-----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, SDeLBe78lau3/Xss87oo6lwhQ33y+doUUGCPOzUqT8ke3gqmRpjz6SWgb7UVwEfL 71Jqs6VdCP2f3zLU81rCNQ== 0000950148-97-000721.txt : 19970329 0000950148-97-000721.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950148-97-000721 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ON ASSIGNMENT INC CENTRAL INDEX KEY: 0000890564 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 954023433 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20540 FILM NUMBER: 97568058 BUSINESS ADDRESS: STREET 1: 26651 WEST AGOURA ROAD CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8188787900 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 Commission File Number 0-20540 --------- ON ASSIGNMENT, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-4023433 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 26651 West Agoura Road Calabasas, California 91302 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (818) 878-7900 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered ------------------- ------------------------------------ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value (Title and Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements of 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 3,373,755 shares of voting stock (based on the closing price reported by the Nasdaq Stock Market on January 31, 1997) held by non-affiliates of the registrant as of January 31, 1997 was approximately $118,925,000. For purposes of this disclosure, shares of common stock held by persons who own 5% or more of the shares of outstanding common stock and shares of common stock held by each officer and director have been excluded in that such persons may be deemed to be "affiliates" as that term is defined under the Rules and Regulations of the Act. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of January 31, 1997, the registrant had outstanding 5,171,262 shares of Common Stock, $0.01 par value. DOCUMENT INCORPORATED BY REFERENCE Portions of the On Assignment, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held on June 9, 1997 are incorporated by reference into Part III of this Report on Form 10-K. Sequentially numbered page 1 of 54 pages Exhibit index on sequentially numbered page 34 2 PART I ITEM 1. BUSINESS On Assignment, Inc. (the "Company"), through its first operating division, Lab Support, is a leading nationwide provider of temporary scientific professionals to laboratories in the biotechnology, environmental, chemical, pharmaceutical, food and beverage and petrochemical industries. In January 1994, the Company established its second operating division, Finance Support, with the acquisition of 1st Choice Personnel, Inc. The Finance Support division was expanded in December 1994, with the acquisition of substantially all of the assets, offices and operations of Sklar Resource Group, Inc. With a shift in Finance Support's business development focus to medical billing and collections, in January 1997 the name of the Finance Support division was changed to Healthcare Financial Staffing. In March 1996, the Company established its third operating division, EnviroStaff, with the acquisition of EnviroStaff, Inc. As of December 31, 1996, the Company served 44 operational markets through a network of 82 branch offices. The Company's principal executive offices are located at 26651 West Agoura Road, Calabasas, California 91302 and its telephone number is (818) 878-7900. ON ASSIGNMENT'S APPROACH The Company's strategy is to serve industries' needs for quality assignments of temporary professionals. In contrast to the mass market approach used for temporary office/clerical and light industrial personnel, the Company believes effective assignments of temporary professionals require the person making assignments to have significant knowledge of the client's industry and be able to assess the specific needs of the client as well as the temporary professionals' qualifications. As a result, the Company has developed a tailored approach to the assignment process - the Account Manager System. Unlike traditional approaches, the Account Manager System is based on the use of experienced professionals, Account Managers, to manage the assignment process. Account Managers meet with clients' managers to understand position descriptions and workplace environments, and with temporary employee candidates to assess their qualifications and interests. With this information, Account Managers can make quality assignments of temporary professionals to clients, typically within 24 to 48 hours of client requests. The Company's corporate office performs many functions that allow Account Managers to focus more effectively on the assignment of temporary professionals. These functions include recruiting, ongoing training and coaching, appointment making, business development and administrative support. The corporate office also selects, opens and maintains branch offices according to a standardized model. Temporary personnel assigned to clients are employees of the Company, though clients provide on-the-job supervisors for temporary personnel. Therefore, clients control and direct the work of temporary personnel and approve hours worked, while the Company is responsible for many of the activities typically handled by the client's personnel department. BRANCH OFFICE NETWORK At December 31, 1996, the Company had 52 Lab Support branch offices, 13 Healthcare Financial Staffing branch offices, and 17 EnviroStaff branch offices. Of this total of 82 branch offices, 22 branch offices involve shared office space among divisions. Through this network of branch offices, the Company served the following operational markets: Atlanta, GA Kansas City, MO Princeton, NJ Baltimore, MD Los Angeles, CA Raleigh-Durham, NC Boston, MA Louisville, KY Richmond, VA Buffalo, NY Memphis, TN Sacramento, CA Charlotte, NC Miami, FL Salt Lake City, UT Chicago, IL Milwaukee, WI San Antonio, TX Cincinnati, OH Minneapolis, MN San Diego, CA Cleveland, OH New Orleans, LA San Francisco, CA Columbus, OH New York, NY San Jose, CA Costa Mesa, CA Philadelphia, PA Seattle, WA Dallas, TX Phoenix, AZ St. Louis, MO Denver, CO Piscataway, NJ Tampa, FL Detroit, MI Pittsburgh, PA Washington DC Houston, TX Pleasanton, CA Westport, CT Indianapolis, IN Portland, OR 2 3 CLIENTS Lab Support's clients include biotechnology, environmental, chemical, pharmaceutical, food and beverage, petrochemical and manufacturing companies. Healthcare Financial Staffing's clients include companies engaged in the healthcare services industry. EnviroStaff's clients include companies in the environmental services industry. During the year ended December 31, 1996, the Company provided assignment professionals to approximately 3,100 clients. All temporary assignments, regardless of their planned length, may be terminated without prior notice by the client or the temporary employee. THE TEMPORARY PROFESSIONAL The skill and experience levels of Lab Support's temporary professional employees range from scientists with bachelor and/or masters degrees and considerable laboratory experience to technicians with some chemistry or biology background and lab experience. The skills and experience levels of Healthcare Financial Staffing's temporary professional employees typically include three or more years of medical billing and collection experience. The skill and experience of EnviroStaff's temporary professional employees' range from engineers, geologists, industrial hygienists and safety professionals with bachelor and/or masters degrees and several years of experience to field technicians and heavy equipment operators with some applicable experience. Hourly wage rates are established according to local market conditions. The Company pays the related costs of employment including social security taxes, federal and state unemployment taxes, workers' compensation insurance and other similar costs. After minimum service periods and hours worked, the Company also provides paid holidays, allows participation in the Company's 401(k) Retirement Savings Plan and Employee Stock Purchase Plan, creates eligibility for an annual bonus, and facilitates access to health insurance for its temporary employees. The Company maintains general liability insurance coverage. The Company seeks to reduce liability for the acts of its temporary employees by providing in its arrangements with clients that its temporary personnel work under the client's supervision, control and direction. EXPANSION IN EXISTING PROFESSIONS AND INTO OTHER PROFESSIONS The Company intends to apply its approach to the assignment of temporary professionals other than scientific, medical billing and collections, and environmental service personnel and to expand its services in the scientific, medical billing and collections and environmental fields it currently serves. The Company believes that its experience with the Account Manager System and centralized operational support will enable it to enter new markets effectively. The Company continually reviews opportunities in various industries, to evaluate the current volume and profitability of temporary assignments, the length of assignments, the degree of specialization necessary to be successful, the competitive environment and the applicability of its Account Manager approach. If attractive markets are identified, the Company may enter these markets through acquisition, internal growth or direct investment. The Company's January 1994 acquisition of 1st Choice Personnel, Inc., December 1994 acquisition of substantially all of the assets of Sklar Resource Group, Inc., and March 1996 acquisition of EnviroStaff, Inc. were consistent with this ongoing activity, and the Company periodically engages in discussions with possible acquisition candidates. COMPETITION The temporary services industry is highly competitive and fragmented and has low barriers to entry. The Company believes its Lab Support division is one of the few nationwide temporary service providers that specialize exclusively in scientific laboratory personnel. Although other nationwide temporary personnel companies compete with the Company with respect to scientific, medical billing and collections and environmental personnel, many of these companies focus on office/clerical and light and heavy industrial personnel, which accounted for approximately 80% of the overall temporary personnel services market. These companies include Manpower, Inc., Kelly Services, Inc., The Olsten Corporation, ADIA Services, Inc., and Aerotech, Inc., each of which is larger and has substantially greater financial and marketing resources than the Company. The Company also competes with temporary personnel agencies on a regional and local basis. Frequently, the strongest competition in a particular market is a local company with established relationships. The Company also competes with its clients that advertise or seek referrals of qualified candidates. 3 4 The principal competitive factors in attracting qualified candidates for temporary employment are salaries and benefits, speed and quality of assignments and responsiveness to the needs of employees. The Company believes that many persons seeking temporary employment through the Company are also pursuing employment through other means, including other temporary employment service firms. Therefore, the speed and availability of appropriate assignments is an important factor in the Company's ability to complete assignments of qualified candidates. In addition to having high quality temporary personnel to assign in a timely manner, the principal competitive factors in obtaining and retaining clients in the temporary services industry are correctly understanding the client's specific job requirements, the appropriateness of the temporary personnel assigned to the client, the price of services and the monitoring of client satisfaction. Although the Company believes it competes favorably with respect to these factors, it expects competition to increase. EMPLOYEES At December 31, 1996, the Company employed approximately 170 regular employees, including Account Managers and corporate office employees. During the year ended December 31, 1996, the Company employed approximately 9,800 temporary employees. None of the Company's employees, including its temporary employees, are represented by a collective bargaining agreement. The Company believes its employee relations are good. REGULATION The Company's operations are subject to applicable state and local regulations governing the provision of personnel placement services which require personnel companies to be licensed or separately registered. To date, the Company has not experienced any material difficulties in complying with such regulations. State mandated workers' compensation and unemployment insurance premiums, which the Company pays for its temporary and regular employees, have increased in recent years and have directly increased the Company's cost of services. Federal legislative proposals for national health insurance have included provisions extending health insurance benefits to temporary employees and some states could impose sales taxes or raise sales tax rates on temporary services. PROPRIETARY RIGHTS The Company has registered its Lab Support and EnviroStaff division's service marks with the United States Patent and Trademark Office and applied for registration of its Healthcare Financial Staffing division's service marks. The Company has also registered its "Quality Assignment" logo with the United States Patent and Trademark Office. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS The Company operates in a highly competitive environment that involves a number of risks, some of which are beyond the Company's control. The following discussion highlights some of the risks that may affect the Company in future results. Uncertainty of Future Operating Results, Quarterly Fluctuations and Seasonality. Future operating results will depend on many factors, including demand for the Company's services, the market's acceptance of price changes, the productivity, recruitment and retention of Account Managers, the results of the Company's expansion into new geographic markets, the degree and nature of competition, the effectiveness of the Company's expansion into other professions, and the Company's ability to control costs and manage its accounts receivable. The Company and the temporary services industry as a whole typically experience seasonal declines in demand from the year-end holiday season through early February and during June, July and August. The Company has experienced variability in the duration and depth of these seasonal declines, which in turn have materially effected period-to-period and current period-to-prior period comparisons of its financial and operating performance. As a result of these and other factors, there can be no assurance that the Company will be able to grow in future periods, sustain its past rate of revenue growth or maintain profitability on a quarterly or annual basis. 