SCHEDULE 14A
(RULE 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14 INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
WESTAFF, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 30, 1999
------------------------
TO THE STOCKHOLDERS OF WESTAFF, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of stockholders (the "Annual
Meeting") of Westaff, Inc. (the "Company"), a Delaware corporation, will be held
on March 30, 1999 at 10:00 a.m., local time, at the Hilton Concord Hotel located
at 1970 Diamond Boulevard, Concord, California, for the following purposes, as
more fully described in the Proxy Statement accompanying this Notice:
1. To elect one Class III director to serve for a three-year term and until
his successor is elected;
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending October 30, 1999;
and
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on February 5, 1999 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will not be closed between the record date and the date of the meeting.
All stockholders are cordially invited to attend the meeting in person. Whether
or not you plan to attend, please sign and return the enclosed Proxy as promptly
as possible in the envelope enclosed for your convenience. Should you receive
more than one proxy because your shares are registered in different names and
addresses, each proxy should be signed and returned to assure that all your
shares will be voted. You may revoke your proxy at any time prior to the time it
is voted at the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/s/ W. ROBERT STOVER
--------------------------------------
W. Robert Stover
CHAIRMAN OF THE BOARD OF DIRECTORS
February 22, 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
-----
PROXY STATEMENT............................................................................................ 3
Voting................................................................................................. 3
Revocability Of Proxies................................................................................ 3
Solicitation........................................................................................... 4
Deadline For Receipt Of Stockholder Proposals.......................................................... 4
MATTERS TO BE CONSIDERED AT ANNUAL MEETING................................................................. 5
PROPOSAL ONE--ELECTION OF CLASS III DIRECTOR............................................................. 5
General................................................................................................ 5
Business Experience of Director........................................................................ 5
Board Meetings and Committees.......................................................................... 5
Directors' Compensation................................................................................ 6
PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS.................................................... 7
OTHER MATTERS.............................................................................................. 7
OWNERSHIP OF SECURITIES.................................................................................... 8
EXECUTIVE COMPENSATION REPORT.............................................................................. 10
GENERAL COMPENSATION POLICY................................................................................ 10
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER................................................................ 13
EXECUTIVE COMPENSATION..................................................................................... 14
Summary Compensation Table............................................................................. 14
Option Grants in Last Fiscal Year...................................................................... 15
Aggregate Option Exercises and Fiscal Year End Values.................................................. 16
Employment Arrangements................................................................................ 16
Compensation Committee Interlocks and Insider Participation............................................ 18
CERTAIN TRANSACTIONS....................................................................................... 19
COMPARISON OF STOCKHOLDER RETURN........................................................................... 20
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934....................................... 21
ANNUAL REPORT.............................................................................................. 21
FORM 10-K.................................................................................................. 21
2
WESTAFF, INC.
301 LENNON LANE
WALNUT CREEK, CALIFORNIA 94598-2453
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 30, 1999
------------------------
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of the Company, for use at the Annual Meeting. The Annual Meeting will
be held at 10:00 a.m., local time, at the Hilton Concord Hotel located at 1970
Diamond Boulevard, Concord, California. These proxy solicitation materials were
mailed on or about February 22, 1999, to all stockholders entitled to vote at
the Annual Meeting.
VOTING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On February 5, 1999, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting, 15,907,087
shares of the Company's common stock, $0.01 par value ("Common Stock"), were
issued and outstanding. No shares of the Company's preferred stock were
outstanding.
The presence at the Annual Meeting of a majority, or approximately 7,953,544
shares of Common Stock, either in person or by Proxy, will constitute a quorum
for the transaction of business at the Annual Meeting. Abstentions and broker
non-votes are counted as present for the purpose of determining the presence or
absence of a quorum for the transaction of business. Each stockholder is
entitled to one vote for each share of Common Stock held by such stockholder on
February 5, 1999. Directors are elected by a plurality vote. Since votes are
cast in favor of or withheld from each nominee, abstentions and broker non-votes
therefore will have no effect on the outcome of Proposal One. Proposal Two
requires an affirmative vote of a majority of shares present in person or
represented by proxy at the Annual Meeting and entitled to vote on such matter.
Abstentions will have the same effect as negative votes, while broker non-votes
are not included in the total number of votes cast on Proposal Two and therefore
will not be counted for purposes of determining whether that proposal has been
approved. All votes will be tabulated by the inspector of elections appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes.
If any stockholder is unable to attend the Annual Meeting, such stockholder
may vote by proxy. The enclosed Proxy is solicited by the Board, and, when
returned properly completed, will be voted as you direct on your proxy card. In
the discretion of the proxy holder, shares represented by such proxies will be
voted upon any other business as may properly come before the Annual Meeting. If
no specific instructions are given with respect to matters to be acted upon at
the Annual Meeting, shares of Common Stock represented by a properly executed
proxy will be voted FOR (i) the election of management's nominee for Director,
and (ii) the ratification of the selection of PricewaterhouseCoopers LLP as the
independent public accountants for the Company for fiscal 1999.
REVOCABILITY OF PROXIES
You may revoke or change your Proxy at any time before it is voted at the
Annual Meeting by filing with the Secretary of the Company at the Company's
principal executive offices a notice of revocation or
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another signed Proxy with a later date. You also may revoke your Proxy by
attending the Annual Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram, or other means by directors, officers or employees. No
additional compensation will be paid to these individuals for any such services.
Except as described above, the Company does not presently intend to solicit
proxies other than by mail.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2000 Annual Meeting must be received no
later than October 25, 1999, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. The deadline for
submitting a stockholder's proposal that will not be included in the proxy
statement and form of proxy for the Company's 2000 Annual Meeting but
nonetheless will be eligible for consideration is December 31, 1999.
4
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE--ELECTION OF CLASS III DIRECTOR
GENERAL
The Board of Directors has selected one nominee, who is currently serving as
a Class III director of the Company. The nominee for director is W. Robert
Stover. Mr. Stover was a director of the Company as of February 5, 1999. The
nominee has agreed to serve if elected, and management has no reason to believe
that he will be unavailable to serve. In the event the nominee is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who may be designated by the present Board of
Directors to fill the vacancy.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR the nominee named below. In the event that additional
persons are nominated, other than by the Board of Directors, for election as
Directors, the proxy holders intend to vote all proxies received by them for the
nominee listed below and any additional Board of Directors' nominee as described
above. The candidate receiving the highest number of affirmative votes of the
shares represented and voting on this particular matter at the Annual Meeting
will be elected a Class III director of the Company, to serve a three-year term
and until a successor has been elected and qualified.
