-----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, KPEgsjH3tQgyCxMZKqmt+oDqKiqVmJK71iafKiqHXyYnL/5Wf2nbPzfGUpKtSKDE f+F6UeMPh8mtZf/woOLxMA== 0000950159-98-000089.txt : 19980403 0000950159-98-000089.hdr.sgml : 19980403 ACCESSION NUMBER: 0000950159-98-000089 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIGHT MANAGEMENT CONSULTANTS INC CENTRAL INDEX KEY: 0000802806 STANDARD INDUSTRIAL CLASSIFICATION: 8742 IRS NUMBER: 232153729 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15539 FILM NUMBER: 98579350 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: 19103 10-K 1 UNITED STATES 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, 1997 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: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by 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 using the closing stock price as of February 20,1998 was $78,877,809. The number of shares outstanding of the registrant's Common Stock as of February 20, 1998 was 6,713,005. DOCUMENTS INCORPORATED BY REFERENCE Parts I & II Portions of the Company's 1997 Annual Report to Shareholders for the fiscal year ended December 31, 1997. Part III The Company's definitive proxy statement with respect to its 1998 Annual Meeting of Shareholders to be held on May 7, 1998. PART I Item 1: Business General Right Management Consultants, Inc. (the "Company") is an international career management and human resource consulting firm headquartered in Philadelphia, Pennsylvania. Founded in 1980, the Company has been publicly owned since 1986. The Company is the largest firm in the career management industry with revenues in excess of $125 million. Worldwide operations are structured into eight geographic groups that provide management oversight to approximately 140 locations worldwide, including both Company owned and Affiliate offices. The Company licenses its Affiliates to use its service marks 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. The Company's fees for its 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 or employment agency. The Company's operations are separated into two lines of business: Right Associates(R), specializing in career transition services, and People Tech Consulting ("People Tech"), specializing in career development and human resource consulting. Right Associates(R) Right Associates(R) currently provides career transition services to approximately 4,900 client companies, including the majority of the Fortune 500. In the two year period ended December 31, 1997, approximately 500,000 individuals were assisted by Right Associates'(R) consultants during their career transition. Right Associates'(R) services are separated into two principal categories - Individual Outplacement Services and Group Outplacement Services. Individual Outplacement Services The Company's individual outplacement services for the employer include advice on conducting the termination interview, terms of severance pay and other termination benefits. 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 consulting and motivation throughout the job search campaign; assessing new employment offers and methods of accepting such offers (including consideration of relocation issues) and, where 1 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. Approximately 83% of the career transition revenue generated by Company offices during 1997 was for individual outplacement services. Group Outplacement Services The remaining significant portion of the Company's career transition business consists of providing 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 counseling. 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. Approximately 17% of the career transition revenue generated by Company offices during 1997 was for group outplacement services. Other The Company is also providing a combination of individual and group career transition 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, consulting 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 30 Job Assistance Centers in the United States and abroad, which are staffed by employees of a government subsidiary of the Company created for this contract, and RCI, a Vienna, Virginia based consulting firm. During 1997, the Company executed a renewal of the contract with RCI extending through May 1998. The Company's anticipated share of the cost plus fixed fee contract revenue will approximate $4,500,000 over the eighteen month period through May 1998. The contract contains annual renewal options for RCI and the United States Army to extend beyond May 1998. The Company is optimistic that an extension will be granted although no assurances can be given that there will be an extension of this contract. Revenues from the contract are included in both the individual outplacement and group outplacement services described above. 2 The career transition business in total, including individual outplacement services, group outplacement services and the contract with RCI, provided approximately 91% of total Company office revenue for the year ended December 31, 1997. Career Management and Organizational Consulting During 1996, the Company acquired the outstanding stock of People Tech Consulting, Inc., a Canadian corporation (see Note C to the Consolidated Financial Statements). With the addition of People Tech's organizational consulting business to the Company's previously established career management consulting practice, the Company is strongly committed to developing and broadening this line of business. The Company provides career management consulting services which assist employers and their employees in identifying and improving areas of job performance, refining communication skills and improving employee productivity. The Company also provides human resource consulting to corporations on restructuring and realignment issues, offering 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 consulting business in total, including career management consulting and organizational consulting, provided approximately 9% of total Company office revenue for the year ended December 31, 1997. Subsequent to December 31, 1997, the Company completed the acquisition of two consulting firms with diverse capabilities, which will further strengthen its career management and organizational consulting practice. The transactions include Manus, a Stamford, Connecticut firm and The Atlanta Consulting Group, of Atlanta, Georgia. Manus has been a provider of human resource consulting services since 1984. Its areas of specialty include 360-degree feedback systems, the development of competency models, leadership development, and strategic management, as well as other aspects of corporate training and development and organizational change. The 360-degree feedback system is a product which allows management employees to find out how their supervisors, their colleagues, their direct reports, their fellow team members, their internal and external customers, and their suppliers perceive their behavior. The Manus principals will lead the human resource consulting practice for the Company's Metro New York Group. The Atlanta Consulting Group ("TACG") represents over 25 years of organizational consulting experience. The firm offers a full range of training and development methodologies and materials, and has provided strategic workforce management solutions for corporate clients. Under an exclusive licensing agreement, the Company intends to sell and deliver TACG's full 3 range of products and methodologies and has hired all TACG former employees, who will now assume key roles in the development and expansion of the consulting business in the Company's Southern Group. In addition, subsequent to December 31, 1997, the Company executed a letter of intent with Teams, Inc., Tempe, Arizona, pursuant to a transaction expected to be completed in April 1998. Teams, Inc. is a technology-based assessment firm, specializing in 360-degree feedback instruments to support a wide spectrum of organizational change initiatives, such as career management, leadership training and development, team-building and performance and pay management. The transaction will be structured as a joint venture, with the Company purchasing a 51% interest. As a part of the purchase agreement, the minority shareholders of Teams have agreed to provide the Company with options to acquire the remaining 49% of the outstanding shares of Teams beginning on April 1, 2001. Additionally, the minority shareholders of Teams have the right to require the Company to purchase the remaining 49% of the outstanding shares of Teams beginning on April 1, 2001. No assurances can be given that the transaction with Teams will be completed. See Note M to the Consolidated Financial Statements for more details on these transactions. Fees for Services Provided by Company Offices For individual career transition 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 career transition programs and consulting projects are individually billed depending upon the type of services the employer requests, the amount of consulting time required and the number of employees involved. Organization and Distribution of Company Offices and Affiliates The current network of Company offices and Affiliates is outlined in the Company's 1997 Annual Report to Shareholders, attached as Exhibit 13 hereto, that portion of which is incorporated herein by reference. Management of Company Offices and Affiliates The Company believes that a decentralized approach of organizing its business into geographic groups and related regions, which may be comprised of more than one Company office or Affiliate office, allows the Company to be responsive to individual clients, as well as allowing it to better serve its local and regional markets. Each region is responsible for the marketing and sales of career transition and consulting activities in its assigned area. 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." 4 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 transition and 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 marks, including "Right Associates(R)". Under the Affiliate Agreements, the Company assists the Affiliates in various ways in the provision of career transition and 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 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 transition or consulting services within Exclusive Territories which the Company currently or in the future grants or assigns to Company offices. 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. Company Training of Affiliates The Affiliate Agreements require the Company to train the Affiliate and its employees in marketing and delivery of career transition and consulting services. The Company is responsible for overall guidance and has established Company standards and policies relating to its 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 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 Affiliates' 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. 5 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 career transition 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. The 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. 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. 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 6 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. Acquisitions During 1997, the Company completed eleven separate acquisitions consisting of ten career transition firms and one search firm. See Note C to the Consolidated Financial Statements for a detailed description of the acquisitions. The total purchase price for these acquisitions aggregated approximately $15,556,000, including costs of acquisition. The acquisitions were consummated through combinations of cash and non-cash considerations, including the assumption of incomplete consulting contracts. During the period 1991 through 1996, the Company completed fifteen separate acquisitions of career transition and consulting firms for combinations of cash, future defined incentives, incomplete career transition contracts and other considerations. The total purchase price for these transactions aggregated approximately $24,104,000, including costs of acquisition. During the period 1991 through 1997, the total number of acquisitions completed by the Company included ten former Affiliates. At December 31,1997, there were five domestic Affiliate regions remaining in the Company's network of offices. Government Regulation 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. 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 7 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 upon expiration. 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. As part of the Company's operating strategy, new Affiliates are not being sought and the Company will likely acquire the remaining Affiliate territories as they become available. Financial Information Relating to Foreign Operations See the Company's Consolidated Financial Statements, Note L, "Segments" contained in the Company's 1997 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this report, 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 28, 1998, the Company and its subsidiaries employed 880 persons full-time, including 14 in senior management, 92 in other managerial and professional roles, 342 in field operations as consultants, and 432 in clerical capacities. In addition, the Company employed 376 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. In general, the Company believes that its employee relations are good. Risk Factors In addition to the other matters discussed elsewhere in this Report, the following risk factors should be taken into account in evaluating the Company and its business: 1. Government Regulation: In connection with its arrangement with its Affiliates, the Company devotes resources to complying with state and federal laws governing franchising. The Company believes that its practices and procedures are not in violation of the material provisions of such state and federal laws and it has not received notices of material claims or assertions from Affiliates regarding non-compliance. Nevertheless, the Company's past practices may give rise to possible liability, and given the scope of the Company's business and the nature of franchise regulation, compliance problems could be encountered in the future. For a discussion of the Company's past and current compliance with state and federal franchising laws, other regulatory aspects of the Company's relations with its Affiliates and possible 8 liability of the Company for certain of its past activities, see "Business - Government Regulation." Although career transition and human resource consulting services are not currently specifically subject to state or federal regulation, the Company is aware that such regulation has been considered by the legislatures of several states. There can be no assurance that such regulation will not be adopted in the future. 2. Relations with Affiliates: The Company's revenue depends in part on royalties and fees paid by Affiliates. Under the current Affiliate Agreements, the royalty is equal to 10% of the Affiliate's total gross receipts. The fees paid by Affiliates to the Company vary depending on the services provided by the Company. The Company believes that the 10% royalty is reasonable and currently has no plans to reduce it, although there can be no assurance that such royalty will continue to be maintained at such level under all circumstances. The Company believes that its relations with the Affiliates are good, however, there can be no assurance that such relations will remain so. A deterioration of these relationships among the Company and its Affiliates, or among the Affiliates themselves, or an inability to collect royalties and fees payable to the Company or payable by one Affiliate to another could materially adversely effect the Company. See "Business - Affiliate Arrangements." 3. Possible Effects of Change in Company Control and Possible Future Issuance of Preferred Stock: Under certain circumstances and pursuant to its Affiliate Agreements, upon certain contemplated sales of 51% or more of the Company's outstanding Common Stock, or a Company merger, consolidation or reorganization, the Affiliates may have a right of first refusal to acquire the Common Stock of the Company being sold or exchanged, on the same terms as the proposed transaction with a third party. In addition, under the Affiliate Agreements and under certain circumstances, upon sales of 51% or more of the Company's assets or capital stock in one or more transactions, or a Company merger, consolidation or reorganization, then, regardless of the time remaining on the term of such Affiliate's current Affiliate Agreement, the term of such Affiliate Agreement is automatically altered to either (i) one year, with the Affiliate also having an option to renew the Affiliate Agreement for an additional four year period upon the expiration of such one year term, or (ii) five years, extending from the date of such transaction, merger, consolidation or reorganization. Also, in the event of such transaction or reorganization, under the Company's Employment Agreements with its executive officers, such officers have an option to extend the term of their respective Employment Agreements for an additional two years. The Company's Articles of Incorporation authorize the issuance of up to 1,000,000 shares of Preferred Stock, at the discretion of the Board of Directors. The Board of Directors may also fix from time to time in the future, the designations, limitations, and preferences for any such series of Preferred Stock issuance, without any further vote or action by shareholders. 9 The Affiliates' right of first refusal and the alteration of the term of their Affiliate Agreements, or the executive officers' right to extend the term of their Employment Agreements, or the issuance of Preferred Stock at the discretion of the Board of Directors may make the Company less attractive to an entity or group considering acquiring control of the Company or may make an acquisition materially more difficult, resulting in lower acquisition price per share, or may otherwise materially adversely affect an investment in the Company's Common Stock. 4. Competition: The Company competes against other providers of career transition services and other human resource consulting services. Based on consolidated revenues for 1997, the Company has maintained its status as the world's largest provider of career management services worldwide. However, the Company's primary national and international competitors are divisions of companies much larger than the Company, and these competitors may have access to financial and other resources substantially greater than those available to the Company. 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 also competes against local career transition and other human resource consulting firms that are well-established in a particular region. The Company believes that the cost for its services are 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 and other human resource consulting businesses. 5. Dependence on Personnel: As with other service businesses, the Company depends upon the continued services of its executive, sales, and consulting personnel. The loss of these personnel, or an inability to attract and retain new qualified personnel or to retain qualified Affiliates, could have an adverse impact on the Company. 