, National Association, dated August 31, 1995 (incorporated by reference to the Company's report on Form 10-Q for the quarter ended September 30, 1995, filed November 14, 1995). 10.25 Employment Agreement dated December 12, 1995 by and between Right Management Consultants, Inc. and Richard J. Pinola. * 10.26 Employment Agreement and Supplemental Deferred Compensation Plan dated December 12, 1995 by and between Right Management Consultants, Inc. and Joseph T. Smith. * 11. Consolidated Earnings per Share Calculations. * 13. Portions of the Company's 1995 Annual Report to Shareholders expressly incorporated by reference. * These documents are compensatory plans or agreements required to be filed as Exhibits. 18 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP. 27. Financial Data Schedule+ (b) Report on Form 8-K. The Company did not file any reports on Form 8-K during the last quarter of the period covered by this report. +Filed in electronic form only. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RIGHT MANAGEMENT CONSULTANTS, INC. By: /s/ Richard J. Pinola --------------------------------- Richard J. Pinola, Chairman of the Board and Chief Executive Officer Dated: March 29, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ Richard J. Pinola Chairman of the Board -------------------- and Chief Executive Officer March 29, 1996 Richard J. Pinola /s/ G. Lee Bohs Chief Financial - ------------------------ Officer and Principal G. Lee Bohs Accounting Officer March 29, 1996 /s/ Frank P. Louchheim - ------------------------ Director March 29, 1996 Frank P. Louchheim /s/ Joseph T. Smith - ------------------------ Director March 29, 1996 Joseph T. Smith /s/ John R. Bourbeau - ------------------------ Director March 29, 1996 John R. Bourbeau /s/ Larry A. Evans - ------------------------ Director March 29, 1996 Larry A. Evans /s/ Nancy N. Geffner - ------------------------ Director March 29, 1996 Nancy N. Geffner /s/ Joseph E. Jannotta, Jr. - ------------------------ Director March 29, 1996 Joseph E. Jannotta, Jr. /s/ Raymond B. Langton - ------------------------ Director March 29, 1996 Raymond B. Langton /s/ Rebecca J. Maddox - ------------------------ Director March 29, 1996 Rebecca J. Maddox /s/ Catherine Y. Selleck - ------------------------ Director March 29, 1996 Catherine Y. Selleck
20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To Right Management Consultants, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of Right Management Consultants, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated January 31, 1996. Our audits were made for the purpose of forming an opinion on those financial statements taken as a whole. The schedule listed in Item 14(a)(2) is the responsibility of the Company's management. This schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the audit procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Philadelphia, Pennsylvania January 31, 1996 Right Management Consultants, Inc. Schedule II - Valuation and Qualifying Accounts and Reserves For the Years 1995, 1994 and 1993
Additions ------------------------------- Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Descripition Year Expenses Accounts Deductions Year - ------------ ---- -------- -------- ---------- ---- 1995: - ---- Allowance for doubtful accounts $651,000 $400,000 -- $297,000 (1) $754,000 Deferred income tax asset valuation reserve $391,000 -- -- $391,000 (3) -- 1994: - ---- Allowance for doubtful accounts $794,000 $ 75,000 -- $218,000 (1) $651,000 Deferred income tax asset valuation reserve $583,000 -- -- $192,000 (3) $391,000 1993: - ---- Allowance for doubtful accounts $318,000 $485,900 -- $9,900 (1) $794,000 Deferred income tax asset valuation reserve -- $134,000 $449,000 (2) $583,000
(1) Accounts deemed to be uncollectible. (2) Cost incurred with the adoption of SFAS 109 as of January 1, 1993. See the Company's Consolidated Financial Statements, Notes A and E for further explanation. (3) Reduction due to the the utilization, benefit and expiration of certain foreign net operating losses. EXHIBIT INDEX Exhibit No. Exhibit - ---------- ------- 10.25 Employment Agreement dated December 12, 1995 by and between Right Management Consultants, Inc. and Richard J. Pinola. 10.26 Employment Agreement and Supplemental Deferred Compensation Plan dated December 12, 1995 by and between Right Management Consultants, Inc. and Joseph T. Smith. 11. Consolidated Earnings per Share Calculations. 13. The Company's 1995 Annual Report to Shareholders, portions of which are incorporated by reference. 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP. 27. Financial Data Schedule+ +Filed in electronic form only. EX-10.25 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 12th day of December, 1995, by and between RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania corporation (hereinafter called "Company"), and RICHARD J. PINOLA, an individual (hereinafter called "employee"). WITNESSETH: Company desires to employ Employee, and employee desires to be employed by Company, on the terms and conditions hereinafter stated. NOW THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, Company and Employee agree as follows: 1. Employment. Company hereby employs Employee and employee hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement. 2. Office and Duties. (a) Employee shall serve Company as its Chairman of the Board and Chief Executive Officer ("CEO"), and, subject to continued election thereto by the Company's shareholders, as a member of Company's Board of Directors (the "Board"). The powers, authority and duties of the offices of Chairman and CEO of Company shall be those customary to such offices with corporations comparable to Company. (b) Throughout the term of this Agreement, Employee shall devote his entire working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Company. 3. Term. (a) The initial term of Employee's employment with Company under this Agreement shall be as of January 1, 1996 and continuing up to and through December 31, 1998. (b) Unless either party gives written notice of its intention to terminate Employee's employment under this Agreement at the end of the initial or any renewal term by giving the other party such notice, at least one hundred twenty (120) days prior to the expiration of the then current term, employee's employment under this Agreement shall be deemed to have been renewed for an additional term of one (1) year commencing on the day after the expiration of the then current term. Notwithstanding the foregoing, employee's employment with Company will not be renewed under this Agreement on or after December 31 of the calendar year in which Employee reaches sixty-five (65) years of age. 1 (c) Notwithstanding the provisions of Sections 3(a) and 3(b) hereof, in the event that: (i) a "controlling interest" in the capital stock of Company is sold in a single transaction or a group of related transactions to one or more buyers acting in concert; (ii) Company sells all or substantially all of its assets; or (iii) Company is a party to any corporate merger or consolidation in which one or more parties acting in concert who did not previously hold a "controlling interest" in the capital stock of Company acquires or acquire such a "controlling interest" in the capital stock of Company or its successor entity (each such a event to constitute a "Change in Control"), Employee may, upon written notice to Company within sixty (60) days of such Change in Control, elect to: (A) continue his employment with Company for the greater of the then current term or a period that expires two years from the date of the Change in Control; or (B) voluntarily terminate his employment with Company and receive severance compensation as if this were a "Compensated Termination" pursuant to Section 6 hereof for a "Section 6 Period" that expires upon the later of the date the then current term would have expired but for the earlier termination described herein or two years from the date of the Change in Control. In the event that Employee elects to remain employed by Company pursuant to (A) above, the total amounts payable annually to employee for the period described in (A) shall be not less than the greater of: (I) the total amount of the Base Salary and Incentive Payments paid under Sections 4(a) and 4(b) during the 12-month period for the calendar year immediately preceding the Change in Control; or (II) Four Hundred and Fifty Thousand ($450,000) Dollars. For the purposes of this Section 3(c), a "controlling interest" in the capital stock will constitute that number of shares which, as a practical matter, permits the holder or holders to elect a majority of the members of the Board. It is agreed that shares of capital stock possessing the right to cast a majority or more of the votes entitled to be cast for the election of directors of Company shall conclusively constitute a "controlling interest", but that a block of shares possessing the right to cast less than a majority of the number of votes entitled to be voted may, under the circumstances then pertaining, constitute a "controlling interest". 4. Compensation and Benefits. (a) Base Salary. For all of the service rendered by Employee to Company, Employee shall receive a base salary (the "Base Salary") payable at an annual rate equal to $450,000. Such Base Salary shall be payable in reasonable periodic installments in accordance with Company's regular payroll practices in effect from time to time. Employee's Base Salary is subject to annual review and adjustment at the discretion of Company, but in no event shall Company reduce the Base Salary to less than the amount specified above during the periods referred to without the consent of employee. 2 (b) Incentive Payments. In addition to the Base Salary, throughout the term of Employee's employment with Company hereunder, Company shall pay to Employee annually, a cash bonus as incentive compensation based upon Company's financial performance for that year ("Incentive Payments") in such amounts as are decided upon by the Board or its Compensation Committee. Any and all bonuses shall be determined based upon target and comparison that are consistent with those to be used by the Board in determining the amounts payable under Company's Incentive Compensation Plan for Senior Corporate Staff. In the event that the employment of Employee terminates otherwise than pursuant to this Section 4(b) or Section 6 hereof, on a day other than the last day of a fiscal year of Company, in addition to Base Salary and other payments accrued through the effective date of the termination, Company shall pay to Employee the "pro rata portion" (as hereafter defined) of the Incentive Payments which would have been due to Employee if he had remained in the employ of Company for the full fiscal year in which his employment terminated. For purposes of the immediately preceding sentence, the "pro rata portion" shall be obtained by dividing the number of days (including intervening weekend days and holidays) in the fiscal year that Employee was employed by Company by the number 365. (c) Fringe Benefits. Throughout the term of this Agreement and as long as they are kept in force by Company, employee shall be entitled to participate in and receive the benefits of any profit sharing or retirement plans and any health, life, accident or disability insurance plans or programs made available to other similarly situated employees of Company and shall be entitled to participate in the Supplemental Deferred Compensation Program attached as Exhibit "A" to the Employment Agreement dated July 1, 1992, by and between Company and Employee, but the participation of employee, if any, in Company's stock option, stock appreciation, "phantom" stock plans or similar plans, will be wholly within the discretion of the Board, or a committee of the Board which administers any plan. With respect to the term of Employee's employment with Company under this Agreement, the Board has not made any determination with regard to Employee's participation in any stock option, stock appreciation, "phantom" stock plans or similar plans. However, the Company shall consider each year whether or not Employee shall be awarded any stock options. Company may, at its sole discretion add, delete or change any stock option, stock appreciation, or phantom stock plans that Employee may participate in upon notice to Employee. If this Agreement is not renewed by Company after the expiration of the then current term, Company shall provide to Employee outplacement consulting services then generally being made available by Company to executive candidates. (d) Vacation. Employee shall be entitled to vacation in accordance with Company's general policies with respect thereto from time to time. (e) Automobile. During the term of Employee's employment with Company under this Agreement, Company shall furnish Employee with the use of a luxury automobile, insurance thereon, and the costs of fuel, maintenance and necessary repairs as incurred. Employee shall be permitted unrestricted use of such automobile without the obligation to account or reimburse Company for any personal use thereof. During the same period, Company shall provide Employee, at no cost to Employee, one private-reserved covered parking space located in or close to the building in which Employee's office is located. 3 (f) Accounting Services. At an appropriate time each year during the term of Employee's employment with Company under this Agreement, Company shall make available to Employee, at no cost to Employee, the services of the certified public accounting firm which audits Company's financial statements for the purpose of preparing all of Employee's federal, state and local income tax and estimated income tax returns for such year and counselling Employee with respect thereto. Employee hereby acknowledges that Company shall bear no responsibility for the accuracy, quality or completeness of any such tax returns prepared by such certified public accounting firm. (g) Financial Planning Services. During the term of Employee's employment with Company under this Agreement, Company shall furnish Employee, at no cost to Employee, ten (10) hours per year of financial counselling services. The services shall be rendered by any national accounting firm or firms with which Company from time to time has an ongoing relationship for the purpose of providing financial counselling in conjunction with Company's outplacement services, providing that such firm has a Philadelphia, Pennsylvania office, or if and for as long as there is no such firm, by a financial counsellor or financial counselling firm selected by Employee and approved by Company. (h) Withholding Taxes. The Base Salary, Incentive Payments and all other cash and non-cash payments to Employee hereunder shall be subject to, and paid net of all applicable withholding requirements of federal, state and local law. 5. Expenses. Company will reimburse Employee for all reasonable expenses incurred by Employee in connection with the performance of Employee's duties upon receipt of vouchers therefore and in accordance with Company's regular reimbursement procedures and practices in effect from time to time. 6. Severance Compensation. (a) In the event of a "Compensated Termination" (as that term is defined below), Company shall pay Employee as severance compensation, payable in equal monthly installments (with properly pro rated payments for periods of less than a full month) during the "Section 6 Period" (as that term is hereafter as defined), an amount equal to the greater of: (i) the Base Salary plus Incentive Payments paid to Employee during the 12 month period immediately preceding such Compensated Termination; or (ii) Four Hundred Fifty Thousand ($450,000) Dollars. As used herein the term "Compensated Termination" shall mean any one of the following events: I. Company elects to terminate Employee's employment under this Agreement pursuant to the provisions of Section 3(b) hereof at the end of the initial term or any renewal tern hereof; II. Company at any time other than the end of initial term or any renewal term hereof terminates the employment of Employee under the Agreement, otherwise than as provided in Section 10 ("Discharge for Cause") hereof; or 4 III. Employee terminates his employment with Company pursuant to Section 11 hereof. As used herein, the term "Section 6 Period" shall mean the longer of: (i) one year from the date a Compensated Termination occurs; or (ii) the period beginning on the date a Compensated Termination occurs and ending on the date upon which the then current term of Employee's employment with Company, as such term may have been extended pursuant to Section 3(c) hereof, would have ended but for the occurrence of the Compensated Termination. (b) In the event of a Compensated Termination, for the entire Section 6 Period, Company shall continue to provide, at no cost to Employee, life, medical and dental insurance to Employee providing coverages equal to the coverages made available to Employee and his dependents on the date of the termination of his employment. (c) In the event that any part of any payment or benefit to Employee under Sections 6(a) and 6(b) of the Agreement or under this Section 6(c) or any other payment made or benefit conferred by Company to Employee constitutes an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and any regulations or other authorities relating thereto, but excluding payments which are described in Section 280G(b)(2)(B) of the Code, Company will pay to Employee as additional compensation (i) the amount of all taxes due from Employee under Section 4999 of the Code and (ii) the amount equal to all federal, state and local income taxes and business privilege taxes based upon net income (collectively, the "Taxes") due from Employee upon all payments made by Company to Employee under this Section 6(c). It is the intention of the parties that Employee receive all payments and benefits from Company net of the tax under Section 4999 of the Code and net of all taxes due upon all payments under this Section 6(c), and the terms of this Section 6(c) shall be construed and implemented by the parties to effectuate this intent. (d) Notwithstanding anything to the contrary contained above in this Section 6 or any other portion of this Agreement, the Company shall not be required to make any of the payments or provide any of the other benefits set forth above in this Section 6 or otherwise on account of any Compensated Termination unless and until Employee has, if the Company so requests after Employee's termination, resigned from the Boards of Directors (and/or any committees thereof) of the Company and any affiliates of the Company, all as requested by the Company. 