BUSINESS EXPERIENCE OF DIRECTOR
W. ROBERT STOVER, age 77, founded the Company in 1948 and has been
continuously involved in the management of the Company since that time. Since
the Company's incorporation in 1954, Mr. Stover has held the position of
Chairman of the Board of Directors. From 1954 to 1985, Mr. Stover served as
President of the Company, and from 1985 to the end of calendar year 1998 as
Chief Executive Officer.
The Company's bylaws authorize the Board of Directors to fix the number of
directors by resolution. The number is currently fixed at six. The Company's
Board of Directors is divided into three classes, designated Class I, Class II
and Class III, with each class having a three-year term. Following the Company's
Initial Public Offering, on April 30, 1996 (the "Offering"), Jack D. Samuelson
and Gilbert L. Sheffield were appointed to serve in Class I, Michael K. Phippen
and Paul A. Norberg were appointed to serve in Class II and W. Robert Stover and
Harvey L. Maslin were appointed to serve in Class III. The initial directors in
each class are to hold office for terms of one year, two years and three years,
respectively. Thereafter each class will serve a three-year term. At the 1997
Annual Meeting, Messrs. Samuelson and Sheffield were elected to serve their
respective three-year terms. At the 1998 Annual Meeting, Messrs. Phippen and
Norberg were elected to serve their respective three-year terms. Mr. Maslin
resigned his directorship in the first quarter of fiscal 1998. The resulting
vacancy has not been filled, and presently there is only one Class III director,
namely, Mr. Stover. Officers are appointed to serve at the discretion of the
Board of Directors. There are no family relationships among executive officers
or directors of the Company.
BOARD MEETINGS AND COMMITTEES
During fiscal 1998, the Board of Directors held four meetings including
three regular quarterly meetings and one special meeting, and acted by unanimous
written consent on twelve occasions. The Board of Directors has an Audit
Committee, a Compensation Committee and a Strategic Planning Committee. Each of
the current directors attended (i) all meetings of the Board and (ii) all
meetings held by committees on which he served during fiscal 1998.
The Audit Committee currently consists of three directors, W. Robert Stover,
Gilbert L. Sheffield and Jack D. Samuelson, and Mr. Samuelson is its Chairman.
The Committee's duties include reviewing internal financial information,
monitoring cash flow, budget variances and credit arrangements, reviewing the
audit program of the Company, reviewing with the Company's independent
accountants the results of all audits
5
upon their completion, annually selecting and recommending independent
accountants, overseeing the quarterly unaudited reporting process and taking
such other action as may be necessary to assure the adequacy and integrity of
all financial information distributed by the Company. The Audit Committee held
one meeting during fiscal 1998.
The Compensation Committee currently consists of three directors, W. Robert
Stover, Gilbert L. Sheffield and Jack D. Samuelson. Mr. Sheffield is its
Chairman. The Compensation Committee has the exclusive authority to administer
the Company's 1996 Stock Option/Stock Issuance Plan, the Employee Stock Purchase
Plan and the International Employee Stock Purchase Plan. In addition, the
Compensation Committee is responsible for providing recommendations to the Board
of Directors concerning compensation levels for the Company's senior executive
officers and working with senior executive officers on benefit and compensation
programs for Company employees, including matters related to participation in
profit sharing, bonus plans and stock option plans and preparing reports to the
extent necessary to comply with applicable disclosure requirements established
by the Securities and Exchange Commission or other regulatory bodies. The
Compensation Committee held four meetings during fiscal 1998.
The Strategic Planning Committee currently consists of three directors, W.
Robert Stover, Gilbert L. Sheffield and Jack D. Samuelson. Mr. Stover is its
Chairman. The Committee is responsible for evaluating the Company's business
plans and future business including, but not limited to, the evaluation of
potential acquisitions and new business opportunities. The Strategic Planning
Committee held one meeting during fiscal 1998. All committee members also
participated with the entire Board of Directors in discussions of a strategic
plan at two Board meetings as well as in discussions of acquisitions at four
Board meetings during fiscal 1998.
DIRECTORS' COMPENSATION
In fiscal 1998, non-employee Board members each received an annual fee of
$7,500 for service on the Board in addition to a fee of $1,000 for each meeting
attended. Non-employee Board members also will be reimbursed for their
reasonable expenses incurred in connection with attending Board meetings. The
Company anticipates an increase in such directors' compensation during fiscal
1999.
In addition, non-employee Board members are eligible to receive periodic
option grants under the Automatic Option Grant Program in effect under the
Company's 1996 Stock Option/Stock Issuance Plan. Under the Automatic Option
Grant Program, each individual who subsequently joins the Board as a
non-employee director will receive at that time an option grant, provided such
individual has not previously been in the Company's employ. In addition, due to
the three-for-two stock split effected in the form of a stock dividend on May
29, 1998 to shareholders of record on May 18, 1998 (the "Stock Split"), at each
annual stockholders' meeting each individual who continues to serve as a
non-employee Board member presently is entitled to an option grant for 3,000
post-split shares with an exercise price equal to the fair market value of the
option shares on the grant date, provided such individual has served as a Board
member for at least six months. The employee Board members had approved an
increase to double the original number of such shares from 1,000 to 2,000
pre-split shares, beginning with the 1998 Annual Meeting, and this matter was
approved by the stockholders at that meeting.
Each automatic option grant will have a maximum term of ten years measured
from the grant date, subject to earlier termination following the optionee's
cessation of Board service. The option will become exercisable for all the
option shares upon the optionee's completion of one year of Board service
measured from the grant date. However, the option will become immediately
exercisable for all the option shares should the optionee cease Board service by
reason of death or disability or should the Company be acquired by merger or
asset sale during the period of the optionee's service on the Board.
Pursuant to the terms of the Automatic Option Grant Program, Messrs.
Sheffield and Samuelson, the two individuals serving as non-employee Board
members at the time of the Offering, each received an option grant for 1,500
post-split shares with an exercise price of $9.33 per share (based on the
original
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$14.00 per share price at which the Common Stock was sold in the Offering and
adjusted for the Stock Split). As of the Company's first Annual Meeting on April
15, 1997, Messrs. Sheffield and Samuelson each also received an automatic option
grant for 1,500 post-split shares with an exercise price of $6.08 per share
(based on the closing selling price of the Company's Common Stock on that date
and adjusted for the Stock Split), due to their continuing service as
non-employee directors. In addition, as of the Company's second Annual Meeting
on March 26, 1998, Messrs. Sheffield and Samuelson each also received an
automatic option grant for 3,000 post-split shares with an exercise price of
$16.17 per share (based on the closing selling price of the Company's Common
Stock on that date and adjusted for the Stock Split).