6. Risks Related to the Company's Acquisition Strategy: The Company has grown both internally and through acquisitions, and intends to continue to grow by both of these methods. Historically, the Company has primarily acquired outside firms within the highly fragmented career transition services industry. See "Business - Acquisitions." In future periods, the Company will continue to consider opportunistic acquisitions of career transition providers. However, it is more likely that the Company will look to acquire other consulting service providers, thereby allowing the Company to diversify its range of services provided. Increased competition for acquisition candidates may develop, in which case there may be fewer acquisition opportunities available to the Company, as well as higher acquisition prices. There can be no assurance that the Company will be able to continue to identify, acquire, or profitably manage additional businesses or successfully integrate acquired businesses, if any, without substantial costs, delays or other operational or financial problems. Further, 10 acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key acquired personnel, risks associated with unanticipated events or liabilities and amortization of acquired tangible and intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there can be no assurances that the Company's existing business, subsequent acquisitions or other businesses acquired in the future will achieve anticipated revenues and earnings. 7. Economic Conditions on a Local, Regional, National, and International Basis: The demand for the Company's services, primarily career transition services, is impacted by the overall economic strength on a local, regional, national and international basis. In general, a stronger economy can lead to easier and more rapid job change and reentry, which can reduce the demand for the Company's services or compress the length of the services provided, thereby negatively impacting prices. Weaker economic conditions can also lead to reluctance on outside companies' part to incur the expenditure associated with the Company's services. Item 2: Properties The Company leases approximately 23,000 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 684,000 square feet for all Company offices, including the corporate headquarters, at an aggregate yearly rental cost of approximately $14,350,000. Most of these leases are also subject to annual operating expense escalation clauses. The Company believes its facilities are adequate to provide services to its clients. 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. 11 Executive Officers of the Registrant Each of the following executive officers of the Company has been appointed by the Board of Directors and served during 1997 in the following roles. All of the executive officers are expected to devote their full business time to the Company's affairs. Name Age Position(s) Richard J. Pinola 52 Chairman of the Board of Directors and Chief Executive Officer Frank P. Louchheim 74 Founding Chairman and Director Joseph T. Smith 62 President, Chief Operating Officer and Director John J. Gavin 41 Executive Vice President G. Lee Bohs 38 Executive Vice President, Chief Financial Officer, Secretary and Treasurer Larry A. Evans 55 Executive Vice President and Director Dr. Marti D. Smye 47 President of People Tech and Director Frederick R. Davidson 61 President of Davidson & Associates, Pty. Ltd. and Director Peter J. Doris 51 Executive Vice President Nancy N. Geffner 58 EVP - New York Group Manville D. Smith 58 EVP - Southern Group Terry W. Szwec 47 EVP - Canadian Group Gilbert A. Wetzel 65 EVP - Eastern Group Joan Strewler 47 EVP - North Central Group Timothy D. Dorman 50 EVP - Western Group 12 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. He 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 of two outside companies: Epitaxx and 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. Mr. Joseph Smith joined the Penn Mutual Life Insurance Company in 1963. In 1976, he was promoted to Vice President of Administration and Human Resources, which position he held until his resignation in 1980. 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. Mr. Gavin was employed at Arthur Andersen LLP in Philadelphia for 18 years in which he served as the partner in charge of the manufacturing/distribution industries. Mr. Gavin joined the Company in December 1996 as Executive Vice President. In this capacity, Mr. Gavin is responsible for the overall marketing strategy and business development activities for the Company's worldwide locations. Mr. Gavin serves as the Chairman of Temple University's Accounting Advisory Board and is a member of the Board of Trustees of the Eagle's Fly for Leukemia Foundation. 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. Bohs also serves as a director of Alliance National Inc., a public company which provides short term office space and comprehensive business support services. 13 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. From January 1990 until May 1995, Mr. Evans served as Regional Managing Principal of several Company offices. 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 1981 to 1989, Dr. Smye was a partner of the industrial psychology firm, Jackson Smith. From this company, in 1989 she founded the change leadership consulting firm, People Tech Consulting, Inc. ("People Tech"). People Tech was acquired by the Company in April 1996. In addition, she is the author of two books titled You Don't Change a Company by Memo: The Simple Truths About Managing Change and Corporate Abuse: How "Lean and Mean" Robs People and Profits. Dr. Smye also serves on various boards of both private companies and community associations, including the Public Policy Forum and the Harvard Business School Club of Toronto. Mr. Davidson is the President of Davidson and Associates, Pty. Ltd., an Asia-Pacific career transition firm of which the Company acquired a fifty-one percent interest during 1997 (see Note C to the Consolidated Financial Statements). Mr. Davidson was elected a Director by the Board of Directors on July 24, 1997. Mr. Davidson has published numerous articles on career planning, termination practices and managing large scale staff reductions, and he is the author of The Art of Executive Firing and Handbook of Executive Survival. Mr. Davidson is the founding president of the Australian Association of Outplacement Consulting Firms. Prior to joining the Company in 1986, 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 Executive Vice President for the Southern region of the United States in which capacity he served during 1996. During 1997, Mr. Doris worked 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 December 1983, Ms. Geffner 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 Executive Vice President for the New York Group, in which capacity she served during 1997. 14 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 and Mr. Smith served in this capacity until 1996. Effective January 1997, Mr. Smith became the Group Executive Vice President for the Southern region of the United States in which capacity he currently serves. 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 Havilland 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 Executive Vice President for the Canadian operations of the Company in which capacity he currently serves. Prior to joining the Company in 1994, Mr. Wetzel was associated with the Bell System serving as Chairman and Chief Executive Officer of Bell of Pennsylvania and Diamond State Telephone. Effective December 1996, Mr. Wetzel became the Group Executive Vice President for the Eastern region of the United States in which capacity he currently serves. Mr. Wetzel serves as a director of Ace*Comm Corporation, a public company which develops, markets and services operations support systems products for networks deployed by telecommunications service providers using intranets and the Internet. Prior to the Company's acquisition of Career Dynamics, Inc. ("CDI") (see Note C to the Consolidated Financial Statements), Ms. Strewler was the President of CDI, an innovative leader in career transition services and organizational consulting. Effective August 1, 1997, Ms. Strewler became the Group Executive Vice President for the North Central region of the United States in which capacity she currently serves. Ms. Strewler also serves on various boards of both private and not-for-profit companies, as well as industry trade associations, including the Association of Outplacement Consulting Firms - North America (AOCFNA) and the International Board of Career Management Certification. 15 Prior to the Company's acquisition of Nelson, O'Connor & Cox ("Nelson") (see Note C to the Consolidated Financial Statements), Mr. Dorman was the Vice President and Managing Director of the Pacific Coast office of Nelson, an executive search firm. Prior to joining Nelson, Mr. Dorman held various executive positions in the career management industry. In July 1997, Mr. Dorman became the Group Executive Vice President for the West region of the United States in which capacity he currently serves. 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 The information required by this Item is incorporated by reference to the section titled "Common Stock Data" in the Company's 1997 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 6: Selected Financial Data The information required by this Item is incorporated by reference to the section titled "Selected Financial Data" in the Company's 1997 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 The information required by this Item is incorporated by reference to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 1997 Annual Report to Shareholders, the incorporated portions of which are included as Exhibit 13 to this Report. Item 8: Financial Statements and Supplementary Data The information required by this Item is incorporated by reference to the sections titled "Consolidated Balance Sheets", "Consolidated Statements of Income", "Consolidated Statements of Shareholders' Equity", "Consolidated Statements of Cash Flows" and "Notes to Consolidated Financial Statements" in the Company's 1997 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. 16 PART III The information called for by Items 10 through 13 of Form 10-K (except for the information set forth on pages 12-16 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 Public Accountants" contained in the Company's definitive Proxy Statement with respect to its 1998 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) The following documents are filed as a part of this Report: 1. Financial statements: The following is a list of financial statements which have been incorporated by reference from the Company's 1997 Annual Report to Shareholders, as set forth in Item 8: Report of Arthur Andersen LLP, Independent Public Accountants Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Income for each of the three years in the period ended December 31, 1997 Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 1997 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 Notes to Consolidated Financial Statements 2. Financial statement schedule: The following financial statement schedule for the Company is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of the Company. Report of Arthur Andersen LLP, 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. 17 3. Exhibits: The Exhibits listed on the accompanying Index to Exhibits are filed as part of, or incorporated by reference into, this Report, under Item 601 of Regulation S-K: 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 1986 Shareholders' Agreement (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed November 12, 1986). 10.02 401(k) Savings Plan (incorporated by reference to the Company's Form S-1 (File No. 33-9034), filed September 25, 1986). * 10.03 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). * 10.04 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). * 10.05 Further Amendment to Amended and Restated Employment Agreement between Right Management Consultants, Inc. and Frank P. Louchheim dated February 16, 1993 (incorporated by reference to the Company's report on Form 10-K for the fiscal year ended December 31, 1992, filed March 31, 1993). * 10.06 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). * 10.07 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). 10.08 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, 1995, filed May 15, 1995). 10.09 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).* 10.10 Directors' 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).* 10.11 Employment Agreement dated December 12, 1995 by and between Right Management Consultants, Inc. and Richard J. Pinola (incorporated by reference to the Company's Form 10K for the year ended December 31,1995, filed March 31, 1996). * * These documents are compensatory plans or agreements required to be filed as Exhibits. 18 10.12 Employment Agreement and Supplemental Deferred Compensation Plan dated December 12, 1995 by and between Right Management Consultants, Inc. and Joseph T. Smith (incorporated by reference to the Company's Form 10K for the year ended December 31,1995, filed March 31, 1996).* 10.13 Purchase Agreement between PTR Right Acquisition Co. Inc. and Marti Smye, Margaret Smith, Richard Zuliani, Margaret Smith Family Trust, Richard Zuliani Family Trust and People Tech Consulting, Inc. dated April 10, 1996 (incorporated by reference to the Company's report on Form 10-Q for the quarter ended March 31, 1996, filed May 14, 1996) 10.14 Employee Stock Purchase Plan of the Company (incorporated by reference as Exhibit 4 filed in the Company's report on Form S-8 (File No. 333-06211), filed June 18, 1996).* 10.15 Amendment to the 1993 Stock Incentive Plan (incorporated by reference to the Company's report on Form S-8 (File No. 333-07975), filed July 11, 1996).* 10.16 Credit Agreement between Right Management Consultants, Inc. and its wholly owned subsidiaries and PNC Bank, National Association dated December 20, 1996 (incorporated by reference to the Company's Form 8-K, dated January 17, 1997) 10.17 Employment Agreement dated April 10, 1996 by and between Right Management Consultants, Inc. and Marti Smye (incorporated by reference to the Company's report on Form 10K for the year ended December 31, 1997, filed March 28, 1997). * 10.18 Purchase Agreement between and among Right Management Consultants, Inc. and Frederick R. Davidson, Stradis Pty. Ltd., William D.T. Cowan, Phillip A. Lovett and David Stratford, and Right D&A Pty. Ltd. dated July 1,1997. 10.19 Option and Escrow Agreement between and among Right Management Consultants, Inc. and Frederick R. Davidson, Stradis Pty. Ltd., William D.T. Cowan, Phillip A. Lovett and David Stratford, and B&McK Nominees dated July 1,1997. 13. Portions of the Company's 1997 Annual Report to Shareholders expressly incorporated by reference. 21. Subsidiaries of the Company. 23. Consent of Arthur Andersen LLP, Independent Public Accountants 27.1 Financial Data Schedule -1997 + 27.2 Financial Data Schedule - 1996 Amended + (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31, 1997. *These documents are compensatory plans or agreements required to be filed as Exhibits. + 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: 3/26/98 20 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 3/26/98 Richard J. Pinola and Chief Executive Officer /S/ G. LEE BOHS Chief Financial 3/26/98 G. Lee Bohs Officer and Principal Accounting Officer /S/ FRANK P. LOUCHHEIM Director 3/26/98 Frank P. Louchheim /S/ JOSEPH T. SMITH Director 3/26/98 Joseph T. Smith /S/ DR. MARTI D. SMYE Director 3/26/98 Dr. Marti D. Smye /S/ JOHN R. BOURBEAU Director 3/26/98 John R. Bourbeau /S/ RAYMOND B. LANGTON Director 3/26/98 Raymond B. Langton /S/ REBECCA J. MADDOX Director 3/26/98 Rebecca J. Maddox /S/ CATHERINE Y. SELLECK Director 3/26/98 Catherine Y. Selleck 21 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Right Management Consultants, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Right Management Consultants, Inc. and subsidiaries included in this Form 10-K and have issued our report thereon dated February 7, 1998. Our audit was made for the purpose of forming an opinion on those financial statements taken as a whole. The financial statement schedule listed on page 17 is the responsibility of the Company's management and is presented for the 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 auditing procedures applied in the audit 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. /s/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 7, 1998 Right Management Consultants, Inc. Schedule II - Valuation and Qualifying Accounts and Reserves For the Years 1997, 1996 and 1995
Additions Balance at Charged to Charged to Balance at Beginning of Costs and Other End of Description Year Expenses Accounts Deductions Year 1997: Allowance for doubtful accounts $552,000 $329,000 - $218,000 $663,000 ======== ======== Deferred income tax asset valuation reserve $192,000 -- - $192,000 (1) $ -- ======== ======== 1996: Allowance for doubtful accounts $754,000 $28,000 - $230,000 $552,000 ======== ======== Deferred income tax asset valuation reserve -- $192,000 - -- $192,000 ======== 1995: Allowance for doubtful accounts $651,000 $400,000 - $297,000 $754,000 ======== ======== Deferred income tax asset valuation reserve $391,000 -- - $391,000 (1) -- ========