4 5 Expansion in Existing Professions and into Other Professions. The Company plans to expand its services within the scientific, healthcare financial and environmental fields it currently serves and to other professional fields. The success of the Company's expansion efforts, including its Healthcare Financial Staffing division and EnviroStaff, will depend on a number of factors, including adapting On Assignment's approach used in its current divisions to other industries and professions, recruiting and training new Account Managers with the particular industry or professional experience, establishing client relationships in new industries and successfully recruiting, qualifying and orienting new temporary professionals. The Company may decide to pursue future expansion by internal growth, direct investment or acquisition. The rate at which the Company establishes new services may significantly affect the Company's operating and financial results, especially in the quarters of and immediately following expansion into new professional markets or the integration of acquired operations. There can be no assurance that the Company will be able to successfully develop its services for other professional markets, that acquisitions by the Company will be successful or that the Company will continue to grow. Reliance on and Ability to Attract, Develop and Retain Account Managers. The Company relies significantly on the performance of its Account Managers, who have primary responsibility for all aspects of the process of assigning the Company's temporary employees to clients. The Company is highly dependent on its ability to hire, develop and retain qualified Account Managers, as well as on the productivity of its Account Managers. The available pool of qualified Account Manager candidates is limited. In addition, prior to joining the Company, the typical Account Manager has no prior experience in the temporary employment industry. The Company commits substantial resources to the training, development and operational support of its Account Managers. There can be no assurance that the Company will be able to continue to recruit, train and retain qualified Account Managers. Dependence on Availability of Qualified Temporary Professional Employees. The Company is dependent upon continuing to attract qualified science and financial personnel with a broad range of skills and experience in order to meet client needs. The Company competes for such personnel with other temporary personnel companies, as well as actual and potential clients, some of which seek to fill positions with either regular or temporary employees. In addition, the Company's temporary employees sometimes become regular employees of the Company's clients. There can be no assurance that scientific, medical billing and collections, and environmental services personnel will continue to be available to the Company in adequate numbers. Highly Competitive Market. The temporary services industry is highly competitive and fragmented, with limited barriers to entry. The Company competes in national, regional and local markets with full-service agencies and in regional and local markets with specialized temporary services agencies. Several of these companies have significantly greater marketing and financial resources than those of the Company. As the Company expands into new geographic markets, its success will depend in part on its ability to gain market share from competitors. The Company expects that competition will increase in the future and there can be no assurance that the Company will remain competitive. Effect of Fluctuations in the General Economy. Demand for temporary services is significantly affected by the general level of economic activity. As economic activity slows, many companies reduce their usage of temporary employees before undertaking layoffs of their regular employees. As economic activity increases, many clients convert their temporary employees to regular employees, which, depending on the Company's agreement with the client and when such conversion occurs, may result in conversion fee revenue for the Company. The Company is unable to predict the level of economic activity at any particular time and its effect on the Company's operating and financial results. Terminability of Client Arrangements. The Company's arrangements with clients are terminable at will and do not require clients to use the Company's services. All temporary assignments, regardless of their planned length, may be terminated without advance notice. The loss of significant clients could materially adversely affect the Company's business, operating results and financial condition. There can be no assurance that existing clients will continue to use the Company's services at historical levels, if at all. Liability Insurance. The Company maintains general liability insurance. This insurance does not extend to errors and omissions of temporary employees on assignments with clients. The Company seeks to reduce any liability for the acts of its temporary employees by providing in its arrangements with clients that temporary personnel work under the client's supervision, control and direction. There can be no assurance that such arrangements will be enforceable or that, if enforceable, would be sufficient to preclude liability as a result of the actions of its temporary personnel or that insurance coverage will be available or adequate in amount to cover any such liability. 5 6 Workers' Compensation Expense. The Company maintains a partially self-insured workers' compensation policy. In connection with this program, the Company pays a base premium plus actual losses incurred, and is insured for a maximum loss cap per occurrence and in the aggregate. The Company seeks to minimize the impact of workers' compensation losses through an aggressive claims management and accident reduction program. While current loss reserves are reasonable based on claims filed and an estimate of claims incurred but not yet reported, there can be no assurance that insurance coverage will be adequate in amount to cover all workers' compensation claims. Dependence on Key Officers. The Company's future success depends in significant part upon the continued service of its key officers. Competition for such personnel is intense and there can be no assurance that the Company will retain its key officers or that it can attract or retain other highly qualified managerial personnel in the future. The loss of any of its key officers could have a material adverse effect upon the Company's business, operating results and financial condition. Government Regulations. In many states, the temporary services industry is regulated, and firms such as the Company must be registered or qualify for an exemption from registration. While these regulations have had no material effect on the conduct of its business, there can be no assurance that future regulations will not have such effect. State mandated workers' compensation and unemployment insurance premiums, which the Company pays for its temporary as well as its regular employees, have increased in recent years thereby increasing the cost of services. Previous federal legislative proposals for national health insurance have included provisions extending health insurance benefits to temporary employees and some states could impose sales taxes or raise sales tax rates on temporary services. Further increases in such premiums or rates or the introduction of new regulatory provisions could substantially raise the costs associated with hiring temporary employees and there is no assurance that these increased costs could be passed on to clients without a significant decrease in the demand for temporary employees. ITEM 2. PROPERTIES The Company has leased approximately 16,500 square feet of office space through February 2004, for its corporate headquarters in Calabasas, California. In addition, the Company leases office space in 60 branch office locations in the metropolitan areas listed under the caption "Branch Office Network" in Item 1 hereof. A branch office typically occupies approximately 1,200 square feet with lease terms that typically range from six months to five years. ITEM 3. LEGAL PROCEEDINGS (a) There is no material legal proceeding to which the Company is a party or to which its properties are subject. (b) No material legal proceedings were terminated in the fourth quarter of 1996. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 6 7 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company on December 31, 1996 were:
Name Age Position ---- --- -------- H. Tom Buelter................ 55 Chairman of the Board, President and Chief Executive Officer Kathy J. West................. 45 Senior Vice President, Chief Operating Officer Ronald W. Rudolph............. 53 Senior Vice President, Finance and Operations Support, and Chief Financial Officer Carrie S. Nebens.............. 39 Vice President and General Manager, Lab Support division Robert J. LaBombard(1)........ 40 Vice President, Business Development, EnviroStaff, Inc. Mark A. Vettese(2)............ 39 Vice President and General Manager, Healthcare Financial Staffing division - --------------------------------------------
(1) Mr. LaBombard resigned as an officer and employee effective January 31, 1997. (2) Mr. Vettese resigned as an officer and employee effective February 28, 1997. H. TOM BUELTER has served as President, Chief Executive Officer and a director of the Company since he joined the Company in March 1989. Mr. Buelter was elected Chairman of the Company's Board of Directors in December 1992. From 1983 to 1989, he was Senior Vice President of Kelly Services, Inc. ("Kelly Services"), a temporary personnel firm, and Chief Operating Officer of Kelly Assisted Living, a division of Kelly Services which provides temporary home-care personnel. KATHY J. WEST has served as Senior Vice President, Chief Operating Officer since March 1995. From October 1993 through March 1995, Ms. West served as the Company's Senior Vice President, Operations. From April 1993 to October 1993, Ms. West served as the Company's Senior Vice President, Employee and Business Services and, from January 1992 to April 1993, as the Company's Vice President, Employee and Business Services. Ms. West joined the Company in 1990, as Director of Branch Operations. From 1987 to 1990, she served as the founding principal of Performance Training Systems, a training services firm. From 1973 to 1987, she was employed by Kelly Services, where she held a variety of field operating and corporate positions. Her responsibilities included field sales, corporate branch operations, training and developing international sales and service schools. RONALD W. RUDOLPH has served as Senior Vice President, Finance and Operations Support, and Chief Financial Officer since October 1996. From January 1996 through October 1996, Mr. Rudolph served as Senior Vice President, Finance and Administration, and Chief Financial Officer. Mr. Rudolph joined the Company in April 1995, as Vice President, Finance and Administration, and Chief Financial Officer. From April 1987 to September 1994, Mr. Rudolph was Vice President, Finance and Administration, and Chief Financial Officer of Retix, a manufacturer of enterprise networking devices, and from June 1993 to September 1994, Mr. Rudolph was a director of Retix. CARRIE S. NEBENS has served as Vice President and General Manager, Lab Support division since October 1996. From January 1996 through October 1996, Ms. Nebens served as Vice President, Support Services. From April 1995 through December 1996, she served as Vice President, Assignment Services and Training, and was designated an executive officer of the company in September 1995. From June 1993 to March 1995, she was Vice President, Field Operations for the Company's Lab Support division. From January 1992 to May 1993, Ms. Nebens served as Vice President, Operations of the Company. From 1991 to 1992, Ms. Nebens served as Director, Branch Operations. Ms. Nebens joined the Company in 1988, as an Account Manager, served from 1988 to 1990, as the regional Manager for the Chicago office, and in 1991, was promoted to Regional Director and Director of Field Services. ROBERT J. LABOMBARD served as Vice President, Business Development from October 1996 through January 1997. Mr. LaBombard joined the Company in March 1996 as Vice President and General Manager of EnviroStaff, Inc. upon the Company's acquisition of EnviroStaff. From March 1993 through March 1996, Mr. LaBombard served as Chairman of the Board and President of EnviroStaff, Inc. From 1987 to 1993, he was employed by PACE, Inc., an environmental laboratory firm. Mr. LaBombard resigned as an officer and employee of the Company effective January 31, 1997. MARK A. VETTESE served as Vice President and General Manager, Healthcare Financial Staffing division from February 1996 through February 1997. From December 1992 through February 1996, Mr. Vettese served as a Principal at Marsh & McLennan Company, a management consulting firm. From 1988 to 1992, he was employed by Ernst & Young, LLP in their Management Consulting Practice. Mr. Vettese resigned as an officer and employee of the company effective February 28, 1997. 7 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on the Nasdaq Stock Market under the symbol ASGN. The following table sets forth the range of high and low sales prices, as reported on the Nasdaq Stock Market for the period from January 1, 1995, to December 31, 1996. At January 31, 1997, the Company had approximately 130 holders of record of its Common Stock (although the Company has been informed there are in excess of approximately 2,640 beneficial owners) and 5,171,262 shares outstanding.
Price Range of Common Stock --------------------------- High Low ---- --- Fiscal Year Ended December 31, 1995 First Quarter 20 15 Second Quarter 20-1/2 16 Third Quarter 26-1/8 18-1/4 Fourth Quarter 34-1/2 23-1/4 Fiscal Year Ended December 31, 1996 First Quarter 39-1/2 27-3/8 Second Quarter 44 31-1/2 Third Quarter 41-1/2 28-3/4 Fourth Quarter 35-1/4 27-3/4
Since inception, the Company has not declared or paid any cash dividends on its Common Stock and currently plans to retain all earnings to support the development and expansion of its business. The Company has no present intention of paying any dividends on its Common Stock in the foreseeable future. However, the Board of Directors of the Company will review the dividend policy periodically to determine whether the declaration of dividends is appropriate. 8 9 ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial data of the Company. This historical data should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.
Years Ended December 31, ------------------------------------------------------------------------------ 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- (in thousands, except per share data) INCOME STATEMENT DATA Revenues $ 32,662 $ 38,752 $ 53,617 $ 72,617 $ 88,188 Cost of services 22,742 27,100 37,343 50,812 61,231 ---------- ---------- ---------- ---------- ---------- Gross profit 9,920 11,652 16,274 21,805 26,957 Operating expenses 7,131 7,737 10,661 14,950 17,699 ---------- ---------- ---------- ---------- ---------- Operating income 2,789 3,915 5,613 6,855 9,258 Acquisition costs -- -- -- -- 401 ---------- ---------- ---------- ---------- ---------- Income before interest and income taxes 2,789 3,915 5,613 6,855 8,857 Interest income, net 57 112 164 410 549 ---------- ---------- ---------- ---------- ---------- Income before income taxes 2,846 4,027 5,777 7,265 9,406 Provision for income taxes 1,086 1,550 2,296 2,924 3,800 ---------- ---------- ---------- ---------- ---------- Net income $ 1,760 $ 2,477 $ 3,481 $ 4,341 $ 5,606 ========== ========== ========== ========== ========== Earnings per share $ 0.37 $ 0.49 $ 0.68 $ 0.82 $ 1.03 ========== ========== ========== ========== ========== Weighted average number of common and common equivalent shares outstanding 4,816 5,070 5,124 5,265 5,449 BALANCE SHEET DATA Cash, cash equivalents and current portion of marketable securities $ 2,708 $ 4,692 $ 5,403 $ 6,892 $ 14,102 Working capital 6,033 8,801 11,255 14,772 23,848 Total assets 7,923 11,485 17,584 23,922 31,874 Long-term liabilities -- -- -- -- -- Stockholders' equity 6,933 10,245 14,829 20,148 27,635
