Retirement Contracts

        Messrs. C.C. Guy and Charles M. Bolt retired as officers of the Company on January 17, 1995. The Company paid each of these two retired officers $100 per month during the year ended August 2002. The Board determined that these payments were appropriate in light of these officers’ long records of service to the Company and value as consultants to the Company. The Company anticipates that these individuals will continue to serve as consultants during fiscal year 2003.

RELATED PARTY TRANSACTIONS

        Certain information concerning related party transactions respecting the members of the Compensation Committee, members of their families, and other executive officers, directors and owners of 5% or more of the outstanding Common Stock of the Company is set forth below.

Salary and Other Compensation Arrangements

        As described herein under the subheading "Election of Directors"--"Management Compensation"--"Retirement Contracts", the Company pays consulting fees to Messrs. C.C. Guy and Charles M. Bolt.

Loan Arrangement

        During fiscal year 1999 the Estate of Buck Mickel, the former Chairman of the Board and Chief Executive Officer of the Company, loaned the Company $250,000 bearing interest at 8.5% per year payable quarterly. During March 2000 the loan was transferred from the Estate of Buck Mickel to Minor H. Mickel, the widow of Buck Mickel and the mother of Buck A. Mickel, the Company’s President and Chief Executive Officer. During October 2000 the Company issued a note that was convertible into Common Stock of the Company in exchange for this debt. Effective January 4, 2001, the Company issued 1,111,111 shares of its Common Stock (3,333,333 prior to the 1-for-3 reverse stock split effected June 10, 2002) to Minor H. Mickel in exchange for the principal amount of the convertible note of $250,000 at the conversion rate of $.225 per share ($.075 on a pre-split basis).

        During December 2000, Minor H. Mickel loaned the Company $500,000 under the terms of an 8.0% convertible note payable having a conversion rate of $.075 per share bearing interest at 8.0% per year. Proceeds of this note were used in part to pay the outstanding balance ($295,000) on a $500,000 bank line of credit. A corporation that is owned by Buck A. Mickel, Minor H. Mickel and the two adult siblings of Buck A. Mickel guaranteed payment of this $500,000 bank line of credit. They also pledged certain securities as collateral to the line of credit. Effective January 21, 2002, the Company issued 2,222,222 shares of its Common Stock (6,666,666 on a pre-split basis) to Minor H. Mickel in exchange for the principal amount of the convertible note of $500,000 at the conversion rate of $.225 per share ($.075 on a pre-split basis).

        During August 2001, Minor H. Mickel loaned the Company $250,000 under the terms of an unsecured note payable bearing interest at 8.0% per year with the principal balance and all unpaid interest due in August 2006.

        During February 2002, Minor H. Mickel loaned the Company $1,200,000 and Buck A. Mickel and his two adult siblings each loaned the Company $20,000 under terms of unsecured notes payable bearing interest at 7.0% per year with the principal balances and all unpaid interest due in February 2007. Proceeds from these notes aggregating $1,260,000 were used to purchase the assets of the Company’s wholly-owned subsidiary, Employment Solutions, Inc.

Corporate Office Arrangement

        During fiscal 2002, the Company’s executive offices were located in a facility consisting of approximately 3,000 square feet of floor space located at 28 East Court Street, Greenville, South Carolina. The rental expense of $24,300 was incurred by the Company during the year ended August 31, 2002 for the Company’s executive offices. The rent incurred was $1,500 per month from September through February and $2,550 per month from March through August under a month-to-month lease arrangement. The lease at 28 East Court Street, Greenville, South Carolina includes office furniture and equipment. The office space at 28 East Court Street, Greenville, South Carolina was leased from CTST, LLC, which is owned by three shareholders: Buck A. Mickel, Charles C. Mickel and Minor Mickel Shaw. As described above, each of these individuals is a beneficial owner of more than 5% of the outstanding Common Stock of the Company. Buck A. Mickel is the President and Chief Executive Officer and a director of the Company, and the other two shareholders are his adult siblings. The Company believes that this lease contains provisions as favorable to the Company as could be obtained from a third-party landlord.