(1) Reduction due to the utilization and expiration of certain foreign net operating losses. Exhibit Index Exhibit No. Description 10.18 Purchase Agreement between and among Right Management Consultants, Inc. and Frederick R. Davidson, Stradis Pty. Ltd., William D.T. Cowan, Phillip A. Lovett and David Stratford, and Right D&A Pty. Ltd. dated July 1,1997. 10.19 Option and Escrow Agreement between and among Right Management Consultants, Inc. and Frederick R. Davidson, Stradis Pty. Ltd., William D.T. Cowan, Phillip A. Lovett and David Stratford, and B&McK Nominees dated July 1,1997. 13 The Company's 1997 Annual Report to Shareholders, portions of which are incorporated by reference 21 Subsidiaries of the Company 23 Consent of Arthur Andersen LLP 27.1 Financial Data Schedule - 1997 + 27.2 Financial Data Schedule - 1996 Amended + + Filed in electronic form only. EX-10.18 2 EXHIBIT 10.18 - PURCHASE AGREEMENT BETWEEN AND AMONG RIGHT MANAGEMENT CONSULTANTS, INC. AND FREDERICK R. DAVIDSON, STRADIS PTY LTD, WILLIAM D. T. COWAN, PHILLIP A. LOVETT AND DAVID STRATFORD, AND RIGHT D&A PTY. LTD. DATED JULY 1,1997 EXHIBIT 10.18 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT, is made and entered into as of the 1ST day of July, 1997 by, between and among, FREDERICK R. DAVIDSON, STRADIS PTY LTD, WILLIAM D. T. COWAN, PHILLIP A. LOVETT and DAVID STRATFORD ("Sellers"), RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania (USA) corporation or its designee ("Buyer") and RIGHT D&A PTY LTD, a Victoria (Australia) corporation ("RDA"). BACKGROUND Sellers own all of the issued and outstanding capital stock ("Stock") of RDA, a corporation formed under the laws of the State of Victoria, Australia. The ownership of the issued capital stock by Sellers is as set forth on Schedule a hereto. RDA is the owner of 100% of the issued capital stock of the seven corporations, identified on Schedule B (the "Corporations"), having acquired such shares from Sellers during June 1997. William D. T. Cowan is the sole beneficial owner of Stradis Pty Ltd. For purposes of this Agreement, Stradis Pty Ltd and William D. T. Cowan shall be considered as one Seller, and each shall be obligated to fulfill any obligation of either hereunder. Corporations are engaged in the business of providing outplacement, human resource, organization consulting, and related services principally in Australia, Singapore, New Zealand and Hong Kong (the "Business"). Davidson & Associates Pty Ltd., one of the Corporations, and Buyer are parties to a Corresponding Agreement represented by a letter agreement dated September 20, 1996, which agreement is anticipated to continue between Buyer and RDA following the closing. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Purchase and Sale of the Stock. At the Closing (hereinafter defined), Buyer shall purchase from the Sellers and the Sellers shall sell and transfer to Buyer 51% of the Stock, free and clear of all claims, liens, encumbrances, restrictions, and security interests of any kind whatsoever. The number of shares of the Stock to be sold by each Seller, and shares remaining after the sale, is set forth on Schedule 1 attached hereto and made a part hereof. 2. Purchase Price. (a) At the Closing, Buyer shall pay, an aggregate purchase price to Sellers for the Stock being purchased by it from Sellers, based on a formula equal to one (1) times the consolidated net sales revenue ("NSR") of the Corporations for the year ending June 30, 1997. In the event the NSR is not known at the time of the closing, the purchase price will be based on the actual NSR for the 11 months ending May 31, 1997, and a June NSR estimate, with an adjustment to the actual NSR within 15 days of its acceptance by Buyer. "NSR" shall mean gross client invoicing less credit notes. -2- (b) In the event that an estimate of NSR is used, Sellers will be responsible for presenting the actual NSR when it is available, and will communicate the NSR to Buyer. Unless the Buyer shall advise the Sellers of its objection to the actual NSR within 10 days of Buyer's receipt of the actual NSR, the actual NSR submitted by the Sellers shall be deemed accepted, and the adjustment to the purchase price provided for above shall be made within 15 days of such date. In the event of a disagreement concerning the actual NSR, the Managing Partner or his/her nominee at the Melbourne Office of the accounting firm of Arthur Andersen LLP shall, at the expense of Buyer, determine the NSR, which determination shall be conclusive, and any adjustment of the purchase price shall take place within 15 days of Arthur Andersen's determination. (c) Approximately eighty-five percent (85%) of the purchase price will be paid by Buyer to the Sellers by wire transfer of funds to accounts designated by each Seller at least ten days prior to the Closing. The balance of the purchase price (approximately 15%) will be paid by the issuance of shares of the common stock of Right Management Consultants, Inc. ("RMC") to each Seller. Shares will be valued on a per share value equal to the average traded closing price, as reported by the National Association of Securities Dealers, on each of the days such shares trade during the 30 calendar days prior to the public announcement by RMC of the acquisition which is the subject of this agreement. The parties agree that the formula for share value results in each share having a value, for purposes of this Agreement of US$10.24 The conversion of the price of each RMC share of stock for purposes of determining the number of -3- shares to be issued, shall be the exchange rate of $US to $A at 11 a.m. on July 1, 1997 based on the average buy and sell quotations as reported by ANZ Bank, Melbourne, Australia. It is understood that the shares will be issued on or about July 31, 1997 and will be issued without registration with the United States Securities and Exchange Commission and will be subject to restrictions applicable to a private placement of shares. The use of shares as a portion of the purchase price shall be subject to the following: (i) The number of shares to be issued to the Sellers shall be established at the Closing based on the estimated NSR. Any adjustment to the purchase price based on the determination of the actual NSR shall be made to the cash portion of the purchase price. (ii) Notwithstanding that the applicable United States securities laws may permit resale of the RMC shares outside of the United States, without a holding period, each Buyer agrees to retain the shares issued as a portion of the purchase price for a period of one year from the Closing Date, during which period, each Seller shall refrain from voluntary sale or transfer of such shares. 3. Closing; Effective Date. The closing under this Agreement (the "Closing") will take place simultaneously with the execution of the Agreement (the "Closing Date"), at the offices of RDA, or at such other -4- time or place as the parties shall mutually agree. The Effective Date of the Closing will be July 1, 1997. 4. Employment Arrangements. Effective July 1, 1997, RDA or one or more of the Corporations shall continue the employment of each Seller, individually and independently, on the terms and conditions of their existing employment with Corporations, subject to Buyer's standard Policies of Employment, including restrictive covenants following employment. In addition, and in consideration of the Purchase Price paid hereunder, each Seller agrees that for a period of two (2) years from the Effective Date such Seller will not, directly or indirectly, own, manage, operate, control or in any way whatsoever become associated with any corporation, partnership or other business entity which is engaged in activities in competition with the Business, in Australia, Singapore, New Zealand or Hong Kong (the "Covenant Not to Compete"), (a) The parties realize that, due to the nature of the Business, the geographic boundary of the Covenant Not to Compete is reasonable and necessary to adequately and sufficiently protect Buyer's investment in the Business. However, if the period of two years for the Covenant Not to Compete is determined to be unenforceable, then the period shall be one year; and if one year is determined to be unenforceable, then the period shall be six (6) months. (b) Each Seller agrees that any breach or threatened breach of the Covenant Not to Compete may give rise to irreparable harm to RDA and Buyer and, therefore, said -5- Covenant Not to Compete may be specifically enforced by RDA or Buyer and RDA or Buyer may, in addition to all other remedies available to it at law or in equity, be entitled as a matter of right to injunctive relief in any court of competent jurisdiction. (c) If the geographic boundary specified in this Paragraph shall be determined unenforceable, then the geographic area shall be reduced to encompass all of Australia, or if that area is determined to be unenforceable, then the states of Victoria and New South Wales. (d) In the event of the breach by any Seller of the provisions of this Paragraph, the period stated above applicable to such Seller shall be extended by the amount of time such Seller was in breach of the provisions. (e) For the period of two years, or such shorter time determined in accordance with subparagraph (a) above, each Seller agrees not to directly or indirectly employ, solicit, entice away or attempt to employ, solicit or entice away from RDA or any Corporation, whether or not that person would commit a breach of contract by reason of leaving RDA or any Corporation, any person who as at the Effective Date was an officer, manager, consultant or employee of RDA or any Corporation. (f) Each of the covenants, obligations and restrictions set out in this Paragraph 4 is separate, severable and independent. If any part of this Paragraph 4 is wholly or partly void, invalid, or otherwise enforceable, that clause or -6- part will be deemed eliminated or modified to the extent necessary to make the balance of this Agreement and that clause or part enforceable. (g) RDA is joining as a party to this Agreement to the extent necessary to be able to join with Buyer in seeking to enforce the provisions of this Paragraph 4. 5. Representations and Warranties of Sellers. Sellers represent and warrant to Buyer that: (a) Authority; Ownership. The Sellers are the sole legal and beneficial owners of the Stock, and have good and marketable title to the Stock, free and clear of all claims, liens, encumbrances, restrictions, and security interests of any kind whatsoever. The authorized capital of RDA and each Corporation is as set forth on Schedule 5(a) hereto. The Stock is the only issued and outstanding shares of RDA and the Stock has been duly authorized and validly issued and is outstanding as fully paid and not subject to any further liability to the corporation. There are no outstanding options or agreements under which any person or entity has the right, present or future, to acquire any shares of RDA's or any Corporation's stock or any rights therein. The Sellers have the full right, personal power and authority to sell and transfer the Stock as provided herein, without the necessity of obtaining the consent or permission of any third party. (b) Corporate Organization; Authority. Each Corporation is validly constituted in accordance with the Corporation Law of Australia, or its country of incorporation, -7- and is in compliance with the Corporation Law of Australia or its country of incorporation, in all material respects, and has the power and authority to own and use its assets and to carry on its business as it is now conducted. The execution, delivery and performance of this Agreement will not contravene or violate or constitute a breach of the terms of any Corporation's Memorandum and Articles of Association or any agreement to which it is a party. (c) Binding Obligation. This Agreement has been duly executed and delivered by Sellers and constitutes the legal, valid and binding obligations of Sellers in accordance with its terms. The execution, delivery and performance of this Agreement will not conflict with, result in a breach of, or entitle any party to terminate or call a default with respect to any contract, instrument, judgment, order, decree, law, rule or regulation applicable to Sellers or by which they are bound. (d) Consents. No consent of any party to any contract or arrangement to which the Sellers are a party or by which they are bound or to which RDA or any Corporation is subject is required for the execution, consummation or performance of this Agreement. To the knowledge of Sellers, no authorization, approval or consent of, and no registration or filing with, any governmental or regulatory official, body or authority is required in connection with the execution, delivery or performance of this Agreement by the Sellers, except approval of the Foreign Investment Review Board of Australia. (e) Litigation. There are no actions, suits, proceedings, orders, investigations, -8- or claims pending or, to the knowledge of Sellers, threatened, against or relating to the Sellers, RDA or any Corporation, or that would affect this Agreement, or, if adversely determined, could have a material adverse affect on RDA or any Corporation, or the Business, at law or in equity, or before or by any federal, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and to the knowledge of the Sellers there is no reasonable basis for any of the foregoing. (f) Taxes. RDA and each Corporation has properly prepared and duly filed all Tax (hereinafter defined) returns or reports required to be filed by it in a timely manner and all such returns and reports properly and accurately reflect the Tax payable by RDA or any Corporation for the periods covered thereby. RDA and each Corporation has paid in full when due all Tax payable (including payments required to be made by installment) by RDA and each Corporation at any time prior to the date of this Agreement and proper provision has been made by the Corporation in its Financial Statements (hereinafter defined) for Tax payable for periods prior to the Effective Date with respect to which Tax returns or reports are not yet required to be filed. There are no agreements, waivers or other arrangements, including for any extension of time, with respect to the filing of any Tax payment of any governmental charge, penalty, interest or fine by RDA or any Corporation with respect to the issuance of any Tax assessment or reassessment. There are no actions, suits, proceedings, investigations or claims now pending, or to the knowledge of Sellers threatened or contemplated against RDA or any Corporation in respect of any Tax, governmental charges, assessments or reassessments or any matters under discussion with any governmental authority relating to any Tax, governmental charges, -9- assessments or reassessments or any claims for additional taxes, governmental charges, assessments or reassessments asserted by any such authority. RDA and each Corporation has withheld all amounts required by law to be withheld from payments made by it and has remitted such amounts to the appropriate authorities within the times required by law. For the purposes of this Section 5(f), "Tax" means all income, fringe benefits tax, stamp duties, financial institutions duties, capital payroll, sales and use, value added, excise, franchise, goods and services and real property taxes and customs and excise duties, nor any fines, penalties or interest in connection with any of the foregoing, whether federal, state or local. Neither RDA nor any Corporation shall have any tax due as a result of the reorganization pursuant to which RDA became the owner of the shares of each Corporation. (g) Books and Records. The books and accounts and other corporate records of RDA and each Corporation relating to the Business are complete and correct in all material respects, and all material transactions of the Business have been accurately recorded therein in accordance with generally accepted Australian Accounting Standards, consistently applied.. (h) Financial Statements. Sellers have delivered to Buyer financial statements of each Corporation as of and for the year ended June 30, 1996, and for the ten months ended April 30, 1997 (the "Financial Statements"). The Financial Statements fairly and accurately present the financial condition of each Corporation as of the dates thereof and the results of each Corporation's operations for the periods described therein, in accordance with applicable generally accepted Australian Accounting Standards principles, consistently applied. Since April -10- 30, 1997, the Corporations have operated the Business only in the ordinary course; there has been no material and adverse change in the financial condition, results of operation, assets, business operations or liabilities of the Business or any Corporation. There are no liabilities of the Business, or of any Corporation, long-term or short-term, contingent or otherwise, as of the Effective Date, which are not set forth in the Financial Statements or otherwise disclosed in this Agreement or the attachments hereto. To the best of Sellers' knowledge, no liabilities have been incurred since April 30, 1997 other than in the normal course, except as recorded in the appropriate Corporation's books and records. (i) Leases. Schedule 5(i) contains a true and complete schedule of all of the property leases of premises used by the Corporations in the conduct of the Business, and of all material leases of personal property used in the Business (collectively, the "Leases"), listing for each of the Leases the name and address of the lessor, the lessee, the amount of payments due annually, and a description of the leased premises or equipment and its location. (j) Compliance with Laws. To the knowledge of the Sellers, Corporations are in compliance in all material respects with all existing requirements of federal, state, local and other laws, regulations and ordinances, and all existing requirements of all governmental bodies or agencies having jurisdiction over them and relating to the operation of the Business. -11- (k) Employees and Employee Benefits. (i) Schedule 5(k) contains an accurate and complete list of all employees of Corporations as of the date hereof, and their current salaries. The employment of each employee can be lawfully terminated by such notice as is required by law without payment of any damages or compensation in excess of the amount (if any) required by law or any applicable awards. (ii) Schedule 5(k) also contains an accurate and complete list of benefits provided by the Corporations for the benefit of one or more employees of the Corporations ("Plans"). Except as disclosed on Schedule 5(k), there exists no formal plan or commitment, whether legally binding or not, to create any additional Plan or change any existing Plan that would affect any employees or their dependent or beneficiaries. (iii) The Sellers have heretofore delivered to the Buyer true and complete copies of each of the following documents: (a) a copy of each of the Plans, and all amendments thereto; (b) a copy of the most recent description of each of the Plans that has been provided to employees, and any and all such other descriptive materials provided to such employees including employee booklets; and (c) a copy of any advance income tax ruling or related professional opinion on the tax status of any Plan; (l) Trade Names, Trademarks, Etc. Schedule 5(l) contains a complete list of all fictitious names, corporate names, trade names, trademarks, service marks and business styles, both domestic and foreign, used or held by the Corporations for use by the Business (the "Marks). Except as disclosed on Schedule 5(l), to the knowledge of Sellers, the Marks do not -12- infringe upon the fictitious names, corporate names, trade names, trademarks, service marks, business styles or other proprietary rights or property of any other party, no other party is infringing upon the Marks, and no such infringement has been alleged, either by or against any Corporation. Sellers will not, from and after the Closing Date, use any of the Marks, or any names similar thereto, except as an employee of RDA or a Corporation. (m) Insurance Policies. Schedule 5(m) contains a schedule of all insurance policies owned or maintained by Corporations insuring or relating to the Corporations or the Business. Said list includes policy numbers, identity of insurers, and a brief description of the nature of insurance included in each such policy. All said insurance policies are in full force and effect, and all premiums thereunder have been paid through the date indicated on the Schedule. Corporations will continue to maintain such insurance coverage or equivalent replacement coverage in full force and effect through the Closing Date. (n) No Misrepresentations. No statement made by Sellers in any representation, warranty or covenant made by Sellers to Buyer in this Agreement, or in any other document furnished by Sellers to Buyers in connection with the transaction contemplated hereby (but not including any forecasts or projections), contains any untrue statement of material fact, or omits to state a material fact required to be stated to make such statement, in light of the circumstances in which such statement was made, not misleading. Any forecasts or projections provided to Buyers are based on assumptions considered reasonable in the industry and/or disclosed to Buyer. Sellers shall have no liability in connection with forecasts or projections unless such forecasts or projections are intentionally or materially inaccurate. -13- 6. Representations and Warranties of Buyer. Buyer represents and warrants to Sellers as follows: (a) Organization. Buyer is a corporation organized, validly existing and in good standing under the laws of the Commonwealth of Pennsylvania, United States of America. (b) Corporate Action. The execution, delivery and performance of this Agreement are within Buyer's corporate authority and have been duly authorized by proper corporate proceedings of Buyer. (c) Validity of Agreement. This Agreement has been duly authorized, executed and delivered by Buyer and constitutes the legal, valid, binding and enforceable obligations of Buyer. The execution and delivery of this Agreement and its consummation do not require the consent or approval of any third party and will not result in any breach, violation or default under Buyer's Articles of Incorporation or By-Laws or of any agreement or decree to which Buyer is a party or to which Buyer is bound. 