In addition to the foregoing option grants, Messrs. Sheffield and Samuelson
were each granted special options on November 1, 1996 to purchase 2,250
post-split option shares with an exercise price of $9.50 per share (based on the
closing selling price of the Company's Common Stock on that date and adjusted
for the Stock Split). Each of these options has a maximum term of ten years
measured from the grant date, subject to earlier termination following the
optionee's cessation of Board service. The option will become exercisable for
all the option shares upon the optionee's completion of one year of Board
service measured from the grant date. However, the option will become
immediately exercisable for all the option shares should the optionee cease
Board service by reason of death or disability or should the Company be acquired
by merger or asset sale during the period of the optionee's service on the
Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION
OF MR. STOVER AS A CLASS III DIRECTOR OF THE COMPANY.
PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, which appointed the firm of Price Waterhouse LLP,
now known as PricewaterhouseCoopers LLP, independent public accountants for the
Company during fiscal 1998, fiscal 1997 and fiscal 1996, has appointed that firm
to serve in the same capacity for fiscal 1999, and is asking the stockholders to
ratify this appointment. The affirmative vote of a majority of the shares
represented and voting at the Annual Meeting is required to ratify the selection
of PricewaterhouseCoopers LLP.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent accounting firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP TO SERVE
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL 1999.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is granted
by the execution of the enclosed Proxy.
7
OWNERSHIP OF SECURITIES
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1998 for (i) all
persons who are beneficial owners of five percent (5%) or more of the
outstanding shares of the Company's Common Stock, (ii) each director of the
Company, (iii) the Company's Chief Executive Officer and the five other most
highly paid executive officers as of the fiscal year ended October 31, 1998, and
(iv) all executive officers and directors of the Company as a group. Unless
otherwise indicated, each of the stockholders has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws, where applicable.
NAME NUMBER OF SHARES(#)(1) PERCENT(%)(2)
- ------------------------------------------------- ----------------------- ------
W. Robert Stover(3).............................. 9,892,070 62.4
Joan C. Stover(4) ............................... 8,829,827 55.7
c/o Westaff, Inc.
301 Lennon Lane
Walnut Creek, CA 94598
Michael K. Phippen(5)............................ 168,347 1.0
Paul A. Norberg(6)............................... 74,804 *
Dirk A. Sodestrom(7)............................. 20,083 *
Michael W. Ehresman(8)........................... 20,054 *
Jack D. Samuelson(9)............................. 18,250 *
Gilbert L. Sheffield(10)......................... 12,250 *
Ronald C. Picco(11).............................. 12,327 *
All executive officers and directors as a group
(11 persons)(12)............................... 10,235,771 64.6
- ------------------------
* Less than one percent (1%)
(1) To the Company's knowledge, except as indicated in the footnotes to this
table and subject to applicable community property laws, each of the
persons named in this table has sole voting and investment power with
respect to all shares of Common Stock indicated opposite such person's
name.
(2) Based on 15,844,406 shares of Common Stock outstanding at December 31,
1998. Shares of Common Stock subject to options, warrants and convertible
notes and other purchase rights currently exercisable or convertible, or
exercisable or convertible within 60 days of December 31, 1998 are deemed
outstanding for computing the percentage of the person or entity holding
such securities but are not deemed outstanding for computing the percentage
of any other person or entity.
(3) Includes 8,829,827 shares of Common Stock held by W. Robert Stover and Joan
C. Stover as Co-Trustees of the Stover Revocable Trust dated 11/16/88, as
amended, the beneficial ownership of which may be attributable to each of
Mr. Stover and Mrs. Stover. Includes 65,000 shares of Common Stock
contributed to the Stover Charitable Remainder Unitrust dated 11/1/94 of
which Mr. Stover is a Co-Trustee. Includes 997,243 shares of Common Stock
contributed to the Stover Charitable Lead Annuity Trust as to which Mr.
Stover has voting power, but has disclaimed beneficial ownership. Does not
include 245,496 shares of Common Stock owned by the Stover Foundation, a
California nonprofit religious corporation (the "New Foundation") as to
which Mr. Stover has shared voting power.
(4) Includes 8,829,827 shares of Common Stock held by W. Robert Stover and Joan
C. Stover as Co-Trustees of the Stover Revocable Trust dated 11/16/88, as
amended, the beneficial ownership of which may be attributable to each of
Mr. Stover and Mrs. Stover.
8
(5) Includes options to purchase 126,557 shares of Common Stock held by Mr.
Phippen, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(6) Includes options to purchase 66,562 shares of Common Stock held by Mr.
Norberg, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(7) Includes options to purchase 14,358 shares of Common Stock held by Mr.
Sodestrom, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(8) Includes options to purchase 14,358 shares of Common Stock held by Mr.
Ehresman, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(9) Includes options to purchase 5,250 shares of Common Stock held by Mr.
Samuelson, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(10) Includes options to purchase 5,250 shares of Common Stock held by Mr.
Sheffield, which are immediately exercisable under the 1996 Stock
Option/Stock Issuance Plan.
(11) Includes options to purchase 11,170 shares of Common Stock held by Mr.
Picco, which are immediately exercisable under the 1996 Stock Option/Stock
Issuance Plan.
(12) Includes options to purchase 263,691 shares of Common Stock which are
immediately exercisable under the 1996 Stock Option/Stock Issuance Plan.
9
WESTAFF, INC.
COMPENSATION COMMITTEE
OF THE
BOARD OF DIRECTORS
EXECUTIVE COMPENSATION REPORT
The Compensation Committee was formed on March 9, 1995 in anticipation of
the Offering. It consists of three Board members, namely, W. Robert Stover,
Gilbert L. Sheffield and Jack D. Samuelson. Mr. Stover is Chairman of the Board
of Directors and was Chief Executive Officer through December 31, 1998. Messrs.
Sheffield and Samuelson are not officers or employees of the Company. Mr.
Sheffield is presently the Chairman of the Compensation Committee.
It is the duty of the Compensation Committee to review and establish the
compensation of executive officers of the Company, including base salary,
participation in profit sharing, bonus and other cash incentive plans, subject
to ratification by the Board. During fiscal 1998, the Compensation Committee
also had the exclusive authority to administer the Company's 1996 Stock
Option/Stock Issuance Plan, under which grants may be made to such officers.