PROPOSED AMENDMENT TO 2002 STOCK OPTION PLAN
(Item No. 2 on the Proxy)

        The Board of Directors recommends that the shareholders approve adoption by the Company of Amendment No. 1 to the RSI Holdings, Inc. 2002 Stock Option Plan (the “2002 Option Plan”, and as proposed to be amended the “Amended 2002 Option Plan”). The proposed amendment increases the number of shares of the Company’s Common Stock that may be issued pursuant to options granted under the plan from an aggregate of 1,500,000 to an aggregate of 2,500,000. The Board and the Compensation Committee recommend approval of the proposed amendment because they believe that the 2002 Option Plan is an effective component of management compensation and, if all currently outstanding options were exercised in full, no additional options could currently be granted pursuant to the plan, which was originally adopted on June 10, 2002. Except as set forth above, the 2002 Option Plan would remain unaltered in all material respects.

        Under the Amended 2002 Option Plan, the Board or (Committee) would have the discretion to grant options for up to an aggregate maximum of 2,500,000 shares of the Company’s Common Stock (including shares previously issued under the plan). As of November 30, 2002, an aggregate of 1,500,000 shares of the Company’s Common Stock are covered by outstanding options under the plan.

        The purpose of the 2002 Option Plan is to promote the growth and profitability of the Company and its subsidiaries (“Subsidiaries”) by increasing the personal participation of key and middle-level executives in the continued growth and financial success of the Company, by enabling the Company to attract and retain key and middle-level executives of outstanding competence and by providing such key and middle-level executives with an equity opportunity in the Company.

        The 2002 Option Plan shall be administered by a committee (the “Committee”) consisting of the entire Board or, at the discretion of the Board, a committee of the Board that consists entirely of two or more “non-employee directors” (as defined in Rule 16b-3 promulgated under the Securities Exchange Act, as amended). The Committee shall have complete authority to (i) interpret all terms and provisions of the 2002 Option Plan consistent with law; (ii) select from the group of key and middle level executives eligible to participate in the 2002 Option Plan the key and middle level executives to whom options will be granted; (iii) within the limits established herein, determine the number of shares subject to, the term of and all other terms and conditions applicable to each option granted to each of such key or middle level executives; (iv) prescribe the form of instrument(s) evidencing options granted under this 2002 Option Plan; (v) determine the time or times at which options shall be granted; (vi) make special grants of options when determined to be appropriate; (vii) provide, if appropriate, for the exercise of options in installments or subject to specified conditions; (viii) determine the method of exercise of options granted under the 2002 Option Plan; (ix) adopt, amend and rescind general and special rules and regulations for the Option Plan’s administration; and (x) make all other determinations necessary or advisable for the administration of this Option Plan.

        Participation in the 2002 Option Plan is determined by the Committee and is limited to those key and middle-level executives, who may or may not be officers or members of the Board, of the Company or the Subsidiaries who have or are likely to have the greatest impact on the Company’s long-term performance. In making any determination as to the key and middle-level executives to whom options will be granted, the Committee takes into account, in each case, the level and responsibility of the individual’s position, the level of the individual’s performance, the individual’s level of compensation, the assessed potential of the employee and such other factors as the Committee may deem relevant. Directors of the Company or any Subsidiary who are not also key or middle-level executives are not eligible to participate in this 2002 Option Plan. Options may be granted under the 2002 Option Plan only for a reason connected with a key or middle-level executive’s employment. The Company believes that approximately four (4) employees of the Company and its Subsidiaries are currently eligible to participate in the 2002 Option Plan.

        The Committee establishes the term of each option, but the term shall not exceed ten years (or five years for owners of more than 10% of the total combined voting power of all classes of stock of the Company or of a Subsidiary) from the date of grant.