7. Conditions to the Obligation of Buyer. Buyer's obligation to consummate the transaction contemplated by this Agreement is subject to the satisfaction and fulfillment at or before the date of Closing of each of the following conditions: (a) Accuracy of Representations and Warranties and Compliance with -14- Obligations. The representations and warranties of the Sellers contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of the Closing Date with the same force and effect as though made at and as of that time. The Sellers shall have performed and complied with all of their respective obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. Each Seller shall have delivered to Buyer a certificate, dated as of the Closing Date, certifying that such representations and warranties are true and correct and that all such obligations have been performed. (b) Certified Resolutions and Certificate of Formation; Good Standing Certificates. The Sellers shall have delivered to Buyer copies of the Memorandum and Articles of Association with respect to RDA and each Corporation. (c) Opinion of Counsel. Buyer shall have received an opinion dated the Closing Date from Corrs Chambers Westgarth, counsel for the Sellers, in form and substance as set forth in Exhibit 7(c) attached hereto, which opinion shall relate only to Sellers and those Corporations formed under the laws of Australia or any state of Australia. (d) FIRB. Buyer shall have received approval of its purchase by the Foreign Investment Review Board of Australia. (e) Receipt of Necessary Consents. All necessary consents or approvals of -15- third parties to any of the transactions contemplated hereby shall have been obtained and delivered to Buyer. (f) No Adverse Litigation. There shall not be pending or threatened any third party action or proceeding, not frivolous in nature, by or before any court or other governmental body which shall seek to restrain, prohibit, or invalidate the purchase of the Stock by Buyer or any other transaction contemplated hereby, or which might affect the right of Buyer to own, or control the Stock, and which, in the judgment of Buyer, makes it inadvisable to proceed with the transaction contemplated hereby. (g) Due Diligence. Buyer shall have been satisfied, in its sole and absolute discretion, with the results of its business, financial, and legal due diligence investigation of RDA, each Corporation, each Seller, and the Stock. (h) Option and Escrow Agreement. Sellers and Buyer shall have entered into the Option and Escrow Agreement granting each various options, substantially in the form of Schedule 7(h) hereto. (i) Shareholders Agreement. Sellers and Buyer shall have entered into the Shareholders Agreement relating to the future management of RDA, substantially in the form of Schedule 7(i) hereto. (j) Reorganization. RDA and the Corporations shall have effected the -16- reorganization resulting in the Corporations each being owned 100% by RDA, and RDA having the ownership set forth on Schedule A hereto, subject only to any possible delay in issuing share certificates in the name of Right D&A due to delay occasioned by compliance with the requirements of Stamp Duty. (k) Non-Compete Agreement. Frederick R. Davidson and Mary Davidson shall have entered into non-competition agreements in form and substance satisfactory to Buyer. (l) Life Insurance. Buyer shall have obtained at its own cost and expense, life insurance on key management personnel in the amounts shown on Schedule 7(l) hereto. (m) Closing Agreement. The parties hereto shall have entered into a Closing Agreement containing such provisions as shall have been agreed upon between the negotiation of this Agreement and the Closing. 8. Conditions to Obligation of Sellers. Sellers' obligation to consummate the transaction contemplated by this Agreement is subject to the satisfaction and fulfillment at or before the date of Closing of each of the following conditions: (a) Accuracy of Representations and Warranties and Compliance with Obligations. The representations and warranties of Buyer contained in this Agreement shall have been true and correct at and as of the date hereof, and they shall be true and correct at and as of -17- the Closing Date with the same force and effect as though made at and as of that time. Buyer shall have performed and complied with all of its obligations required by this Agreement to be performed or complied with at or prior to the Closing Date. Buyer shall have delivered to the Sellers a certificate, dated as of the Closing Date and signed by one of the senior officers of Buyer, certifying that such representations and warranties are true and correct and that all such obligations have been performed. (b) Deliveries. Buyer shall have delivered to Sellers the following: (i) The payments of the Purchase Price due at Closing as set forth in Section 2 hereof. (ii) Certified copies of resolutions of the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and the performance of the transactions contemplated herein. 9. Further Assurances At Closing and at all times thereafter, the parties shall, upon the reasonable request of any other party execute all documents, instruments, certifications and further assurances and take all steps reasonably necessary or appropriate to implement, confirm or perfect the transactions provided under this Agreement. -18- 10. Indemnification (a) Sellers shall jointly and severally indemnify, hold harmless and defend Buyer from and against any and all claims, liabilities, direct losses, damages (but not including consequential damages), costs, and expense, including reasonable counsel fees, (each of the foregoing being referred to herein as a "Loss") incurred or actually sustained by Buyer and not reimbursed by insurance, by reason of any breach by Sellers or inaccuracy of any of the warranties, representations, covenants or agreements made by Sellers in this Agreement. In the event Buyer is entitled to indemnification hereunder, it may offset any amounts due pursuant to Paragraph 2 above by the amount Buyer is entitled to receive as indemnification. (b) Buyer shall indemnify, hold harmless and defend Sellers from and against any Loss incurred or suffered by Sellers, by reason of any breach by Buyer or inaccuracy of any of the warranties, representations, covenants or agreements made by Buyer contained in this Agreement. (c) As soon as reasonably practical (but in no event later than twenty days) after receipt by a party hereto (the "Indemnitee") of notice of any Loss, in respect of which the other party may be liable under this Section 10, the Indemnitee shall give notice thereof to the other party obligated to provide indemnification hereunder (the "Indemnifying Party"). The Indemnitee shall permit the Indemnifying Party, at its option and expense, to assume the defense -19- of any such claim by counsel reasonably satisfactory to the Indemnitee and to settle or otherwise dispose of the same, provided that the Indemnitee may at all times, and at its expense, participate in such defense, and provided, further, that the Indemnifying Party shall not, in defense of any such claim, except with the prior written consent of the Indemnitee, consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff in question to the Indemnitee and its affiliates a release of all liabilities in respect of such claims, or that does not result only in the payment of money damages by the Indemnifying Party. (d) Failure by an Indemnitee to give prompt notice to an Indemnifying Party specified in Section 10(c) above shall not release, waive or otherwise affect the Indemnifying Party's obligation to indemnify hereunder except to the extent that the Indemnifying Party can demonstrate actual loss and prejudice as a result of such failure. (e) The liability of each Seller hereunder shall be limited to the purchase price paid by Buyer in cash and RMC shares for the Stock of such Seller. (f) No claim for indemnification may be brought by Buyer until the amount of such claim, aggregated with all other claims asserted hereunder, exceeds A$75,000, at which time, all claims may be asserted; this amount being a threshold and not a deductible amount. 11. Survival of Representations -20- All representations, warranties and indemnities made by the parties herein and pursuant hereto shall survive the Closing. Any claims brought by the Buyer or the Sellers, as the case may be (whether under a representation or warranty made under this agreement or any indemnity given under this agreement, or otherwise), is subject to and limited as follows: (a) the claimant must give written notice to the other parties of the general nature of the claim as soon as is reasonable; provided, however, that failure to give notice shall not limit indemnification except to the extent of any actual damage resulting from the failure to give notice, and (b) in any event any written notice must be given on or before the second anniversary of the Closing Date. 12. Expenses; Sales and Transfer Taxes The parties hereto shall bear their own respective expenses, including legal and accounting fees, incident to the preparation and carrying out of this Agreement. Sellers and Buyer represent and warrant that none has made any agreement nor taken any action which may cause anyone to become entitled to any commission as a result of the transactions contemplated hereunder. Buyer shall be liable for the payment of stamp duty on the transfer of the Stock. Sellers shall be liable for the payment of stamp duty on the reorganization by which RDA became the owner of all shares of each Corporation. -21- 13. Miscellaneous. (a) Notices. All notices, demands and other communications to be made hereunder ("Notice") shall be given in writing and shall be deemed to have been duly given if personally delivered or sent by certified or registered mail, postage prepaid, return receipt requested, to the other party at the following address (or to such other address as may be given by Notice by any party): If to Buyer: G. Lee Bohs, Executive V. P. & CFO Right Management Consultants, Inc. 1818 Market Street, 33rd Floor Philadelphia, PA 19103-3614 With copy to: Theodore A. Young, Esquire Fox, Rothschild, O'Brien & Frankel, LLP 2000 Market Street, 10th Floor Philadelphia, PA 19103 If to Sellers: Frederick R. Davidson Right D&A Pty Ltd 5/607 St. Kilda Road Melbourne, Victoria 3004 Australia With copy to: Harvey Cook Whelan & Cook 16th Floor, 499 St. Kilda Road Melbourne, Victoria 3004 Australia Notice shall be deemed effective, if personally delivered, when delivered, and if mailed, at midnight on the fifth business day after deposit in the mail. -22- (b) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. (c) Governing Law. This Agreement is to be governed, construed and enforced in accordance with the laws of the State of Victoria, Australia. (d) Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. (e) Entire Agreement. This Agreement and the documents attached as exhibits and schedules hereto, when executed will contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior written and oral negotiations, agreements and writings. (f) Modification. This Agreement may be amended, superseded, terminated or extended, and the terms hereof may be waived, only by a written instrument signed by all of the parties or, in the case of a waiver, signed by the party waiving compliance. (g) Preservation of Rights. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the -23- part of any party of any such right, power or privilege, nor any single or partial exercise of any right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. (h) Provisions Severable. The provisions of this Agreement are independent of and severable from each other. No provisions will be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any one or more of any of the provisions hereof may be invalid or unenforceable in whole or in part. (i) Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. -24- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. RIGHT MANAGEMENT CONSULTANTS, INC. BY: /S/ RICHARD J. PINOLA Richard J. Pinola, Chairman of the Board and Chief Executive Officer SELLERS: BY: /S/ FREDERICK R. DAVIDSON Frederick R. Davidson STRADIS PTY LTD BY:/S/ WILLIAM D. T. COWAN William D. T. Cowan BY: /S/ WILLIAM D. T. COWAN William D. T. Cowan BY: /S/ PHILLIP A. LOVETT Phillip A. Lovett BY: /S/ DAVID STATFORD David Stratford RIGHT D&A PTY LTD BY: /S/ FREDERICK R. DAVIDSON Frederick R. Davidson -25- STOCK PURCHASE AGREEMENT Right D&A Pty Ltd July 1, 1997 List of Schedules A. Share Holdings of Sellers B. Corporations 1. Shares to be Sold; Shares Remaining 5(a). Authorized Capital of RDA and each Corporation 5(i). Leases 5(k). Employees/Salaries/Benefits 5(l). Trade Names 5(m). Insurance 7(c). Legal Opinion of Sellers' Counsel 7(h). Option and Escrow Agreement 7(i). Shareholders Agreement 7(k). Employees with Non-Compete Agreement 7(l). Life Insurance Obtained by Buyer -26- STOCK PURCHASE AGREEMENT Right D&A Pty Ltd July 1, 1997 Schedule A Seller Shares Frederick R. Davidson 60,000 Stradis Pty Ltd. 20,000 Phillip A. Lovett 10,000 David Stratford 10,000 ------- 100,000 ======= -27- STOCK PURCHASE AGREEMENT Right D&A Pty Ltd July 1, 1997 Schedule B
Corporation Place of Incorporation Regulation Number Davidson & Associates Pty Ltd Victoria, Australia ACN 006 132 163 Davidson & Associates International P/L Victoria, Australia ACN 057 253 424 Davidson & Associates (ACT) Pty Ltd Canberra, Australia ACN 008 633 609 Davidson & Associates(QLD) Pty Ltd Queensland, Australia ACN 010 817 384 Davidson & Associates (NSW) Pty Ltd New South Wales, Australia ACN 002 893 576 Davidson & Associates Limited Hong Kong --------------- Davidson & Associates Limited New Zealand ---------------
-28- STOCK PURCHASE AGREEMENT Right D&A Pty Ltd July 1, 1997 Schedule 1 Shares Shares (Percentage) Shares Remaining to be Sold Frederick R. Davidson 34,000 (67%) 26,000 Stradis Pty Ltd 7,000 (14%) 13,000 Phillip A. Lovett 5,000 (10%) 5,000 David Stratford 5,000 (10%) 5,000 ------ ---- ------ 51,000 (100%) 49,000 ====== ==== ====== -29- STOCK PURCHASE AGREEMENT Right D&A Pty Ltd July 1, 1997 Exhibit 7(c) (a) each Corporation has been duly incorporated under the laws of its place of incorporation and is validly registered and existing under the Corporations Law of Australia; (b) each Corporation has the corporate power and corporate authority to own all of its assets and to carry on its business as described in the Agreement; (c) the Agreement has been duly executed and delivered by the Sellers and is the legal, valid and binding obligation of the Sellers, enforceable against the Sellers in accordance with its terms; (d) the execution, delivery and performance by the Sellers of the Agreement does not conflict with the Articles of Association of RDA or any Corporation, or with any Victoria or federal law, rule or regulation; (e) the authorised capital of RDA is $100,000 comprised of 100,000 ordinary shares with a par value per share of $1.00, of which 100,000 shares are validly issued and fully paid; (f) to our knowledge, after inquiry of the Sellers, there are not options, warrants or rights of any kind for the purchase or acquisition of any shares of RDA's or any Corporation's capital stock; and (g) to our knowledge, after inquiry of the Sellers, there is no action, proceeding or investigation pending or threatened against RDA or any Corporation or that questions the validity of the Agreement or the other documents executed in connection therewith, or any action taken or to be taken pursuant thereto or any claim or legal action against RDA or any Corporation that, if adversely decided, would materially adversely affect RDA or any Corporation. -30- EX-10.19 3 EXHIBIT 10.19 -OPTION AND ESCROW AGREEMENT BETWEEN AND AMONG RIGHT MANAGEMENT CONSULTANTS, INC. AND FREDERICK R. DAVIDSON, STRADIS PTY LTD, WILLIAM D. T. COWAN, PHILLIP A. LOVETT AND DAVID STRATFORD, AND B&MCK NOMINEES DATED JULY 1, 1997 RIGHT D&A PTY LTD OPTION AND ESCROW AGREEMENT THIS OPTION AND ESCROW AGREEMENT, is made and entered into as of the first day of July, 1997 by, between and among, FREDERICK R. DAVIDSON, STRADIS PTY LTD, WILLIAM D. T. COWAN, PHILLIP A. LOVETT and DAVID STRATFORD ("Sellers"), RIGHT MANAGEMENT CONSULTANTS, INC., a Pennsylvania corporation or its designee ("Buyer"), and B&McK NOMINEES (VIC) PTY LTD (ACN 006 599 543) of Level 39 Rialto, 525 Collins Street, Melbourne, 3000 ("Escrow Agent"). BACKGROUND Simultaneously with the execution of this Agreement, Buyer is purchasing 51% of the outstanding shares of Right D&A Pty Ltd ("RDA") from Sellers. Sellers have agreed to provide Buyer with the options contained herein to permit Buyer to acquire the remaining 49% of the outstanding shares of RDA on the terms and conditions of this Agreement, and Buyer has agreed to provide Sellers with the options contained herein to permit Sellers to require Buyer to acquire the shares. William D. T. Cowan is the sole beneficial owner of Stradis Pty Ltd. The shares subject to options are all of the shares owned by Sellers as set forth on Schedule 1 attached hereto. NOW, THEREFORE, intending to be legally bound, it is agreed as follows: 1. Options. (a) Each Seller hereby grants to Buyer a series of options, commencing July 1, 2000 and exercisable as of July 1, 2000 and annually thereafter, subject to acceleration as provided in Paragraph 3, to purchase the number of RDA Shares represented by the percentage points shown on the chart in subparagraph 1(c) below corresponding to the anniversary dates shown on the chart. Each exercise of an option by Buyer shall result in each Seller selling an amount of shares owned by each in proportion to the total shares owned by all Sellers at such time, unless the Sellers advise Buyer otherwise, in writing, within 30 days of the exercise of any option by Buyer, in which case the shares to be purchased pursuant to the exercise of the option shall be as specified in the writing from Sellers. (b) Each Seller is hereby granted by Buyer a series of options, as described below. Each exercise of an option by a Seller shall require Buyer to purchase up to the total shares subject to the options at such time as shown below; provided, however, if more than one Seller exercises an option at any anniversary date and the number of shares exceeds the number of shares Buyer is required to purchase, the aggregate number of shares purchased by Buyer shall be reduced to the maximum required amount, and such shares shall be purchased from the Sellers who exercised options at that time in proportion to their ownership of shares of RDA at that time. (c) The options of this Paragraph 1 held by Sellers shall be cumulative and shall commence on each anniversary date of the date of this agreement, on the following schedule: -2-
RDA Shares Available for Sale Measured by Percentage Points of Total RDA Shares Anniversary Date (Cumulative less any shares previously acquired) Third, July 1, 2000 up to 10% points Fourth, July 1, 2001 up to 20% points Fifth, July 1, 2002 up to 30% points Sixth, July 1, 2003 up to 40% points Seven, July 1, 2004, up to 49% points and each Anniversary Date thereafter