In October 1996, the Compensation Committee engaged Strategic Compensation
Associates ("SCA") to make a comprehensive review and competitive assessment of
existing executive compensation packages in total and by component, including
salary, annual bonus, stock options and major benefits. SCA made specific
recommendations to the Compensation Committee pertaining to each of these
topics.
GENERAL COMPENSATION POLICY
The fundamental policy of the Compensation Committee is to offer the
Company's executive officers competitive compensation opportunities based upon
their personal performance and their contribution to the financial success of
the Company. To achieve this policy, a substantial portion of each executive
officer's total annual compensation is made contingent upon the achievement of
designated financial and performance goals. Accordingly, each executive
officer's compensation package is comprised of three elements: (i) base salary
which is designed primarily to be competitive with base salary levels in effect
both at companies within the temporary staffing industry that are of comparable
size to the Company and at companies outside of such industry with which the
Company competes for executive talent; (ii) annual bonuses payable in cash and
tied to the Company's attainment of financial milestones based on criteria
established by the Compensation Committee; and (iii) long-term stock-based
incentive awards which strengthen the mutuality of interests between the
executive officers and the Company's stockholders. As an employee's level of
responsibility and accountability within the Company increases over time, a
greater portion of his or her total compensation is intended to be dependent
upon the Company's performance and stock price appreciation rather than upon
base salary.
FACTORS. The principal factors considered by the Compensation Committee in
establishing the components of each executive officer's compensation package for
fiscal 1998 are summarized below. However, the Compensation Committee may in its
discretion apply entirely different factors, particularly different measures of
financial performance, in setting executive compensation for future fiscal
years.
* BASE SALARY. The base salary for each executive officer is determined on
the basis of internal comparability considerations and the base salary levels in
effect for comparable positions at the Company's principal competitors, both
within and outside the temporary staffing industry. The base salary level for
executive officers is generally at a level determined for such individuals on
the basis of the external salary data of temporary staffing service companies
within the same geographic area and with small to medium market capitalization.
This group of companies is less inclusive than the temporary staffing index in
the performance graph included in the Company's Proxy Statement for purposes of
comparing the stock price performance of the Company's Common Stock. However,
the Company believes this smaller group of
10
companies gives a more accurate indication of the market for executive services
in which the Company competes. Salaries are reviewed on an annual basis, and
adjustments to each executive officer's base salary are based upon individual
performance and salary increases paid by the Company's competitors. The
Compensation Committee sets the base salaries of the Chairman of the Board of
Directors and the Chief Executive Officer and the committee reviews the salaries
of the other corporate officers who are members of the senior management team.
ANNUAL INCENTIVE COMPENSATION. An annual bonus may be earned by selected
executive officers except the Chairman of the Board of Directors based upon
their participating interest in a bonus pool tied to Company performance. Each
officer's participating interest is determined by the Compensation Committee at
the start of the fiscal year and may vary from year to year. The bonus pool for
fiscal 1998, as originally written, was based on specified levels of net income.
For such purpose, net income was defined as the consolidated income for fiscal
1998 as certified by the Company's external auditors. All bonus payments under
the fiscal 1998 executive bonus plan were to be included as an expense in
determining net income. For all participants selected by the Compensation
Committee except Michael K. Phippen, if net income were $11 million, the bonus
was to be 10% of base salary at the start of fiscal 1998, if net income were $12
million, the bonus was to be 25% of base salary at the start of fiscal 1998; and
if net income were $13 million, the bonus was to be 50% of base salary at the
start of fiscal 1998. For Mr. Phippen, if net income were $11 million, the bonus
was to be 25% of base salary at the start of fiscal 1998; if net income were $12
million, the bonus was to be 50% of base salary at the start of fiscal 1998; and
if net income were $13 million, the bonus was to be 100% of base salary at the
start of fiscal 1998. However, the Compensation Committee later exercised its
prerogative to modify the fiscal 1998 executive bonus plan such that the bonus
payments actually were based on income from continuing operations (exclusive of
the Company's medical operations) instead of net income. Income from continuing
operations exceeded $13 million for fiscal 1998 and the bonus payments were made
accordingly. In reaching this decision, the Compensation Committee took into
account (i) the Board of Directors' decision in November 1998 to sell the
Company's medical operations and classify them as discontinued in the Company's
financial statements, (ii) the fact that, because of special regulatory
considerations, the medical operations operated primarily as a separate
managerial unit through Western Medical Services, Inc., a wholly-owned
subsidiary of the Company and (iii) the uniquely challenging financial and
regulatory environment that the medical operations faced as a result of recent
changes in Medicare reimbursement policies. For fiscal 1998, no specific
personal performance goals were established for the executive officers as a
condition to their participation in the bonus pool; however, no bonus payout was
to be made to any officer unless his or her performance for the fiscal year was
considered to be at a satisfactory level. Accordingly, the Compensation
Committee reviewed the performance of the Chief Executive Officer, and the Chief
Executive Officer reviewed the performances of the other senior executive
officers, namely, the President and Chief Operating Officer, and the Executive
Vice President and Chief Financial Officer, and made his recommendations to the
Compensation Committee. The Compensation Committee has delegated to those senior
executive officers the authority to review the performances of the other
corporate officers and key employees who report to them directly. For fiscal
1998, the executive bonuses ranged from 32.4% to 50.0% of total compensation.
For each subsequent fiscal year, the Compensation Committee will determine
whether or not to continue or modify the executive bonus program for that year
and, specifically, will designate the executive officers eligible to participate
in the program, specify what percentage of the bonus pool each of the
participants may earn, and determine the eligibility criteria for participation.
* LONG-TERM INCENTIVE COMPENSATION. Option grants are intended to align the
interests of each executive officer with those of the Company's stockholders and
to provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the business. The
Compensation Committee has the discretion to set the option exercise price and
the vesting schedule for option grants. The Compensation Committee determines
the size of the option grant according to each executive's position within the
Company and sets a level it considers appropriate to create a meaningful
11
opportunity for stock ownership. In addition, the Compensation Committee takes
into account an individual's level of responsibility and opportunity to
influence the Company's financial results, comparable awards made to individuals
in similar positions within the industry, and the number of unvested options
held by each individual at the time of the new grant. The relative weight given
to each of these factors varies among individuals and is at the Compensation
Committee's discretion.
Each option grant allows the officer to acquire shares of the Company's
Common Stock at a fixed price per share (typically the closing market price on
the date of grant) over a specified period of time (up to ten years). The
options generally vest in installments over a four-year period, contingent upon
the executive officer's continued employment with the Company. The options
generally become exercisable with respect to twenty-five percent (25%) of the
option shares upon the optionee's completion of one year of service measured
from the vesting commencement date and the balance in 36 successive monthly
installments upon the optionee's completion of each month of service over the
36-month period measured from the first anniversary of the vesting commencement
date. Accordingly, the option will provide a return to the executive officer
only if the executive officer remains employed by the Company for one or more
years during which the option vests, and then only if the market price of the
underlying shares appreciates over the option term.