9 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion in this Report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, the integration of acquired operations, management of growth and other risks discussed in "Risk Factors That May Affect Future Results" in Item 1 of this Annual Report, beginning on page 4, as well as those discussed elsewhere in this Report and from time to time in the Company's other reports filed with the Securities and Exchange Commission, and the risks discussed in the "Risk Factors" section included in the Company's Registration Statement on Form S-1 as declared effective by the Securities and Exchange Commission on September 21, 1992 (Reg. No. 33-50646). SEASONALITY The Company's results have historically been subject to seasonal fluctuations. Demand for the Company's temporary employees typically declines from the year-end holiday season through February, resulting in a corresponding decrease in revenues, operating income and net income. Demand for the Company's temporary employees also often declines in June, July and August due to decreases in clients' activity during vacation periods and the availability of students to perform temporary work. As a result, the Company has experienced slower growth or declines in revenues, operating income and net income from the second quarter to third quarter of prior years. YEARS ENDED DECEMBER 31, 1995 AND 1996 REVENUES. Revenues increased by 21.4% from $72,617,000 in the year ended December 31, 1995, to $88,188,000 in the year ended December 31, 1996, primarily as a result of the increase in the number of temporary employees on assignment in the Lab Support division and to a lesser extent from the increase in revenues generated by EnviroStaff and the Healthcare Financial Staffing division. The growth of the Lab Support division's revenues were primarily attributable to the strong performance in most of the markets in which the Lab Support division has older, better established branches and to a lesser extent the contribution of new Lab Support offices opened in the past year. However, Lab Support's revenue growth was tempered by an unusually high number of conversions of temporary employees to permanent status and the impact of severe winter weather in several key markets during the first quarter of 1996. Average hourly billing rates of the Lab Support division did not vary significantly between the two periods. The growth of EnviroStaff's revenues were primarily attributable to the contribution of new EnviroStaff offices opened in the past year, as well as the growth of most existing offices. Average hourly billing rates of EnviroStaff did not vary significantly between the two periods. The growth of the Healthcare Financial Staffing division's revenues were primarily attributable to higher average hourly billing rates, which were principally attributable to a concentration on new business with a higher price structure, and to a lesser extent from the contribution of new offices opened in the past year. COST OF SERVICES. Cost of services consists solely of compensation for temporary employees and payroll taxes and benefits paid by the Company in connection with such compensation. Cost of services increased 20.5% from $50,812,000 in 1995 to $61,231,000 in 1996. Cost of services as a percentage of revenues decreased from 70.0% in 1995 to 69.4% in 1996. This decrease was primarily attributable to an increase in conversion fee revenue of the Lab Support division in the 1996 period. In addition, an increase in average gross margins of the Healthcare Financial Staffing division in the 1996 period and an increase in average gross margins of EnviroStaff as a result of a decrease in average pay rates in the 1996 period, was partially offset by an increase in employer payroll taxes and employer paid benefits. OPERATING EXPENSES. Operating expenses include the costs associated with the Company's network of Account Managers and branch offices, including Account Manager compensation, rent, other office expenses and advertising for temporary employees, and corporate office expenses such as the salaries of corporate operations and support personnel, management compensation, Account Manager recruiting and training expenses, corporate advertising and promotion, rent and other general and administrative expenses. Operating expenses increased 18.4% from $14,950,000 in 1995 to $17,699,000 in 1996. Operating expenses as a percentage of revenues decreased from 20.6% in 1995 to 20.1% in 1996. This result was primarily attributable to the increased productivity of the Account Managers in all three divisions. 10 11 ACQUISITION COSTS. Non-recurring acquisition costs consisted principally of legal, accounting, financial advisory services and other expenses related to the initial combination of EnviroStaff and the Company. The combined companies incurred approximately $401,000 in non- recurring acquisition costs during the first quarter of 1996. INTEREST INCOME, NET. Interest income, net increased 33.9% from $410,000 in 1995 to $549,000 in 1996, primarily as a result of interest earned on higher interest-bearing cash, cash equivalent and marketable security account balances, partially offset by interest expense charged on EnviroStaff's line of credit borrowings in 1996. PROVISION FOR INCOME TAXES. Income taxes increased 30.0% from $2,924,000 in 1995 to $3,800,000 in 1996. The Company's effective tax rate remained consistent at approximately 40% in 1995 and 1996. 11 12 YEARS ENDED DECEMBER 31, 1994 AND 1995 REVENUES. Revenues increased by 35.4% from $53,617,000 in the year ended December 31, 1994, to $72,617,000 in the year ended December 31, 1995, primarily as a result of the increase in the number of temporary employees on assignment in the Lab Support division and to a lesser extent from the increase in revenues generated by EnviroStaff and the Healthcare Financial Staffing division. The growth of the Lab Support division's revenues were primarily attributable to the strong performance in most of the markets in which the Lab Support division has older, better established branches and the contribution of new Lab Support offices opened in the past year. Average hourly billing rates of the Lab Support division did not vary significantly between the two periods. The growth of EnviroStaff's revenues were primarily attributable to the growth of existing offices, as well as the contribution of new EnviroStaff offices opened in the past year. Average hourly billing rates of EnviroStaff did not vary significantly between the two periods. The growth of the Healthcare Financial Staffing division's revenues were primarily attributable to the expansion of the Healthcare Financial Staffing division with the acquisition of substantially all of the assets of Sklar Resource Group, Inc. in December 1994, and to a lesser extent from the contribution of new offices opened in the past year, and higher average hourly billing rates which were primarily attributable to a concentration on new business with a higher price structure. COST OF SERVICES. Cost of services increased 36.1% from $37,343,000 in 1994 to $50,812,000 in 1995. Cost of services as a percentage of revenues increased from 69.6% in 1994 to 70.0% in 1995. This increase was primarily attributable to higher employer paid payroll taxes and benefits in 1995 and premium refunds received from previous workers' compensation experience-based premium plans in 1994. The increase was partially offset by an increase in conversion fee revenue in 1995. OPERATING EXPENSES. Operating expenses increased 40.2% from $10,661,000 in 1994 to $14,950,000 in 1995. Operating expenses as a percentage of revenues increased from 19.9% in 1994 to 20.6% in 1995, primarily attributable to an increase in the hiring of new Account Managers for the opening of new offices and the expansion of existing offices, partially offset by a decrease in corporate office expenses as a percentage of revenues. INTEREST INCOME, NET. Interest income, net increased 150.0% from $164,000 in 1994 to $410,000 in 1995, reflecting higher interest-bearing cash, cash equivalent and marketable security account balances and higher interest rates in 1995, partially offset by interest expense charged on EnviroStaff's line of credit borrowings in 1995. PROVISION FOR INCOME TAXES. Income taxes increased 27.4% from $2,296,000 in 1994 to $2,924,000 in 1995. The Company's effective tax rate remained consistent at approximately 40% in 1994 and 1995. 12 13 LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of cash in 1995 and 1996 were funds provided by operating activities. In 1995, operating activities provided $2,571,000 of cash compared to $5,678,000 in 1996. This increase was primarily attributable to higher net income and a smaller increase in accounts receivable in 1996 compared to 1995, which was principally due to an expected temporary reduction in billing activity as a result of the conversion to a new payroll processing and billing system in June 1995. In addition, an increase in accounts payable and accrued expenses and a decrease in prepaid expenses and workers' compensation deposits in 1996, contributed to net cash provided by operating activities. Cash used for investing activities totaled $2,509,000 in 1995 compared to cash provided by investing activities of $1,404,000 in 1996. This was primarily attributable to cash used to purchase marketable securities exceeding cash proceeds from the maturity of marketable securities in 1995, partially offset by greater purchases of equipment and investments in leasehold improvements in 1996. Cash provided by financing activities was $1,432,000 in 1995 compared to $693,000 in 1996. The decrease was primarily attributable to repayments of EnviroStaff's line of credit borrowings exceeding the related borrowings during 1996 compared to 1995, and the proceeds from the collection of officer loans receivable in 1995. The decrease was partially offset by greater proceeds from the issuance of common stock pursuant to the Company's Stock Option Plan and Employee Stock Purchase Plan during 1996. Effective September 30, 1996, the Company renewed its unsecured bank line of credit. The maximum borrowings allowable under this agreement are $7,000,000 and bear interest at the bank's reference rate (8.25% at December 31, 1996). The agreement expires on July 1, 1998. No borrowings were outstanding under this credit line at December 31, 1996. In addition, the Company's EnviroStaff subsidiary had a $1,000,000 line of credit with a bank. Borrowings accrued interest at prime plus 1.25%. Advances were secured by all of the assets of EnviroStaff and the agreement included requirements for minimum operating ratios and tangible net worth and restricted the payment of dividends. On April 19, 1996, the Company paid the outstanding balance in full and the line of credit agreement was terminated. The Company believes that its cash balances, together with the funds from operations and its borrowing capacity, will be sufficient to meet its cash requirements through at least the next twelve months. 13 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS To the Board of Directors of On Assignment, Inc. We have audited the accompanying consolidated balance sheets of On Assignment, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed at Item 14. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of On Assignment, Inc. and subsidiaries as of December 31, 1995 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP - ------------------------- Deloitte & Touche LLP Los Angeles, California January 24, 1997 14 15 ON ASSIGNMENT, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ------------------------------------ ASSETS 1995 1996 Current Assets: ----------- ----------- Cash and cash equivalents (Note 1) $ 3,327,000 $11,102,000 Marketable securities (Note 1) 3,565,000 3,000,000 Accounts receivable, net of allowance for doubtful accounts of $435,000 (1995) and $553,000 (1996) 10,144,000 12,264,000 Advances and deposits 111,000 72,000 Prepaid expenses 799,000 681,000 Deferred income taxes (Notes 1 and 8) 600,000 968,000 ----------- ----------- Total current assets 18,546,000 28,087,000 Office Furniture, Equipment and Leasehold Improvements, net (Notes 1 and 2) 1,730,000 2,294,000 Marketable securities (Note 1) 2,000,000 -- Workers' compensation restricted deposits (Note 6) 860,000 743,000 Goodwill, net (Note 4) 628,000 581,000 Other assets 158,000 169,000 ----------- ----------- Total Assets $23,922,000 $31,874,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Note payable (Note 7) $ 475,000 $ -- Accrued payroll 1,647,000 2,397,000 Accounts payable 495,000 488,000 Accrued expenses 853,000 1,348,000 Income taxes payable (Notes 1 and 8) 304,000 6,000 ----------- ----------- Total current liabilities 3,774,000 4,239,000 Commitments and Contingencies (Notes 5 and 6) -- -- Stockholders' Equity (Notes 3 and 9): Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding in 1995 and 1996 -- -- Common Stock, $0.01 par value, 25,000,000 shares authorized, 5,024,461 issued and outstanding in 1995 and 5,155,560 issued and outstanding in 1996 50,000 52,000 Paid-in capital 6,898,000 8,777,000 Retained earnings 13,200,000 18,806,000 ----------- ----------- Total stockholders' equity 20,148,000 27,635,000 ----------- ----------- Total Liabilities and Stockholders' Equity $23,922,000 $31,874,000 =========== ===========
See accompanying Notes to Consolidated Financial Statements 15 16 ON ASSIGNMENT, INC. CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ----------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Revenues(Note 1) $53,617,000 $72,617,000 $88,188,000 Cost of services 37,343,000 50,812,000 61,231,000 ----------- ----------- ----------- Gross profit 16,274,000 21,805,000 26,957,000 Operating expenses 10,661,000 14,950,000 17,699,000 ----------- ----------- ----------- Operating income 5,613,000 6,855,000 9,258,000 Acquisition costs -- -- 401,000 ----------- ----------- ----------- Income before interest and income taxes 5,613,000 6,855,000 8,857,000 Interest income, net (Notes 1 and 7) 164,000 410,000 549,000 ----------- ----------- ----------- Income before income taxes 5,777,000 7,265,000 9,406,000 Provision for incomes taxes (Notes 1 and 8) 2,296,000 2,924,000 3,800,000 ----------- ----------- ----------- Net income $ 3,481,000 $ 4,341,000 $ 5,606,000 =========== =========== =========== Primary and fully diluted earnings per share(Note 1) $ 0.68 $ 0.82 $ 1.03 ====== ====== ====== Weighted average number of Common and Common Equivalent Shares Outstanding 5,124,000 5,265,000 5,449,000 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements 16 17 ON ASSIGNMENT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock --------------- ------------------ Paid-In Retained Shares Amount Shares Amount Capital Earnings Total ------ ------ --------- ------- ---------- ----------- ----------- Balance, January 1, 1994 0 $0 4,748,438 $47,000 $4,820,000 $ 5,378,000 $10,245,000 Exercise of common stock options - - 154,062 1,000 403,000 - 404,000 Issuance of common stock - - - - 475,000 - 475,000 Common stock issued - Employee Stock Purchase Plan 8,741 - 85,000 - 85,000 Disqualifying dispositions - - - - 201,000 - 201,000 Officer loans receivable - - - - (63,000) - (63,000) Net income - - - - - 3,481,000 3,481,000 --- --- --------- ------- ---------- ----------- ----------- Balance, December 31, 1994 0 0 4,911,241 48,000 5,921,000 8,859,000 14,828,000 Exercise of warrants - - 6,916 - - - - Exercise of common stock options - - 96,373 2,000 534,000 - 536,000 Common stock issued - Employee Stock Purchase Plan - - 9,931 - 121,000 - 121,000 Disqualifying dispositions - - - - 213,000 - 213,000 Officer loans receivable - - - - 109,000 - 109,000 Net income - - - - - 4,341,000 4,341,000 --- --- --------- ------- ---------- ----------- ----------- Balance, December 31, 1995 0 0 5,024,461 50,000 6,898,000 13,200,000 20,148,000 Exercise of common stock - - 124,696 2,000 1,017,000 - 1,019,000 Common stock issued - Employee Stock Purchase Plan - - 6,403 - 149,000 - 149,000 Disqualifying dispositions - - - - 713,000 - 713,000 Net income - - - - - 5,606,000 5,606,000 --- --- --------- ------- ---------- ----------- ----------- Balance, December 31, 1996 0 $ 0 5,155,560 $52,000 $8,777,000 $18,806,000 $27,635,000 === === ========= ======= ========== =========== ===========
See accompanying Notes to Consolidated Financial Statements 17 18 ON ASSIGNMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, -------------------------------------------------- 1994 1995 1996 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,481,000 $ 4,341,000 $ 5,606,000 Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: Depreciation and amortization 438,000 586,000 701,000 Increase in allowance for doubtful accounts 97,000 345,000 504,000 Increase in deferred income taxes (103,000) (203,000) (368,000) Loss on disposal of furniture and equipment 5,000 - 1,000 Increase in accounts receivable (2,491,000) (2,909,000) (2,624,000) Decrease in income taxes receivable 129,000 - - Increase in accounts payable and accrued expenses 1,073,000 300,000 1,238,000 Increase in income taxes payable 262,000 456,000 415,000 Decrease (Increase) in workers' compensation (461,000) (9,000) 117,000 restricted deposits Decrease (Increase) in prepaid expenses (283,000) (291,000) 118,000 Increase in other assets (20,000) (45,000) (30,000) ----------- ----------- ----------- Net cash provided by operating activities 2,127,000 2,571,000 5,678,000 =========== =========== =========== CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (4,395,000) (4,300,000) (1,000,000) Proceeds from the maturity of marketable securities 2,875,000 2,580,000 3,565,000 Acquisition of furniture, equipment and leasehold (923,000) (802,000) (1,204,000) improvements Proceeds from sale of furniture and equipment 4,000 - 4,000 Decrease in advances and deposits 115,000 13,000 39,000 Acquisitions (Note 11) (1,251,000) - - ----------- ----------- ----------- Net cash provided by (used for) investing activities (3,575,000) (2,509,000) 1,404,000 =========== =========== =========== CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of common stock options and 404,000 536,000 1,019,000 warrants Proceeds from issuance of common stock - Employee Stock Purchase Plan 85,000 121,000 149,000 Proceeds from the issuance of common stock 475,000 - - Disbursements for officer loans receivable (50,000) - - Proceeds from collection of officer loans receivable - 300,000 - Borrowings on line of credit - 1,587,000 450,000 Repayments of line of credit borrowings - (1,112,000) (925,000) ----------- ----------- ----------- Net cash provided by financing activities 914,000 1,432,000 693,000 ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents (534,000) 1,494,000 7,775,000 Cash and Cash Equivalents at Beginning of Period 2,367,000 1,833,000 3,327,000 ----------- ----------- ----------- Cash and Cash Equivalents at End of Period $ 1,833,000 $ 3,327,000 $11,102,000 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: Tax benefit of disqualifying dispositions (Note 8) $ 201,000 $ 213,000 $ 713,000 =========== =========== =========== Officer loans receivable (Note 3) $ (63,000) $ 109,000 $ - =========== =========== =========== Acquisitions (Note 11): Fair value of assets acquired $ 924,000 Liabilities assumed (382,000) Goodwill 709,000 ----------- Cash paid $ 1,251,000 ===========