2. Notice of Exercise of Option; Closing; Fiscal Year. Options may be exercised effective on each Anniversary Date. In each case of the exercise of an option set forth in paragraph 1 above, written notice of the exercise shall be given to the other parties to this Agreement, including the Escrow Agent, not later than May 31 of each fiscal year. Closing will take place the last business day of the month following the end of the fiscal year. All exercises during a fiscal year pursuant to options contained elsewhere in this Agreement, shall be counted towards the limitation on annual exercises. For purposes of this Agreement, a "fiscal year" shall be the 12 months ended June 30 each year. 3. Limitation on Seller Options; Acceleration of Buyer Options. The options stated above held by Sellers are cumulative and discretionary with the Sellers, provided, however, during any fiscal year no more than 20% points of the shares subject to options be required to be purchased by Buyer. Buyer may, in its sole discretion, accelerate its acquisition of shares from Sellers outlined in the table of Paragraph 1 above, and may purchase any or all RDA shares as of any anniversary date from July 1, 2000 and thereafter. -3- 4. Additional Options. In the event any Seller, or any person(s) who acquire(s) shares of RDA from any Seller, as permitted by this agreement, shall no longer be associated with RDA or its subsidiaries as an active full-time employee, whether by voluntary or involuntary termination of employment including a termination based on sickness, incapacity or death (a "Triggering Event"), Buyer shall have the right to acquire the shares of such person; provided, however, such purchase must be made by Buyer in the case of the death of an individual shareholder. The reference to Seller in the foregoing sentence shall mean William D. T. Cowan in the case of shares owned by Stradis Pty Ltd. Upon the effectiveness of such a Triggering Event, and Buyer's obtaining written notice of the event by the remaining Sellers, by RDA or otherwise, Buyer shall have an additional option to acquire the shares, which option shall remain outstanding for ninety (90) days from the receipt of notice to Buyer or Buyer becoming aware of the Triggering Event, whichever is later. If Buyer exercises the option within said 90 days, it shall close on the purchase of these shares 30 days after its exercise of the additional option. In the event Buyer does not exercise an option arising from a Triggering Event, the shares shall continue to be held by the owner thereof subject to the option and escrow provisions contained herein. 5. Purchase Price. In each exercise of an option granted in Paragraph 4 above, the purchase price shall be based on the proportional interest of the shares in the total shares outstanding as related to the actual consolidated net sales revenue of RDA for the twelve months ended the last day of the quarter preceding the date of the Triggering Event; and in the case of Paragraph 1 above, the actual consolidated net sales revenue of RDA for the fiscal year -4- ending June 30 immediately prior to the applicable anniversary date. "Net Sales Revenue" shall mean gross client invoices less credit notes. 6. Permitted Transfers; Definition of "Seller". After July 1, 2000, the Sellers may transfer shares among themselves, provided that all such shares shall remain subject to the options and the escrow provisions contained herein, and a right of first refusal in favor of Buyer. Any planned transfer shall be noticed to Buyer at least 60 days and allow Buyer 30 days to buy such shares on the terms and conditions of the intended transfer. In addition, subject to the approval of Buyer and all Sellers, which approval shall not be unreasonably withheld, shares owned by the Sellers may be sold to full-time employees of RDA and its subsidiaries, or potential full-time employees, provided that all such shares shall remain subject to the option and the escrow provisions, contained herein; and further provided that Buyer shall have right of first refusal, as described above in this Paragraph 6, in connection with such proposed sale. Each permitted transferee hereunder shall be referred to as a Seller for purposes of this Agreement; and, prior to the acquisition of any shares of RDA, shall execute a deed for the purpose of agreeing to be bound by this Agreement. Any Seller who no longer owns shares of RDA shall not be deemed a Seller for purposes of this Agreement. For purposes of this Agreement, Stradis Pty Ltd and William D. T. Cowan shall be considered as one Seller, and shall determine how any of their rights hereunder shall be exercised as between the two; provided, however, each shall be obligated to fulfill any obligations of either hereunder. -5- 7A. Change of Control of RMC. (a) Rights of Sellers. In the event that: (1) a "controlling interest" in the capital stock of RMC is sold in a single transaction or a group of related transactions to one or more buyers acting in concert; (2) RMC sells all or substantially all of its assets; or (3) RMC is a party to any corporate merger or consolidation resulting in one or more parties acting in concert who did not previously hold a "controlling interest" in the capital stock of RMC, owning a controlling interest in RMC or its successor entity (each such event constitutes a "change in control"), each Seller shall have the right, if exercised within 12 months of the later of (i) the date Sellers are advised of the change of control by the Buyer, or (ii) the effective date of the change in control, to require RMC to purchase such Seller's remaining shares in accordance with the purchase price applicable to a purchase pursuant to the options granted in Paragraph 4 above, with the Triggering Event being the effective date of a change in control described herein, or at their option reacquire all RDA shares pursuant to subparagraph 7A(c) below. A Closing on the purchase of shares shall occur within 90 days of Sellers' exercise of either of the options of this Paragraph 7A(a). (b) Definitions. For the purposes of this section, 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 the 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 -6- "controlling interest". The foregoing provisions shall not apply in the event that the buyer or buyers of a controlling interest, purchaser of assets, or merger party is controlled by a member or members of the Board of Directors or management of the Company prior to the event related to a change of control. (c) Buy Back. In addition to the option to require Buyer to purchase shares in accordance with this Paragraph 7A, in the event of a "change of control" within twelve (12) months of the later of (i) the date Sellers are advised of the change of control by the Buyer, or (ii) the effective date of the change in control, the Sellers who have not exercised their right to require Buyer to acquire their shares, shall have the option to buy back the RDA shares owned by Buyer or any entity owned by Buyer, which option shall be in proportion to their then ownership of RDA shares or as otherwise agreed to by the Sellers who exercise this Buy Back option; provided, however, Buyer, and entities controlled by Buyer, shall not be required to sell back the RDA shares unless Sellers acquire all RDA shares then owned by Buyer or entities controlled by Buyer, including any shares any Seller requires Buyer to acquire on a "change of control" pursuant to this Paragraph 7A. In addition, one or more of the Sellers may require Buyer, or any entity owned by Buyer, to sell its RDA shares to the Sellers who exercise their right, in proportion to their then ownership of RDA Shares, if such Sellers have exercised the rights of Paragraph 7A(a) and Buyer has failed to purchase the shares, provided, however, such additional right must be exercised within thirty (30) days of Buyer's failure to purchase the shares; and further provided that Buyer and entities conducted by it shall only be required to sell back its RDA Shares if all such shares are being purchased. The purchase price of a buy back shall be the -7- lesser of the price per share at their acquisition by Buyer (or its affiliate), or the price per share pursuant to the formula used for a purchase pursuant to Paragraph 4 above. 7B. Sale of RDA Shares by Buyer. (a) In the event that Buyer, or any entity controlled by Buyer, intends to voluntarily sell any or all RDA shares owned by it during the term of this Agreement, it shall first offer the shares to the Sellers on the terms and conditions of the proposed sale, and give the Sellers sixty (60) days from their being advised of a proposed sale, to exercise a right of first refusal to acquire the shares, in proportion to their then ownership of RDA, on the terms and conditions of the proposed sale. When advising Seller of the terms and conditions of the proposed sale, Buyer shall also advise Sellers of the identity of the proposed purchaser. If less than all the Sellers have exercised the option at the end of the 60 days, any shares not purchased shall be offered to the Sellers exercising the option for a period of an additional 14 days. Buyer shall only be obligated to sell the shares to the Sellers if one or more Sellers are acquiring all the shares offered. If not, Buyer is free to sell the shares to one or more third parties on the terms described in the notice to Sellers, so long as such sale is closed within 90 days of the end of the notice period described above, and so long as such sale terms and conditions are not more favorable to the purchaser(s) than as described to Seller in the notice of proposed sale. (b) Furthermore, in the event Buyer is selling all of its shares of RDA, it shall use its best efforts to have the purchaser offer to acquire all shares of RDA owned by Sellers on the same terms and conditions as the purchaser of Buyer's shares. -8- (c) In matching a third party offer which includes considerations other than cash or cash equivalent consideration, Sellers' matching offer may convert any non-cash or non-cash equivalent consideration to an amount of cash which will give Buyer the same economic benefit of the third party offer. (d) In the event of a sale by Buyer to a third party, that party shall be a permitted assignee, subject to the terms of this Agreement, including execution of a deed as described in Paragraph 9 below, except that in the case of a sale of all of Buyer's RDA shares, the provisions of Paragraph 7A shall no longer apply. (e) Buyer may not, without the prior written approval of all the Sellers, voluntarily sell any RDA Shares, other than to an entity under its control, prior to July 1, 2000. 8. Escrow Arrangements. To facilitate the closing of the purchase of any shares acquired pursuant to the exercise of an option hereunder, all shares of RDA owned by Sellers and Buyer shall be placed in escrow with the Escrow Agent subject to the following: (a) Escrow. Certificates representing the shares shall remain in the name of the registered owners who shall provide one or more signed blank share transfer forms, also to be placed in escrow.. Any transfers of ownership shall be effected by the issuance of one or more certificates to the purchaser and the issuance of one or more certificates representing the balance of the shares to the registered owner. Buyer acknowledges that the Shares acquired by it -9- at the Closing held as of July 1, 1997 will remain in the name of each Seller until the stamp duty has been paid and new certificates issued. (b) Receipt of Shares. The Escrow Agent hereby acknowledges receipt of the escrowed shares, as identified on Schedule 1 hereof, and agrees to hold such shares in escrow as agent for Buyer and Sellers, to be distributed and released as provided herein. (c) Release. On July 31, 2004, unless otherwise instructed by Buyer and all Sellers, Escrow Agent shall return all shares not purchased by Buyer to their respective owner. (d) Disputes. In the event of a dispute among the parties, the Escrow Agent shall hold the shares until the rights of the parties hereto have been determined by final judgment of a court of competent jurisdiction and the Escrow Agent shall have received evidence reasonably satisfactory to it of such final judgment, at which time the Escrow Agent shall promptly act in accordance with such final judgment. A "final judgment" for these purposes shall be a judgment as to which the period of time for appealing such judgment has expired without an appeal's having been timely made, or, if an appeal is timely made, as to which such appeal has been disposed of and there is no recourse to further appeals. (e) Joint Instructions. The Escrow Agent shall, in addition, disburse the shares in accordance with any joint written instructions received from all Sellers (as defined in Paragraph 6) and Buyer. -10- (f) Responsibility. The Escrow Agent undertakes to perform only such duties as are expressly set forth herein. In the event the Escrow Agent becomes involved in litigation by reason hereof, it is hereby authorized to deposit with the Clerk of the Court in which such litigation is pending the shares then held by it pursuant hereto and, thereupon, the Escrow Agent shall stand fully relieved and discharged of any further duties hereunder, except to the extent that such court shall instruct the Escrow Agent to act. In the event the Escrow Agent is threatened with litigation by reason hereof, it is further hereby authorized to interplead all interested parties in any court of competent jurisdiction and to deposit with the Clerk of such Court the shares then held by it pursuant hereto and, thereupon, it shall stand fully relieved and discharged of any further duties hereunder, except to the extent that such court shall instruct the Escrow Agent to act. (g) Liability. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and reasonably believed by it to be authorized or within the rights or powers conferred upon it by this Agreement, and may consult with counsel of its own choice and shall have full and complete authorization in good faith to act or refrain from acting in accordance with the opinion of such counsel. In no event shall the Escrow Agent be required to account for any funds subsequent to disposition thereof by the Escrow Agent. (h) Reliance. The Escrow Agent may rely and shall be protected in acting, or refraining from acting, upon any written notice, instruction or request furnished to it hereunder and reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties. -11- (i) Indemnification of Escrow Agent. Buyer and each of the Sellers hereby agree jointly and severally to indemnify the Escrow Agent for, and to hold it harmless against any loss, liability, or expense incurred without negligence or bad faith on the part of the Escrow Agent, arising out of or in connection with its entering into this Agreement and its performance of its duties hereunder, including the costs and expenses of defending itself against any claim of liability in the premises, and to pay or reimburse the Escrow Agent upon request for all expenses, disbursements and advances, including the costs of reasonable attorneys' fees, incurred or made by it in connection with carrying out its duties hereunder. (j) Resignation. The Escrow Agent may resign and be discharged from its duties hereunder at any time by giving not less than 15 days notice of such resignation to the Buyer, the RDA and the Sellers specifying the date when such resignation shall take effect. Promptly after such notice, a successor escrow agent shall be appointed by mutual agreement of the Buyer, the RDA and the Sellers, such successor escrow agent to become Escrow Agent hereunder upon the resignation dated specified in such notice. If Buyer, the Company and the Stockholders are unable to agree upon a successor escrow agent within fifteen days of such notice, the Escrow Agent shall continue to serve until its successor accepts the escrow and receives the Escrow Deposit. (k) Expenses. Buyer shall pay all routine fees, costs and expenses of the Escrow Agent throughout the term of the escrow. In the case of a dispute, except for extraordinary expenses, if any, resulting from additional services related to the dispute among the parties, each party shall bear its own legal and accounting costs and expenses related to the -12- dispute, and Escrow Agent's extra costs and expenses, if any, resulting from a dispute will be paid by each party in proportion to its ownership of Shares of RDA, including any amounts payable pursuant to subparagraph 8(i) above. 9. Assignment; Successors. Buyer shall have the right to assign the options, or any portion of the options to any entity controlled by it; provided, however, should such entity no longer be controlled by Buyer, the RDA Shares and options shall be reassigned to Buyer or assigned to an entity controlled by Buyer. Subject to the terms hereof, Sellers may assign their shares of RDA. Any permitted assignee of Buyer or Seller must execute a deed for the purpose of agreeing to be bound by this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted assigns, respective heirs, personal representatives, successors and assigns. 10. Termination. This Agreement will automatically terminate whenever Buyer shall be the owner of 100% or none of the outstanding shares of RDA. 11. Governing Law. This agreement shall be governed by the laws of the State of Victoria, Australia and applicable the federal laws of Australia. -13- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. RIGHT D&A PTY LTD BY: /S/ FREDERICK R. DAVIDSON Frederick R. Davidson RIGHT MANAGEMENT CONSULTANTS, INC. BY: /S/ RICHARD J. PINOLA Richard J. Pinola SELLERS: BY: /S/ FREDERICK R. DAVIDSON Frederick R. Davidson STRADIS PTY LTD BY: /S/ WILLIAM D. T. COWAN William D. T. Cowan BY: /S/ WILLIAM D. T. COWAN William D. T. Cowan BY: /S/ PHILLIP A . LOVETT Phillip A. Lovett BY: /S/ DAVID STRATFORD David Stratford B&McK NOMINEES (VIC) PTY LTD, as Escrow Agent BY: /S/ B&MCK NOMINEES (VIC) PTY LTD -14- OPTION AND ESCROW AGREEMENT Right D&A Pty Ltd Schedule 1 Shareholders Shares Right Management Consultants, Inc. 51,000 Frederick R. Davidson 26,000 Stradis Pty Ltd 13,000 Phillip A. Lovett 5,000 David Stratford 5,000 ------- 100,000 ======= -15- EX-13 4 EXHIBIT 13 - 1997 ANNUAL REPORT TO SHAREHOLDERS Right Management Consultants, Inc. Selected Financial Data (Dollars and Shares in Thousands Except Earnings Per Share and Stock Prices)