TAX LIMITATION. As a result of federal tax legislation enacted in 1993, a
publicly-held company such as Westaff, Inc. will not be allowed a federal income
tax deduction for compensation paid to the executive officers named in the
Summary Compensation Table, to the extent that compensation exceeds one million
dollars ($1,000,000) per officer. The compensation paid to the Company's
executive officers for fiscal 1998 did not exceed the one million dollar limit
per officer, nor is the compensation to be paid to the Company's executive
officers for fiscal 1999 expected to reach that level. Because it is very
unlikely that the compensation payable to any of the Company's executive
officers in the foreseeable future will approach the one million dollar
limitation, the Compensation Committee has decided not to take any action at
this time to limit or restructure the elements of compensation payable to the
Company's executive officers. The Committee will reconsider this decision should
the individual compensation of any executive officer ever approach the one
million dollar level or otherwise when required by law.
12
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
In setting the fiscal 1998 compensation payable to the Company's then Chief
Executive Officer, Mr. Stover, the Compensation Committee sought to establish a
competitive rate of base salary, realizing that a significant percentage of his
overall compensation package is directly tied to Company performance and stock
price appreciation because of his position as a principal shareholder.
Mr. Stover's base salary was established through an evaluation of salaries
paid to similarly situated chief executive officers both at companies in the
industry which are of comparable size to the Company and at companies in other
industries with which the Company competes for executive personnel. In fiscal
1997, the Compensation Committee conducted its annual review of Mr. Stover's
base salary level and continued his fiscal 1997 base salary of $250,000 into
fiscal 1998. In fiscal 1998, the Compensation Committee developed and negotiated
a compensation contract with Michael K. Phippen, then President and Chief
Operating Officer, to be effective January 1, 1999, when Mr. Phippen was to
assume the role of Chief Executive Officer and Mr. Stover was to relinquish the
Chief Executive Officer title but continue as Chairman of the Board of
Directors. In the first quarter of fiscal 1999, the Compensation Committee
developed and negotiated a new compensation contract with Mr. Stover effective
January 1, 1999.
The Chief Executive Officer's bonus, if any, is at the discretion of the
Compensation Committee and the Board. The Compensation Committee did not award a
cash bonus to Mr. Stover for fiscal 1998, despite his efforts and contributions
to the successful operation of the Company throughout fiscal 1998. The Committee
granted no option shares to Mr. Stover during fiscal 1998 since he is a
principal shareholder of the Company.
Compensation Committee
Gilbert L. Sheffield,
Chairman of Compensation
Committee
Jack D. Samuelson
Member of Compensation
Committee
W. Robert Stover
Member of Compensation
Committee
13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned, by the Company's
Chief Executive Officer and the five other highest-paid executive officers whose
salary and bonus for fiscal 1998 was in excess of $100,000, for services
rendered in all capacities to the Company and its subsidiaries for each of the
last three fiscal years.(1) No executive officer who would have otherwise been
includable in such table on the basis of salary and bonus earned for fiscal 1998
has been excluded by reason of his or her termination of employment or change in
executive status during that fiscal year. The individuals included in the table
collectively will be referred to as the "Named Officers."
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(4) ($)(5)
- -------------------------------------------------- ---- --------- -------- ------------- ------------
W. Robert Stover.................................. 1998 250,000 -- -- 6,036
Chairman of the Board of Directors and 1997 250,000 -- -- --
Chief Executive Officer(2) 1996 244,616 -- -- --
Michael K. Phippen................................ 1998 250,000 250,000 175,000 12,874
President, Chief Operating Officer 1997 222,115 23,531 -- --
and Director(3) 1996 177,826 37,527 150,000 --
Paul A. Norberg................................... 1998 193,270 95,000 15,000 7,521
Executive Vice President, Chief 1997 190,000 18,825 -- --
Financial Officer and Director 1996 180,000 28,145 90,000 --
Ronald C. Picco................................... 1998 178,462 82,500 18,750 1,323
Senior Vice President, Operations 1997 144,375 4,706 -- --
1996 128,676 18,764 7,500 --
Michael W. Ehresman............................... 1998 140,769 67,500 18,750 5,218
Senior Vice President and Treasurer 1997 125,023 4,706 -- --
1996 122,785 9,382 12,000 --
Dirk A. Sodestrom................................. 1998 140,769 67,500 18,750 1,063
Senior Vice President and Controller 1997 132,115 4,706 -- --
1996 124,615 9,482 12,000 --
- ------------------------
(1) Long-term compensation has not been included in the table because such
information is not applicable.
(2) Mr. Stover relinquished the Chief Executive Officer title effective December
31, 1998.
(3) Mr. Phippen became President and Chief Executive Officer on January 1, 1999.
(4) Adjusted for the Stock Split.
(5) Includes employer matching contributions under the Westaff Deferred Savings
Plan for fiscal 1998, the first year in which such contributions were made.
The matching contributions for fiscal 1998 were 25% of the first ten percent
of the participant's contribution to the plan, and were equal to $6,010 for
Mr. Stover, $12,848 for Mr. Phippen, $7,495 for Mr. Norberg, $1,297 for Mr.
Picco, $5,194 for Mr. Ehresman and $1,039 for Mr. Sodestrom. Also includes
employer's portion of group term life insurance premiums in the amount of
$26 each for Messrs. Stover, Phippen, Picco and Norberg and in the amount of
$24 each for Messrs. Sodestrom and Ehresman. Employer's portion was 17 cents
per $1,000 of coverage and allowed coverage was one times base salary up to
a maximum of $150,000.
14
OPTION GRANTS IN LAST FISCAL YEAR
There were stock option grants made during fiscal 1998 under the Company's
1996 Stock Option/ Stock Issuance Plan to the Named Officers. The table below
sets forth information with respect to such option grants, including an option
grant that was contractually negotiated with Michael K. Phippen in consideration
of his entering into a new employment agreement on July 31, 1998 for the
position of Chief Executive Officer effective January 1, 1999. No stock
appreciation rights were granted to the Named Officers during such fiscal year.