See accompanying Notes to Consolidated Financial Statements 18 19 ON ASSIGNMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. On Assignment, Inc. (the "Company"), through its Lab Support division, provides temporary and permanent placement of scientific personnel with laboratories and other institutions. EnviroStaff provides temporary and permanent placement of environmental professionals to the environmental services industry. The Company's Healthcare Financial Staffing division provides temporary and permanent placement of medical billing and collection professionals to the healthcare industry. Significant accounting policies are as follows: Principles of Consolidation. The Consolidated Financial Statements include the accounts of the Company and 1st Choice Personnel, Inc., Finance Support, Inc., and EnviroStaff, Inc., its wholly owned subsidiaries (see Note 11). All significant intercompany accounts and transactions have been eliminated. Cash Flows and Marketable Securities. For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Investments having a maturity of more than three months and less than twelve months are classified under current assets as marketable securities. Investments having a maturity of more than twelve months are classified under non-current assets as marketable securities. Marketable securities, which have been classified as held to maturity, are recorded at amortized cost which approximated market at December 31, 1995 and 1996. Cash paid for income taxes (net of refunds) for the years ended December 31, 1994, 1995, and 1996 was $2,013,000, $2,671,000 and $3,739,000, respectively. Cash paid for interest for the years ended December 31, 1994, 1995, and 1996 was $0, $25,000 and $15,000, respectively. Office Furniture, Equipment and Leasehold Improvements and Depreciation. Office furniture, equipment and leasehold improvements are stated at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, generally three to five years. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets to be Disposed of." Long-lived assets and certain identifiable intangibles are reviewed for impairment at least quarterly. An impairment loss is recognized when the sum of the future cash flows is less than the carrying amount of the asset. Adopting SFAS No. 121 during the year ended December 31, 1996 did not have a material effect on the Company's financial statements. Goodwill. Goodwill is being amortized on a straight-line basis over fifteen years. The Company periodically reviews goodwill to assess recoverability; impairments would be recognized in operating results if a permanent diminution in value were to occur. Income Taxes. Deferred taxes result from temporary differences between the tax bases of assets and liabilities for financial and tax reporting purposes. Deferred tax assets and liabilities represent future tax consequences of these differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Revenue Recognition. Revenue from temporary assignments is recognized when earned, based on hours worked by the Company's temporary employees. Permanent placement fees are recognized when earned, upon conversion of a temporary employee to a client's regular employee. Earnings per Share. Primary and fully diluted earnings per share are computed based upon the weighted average number of common shares and dilutive common share equivalents (consisting of incentive stock options, non-qualified stock options, and warrants) outstanding during the periods using the treasury stock method. 19 20 Stock-Based Compensation. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The Company has adopted only the disclosure portion of the statement (see Note 9). 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. Concentration of Credit Risk. Financial instruments that potentially subject the Company to credit risks consist primarily of cash and cash equivalents, marketable securities, and trade receivables. The Company places its cash and cash equivalents and marketable securities with quality credit institutions, and limits the amount of credit exposure with any one institution. Concentration of credit risk with respect to accounts receivable are limited because of the large number of geographically disbursed customers, thus spreading the trade credit risk. The Company performs ongoing credit evaluations to identify risks and maintains an allowance to address these risks. Reclassifications. Certain reclassifications have been made to the prior year consolidated financial statements to conform with the current year consolidated financial statement presentation. 2. OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Office furniture, equipment and leasehold improvements at December 31, 1995 and 1996, consisted of the following:
1995 1996 ----------- ----------- Furniture and fixtures $ 760,000 $ 930,000 Computers and related equipment 1,365,000 1,897,000 Machinery and equipment 442,000 668,000 Leasehold improvements 362,000 551,000 Construction in progress 204,000 280,000 ----------- ----------- 3,133,000 4,326,000 Less accumulated depreciation and amortization (1,403,000) (2,032,000) ----------- ----------- Total $ 1,730,000 $ 2,294,000 =========== ===========
Depreciation and amortization expense for the years ended December 31, 1994, 1995 and 1996 was $380,000, $511,000 and $634,000, respectively. 3. OFFICER LOANS RECEIVABLE. In May 1995, two officers of the company paid in full $200,000 in promissory notes plus accrued interest of $16,000. In July 1995, a former officer of the company paid in full the remaining $100,000 promissory note plus accrued interest of $11,000. A portion of the loans, amounting to $109,000, were originally treated as a reduction in stockholders' equity for financial reporting purposes. Therefore, the payoff of the notes resulted in a corresponding increase in stockholders' equity in the accompanying Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity. 20 21 4. GOODWILL. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired (see Note 11). Goodwill is stated net of accumulated amortization of $81,000 at December 31, 1995 and $128,000 at December 31, 1996. 5. 401(K) RETIREMENT SAVINGS PLAN. Effective January 1, 1995, the Company adopted the On Assignment, Inc. 401(k) Retirement Savings Plan under Section 401(k) of the Internal Revenue Code, under which eligible employees may elect to have a portion of their salary deferred and contributed to the plan. The amount of salary deferred is not subject to Federal and State income tax at the time of deferral. The Plan covers all eligible employees and provides for matching or discretionary contributions at the discretion of the Board of Directors. The Company made no contributions to the plan during the years ended December 31, 1995 and 1996. 6. COMMITMENTS AND CONTINGENCIES. The Company leases its facilities and certain office equipment under operating leases which expire at various dates through 2004. Certain leases contain rent escalations and/or renewal options. The following is a summary of future minimum lease payments by year:
Operating Leases ---------- 1997 $1,075,000 1998 835,000 1999 673,000 2000 395,000 2001 305,000 Thereafter 651,000 ---------- Total Minimum Lease Payments $3,934,000 ==========
Rent expense for the years ended December 31, 1994, 1995 and 1996 was $847,000, $1,105,000, and $1,153,000, respectively. Effective September 1, 1993, the Company became partially self-insured for workers' compensation expense. In connection with this program, cash deposits are required to be held by the reinsurer for the payment of losses and as collateral amounting to $860,000 and $743,000 at December 31, 1995 and 1996, respectively. These workers' compensation deposits are restricted as to withdrawal and have therefore been classified as non-current assets in the accompanying Consolidated Balance Sheets. These funds are invested primarily in three-month treasury bills and are recorded at amortized cost which approximated market at December 31, 1995 and 1996. In addition, the Company has provided a stand-by letter of credit amounting to approximately $179,000 and $334,000 at December 31, 1995 and 1996, respectively, in connection with this program. The self-insurance claim liability is determined based on claims filed and an estimate of claims incurred but not yet reported. The Company's EnviroStaff subsidiary was operating under a loss-retro workers' compensation policy from July 1, 1995 through September 30, 1996. In connection with this program, EnviroStaff paid a base premium with an excess loss cap of $50,000 per occurrence. Medical and indemnity expenses are paid at cost plus administration fees and taxes. The insurance claim liability is determined based on claims filed and an estimate of claims incurred but not yet reported. In addition, EnviroStaff has provided a standby letter of credit amounting to approximately $120,000 at December 31, 1995 and 1996. This letter of credit expires on July 1, 1997. Effective October 1, 1996, EnviroStaff was added to the Company's workers' compensation program. 21 22 7. BORROWING ARRANGEMENTS. Effective September 30, 1996, the Company renewed its unsecured bank line of credit. The maximum borrowings allowable under this agreement are $7,000,000 and bear interest at the bank's reference rate (8.25% at December 31, 1996). The agreement expires on July 1, 1998. No borrowings were outstanding under this credit line at December 31, 1996. In addition, the Company's EnviroStaff subsidiary had a $1,000,000 line of credit with a bank. Borrowings accrued interest at prime plus 1.25%. Advances were secured by all of the assets of EnviroStaff and the agreement included requirements for minimum operating ratios and tangible net worth and restricted the payment of dividends. On April 19, 1996, the Company paid the outstanding balance in full and the line of credit agreement was terminated. 8. INCOME TAXES. The provision for income taxes consists of the following:
1994 1995 1996 ---------- ---------- ---------- Federal: Current $1,823,000 $2,406,000 $3,277,000 Deferred (98,000) (175,000) (296,000) ---------- ---------- ---------- 1,725,000 2,231,000 2,981,000 ---------- ---------- ---------- State: Current 576,000 721,000 891,000 Deferred (5,000) (28,000) (72,000) ---------- ---------- ---------- 571,000 693,000 819,000 ---------- ---------- ---------- Total $2,296,000 $2,924,000 $3,800,000 ========== ========== ==========
Deferred income taxes arise from the recognition of certain assets and liabilities for tax purposes in periods different from those in which they are recognized in the financial statements. These differences relate primarily to state taxes, workers' compensation, bad debt, and depreciation and amortization expenses. Deferred assets and liabilities are classified as current and non-current according to the nature of the assets or liabilities from which they arose. 22 23 The components of deferred tax assets (liabilities) are as follows:
December 31, 1995 December 31, 1996 ----------------------- ------------------------ Federal State Federal State -------- ------- -------- -------- Deferred tax assets: Allowance for doubtful accounts $132,000 $33,000 $187,000 $ 48,000 Depreciation and amortization expense 53,000 17,000 107,000 32,000 Vacation accrual 36,000 9,000 30,000 8,000 State taxes 223,000 -- 301,000 -- Net operating loss carryforward 74,000 12,000 52,000 5,000 Workers' compensation loss reserve -- -- 197,000 50,000 Other 20,000 -- -- -- -------- ------- -------- -------- Total deferred tax assets 538,000 71,000 874,000 143,000 Deferred tax liabilities: Other (7,000) (2,000) (49,000) -- -------- ------- -------- -------- Net deferred tax asset $531,000 $69,000 $825,000 $143,000 ======== ======= ======== ========
The net operating loss carryforwards included in the deferred tax asset at December 31, 1995 and 1996, were acquired through the acquisition of 1st Choice Personnel, Inc. (see Note 11). These carryforwards are available to offset future taxable income, subject to annual limitations, through the year 2007. The reconciliation between the amount computed by applying the U.S. federal statutory tax rate of 35% in 1994, 1995 and 1996 to income before income taxes and the actual income taxes follows:
Years Ended ------------------------------------------- 1994 1995 1996 ---------- ---------- ---------- Income tax expenses at the statutory rate $2,022,000 $2,543,000 $3,292,000 State income taxes, net of federal income tax 336,000 422,000 534,000 Other (62,000) (41,000) (26,000) ---------- ---------- ---------- Total $2,296,000 $2,924,000 $3,800,000 ========== ========== ==========
At December 31, 1995 and 1996, net income taxes payable and additional paid-in capital include tax benefits amounting to $213,000 and $713,000, respectively, resulting from disqualifying dispositions by officers and employees of common stock of the company acquired through the exercise of stock options. 23 24 9. STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN. Under its Stock Option Plan, the Company may grant employees, contractors, and non-employee members of the Board of Directors incentive or non-qualified stock options to purchase an aggregate of up to 1,500,000 shares of Common Stock. Optionees, option prices, option amounts, grant dates and vesting are established by the Compensation Committee of the Board of Directors. The option prices may not be less than 85% of the fair market value of the stock at the time the option is granted. Stock options granted to date generally become exercisable over a pro rata period of four years, generally beginning one year after the grant date, and have a maximum term of ten years measured from the grant date. Information with respect to the plan is summarized below:
Incentive Non-qualified Weighted Average Stock Stock Exercise Price Exercise Price Options Options Per Share Per Share --------- ------------- ---------------- ---------------- Outstanding at January 1, 1994 547,372 73,108 $ 0.40 - $13.25 $ 5.24 Granted 223,070 163,500 $ 6.37 - $15.93 $12.19 Exercised (140,797) (13,265) $ 0.40 - $11.88 $ 2.63 Canceled (85,183) (165,567) $ 0.70 - $14.00 $10.37 -------- -------- Outstanding at December 31, 1994 544,462 57,776 $ 0.40 - $15.93 $ 8.26 Granted 206,090 88,870 $15.50 - $32.50 $24.42 Exercised (93,832) (2,541) $ 0.70 - $14.50 $ 5.55 Canceled (60,583) (5,792) $ 0.70 - $24.75 $14.33 -------- -------- Outstanding at December 31, 1995 596,137 138,313 $ 0.40 - $32.50 $14.61 Granted 217,162 53,320 $28.00 - $39.25 $33.15 Exercised (96,527) (28,169) $ 0.40 - $39.00 $ 8.39 Canceled (153,387) (2,609) $ 6.37 - $39.25 $28.14 -------- -------- Outstanding at December 31, 1996 563,385 160,855 $ 0.70 - $39.00 $20.11 ======== ======== Exercisable at December 31, 1996 228,008 62,781 $ 0.70 - $39.00 $11.71 ======== ========
The Employee Stock Purchase Plan allows eligible employees to purchase Common Stock of the Company, through payroll deductions, at 85% of the lower of the market price on the first day or the last day of the semi-annual purchase period. Eligible employees may contribute up to 10% of their base earnings toward the purchase of the stock. During 1994, 1995 and 1996, shares issued under the plan were 8,741, 9,931 and 6,403, respectively. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its Stock Option Plan and Employee Stock Purchase Plan. Accordingly, no compensation cost has been recognized for its stock option and purchase plans. Had compensation cost for the Company's Stock Option Plan and its Employee Stock Purchase Plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company's net income and earnings per share for the years ended December 31, 1995 and 1996 would have been reduced to the pro forma amounts indicated below: Years ended December 31 --------------------------- 1995 1996 ---------- ---------- Net income As reported $4,341,000 $5,606,000 Pro forma $4,163,000 $4,850,000 Earnings per share As reported $0.82 $1.03 Pro forma $0.80 $0.91 24 25 Because the SFAS No. 123 method of accounting 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. The fair value of options granted under the Company's Stock Option Plan during 1995 and 1996 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: (i) no dividend yield in 1995 or 1996, (ii) expected volatility of approximately 47% in 1995 and 1996, (iii) risk-free interest rate of approximately 6.1% in 1995 and 6.3% in 1996, and (iv) expected lives of approximately 5 years in 1995 and 1996. Pro forma compensation cost of options granted under the Employee Stock Purchase Plan is measured based on the discount from market value. 10. UNAUDITED QUARTERLY RESULTS. The following table presents unaudited quarterly financial information for each of the eight quarters ended December 31, 1996. In the opinion of management, the quarterly information contains all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation thereof. The operating results for any quarter are not necessarily indicative of the results for any future period.