Year Ended December 31, --------------------------------------------------------------- 1997 1996 1995 1994 1993 --------------------------------------------------------------- Results of Operations (1) - - -------------------------------------------------------------------------------------------------------------------------------- Total revenue $125,786 $125,269 $114,005 $89,134 $70,726 - - -------------------------------------------------------------------------------------------------------------------------------- Costs and expenses 121,366 108,994 101,090 79,345 64,279 - - -------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 4,420 16,275 12,915 9,789 6,447 - - -------------------------------------------------------------------------------------------------------------------------------- Net income 2,073 9,675 7,819 5,714 3,297 - - -------------------------------------------------------------------------------------------------------------------------------- Diluted earnings per share (2)(3) $ 0.31 $ 1.45 $ 1.24 $ 0.93 $ 0.56 - - -------------------------------------------------------------------------------------------------------------------------------- Diluted weighted average number of 6,725 6,663 6,290 6,125 5,918 shares outstanding (2)(3) - - -------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data - - -------------------------------------------------------------------------------------------------------------------------------- Working capital $ 15,491 $ 25,342 $ 13,134 $ 9,883 $ 8,940 - - -------------------------------------------------------------------------------------------------------------------------------- Total assets 81,704 73,935 60,231 48,969 35,734 - - -------------------------------------------------------------------------------------------------------------------------------- Long-term obligations 10,597 8,768 7,360 6,004 2,403 - - -------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity 50,450 47,801 33,626 24,405 18,032 - - -------------------------------------------------------------------------------------------------------------------------------- Total debt-to-equity ratio 25% 17% 28% 28% 16% - - -------------------------------------------------------------------------------------------------------------------------------- Return on average equity 4% 24% 27% 27% 20% - - -------------------------------------------------------------------------------------------------------------------------------- Stock Price Ranges - - -------------------------------------------------------------------------------------------------------------------------------- Low price (3) $ 8.75 $ 15.00 $ 6.89 $ 6.55 $ 3.33 - - -------------------------------------------------------------------------------------------------------------------------------- High price (3) 23.50 27.50 19.50 11.11 9.22 - - -------------------------------------------------------------------------------------------------------------------------------- (1) See Note C to the Consolidated Financial Statements for information regarding acquisitions. (2) See Note K to the Consolidated Financial Statements for information regarding earnings per share. (3) Amounts presented have been restated for both the November 1995 and July 1996 three-for-two stock splits (see Note J to the Consolidated Financial Statements).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders 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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 consolidated financial position of Right Management Consultants, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 7, 1998 Right Management Consultants, Inc. Consolidated Balance Sheets (Dollars in Thousands Except Share Data)
December 31, 1997 1996 Assets Current Assets: Cash and cash equivalents $ 7,583 $ 18,055 Accounts receivable, trade, net of allowance for doubtful accounts of $663 and $552 in 1997 and 1996, respectively 21,888 18,878 Royalties and fees receivable from Affiliates 2,511 3,505 Prepaid expenses and other current assets 1,681 1,868 Deferred income taxes 1,074 402 -------- -------- Total current assets 34,737 42,708 Property and equipment, net 13,342 9,666 Intangible assets, net 30,703 18,724 Deferred income taxes 1,426 1,588 Other 1,496 1,249 -------- -------- Total Assets $ 81,704 $ 73,935 ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt and other obligations $ 3,943 $ 1,011 Accounts payable 4,651 4,584 Commissions payable 1,431 952 Accrued incentive compensation and benefits 2,022 4,651 Other accrued expenses 4,272 2,300 Deferred income 2,927 3,868 -------- -------- Total current liabilities 19,246 17,366 -------- -------- Long-term debt and other obligations 8,775 6,904 -------- -------- Deferred compensation 1,822 1,864 -------- -------- Minority interest in subsidiary 1,411 -- -------- -------- Commitments and Contingent Liabilities (Notes E, G and I) Shareholders' Equity (Note J): Preferred stock, no par value; 1,000,000 shares authorized; no shares issued -- -- Common stock, $.01 par value; 20,000,000 shares authorized; 7,084,104 and 6,713,573 shares issued in 1997 and 1996, respectively 71 67 Additional paid-in capital 14,492 11,956 Retained earnings 38,363 36,290 Cumulative translation adjustment (580) 5 -------- -------- 52,346 48,318 Less treasury stock, at cost, 380,452 and 252,952 shares in 1997 and 1996, respectively (1,896) (517) -------- -------- Total shareholders' equity 50,450 47,801 -------- -------- Total Liabilities and Shareholders' Equity $ 81,704 $ 73,935 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 2 Right Management Consultants, Inc. Consolidated Statements of Income (Dollars and Shares in Thousands Except Earnings per Share Data)
Year Ended December 31, 1997 1996 1995 Revenue: Company office revenue $ 122,281 $ 120,679 $ 109,741 Affiliate royalties 3,505 4,590 4,264 --------- --------- --------- Total revenue 125,786 125,269 114,005 Expenses: Consultants' compensation 52,085 47,624 42,518 Office sales and consulting support 7,071 5,661 4,797 Office administration 48,061 42,665 41,110 General sales and administration 13,364 13,080 12,236 Restructuring costs (Note B) 630 -- -- --------- --------- --------- 121,211 109,030 100,661 --------- --------- --------- Income from operations 4,575 16,239 13,344 --------- --------- --------- Other income (expense): Interest income 663 606 302 Interest expense (818) (570) (731) --------- --------- --------- (155) 36 (429) --------- --------- --------- Income before income taxes 4,420 16,275 12,915 Provision for income taxes 2,009 6,600 5,096 Minority interest in net income of subsidiary 338 -- -- --------- --------- --------- Net income $ 2,073 $ 9,675 $ 7,819 ========= ========= ========= Basic earnings per share $ 0.31 $ 1.55 $ 1.31 ========= ========= ========= Diluted earnings per share $ 0.31 $ 1.45 $ 1.24 ========= ========= ========= Basic weighted average shares outstanding 6,596 6,252 5,984 ========= ========= ========= Diluted weighted average shares outstanding 6,725 6,663 6,290 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 3 Right Management Consultants, Inc. Consolidated Statements of Shareholders' Equity (Dollars in Thousands Except Share Data)
Cumulative Total Common Stock Additional Retained Translation Treasury Stock Shareholders' Shares Par Value Paid-in Capital Earnings Adjustment Shares Cost Equity Balance, January 1, 1995 2,891,971 $29 $6,544 $18,830 $(481) 252,952 $(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 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) 252,952 (517) 33,626 Stock options exercised 316,039 3 1,332 -- -- -- -- 1,335 Tax benefit from exercise -- -- 2,223 -- -- -- -- 2,223 of stock options Shares issued under restricted 29,250 -- 658 -- -- -- -- 658 stock awards Three-for-two stock split 2,050,100 21 -- (21) -- -- -- -- Shares issued under the Employee 4,368 -- 88 -- -- -- -- 88 Stock Purchase Plan Translation adjustment -- -- -- -- 196 -- -- 196 Net income -- -- -- 9,675 -- -- -- 9,675 --------- --------- --------- --------- --------- --------- -------- --------- Balance, December 31, 1996 6,713,573 67 11,956 36,290 5 252,952 (517) 47,801 Stock options exercised 236,095 3 1,198 -- -- -- -- 1,201 Tax benefit from exercise -- -- 597 -- -- -- -- 597 of stock options Davidson & Associates acquisition (Note C) 96,577 1 988 -- -- -- -- 989 Shares issued under the Employee 37,859 -- 386 -- -- -- -- 386 Stock Purchase Plan Restricted stock compensation -- -- (633) -- -- -- -- (633) Repurchase of common stock -- -- -- -- -- 127,500 (1,379) (1,379) Translation adjustment -- -- -- -- (585) -- -- (585) Net income -- -- -- 2,073 -- -- -- 2,073 --------- --------- --------- --------- --------- --------- -------- --------- Balance, December 31, 1997 7,084,104 $71 $14,492 $38,363 $(580) 380,452 $(1,896) $50,450 ========= ========= ========= ========= ========= ========= ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 4 Right Management Consultants, Inc. Consolidated Statements of Cash Flows (Dollars in Thousands)
Year Ended December 31, 1997 1996 1995 Operating Activities: Net income $ 2,073 $ 9,675 $ 7,819 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,494 4,923 4,284 Deferred income taxes (510) (169) (93) Restricted stock compensation (633) 658 230 Restructuring costs (Note B) 630 -- -- Tax benefit from the exercise of stock options 597 2,223 252 Revenue recognized upon completion of incomplete contracts assumed in acquisitions (807) (512) (630) Provision for doubtful accounts 329 28 400 Other non-cash items 6 444 241 Changes in operating accounts: Accounts receivable, trade and from Affiliates 531 (460) (3,504) Prepaid expenses and other assets (596) 499 (787) Accounts payable and accrued expenses (5,620) 640 (2,333) Commissions payable and other liabilities 1,414 (1,782) 366 Deferred income (941) 459 1,090 -------- -------- -------- Net cash provided by operating activities 2,967 16,626 7,335 -------- -------- -------- Investing Activities: Purchase of property and equipment (5,201) (4,873) (2,643) Acquisitions, net of cash acquired (13,199) (3,401) (3,990) -------- -------- -------- Net cash utilized by investing activities (18,400) (8,274) (6,633) -------- -------- -------- Financing Activities: Borrowings under credit agreements 7,500 2,935 1,325 Payment of long-term debt and other obligations (2,458) (3,660) (2,880) Repurchase of common stock (1,379) -- -- Proceeds from stock issuances 1,587 1,420 630 -------- -------- -------- Net cash provided by (utilized in) financing activities 5,250 695 (925) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (289) 43 32 -------- -------- -------- Increase (decrease) in cash and cash equivalents (10,472) 9,090 (191) Cash and cash equivalents, beginning of year 18,055 8,965 9,156 -------- -------- -------- Cash and cash equivalents, end of year $ 7,583 $ 18,055 $ 8,965 ======== ======== ======== Supplemental Disclosures of Cash Flow Information Cash paid for: Interest $ 687 $ 351 $ 445 ======== ======== ======== Income taxes $ 3,395 $ 5,252 $ 4,370 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 RIGHT MANAGEMENT CONSULTANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of business Right Management Consultants, Inc. (the "Company") operations can be segregated into two lines of business: Right Associates and People Tech Consulting ("People Tech"). Through a worldwide network of Company and Affiliate offices, Right Associates(R) develops and delivers career transition services. People Tech provides organizational and career management consulting services, specializing in change management, communication, strategy implementation, merger integration and executive development. 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 majority-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. 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, recorded at the start of performance of services, is deferred and recognized over the estimated average period within which the contracts are essentially completed. All direct and indirect costs are charged to expense in the period in which the obligations are incurred. 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 typically 10% of each Affiliate's gross billings and are recorded when the Affiliate bills its customers for services. 6 NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Property and equipment Property and equipment is carried at cost, or allocated cost for companies acquired in a purchase transaction. 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 computer equipment. Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease. Intangible assets Intangible assets acquired in acquisitions consist of the following:
Amortization (Dollars in Thousands) Period 1997 1996 (Years) ---- ---- ------- Trademarks $ 1,644 $1,644 5 Contact lists and Affiliate agreements 538 538 5 Covenants not to compete 1,118 1,118 5 to 10 Goodwill 38,239 23,949 15 to 40 ------- ------- 41,539 27,249 Less accumulated amortization 10,836 8,525 ------- ------- $30,703 $18,724 ======= =======
Amortization of these intangible assets was $2,311,000, $1,868,000, and $1,867,000 in 1997, 1996 and 1995, respectively. Impairment of Long-Lived Assets Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of ", the Company is required to evaluate the potential impairment of long-lived assets and certain intangible assets on a periodic basis. The Company reviews the realizability of its long-lived assets and certain intangible assets by analyzing the projected cash flows and profitability of the acquired entities and adjusts the net book value of recorded assets when necessary. No material adjustments have been recorded for each of the three years in the period ended December 31, 1997. 7 NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings per Share The Company has adopted SFAS No. 128, "Earnings per Share," which supersedes Accounting Principles Board Opinion ("APB") No. 15, "Earnings per Share," and which is effective for all periods ending after December 15, 1997. SFAS 128 requires dual presentation of basic and diluted earnings per share ("EPS") for complex capital structures on the face of the Statements of Income. Basic EPS is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution from the exercise or conversion of securities into common stock. See Note K for further disclosure. Currency translation The accounts of the international subsidiaries are translated in accordance with 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, and that the results of operations be 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 shareholders' equity. The effects of exchange rate fluctuations in translating the results of operations are included in general sales and administration expense for 1997, 1996 and 1995. There are no material transaction gains or losses in the accompanying Consolidated Financial Statements for each of the three years in the period ended December 31, 1997. 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. New Accounting Pronouncements SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," were issued in June 1997. SFAS 130 and SFAS 131 are effective for fiscal years beginning subsequent to December 15, 1997, and, therefore, will be adopted by the Company on January 1, 1998. The Company does not expect the adoption of SFAS 130 or SFAS 131 to result in any substantive changes in its disclosure. Reclassifications Certain amounts have been reclassified in the prior years' Consolidated Financial Statements and Notes to the Consolidated Financial Statements to conform with the 1997 presentation. 8 NOTE B - RESTRUCTURING COSTS During the first quarter 1997, the Company announced a corporate restructuring. The restructuring charge of $630,000 ($380,000 or $0.06, net of taxes) was primarily for severance payments related to reductions in employees and lease termination costs for the closure of several small "satellite" offices with limited future economic benefit to the Company. NOTE C - ACQUISITIONS Effective January 1, 1997, the Company acquired the assets and/or the outstanding stock of six career transition firms and one search firm for a combination of cash and future defined incentive payments. The six career transition firms included Nelson, O'Connor & Associates (Phoenix, Arizona), Corporate Resource Group (San Francisco, California), Cavendish Partners (London, England) and the former St. Louis, Missouri, Knoxville, Tennessee, and Richmond, Virginia Affiliates. The search firm acquired was Nelson, O'Connor & Cox (Tucson, Arizona). Effective April 1, 1997, the Company acquired the outstanding stock of another career transition firm, Chapel Stowell, Inc. (Portland, Oregon). Effective July 1, 1997, the Company acquired 51% of the outstanding shares of the Australia based career management firm, Davidson & Associates, Pty., Ltd ("Davidson & Associates"). Davidson & Associates has operations in eleven locations throughout Australia, New Zealand, Singapore and Hong Kong. The purchase price of this acquisition approximated $6,935,000, including costs of acquisition, 85% of which was paid in cash (approximately $5,946,000) and the remaining 15% in shares of the Company's common stock (96,577 shares). The Company borrowed $5,500,000 from its revolving credit facility in order to complete this transaction. As a part of the purchase agreement, the minority shareholders of Davidson & Associates have agreed to provide the Company with options to acquire the remaining 49% of the outstanding shares of Davidson & Associates, at fair value as defined, beginning on July 1, 2000. Additionally, the minority shareholders of Davidson & Associates have the right to require the Company to purchase in 10% annual increments the remaining 49% of the outstanding shares of Davidson & Associates, at fair value as defined, beginning on July 1, 2000. Effective August 1, 1997, the Company acquired the business and certain assets of a Minneapolis, Minnesota career management firm, Career Dynamics, Inc. The purchase was funded through a borrowing of $2,000,000 under the Company's revolving credit facility. The acquisition included future defined incentives contingent upon the results of the operations in Minnesota subsequent to the transaction. Effective December 1, 1997, the Company acquired the business and certain assets of a Houston, Texas career transition firm, Michael D. McKee & Associates. The acquisition included future defined incentives contingent upon the results of the operations in the Company's southwest region subsequent to the transaction. 9 NOTE C - ACQUISITIONS (Continued) The aggregate purchase price of these eleven acquisitions was approximately $15,556,000, including costs of acquisition. The purchase price exceeded the fair value of the net tangible assets acquired by approximately $14,847,000, which will be amortized over a period of fifteen years. Effective March 1, 1996, the Company acquired the outstanding stock of People Tech headquartered in Toronto, Canada. Additionally during 1996, the Company acquired the business, assets and/or the outstanding stock of two career transition firms and one other organizational consulting firm. The aggregate purchase price of these four acquisitions was approximately $3,412,000, including costs of acquisition. The purchase price exceeded the fair value of the net tangible assets acquired by approximately $3,653,000, which is being amortized over a period of fifteen years. These acquisitions were made for a combination of cash and non-cash consideration, including the assumption of incomplete consulting contracts. The assumption of incomplete contracts did not result in material revenue in any of the three years in the period ended December 31, 1997. The following represents the assets acquired and liabilities assumed to arrive at net cash paid for acquisitions discussed above for each of the two years in the period ended December 31, 1997:
(Dollars in Thousands) 1997 1996 Assets acquired: Accounts receivable $ 2,875 $ 827 Prepaid expenses and other assets 423 716 Fixed assets 2,983 458 Intangible assets 14,847 3,653 ------ ----- 21,128 5,654 Liabilities acquired: Accounts payable and accrued expenses 4,765 1,741 Assumption of incomplete contracts 807 512 ------ ----- 5,572 2,253 Cash acquired 1,368 --- Equity issued 989 --- ------ ----- Net cash paid for acquisitions $13,199 $ 3,401 ======= =======
Each acquisition has been accounted as a purchase 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. 10 NOTE C - ACQUISITIONS (Continued) The unaudited pro forma results of operations for each of the two years in the period ended December 31, 1997, reflecting the combined results of the Company and the acquisitions detailed above as if the acquisitions had occurred at January 1, 1996 are presented below.