POTENTIAL
REALIZABLE
VALUE
AT
ASSUMED
ANNUAL
RATES
OF
STOCK
INDIVIDUAL GRANTS(1)(2) PRICE
----------------------------------------------- APPRECIATION
NUMBER OF PERCENT OF TOTAL FOR
SECURITIES OPTIONS/ OPTION
UNDERLYING SARS GRANTED TO EXERCISE OR TERM(5)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -------
NAME GRANTED(#)(1) FISCAL YEAR(%)(3) ($/SH)(1) DATE 5%($)
- -------------------------------------------------- ------------- ----------------- ----------- ---------- -------
W. Robert Stover.................................. -- -- -- -- --
Michael K. Phippen................................ 75,000 25.4 9.58 11/03/07 452,018
100,000(4) 33.9 13.50 07/31/08 849,008
Paul A. Norberg................................... 15,000 5.1 9.58 11/03/07 90,404
Ronald C. Picco................................... 18,750 6.4 9.58 11/03/07 113,005
Michael W. Ehresman............................... 18,750 6.4 9.58 11/03/07 113,005
Dirk A. Sodestrom................................. 18,750 6.4 9.58 11/03/07 113,005
NAME 10%($)
- -------------------------------------------------- ---------
W. Robert Stover.................................. --
Michael K. Phippen................................ 1,145,502
2,151,552
Paul A. Norberg................................... 229,100
Ronald C. Picco................................... 286,376
Michael W. Ehresman............................... 286,376
Dirk A. Sodestrom................................. 286,376
- ------------------------
(1) Adjusted for the Stock Split.
(2) Options granted under the Company's 1996 Stock Option/Stock Issuance Plan
have a maximum ten-year term measured from the date of grant. Such options
generally vest over a four-year period. They generally become exercisable
for 25% of the option shares commencing upon the optionee's completion of
one year of service measured from the vesting commencement date and the
balance in a series of 36 successive monthly installments upon the
optionee's completion of each additional month of service over the 36-month
period measured from the first anniversary of the vesting commencement date.
The exercise price per share generally is the closing selling price of the
Company's Common Stock on the date of grant. The 1996 Stock Option/Stock
Issuance Plan provides for the automatic acceleration of vesting of all
outstanding options (such that they become exercisable in full) in the event
of a "change of control", as defined in the 1996 Stock Option/Stock Issuance
Plan.
(3) Based on options to purchase an aggregate of 294,750 shares granted to
employees during fiscal 1998 under the 1996 Stock Option/Stock Issuance
Plan.
(4) Under this option grant to Mr. Phippen, the exercise price per share is the
fair market value, or closing market price, on the date of grant. The option
will become exercisable on October 30, 2001, which is two years from the
last day of fiscal 1999, subject to cancellation in the event of employment
termination for cause or subject to acceleration in the event of employment
termination without cause.
(5) Potential realizable value is based on an assumption that the stock price
appreciates at the annual rates shown (compounded annually) from the date of
grant until the end of the ten-year option term. These numbers are
calculated based on requirements promulgated by the Securities and Exchange
Commission ("SEC") and do not reflect the Company's estimate of its future
stock price.
15
AGGREGATE OPTION EXERCISES AND FISCAL YEAR END VALUES
One of the Named Officers exercised an option during fiscal 1998. The table
below sets forth information with respect to such option exercise and the
unexercised options held by the Named Officers as of the end of fiscal 1998. No
stock appreciation rights were exercised during such fiscal year, and no stock
appreciation rights were outstanding at the end of such fiscal year.
VALUE OF
UNEXERCISED
"IN-THE-MONEY"
NUMBER OF SECURITIES OPTIONS
UNDERLYING UNEXERCISED AT FISCAL
OPTIONS AT FISCAL YEAR YEAR
END(#)(1) END($)(1)(2)
SHARES ACQUIRED VALUE --------------------------- -----------
NAME ON EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---------------------------------------- ------------------ ----------- ----------- ------------- -----------
W. Robert Stover........................ -- -- -- -- --
Michael K. Phippen...................... -- -- 90,620 234,380 --
Paul A. Norberg......................... 4,626 63,492 54,375 50,625 --
Ronald C. Picco......................... -- -- 4,687 21,563 --
Michael W. Ehresman..................... -- -- 7,500 23,250 --
Dirk A. Sodestrom....................... -- -- 7,500 23,250 --
NAME UNEXERCISABLE
- ---------------------------------------- -------------
W. Robert Stover........................ --
Michael K. Phippen...................... --
Paul A. Norberg......................... --
Ronald C. Picco......................... --
Michael W. Ehresman..................... --
Dirk A. Sodestrom....................... --
- ------------------------
(1) Adjusted for the Stock Split. Options are "in-the-money" if the fair market
value of the underlying securities exceeds the exercise price of the option.
Options are "out-of-the-money" if the exercise price of the option exceeds
the fair market value of the underlying securities.
(2) Calculated by determining the difference between the fair market value of
the securities underlying the in-the-money options at October 31, 1998
(based on the closing price of $8.625 for the Company's Common Stock on
Nasdaq for October 30, 1998, the trading day immediately preceding the end
of fiscal 1998) and the exercise price of the options.
EMPLOYMENT ARRANGEMENTS
The Company entered into an employment agreement with W. Robert Stover on
September 29, 1994 which provided for his continuing employment until he chose
to retire or until his death. In addition to base annual compensation, subject
to adjustment with the mutual agreement of the parties, the agreement provided
that Mr. Stover may be paid bonuses based on the Company's economic
circumstances and his extraordinary efforts and contributions. The agreement was
amended as of November 2, 1996 to eliminate the death benefits otherwise payable
to Mr. Stover's widow or estate upon his death during the employment term and to
maintain Mr. Stover's base salary at $250,000 for fiscal 1997. The agreement was
amended effective August 14, 1997 to reinstate such death benefits, which
provided for the payment of three times Mr. Stover's annual compensation then in
effect in equal monthly installments over a four-year period. There was no
change in Mr. Stover's base salary for fiscal 1998. However, in view of his
having voluntarily relinquished the Chief Executive Officer title as of December
31, 1998, the Company entered into a new employment agreement with Mr. Stover
effective January 1, 1999. No consideration was paid to Mr. Stover for his
having relinquished the Chief Executive Officer's title. The new agreement
contains a renegotiated compensation package for Mr. Stover in his continuing
role as Chairman of the Board of Directors, including a lesser annual salary of
$75,000. In addition, Mr. Stover's compensation package includes payment of
office relocation expenses for suitable offsite leased premises, payment of
monthly office rent as well as all related leasehold expenses including parking,
utilities, janitorial services, and a pro rata share of increases in operating
expenses and real estate taxes over calendar year 1999 under a two-year lease
for such premises, payment of his executive assistant's annual salary, continued
participation by Mr. Stover and his executive assistant in present and future
employee benefit plans including group health, life, supplemental life,
long-term disability, accidental death and dismemberment insurance, a 401(k)
savings plan and a deferred savings plan, and reimbursement for reasonable
travel and other business expenses. Mr. Stover is not eligible for a bonus or
other incentive compensation under the new
16
agreement nor is he entitled to vacation pay. The new agreement is of indefinite
duration and will continue until Mr. Stover chooses to retire or until his
death; however, the contractual obligations relating to compensation of his
executive assistant will terminate upon reassignment of the current assistant to
other duties or upon termination of Mr. Stover's employment, subject to
negotiation of a satisfactory arrangement to the contrary in the discretion of
the Compensation Committtee of the Board of Directors.