(Unaudited) (in thousands, except per share data) Quarter Ended ------------------------------------------------------------------------------------------------- Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, 1995 1995 1995 1995 1996 1996 1996 1996 ------- ------- -------- -------- -------- -------- --------- -------- Revenues $15,517 $17,812 $19,201 $20,087 $18,902 $21,438 $23,303 $24,545 Cost of services 10,878 12,420 13,486 14,028 13,129 14,919 16,244 16,939 ------- ------- ------- ------- ------- ------- ------- ------- Gross profit 4,639 5,392 5,715 6,059 5,773 6,519 7,059 7,606 Operating expenses 3,338 3,753 3,923 3,936 4,070 4,332 4,554 4,743 ------- ------- ------- ------- ------- ------- ------- ------- Operating income 1,301 1,639 1,792 2,123 1,703 2,187 2,505 2,863 Acquisition costs -- -- -- -- 401 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Income before interest and income taxes 1,301 1,639 1,792 2,123 1,302 2,187 2,505 2,863 Interest income 87 101 97 125 113 127 130 179 ------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes 1,388 1,740 1,889 2,248 1,415 2,314 2,635 3,042 Provision for income taxes 546 705 746 927 557 944 1,062 1,237 ------- ------- ------- ------- ------- ------- ------- ------- Net income $ 842 $ 1,035 $ 1,143 $ 1,321 $ 858 $ 1,370 $ 1,573 $ 1,805 ======= ======= ======= ======= ======= ======= ======= ======= Earnings per share $ 0.16 $ 0.20 $ 0.21 $ 0.24 $ 0.16 $ 0.25 $ 0.29 $ 0.33 Weighted average number of shares outstanding 5,208 5,251 5,328 5,400 5,428 5,460 5,449 5,429
25 26 11. ACQUISITIONS. On January 31, 1994, the Company acquired all of the outstanding shares of the capital stock of 1st Choice Personnel, Inc. ("1st Choice"), a California corporation, which specialized in providing employees on temporary assignments to the mortgage banking and financial services industries. 1st Choice formed the core of the Company's second operating division: Finance Support, which has been renamed to Healthcare Financial Staffing. This acquisition has been accounted for using the purchase method of accounting. Consideration for the stock purchase consisted solely of $513,000 in cash. Effective as of May 17, 1995, the Company dissolved 1st Choice Personnel, Inc. as a separate subsidiary and continued its operations as a division of the company. On November 29, 1994, the Company formed Finance Support, Inc. ("FSI"), a Delaware corporation and wholly-owned subsidiary of the company. On December 5, 1994, FSI acquired substantially all of the assets of Sklar Resource Group, Inc. ("SRG"), a firm that provided professional personnel for temporary credit and collection assignments. The SRG offices and operations acquired were added to the Company's Finance Support division, which was subsequently renamed the Healthcare Financial Staffing division. This acquisition has been accounted for using the purchase method of accounting. Consideration for the purchase consisted of $738,000 in cash. On March 27, 1996, the Company issued 171,579 shares of its common stock for all of the outstanding common stock of EnviroStaff, Inc. ("EnviroStaff"), a Minnesota corporation, which specialized in providing employees on temporary assignments to the environmental services industry. The acquisition has been accounted for as a pooling-of-interests and, accordingly, the Company's consolidated financial statements have been restated for all periods prior to the acquisition to include the results of operations, financial positions, and cash flows of EnviroStaff. Revenues, net income and primary and fully diluted earnings per share for the individual entities are as follows:
On Assignment EnviroStaff Combined ------------- ----------- -------- Three Months Ended March 31, 1996 Revenues $16,379,000 $ 2,523,000 $ 18,902,000 Net income (loss) $ 1,086,000 $ (228,000) $ 858,000 Earnings (loss) per share $ 0.20 $ (0.04) $ 0.16 Year Ended December 31, 1995 Revenues $62,042,000 $10,575,000 $ 72,617,000 Net income $ 4,330,000 $ 11,000 $ 4,341,000 Earnings per share $ 0.82 $ 0.00 $ 0.82 Year Ended December 31, 1994 Revenues $48,402,000 $ 5,215,000 $ 53,617,000 Net income $ 3,348,000 $ 133,000 $ 3,481,000 Earnings per share $ 0.65 $ 0.03 $ 0.68
Acquisition costs of approximately $401,000 related to the acquisition of EnviroStaff were charged to expense during the three-month period ended March 31, 1996. The after-tax impact of these expenses on primary and fully diluted earnings per share was $0.04 for the three- month period ended March 31, 1996. Acquisition costs include legal, accounting, financial advisory services, and other costs of the acquisition. 26 27 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT. Information regarding the Company's directors will be set forth under the caption "Proposal One -- Election of Directors" in the Company's proxy statement for use in connection with the Annual Meeting of Stockholders to be held on June 9, 1997 (the "1997 Proxy Statement") and is incorporated herein by reference. The 1997 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year. Information regarding the Company's executive officers is set forth in Part I of this Annual Report on Form 10-K and is incorporated herein by reference. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Information regarding compliance with Section 16(a) of the Exchange Act will be set forth under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's 1997 Proxy Statement to be filed within 120 days after the end of the Company's fiscal year and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding remuneration of the Company's directors and officers will be set forth under the captions "Proposal One -- Election of Directors", "Proposal Two -- Approval and Ratification of Amendment to Restated 1987 Stock Option Plan", and "Executive Compensation and Related Information" in the Company's 1997 Proxy Statement to be filed within 120 days after the end of the Company's fiscal year and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management will be set forth under the captions "General Information for Stockholders -- Record Date, Voting and Share Ownership" in the Company's 1997 Proxy Statement to be filed within 120 days after the end of the Company's fiscal year and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions will be set forth under the caption "Executive Compensation and Related Information -- Certain Relationships and Related Transactions" in the Company's 1997 Proxy Statement to be filed within 120 days after the end of the Company's fiscal year and is incorporated herein by reference. 27 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
PAGE 1. Financial Statements: Report of Independent Auditors 14 Consolidated Balance Sheets at December 31, 1995 and 1996 15 Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996 16 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 17 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 18 Notes to Consolidated Financial Statements 19 2. Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts 33
Schedules other than those referred to above have been omitted because they are not applicable or not required under the instructions contained in Regulation S-X or because the information is included elsewhere in the financial statements or notes thereto. (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the three months ended December 31, 1996. 28 29
(C) EXHIBITS NUMBER DESCRIPTION 2.1 (1) Agreement and Plan of Reorganization dated as of March 27, 1996 by and among the Company, ESI Acquisition Corporation, EnviroStaff, Inc. (ESI) and the stockholders of ESI listed therein. 3.1 (2) Amended and Restated Certificate of Incorporation of the Company. 3.2 (3) Amended and Restated Bylaws of the Company. 4.1 (3) Warrant Purchase Agreement dated March 28, 1991, by and between the Company and Silicon Valley Bank; and Warrant to Purchase 15,000 Shares of Common Stock of the Company dated March 28, 1991. 4.2 (3) Specimen Common Stock Certificate. 10.1 (3) Form of Indemnification Agreement. 10.2 Restated 1987 Stock Option Plan, as amended. 10.3 (4) 1992 Employee Stock Purchase Plan. 10.4 (3) Loan and Security Agreement dated February 12, 1991, by and between the Company and Silicon Valley Bank; and Amendment to Loan Agreement dated June 22, 1992. 10.5 (3) Series A and Series B Preferred Stock Purchase Agreement dated March 6, 1986; and Amendment No. 1 to Series A and Series B Stock Purchase Agreement dated January 7, 1987. 10.6 (3) Series D Stock Purchase Agreement dated October 14, 1987; Amendment No. 1 to the Series D Stock Purchase Agreement dated as of December 30, 1987; Amendment to Registration Rights dated as of March 28, 1991 (Amendment No. 2); and Amendment No. 3 to Series D Stock Purchase Agreement dated as of August 7, 1992. 10.7 (3) Standard Office Lease dated January 19, 1990, by and between the Company and Warner North Associates; First Addendum to Lease dated February 13, 1990; Letter Notice dated April 18, 1990, from Warner North Associates to the Company; Lease Addendum No. 2; Third Addendum to Lease dated January 23, 1991, and First Amendment to Lease dated December 19, 1991. 10.8 (5) Amendment to Loan Agreement dated July 27, 1993 to the Loan and Security Agreement dated February 12, 1991 by and between the Company and Silicon Valley Bank, as amended by the Amendment to Loan Agreement dated June 22, 1992. 10.9 (5) Office lease dated December 7, 1993, by and between the Company and Malibu Canyon Office Partners, LP 10.10 (6) Form of Loan Agreement between the Company and executive officers of the Company, including form of Demand Note as Exhibit A thereto. 10.11 (6) Consulting Agreement date June 15, 1994 between the Company and Karen Brenner. 10.12 (6) Consulting Agreement dated January 25, 1995 between the Company and Karen Brenner. 10.13 (6) Settlement Agreement and General Release by and between the Company and Tadeusz Czyzewski dated March 24, 1995.
29 30 10.14 (6) Offer letter agreement by and between the Company and Ronald W. Rudolph date March 27, 1995. 11.1 Statement regarding computation of earnings per share. 24.1 Consent of Deloitte & Touche LLP. 25.1 Power of Attorney (see page 32).