7. Disability. (a) If Employee becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, Company will continue the payment of Employee's total compensation at its then current rate for a period of three (3) months following the date Employee is first unable to perform his duties due to such disability or incapacity. Thereafter, Company shall have no obligation for the Base Salary or other compensation payments to Employee during the continuance of such disability or incapacity, except that Company shall pay to Employee, based upon the portion of the calendar year that Employee was able to perform his duties prior to the disability, the pro rata portion of the Incentive Payments that Employee would have earned if he had remained in the employ of the Company for the full calendar year (payable at such time that Employee would have received such Incentive Payment). Employee shall receive such benefits, if any, as are then provided under Company's standard disability coverage provided to employees generally, if and only if the same is then in effect. 5 (b) If Employee is unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause for a period of six (6) consecutive months, Company shall have the right to terminate this Agreement at any time thereafter, in which event Company shall have no further obligations or liabilities hereunder after the date of such termination. 8. Death. If Employee dies, all payments hereunder shall continue for a period of three (3) months after the end of the week in which Employee's death shall occur, at which point such payments shall cease and Company shall have no further obligations or liabilities' hereunder to Employee's estate or legal representative or otherwise, except that Company shall pay to Employee's estate or legal representative, based upon the portion of the calendar year that Employee was employed by Company prior to his death, the prorated portion of the Incentive Payments Employee would have earned if he had remained in the employ of Company for the full calendar year (payable at such time that Employee would have received such Incentive Payment). 9. Non-Competition, Trade Secrets, etc. (a) During the term of this Agreement and for a period of two (2) years after the termination of such Agreement, Employee shall not directly or indirectly induce or attempt to influence any employee of Company to terminate his employment with Company and shall not engage in (as a principal, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business operating within the continental United States, which business is involved in business activities which are the same as, similar to or in competition with business activities carried on by Company, or being definitely planned by Company, at the time of such termination. For purposes of this Section 9, Company's business activities shall include, without limitation, the following: corporate outplacement, consulting, and career consulting for employees, including spouse placement, career assessment, second career planning, and career options planning, career development, and consulting or the subjects of termination, severance policies, and retirement planning, reporting, evaluation, advisory, and communications services, and other human resources consulting and personnel services to client organizations; and any other such products, programs, and services as Company may hereafter commence marketing in the area of human resource consulting. (b) For a similar period of two (2) years after termination of this Agreement, Employee shall not contact directly or indirectly or cause to be contacted directly or indirectly any clients or customers of Company for the purpose of competitively soliciting business in competition with Company. Without limiting the foregoing, for a period of two (2) years after termination of this Agreement, Employee shall not competitively solicit business from clients, customers or competitors of Company within the continental United States through the means or use of property in which Company has an ownership interest or a license pursuant to Section 9(d) hereof. (c) During the term of this Agreement and at all times thereafter, Employee shall not use for Employee's personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or other knowledge or processes used or developed by Company or any name or addresses of customers or clients or any data on or relating to past, present or prospective customers or clients or any other confidential information relating to or dealing with the business operations or activities of Company, made known or learned or acquired by Employee while in the employ of Company. 6 (d) Any and all writings, inventions, improvements, computer programs, processes, procedures or techniques (hereinafter "Inventions") which Employee may make, discover or develop either solely or jointly with any other person or persons (hereinafter "Co-Inventor(s)") at any time during the term of and as part of his employment with Company which relate to any business being conducted or carried on by Company at the time of invention shall be the sole and exclusive property of Company, subject to the rights of the Co-Inventor(s) in the Inventions. Any and all Inventions which Employee may make, discover or develop either solely or jointly with any Co-Inventor(s) other than a part of his employment with Company which are useful in connection with any business being conducted, carried on or definitely planned by Company at the time of invention shall be subject to a perpetual license to Company, subject to any rights of Co-Inventor (s). The amount of the royalty shall be agreed upon by Company and Employee. In the event that they cannot agree, such royalty shall be determined by arbitration by three arbitrators, one selected by Company, one selected by Employee and the third selected by the first two arbitrators. During the term of this Agreement, Employee shall make full disclosure to Company of all such Inventions. It shall be presumed that any Inventions which Employee shall make, discover or develop either solely or jointly with any Co-Inventor(s) during the two-year period after termination of his employment with Company shall have been developed in part during the term of employment, and Employee shall have the burden of proof in demonstrating that no such development occurred during such term of employment. With respect to those Inventions as to which Company is to acquire title hereunder, Employee shall do everything necessary or desirable to vest such title in Company, and Employee shall write and prepare all specifications and procedures regarding such Inventions and otherwise aid and assist Company so that Company can prepare and present applications for copyrights or patents therefor and can secure such copyrights or patents wherever possible, as well as reissues, renewals and extensions thereof, and can obtain record title to such copyright or patents in all countries in which it may desire to have copyright or patent protection. Employee shall not be entitled to any additional or special compensation for rights to Inventions which Company acquires hereunder. (e) Employee also agrees, during the term of this Agreement and thereafter, not to disparage or deprecate, directly or indirectly, the reputation, professionalism, character, competence, integrity or motives of the Company, any subsidiary or any affiliate thereof, or any of their officers, trustees, directors, employees, attorneys, agents or family members. (f) Employee acknowledges that the restrictions contained in this Section 9, in view of the nature of the business in which Company is engaged, are reasonable and necessary in order to protect the legitimate interests of Company, and that any violation thereof would result in irreparable injuries to Company, and Employee therefore acknowledges that, in the event of his violation of any of these restrictions, Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief a well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights will be cumulative and in addition to any other rights or remedies to which Company may be entitled. (g) If the period of time or the area specified in this Section 9 should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof or both so that such restrictions may be enforced in such area and for such time as is adjudged to be reasonable. If Employee violates any of the restrictions contained in the foregoing subparagraph (a), the restrictive period shall not run in favor of Employee from the time of the commencement of any such violation until such time as such violation shall be cured by Employee to the satisfaction of Company. 10. Discharge for Cause. Company may discharge Employee at any time for criminal conduct (whether or not related to Employee's employment), gross negligence, any violation of any express direction or any reasonable rule or regulation established by Company's Board from time to time regarding the conduct of its business, or any violation by Employee of the terms and conditions of this Agreement, in which event Company shall have no further obligations or liabilities hereunder after the date of such discharge. 7 11. Compensated Termination by Employee. The occurrence of any of the following events shall give Employee grounds to effect a Compensated Termination under Section 6 hereof: (a) Employee is not elected or reelected, as the case may be, to the executive offices of Company when and as specified in Section 1 hereof or his responsibilities as an executive officer, employee and Board member of Company are materially changed by Company without Employee's prior written consent; (b) At any time during the term of his employment with Company, the removal of Employee from membership on the Board or the failure of the shareholders of Company to reelect Employee to the Board; (c) Company, without the consent of Employee, relocates its corporate headquarters offices outside of the Philadelphia Metropolitan Statistical Area, as such term is defined by the Office of Management and Budget, or bases Employee elsewhere than in its corporate headquarters offices; (d) Any material reduction in the facilities, staff and support services made available to Employee by Company at any time provided that such reduction was made without the consent of Employee. Employee may effect a Compensated Termination only if Employee shall terminate his employment with Company for any of the reasons set forth within thirty (30) days of the date he discovers the existence of the event which gives rise to his right of termination, by giving notice of termination to Company. 12. Indemnification. At all times during and after Employee's employment with Company, Company shall indemnify Employee against expenses (including legal fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him, to the extent now or hereafter permitted by law and Company's By-Laws, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, brought or threatened to be brought against him, including actions or suits by or in the right of Company, by reason of the fact that he is or was a director, officer, employee or agent of Company, its parent or any of its subsidiaries, or acted as a director, officer, employee or agent or in any other capacity on behalf of Company, its parent or any of its subsidiaries or is or was serving at the request of Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, provided that Employee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of Company and, with respect to any criminal proceeding, Employee had no reasonable cause to believe his conduct was unlawful. Company shall pay expenses incurred by Employee in defending such a civil or criminal action, suit or proceeding in advance of the final disposition of such suit or proceeding upon receipt of an undertaking by or on behalf of Employee to repay such amount if it is ultimately determined that he is not entitled to be indemnified by Company as authorized by Company's By-Laws or by law. 8 13. Travel. In all travel for Company to locations two thousand (2,000) miles or more distant from Philadelphia, Pennsylvania, Employee shall be entitled to business class travel accommodations at his option; for travel for Company to locations five thousand (5,000) miles or more distant from Philadelphia, Pennsylvania, Employee shall be entitled to first class accommodations at his option. 14. Company Property. (a) All counseling, advertising, sales, and other materials or articles of information, including without limitation data processing reports, customer sales analyses, invoices, price lists or information, samples or any other materials or data of any kind furnished to Employee by Company or developed by Employee on,behalf of Company or at Company's direction or for Company s use or otherwise in connection with Employee's employment hereunder, are and shall remain the sole and confidential property of Company; if Company requests the return of such materials at any time during or at or after the termination of Employee's employment, Employee shall immediately deliver the same to Company. (b) Upon the termination of employment for any reason other than for cause or the death of Employee, Employed shall have the option, exercisable only by written notice given to Company within twenty (20) days after termination of employment (i) to acquire any automobile then being used by Employee and owned by Company for a purchase price equal to the then book value of such automobile, as determined by Company or (ii) to acquire Company's leasehold rights to any such automobile leased by Company (if, and only if, the lessor agrees to such acquisition without requiring any payment or guarantee or any other concessions by Company) by assuming, and agreeing to hold Company harmless against, all of Company's obligations with respect thereto accruing from and after the date that the transfer of title takes place. Employee shall pay all sales and use taxes relating to any such sale or acquisition. Closing of any such acquisition by Employee shall take place at such time as shall be mutually agreeable to the parties, but in no event more than twenty (20) days after the exercise of this option, at such place as Company shall specify. 15. Prior Agreements. Employee represents to Company (a) that there are no restrictions, agreements or understandings whatsoever to which Employee is a party which would prevent or make unlawful his execution of this Agreement or his employment hereunder, (b) that his execution of this Agreement and his employment hereunder shall not constitute a breach of any contract, agreement or understanding, oral or written, to which he is a party or by which he is bound and (c) that he is free and able to execute this Agreement and to enter into employment by Company. 9 16. Miscellaneous. (a) Indulgences, Etc. Neither the failure nor the delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as.a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. (c) Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received two days following the day when deposited with an overnight courier service such as Federal Express, for delivery to the intended addressee or two days following the day when deposited in the United States mails, registered mail return receipt requested, addressed as set forth below: (i) If to Employee: Mr. Richard J. Pinola 1322 North Tulip drive West Chester, PA 19380 (ii) If to Company: Right Management Consultants, Inc. 1818 Market Street 14th Floor Philadelphia, PA 19107 Attention: President In addition, notice by mail shall be by air mail if posted outside of the continental United States. Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this paragraph for the giving of notice. 10 (d) Binding Nature of Agreement. This Agreement shall be binding and inure to the benefit of Company and its successors and assigns and shall be binding upon Employee, his heirs and legal representatives. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any photographic or xerox copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement. (f) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (g) Entire Agreement. This Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or condition, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. (h) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. (i) Gender, Etc. Words used herein, regardless of the number of gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (j) Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or holiday. 11 IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. RIGHT MANAGEMENT CONSULTANTS, INC. By: /s/ Joseph T. Smith ---------------------------- President /s/ Richard J. Pinola (SEAL) ------------------------------ Richard J. Pinola, Employee 12 EX-10 3 EXHIBIT 10.26 EMPLOYMENT AGREEMENT THIS AGREEMENT made as of the 12th day of December, 1995, by and between RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania corporation (hereinafter called "Company"), and JOSEPH T. SMITH, an individual (hereinafter called "employee"). WITNESSETH: Company desires to employ Employee, and employee desires to be employed by Company, on the terms and conditions hereinafter stated. NOW THEREFORE, in consideration of the facts, mutual promises and covenants contained herein and intending to be legally bound hereby, Company and Employee agree as follows: 1. Employment. Company hereby employs Employee and employee hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement. 2. Office and Duties. (a) Employee shall serve Company as its President and Chief Operating Officer ("COO"), and, subject to continued election thereto by the Company's shareholders, as a member of Company's Board of Directors (the "Board"). The powers, authority and duties of the offices of President and COO of Company shall be those customary to such offices with corporations comparable to Company. (b) Throughout the term of this Agreement, Employee shall devote his entire working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Company. 3. Term. (a) The initial term of Employee's employment with Company under this Agreement shall be as of January 1, 1996 and continuing up to and through December 31, 1998. (b) Unless either party gives written notice of its intention to terminate Employee's employment under this Agreement at the end of the initial or any renewal term by giving the other party such notice, at least one hundred twenty (120) days prior to the expiration of the then current term, employee's employment under this Agreement shall be deemed to have been renewed for an additional term of one (1) year commencing on the day after the expiration of the then current term. Notwithstanding the foregoing, employee's employment with Company will not be renewed under this Agreement on or after December 31 of the calendar year in which Employee reaches sixty-five (65) years of age. 1 (c) Notwithstanding the provisions of Sections 3(a) and 3(b) hereof, in the event that: (i) a "controlling interest" in the capital stock of Company is sold in a single transaction or a group of related transactions to one or more buyers acting in concert; (ii) Company sells all or substantially all of its assets; or (iii) Company is a party to any corporate merger or consolidation in which one or more parties acting in concert who did not previously hold a "controlling interest" in the capital stock of Company acquires or acquire such a "controlling interest" in the capital stock of Company or its successor entity (each such a event to constitute a "Change in Control"), Employee may, upon written notice to Company within sixty (60) days of such Change in Control, elect to: (A) continue his employment with Company for the greater of the then current term or a period that expires two years from the date of the Change in Control; or (B) voluntarily terminate his employment with Company and receive severance compensation as if this were a "Compensated Termination" pursuant to Section 6 hereof for a "Section 6 Period" that expires upon the later of the date the then current term would have expired but for the earlier termination described herein or two years from the date of the Change in Control. In the event that Employee elects to remain employed by Company pursuant to (A) above, the total amounts payable annually to employee for the period described in (A) shall be not less than the greater of: (I) the total amount of the Base Salary and Incentive Payments paid under Sections 4(a) and 4(b) during the 12-month period for the calendar year immediately preceding the Change in Control; or (II) Three Hundred Thousand ($300,000) Dollars. For the purposes of this Section 3(c), a "controlling interest" in the capital stock will constitute that number of shares which, as a practical matter, permits the holder or holders to elect a majority of the members of the Board. It is agreed that shares of capital stock possessing the right to cast a majority or more of the votes entitled to be cast for the election of directors of Company shall conclusively constitute a "controlling interest", but that a block of shares possessing the right to cast less than a majority of the number of votes entitled to be voted may, under the circumstances then pertaining, constitute a "controlling interest". 4. Compensation and Benefits. (a) Base Salary. For all of the service rendered by Employee to Company, Employee shall receive a base salary (the "Base Salary") payable at an annual rate equal to $300,000. Such Base Salary shall be payable in reasonable periodic installments in accordance with Company's regular payroll practices in effect from time to time. Employee's Base Salary is subject to annual review and adjustment at the discretion of Company, but in no event shall Company reduce the Base Salary to less than the amounts specified above during the periods referred to without the consent of employee. 2 (b) Incentive Payments. In addition to the Base Salary, throughout the term of Employee's employment with Company hereunder, Company shall pay to Employee annually, a cash bonus as incentive compensation based upon Company's financial performance for that year ("Incentive Payments") in such amounts as are decided upon by the Board or its Compensation Committee. Any and all bonuses shall be determined based upon target and comparison that are consistent with those to be used by the Board in determining the amounts payable under Company's Incentive Compensation Plan for Senior Corporate Staff. In the event that the employment of Employee terminates otherwise than pursuant to this Section 4(b) or Section 6 hereof, on a day other than the last day of a fiscal year of Company, in addition to Base Salary and other payments accrued through the effective date of the termination, Company shall pay to Employee the "pro rata portion" (as hereafter defined) of the Incentive Payments which would have been due to Employee if he had remained in the employ of Company for the full fiscal year in which his employment terminated. For purposes of the immediately preceding sentence, the "pro rata portion" shall be obtained by dividing the number of days (including intervening weekend days and holidays) in the fiscal year that Employee was employed by Company by the number 365. (c) Fringe Benefits. Throughout the term of this Agreement and as long as they are kept in force by Company, employee shall be entitled to participate in and receive the benefits of any profit sharing or retirement plans and any health, life, accident or disability insurance plans or programs made available to other similarly situated employees of Company and shall be entitled to participate in the Supplemental Deferred Compensation Program attached hereto as Exhibit "A", but the participation of employee, if any, in Company's stock option, stock appreciation, "phantom" stock plans or similar plans, will be wholly within the discretion of the Board. With respect to the term of Employee's employment with Company under this Agreement, the Board has not made any determination with regard to Employee's participation in any stock option, stock appreciation, "phantom" stock plans or similar plans. However, the Company shall consider each year whether or not Employee shall be awarded any stock options. Company may, at its sole discretion add, delete or change any stock option, stock appreciation, or phantom stock plans that Employee may participate in upon notice to Employee. If this Agreement is not renewed by Company after the expiration of the then current term, Company shall provide to Employee outplacement consulting services then generally being made available by Company to executive candidates. (d) Vacation. Employee shall be entitled to vacation in accordance with Company's general policies with respect thereto from time to time. 3 (e) Automobile. During the term of Employee's employment with Company under this Agreement, Company shall furnish Employee with the use of a luxury automobile, insurance thereon, and the costs of fuel, maintenance and necessary repairs as incurred. Employee shall be permitted unrestricted use of such automobile without the obligation to account or reimburse Company for any personal use thereof. During the same period, Company shall provide Employee, at no cost to Employee, one private-reserved covered parking space located in or close to the building in which Employee's office is located. (f) Accounting Services. At an appropriate time each year during the term of Employee's employment with Company under this Agreement, Company shall make available to Employee, at no cost to Employee, the services of the certified public accounting firm which audits Company's financial statements for the purpose of preparing all of Employee's federal, state and local income tax and estimated income tax returns for such year and counselling Employee with respect thereto. Employee hereby acknowledges that Company shall bear no responsibility for the accuracy, quality or completeness of any such tax returns prepared by such certified public accounting firm. (g) Financial Planning Services. During the term of Employee's employment with Company under this Agreement, Company shall furnish Employee, at no cost to Employee, ten (10) hours per year of financial counselling services. The services shall be rendered by any national accounting firm or firms with which Company from time to time has an ongoing relationship for the purpose of providing financial counselling in conjunction with Company's outplacement services, providing that such firm has a Philadelphia, Pennsylvania office, or if and for as long as there is no such firm, by a financial counsellor or financial counselling firm selected by Employee and approved by Company. (h) Withholding Taxes. The Base Salary, Incentive Payments and all other cash and non-cash payments to Employee hereunder shall be subject to, and paid net of all applicable withholding requirements of federal, state and local law. 5. Expenses. Company will reimburse Employee for all reasonable expenses incurred by Employee in connection with the performance of Employee's duties upon receipt of vouchers therefore and in accordance with Company's regular reimbursement procedures and practices in effect from time to time. 4 6. Severance Compensation. (a) In the event of a "Compensated Termination" (as that term is defined below), Company shall pay Employee as severance compensation, payable in equal monthly installments (with properly pro rated payments for periods of less than a full month) during the "Section 6 Period" (as that term is hereafter as defined), an amount equal to the greater of: (i) the Base Salary plus Incentive Payments paid to Employee during the 12 month period immediately preceding such Compensated Termination; or (ii) Three Hundred Thousand ($300,000) Dollars. As used herein the term "Compensated Termination" shall mean any one of the following events: I. Company elects to terminate Employee's employment under this Agreement pursuant to the provisions of Section 3(b) hereof at the end of the initial term or any renewal tern hereof; II. Company at any time other than the end of initial term or any renewal term hereof terminates the employment of Employee under the Agreement, otherwise than as provided in Section 10 ("Discharge for Cause") hereof; or III. Employee terminates his employment with Company pursuant to Section 11 hereof. As used herein, the term "Section 6 Period" shall mean the longer of: (i) one year from the date a Compensated Termination occurs; or (ii) the period beginning on the date a Compensated Termination occurs and ending on the date upon which the then current term of Employee's employment with Company, as such term may have been extended pursuant to Section 3(c) hereof, would have ended but for the occurrence of the Compensated Termination. (b) In the event of a Compensated Termination, for the entire Section 6 Period, Company shall continue to provide, at no cost to Employee, life, medical and dental insurance to Employee providing coverages equal to the coverages made available to Employee and his dependents on the date of the termination of his employment. (c) In the event that any part of any payment or benefit to Employee under Sections 6(a) and 6(b) of the Agreement or under this Section 6(c) or any other payment made or benefit conferred by Company to Employee constitutes an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and any regulations or other authorities relating thereto, but excluding payments which are described in Section 280G(b)(2)(B) of the Code, Company will pay to Employee as additional compensation (i) the amount of all taxes due from Employee under Section 4999 of the Code and (ii) the amount equal to all federal, state and local income taxes and business privilege taxes based upon net income (collectively, the "Taxes") due from Employee upon all payments made by Company to Employee under this Section 6(c). It is the intention of the parties that Employee receive all payments and benefits from Company net of the tax under Section 4999 of the Code and net of all taxes due upon all payments under this Section 6(c), and the terms of this Section 6(c) shall be construed and implemented by the parties to effectuate this intent. 5 (d) Notwithstanding anything to the contrary contained above in this Section 6 or any other portion of this Agreement, the Company shall not be required to make any of the payments or provide any of the other benefits set forth above in this Section 6 or otherwise on account of any Compensated Termination unless and until Employee has, if the Company so requests after Employee's termination, resigned from the Boards of Directors (and/or any committees thereof) of the Company and any affiliates of the Company, all as requested by the Company. 7. Disability. (a) If Employee becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, Company will continue the payment of Employee's total compensation at its then current rate for a period of three (3) months following the date Employee is first unable to perform his duties due to such disability or incapacity. Thereafter, Company shall have no obligation for the Base Salary or other compensation payments to Employee during the continuance of such disability or incapacity, except that Company shall pay to Employee, based upon the portion of the calendar year that Employee was able to perform his duties prior to the disability, the pro rata portion of the Incentive Payments that Employee would have earned if he had remained in the employ of the Company for the full calendar year (payable at such time that Employee would have received such Incentive Payment). Employee shall receive such benefits, if any, as are then provided under Company's standard disability coverage provided to employees generally, if and only if the same is then in effect. (b) If Employee is unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause for a period of six (6) consecutive months, Company shall have the right to terminate this Agreement at any time thereafter, in which event Company shall have no further obligations or liabilities hereunder after the date of such termination. 8. Death. If Employee dies, all payments hereunder shall continue for a period of three (3) months after the end of the week in which Employee's death shall occur, at which point such payments shall cease and Company shall have no further obligations or liabilities' hereunder to Employee's estate or legal representative or otherwise, except that Company shall pay to Employee's estate or legal representative, based upon the portion of the calendar year that Employee was employed by Company prior to his death, the prorated portion of the Incentive Payments Employee would have earned if he had remained in the employ of Company for the full calendar year (payable at such time that Employee would have received such Incentive Payment). 