The Company entered into a new employment agreement with Mr. Phippen for a
period of five years from January 1, 1999 providing for an increased annual
salary of $375,000 as of that date in consideration of his succeeding Mr. Stover
as Chief Executive Officer. In addition, Mr. Phippen has the right to
participate in all present and future benefit plans specified in the Company's
policies and generally made available to similarly situated employees, he is
entitled to four weeks of vacation leave per year, and he will be reimbursed for
reasonable travel and other business expenses incurred in the performance of his
duties in accordance with the Company's policies, as amended from time to time.
Mr. Phippen's eligibility for a bonus or other incentive compensation is at the
discretion of the Compensation Committee of the Board of Directors. The Company
may terminate Mr. Phippen's employment at any time, for any reason or without
cause as defined in the agreement, by providing him ninety days' advance written
notice. The Company will have the option, in its complete discretion, to
terminate his employment at any time before the end of the notice period,
provided Mr. Phippen is paid all compensation due and owing through the last day
actually worked, plus an amount equal to the base salary he would have earned
through the balance of the notice period. In addition, if Mr. Phippen's
employment is so terminated, he will also be paid one-half of the salary
payments remaining under the term of the agreement up to a maximum payment of
one year's salary. These salary payments, if any, will be on a monthly basis
over the twelve-month period following the employment termination date. The
Company may also terminate Mr. Phippen's employment at any time without prior
notice for cause (as defined in the agreement), subject to payment of all
compensation owed on the date of termination. Mr. Phippen may terminate his
employment for any reason by providing the Company ninety days' advance written
notice. The Company has the complete discretion to make his employment
termination effective at any time before the end of such notice period, provided
it pays him all compensation due and owing through the last day actually worked,
plus an amount equal to the base salary he would have earned through the balance
of the notice period, not to exceed ninety days, and thereafter all of the
Company's obligations under the agreement will cease.
In consideration of his execution of the new employment agreement, Mr.
Phippen was granted an option to purchase 100,000 post-split shares of the
Company's Common Stock. The option has a maximum term of ten years measured from
the grant date. The exercise price per share of such option grant is the fair
market value, or closing market price, on the date of grant. The option will
become exercisable on October 30, 2001, which is two years from the last day of
fiscal 1999, subject to cancellation should Mr. Phippen's employment be
terminated for cause; however, the option will become immediately exercisable
for all the option shares should Mr. Phippen's employment be terminated without
cause. Mr. Phippen's agreement also includes an agreement to grant him options
to purchase a total of 400,000 post-split shares of the Company's Common Stock.
These options will be granted at a rate of 100,000 per year on the first day of
each of the four fiscal years commencing after October 30, 1999, provided that
Mr. Phippen is employed by the Company on the first day of the applicable fiscal
year, as follows: October 31, 1999, October 29, 2000, November 4, 2001 and
November 3, 2002 for fiscal years 2000, 2001, 2002 and 2003, respectively. The
exercise price per share for each such future option grant will be the average
of the fair market value on the first and last trading days of the fiscal year
completed immediately prior to the date of grant of each such option. Such
future option grants likewise will not become exercisable until two years from
the last day of the fiscal year for which they were granted, and they likewise
will be subject to cancellation in the event of employment termination for cause
or acceleration in the event of employment termination without cause.
17
The Company's employment agreements with the other Named Officers are at
will, and the Company may terminate their employment at any time at the
discretion of the Board of Directors. However, the Plan Administrator of the
Company's 1996 Stock Option/Stock Issuance Plan has authority to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding options
held by the current Chief Executive Officer and the Company's other executive
officers, whether granted under that plan or any predecessor plan, in the event
their employment were to be terminated within a designated period (whether
involuntarily or through a forced resignation) following: (i) an acquisition of
the Company by merger or asset sale, or (ii) a hostile takeover of the Company
effected through a successful tender offer for more than 50% of the Company's
outstanding Common Stock or through a change in the majority of the Board as a
result of one or more contested elections for Board membership over a period of
36 consecutive months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established a Compensation Committee in March 1995.
The Compensation Committee currently consists of Messrs. Stover, Sheffield and
Samuelson. Except for Mr. Stover, no member of such Committee was at any time
during fiscal 1998 or at any other time an officer or employee of the Company.
No executive officer of the Company served on the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
For a description of transactions between the Company and members of the
Compensation Committee or their affiliates, see the "Certain Transactions"
section.
18
CERTAIN TRANSACTIONS
MANAGEMENT CONTRACT WITH WESTERN VIDEO IMAGES. The Company has a management
services contract with Western Video Images, Inc. ("WVI"), a corporation wholly
owned by Mr. Stover, the principal stockholder of the Company. Management fees
charged to WVI for fiscal 1998 and fiscal 1997 were $149,000 and $180,000,
respectively. The Company provides accounting, tax, legal, administrative and
management support and services to WVI for a fee based upon the gross sales of
WVI. The fee is paid monthly in arrears for actual services rendered. The
Company believes that the terms of the management services contract are
commercially reasonable. WVI has arranged separate financing for itself as
required by its operations and does not receive any financing from the Company.
In addition, the Company is the lessee of the principal facilities in which
WVI operates. WVI is charged for all costs of the lease for these facilities.
The Company will remain the lessee and has subleased the facilities to WVI until
October 31, 2000, the termination date of the lease obligation. The Company has
entered into an arrangement with WVI, whereby WVI will indemnify the Company
against any and all liability arising out of the Company's continuing
obligations under the lease.
OTHER TRANSACTIONS WITH AFFILIATES. On the date of the closing of the
Offering, the Company and all of its current stockholders entered into a Tax
Indemnification Agreement relating to their respective income tax liabilities.