(Dollars in Thousands) 1997 1996 Revenues $ 137,380 $ 149,940 ========== ========== Income before income taxes $ 4,310 $ 15,372 ========== ========== Net income $ 1,882 $ 8,790 ========== ========== Diluted earnings per share $ 0.28 $ 1.32 ========== ==========
NOTE D - PROPERTY AND EQUIPMENT (Dollars in Thousands) 1997 1996 Furniture and fixtures $21,313 $17,414 Computer equipment 4,264 2,557 Leasehold improvements 4,696 2,612 ------- ------- 30,273 22,583 Less accumulated depreciation 16,931 12,917 ------- ------- $13,342 $ 9,666 ======= ======= Depreciation expense was $4,183,000, $3,055,000, and $2,417,000 in 1997, 1996 and 1995, respectively. NOTE E - DEBT AND OTHER OBLIGATIONS On December 20, 1996, the Company signed a new Credit Agreement (the "Credit Agreement") with its two primary lenders (the "Lenders") to increase its maximum unsecured revolving line of credit to $40,000,000. The Credit Agreement became effective December 23, 1996. The Credit Agreement replaces the previous $10,000,000 Amended and Restated Revolving Credit and Term Loan Agreement (the "Revolving Credit Agreement") executed with the Company's primary lender in June 1994 and amended various times thereafter, as well as a separate $5,000,000 unsecured line of credit with a second lender. During 1996, the Company used $5,737,000 from the Credit Agreement to refinance all existing bank indebtedness, of which the entire balance was outstanding at December 31, 1996. The Credit Agreement has a three year maturity. Subsequent to the first anniversary, and annually thereafter, the Company has the ability to extend the Credit Agreement for an additional year upon Lenders' approval. The Company may borrow, repay and re-borrow during the term of the Credit Agreement, with any balance due at maturity. Interest rates are tiered at LIBOR plus a margin contingent upon certain financial ratios of the Company. The Company also has the option to borrow at a base rate equal to the lesser of the Lenders' Prime Rate less 1/4% or the Federal Funds Effective Rate plus 1%. 11 NOTE E - DEBT AND OTHER OBLIGATIONS (Continued) In connection with the 1997 acquisitions of Davidson & Associates and Career Dynamics, Inc. (Note C), the Company utilized $7,500,000 from the Credit Agreement. In order to reduce the impact of changes in interest rates on a portion of the Company's floating rate debt under the Credit Agreement, the Company has entered into three interest rate swap agreements during 1997 with an aggregate notional principal at December 31, 1997 of $9,708,000 and quarterly payments scheduled over three to five years. The Company's interest rates under these interest rate swaps range from 6.70% to 7.10%, which includes a contingent margin of 1% at December 31, 1997. The Company uses interest rate swaps to reduce exposure to adverse fluctuations in interest rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are offset by the change in value of the underlying exposures being hedged. The Company is not a party to leveraged derivatives and does not hold or issue financial instruments for speculative purposes. The net cash paid or received on interest rate swap agreements is recognized as an adjustment to interest expense. The impact of the above interest rate swap agreements on interest expense has been immaterial to date. At December 31, 1997, the Company had an additional $1,900,000 outstanding at the base rate detailed in the Credit Agreement. In connection with the 1996 acquisition of People Tech (Note C), the Company utilized 4,000,000 Canadian dollars (or approximately $2,935,000) from the Revolving Credit Agreement. This entire amount was subsequently repaid from the proceeds of the Credit Agreement. Under the Credit Agreement, 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, 1997, the Company is in compliance with all such covenants. Long-term debt and other obligations consist of the following:
(Dollars in Thousands) December 31, 1997 1996 Floating rate borrowings under the Credit Agreement, due December 23, 1999, with $ 1,900 $ 5,737 quarterly interest payments, bearing interest at 7.07% and 6.53% at 12/31/97 and 12/31/96, respectively Borrowings under the Credit Agreement tied to interest rate swaps with quarterly 9,708 --- principal and interest payments from 1997 to 2002, bearing interest at 6.70% to 7.10% Capitalized lease obligations with interest at 8.7% per annum 442 --- Obligations payable to third parties in connection with acquisitions, non-interest-bearing and discounted at 7.5%-10% per annum, due through 1998, estimated and contingent on future operating results of regions where acquired businesses are operating 668 2,178 ------- -------- 12,718 7,915 Less current portion 3,943 1,011 ------- -------- $ 8,775 $ 6,904 ======= ========
12 NOTE E - DEBT AND OTHER OBLIGATIONS (Continued) Aggregate maturities on long-term debt and other obligations for the years subsequent to December 31, 1997 are as follows: (Dollars in Thousands) Year Ending December 31, Amount 1998 $3,943 1999 5,401 2000 1,799 2001 900 2002 675 ------- $12,718 ======= NOTE F - INCOME TAXES The provision for income taxes consists of the following:
(Dollars in Thousands) Year Ended December 31, 1997 1996 1995 Current: Federal $ 1,388 $ 5,429 $ 4,107 State 561 861 852 Foreign 570 479 551 ------- ------- ------- 2,519 6,769 5,510 ------- ------- ------- Deferred: Federal (226) (290) (85) State 60 (59) (8) Foreign 51 (12) -- ------- ------- ------- (115) (361) (93) ------- ------- ------- Utilization and benefit of foreign operating loss carryforwards (203) -- (321) ------- ------- ------- 2,201 6,408 5,096 Provision for valuation allowance (192) 192 -- ------- ------- ------- $ 2,009 $ 6,600 $ 5,096 ======= ======= =======
During the fourth quarter 1997, the Company recorded an income tax charge of $190,000 related to the expected results of pending tax audits. 13 NOTE F - INCOME TAXES (Continued) 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. The reconciliation of these differences is as follows:
1997 1996 1995 U.S. Federal income tax rate 34% 34% 34% Provision for tax audits 4 -- -- State income taxes, net of federal tax benefit 4 4 4 Nondeductible expenses 4 1 1 Foreign earnings not subject to U.S. Federal 1 1 1 income tax, net of foreign taxes Deferred tax valuation allowance (4) 1 -- Other 2 -- -- --- --- --- 45% 41% 40% === === ===
Income before income taxes is comprised of domestic and foreign components, respectively, as follows: 1997-- $1,565,000 and $2,855,000; 1996--$14,184,000 and $2,091,000 and 1995--$11,449,000 and $1,466,000. 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 $4,167,000 and $3,034,000 at December 31, 1997 and 1996, 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. 14 NOTE F - INCOME TAXES (Continued) The deferred tax asset as of December 31, 1997 and 1996 is comprised of the following:
(Dollars in Thousands) 1997 1996 Allowance for doubtful accounts $ 245 $ 209 Accruals not currently deductible for income taxes 331 193 Deferred compensation 618 726 Depreciation and amortization 1,013 724 Tax benefit of foreign net operating losses 293 313 Other -- 17 ------- ------- 2,500 2,182 Valuation reserve -- (192) ------- ------- Net deferred tax asset $ 2,500 $ 1,990 ======= =======
At December 31, 1996, management determined it was prudent to record a full valuation reserve against the operating loss incurred at People Tech, given the relative lack of history at People Tech for which future estimates of income can be made. Based on the profitability of People Tech during 1997 and the expectation that such profitability will continue in subsequent years, management believes it is more likely than not to realize the net deferred tax asset and accordingly the valuation reserve has been eliminated. NOTE G - BENEFIT AND COMPENSATION AGREEMENTS The Company has a non-qualified supplemental executive retirement plan (the "Plan") for its Founding Chairman. The Plan is designed to provide retirement income based on past compensation, reduced by other retirement sources. Effective January 1, 1997, the Founding Chairman began collecting benefits in accordance with the Plan. 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 $1,151,000 and $1,184,000 for 1997 and 1996, respectively, using a discount rate of 7.25%. Since the Plan is not funded by the Company, the recorded liability equals the present value of the accumulated benefit obligation. The Company has non-qualified supplemental executive retirement plans for its Chief Executive Officer and President 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% at both November 30, 1997 and 1996). The account balance is payable as a life annuity in equal monthly installments with interest on the unpaid balance upon termination of service with the Company. The Chief Executive Officer and President's interest in the plans vests at the rate of 10% and 20% per year, respectively, which began in 1993 and 1996, respectively. 15 NOTE G - BENEFIT AND COMPENSATION AGREEMENTS (Continued) The Company also maintains life insurance policies on the lives of key executives, naming the Company as the beneficiary. The cash surrender value of these policies is included in the Other non-current assets section of the Consolidated Balance Sheets. The Company also maintains employment agreements and incentive compensation agreements with certain key management employees. The agreements typically result from the Company's acquisitions of outside firms. 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 $3,193,000 in 1998, $2,056,000 in 1999, $1,115,000 in 2000, $45,000 in 2001 and $35,000 in 2002. NOTE H - 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 1996 and 1995, 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%. The Company made no additional contribution for 1997 based on the Company's failure to meet internal targets. Employee contributions are generally limited to 10% of their compensation subject to Internal Revenue Code limitations. Company contributions were approximately $469,000, $704,000, and $686,000 for 1997, 1996 and 1995, respectively. In addition, the Company maintains a non-qualified 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 (6% at both November 30, 1997 and 1996). The deferred amounts will be paid from the general assets of the Company and are included in deferred compensation as of December 31, 1997 and 1996. 16 NOTE I - LEASE OBLIGATIONS The Company leases office space and equipment at various locations and accounts for these obligations as operating leases. Rentals relating to these leases are recorded on a straight-line basis. Rental expense approximated $14,350,000, $13,000,000 and $11,998,000 in 1997, 1996, and 1995, 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 non-cancelable lease terms in excess of one year as of December 31, 1997: (Dollars in Thousands) Year Ending December 31, Amount 1998 $11,076 1999 9,582 2000 8,289 2001 6,985 2002 3,967 2003 and subsequent years 2,838 NOTE J - SHAREHOLDERS' EQUITY Stock Splits Effective November 10, 1995, the Company's Common Stock split into three shares for each two shares outstanding. Additionally, effective July 26, 1996, the Company's Common Stock split a second time into three shares for each two shares outstanding. The stated par value per share of Common Stock was not changed for both stock splits from its existing amount of $0.01 per share. All share and per share amounts referred to in the financial statements and notes thereto have been restated to reflect both stock splits, including rounding up for fractional shares, where appropriate. Stock Option Plans The Company has a 1986 Stock Option Plan (the "1986 Plan") under which 968,000 shares of Common Stock are reserved for issuance upon the exercise of incentive stock options, stock appreciation rights or non-qualified 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. Effective September 8, 1996, no further stock options can be granted under the 1986 Plan. The Company also has a 1993 Stock Incentive Plan, as amended in 1996, with 2,475,000 shares of Common Stock reserved for issuance upon the exercise of incentive stock options or non-qualified stock options that may be granted to employees. Outstanding options granted under this plan have ten year terms and are exercisable, cumulatively, in three equal annual installments, beginning one year from the date of grant. At December 31, 1997, 926,553 shares were available for issuance under this plan. 17 NOTE J - SHAREHOLDERS' EQUITY (Continued) 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 675,000 shares of the Company's Common Stock to certain officers and key employees. 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 1996 and 1995, 29,250 and 44,550 shares of restricted stock were awarded, respectively. Due to the Company's decreasing stock price during 1997 and the forfeiture of certain awards, total compensation expense related to restricted stock grants included within general sales and administration expenses was reduced by approximately $633,000 during 1997. Approximately $658,000 and $230,000 of compensation expense related to these shares was charged to general sales and administration expenses in 1996 and 1995, respectively. The Company also has a Directors' Stock Option Plan, under which 225,000 shares of Common Stock are reserved for issuance upon the exercise of incentive stock options or non-qualified stock options that may be granted to non-employee Directors of the Board of Directors. Outstanding options granted under this plan have five year terms and are exercisable, cumulatively, in three equal annual installments, beginning one year from the date of grant. At December 31, 1997, 171,000 option shares were available for issuance under this plan. The Company has elected to follow APB No. 25, "Accounting for Stock Issued to Employees" in accounting for its stock options. Under APB No. 25, no compensation expense is recognized because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of the grant. Had compensation cost for these plans been determined with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share for 1997 and 1996 would have been reduced to the following pro forma amounts:
1997 1996 1995 Net income - as reported $2,073,000 $9,675,000 $7,819,000 Net income - pro forma $108,000 $8,389,000 $7,638,000 Basic EPS - as reported $0.31 $1.55 $1.31 Basic EPS - pro forma $0.02 $1.34 $1.28 Diluted EPS - as reported $0.31 $1.45 $1.24 Diluted EPS - pro forma $0.02 $1.26 $1.21
The fair value of the options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: risk-free interest rates of 6.4% for all years; no dividend yield for all years; expected volatility of 70% for all years; and a weighted average expected life of the option of 7 years. Under SFAS No. 123, total compensation expense, net of tax benefit, approximated $1,965,000, $1,286,000, $181,000 in 1997, 1996, and 1995, respectively. 18 NOTE J - SHAREHOLDERS' EQUITY (Continued) Because the accounting under SFAS No. 123 has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the status of the Company's stock option plans at December 31, 1997, 1996 and 1995 and changes during the years then ended is presented in the table and narrative below:
1997 1996 1995 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 1,238,295 $10.92 1,274,534 $7.89 1,033,577 $5.77 Granted 241,788 17.31 311,300 16.77 390,000 12.82 Exercised (236,095) 5.08 (316,039) 4.23 (108,918) 5.78 Canceled (43,750) 13.08 (31,500) 15.29 (40,125) 6.82 --------- ------ --------- ------ --------- ----- Outstanding at end of year 1,200,238 $13.26 1,238,295 $10.92 1,274,534 $7.89 Exercisable at end of year 672,492 $10.93 610,247 $7.63 671,939 $4.63 Weighted average fair value $12.10 $11.21 $9.24 of options granted
Exercise prices for options outstanding as of December 31, 1997 ranged from $6.89 to $24.33. The weighted average remaining contractual life of these options is approximately 7.75 years. Employee Stock Purchase Plan On May 9, 1996, the Company Shareholders approved the creation of the Company's 1996 Employee Stock Purchase Plan (the "ESPP"). Effective July 1, 1996, 150,000 shares were reserved for issuance under the ESPP. The ESPP permits employees to purchase Company Common Stock at 85% of the average market price on the last day of the applicable quarterly period. All Company employees, except executive employees, are eligible to participate in the ESPP. During 1996 and 1997, 4,368 and 37,859 shares, respectively, were purchased through the ESPP. Repurchase of Common Stock In March 1997, the Board of Directors (the "Board") approved a stock repurchase program under which the Company is authorized to repurchase up to 10% of its currently outstanding common stock. Any shares repurchased will be held as treasury shares and be available to the Company for use in various benefit plans and, when authorized by the Board, for other general corporate purposes. The Board has authorized Company management to pursue the repurchase program in open market transactions from time-to-time, depending upon market conditions and other factors. During 1997, the Company repurchased 127,500 shares of common stock at an aggregate purchase price of $1,379,000. 19 NOTE K - EARNINGS PER SHARE In 1997, the Company adopted SFAS. No. 128, "Earnings per Share". The calculations of earnings per share ("EPS") under SFAS No. 128 are detailed below. For the year ended 12/31/97 Income Shares EPS Basic EPS: Net income $2,073,000 6,596,000 $0.31 ===== Impact of options -- 129,000 ---------- --------- Diluted EPS: Net income $2,073,000 6,725,000 $0.31 ========== ========= ===== For the year ended 12/31/96 Income Shares EPS Basic EPS: Net income $9,675,000 6,252,000 $1.55 ===== Impact of options -- 411,000 ---------- --------- Diluted EPS: Net income $9,675,000 6,663,000 $1.45 ========== ========= ===== For the year ended 12/31/95 Income Shares EPS Basic EPS: Net income $7,819,000 5,984,000 $1.31 ===== Impact of options -- 306,000 ---------- --------- Diluted EPS: Net income $7,819,000 6,290,000 $1.24 ========== ========= ===== For the year ended December 31, 1997, outstanding options to purchase 785,964 shares of Company Common Stock at $12.75 to $24.33 were excluded from the computation of diluted EPS, as the options' exercise price was greater than the average market price of the Common Stock. As a result of the Company's adoption of SFAS No. 128, the Company's reported EPS for 1996 and 1995 were restated. The effect of this accounting change on previously reported EPS data was as follows: Per Share Amounts: 1996 1995 Primary EPS as reported $1.45 $1.24 Effect of SFAS No. 128 0.10 0.07 ----- ----- Basic EPS as restated $1.55 $1.31 ===== ===== Fully diluted EPS as reported $1.44 $1.22 Effect of SFAS No. 128 0.01 0.02 ----- ----- Diluted EPS as restated $1.45 $1.24 ===== ===== 20 NOTE L - 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, 1997, are as follows (See Note A for discussion relating to currency translation and Note F for discussion relating to income taxes):
(Dollars in Thousands) 1997 United States Canada Europe Asia-Pacific Consolidated Identifiable assets $63,881 $7,006 $5,600 $5,217 $81,704 ======== ======== ======== ======= ======== Revenue 97,358 9,784 11,475 7,169 125,786 ======== ======== ======== ======= ======== Operating income (1) 1,720 1,138 598 1,119 4,575 ======== ======== ======== ======= ======== Depreciation and amortization 5,500 245 444 305 6,494 ======== ======== ======== ======= ======== Capital expenditures 3,893 126 755 427 5,201 ======== ======== ======== ======= ======== 1996 United States Canada Europe Asia-Pacific Consolidated Identifiable assets $60,414 $7,155 $6,366 $ -- $73,935 ======== ======== ======== ======= ======== Revenue 105,028 9,167 11,074 -- 125,269 ======== ======== ======== ======= ======== Operating income (1) 14,115 1,142 982 -- 16,239 ======== ======== ======== ======= ======== Depreciation and amortization 4,038 475 410 -- 4,923 ======== ======== ======== ======= ======== Capital expenditures 4,707 80 86 -- 4,873 ======== ======== ======== ======= ======== 1995 United States Canada Europe Asia-Pacific Consolidated Identifiable assets $51,530 $2,181 $6,520 $ -- $60,231 ======== ======== ======== ======= ======== Revenue 97,940 7,078 8,987 -- 114,005 ======== ======== ======== ======= ======== Operating income (loss) (1) 11,874 1,987 (517) -- 13,344 ======== ======== ======== ======= ======== Depreciation and amortization 3,788 173 323 -- 4,284 ======== ======== ======== ======= ======== Capital expenditures 2,393 96 154 -- 2,643 ======== ======== ======== ======= ======== (1) The operating income reported for the United States segment includes total general sales and administration expense reported on the Consolidated Statements of Income.