6 9. Non-Competition, Trade Secrets, etc. (a) During the term of this Agreement and for a period of two (2) years after the termination of such Agreement, Employee shall not directly or indirectly induce or attempt to influence any employee of Company to terminate his employment with Company and shall not engage in (as a principal, partner, director, officer, agent, employee, consultant or otherwise) or be financially interested in any business operating within the continental United States, which business is involved in the business activities which are the same as, similar to or in competition with business activities carried on by Company, or being definitely planned by Company, at the time of such termination. For purposes of this Section 9, Company's business activities shall include, without limitation, the following: corporate outplacement, consulting, and career consulting for employees, including spouse placement, career assessment, second career planning, and career options planning, career development, and consulting or the subjects of termination, severance policies, and retirement planning, reporting, evaluation, advisory, and communications services, and other human resources consulting and personnel services to client organizations; and any other such products, programs, and services as Company may hereafter commence marketing in the area of human resource consulting. (b) For a similar period of two (2) years after termination of this Agreement, Employee shall not contact directly or indirectly or cause to be contacted directly or indirectly any clients or customers of Company for the purpose of competitively soliciting business in competition with Company. Without limiting the foregoing, for a period of two (2) years after termination of this Agreement, Employee shall not competitively solicit business from clients, customers or competitors of Company within the continental United States through the means or use of property in which Company has an ownership interest or a license pursuant to Section 9(d) hereof. (c) During the term of this Agreement and at all times thereafter, Employee shall not use for Employee's personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm, association or company other than Company, any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or other knowledge or processes used or developed by Company or any name or addresses of customers or clients or any data on or relating to past, present or prospective customers or clients or any other confidential information relating to or dealing with the business operations or activities of Company, made known or learned or acquired by Employee while in the employ of Company. 7 (d) Any and all writings, inventions, improvements, computer programs, processes, procedures or techniques (hereinafter "Inventions") which Employee may make, discover or develop either solely or jointly with any other person or persons (hereinafter "Co-Inventor(s)") at any time during the term of and as part of his employment with Company which relate to any business being conducted or carried on by Company at the time of invention shall be the sole and exclusive property of Company, subject to the rights of the Co-Inventor(s) in the Inventions. Any and all Inventions which Employee may make, discover or develop either solely or jointly with any Co-Inventor(s) other than a part of his employment with Company which are useful in connection with any business being conducted, carried on or definitely planned by Company at the time of invention shall be subject to a perpetual license to Company, subject to any rights of Co-Inventor (s). The amount of the royalty shall be agreed upon by Company and Employee. In the event that they cannot agree, such royalty shall be determined by arbitration by three arbitrators, one selected by Company, one selected by Employee and the third selected by the first two arbitrators. During the term of this Agreement, Employee shall make full disclosure to Company of all such Inventions. It shall be presumed that any Inventions which Employee shall make, discover or develop either solely or jointly with any Co-Inventor(s) during the two-year period after termination of his employment with Company shall have been developed in part during the term of employment, and Employee shall have the burden of proof in demonstrating that no such development occurred during such term of employment. With respect to those Inventions as to which Company is to acquire title hereunder, Employee shall do everything necessary or desirable to vest such title in Company, and Employee shall write and prepare all specifications and procedures regarding such Inventions and otherwise aid and assist Company so that Company can prepare and present applications for copyrights or patents therefor and can secure such copyrights or patents wherever possible, as well as reissues, renewals and extensions thereof, and can obtain record title to such copyright or patents in all countries in which it may desire to have copyright or patent protection. Employee shall not be entitled to any additional or special compensation for rights to Inventions which Company acquires hereunder. (e) Employee also agrees, during the term of this Agreement and thereafter, not to disparage or deprecate, directly or indirectly, the reputation, professionalism, character, competence, integrity or motives of the Company, any subsidiary or any affiliate thereof, or any of their officers, trustees, directors, employees, attorneys, agents or family members. (f) Employee acknowledges that the restrictions contained in this Section 9, in view of the nature of the business in which Company is engaged, are reasonable and necessary in order to protect the legitimate interests of Company, and that any violation thereof would result in irreparable injuries to Company, and Employee therefore acknowledges that, in the event of his violation of any of these restrictions, Company shall be entitled to obtain from any court of competent jurisdiction preliminary and permanent injunctive relief a well as damages and an equitable accounting of all earnings, profits and other benefits arising from such violation, which rights will be cumulative and in addition to any other rights or remedies to which Company may be entitled. 8 (g) If the period of time or the area specified in this Section 9 should be adjudged unreasonable in any proceeding, then the period of time shall be reduced by such number of months or the area shall be reduced by the elimination of such portion thereof or both so that such restrictions may be enforced in such area and for such time as is adjudged to be reasonable. If Employee violates any of the restrictions contained in the foregoing subparagraph (a), the restrictive period shall not run in favor of Employee from the time of the commencement of any such violation until such time as such violation shall be cured by Employee to the satisfaction of Company. 10. Discharge for Cause. Company may discharge Employee at any time for criminal conduct (whether or not related to Employee's employment), gross negligence, any violation of any express direction or any reasonable rule or regulation established by Company's Board from time to time regarding the conduct of its business, or any violation by Employee of the terms and conditions of this Agreement, in which event Company shall have no further obligations or liabilities hereunder after the date of such discharge. 11. Compensated Termination by Employee. The occurrence of any of the following events shall give Employee grounds to effect a Compensated Termination under Section 6 hereof: (a) Employee is not elected or reelected, as the case may be, to the executive offices of Company when and as specified in Section 1 hereof or his responsibilities as an executive officer, employee and Board member of Company are materially changed by Company without Employee's prior written consent; (b) At any time during the term of his employment with Company, the removal of Employee from membership on the Board or the failure of the shareholders of Company to reelect Employee to the Board; (c) Company, without the consent of Employee, relocates its corporate headquarters offices outside of the Philadelphia Metropolitan Statistical Area, as such term is defined by the Office of Management and Budget, or bases Employee elsewhere than in its corporate headquarters offices; (d) Any material reduction in the facilities, staff and support services made available to Employee by Company at any time provided that such reduction was made without the consent of Employee. Employee may effect a Compensated Termination only if Employee shall terminate his employment with Company for any of the reasons set forth within thirty (30) days of the date he discovers the existence of the event which gives rise to his right of termination, by giving notice of termination to Company. 12. Indemnification. At all times during and after Employee's employment with Company, Company shall indemnify Employee against expenses (including legal fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him, to the extent now or hereafter permitted by law and Company's By-Laws, in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, brought or threatened to be brought against him, including actions or suits by or in the right of Company, by reason of the fact that he is or was a director, officer, employee or agent of Company, its parent or any of its subsidiaries, or acted as a director, officer, employee or agent or in any other capacity on behalf of Company, its parent or any of its subsidiaries or is or was serving at the request of Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, provided that Employee acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of Company and, with respect to any criminal proceeding, Employee had no reasonable cause to believe his conduct was unlawful. Company shall pay expenses incurred by Employee in defending such a civil or criminal action, suit or proceeding in advance of the final disposition of such suit or proceeding upon receipt of an undertaking by or on behalf of Employee to repay such amount if it is ultimately determined that he is not entitled to be indemnified by Company as authorized by Company's By-Laws or by law. 9 13. Travel. In all travel for Company to locations two thousand (2,000) miles or more distant from Philadelphia, Pennsylvania, Employee shall be entitled to business class travel accommodations at his option; for travel for Company to locations five thousand (5,000) miles or more distant from Philadelphia, Pennsylvania, Employee shall be entitled to first class accommodations at his option. 14. Company Property. (a) All counseling, advertising, sales, and other materials or articles of information, including without limitation data processing reports, customer sales analyses, invoices, price lists or information, samples or any other materials or data of any kind furnished to Employee by Company or developed by Employee on,behalf of Company or at Company's direction or for Company s use or otherwise in connection with Employee's employment hereunder, are and shall remain the sole and confidential property of Company; if Company requests the return of such materials at any time during or at or after the termination of Employee's employment, Employee shall immediately deliver the same to Company. (b) Upon the termination of employment for any reason other than for cause or the death of Employee, Employed shall have the option, exercisable only by written notice given to Company within twenty (20) days after termination of employment (i) to acquire any automobile then being used by Employee and owned by Company for a purchase price equal to the then book value of such automobile, as determined by Company or (ii) to acquire Company's leasehold rights to any such automobile leased by Company (if, and only if, the lessor agrees to such acquisition without requiring any payment or guarantee or any other concessions by Company) by assuming, and agreeing to hold Company harmless against, all of Company's obligations with respect thereto accruing from and after the date that the transfer of title takes place. Employee shall pay all sales and use taxes relating to any such sale or acquisition. Closing of any such acquisition by Employee shall take place at such time as shall be mutually agreeable to the parties, but in no event more than twenty (20) days after the exercise of this option, at such place as Company shall specify. 15. Prior Agreements. Employee represents to Company (a) that there are no restrictions, agreements or understandings whatsoever to which Employee is a party which would prevent or make unlawful his execution of this Agreement or his employment hereunder, (b) that his execution of this Agreement and his employment hereunder shall not constitute a breach of any contract, agreement or understanding, oral or written, to which he is a party or by which he is bound and (c) that he is free and able to execute this Agreement and to enter into employment by Company. 10 16. Miscellaneous. (a) Indulgences, Etc. Neither the failure nor the delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as.a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. (b) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement (including, without limitation, provisions concerning limitations of actions), shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of such state or other jurisdiction to the contrary, and without the aid of any canon, custom or rule of law requiring construction against the draftsman. 11 (c) Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made and received two days following the day when deposited with an overnight courier service such as Federal Express, for delivery to the intended addressee or two days following the day when deposited in the United States mails, registered mail return receipt requested, addressed as set forth below: (i) If to Employee: Mr. Joseph T. Smith 728 Dodds Lane Gladwyne, PA 19035 (ii) If to Company: Right Management Consultants, Inc. 1818 Market Street 14th Floor Philadelphia, PA 19107 Attention: Chairman of the Board; and Chief Financial Officer In addition, notice by mail shall be by air mail if posted outside of the continental United States. Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this paragraph for the giving of notice. (d) Binding Nature of Agreement. This Agreement shall be binding and inure to the benefit of Company and its successors and assigns and shall be binding upon Employee, his heirs and legal representatives. (e) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any photographic or xerox copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement. (f) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. (g) Entire Agreement. This Agreement constitutes the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or condition, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing. 12 (h) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation. (i) Gender, Etc. Words used herein, regardless of the number of gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate. (j) Number of Days. In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday on which federal banks are or may elect to be closed, then the final day shall be deemed to be the next day which is not a Saturday, Sunday or holiday. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. RIGHT MANAGEMENT CONSULTANTS, INC. By: /s/ Richard J. Pinola ---------------------------- Chairman of the Board /s/ Joseph T. Smith(SEAL) ---------------------------- Joseph T. Smith, Employee 13 EXHIBIT "A" SUPPLEMENTAL DEFERRED COMPENSATION PLAN Supplemental Deferred Compensation Plan ("Plan") for Joseph T. Smith ("Employee") pursuant to Section 4(c) of the Employment Agreement dated as of December 12th, 1995 (the "Employment Agreement") between Employee and Right Management Consultants, Inc. ("Company"). Except as otherwise specified herein, all terms used herein shall have the same meaning as such terms have in the Employment Agreement. 1. Definitions. A. "Age" shall mean the age of Employee as of his last birthdate. B. Compensation. "Compensation" shall mean Employee's cash compensation, which includes Base Salary and Incentive Payments only, earned by Employee in his capacity as an employee of Company with respect to a Plan Year. C. Deferred Benefit Account. "Deferred Benefit Account" shall mean the account maintained on the books of Company for Employee pursuant to Paragraph 2 hereof. D. Determination Date. "Determination Date" shall mean the last day of each Plan Year or such other dates as may be established by the Committee. E. Disability. "Disability" shall mean that Employee is unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause for a period of six (6) consecutive months. If there is any dispute as to Employee's physical or mental disability, the question shall be settled by the opinion of a duly licensed medical or osteopathic physician selected by the mutual consent of Employee and Company or their representatives. Certification of that physician as to the matter in dispute shall be final and binding upon the parties. F. Interest Yield. "Interest Yield" shall mean an effective annual yield which, with respect to any calendar year, is a rate equal to the annual interest rate of the two year guaranteed investment contract index as published in the Wall Street Journal on the November 30 of that calendar year. Company may, in its discretion and with notice to Employee no later than November 15 of such calendar year, base the Interest Yield instead on a rate that is consistent with annual interest rates used by Company in connection with Company's other non-qualified deferred compensation plans for other senior executives of Company. 