- --------- (1) Incorporated by reference from an exhibit filed with the Company's Current Report on Form 8-K (File No. 0-20540) filed with the Securities and Exchange Commission on April 10, 1996. (2) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 0-20540) filed with the Securities and Exchange Commission on March 30, 1993. (3) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-1 (File No. 33-50646) declared effective by the Securities and Exchange Commission on September 21, 1992. (4) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-8 (File No. 33-57078) filed with the Securities and Exchange Commission on January 19, 1993. (5) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 0-20540) filed with the Securities and Exchange Commission on March 24, 1994. (6) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 0-20540) filed with the Securities and Exchange Commission on March 31, 1995. 30 31 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Calabasas, California on this 26th day of March, 1997. ON ASSIGNMENT, INC. By: /s/ H. Tom Buelter --------------------------------------- H. Tom Buelter Chairman of the Board, President and Chief Executive Officer 31 32 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints H. Tom Buelter and Ronald W. Rudolph and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and 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:
Signature Title Date - --------- ----- ---- /s/ H. Tom Buelter Chairman of the Board, President and March 26, 1997 - ---------------------------- H. Tom Buelter Chief Executive Officer (Principal Executive Officer) /s/ Ronald W. Rudolph Senior Vice President, Finance and Operations March 26, 1997 - ---------------------------- Ronald W. Rudolph Support, and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Karen Brenner Director March 26, 1997 - ---------------------------- Karen Brenner /s/ Jonathan S. Holman Director March 26, 1997 - ---------------------------- Jonathan S. Holman /s/ Jeremy M. Jones Director March 26, 1997 - ---------------------------- Jeremy M. Jones /s/ William E. Brock Director March 26, 1997 - ---------------------------- William E. Brock
32 33 ON ASSIGNMENT, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Additions --------------------- Balance at Charged to Charged to Balance at beginning costs and other end Description of period expenses accounts Deductions of period ----------- --------- -------- -------- ---------- --------- Year ended December 31, 1994 Allowance for doubtful accounts 79,000 97,000 -- (16,000) 160,000 Year ended December 31, 1995 Allowance for doubtful accounts 160,000 345,000 -- (70,000) 435,000 Year ended December 31, 1996 Allowance for doubtful accounts 435,000 504,000 -- (386,000) 553,000
33 34 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE ------ ----------- ---- 2.1 (1) Agreement and Plan of Reorganization dated as of March 27, 1996 by and among the Company, ESI - Acquisition Corporation, EnviroStaff, Inc. (ESI) and the stockholders of ESI listed therein. 3.1 (2) Amended and Restated Certificate of Incorporation of the Company. - 3.2 (3) Amended and Restated Bylaws of the Company. - 4.1 (3) Warrant Purchase Agreement dated March 28, 1991, by and between the Company and Silicon Valley - Bank; and Warrant to Purchase 15,000 Shares of Common Stock of the Company dated March 28, 1991. 4.2 (3) Specimen Common Stock Certificate. - 10.1 (3) Form of Indemnification Agreement. - 10.2 Restated 1987 Stock Option Plan, as amended. 36 10.3 (4) 1992 Employee Stock Purchase Plan. - 10.4 (3) Loan and Security Agreement dated February 12, 1991, by and between the Company and Silicon - Valley Bank; and Amendment to Loan Agreement dated June 22, 1992. 10.5 (3) Series A and Series B Preferred Stock Purchase Agreement dated March 6, 1986; and Amendment No. - 1 to Series A and Series B Stock Purchase Agreement dated January 7, 1987. 10.6 (3) Series D Stock Purchase Agreement dated October 14, 1987; Amendment No. 1 to the Series D Stock - Purchase Agreement dated as of December 30, 1987; Amendment to Registration Rights dated as of March 28, 1991 (Amendment No. 2); and Amendment No. 3 to Series D Stock Purchase Agreement dated as of August 7, 1992. 10.7 (3) Standard Office Lease dated January 19, 1990, by and between the Company and Warner North - Associates; First Addendum to Lease dated February 13, 1990; Letter Notice dated April 18, 1990, from Warner North Associates to the Company; Lease Addendum No. 2; Third Addendum to Lease dated January 23, 1991, and First Amendment to Lease dated December 19, 1991. 10.8 (5) Amendment to Loan Agreement dated July 27, 1993 to the Loan and Security Agreement dated - February 12, 1991 by and between the Company and Silicon Valley Bank, as amended by the Amendment to Loan Agreement dated June 22, 1992. 10.9 (5) Office lease dated December 7, 1993, by and between the Company and Malibu Canyon Office - Partners, LP 10.10 (6) Form of Loan Agreement between the Company and executive officers of the Company, including form - of Demand Note as Exhibit A thereto. 10.11 (6) Consulting Agreement date June 15, 1994, between the Company and Karen Brenner. - 10.12 (6) Consulting Agreement dated January 25, 1995, between the Company and Karen Brenner. -
34 35 10.13 (6) Settlement Agreement and General Release by and between the Company and Tadeusz Czyzewski dated - March 24, 1995. 10.14 (6) Offer letter agreement by and between the Company and Ronald W. Rudolph dated March 27, 1995. - 11.1 Statement regarding computation of earnings per share. 53 24.1 Consent of Deloitte & Touch LLP. 54 25.1 Power of Attorney (see page 32). -
(1) Incorporated by reference from an exhibit filed with the Company's Current Report on Form 8-K (File No. 0-20540) filed with the Securities and Exchange Commission on April 10, 1996. (2) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 0-20540) filed with the Securities and Exchange Commission on March 30, 1993. (3) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-1 (File No. 33- 50646) declared effective by the Securities and Exchange Commission on September 21, 1992. (4) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-8 (File No. 33- 57078) filed with the Securities and Exchange Commission on January 19, 1993. (5) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 0-20540) filed with the Securities and Exchange Commission on March 24, 1994. (6) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 0-20540) filed with the Securities and Exchange Commission on March 31, 1995. 35 EX-10.2 2 EXHIBIT 10.2 1 EXHIBIT 10.2 ON ASSIGNMENT, INC. RESTATED 1987 STOCK OPTION PLAN ARTICLE ONE GENERAL I. PURPOSES OF THE PLAN A. This Restated 1987 Stock Option Plan (the "Plan") is intended to promote the interests of On Assignment, Inc., a Delaware corporation (the "Company"), by providing a method whereby eligible individuals may be offered incentives and rewards which will encourage them to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Company and continue to render services to the Company (or its parent or subsidiary corporations). This restatement of the Plan shall become effective on the date on which the restatement is adopted by the Board, subject to the approval of the stockholders ("Effective Date"). B. For purposes of the Plan, the following provisions shall be applicable in determining the parent and subsidiary corporations of the Company: (i) Any corporation (other than the Company) in an unbroken chain of corporations ending with the Company shall be considered to be a PARENT corporation of the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (ii) Each corporation (other than the Company) in an unbroken chain of corporations beginning with the Company shall be considered to be a SUBSIDIARY of the Company, provided each such corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. II. STRUCTURE OF THE PLAN A. Option Programs. The Plan shall be divided into two separate components: the Discretionary Option Grant Program described in Article Two and the Automatic Option Grant Program described in Article Three. Under the Discretionary Option Grant Program, eligible individuals may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock in accordance with the provisions of Article Two. Under the Automatic Option Grant Program, each eligible member of the Company's Board of Directors (the "Board") will automatically receive an option grant to purchase shares of Common Stock in accordance with the provisions of Article Three. B. General Provisions. Unless the context clearly indicates otherwise, the provisions of Articles One and Four of the Plan shall apply to the Discretionary Option Grant Program and the Automatic Option Grant Program and shall accordingly govern the interests of all individuals under the Plan. 2 III. ADMINISTRATION OF THE PLAN A. The Discretionary Option Grant Program shall be administered by one or more committees comprised of Board members. The primary committee (the "Primary Committee") shall be comprised of two or more non-employee Board members and shall have sole and exclusive authority to grant stock options and stock appreciation rights under the Discretionary Option Grant Program to officers and employee-directors of the Company subject to the short-swing profit restrictions of the Federal securities laws. Stock options may be granted under the Discretionary Option Grant Program to all other eligible employees and consultants by either the Primary Committee or a second committee comprised of one or more Board members (the "Secondary Committee"). The members of the Primary Committee and the Secondary Committee shall each serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. B. No Board member shall be eligible to serve on the Primary Committee if such individual has, within the twelve (12)- month period immediately preceding the date he or she is to be appointed to the Committee, received an option grant or stock award under this Plan or any other stock plan of the Company, its parent or subsidiary corporation, other than pursuant to the Automatic Option Grant Program in effect under Article Three. C. Subject to the limited authority provided the Secondary Committee to effect option grants in accordance with the provisions of Section III.A of this Article One, the Primary Committee shall serve as the Plan Administrator and shall have full power and authority (subject to the express provisions of the Discretionary Option Grant Program) to establish such rules and regulations as it may deem appropriate for the proper administration of such program and to make such determinations under the program and any outstanding option as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties with an interest in the Plan or any outstanding option under this Discretionary Option Grant Program. Service on the Primary or Secondary Committee shall constitute service as a Board member, and members of either Committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on either Committee. No member of the Primary or Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option granted under the Plan. D. Administration of the Automatic Option Grant Program shall be self-executing in accordance with the express terms and conditions of Article Three. IV. ELIGIBILITY FOR OPTION GRANTS A. The persons eligible to receive option grants under Article Two shall be limited to the following: (i) key employees (including officers and directors) of the Company (or its parent or subsidiary corporations) who render services which contribute to the success and growth of the Company (or its parent or subsidiary corporations) or which may reasonably be anticipated to contribute to the future success and growth of the Company (or its parent or subsidiary corporations); and (ii) those consultants or independent contractors who provide valuable services to the Company (or its parent or subsidiary corporations). 3 (iii) From and after the first date on which the shares of the Company's common stock are registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "IPO Effective Date"), non-employee members of the Board or the non-employee members of the board of directors of any parent corporation shall not be eligible to participate in the Discretionary Option Grant Program or in any other stock option, stock purchase, stock bonus or other stock plan of the Company (or its parent or subsidiary corporations). However, non-employee members of the Board shall be eligible to receive automatic option grants pursuant to the provisions of Article Three. B. The Plan Administrator shall have full authority to determine which eligible individuals are to receive option grants under the Discretionary Option Grant Program, the number of shares to be covered by each such grant, whether the granted option is to be an incentive stock option ("Incentive Option") which satisfies the requirements of Section 422 of the Internal Revenue Code or a non-statutory option not intended to meet such requirements, the time or times at which each such option is to become exercisable, and the maximum term for which the option is to be outstanding. V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of the Company's authorized but unissued or reacquired Common Stock. The aggregate number of shares which may be issued under the Plan shall not exceed 2,000,000 shares, which includes an increase of 500,000 shares authorized by the Board under the Plan on February 13, 1997 and which increase is subject to stockholder approval at the 1997 Annual Stockholders Meeting. The total number of shares issuable under the Plan shall be subject to adjustment from time to time in accordance with the provisions of this Section V. In no event may any one individual participating in the Plan be granted stock options for more than 250,000 shares of Common Stock over the remaining term of the Plan. For purposes of this limitation, any option grants made prior to December 31, 1993 will not be taken into account. B. Should an option expire or terminate for any reason prior to exercise or surrender in full (including options canceled in accordance with the cancellation-regrant provisions of Section IV of Article Two), the shares subject to the portion of the option not so exercised or surrendered shall be available for subsequent option grants under the Plan. Shares subject to any option or portion thereof canceled in accordance with Section V of Article Two or Section III of Article Three and shares repurchased by the Company pursuant to its repurchase rights under the Plan shall not be available for subsequent option grants under the Plan. In addition, should the exercise price of an outstanding option under the Plan be paid with shares of Common Stock, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the gross number of shares for which the option is exercised, and not by the net number of shares of Common Stock actually issued to the option holder. C. In the event any change is made to the Common Stock issuable under the Plan by reason of (a) any Corporate Transaction (as defined in Section III of Article Two) or (b) any stock split, stock dividend, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without receipt of consideration, then unless such change results in the termination of all outstanding options under the Plan as a result of the Corporate Transaction, appropriate adjustments shall be made to (i) the aggregate class and/or number of shares issuable under the Plan, (ii) the class and/or number of shares and price per share of the Common Stock subject to each outstanding option under the Discretionary Option Grant Program, (iii) the number and/or class of shares per non-employee Board member for 4 which automatic option grants are subsequently to be made under the Automatic Option Grant Program, and (iv) the number and/or class of shares and price per share of the Common Stock in effect under each automatic grant outstanding under the Automatic Option Grant Program. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. ARTICLE TWO DISCRETIONARY OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS Options granted pursuant to this Article Two shall be authorized by action of the Plan Administrator and may, at the Plan Administrator's discretion, be either Incentive Options or non-statutory options. Individuals who are not Employees may only be granted non- statutory options. Each granted option shall be evidenced by one or more instruments in the form approved by the Plan Administrator; provided, however, that each such instrument shall comply with and incorporate the terms and conditions specified below. Each instrument evidencing an Incentive Option shall, in addition, be subject to the applicable provisions of Section II of this Article Two. A. Option Price. 1. The option price per share shall be fixed by the Plan Administrator, provided, however, that in no event shall the option price per share be less than eighty-five percent (85%) of the fair market value of a share of Common Stock on the date of the option grant. 2. The option price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section VI of this Article Two and the instrument evidencing the grant, be payable in one of the alternative forms specified below: (i) cash or check made payable to the Company's order; (ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (as such terms are defined below); or (iii) through a broker-dealer sale and remittance procedure pursuant to which the optionee shall provide irrevocable written instructions (I) to the designated broker-dealer to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds an amount equal to the aggregate option price payable for the purchased shares plus all applicable Federal and state income and employment taxes required to be withheld by the Company by reason of such purchase and (II) to the Company to deliver the certificates for the purchased shares directly to such broker- dealer. For purposes of this subparagraph 2, the Exercise Date shall be the first date on which the Company shall have received written notice of the exercise of the option. Except to the extent the sale and remittance procedure is utilized in connection with the exercise of the option, payment of the option price for the purchased shares must accompany such notice. 