        The Committee determines the exercise price for options at the time of grant based on such criteria as it may adopt in good faith; provided, however, that in the case of an option intended to qualify as an ISO, the price per share shall not be less than the fair market value of the stock at the date of grant (or 110% of the fair market value in the case of an option granted to a person owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary corporation).

        Subject to the provisions of the 2002 Option Plan, an option granted under the 2002 Option Plan may be exercisable at such time or times after the date of grant, on such schedule, and upon such conditions as may be determined by the Committee at the time of grant. If a participant’s employment with the Company or Subsidiary terminates for any reason other than death or permanent and total disability (within the meaning of Section 22(e)(3) of the Code), such option may be exercised by the participant during a period not exceeding three months after the date of such termination (but no later than the end of the fixed term of the option) for the number of shares for which the option could have been exercised at the time the participant ceased to be an employee. If a participant dies while in the employ of the Company or a Subsidiary or within a period of three months after the termination of his or her employment with the Company or Subsidiary or if a participant terminates his or her employment with the Company or Subsidiary by reason of having become permanently and totally disabled within the meaning of Section 22(e)(3) of the Code, such option may be exercised by him or her or his or her personal representative during a period not exceeding one year after the date of termination of his or her employment for the number of shares for which the option could have been exercised at the time the person died or became permanently and totally disabled. In no event may an option be exercised after the expiration of its fixed term.

        An option granted to a participant under the 2002 Option Plan (a) during the optionee’s lifetime shall be exercisable only by the participant and (b) shall not be transferable by the participant except by will or the laws of descent and distribution or, with respect to options not intended to qualify as incentive stock options under Section 422 of the Code, pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974.

        The price per share at which each option granted under the 2002 Option Plan may be exercised shall be the price as determined by the Committee at the time of grant based on criteria adopted by the Committee at the time of grant in good faith; provided, however, that in no event shall the exercise price per share of an option be less than 100% of the fair market value of the Common Stock on the date such option is granted (or 110% for owners of more than 10% of the total combines voting power of all classes of stock of the Company or any Subsidiary). The price of the Common Stock on December 13, 2002, as quoted on the over-the-counter bulletin board of NASDAQ, was $0.10 per share.

        The Committee may at any time or from time to time permit the voluntary surrender by the holder of any outstanding option where such surrender is conditioned upon the granting to such holder of new option for such number of shares as the Committee may determine, or may require such a voluntary surrender as a condition precedent to the grant of new Options to such holder. The Committee shall determine the terms and conditions of such new options, including the prices at and periods during which they may be exercised, in accordance with the provisions of this Option Plan, all or any of which may differ from the terms and conditions of the options surrendered. The granting of new options in connection with the surrender of outstanding options under the 2002 Option Plan shall be considered for the purposes of the 2002 Option Plan as the grant of new options and not an alteration, amendment or modification of the 2002 Option Plan or of the options being surrendered.

        The Committee may at any time suspend, amend or terminate the 2002 Option Plan. The Committee may make such modifications of the terms and conditions of a participant’s option as it may deem advisable. Notwithstanding the foregoing, no amendment, suspension or termination of the 2002 Option Plan or modification of an option may, without the consent of the holder of an option, alter or impair any rights or obligations under any option previously granted under the 2002 Option Plan except to the extent that adjustments are made due to a change in the capitalization of the Company.

        In addition to Committee approval of an amendment to the 2002 Option Plan, if the amendment would (i) materially increase the benefits accruing to participants; (ii) increase the number of securities issuable under this Option Plan (other than an increase due to an adjustment made pursuant to a change in capitalization such as a stock split, merger, etc.); (iii) change the class of employees eligible to receive Options; or (iv) otherwise materially modify the requirements for eligibility, then such amendment shall be approved by the holders of a majority of the Company’s outstanding capital stock, voting either in person or by proxy, and entitled to vote at a meeting duly held of the stockholders of the Company.