21 NOTE M - SUBSEQUENT EVENTS Subsequent to December 31, 1997, the Company acquired the assets of three consulting firms for a combination of cash and future defined incentive payments. The firms included Manus, a Stamford, Connecticut consulting firm; The Atlanta Consulting Group, of Atlanta, Georgia; and Teams, Inc. ("Teams"), of Tempe, Arizona. Definitive agreements, effective January 1, 1998, have been completed with Manus and The Atlanta Consulting Group and a Letter of Intent has been executed with Teams subject to definitive agreements expected to be completed over the next 60 days. The transaction with Teams will be a joint venture, with the Company purchasing a 51% interest. As a part of the purchase agreement, the minority shareholders of Teams have agreed to provide the Company with options to acquire the remaining 49% of the outstanding interest of Teams beginning on April 1, 2001. Additionally, the minority shareholders of Teams have the right to require the Company to purchase the remaining 49% of the outstanding interest of Teams beginning on April 1, 2001. The purchase price for these acquisitions totaled approximately $6,000,000, including contingent payments and costs of acquisition, and will be accounted for using the purchase method. The Company has funded these acquisitions through borrowings under the Credit Agreement. In connection with the acquisition of Manus, the Company entered into another interest rate swap with a notional principal of $5,500,000, which constitutes the purchase of this acquisition and the remaining floating rate debt under the Credit Agreement. 22 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. Certain amounts have been reclassified in the 1996 and 1995 Consolidated Statements of Income to conform with the 1997 presentation. 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, 1997 1996 1995 Company office revenue $122,281 $120,679 $109,741 Company office expenses 107,217 95,950 88,425 --------- --------- --------- Company office margin 15,064 24,729 21,316 Affiliate royalties 3,505 4,590 4,264 General sales and administration (13,364) (13,080) (12,236) Restructuring costs (Note B) (630) -- -- Interest income (expense), net (155) 36 (429) --------- --------- --------- Income before income taxes $4,420 $16,275 $12,915 ========= ========= =========
1997 Compared to 1996 For the year ended December 31, 1997, revenue generated by Company offices increased by 1%, or $1,602,000 over 1996. This increase is due to $15,662,000 in incremental revenues from acquisitions, offset by a 12% same office revenue decrease. The year to date 1997 incremental revenues from acquisitions include the results of the entities detailed in Note C to the Consolidated Financial Statements, as well as two additional months revenue from the People Tech acquisition consummated effective March 1, 1996. The same office revenue decrease is due to a general slow down in both the North American and European career transition markets associated with the continued strength of the U.S. economy. Additionally, the Company experienced compression in the length of career transition programs provided which negatively impacted office revenues by lowering average fees by program. The Company's consulting line of business reported total revenues of $11,100,000, which represents a 16% increase over 1996. The Company is committed to the growth of this line of business as evident in the three acquisitions announced subsequent to December 31, 1997 (see Note M to the Consolidated Financial Statements). For the year ended December 31, 1997, Affiliate royalties decreased 24%, or $1,085,000 from 1996. The decrease is attributable to the aforementioned decline in the North American career transition market, as well as the acquisitions of three former Affiliates in the first quarter 1997 (see Note C to the Consolidated Financial Statements). Revenue from the acquisition of the three former Affiliates is reflected as Company office revenue subsequent to the acquisition. On a same office basis, Affiliate royalties decreased 19% or $816,000 from 1996. 23 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For the year ended December 31, 1997, total Company office expenses, exclusive of formal restructuring costs (see Note B to the Consolidated Financial Statements) increased 12% or $11,267,000 over 1996. This increase is due to approximately $12,959,000 in incremental costs from acquisitions, as well as approximately $1,150,000 in additional office level charges for severance, lease reductions and strategic planning during the fourth quarter of 1997. Exclusive of costs from acquisitions, formal restructuring costs and the one time charges during the fourth quarter, the Company's same office expenses decreased by approximately $2,842,000 from 1996 due to general cost containment measures implemented by the Company necessary to align the cost infrastructure with the decreased same office revenues. Aggregate Company office margins, exclusive of formal restructuring costs, were 12% and 20% for 1997 and 1996, respectively. The decrease in margins is attributable primarily to the previously mentioned decline in career transition revenues and program compression, partly offset by improved margins in the consulting line of business and favorable results for the Company's Davidson & Associates acquisition (see Note C to the Consolidated Financial Statements). For the year ended December 31, 1997, general sales and administration expenses increased by 2% or $284,000 over 1996. This increase is due primarily to the fourth quarter 1997 costs associated with the Company's updated strategic plan, amortization costs associated with the Company's eleven acquisitions during 1997 (see Note C to the Consolidated Financial Statements), and the additions of key management personnel during the latter half of 1996 and throughout 1997. Due to the Company's decreasing stock price during 1997 and the forfeiture of certain awards of common stock, total compensation expense related to restricted stock grants included within general sales and administration expenses was reduced by approximately $633,000 for 1997. For the year ended December 31, 1997, general sales and administration expenses as a percentage of total revenues were approximately 11% versus 10% for 1996. For the year ended December 31, 1997, the Company's effective tax rate was approximately 45% versus 41% for 1996. The increase in the effective tax rate is due primarily to the impact of an income tax charge of approximately $190,000 related to the expected results of pending tax audits (see Note F to the Consolidated Financial Statements). 24 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 1996 Compared to 1995 For the year ended December 31, 1996, revenue generated by Company offices increased 10%, or $10,938,000 over 1995. This increase is attributable to revenue growth in existing Company offices, coupled with the additional full year revenues from the LM&P and Providence acquisitions, and partial year revenues from the People Tech acquisition. Incremental revenue generated through these acquisitions totaled $6,158,000 or 56% of the total revenue increase. The remaining increase was provided by same office revenue growth of approximately 4%. For the year ended December 31, 1996, Affiliate royalties increased 8%, or $326,000 over 1995. This increase is attributable to revenue growth in existing Affiliate offices, offset by reduced Affiliate royalties from the acquisition of the Providence Affiliate on October 1, 1995. Revenue from Providence is reflected as Company office revenue subsequent to the acquisition. On a same office basis, Affiliate royalties increased 13% in 1996 due primarily to significant billings from our Affiliates in the North Central region of the United States. For the year ended December 31, 1996, Company office expenses in the aggregate increased 9%, or $7,525,000 over 1995. This dollar increase is primarily due to the incremental costs from the LM&P, Providence and People Tech acquisitions, in addition to growth in existing Company offices. The acquisitions accounted for $5,376,000 or 71% of the total increase. The remainder of the increase is a function of revenue growth in existing Company offices. Despite the cost increase, office operating margins improved to 20% in 1996 from 19% in 1995. This improvement is a reflection of higher operating efficiencies in the career transition business, enhanced pricing, and strong European results, partly offset by a loss in the consulting business. For the year ended December 31, 1996, general sales and administration expense increased 7%, or $844,000 over 1995. The increase is due primarily to the Company's continued investments in technology and the additional costs of the 1996 and 1995 restricted stock grants attributable to the Company's stock price increase. Despite the increase in 1996, general sales and administration expenses as a percentage of total revenues decreased to 10% from 11% in 1995. For the year ended December 31, 1996, income before income taxes increased 26%, or $3,360,000 over 1995. The increase is attributable to the combination of greater Company office revenue and Affiliate royalties, improved office operating margins and reduced general sales and administration expenses as compared to Company growth. For the year ended December 31, 1996, the Company's effective tax rate was approximately 41% versus 40% for 1995. 25 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Capital Resources and Liquidity At December 31, 1997 and 1996, the Company had cash and cash equivalents of $7,583,000 and $18,055,000, respectively. The significant decrease in cash and cash equivalents is the result of lower net income, as well as payments made for acquisitions and 1996 incentive compensation (see Note C to the Consolidated Financial Statements). At December 31, 1997, the Company's working capital decreased to $15,491,000 from $25,342,000 at December 31, 1996. Net cash utilized by investing activities amounted to $18,400,000 and $8,274,000 for 1997 and 1996, respectively. The Company continues to purchase equipment and technology to meet the needs of its expanding operations and to enhance its operating efficiency. During 1997, the Company acquired eleven career management firms for a combination of cash and future defined incentive payments (see Note C to the Consolidated Financial Statements). The $13,199,000 net cash paid for acquisitions on the Consolidated Statement of Cash Flows is net of $1,368,000 of cash acquired from acquisitions. Additionally, in connection with the Davidson & Associates acquisition (see Note C to the Consolidated Financial Statements), the net cash paid for acquisitions on the Consolidated Statement of Cash Flows excludes the value of the issuance of 96,577 shares which is considered a non-cash investing activity. During 1996, the Company acquired the business, assets, and/or outstanding stock of four career management consulting firms, including People Tech, for a combination of cash and non-cash items, including the assumption of incomplete consulting contracts, future defined incentives and other considerations. Additionally during 1996, the Company made a significant investment in technology with the implementation of a new financial system. Net cash provided by financing activities amounted to $5,250,000 and $695,000 in 1997 and 1996, respectively. The net cash provided by financing activities for 1997 was the result of $7,500,000 in borrowings from the Company's revolving credit facility in order to complete two acquisitions (see Note C to the Consolidated Financial Statements) and proceeds from the issuance of stock, partly offset by repayments on the Company's borrowings and defined incentives for acquisitions made in previous years, as well as the repurchase of common stock (see Note J to the Consolidated Financial Statements). 26 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In addition to cash flow provided by operations, the Company has borrowing facilities to provide for increased working capital needs as well as to provide for future acquisition opportunities. During 1996, the Company increased its borrowing capacity to $40,000,000 from the previous $15,000,000 level through the execution of its Credit Agreement with its two primary lenders (See Note E to the Consolidated Financial Statements). The Company had approximately $28,392,000 and $34,263,000 available under the Credit Agreement at December 31, 1997 and 1996, respectively. Subsequent to December 31, 1997, the Company announced the acquisition of three consulting firms for a combination of cash and future defined incentive payments (see Note M to the Consolidated Financial Statements). The Company will fund these acquisitions through borrowings under the Credit Agreement. The Company plans to utilize the Credit Agreement in future periods to assist in the financing of acquisitions as they arise, and for other general corporate purposes. 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. 27 RIGHT MANAGEMENT CONSULTANTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Year 2000 The Company has completed a preliminary evaluation of the potential impact of the year 2000 and is not able to reasonably quantify the anticipated costs at this time. However, the Company clearly expects costs to be incurred addressing the year 2000 issue, but does not expect these costs to have a material impact on its business, operations, or its financial condition. Forward-Looking Statements Statements included in this Report on Form 10-K, including within this Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical in nature, are intended to be, and hereby are identified as "forward looking statements" for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The Company cautions readers that forward looking statements including without limitation those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements due to several important factors hereafter identified, among others, as well as other risks and uncertainties identified from time to time in the Company's reports filed with the Securities and Exchange Commission. Readers of this Report are cautioned not to place undue reliance upon these forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward looking statements or reflect events or circumstances after the date hereof. Among the factors that create risk and uncertainty are (i) government regulation of the Company's Affiliates; (ii) the Company's ability to maintain good relationships with its remaining Affiliates; (iii) competition within the highly fragmented career transition and human resource consulting services industries; (iv) the dependence on key management or operating personnel within the Company or an Affiliate; (v) economic conditions on a local, regional, national and international basis, which affect the demand for the Company's services; for example, a stronger economy can lead to easier and more rapid job change and reentry, which can reduce the demand for the Company's services or compress the length of the services provided, thereby negatively impacting prices. Weaker economic conditions can also lead to reluctance on outside companies' part to incur the expenditure associated with the Company's services. 28 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 meets 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 29 RIGHT MANAGEMENT CONSULTANTS, INC.
1997 DIRECTORS AND EXECUTIVE OFFICERS Richard J. Pinola Chairman of the Board of Directors and Chief Executive Officer Frank P. Louchheim Founding Chairman and Director Joseph T. Smith President, Chief Operating Officer and Director Larry A. Evans Executive Vice President and Director Dr. Marti D. Smye President of People Tech Consulting, Inc. and Director Frederick Davidson President of Davidson & Associates and Director DIRECTORS John R. Bourbeau President of Right Associates(R) of the Great Lakes Region, an Affiliate of the Company Raymond B. Langton President and Chief Executive Officer of SKM Applied Technology Partners Rebecca J. Maddox President and Co-founder of Capital Rose, Inc. Catherine Y. Selleck Business Consultant OTHER EXECUTIVE OFFICERS John J. Gavin Executive Vice President G. Lee Bohs Executive Vice President, Chief Financial Officer, Treasurer and Secretary Peter J. Doris Executive Vice President Nancy N. Geffner Executive Vice President - New York Group Manville D. Smith Executive Vice President - Southern Group Terry W. Szwec Executive Vice President - Canadian Group Gilbert A. Wetzel Executive Vice President - Eastern Group Joan Strewler Executive Vice President - North Central Group Timothy D. Dorman Executive Vice President - Western Group
Corporate Headquarters Independent Public Accountants Right Management Consultants, Inc. Arthur Andersen LLP 1818 Market Street Philadelphia, Pennsylvania 33rd Floor Philadelphia, Pennsylvania 19103 General Counsel Fox, Rothschild, O'Brien & Frankel Philadelphia, Pennsylvania 30 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. People Tech Consulting Corporation People Tech Consulting, Ltd. ProTransition, Inc. Chapel Stowell, Inc. Cavendish Partners Ltd. Right D & A Pty. Ltd. (51% ownership) Service Marks and Right Associates, THinc, Partners in Managing Change, Trade Marks The Right Fit, The Right Way, Key Executive Service and Zeroing-in-Process (Z.I.P.) are registered Service Marks of Right Management Consultants, Inc. People Tech is a registered Service Mark of a wholly owned subsidiary. The Right Report is a registered Trademark of Right Management Consultants, Inc. Rightrack and the Globe Design are Service Marks of Right Management Consultants, Inc. 31 RIGHT MANAGEMENT CONSULTANTS, INC. Right Management Consultants, Inc. Common Stock Listed on NASDAQ Stock Market Symbol RMCI Common Stock Data 1997 High Low First Quarter 23 1/2 8 3/4 Second Quarter 11 3/4 9 5/8 Third Quarter 11 1/2 9 1/4 Fourth Quarter 13 1/2 9 1/8 1996 High Low First Quarter 20 5/8 15 Second Quarter 25 20 Third Quarter 27 1/2 19 1/4 Fourth Quarter 24 1/2 18 1/2 The above prices reflect interdealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. As of March 27, 1998, there were 159 record holders and approximately 2,361 beneficial owners 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. Registrar and StockTrans, Inc. Transfer Agent Ardmore, Pennsylvania Availability of A copy of the Company's Annual Report 10-K Annual Report to the Securities and Exchange Commission on Form 10-K may be obtained by writing to: Paul J. Straub Manager of Financial Reporting Right Management Consultants, Inc. 1818 Market Street Thirty-third Floor Philadelphia, PA 19103 32 WORLD HEADQUARTERS Philadelphia, PA UNITED STATES AND PUERTO RICO Alabama Birmingham Alaska Anchorage Arizona Phoenix Tucson California Cupertino Irvine Los Angeles Pasadena Sacramento San Bernardino San Diego San Francisco Walnut Creek Woodland Hills Colorado Colorado Springs Denver Connecticut Hartford Stamford Delaware Wilmington District of Columbia Washington Florida Boca Raton Fort Lauderdale Jacksonville Miami Orlando Palm Beach Saint Petersburg Tampa Georgia Atlanta Illinois Chicago Northbrook Oak Brook Indiana Indianapolis Iowa Des Moines Kansas Wichita Kentucky Lexington Louisville Louisiana New Orleans Maryland Baltimore Hunt Valley Massachusetts Boston Burlington Michigan Detroit Grand Rapids Kalamazoo Lansing Midland Minnesota Edina Minneapolis Missouri Kansas City St. Louis Nebraska Omaha Nevada Las Vegas New Jersey Parsippany Princeton Upper Saddle River New Mexico Albuquerque New York Buffalo Melville New York City Westchester North Carolina Charlotte Greensboro Raleigh Winston-Salem Ohio Cincinnati Cleveland Columbus Dayton Toledo Oklahoma Oklahoma City Tulsa Oregon Portland Pennsylvania Allentown Erie Lancaster Malvern Philadelphia Pittsburgh Reading Puerto Rico San Juan Rhode Island Providence South Carolina Greenville Tennessee Kingsport Knoxville Memphis Nashville Texas Austin Dallas Fort Worth Houston San Antonio Utah Salt Lake City Virginia Fairfax Richmond Roanoke Vienna Virginia Beach Washington Seattle West Virginia Charleston Wisconsin Madison Mequon Milwaukee CANADA Alberta Calgary Edmonton British Columbia Vancouver Manitoba Winnipeg New Brunswick Moncton St. John New Foundland St. John's Nova Scotia Halifax Ontario Kingston London Mississauga Ottawa Richmond Hill Toronto Quebec Montreal Quebec City Saskatchewan Saskatoon EUROPE Belgium Antwerp Burssels England London Swindon France Paris Scotland Aberdeen Glasgow Switzerland Geneva Asia/Pacific Australia Adelaide Brisbane Canberra Melbourne Perth Sydney China Hong Kong New Zealand Auckland Singapore EX-21 5 EXHIBIT 21 - SUBSIDIARIES OF THE COMPANY 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 13. People Tech Consulting Corporation, a Delaware corporation 14. People Tech Consulting, Ltd., a Canadian corporation 15. Pro Transition, Inc., a Canadian corporation 16. Chapel Stowell, Inc., an Oregon corporation 17. Cavendish Partners Ltd., a U.K. corporation 18. Right D & A Pty. Ltd. (51% ownership), an Australian corporation EX-23 6 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Right Management Consultants, Inc.: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements No. 333-06211, File No. 333-07975, File No. 33-58698, File No. 33-62997, and File No. 33-62999. /s/ ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania March 26, 1998 EX-27.1 7 ART. 5 FDS FOR YEAR ENDED 12/31/97 FORM 10-K
5 1,000 YEAR DEC-31-1997 DEC-31-1997 7,583 0 25,062 663 0 34,737 30,273 16,931 81,704 19,246 0 0 0 71 50,379 81,704 125,786 125,786 52,085 107,847 13,364 0 155 4,420 2,009 2,073 0 0 0 2,073 0.31 0.31
EX-27.2 8 AMENDED FDS YEAR ENDED 12/31/96 FORM 10-K
5 1,000 YEAR DEC-31-1996 DEC-31-1996 18,055 0 22,935 552 0 42,708 22,583 12,917 73,935 17,366 0 0 0 67 47,734 73,935 125,269 125,269 47,624 95,950 13,080 0 36 16,275 6,600 9,675 0 0 0 9,675 1.55 1.45
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