5 3. The Fair Market Value of a share of Common Stock on any relevant date under subparagraph 1 or 2 above (and for all other valuation purposes under the Plan) shall be determined in accordance with the following provisions: - If the Common Stock is not at the time listed or admitted to trading on any stock exchange but is traded on the NASDAQ National Market System, the fair market value shall be the closing price of one share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers through its NASDAQ system or any successor system. If there is no closing price for the Common Stock on the date in question, then the closing price on the last preceding date for which such quotation exists shall be determinative of fair market value. - If the Common Stock is at the time listed or admitted to trading on any national stock exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the stock exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no reported sale of Common Stock on such exchange on the date in question, then the Fair Market Value shall be the closing selling price on the exchange on the last preceding date for which such quotation exists. - If the Common Stock is at the time neither listed nor admitted to trading on any stock exchange nor traded on the NASDAQ National Market System, or if the Plan Administrator determines that the value determined pursuant to the preceding paragraphs does not reflect Fair Market Value, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. B. Term and Exercise of Options. Each option granted under this Article Two shall be exercisable at such time or times, during such period, and for such number of shares as shall be determined by the Plan Administrator and set forth in the stock option agreement evidencing such option; provided, however, that no such option shall have a term in excess of ten (10) years from the grant date. During the lifetime of the optionee, the option shall be exercisable only by the optionee and shall not be assignable or transferable by the optionee otherwise than by will or by the laws of descent and distribution. C. Termination of Service. 1. Except to the extent otherwise provided pursuant to Section VII of this Article Two, the following provisions shall govern the exercise period applicable to any options held by the optionee at the time of cessation of Service or death. - Should the optionee cease to remain in Service for any reason other than death or permanent disability, then the period for which each outstanding option held by such optionee is to remain exercisable shall be limited to the three (3)-month period following the date of such cessation of Service. - In the event such Service terminates by reason of permanent disability (as defined in Section 22(e)(3) of the Internal Revenue Code), then the period for which each outstanding option held by the optionee is to remain 6 exercisable shall be limited to the twelve (12)-month period following the date of such cessation of Service. - Should the optionee die while in Service or during the three (3)-month period following his or her cessation of Service, then the period for which each of his or her outstanding options is to remain exercisable shall be limited to the three (3)-year period following the date of the optionee's cessation of Service. During such limited period, the option may be exercised by the personal representative of the optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution. - Under no circumstances, however, shall any such option be exercisable after the specified expiration date of the option term. - Each such option shall, during such limited exercise period, be exercisable for any or all of the shares for which the option is exercisable on the date of the optionee's cessation of Service. Upon the expiration of such limited exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be exercisable. 2. The Plan Administrator shall have complete discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to permit one or more options held by the optionee under this Article Two to be exercised, during the limited period of exercisability provided under subparagraph 1 above, not only with respect to the number of shares for which each such option is exercisable at the time of the optionee's cessation of Service but also with respect to one or more subsequent installments of purchasable shares for which the option would otherwise have become exercisable had such cessation of Service not occurred. 3. For purposes of the foregoing provisions of this paragraph I.C (and all other provisions of the Plan), unless it is evidenced otherwise in the specific option agreement evidencing the option grant and/or the purchase agreement evidencing the purchased optioned shares, the optionee shall be deemed to remain in SERVICE for so long as such individual renders services on a periodic basis to the Company or any parent or subsidiary corporation in the capacity of an Employee, a non-employee member of the Board or an independent consultant or advisor. The optionee shall be considered to be an EMPLOYEE for so long as such individual remains in the employ of the Company or one or more of its parent or subsidiary corporations subject to the control and direction of the employer entity not only as to the work to be performed but also as to the manner and method of performance. D. Stockholder Rights. An optionee shall have none of the rights of a stockholder with respect to any shares covered by the option until such individual shall have exercised the option, paid the exercise price for the purchased shares and been issued a stock certificate for such shares. E. Repurchase Rights. The shares of Common Stock acquired upon the exercise of options granted under this Article Two may be subject to one or more repurchase rights of the Company in accordance with the following provisions: 1. The Plan Administrator may in its discretion determine that it shall be a term and condition of one or more options exercised under this Article Two that the 7 Company (or its assignees) shall have the right, exercisable upon the optionee's cessation of Service, to repurchase at the option price all or (at the discretion of the Company and with the consent of the optionee) any portion of the shares of Common Stock previously acquired by the optionee upon the exercise of such option. Any such repurchase right shall be exercisable by the Company (or its assignees) upon such terms and conditions (including the establishment of the appropriate vesting schedule and other provision for the expiration of such right in one or more installments over the optionee's period of Service) as the Plan Administrator may specify in the instrument evidencing such right. 2. All of the Company's outstanding repurchase rights shall automatically terminate, and all shares subject to such terminated rights shall immediately vest in full, upon the occurrence of any Corporate Transaction under Section III of this Article Two; provided, however, that no such termination of the repurchase rights or immediate vesting of the shares shall occur if (and to the extent): (i) the Company's outstanding repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination of repurchase rights and acceleration of vesting are precluded by other limitations imposed by the Plan Administrator at the time of the option grant. II. INCENTIVE OPTIONS The terms and conditions specified below shall be applicable to all Incentive Options granted under this Article Two. Incentive Options may only be granted to individuals who are Employees. Options which are specifically designated as "non-statutory" options when issued under the Plan shall not be subject to such terms and conditions. A. Option Price. The option price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date of grant. B. Dollar Limitation. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Company or its parent or subsidiary corporations) may for the first time become exercisable as Incentive Options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability thereof as Incentive Options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. C. 10% Stockholder. If any individual to whom an Incentive Option is to be granted pursuant to the provisions of the Plan is on the date of grant the owner of stock (as determined under Section 424(d) of the Internal Revenue Code) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any one of its parent or subsidiary corporations (such person to be herein referred to as a 10% Stockholder), then the option price per share shall not be less than one hundred and ten percent (110%) of the Fair Market Value per share of Common Stock on the date of grant and the option term shall not exceed five (5) years measured from the grant date. Except as modified by the preceding provisions of this Section II, all the provisions of the Plan shall be applicable to the Incentive Options granted hereunder. III. CORPORATE TRANSACTIONS 8 A. In the event of any of the following stockholder-approved transactions (a "Corporate Transaction"): (i) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state of the Company's incorporation; (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company; or (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger, then each option outstanding under this Article Two shall be automatically accelerated so that each such option shall, immediately prior to the specified effective date for such Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock purchasable under such option and may be exercised for all or any portion of such shares. However, no option shall be so accelerated if and to the extent (i) such option is to be assumed by the successor corporation or parent thereof or to be replaced with a comparable option to purchase shares of the capital stock of such successor corporation or parent thereof or (ii) such acceleration is subject to other applicable limitations imposed by the Plan Administrator in the relevant option agreement. B. In connection with any such Corporate Transaction, the exercisability as an incentive stock option under the Federal tax laws of any accelerated options under this Article Two shall remain subject to the applicable dollar limitation of paragraph II.B of this Article Two. C. The grant of options under this Article Two shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. D. Upon the consummation of the Corporate Transaction, all outstanding options under this Article Two shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation or its parent company. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, the cancellation of any or all outstanding options under this Article Two and to grant in substitution therefor new options under the Plan covering the same or different numbers of shares of Common Stock but having an option price per share not less than eighty-five percent (85%) of Fair Market Value (one hundred percent (100%) of such Fair Market Value in the case of an Incentive Option or one hundred and ten percent (110%) of such Fair Market Value in the case of an Incentive Option granted to a 10% Stockholder) on the date of grant. V. SURRENDER OF OPTIONS FOR CASH OR STOCK A. Provided and only if the Plan Administrator determines in its discretion to implement the stock appreciation right provisions of this Section V, one or more optionees may 9 be granted the right, exercisable upon such terms and conditions as the Plan Administrator may establish at the time of the option grant or at any time thereafter, to surrender all or part of an unexercised option under this Article Two in exchange for a distribution from the Company, payable in cash or in shares of Common Stock, equal in amount to the excess of (i) the Fair Market Value (at date of surrender) of the number of shares in which the optionee is at the time vested under the surrendered option or portion thereof over (ii) the aggregate option price payable for such vested shares. B. No surrender of an option shall be effective hereunder unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the optionee shall accordingly become entitled under this Section V may be made in shares of Common Stock valued at Fair Market Value at date of surrender, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. C. If the surrender of an option is rejected by the Plan Administrator, then the optionee shall retain whatever rights the optionee had under the surrendered option (or surrendered portion thereof) on the date of surrender and may exercise such rights at any time prior to the later of (i) five (5) business days after the receipt of the rejection notice or (ii) the last day on which the option is otherwise exercisable in accordance with the terms of the instrument evidencing such option, but in no event may such rights be exercised at any time after ten (10) years (or five (5) years in the case of a 10% Stockholder) after the date of the option grant. D. One or more officers of the Company subject to the short-swing profit restrictions of the Federal securities laws may, in the Plan Administrator's sole discretion, be granted limited stock appreciation rights in tandem with their outstanding options under this Article Two. Each outstanding option with such a limited stock appreciation right in effect for at least six (6) months shall automatically be canceled, to the extent exercisable for vested shares of Common Stock, upon the occurrence of a Hostile Take-Over, and the optionee shall in return be entitled to a cash distribution from the Company in an amount equal to the excess of (i) the Take-Over Price of the number of shares in which the optionee is at the time vested under the canceled option or canceled portion over (ii) the aggregate option price payable for such vested shares. Such cash distribution shall be made within five (5) days following the consummation of the Hostile Take-Over. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option cancellation and cash distribution. The balance (if any) of each such option shall continue in full force and effect in accordance with the terms and conditions of the instrument evidencing such grant. E. For purposes of paragraph V.D, the following definitions shall be in effect: A Hostile Take-Over shall be deemed to occur in the event (i) any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Act of 1934, as amended (the "1934 Act")) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which the Board does not recommend such stockholders to accept and (ii) more than fifty percent (50%) of the securities so acquired in such tender or exchange offer are accepted from holders other than Company officers and directors participating in the Plan. 10 The Take-Over Price per share shall be deemed to be equal to the greater of (a) the Fair Market Value per share on the date of cancellation, as determined pursuant to the valuation provisions of paragraph I.A.3 of this Article Two, or (b) the highest reported price per share paid in effecting such Hostile Take-Over. However, if the canceled option is an Incentive Option, the Take-Over Price shall not exceed the clause (a) price per share. F. The shares of Common Stock subject to any option surrendered or canceled for an appreciation distribution pursuant to this Section V shall NOT be available for subsequent option grants under the Plan. VI. LOANS OR INSTALLMENT PAYMENTS A. The Plan Administrator may assist any optionee (including any officer or director) in the exercise of one or more options under this Article Two by (a) authorizing the extension of a loan to such optionee from the Company or (b) permitting the optionee to pay the option price for the purchased Common Stock in installments over a period of years. The terms of any loan or installment method of payment (including the interest rate and terms of repayment) will be established by the Plan Administrator in its sole discretion. Loans and installment payments may be granted without security or collateral (other than loans to optionees who are consultants or independent contractors, which must be adequately secured by collateral other than the purchased shares), but the maximum credit available to the optionee shall not exceed the sum of (i) the aggregate option price payable for the purchased shares (less the par value) plus (ii) any Federal and state income and employment tax liability incurred by the optionee in connection with the exercise of the option. B. The Plan Administrator may, in its absolute discretion, determine that one or more loans extended under Section VI.A above shall be subject to forgiveness by the Company in whole or in part upon such terms and conditions as the Plan Administrator in its discretion deems appropriate. VII. EXTENSION OF EXERCISE PERIOD The Plan Administrator shall have full power and authority, exercisable in its sole discretion to extend, either at the time when the option is granted or at any time while the option remains outstanding, the period of time for which any option granted under this Article Two is to remain exercisable following the optionee's cessation of Service from the period set forth in the option agreement to such greater period of time as the Plan Administrator shall deem appropriate; provided, however, that in no event shall such option be exercisable after the specified expiration date of the option term. 11 ARTICLE THREE AUTOMATIC OPTION GRANT PROGRAM I. ELIGIBILITY The individuals eligible to receive automatic option grants pursuant to the provisions of this Article Three shall be limited to the following: (1) each individual who is serving as a non-employee member of the Board on the IPO Effective Date; and (2) each individual who is first appointed or elected as a non-employee Board member at any time after the IPO Effective Date. II. TERMS AND CONDITIONS OF AUTOMATIC OPTION GRANTS A. Grant Dates. Option grants will be made under this Article Three on the dates specified below: (i) Each individual who has not previously been an Employee, and who first becomes a non- employee Board member at any time after the IPO Effective Date, whether through election at an Annual Stockholders Meeting or through appointment by the Board, shall automatically be granted, at the time of such initial election or appointment, a non- statutory stock