        The 2002 Option Plan provides that it shall terminate on the close of business on March 31, 2012, and no option shall be granted under the 2002 Option Plan after that date, but the termination shall not affect any option previously granted under the 2002 Option Plan.

        Options granted under the 2002 Option Plan may, at the discretion of the Committee, be: (i) options which are intended to qualify as incentive stock options (“ISOs”) under Section 422 of the Code; (ii) options which are not intended to qualify under Section 422 of the Code (“NQOs”); or (iii) both of the foregoing if granted separately, not in tandem. Options may be allotted to participants in such amounts, subject to the limitations specified in the 2002 Option Plan, as the Committee, in its sole discretion, may from time to time determine. In the case of options intended to be ISOs, the aggregate fair market value (determined at the time of the options’ respective grants) of the shares with respect to which such options are exercisable for the first time by a participant during any calendar year (under all Option Plans taken into account pursuant to Section 422 of the Code) shall not exceed $100,000.

        Generally, a participant is not subject to Federal income tax upon either the grant or exercise of an ISO. However, for purposes of determining an individual’s alternative minimum tax, the difference between the exercise price of an ISO and the fair market value of the underlying security at the date of exercise gives rise to an adjustment of alternative minimum tax income in the year of exercise. To qualify for ISO tax treatment, a participant generally must not dispose of the stock acquired pursuant to exercise of an ISO within 2 years after the date of grant or within 1 year after the date of exercise. (These holding periods do not apply where an ISO is exercised after the participant’s death by the participant’s estate or beneficiary.) The Company does not receive a tax deduction for the value of the option at date of grant or date of exercise of the option or at any other time unless the participant disposes of the stock before the one- and two-year holding periods expire. In the event of a disposition of ISO stock prior to the end of the one- and two-year holding periods, the participant recognizes ordinary income in the taxable year of the disposition equal to the difference between the exercise price and the fair market value of the ISO stock at the date of exercise, and the Company is eligible to receive a tax deduction in an equal amount. If the participant holds the stock for the period of time required for ISO qualification, then the participant will be taxed only on the gain realized upon the disposition of the stock. The gain will be capital gain, rather than ordinary income, for Federal income tax purposes and will be equal to the difference between the amount received by the participant upon sale of the stock and the exercise price paid by the participant to acquire the stock.

        An option intended to qualify for ISO tax treatment will cease to qualify for such tax treatment if it is not exercised within 3 months after a participant terminates employment with the Company and its Subsidiaries. This three-month period is extended to one year if a participant terminates employment on account of disability, and the three-month restriction does not apply if the participant dies while employed or within 3 months after termination of employment. In addition, to the extent that the fair market value (determined as the date or dates of grant) of stock underlying options intended to be ISOs that become exercisable by an individual for the first time in any given year exceeds $100,000, the options relating to stock in excess of the $100,000 limit will not receive ISO tax treatment.

        If options granted under the 2002 Option Plan do not qualify, or cease to qualify, for ISO tax treatment, they will be treated as “non-qualified stock options” or “NQOs.” Ordinarily NQOs do not result in tax liability for Federal income tax purposes to the participant upon grant. Generally, upon exercise of an NQO, the participant recognizes ordinary income for Federal income tax purposes equal to the excess of the fair market value of the stock on the date of exercise over the exercise price. The Company receives a tax deduction for the amount the participant reports as ordinary income by reason of the exercise if the amount of ordinary income the participant should recognize is included in the participant’s income reported on a timely Form W-2 or 1099. Upon a subsequent sale or disposition of the stock received from exercise of an option, the holder is subject to Federal income tax at capital gains rates on any excess of the selling price over its fair market value at the date of exercise.

        No certificate(s) for shares shall be executed and delivered upon exercise of an option until the Company shall have taken such action, if any, as is then required to comply with the provisions of the Securities Act of 1933, as amended, the Exchange Act, the South Carolina Uniform Securities Act, as amended, any other applicable state blue sky law(s) and the requirements of any exchange on which the Common Stock of the Company may, at the time, be listed.