1 G. Plan Year. "Plan Year" shall mean the calendar year. H. Normal Retirement Date. "Normal Retirement Date" shall mean the first date of the month following Employee's sixty-fifth (65th) birthday. I. Termination of Service. "Termination of Service" shall mean Employee's ceasing to be an employee of the Company for any reason other than death or discharge for cause pursuant to Section 10 of the Employment Agreement. 2. Deferred Benefit Account. A. Establishment of Account. Company shall establish a Deferred Benefit Account on its books for Employee. The balance of Employee's Deferred Benefit Account shall consist of the sum of all amounts credited to the account pursuant to Paragraph 2B, less the sum of all distributions and benefit payments made to Employee. Employee's Deferred Benefit Account shall be utilized solely as a device for the measurement and determination of the amounts to be paid to Employee pursuant to the plan. B. Credits to Account. Company shall credit Employee's Deferred Benefit Account with the following amounts at the times specified: (1) Five percent (5%) of Compensation credited as of the Determination Date, provided, however, that (i) the amount credited may be reduced, at the discretion of Company, by the amount Company is required to withhold under any federal, state or local law for taxes or other charges. (2) As of the Determination Date, an amount equal to the interest earned since the last preceding Determination Date. For purposes of the foregoing, interest earned shall be calculated by applying the Interest Yield, reduced to a nominal monthly rate, to the average daily balance of the Deferred Benefit Account since the last preceding Determination Date. 2 3. Vesting of Deferred Benefit Account Balance. Employee shall be vested in the Deferred Benefit Account balance according to the following schedule. Age % Vested --- -------- 61 20% 62 40% 63 60% 64 80% 65 100% Notwithstanding the above schedule, Employee shall become fully-vested upon Employee's Death, Disability or Termination of Service. The Board may elect to accelerate the Age or time in which Employee can become fully vested in the Deferred Benefit Account balance. 4. Benefits. A. Retirement Benefits. Upon Employee's Termination of Service on or after his Normal Retirement Date, provided that Employee continuously served Company as an employee to that time, Employee shall receive, as deferred compensation for services rendered prior to such date, a benefit equal to the amount of his Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), payable as a life annuity in equal monthly installments with interest on the unpaid balance at a rate equal to the Interest Yield. Such annuity payments shall be based upon the 1983 Group Annuity Mortality tables. B. Benefits Upon Early Termination of Service. Upon Employee's Termination of Service prior to his Normal Retirement Date, Employee shall receive, as deferred compensation for services rendered prior to such date, a benefit equal to the amount of his Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), payable in a lump sum within one (1) month of such Termination of Service; provided however, that Company may, at Company's sole option, elect to retain in the Deferred Benefit Account that amount of the Deferred Benefit Account Balance in excess of $100,000 to be payable to Employee as a life annuity in equal monthly installments with interest on the unpaid balance at a rate equal to the Interest Yield, beginning on the first day of the month after the date that would have been Employee's Normal Retirement Date had such Termination of Service not earlier occurred. Company shall notify Employee of such an election prior to the date the lump sum payment is due. The annuity payments shall be based upon the 1983 Group Annuity Mortality tables. C. Disability. If Employee suffers a Disability prior to Termination of Service and before receiving any benefits under Paragraph 4A, Employee's beneficiary shall receive payment equal to the amount of Employee's Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), in a lump sum within one (1) month of the date of Employee's Disability. Payment of such benefit shall relieve Company of the obligation to pay any other benefit which Employee would have otherwise received under this plan. 3 D. Survivorship Benefits. (1) Prior to Commencement of Retirement Benefits. If Employee dies prior to Termination of Service and before receiving any benefits under Paragraph 4A, Employee's beneficiary shall receive payment equal to the amount of Employee's Deferred Benefit Account balance (determined in accordance with Paragraph 2B(2)), in a lump sum within one (1) month of the date of Employee's death. Payment of such benefit shall relieve Company of the obligation to pay any other benefit which Employee would have otherwise received under this plan. (2) After Commencement of Benefits. If Employee dies after benefit payments under Paragraphs 4A or 4B have commenced, Company shall continue to pay the remaining payments to Employee's beneficiary in accordance with the payment terms and schedule in effect at the time of death until the full balance of the Deferred Benefit Account are paid. E. Commencement of Payments. Benefit payments required under Paragraphs 4A, 4B, 4C or 4D shall commence on the first day of the month following the Employee's Termination of Service, Disability or death, as the case may be. F. Special Distributions. The foregoing provisions of this Paragraph 4 notwithstanding, Company may, in its sole discretion, make distributions to Employee or beneficiaries in a lump sum or in such other payment forms not provided for in Paragraphs 4A, 4B, 4C or 4D. Any such distribution shall reduce the Deferred Benefit Account balance of Employee or beneficiary by the amount of the distribution. 5. Beneficiaries. A. Designation. Employee shall designate a beneficiary or beneficiaries to receive any benefits payable on his behalf after his death by delivering a written notice of such designation to Company in such form as Company shall prescribe. Employee may revoke or modify the designation at any time by a further written designation. Employee's beneficiary designation shall be deemed automatically revoked in the event the designated beneficiary predeceases Employee. If no designation shall be in effect at the time when any benefits payable to a beneficiary under this plan shall become due, the beneficiary shall be the spouse of Employee, or if no spouse is then living, the beneficiaries shall be the Employee's children, per stirpes, or, if none, all payments under this plan shall be made to Employee's estate. 4 B. Payments to Minors and Incompetents. In the event Employee is an incompetent, or a benefit is payable to a beneficiary who is a minor or person declared incompetent, or who is a person incapable of handling the disposition of his property, Company may pay such benefit to the guardian or legal representative, or if none, to any other person having the care or custody of the Employee or beneficiary. Company may require such proof of incompetency, minority, legal custody, guardianship, etc. as it deems appropriate prior to distribution of the benefit. Such distribution shall completely discharge Company and its officers and directors from all liability with respect to such benefit. 6. Benefits Subject to Company's Creditors. Any amounts subject to this plan, shall be subject to claims of general creditors of Company. The right of Employee or his beneficiary to receive payment of plan benefits from Company assets shall be solely that of a general, unsecured creditor of Company. 7. Change of Control. Notwithstanding the provisions of Paragraph 6, in the event that: (i) a "controlling interest" in the capital stock of Company is sold in a single transaction or a group of related transactions to one or more buyers acting in concert, (ii) Company sells all or substantially all of its assets, or (iii) Company is a party to any corporate merger or consolidation in which one or more parties acting in concert who did not previously hold a "controlling interest" in the capital stock of Company acquires or acquire such a "controlling interest" in the capital stock of Company or its successor entity (individually and collectively a "Change in Control"), Company shall establish a trust agreement and shall from time to time transfer into the trust sufficient assets to meet Company's obligation to pay Plan benefits to Employee and his beneficiaries. The Agreement under which the trust is created shall provide that the trustee shall hold the trust assets separate and apart from the other assets of Company; the trust shall not terminate until all benefits payable under this Plan are actually paid to trust beneficiaries or Company is no longer obligated to pay benefits to Employee under this Plan pursuant to Section 9 hereof; and that the trust shall be structured so that Employee shall not be charged with income, for Federal and state income tax purposes, at the time the trust is funded or upon the lapse of the noncompetition forfeiture provision of Section 9 hereof (so as to be structured as what is commonly referred to as a "Rabbi Trust"). At the termination of the trust, trust assets not needed to pay benefits under the Plan shall be returned to Company. In addition, if there shall be a Termination of Service within two (2) years of a Change in Control, Employee shall be entitled to begin receiving retirement benefits under this Plan as if Employee had reached the Normal Retirement Date at or prior to such termination. For the purposes of this Paragraph 7, a "controlling interest" in the capital stock will constitute that number of shares which, as a practical matter, permits the holder or holders to elect a majority of the members of the Board. It is agreed that shares of capital stock possessing the right to cast a majority or more of the votes entitled to be cast for the election of directors of Company shall conclusively constitute a "controlling interest", but that a block of shares possessing the right to cast less than a majority of the number of votes entitled to be voted may, under the circumstances then pertaining, constitute a "controlling interest". 8. Amendment and Termination. A. The Company may at any time amend or terminate the Plan; provided, however, that the Deferred Benefit Account balance may not be reduced or terminated thereby. B. Notwithstanding any other provision of this Plan to the contrary, upon the termination of this Plan for any reason, the Deferred Benefit Account Balance at the time of such termination shall be determined in accordance with Paragraph 2B(2) hereof. 5 9. Non-Competition, Trade Secrets, etc. If Employee shall act in such a manner as to, in Company's judgment; violate the provisions of Section 9 of the Employment Agreement ("Non-Competition, Trade Secrets, etc."), Employee shall forfeit all benefits accrued under this Plan and Company shall have no further obligations to Employee hereunder. 10. Miscellaneous. A. Assignment of Benefits. Neither Employee nor any beneficiary under this plan shall have any right to assign, transfer, pledge or otherwise encumber the right to receive any benefits hereunder, and any attempted assignment, transfer, pledge or other encumbrance shall be void and have no effect. B. Employment Not Guaranteed by Plan. Neither this plan nor any action taken hereunder shall be construed as giving Employee the right to remain as an employee of Company for any period. C. Tax Deduction. Company shall deduct from all benefit payments all applicable federal, state or local taxes required by law to be withheld from such payments. D. Construction. This Plan shall be construed according to the laws of the Commonwealth of Pennsylvania. E. Form of Communication. Any election, claim, notice or other communication required or permitted to be made by a Employee or beneficiary under this plan shall be made in writing and in such form as shall be prescribed by Company. Such communication shall be effective upon mailing if sent first class mail, postage pre-paid, return receipt requested. F. Captions. The captions at the head of a paragraph of this plan are designed for convenience of reference only and are not to be resorted to for the purpose of interpreting any provision of this Plan. G. Entire Agreement. This plan constitutes the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings inducements or conditions, express or implied, oral or written, except as herein contained. ADOPTED as of this 12th day of December, 1995, pursuant to authority vested in the undersigned officer. RIGHT MANAGEMENT CONSULTANTS, INC. By:/s/ Richard J. Pinola ---------------------------- Title: Chairman of the Board 6 EX-11 4 EARNINGS PER SHARE CALCULATION Right Management Consultants, Inc. Exhibit 11 - Consolidated Earnings Per Share Calculation For the Year Ended December 31, 1995 1994 ---- ---- Earnings per common share Primary and Fully Diluted EPS: Primary EPS - ----------- Net income $7,819,000 $5,714,000 ========== ========== Weighted average number of shares issued and outstanding 3,989,000 3,947,000 Dilutive effect (excess of number of shares issuable over number of shares assumed to be using the average market price during the period) of outstanding options 204,000 136,000 ---------- ---------- Adjusted weighted average number of shares outstanding 4,193,000 4,083,000 ========== ========== Earnings per common share $ 1.86 $ 1.40 ========== ========== Fully Diluted EPS - ----------------- Net income $7,819,000 $5,714,000 ========== ========== Weighted average number of shares issued and outstanding 3,989,000 3,947,000 Dilutive effect (excess of number of shares issuable over number of shares assumed to be using the market price at the end of the period) of outstanding options 274,000 139,000 ---------- ---------- Adjusted weighted average number of shares outstanding 4,263,000 4,086,000 ========== ========== Earnings per common share $ 1.83 $ 1.40 ========== ========== EX-13 5 EXHIBIT 13 Right Management Consultants, Inc. Selected Financial Data
(Dollars in Thousands Except Per Share and Office Data) Year ended December 31, 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Results of Operations (1) Total revenue $ 114,005 $ 89,134 $ 70,726 $ 53,617 $ 48,021 Costs and expenses and Other 101,090 79,345 64,279 50,278 42,564 Income before income taxes 12,915 9,789 6,447 3,339 5,457 Net income 7,819 5,714 3,297 1,324 3,122 Earnings per share (2) $ 1.86 $ 1.40 $ .84 $ 0.34 $ 0.76 Weighted average number of shares outstanding (in thousands) (2) 4,193 4,083 3,945 3,906 4,119 Balance Sheet Data Working capital $ 13,134 $ 9,883 $ 8,940 $ 6,317 $ 5,736 Total assets $ 60,231 $ 48,969 $ 35,734 $ 25,262 $ 22,970 Long-term obligations $ 7,360 $ 6,004 $ 2,403 $ 2,831 $ 1,038 Stockholders' equity $ 33,626 $ 24,405 $ 18,032 $ 14,498 $ 13,316 ================================================================================================================ Network Revenue (3) $ 152,382 $ 128,744 $ 105,441 $ 84,675 $ 77,815 Network Offices 126 127 110 97 85
(1) See Note B to the consolidated financial statements for information regarding acquisitions. (2) Amounts presented have been retroactively restated for the Company's three-for-two stock split effective November 10, 1995. (See Note I to the Consolidated Financial Statements.) (3) Network Revenue is comprised of Company-owned Office revenue and Affiliate offices' revenue.
Graph Data Network Revenue $ 152,382 $ 128,744 $ 105,441 $ 84,675 $ 77,815 Company Revenue $ 114,005 $ 89,134 $ 70,726 $ 53,617 $ 48,021 Earnings Per Share (2) $ 1.86 1.40 $ 0.84 $ 0.34 $ 0.76 Return on Equity 26.9% 26.9% 20.3% 9.5% 27.3%
1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Right Management Consultants, Inc.: We have audited the accompanying consolidated balance sheets of Right Management Consultants, Inc. (a Pennsylvania corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Right Management Consultants, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania January 31, 1996 2 Right Management Consultants, Inc. Consolidated Balance Sheets (Dollars in Thousands Except Share Data)
December 31, 1995 1994 ---- ---- Assets Current Assets: Cash and cash equivalents $ 8,965 $ 9,156 Accounts receivable, trade, net of allowance for doubtful accounts of $754 and $651 16,918 14,282 Royalties and fees receivable from Affiliates 4,303 3,119 Note receivable 233 286 Prepaid expenses 1,360 979 Deferred income taxes 600 621 -------- -------- Total current assets 32,379 28,443 -------- -------- Property and equipment, less accumulated depreciation of $9,518 and $6,977 7,447 6,694 -------- -------- Other Assets: Intangible assets, less accumulated amortization of $6,657 and $4,790 17,824 11,888 Deferred income taxes 1,221 394 Note receivable 146 435 Other 1,214 1,115 -------- -------- 20,405 13,832 -------- -------- Total Assets $ 60,231 $ 48,969 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Line of credit $ 1,325 $ -- Current portion of long-term debt and other obligations 2,227 2,086 Accounts payable 3,643 3,354 Commissions payable 2,735 2,328 Accrued incentive compensation and benefits 3,543 5,521 Accrued redundancy costs 115 977 Other accrued expenses 2,222 1,963 Deferred income 3,435 2,331 -------- -------- Total current liabilities 19,245 18,560 Long-term debt and other obligations 5,741 4,707 -------- -------- Deferred compensation 1,619 1,297 -------- -------- Commitments and Contingent Liabilities (Notes D, F and H) Stockholders' Equity: Preferred stock, no par value; 1,000,000 shares authorized; no shares issued or outstanding Common stock, $.01 par value; 20,000,000 shares authorized; 4,313,816 and 2,891,971 shares issued 43 29 Additional paid-in capital 7,655 6,544 Retained earnings 26,636 18,830 Cumulative translation adjustment (191) (481) -------- -------- 34,143 24,922 Less treasury stock, at cost, 252,952 shares (517) (517) -------- -------- 33,626 24,405 -------- -------- Total Liabilities and Stockholders' Equity $ 60,231 $ 48,969 ======== ========