Because the Company became fully subject to corporate income taxation after the
termination of the Company's S corporation status ("Effective Termination
Date"), the reallocation of income and deductions between the period during
which the Company was treated as an S corporation and the period during which
the Company became subject to corporate income taxation may increase the taxable
income of one party while decreasing that of another party. The Tax
Indemnification Agreement was intended to assure that taxes would be borne by
the Company on the one hand and by the current stockholders on the other, only
to the extent that such parties were treated as receiving the related income for
income tax purposes. Subject to certain limitations, the Tax Indemnification
Agreement generally provides that the current stockholders will be indemnified
by the Company with respect to federal and state income taxes shifted from a
Company taxable year subsequent to the Effective Termination Date to a taxable
year in which the Company was an S corporation, and the Company will be
indemnified by the current stockholders with respect to federal and state income
taxes shifted from an S corporation taxable year to a Company taxable year
subsequent to the Effective Termination Date. The Tax Indemnification Agreement
also provides that the current stockholders will pay or reimburse the Company
for any and all taxes of the Company which was formerly taxed as an S
corporation for any period ending on or prior to the Effective Termination Date
(other than certain taxes reflected in the Company's fiscal 1995 Consolidated
Financial Statements). In addition, the Tax Indemnification Agreement provides
that the amount of the S corporation distribution to current stockholders will
not exceed $5.0 million. Any payment made by the Company to the current
stockholders pursuant to the Tax Indemnification Agreement may be considered by
the Internal Revenue Service or state taxing authorities to be non-deductible by
the Company for income tax purposes.
During October 1995, the Company purchased the operations of one of its
franchise agents, Michael K. Phippen, now President and Chief Executive Officer
of the Company, for a total price of $5.9 million. The Company paid $1.5 million
in cash and agreed to make installment payments for the balance at an interest
rate of 6.50%. Installments of $973,000 in fiscal 1998, $973,000 in fiscal 1997
and $1.5 million in fiscal 1996 have been paid and the final installment of
$972,000 has been paid in fiscal 1999.
Any future transactions between the Company and its officers, directors, and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties. Such transactions with such persons
will be subject to approval by a majority of the Company's outside directors or
will be consistent with policies approved by such outside directors.
19
COMPARISON OF STOCKHOLDER RETURN(1)
The graph depicted below reflects a comparison of the cumulative total
return (change in stock price plus reinvestment dividends) of the Company's
Common Stock with the cumulative total returns of the Standard and Poor's 500
Index and peer issuers in the temporary staffing industry.(2) The graph covers
the period from April 30, 1996, the date of the Offering, through the last
trading day of fiscal 1998.
The graph assumes that $100 was invested on April 30, 1996 in the Company's
Common Stock and in each index and that all dividends were reinvested. No cash
dividends have been declared on the Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
WESTAFF, S&P 500 INDEX AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE RETURN S&P 500 PEER GROUP WESTAFF
4/30/96 $100.00 $100.00 $100.00
11/1/96 $107.58 $80.29 $89.74
10/31/97 $139.81 $93.35 $90.93
10/30/98 $167.95 $68.16 $81.47
The Company's stock was first traded publicly on April 30, 1996. The graph
depicts cumulative returns calculated on an annual basis on $100 invested in
Westaff stock, the S&P 500 Index and Peer Group Index comparing Kelly Services
Inc., Interim Services Inc., Manpower Inc., Olsten Corporation and Personnel
Group of America Inc.
- ------------------------
(1) The performance graph and all of the material in the Compensation Committee
Report is not deemed filed with the Securities and Exchange Commission, and
is not incorporated by reference to any filing
20
of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, whether made before or after the date of
this Proxy Statement and irrespective of any general incorporation language
in any such filing.
(2) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and persons who beneficially own more than 10% of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC"). Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms and amendments thereto
furnished to the Company and written representations from certain reporting
persons, the Company believes that all executive officers, directors and greater
than 10% stockholders complied with all filing requirements applicable to them
with respect to transactions during fiscal 1998.
ANNUAL REPORT
A copy of the Annual Report of the Company for fiscal 1998 has been mailed
concurrently with this Proxy Statement to all stockholders entitled to notice of
and to vote at the Annual Meeting. The Annual Report is not incorporated into
this Proxy Statement and is not considered proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC on January 29,
1999. Stockholders may obtain a copy of this report, without charge, by writing
to Paul A. Norberg, Executive Vice President and Chief Financial Officer, at the
Company's executive offices at P.O. Box 9280, 301 Lennon Lane, Walnut Creek,
California 94598-2453.
Dated: February 22, 1999
THE BOARD OF DIRECTORS OF
WESTAFF, INC.
21
WESTAFF, INC.
PROXY
The undersigned, revoking previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and Proxy Statement dated February 22,
1999 in connection with the 1999 Annual Meeting of stockholders to be held at
10:00 a.m. on March 30, 1999, at the Hilton Concord Hotel, located at 1970
Diamond Boulevard, Concord, California and hereby appoints W. Robert Stover
and Robin A. Herman, and each of them, (with full power to act alone), the
attorneys and proxies of the undersigned, with power of substitution to each
to vote all shares of the Common Stock of WESTAFF, INC. registered in the
name provided herein which the undersigned is entitled to vote at the 1999
Annual Meeting of stockholders, and at any adjournment or adjournments
thereof, with all the powers the undersigned would have if personally
present. Without limiting the general authorization hereby given, the proxies
are, and each of them is, instructed to vote or act as follows on the
proposals set forth in the Proxy Statement.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE THIS PROXY WILL BE VOTED FOR THE ELECTION OF ONE DIRECTOR
AND FOR THE RATIFICATION OF INDEPENDENT ACCOUNTANTS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATION, SIMPLY SIGN ON THE REVERSE SIDE. YOU NEED NOT MARK
ANY BOXES.
/X/ PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE USING
DARK INK ONLY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
WITHHOLD ATHORITY
FOR the nominee listed to vote for the nominee
(except as indicated) listed below
1. ELECTION OF / / / /
DIRECTOR:
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR THE NOMINEE, STRIKE A LINE
THROUGH HIS NAME IN THE LIST BELOW.
W. Robert Stover
FOR ABSTAIN AGAINST
2. PROPOSAL TO RATIFY THE APPOINTMENT OF / / / / / /
PRICEWATERHOUSECOOPERS LLP AS THE
INDEPENDENT ACCOUNTANTS OF THE COMPANY
FOR FISCAL 1999.
Signature Signature Date
-------------------- -------------------- ------------
This Proxy should be marked, dated and signed by the stockholder(s) exactly
as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If
shares are held by joint tenants or as community property, both should sign.