option to purchase 9,000 shares of Common Stock. (ii) Commencing with the 1993 Annual Stockholders Meeting and each subsequent Annual Stockholders Meeting until 1996, each individual who is at the time serving as a non-employee member of the Board shall receive a grant of a non-statutory option to purchase 1,500 shares of Common Stock, provided such individual has been a member of the Board for at least six (6) months. (iii) Commencing with the 1996 Annual Stockholders Meeting and each subsequent Annual Stockholders Meeting, each individual who is at the time serving as a non-employee member of the Board shall receive a grant of a non- statutory option to purchase 3,000 shares of Common Stock, instead of the 1,500 shares under Section II.A(ii) above. The 9,000-share limitation, 1,500-share limitation and 3,000-share limitation on the automatic option grant to be made to each non-employee Board member shall be subject to periodic adjustment pursuant to the applicable provisions of Section V.C of Article One. B. Exercise Price. The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the automatic grant date. 12 C. Payment. The exercise price shall be payable in one of the alternative forms specified below: (i) cash or check made payable to the Company's order; (ii) shares of Common Stock held for the requisite period necessary to avoid a charge to the Company's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (as such terms are defined in paragraph I.A of Article Two); or (iii) through a broker-dealer sale and remittance procedure pursuant to which the optionee shall provide irrevocable written instructions (I) to the designated broker-dealer to effect the immediate sale of the purchased shares and remit to the Company, out of the sale proceeds an amount equal to the aggregate option price payable for the purchased shares plus all applicable Federal and state income and employment taxes required to be withheld by the Company by reason of such purchase and (II) to the Company to deliver the certificates for the purchased shares directly to such broker- dealer. Except to the extent the sale and remittance procedure specified above is utilized for the exercise of the option, payment of the exercise price for the purchased shares must accompany the written notice of option exercise. D. Option Term. Each automatic grant under this Article Three shall have a maximum term of ten (10) years measured from the automatic grant date. E. Exercisability. Each annual automatic grant for 1,500 shares shall be immediately exercisable in full for the option shares. Each annual automatic grant for 3,000 shares shall be immediately exercisable in full for the option shares, provided that the optionee has been a member of the Board for six (6) months on the annual automatic grant date; if the optionee has not been a member of the Board for six (6) months on the annual automatic grant date, such automatic option grant shall become exercisable in full for the option shares on the date six (6) months following the annual automatic grant date. Each initial automatic grant for 9,000 shares shall become exercisable for the option shares in three (3) installments as follows: (i) The option shall become exercisable for one-third (1/3) of the option shares upon completion of twelve (12) months of Board service measured from the automatic grant date. (ii) The option shall become exercisable for an additional one-third (1/3) of the option shares upon the completion of twenty-four (24) months of Board service measured from the automatic grant date. (iii) The option shall become exercisable for the final one-third (1/3) of the option shares upon the completion of thirty-six (36) months of Board service measured from the automatic grant date. As the option becomes exercisable for one or more installments of the option shares, the installments shall accumulate, and the option shall remain exercisable for the accumulated 13 installments until the expiration or sooner termination of the option term. The option, however, shall not become exercisable for any additional option shares following the optionee's cessation of Board service, except to the extent the option is otherwise to become exercisable in accordance with the provisions of Section III of this Article Three. F. Non-Transferability. During the lifetime of the optionee, the option shall be exercisable only by the optionee and shall not be assignable or transferable by the optionee otherwise than by will or by the laws of descent and distribution following the optionee's death. G. Effect of Termination of Board Membership. 1. Should the optionee cease to be a Board member for any reason (other than death) while holding an automatic option grant under this Article Three, then such optionee shall have a six (6)-month period following the date of such cessation of Board membership in which to exercise such option for any or all of the shares of Common Stock for which the option is exercisable at the time the optionee ceases service as a Board member. 2. Should the optionee die while serving as a Board member or during the six (6)-month period following his or her cessation of Board service, then the option may subsequently be exercised, for any or all of the shares of Common Stock for which the option is exercisable at the time of the optionee's cessation of Board membership, by the personal representative of the optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution. Any such exercise must, however, occur within three (3) years after the date of the optionee's cessation of Board service. 3. In no event shall any automatic grant under this Article Three remain exercisable after the specified expiration date of the ten (10)-year option term. Upon the expiration of the applicable exercise period in accordance with subparagraphs 1 and 2 above or (if earlier) upon the expiration of the ten (10)-year option term, the automatic grant shall terminate and cease to be exercisable. H. Stockholder Rights. The holder of an automatic option grant under this Article Three shall have no stockholder rights with respect to any shares covered by such option until such individual shall have exercised the option, paid the exercise price for the purchased shares and been issued a stock certificate for such shares. I. Remaining Terms. The remaining terms and conditions of each automatic option grant shall be as set forth in the prototype Non-Employee Director Automatic Grant Agreement. III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER A. In the event of any Corporate Transaction (as such term is defined in Section III of Article Two), then the exercisability of each automatic option grant outstanding under this Article Three shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. Upon the consummation of the Corporate Transaction, all automatic option grants under this Article Three shall terminate and cease to be outstanding. 14 B. In connection with any Change in Control of the Company, the exercisability of each automatic option grant at the time outstanding under this Article Three shall automatically accelerate so that each such option shall, immediately prior to the specified effective date for the Change in Control, become fully exercisable with respect to the total number of shares of Common Stock at the time subject to such option and may be exercised for all or any portion of such shares. For purposes of this Article Three, a Change in Control shall be deemed to occur in the event: (i) any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company's outstanding securities pursuant to a tender or exchange offer made directly to the Company's stockholders which the Board does not recommend such stockholders to accept; or (ii) there is a change in the composition of the Board over a period of twenty-four (24) consecutive months or less such that a majority of the Board members (rounded up to the next whole number) cease, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least two-thirds of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. C. Upon the occurrence of a Hostile Take-Over, each automatic option grant which has been outstanding under this Article Three for a period of at least six (6) months shall automatically be canceled in return for a cash distribution from the Company in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to the canceled option (whether or not the option is otherwise at the time exercisable for such shares) over (ii) the aggregate exercise price payable for such shares. The cash distribution payable upon such cancellation shall be made within five (5) days following the consummation of the Hostile Take-Over. Neither the approval of the Plan Administrator nor the consent of the Board shall be required in connection with such option cancellation and cash distribution. D. For purposes of this Article Three, Hostile Take-Over shall have the meaning assigned to such term in paragraph V.E of Article Two. The Take-Over Price per share shall be deemed to be equal to the greater of (a) the Fair Market Value per share on the date of cancellation, as determined pursuant to the valuation provisions of paragraph I.A.3 of Article Two, or (b) the highest reported price per share paid in effecting such Hostile Take-Over. E. The shares of Common Stock subject to each option canceled in connection with the Hostile Take-Over shall NOT be available for subsequent issuance under this Plan. F. The automatic option grants outstanding under this Article Three shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 15 IV. AMENDMENT OF THE AUTOMATIC GRANT PROVISIONS The provisions of this Automatic Option Grant Program, including any automatic option grants outstanding under this Article Three, may not be amended at intervals more frequently than once every six (6) months, other than to the extent necessary to comply with applicable Federal income tax laws and regulations. ARTICLE FOUR MISCELLANEOUS I. AMENDMENT OF THE PLAN The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects whatsoever; provided, however, that (i) no such amendment or modification shall, without the consent of the holders, adversely affect rights and obligations with respect to options at the time outstanding under the Plan and (ii) any amendment to the Automatic Option Grant Program (or any options outstanding thereunder) shall be in compliance with the limitation of Section IV of Article Three. In addition, the Board shall not, without the approval of the stockholders of the Company (i) increase the maximum number of shares issuable under the Plan, except for permissible adjustments under Section V.C of Article One, (ii) materially modify the eligibility requirements for the grant of options under the Plan or (iii) otherwise materially increase the benefits accruing to participants under the Plan. II. EFFECTIVE DATE AND TERM OF PLAN A. The Plan was restated on June 22, 1992 to be effective on the IPO Effective Date, and the Company's stockholders approved the restatement on September 4, 1992. Article One, Section III of the Plan was subsequently amended to permit the establishment of a secondary committee to administer the Plan. Such amendment became effective on the September 30, 1992 date of its approval by the Board. The Plan was restated on October 13, 1993 to (i) amend the automatic grant program under the Option Plan to increase to 9,000 from 3,000 the number of shares awarded to non-employee directors upon initial election or appointment and to delete vesting restrictions for the annual 1,500-share automatic option grants and (ii) limit the maximum number of shares for which any individual participant may be granted stock options over the remaining term of the Option Plan. The Plan was restated on December 7, 1995 to (i) amend the automatic grant program under the Option Plan to increase to 3,000 from 1,500 the number of shares awarded to each non-employee director upon each annual meeting of the Company's stockholders and (ii) eliminate the six-month service requirement for receiving such automatic annual grants, provided that the annual option grants to non- employee directors who have not served as Board members for at least six (6) months prior to the date of such annual grant shall become exercisable six (6) months after the date of such grant. The Plan was restated on February 13, 1997 to increase by 500,000 the number of shares of the Company's Common Stock reserved for issuance under the Plan from 1,500,000 shares to 2,000,000 shares. If stockholder approval is not obtained within twelve (12) months after the February 13, 1997 date of the Board's approval of the share increase under the Plan, then any options granted on the basis of such share increase shall terminate and cease to be outstanding. B. The provisions of this 1997 restatement shall apply only to options granted under the Plan from and after the Effective Date. Each option issued and outstanding under the Plan immediately prior to the Effective Date shall continue to be governed by the terms and conditions of the Plan (and the instrument evidencing such grant) as in effect on the date each such option was previously granted, and nothing in this restatement shall be deemed to affect or 16 otherwise modify the rights or obligations of the holders of such prior options with respect to the acquisition of shares of Common Stock thereunder. C. The option acceleration provisions of Section III of Article Two relating to Corporate Transactions may, in the Plan Administrator's discretion, be extended to one or more outstanding stock options under the Plan which were granted prior to the IPO Effective Date and which do not otherwise provide for such acceleration. D. The sale and remittance procedure authorized for the exercise of outstanding options under this Plan shall be available for all options granted under this Plan on or after the IPO Effective Date and all non-statutory options outstanding under the Plan. E. The Plan shall terminate upon the earlier of (i) June 21, 2002 or (ii) the date on which all shares available for issuance under the Plan shall have been issued or canceled pursuant to the exercise or surrender of options granted hereunder. If the date of termination is determined under clause (i) above, then options outstanding on such date shall thereafter continue to have force and effect in accordance with the provisions of the instruments evidencing such options. F. Options may be granted under this Plan to purchase shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided (i) an amendment to increase the maximum number of shares issuable under the Plan is adopted by the Board prior to the initial grant of any such option and within one year thereafter such amendment is approved by the stockholders of the Company and (ii) each option granted is not to become exercisable, in whole or in part, at any time prior to the obtaining of such stockholder approval. III. USE OF PROCEEDS Any cash proceeds received by the Company from the sale of shares pursuant to options granted under the Plan shall be used for general corporate purposes. IV. WITHHOLDING The Company's obligation to deliver shares upon the exercise or surrender of any options granted under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. V. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option or surrender right hereunder, and the issuance of stock upon the exercise or surrender of any such option shall be subject to the procurement by the Company of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the stock issued pursuant to it. B. No shares of Common Stock or other assets shall be issued or delivered under the Plan, unless and until, in the opinion of counsel for the Company (or its successor in the event of any Corporate Transaction), there shall have been compliance with all applicable requirements of the Federal and state securities exchange on which stock of the same class is then listed, and all other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. 17 VI. NO EMPLOYMENT/SERVICE RIGHTS Neither the action of the Company in establishing this Plan, nor any action taken by the Board or the Plan Administrator hereunder, nor any provision of this Plan shall be construed so as to grant any individual the right to remain in the employ or Service of the Company (or any parent or subsidiary corporation) for any period of specific duration, and the Company (or any parent or subsidiary corporation retaining the services of such individual) may terminate such individual's employment or Service at any time and for any reason, with or without cause. EX-11.1 3 EXHIBIT 11.1 1 Exhibit 11.1 ------------ ON ASSIGNMENT, INC. STATEMENT OF COMPUTATION OF NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES
Years Ended December 31, ---------------------------------------- 1994 1995 1996 ------ ------ ------- Net income used to compute primary and fully diluted earnings per share $3,481,000 $4,341,000 $5,606,000 ---------- ---------- ---------- Weighted average number of shares outstanding 4,845,000 4,987,000 5,103,000 Dilutive effect of stock options and warrants 279,000 278,000 346,000 ---------- ---------- ---------- Number of shares used to compute primary and fully diluted earnings per share 5,124,000 5,265,000 5,449,000 ---------- ---------- ---------- Net earnings per share $ 0.68 $ 0.82 $ 1.03 ---------- ---------- ----------
EX-24.1 4 EXHIBIT 24.1 1 Exhibit 24.1 ------------ INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement No. 33-57078 of On Assignment, Inc. and subsidiaries on Form S-8 of our report dated January 24, 1997, with respect to the consolidated financial statements and financial statements schedule of On Assignment, Inc. appearing in this Annual Report on Form 10-K of On Assignment, Inc. for the year ended December 31, 1996. /s/ Deloitte & Touche LLP - ------------------------- Deloitte & Touche LLP March 26, 1997 Los Angeles, California EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. YEAR DEC-31-1996 JAN-1-1996 DEC-31-1996 11,845,000 3,000,000 12,817,000 553,000 0 28,087,000 4,326,000 2,032,000 31,874,000 4,239,000 0 0 0 52,000 27,583,000 31,874,000 0 88,188,000 0 61,231,000 0 504,000 15,000 9,406,000 3,800,000 5,606,000 0 0 0 5,606,000 1.03 1.03
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