3 Right Management Consultants, Inc. Consolidated Statements of Income (Dollars and Shares in Thousands Except Per Share Data)
Year Ended December 31, 1995 1994 1993 ---- ---- ---- Revenue: Company Office revenue $ 109,741 $ 84,712 $ 66,868 Affiliate royalties 4,264 4,422 3,858 --------- --------- --------- Total revenue 114,005 89,134 70,726 --------- --------- --------- Costs and expenses: Consultants' compensation 39,957 30,796 24,282 Company Office sales and consulting support 7,359 5,459 4,575 Company Office administration 39,562 31,164 24,320 General sales, consulting and administration 13,783 11,879 10,929 --------- --------- --------- Total costs and expenses 100,661 79,298 64,106 --------- --------- --------- Income from operations 13,344 9,836 6,620 --------- --------- --------- Other income (expense): Interest income 302 282 104 Interest expense (731) (329) (277) --------- --------- --------- (429) (47) (173) --------- --------- --------- Income before income taxes 12,915 9,789 6,447 Provision for income taxes 5,096 4,075 3,150 --------- --------- --------- Net income $ 7,819 $ 5,714 $ 3,297 ========= ========= ========= Earnings per share $ 1.86 $ 1.40 $ 0.84 ========= ========= ========= Weighted average shares outstanding 4,193 4,083 3,945 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 Right Management Consultants, Inc. Consolidated Statements of Stockholders' Equity (Dollars in Thousands Except Share Data)
Additional Cumulative Total Common Stock Paid-in Retained Translation Treasury Stockholders' Shares Par Value Capital Earnings Adjustment Stock Equity ------ --------- ------- -------- ---------- ----- ------ Balance, January 1, 1993 2,789,902 $ 28 $ 5,557 $ 9,819 $ (389) $ (517) $ 14,498 Stock options exercised 55,460 1 210 -- -- -- 211 Tax benefit from exercise of stock options -- -- 168 -- -- -- 168 Translation adjustment -- -- -- -- (142) -- (142 Net income -- -- -- 3,297 -- -- 3,297 --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1993 2,845,362 29 5,935 13,116 (531) (517) 18,032 ========= ========= ========= ========= ========= ========= ========= Stock options exercised 46,609 -- 362 -- -- -- 362 Tax benefit from exercise of stock options -- -- 247 -- -- -- 247 Translation adjustment -- -- -- -- 50 -- 50 Net income -- -- -- 5,714 -- -- 5,714 --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1994 2,891,971 29 6,544 18,830 (481) (517) 24,405 ========= ========= ========= ========= ========= ========= ========= Stock options exercised 72,612 1 629 -- -- -- 630 Tax benefit from exercise of stock options -- -- 252 -- -- -- 252 Shares issued under restricted stock awards 29,700 -- 230 -- -- -- 230 Three-for-two stock split (includes rounding up for fractional shares) 1,319,533 13 -- (13) -- -- -- Translation adjustment -- -- -- -- 290 -- 290 Net income -- -- -- 7,819 -- -- 7,819 --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1995 4,313,816 $ 43 $ 7,655 $ 26,636 $ (191) $ (517) $ 33,626 ========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 Right Management Consultants, Inc. Consolidated Statements of Cash Flows (Dollars in Thousands)
Year ended December 31, 1995 1994 1993 ---- ---- ---- Operating Activities: Net income $ 7,819 $ 5,714 $ 3,297 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,284 3,246 2,407 Deferred income taxes (93) (153) (465) Compensation from restricted stock agreements 231 -- -- Other non-cash charges 492 442 226 Revenue recognized for assumption of incomplete contracts (630) (716) (112) Provision for doubtful accounts 400 75 476 Changes in operating accounts: Accounts receivable, trade and from Affiliates (3,504) (2,989) (4,726) Prepaid expenses and other assets (787) (755) 224 Accounts payable and accrued expenses (2,333) 1,147 5,194 Commissions payable 366 (230) 868 Deferred income 1,090 734 604 ------- ------- ------- Net cash provided by operating activities 7,335 6,515 7,993 Investing Activities: Purchase of property and equipment (2,643) (2,921) (1,651) Net cash paid for acquisitions (2,665) (1,628) (82) ------- ------- ------- Net cash utilized by investing activities (5,308) (4,549) (1,733) Financing Activities: Payment of long-term debt and other obligations (2,880) (1,855) (994) Proceeds from stock issuances 630 362 211 ------- ------- ------- Net cash utilized by financing activities (2,250) (1,493) (783) Effect of exchange rate changes on cash and cash equivalents 32 44 58 ------- ------- ------- Increase (decrease) in cash and cash equivalents (191) 517 5,535 Cash and cash equivalents, beginning of year 9,156 8,639 3,104 ------- ------- ------- Cash and cash equivalents, end of year $ 8,965 $ 9,156 $ 8,639 ======= ======= ======= Supplemental Disclosures of Cash Flow Information Cash paid for: Interest $ 445 $ 219 $ 103 ======= ======= ======= Income taxes $ 4,370 $ 4,721 $ 3,459 ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 6 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Right Management Consultants, Inc. (the "Company"), which does business under the name Right Associates(R), develops, markets and delivers career management and human resource consulting services through a network of Company Offices and franchisee offices ("Affiliates") located in the United States, Canada and Europe. The Company is engaged in career management and other human resource consulting services, with a primary emphasis in career transition consulting. The Company primarily delivers its services to mid-size and large industrial and service companies, with no concentration in specific companies or industries. Principles of consolidation The consolidated financial statements include the accounts of Right Management Consultants, Inc., and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Use of 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. Cash equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Revenue recognition The Company recognizes contract revenue and the related direct compensation for the services provided by Company Offices upon the performance of its obligations under consulting service contracts. Revenue and related direct commission expense, recorded at the start of performance of services, are deferred and recognized as the contracts are completed. All indirect costs are charged to expense in the period in which the obligations are incurred. 7 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Franchise revenue Royalties from the members of the Company's network arise from agreements made with Affiliates, which generally operate exclusively in designated regional locations. The terms of these agreements require the Affiliates to provide services under the Company's service marks in accordance with programs and standards developed by the Company. Affiliate royalties are 10% of each Affiliate's gross billings and are recorded when the Affiliate bills its customers for services. Property and equipment Property and equipment is carried at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets, which are generally three to seven years for furniture, fixtures and equipment and five to ten years for leasehold improvements. Intangible assets Intangible assets consist of trademarks, contact lists, covenants not to compete, Affiliate agreements and goodwill, acquired in acquisitions. The Company periodically reviews its intangibles for realizability by analyzing the projected cash flows and profitability of the acquired entities and adjusts the net book value of the recorded assets when necessary. These intangible assets are amortized on a straight-line basis as follows: Asset Years ----- ----- Trademarks 5 Contact lists 5 Affiliate agreements 5 Covenants not to compete 5 to 10 Goodwill 15 to 40 Amortization of these intangibles amounted to $1,867,000, $1,501,000, and $1,055,000 in 1995, 1994 and 1993, respectively. Currency translation The accounts of the international subsidiaries are translated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation", which requires that assets and liabilities of international operations be translated using the exchange rate in effect at the balance sheet date. The results of operations are translated at average exchange rates during the year. The effects of exchange rate fluctuations in translating assets and liabilities of international operations into U.S. dollars are accumulated and reflected as the cumulative translation adjustment in stockholders' equity. Transaction gains and losses are included in general 8 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) sales, consulting and administration for 1995, 1994 and 1993. There are no material transaction gains or losses in the accompanying consolidated financial statements for these three years. Earnings per share Earnings per share are computed based on the weighted average number of Company common stock ("Common Stock") and Common Stock equivalent shares outstanding during the year. Outstanding stock options are considered Common Stock equivalents and are included in the computation of outstanding shares using the Treasury Stock method, unless anti-dilutive. Income taxes The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the difference is reversed. Reclassifications Certain amounts have been reclassified in the 1994 Consolidated Balance Sheet to conform with the 1995 presentation. New Accounting Standards The Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of " in March 1995. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This statement is effective for financial statements for fiscal years beginning after December 15, 1995, with earlier adoption encouraged. The Company adopted SFAS No. 121 in March 1995 and reviews on a regular basis the expected cash flows of its operating subsidiaries. The initial adoption of SFAS No. 121 had no impact on the Company's consolidated financial position or results of operations. The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" in October 1995. This statement allows for two implementation options. One option is to recognize compensation expense in the consolidated financial statements using a fair-value based method, applied to virtually all stock-based compensation. The alternative would not change the current intrinsic-value approach to expense recognition, but would require pro forma disclosure in the notes to the consolidated financial 9 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) statements using the fair value method. The Company plans to adopt the pro forma disclosure option in 1996. NOTE B - ACQUISITIONS Effective January 1, 1995 and October 1, 1995, the Company acquired the assets of two former Affiliates of the Company, located in Cupertino, California and Providence, Rhode Island, respectively. Effective April 1, 1995, the Company acquired the outstanding stock of LM&P, SA ("LM&P") located in Paris, France. The aggregate purchase price of these three acquisitions was approximately $8,150,000, including costs of acquisition. The purchase price exceeded the fair value of the net assets acquired by approximately $7,388,000. These acquisitions were made for a combination of cash and non-cash items, including the assumption of incomplete outplacement contracts and the present value of future defined incentives. The assumption of incomplete outplacement contracts resulted in revenue in 1995 of approximately $630,000. The future defined incentives are contingent upon the results of the acquired entities subsequent to the transactions and apply only to the acquisitions of the former Cupertino Affiliate and LM&P. The present value of these determinable contingent payments aggregated $3,530,000 and has been accounted for as part of the purchase price. The estimated amounts for these incentives are included in long-term debt and other obligations at December 31, 1995. During 1994 and 1993 , the Company acquired the business and certain assets of the career management consulting firm Jannotta, Bray & Associates, Inc. ("JBA") and the assets and/or outstanding stock of four Affiliate outplacement consulting firms. In connection with the acquisition of JBA, the Company provided approximately $1,000,000 for closures of duplicate JBA offices, severance payouts and other charges ("accrued redundancy costs"). Simultaneously with this acquisition, the Company sold certain assets, including goodwill and other intangible assets totaling approximately $1,019,000 associated with JBA's Michigan operations, to the Company's Michigan Affiliate for $1,200,000 and had a $700,000 note receivable from this Affiliate related to this sale. The purchase price of these acquisitions was approximately $8,618,000 in 1994 and $1,169,000 in 1993, including costs of acquisition. The purchase price of these acquisitions exceeded the fair value of the net assets acquired by approximately $8,200,000 and $1,104,000 in 1994 and 1993, respectively. These acquisitions were made for combinations of cash and non-cash items. Non-cash items included the assumption of incomplete outplacement contracts and the present value of future defined incentives. The assumption of incomplete outplacement contracts resulted in revenue recognition of $716,000 and $112,000 in 1994 and 1993, respectively. The future defined incentives are contingent on the results of the acquired entities subsequent to the transactions. The present value of these determinable contingent payments aggregated $491,000 in 1994 and $375,000 in 1993 and have been accounted for as part of the purchase price. The remaining amounts are included in long-term debt and other obligations at December 31, 1995. 10 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B - ACQUISITIONS (Continued) The following represents the assets acquired and liabilities assumed to arrive at net cash paid for acquisitions discussed above for each of the three years in the period ended December 31, 1995: (Dollars in Thousands) 1995 1994 1993 ---- ---- ---- Net assets acquired: Accounts receivable $ 404 $ 242 $ -- Prepaid expenses and other assets 554 131 5 Fixed assets 522 1,211 60 Intangible assets 7,388 7,181 1,104 Note receivable from Michigan Affiliate -- 700 -- ------ ------ ------ 8,868 9,465 1,169 ------ ------ ------ Net liabilities assumed: Accounts payable and accrued expenses 718 483 -- Assumption of incomplete contracts 630 716 112 ------ ------ ------ 1,348 1,199 112 Less : Accrued redundancy costs -- 1,000 -- Contingent payments 3,530 491 375 Net due from seller -- 147 -- Term loan payable to bank (Note D) 1,325 5,000 600 ------ ------ ------ Net cash paid for acquisitions $2,665 $1,628 $ 82 ====== ====== ======
Each acquisition has been accounted for by the purchase method and the operating results of each entity have been consolidated with the Company's results since the effective date of the respective acquisition. The purchase price of each acquisition has been allocated to the assets acquired based upon their estimated fair value at the date of acquisition. 11 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B - ACQUISITIONS (Continued) The unaudited pro forma results of operations for each of the two years in the period ended December 31, 1994, reflecting the combined results of the Company and JBA as if the acquisition had occurred at January 1, 1993 are presented below. The pro forma effect of the other 1994 and 1995 acquisitions on the Company's results of operations as if they had been consummated at the beginning of 1993 and 1994, respectively, is immaterial and has been omitted. (Dollars in Thousands Except Per Share Data) 1994 1993 ---- ---- Total revenue $98,547 $84,412 ======= ======= Income before income taxes 9,743 5,800 ======= ======= Net income 5,686 2,941 ======= ======= Earnings per share 1.39 .75 ======= ======= NOTE C - PROPERTY AND EQUIPMENT Property and equipment consist of the following: (Dollars in Thousands) 1995 1994 ---- ---- Furniture and fixtures $14,182 $11,803 Computer equipment 691 492 Leasehold improvements 2,092 1,376 ------- ------- 16,965 13,671 Less accumulated depreciation 9,518 6,977 ------- ------- $ 7,447 $ 6,694 ======= ======= NOTE D - DEBT AND OTHER OBLIGATIONS In August 1995, the Company amended its existing Amended and Restated Revolving Credit and Term Loan Agreement (the "Revolving Credit Agreement") to increase the maximum unsecured revolving line of credit, from its primary bank, from $6,000,000 to $10,000,000. The Company utilized approximately $1,500,000 of its revolving credit facility in connection with the acquisition of the former Cupertino Affiliate which had been fully repaid as of December 31, 1995. 12 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D - DEBT AND OTHER OBLIGATIONS (Continued) Furthermore, for the acquisition of LM&P, the Company utilized 6.5 million French francs (or approximately $1,325,000) from the Revolving Credit Agreement, the full balance of which was still outstanding as of December 31,1995. This loan is due on January 22, 1996 and bears interest at 6.75% per annum. Also drawn from the Revolving Credit Agreement were unsecured term loans (the "Loans") of $900,000 and $600,000, respectively. The Loans were used to fund the acquisitions of the Company's Boston and Atlanta Affiliate offices in December 1992 and April 1993, respectively. As of December 31, 1995, $413,000 remains outstanding in total on these loans. In addition to its existing term loan obligations under this Revolving Credit Agreement, letters of credit totaling $159,000 had been utilized for the security of future lease payments. Accordingly, the Company had $8,103,000 available under this revolving credit facility at December 31, 1995. The Revolving Credit Agreement bears interest at the bank's quoted overnight rate with a maximum rate of 1/4% under the prime rate (6.75% at December 31, 1995), and is available to the Company until such time as the bank gives notice of cancellation. Upon such notice, it expires twelve months thereafter. The Company did not utilize any of the available credit from the Revolving Credit Agreement during 1995 and 1994 other than for the acquisitions described above. In connection with the acquisition of JBA (Note B), the Company entered into a five year $5,000,000 unsecured term loan (the "Term Loan") with its existing primary bank. Under both the Revolving Credit Agreement and the Term Loan, the major covenants require the maintenance of certain minimum financial ratios and restrict the level of indebtedness with other banks, as defined. At December 31, 1995, the Company is in compliance with all such covenants. Long-term debt and other obligations consist of the following: (Dollars in Thousands) December 31, 1995 1994 ---- ---- Bank term loan, payable in 60 equal monthly principal installments of $83,000 through August 31, 1999, bearing interest at 8.36% per annum $3,667 $4,667 Bank term loan, payable in 48 equal monthly principal installments of $19,000 through December 8, 1996, bearing interest at 6.96% per annum 225 450 Bank term loan, payable in 48 equal monthly principal installments of $13,000 through March 31, 1997, bearing interest at 5.97% per annum 187 337 Obligations payable to third parties in connection with acquisitions, noninterest-bearing and discounted at 7.5%- 10% per annum, due through 1999, estimated and contingent on future operating results of regions where acquired businesses are operating 3,889 1,339 ------ ------ 7,968 6,793 Less current portion 2,227 2,086 ------ ------ $5,741 $4,707 ====== ======
13 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D - DEBT AND OTHER OBLIGATIONS (Continued) Aggregate maturities on long-term debt and other obligations for the years subsequent to December 31, 1995 are as follows: (Dollars in Thousands) Year Ending December 31, Amount ------------------------ ------ 1996 $2,227 1997 2,680 1998 2,394 1999 667 ------ $7,968 ====== 14 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES The provision for income taxes consists of the following: (Dollars in Thousands) Year Ended December 31, 1995 1994 1993 ---- ---- ---- Current: Federal $4,107 $3,185 $2,321 State 852 671 759 Foreign 551 459 535 ------ ------ ------ 5,510 4,315 3,615 ------ ------ ------ Deferred: Federal (85) (75) (344) State (8) (66) (121) Foreign -- (12) -- ------ ------ ------ (93) (153) (465) ------ ------ ------ Utilization and benefit of foreign operating loss carryforwards (321) (87) -- ------ ------ ------ $5,096 $4,075 $3,150 ====== ====== ====== The total tax provision for each year differs from the amount that would have been provided by applying the statutory U.S. federal income tax rate to income before income taxes and extraordinary item. The reconciliation of these differences is as follows: 1995 1994 1993 ---- ---- ---- U.S. Federal income tax rate 34% 34% 34% State income taxes, net of federal tax benefit 4 4 6 Nondeductible expenses 1 1 5 Foreign earnings not subject to U.S. federal income tax (3) (3) (4) Foreign income taxes 4 5 8 Utilization and benefit of foreign operating loss carryforwards (2) (1) -- Other 2 2 -- --- --- --- 40% 42% 49% === === ===
Income before income taxes is comprised of domestic and foreign components, respectively, as follows: 1995 -- $11,449,000 and $1,466,000; 1994 -- $8,855,000 and $934,000 and 1993 -- $4,694,000 and $1,753,000. 15 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES (Continued) Deferred income taxes arise primarily as a result of utilizing depreciation lives for income tax reporting that are in excess of those used for financial reporting purposes, as well as recognizing deferred compensation expense, the provision for doubtful accounts and certain accrued expenses for financial reporting purposes, which are not currently deductible for income tax purposes. Taxes on income of international subsidiaries are provided at the tax rates applicable to their respective tax jurisdictions. The Company's share of the cumulative undistributed earnings of such subsidiaries was approximately $2,413,000 and $1,785,000 at December 31, 1995 and 1994, respectively. No provision has been made for additional income taxes on the undistributed earnings of the international subsidiaries because earnings are expected to be reinvested indefinitely in the subsidiaries' operations or because under existing law, international tax credits would be available to substantially reduce U.S. taxes payable in the event of distribution. The deferred tax asset as of December 31, 1995 and 1994 is comprised of the following: (Dollars in Thousands) 1995 1994 ------- ------- Current deferred tax asset: Allowance for doubtful accounts $ 317 $ 279 Accruals not currently deductible for income taxes 283 342 ------- ------- 600 621 ------- ------- Non-current deferred tax asset: Deferred compensation 665 317 Depreciation and amortization 160 77 Tax benefit of foreign net operating loss 301 391 Other 95 -- ------- ------- 1,221 785 ------- ------- Less: Valuation reserve -- (391) ------- ------- Deferred tax asset $1,821 $1,015 ======= ====== The reduction in the Company's valuation reserve in 1995 relates to the utilization, benefit and expiration of certain foreign net operating losses. The remaining foreign net operating losses begin to expire in 1997. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset 16 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E - INCOME TAXES (Continued) considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. NOTE F - EXECUTIVE BENEFIT AND COMPENSATION AGREEMENTS The Company has a nonqualified supplemental executive retirement plan (the "Plan") for its Founding Chairman. The Plan is designed to provide him with retirement income based on past compensation, reduced by other retirement sources. The Company accounts for this Plan in accordance with the provisions of SFAS No. 87, "Employer's Accounting for Pensions." SFAS No. 87 requires the Company to recognize a liability equal to the amount by which the actuarial present value of the accumulated benefit obligation exceeds the fair value of the Plan's assets. This liability was approximately $910,000 and $1,127,000 for 1995 and 1994, respectively. As of December 31, 1995, and 1994, the Plan was unfunded, therefore the recorded liability equals the present value of the accumulated benefit obligation. A discount rate of 7.25% and 7% was used in determining the present value of the accumulated benefit obligation in 1995 and 1994, respectively. The Company has a nonqualified supplemental executive retirement plan for its Chief Executive Officer to which a percentage of compensation, including base salary and incentive bonuses, is credited annually. Deferred amounts earn annual interest equal to the two-year Guaranteed Investment Contract Index on November 30 of the current plan year, or 6%, whichever is higher (6% and 7.53% at November 30, 1995 and 1994 respectively). The account balance is payable as a life annuity in equal monthly installments with interest on the unpaid balance upon his termination of service with the Company. The Chief Executive Officer's interest in the plan vests at the rate of 10% per year, which began in 1993. The Company also maintains a life insurance policy on the lives of the Chief Executive Officer and Founding Chairman with the Company as beneficiary. These policies are included in the general assets of the Company. The Company maintains employment agreements and incentive compensation agreements with certain management employees. The agreements provide for additional compensation over and above the individual's annual salary, based upon the achievement of certain levels of overall Company, individual group or region performance. These agreements provide for aggregate minimum annual compensation for these employees of approximately $1,372,000 in 1996, $1,238,000 in 1997, $970,000 in 1998, $187,000 in 1999 and $90,000 in 2000. 17 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE G - EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution savings plan, available to substantially all employees, under Section 401(k) of the Internal Revenue Code. Under this plan, the Company will contribute 25% of the participating employee's annual contribution. In 1995 and 1994, in connection with achieving a certain level of targeted Company profits, the Company contributed an additional 12.5% of the participating employee's contribution for a total of 37.5%. Employee contributions are generally limited to 10% of their compensation subject to Internal Revenue Code limitations. Company contributions were approximately $686,000, $489,000 and $230,000 for 1995, 1994 and 1993, respectively. In addition, the Company maintains a nonqualified deferred compensation plan for certain employees. Under the plan, participants may defer payment of up to 10% of their annual cash compensation reduced by amounts contributed to the Company's 401(k) plan. Deferred amounts earn annual interest equal to the two-year Guaranteed Investment Contract Index on November 30 preceding each plan year or 6%, whichever is higher (7.53% and 6% at November 30, 1994 and 1993, respectively). The deferred amounts will be paid from the general assets of the Company and are included in deferred compensation as of December 31, 1995 and 1994. NOTE H - LEASE OBLIGATIONS The Company leases office space and equipment at various locations and accounts for these obligations as operating leases. Rentals relating to theses leases are recorded on a straight-line basis. Rental expense approximated $11,998,000, $8,916,000 and $7,956,000 in 1995, 1994, and 1993, respectively. Contingent rentals may be due each year under the terms of the various office space leases as the result of certain increases in building operating expenses over the base year amounts. The following is a schedule, by year, of future minimum rental payments required under operating leases with remaining noncancelable lease terms in excess of one year as of December 31, 1995: Year Ending December 31, (Dollars in Thousands) Amount ---------------------- ------------------------ 1996 $11,301 1997 9,896 1998 7,873 1999 5,371 2000 4,471 2001 and subsequent years 6,977 18 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I - STOCKHOLDERS' EQUITY Stock Split Effective November 10, 1995, the Company's Common Stock split into three shares for each two shares outstanding. All share and per share amounts referred to in the financial statements and notes thereto have been retroactively restated to reflect this split where appropriate. Stock Option Plans The Company has a 1986 Stock Option Plan under which 645,000 shares of Common Stock are reserved for issuance upon the exercise of incentive stock options, stock appreciation rights or nonqualified stock options that may be granted to employees. Outstanding options granted under this plan are exercisable, cumulatively in three or four equal annual installments beginning one year from the date of grant. At December 31, 1995, 17,648 stock options were available for grant under this plan. The Company also has a 1993 Stock Incentive Plan, under which 1,050,000 shares of Common Stock are reserved for issuance upon the exercise of incentive stock options or nonqualified stock options that may be granted to employees. Outstanding options granted under this plan are exercisable, cumulatively, in three equal annual installments, beginning one year from the date of grant. At December 31, 1995, 382,461 stock options were available for issuance under this plan. In addition, in January 1995, the Company Shareholders adopted amendments to the 1993 Stock Incentive Plan permitting awards of restricted stock under such plan. The amendments to the 1993 Stock Incentive Plan permit awards of up to an aggregate of 450,000 shares of the company's Common Stock to certain officers and key employees. The value of the restricted stock award is established by the market price on the date of the grant. Restrictions generally limit the sale or transfer of the shares during a restricted period of approximately three years. Thereafter, the restricted stock will either vest, in whole or in part, with the participant or be forfeited, in whole or in part, back to the Company based on its earnings performance for this three year period. During 1995, 29,700 shares of restricted stock were awarded. Approximately $230,000 related to these shares was charged to general sales, consulting, and administration expenses in 1995. The Company also has a Directors' Stock Options Plan, under which 150,000 shares of Common Stock are reserved for issuance upon the exercise of stock options or nonqualified stock options that may be granted to non-employee Directors of the Board of Directors. These options are exercisable, cumulatively, in three equal annual installments, beginning one year from the date of grant. At December 31, 1995, 138,000 stock options were available for issuance under this plan. 19 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I - STOCKHOLDERS' EQUITY (Continued) Stock options are summarized as follows (all options and option prices have been retroactively restated for the stock split):
Number of Exercise Price Options per Option --------- -------------- Outstanding at January 1, 1993 550,238 $ 1.50 - $ 9.92 Granted 159,938 $10.33 Exercised (83,190) $ 1.50 - $ 9.92 Canceled (26,397) $ 1.50 - $ 9.92 ------- Outstanding at December 31, 1993 600,589 $ 1.67 - $10.33 Granted 192,251 $12.09 - $16.25 Exercised (69,914) $ 1.67 - $ 9.92 Canceled (33,875) $ 1.67 - $10.33 ------- Outstanding at December 31, 1994 689,051 $ 2.75 - $16.25 Granted 260,000 $11.67 - $23.25 Exercised (72,612) $ 5.67 - $15.50 Canceled (26,750) $ 6.33 - $13.50 ------- Outstanding at December 31, 1995 849,689 $ 2.75 - $23.25 =======
At December 31, 1995, 447,959 vested options were exercisable at exercise prices ranging from $2.75 to $16.25 per option. 20 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE J - GEOGRAPHIC SEGMENTS Summarized operations of each of the Company's segments in the aggregate for each of the three years in the period ended December 31, 1995, are as follows (See Note A for discussion relating to currency translation and Note E for discussion relating to income taxes):
(Dollars in Thousands) 1995 United States Canada Europe Consolidated ---- ------------- -------- ------ ------------ Identifiable assets $51,530 $2,181 $6,520 $ 60,231 Revenue 97,940 7,078 8,987 114,005 Operating income (loss) 11,874 1,987 (517) 13,344 Depreciation and amortization 3,788 173 323 4,284 Capital expenditures 2,393 96 154 2,643 1994 ---- Identifiable assets $44,217 $2,141 $2,611 $48,969 Revenue 78,753 4,662 5,719 89,134 Operating income (loss) 8,900 1,456 (520) 9,836 Depreciation and amortization 2,897 143 206 3,246 Capital expenditures 2,510 263 148 2,921 1993 ---- Identifiable assets $31,584 $1,356 $2,794 $35,734 Revenue 59,295 5,602 5,829 70,726 Operating income (loss) 5,641 1,373 (394) 6,620 Depreciation and amortization 2,090 102 215 2,407 Capital expenditures 1,326 65 260 1,651
NOTE K - SUBSEQUENT EVENT In January 1996, the Company signed a letter of intent to acquire the outstanding stock of People Tech Consulting, Inc. ("People Tech") for a combination of cash and future defined incentive payments. People Tech, headquartered in Toronto, Canada, is an organizational consulting firm specializing in change management, communication, strategy and emerging information technologies. The Company anticipates it will complete the acquisition in early April 1996. Management estimates that the purchase price will approximate $3.3 million and will be funded through a combination of cash and long-term debt. 21 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth results of operations before income taxes for the years indicated. This discussion and analysis is to be read in conjunction with the financial statements and accompanying notes thereto.
(Dollars in Thousands) Year Ended December 31, 1995 1994 1993 ---- ---- ---- Company Office revenue............................. $109,741 $84,712 $66,868 Company Office expenses............................ 86,878 67,419 53,177 -------- ------- ------- Company Office margin.............................. 22,863 17,293 13,691 Affiliate royalties ............................... 4,264 4,422 3,858 General sales, consulting and administration....... (13,783) (11,879) (10,929) Other expense, net................................. (429) (47) (173) -------- ------- ------- Income before income taxes......................... $ 12,915 $ 9,789 $ 6,447 ======== ======= =======
1995 Compared to 1994 Revenue generated by Company Offices increased 30%, or $25,029,000, in 1995 compared to 1994. This increase was due to revenue growth in existing Company Offices and the acquisitions made since June 1994 which included the Carolina region, JBA, Cupertino, LM&P and Providence. Revenue generated through these acquisitions totaled $14,590,000 or approximately 58% of the total revenue increase. On a same office basis, Company Office revenue was $94,056,000 in 1995, or an 11% increase over 1994. Affiliate royalties decreased 4%, or $158,000, in 1995 compared to 1994 due primarily to the acquisition by the Company of two Affiliates in 1995 and another in June 1994, whereby revenue is reflected as Company Office revenue subsequent to the acquisitions. On a same office basis, Affiliate royalties increased 11% in 1995 over 1994. This resulted primarily from increased market penetration particularly in the North Central and Great Lakes regions in the United States. Company Office expenses in the aggregate increased 29%, or $19,459,000, in 1995 compared to 1994, reflecting a combination of growth in existing Company offices, the 1995 acquisitions and the acquisition of JBA in September 1994. The 1995 acquisitions accounted for $5,535,000 or 28% of the total cost increase. The remaining increases were due to certain duplicate facilities and administration from the acquisition of JBA as well as general expense increases from existing Company Offices related to the revenue growth during 1995. The Company is seeking to continue to improve Company Office margins through the achievement of further economies of scale as the recent acquisitions continue to be integrated. The Company's aggregate Company Office operating margin improved moderately to approximately 21% in 1995 from 20% in 1994. 22 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) General sales, consulting and administration expense reflected an increase of approximately $1,904,000, or 16%, in 1995 compared to 1994. This increase was primarily due to investments made in the development of the Company's consulting services, increases in amortization relating to recent acquisitions and additional charges for duplicate Company Office closures primarily related to the redundant Company Offices from the JBA acquisition. Despite these increases, the total expenses in this category as a percentage of revenue plus Affiliate royalties decreased to 12% in 1995 from 13% in 1994. In 1995, income before income taxes increased 32% to $12,915,000 from $9,789,000 in 1994. This increase resulted principally from the combination of greater Company Office revenue and improved efficiencies in general sales, consulting and administration. The Company's effective tax rate was approximately 40% in 1995 compared to 42% in 1994. This reduction resulted from a combination of factors including a decrease in foreign income taxes payable by the Company and an increase in the utilization and benefit of foreign operating loss carryforwards (See Note E of the Notes to the Consolidated Financial Statements). 1994 Compared to 1993 Revenue generated by Company Offices increased 27%, or $17,844,000, in 1994 compared to 1993. This increase was primarily due to revenue growth in existing Company Offices and the acquisitions made in 1994. Revenue generated through acquisitions, including JBA, totaled $6,517,000 or approximately 37% of the total revenue increase. On a same office basis, Company Office revenue was $77,465,000 in 1994, or a 16% increase over 1993. Affiliate royalties increased 15%, or $564,000, in 1994 compared to 1993 despite acquisitions of former Affiliate offices over the past two years, whereby revenue is reflected as Company Office revenue subsequent to the acquisitions. This resulted primarily from increased market penetration particularly in the aggregate Western and Central United States regions. Company Office expenses in the aggregate increased 27%, or $14,242,000, in 1994 compared to 1993, reflecting a combination of the revenue increases in existing Company Offices and the 1994 acquisitions. While the 1994 margin for existing Company Offices improved from the prior year, the improvement was partly offset by the increased expenses from the 1994 acquisitions, including JBA. The 1994 acquisitions accounted for $6,042,000 or 42% of the total cost increase. The Company's aggregate Company Office operating margin remained unchanged at approximately 20% in 1994 as in 1993. 23 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) General sales, consulting and administration expense reflected an increase of approximately $950,000, or 9%, in 1994 compared to 1993. This increase was primarily due to increased amortization costs from acquisitions, certain technology and planning expenditures and increased incentive compensation associated with the Company's improved operating results. Despite these increases, the total expenses in this category as a percentage of revenue plus Affiliate royalties has decreased to 13% in 1994 from 15% in 1993. In 1994, income before income taxes increased 52% to $9,789,000 from $6,447,000 in 1993. This increase resulted principally from greater Company Office revenue, improved operating margins in existing Company Offices and an increase in affiliate royalties. The Company's effective tax rate was approximately 42% in 1994 compared to 49% in 1993. This decrease was a result of the Company's reduction in the effect of nondeductible expenses on the effective tax rate and foreign taxes. Capital Resources and Liquidity The Company has financed its growth primarily through a combination of cash flow provided by operations and borrowings under its Revolving Credit Agreement (See Note D of the Notes to the Consolidated Financial Statements). Increases in existing Company Office revenue, increased frequency in accounts receivable collection and generally more effective cost structures have allowed the Company to achieve its growth in cash flow from operations. The Company's working capital increased to $13,134,000 from $9,883,000 at December 31, 1995 and 1994, respectively. At December 31, 1995 and 1994, the Company had cash and cash equivalents of $8,965,000 and $9,156,000, respectively. Net cash provided by operating activities amounted to $7,335,000 and $6,515,000 for 1995 and 1994, respectively. These amounts are primarily generated from net income as well as non-cash charges such as depreciation and amortization, offset by increases in accounts receivable and accounts payable, each a reflection of continued Company growth. Net cash utilized by investing activities amounted to $5,308,000 and $4,549,000 for 1995 and 1994, respectively. The Company has strategically invested in purchases of equipment and technology to meet the needs of its expanding operations and to enhance its operating efficiency and effectiveness. In addition, in 1995 and 1994 the Company acquired the assets and/or outstanding stock of seven career management consulting firms for a combination of cash and non-cash items, including assumption of incomplete consulting contracts, future defined incentives and other considerations. The present values of these future defined incentives, which are only applicable to certain acquisitions and which are estimated to amount to an aggregate of $3,646,000 as of December 31, 1995, are contingent upon operating results of the region in which the successor Company Office now operates. These incentives generally relate to the three years subsequent to the respective acquisitions. The Company anticipates that ongoing cash flow and working capital will be sufficient to fund these incentive payments as they become due. 24 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Net cash utilized by financing activities amounted to $2,250,000 and $1,493,000 in 1995 and 1994, respectively. These amounts represent payments of the Company's borrowings and defined incentives for acquisitions made in previous years, as discussed above, which were in excess of proceeds from stock issuances. In addition to cash flow provided by operations, the Company has borrowing facilities to provide for increased working capital needs as well as to make funds available for future acquisition opportunities. During 1995, the Company increased its borrowing capacity to $10,000,000 from the previous $6,000,000 level through its Revolving Credit Agreement with its primary bank. During 1995, the Company completed the acquisitions of its former Cupertino Affiliate and LM&P, utilizing approximately $1.3 million from its revolving credit facility, all of which was outstanding at December 31, 1995. The Company had approximately $8,103,000 was available under the Revolving Credit Agreement at December 31, 1995. Furthermore, in connection with the JBA acquisition in 1994, the Company entered into a separate five year $5,000,000 unsecured term loan at a fixed annual interest rate. Subsequent to December 31, 1995, the Company signed a letter of intent to acquire the outstanding stock of People Tech for a combination of cash and future defined incentive payments. The Company anticipates it will complete the acquisition in early April 1996. Management estimates that the purchase price will approximate $3.3 million and will be funded through a combination of cash and long-term debt. The Company anticipates that its cash and working capital will be sufficient to service its existing debt and maintain Company operations at current levels for the foreseeable future. The Company will continue to consider expansion opportunities as they arise, although the economics, strategic implications and other circumstances justifying the expansion will be key factors in determining the amount and type of resources the Company will devote to further expansion. 25 RIGHT MANAGEMENT CONSULTANTS, INC. STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY Management has prepared and is responsible for the integrity and objectivity of the financial statements and related financial information contained in this Annual Report. The financial statements are in conformity with generally accepted accounting principles consistently applied and reflect management's informed judgment and estimation as to the effect of events and transactions that are accounted for or disclosed. Management maintains a system of internal control. This system, which undergoes periodic evaluation, is designed to provide reasonable assurance that assets are safeguarded and records are adequate for the preparation of reliable financial data. In determining the extent of the system of internal control, management recognizes that the cost should not exceed the benefits derived. The evaluation of these factors requires estimates and judgment by management. Arthur Andersen LLP, is engaged to render an opinion as to whether management's financial statements present fairly Right Management Consultants, Inc.'s financial position, results of operations and cash flows. The scope of their engagement included a review of the internal control system to the extent deemed necessary to render an opinion on these financial statements. The Report of Independent Public Accountants is presented in the enclosed document. The Audit Committee of the Board of Directors meet directly with the Independent Public Accountants and management to ascertain whether they are properly discharging their responsibilities. Right Management Consultants, Inc. /s/ G. Lee Bohs ------------------------------------------------ G. Lee Bohs Executive Vice President, Chief Financial Officer, Treasurer and Secretary 26 RIGHT MANAGEMENT CONSULTANTS, INC.
Directors and Frank P. Louchheim Founding Chairman and Director Executive Officers Richard J. Pinola Chairman of the Board, Chief Executive Officer and Director Joseph T. Smith President, Chief Operating Officer and Director Larry A. Evans Executive Vice President and Director Nancy N. Geffner Group EVP - Greater New York Region and Director Joseph E. Jannotta, Jr. Executive Vice President and Director Directors John R. Bourbeau President of Right Associates of the Great Lakes Region, an Affiliate of the Company Raymond B. Langton President and Chief Executive Officer of SKF North America Rebecca J. Maddox President and Co-founder of Capital Rose, Inc. Catherine Y. Selleck Business Consultant Other Executive Officers G. Lee Bohs Executive Vice President, Chief Financial Officer, Treasurer and Secretary Manville D. Smith Executive Vice President of Business Development Victor V. Coppola Group EVP - Mid- Atlantic U.S. Region Peter J. Doris Group EVP - Southeast U.S. Region David S. Orr Group EVP - North Central U.S. Region Warren R. Radtke Group EVP - Northeast U.S. Region Gary L. Saenger Group EVP - Southwest U.S. Region Terry W. Szwec Group EVP - Canadian Region George L. Whitwell Group EVP - Northwest and South Central U.S. Region Corporate Headquarters Right Management Consultants, Inc. 1818 Market Street Thirty Third Floor Philadelphia, Pennsylvania 19103 General Counsel Fox, Rothschild, O'Brien & Frankel Philadelphia, Pennsylvania
27 RIGHT MANAGEMENT CONSULTANTS, INC.
Subsidiaries Right Associates Government Services, Inc. Right Associates Acquisition Co. Conviction Right France, SA Right Associates (Belgium), Inc. Right Associates (France), Inc. Right Associates & Co., SNC Right Human Resources, Inc. Right Associates, Ltd. Right Associates, Inc. Right Associates License, Inc. R.M.C. & Co., SNC The THinc Consulting Group International (U.K.), Ltd. Service Marks and Right Associates, THinc, Partners in Managing Change Trade Marks The Right Fit, and ZIP (Zeroing-in-process) are registered Service Marks of Right Management Consultants, Inc. The Right Report and The Right JobBank are registered Trademarks of Right Management Consultants, Inc. The Right Way is a Service Mark of Right Management Consultants, Inc.
28 RIGHT MANAGEMENT CONSULTANTS, INC. Common Stock Data Right Management Consultants, Inc. Common Stock Listed on NASDAQ Stock Market Symbol RMCI 1995 High Low ---- ---- --- First Quarter 14 10 1/3 Second Quarter 15 1/3 11 1/6 Third Quarter 22 2/3 15 Fourth Quarter 29 1/4 20 1994 High Low ---- ---- --- First Quarter 15 1/2 10 Second Quarter 13 1/6 9 5/6 Third Quarter 16 2/3 11 1/3 Fourth Quarter 16 1/3 11 1/2 The above prices reflect interdealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. As of March 20, 1996, there were 164 record holders of the Company's Common Stock. The Company has never paid any dividends on its Common Stock and currently expects that all of its earnings will be retained and reinvested in the Company's business. 29 THE WORLD OF RIGHT ASSOCIATES
WORLD lllinois New York Washington HEADQUARTERS Chicago Buffalo Seattle Edwardsville Melville Philadelphia, PA Northbrook New York Wisconsin Oak Brook Westchester Madison NORTH AMERICA Oakbrook Terrace Milwaukee North Carolina US OFFICES Indiana Charlotte CANADA Indianapolis Greensboro Alberta Arizona Raleigh Calgary Phoenix Iowa Edmonton Tucson Des Moines Ohio Cincinnati British Columbia California Kansas Cleveland Vancouver Cupertino Wichita Columbus Glendale Dayton Manitoba Irvine Kentucky Toledo Winnipeg Los Angeles Fort Mitchell Pasadena Lexington Oklahoma Ontario Sacramento Louisville Oklahoma City Kingston San Bernardino Tulsa London San Diego Louisiana Mississauga San Francisco New Orleans Pennsylvania Ottawa Torrance Allentown Richmond Hill Walnut Creek Maryland Lancaster Toronto Woodland Hills Baltimore Malvern Hunt Valley Philadelphia Quebec Colorado Pittsburgh Montreal Colorado Springs Massachusetts Denver Boston Rhode Island Saskatchewan Burlington Providence Regina Connecticut Springfield Saskatoon Hartford South Carolina Stamford Michigan Charleston Detroit Greenville INTERNATIONAL Delaware Grand Rapids Aberdeen Wilmington Kalamazoo Tennessee Antwerpen Lansing Kingsport Brussels District of Columbia Midland Knoxville Geneva Washington Memphis Glasgow Minnesota Nashville Leeds Florida Minneapolis London Boca Raton Texas Manchester Fort Lauderdale Mississippi Austin Newcastle Jacksonville Jackson Dallas Paris Miami Fort Worth San Juan Orlando Missouri Houston Swindon Palm Beach Kansas City San Antonio Saint Petersburg Saint Louis Tampa Virginia Nebraska Fairfax Georgia Omaha Richmond Atlanta Vienna New Jersey Virginia Beach Montvale Parsippany Princeton
30 EX-21 6 LIST OF SUBSIDIARIES SUBSIDIARIES OF THE COMPANY 1. Right Associates Government Services, Inc., a Virginia corporation 2. Right Associates Acquisition Co., a Delaware corporation 3. Conviction Right France, SA, a French corporation 4. Right Associates (Belgium), Inc., a Delaware corporation 5. Right Associates (France), Inc., a Delaware corporation 6. Right Associates & Co., SNC, a Belgium corporation 7. Right Human Resources, Inc., a Canadian corporation 8. Right Associates, Ltd., a U.K. corporation 9. Right Associates, Inc., a Delaware corporation 10. Right Associates License, Inc., a Delaware corporation 11. R.M.C. & Co., SNC, a Belgium corporation 12. The THinc Consulting Group International (U.K.), Ltd., a U.K. corporation EX-23 7 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in this Form 10-K in the Company's previously filed Registration Statement File Nos. 33-58698, 33-62997, and 33-62999. Arthur Andersen LLP Philadelphia, Pennsylvania March 29, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 8,965 0 21,975 754 0 32,379 16,965 6,657 60,231 19,245 0 43 0 0 34,100 60,231 114,005 114,005 39,957 86,878 13,783 0 429 12,915 5,096 7,819 0 0 0 7,819 1.86 1.83
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