<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 NORTH CENTRAL EXPRESSWAY
SUITE 350
DALLAS, TEXAS 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 458-8500
Former name, former address and former fiscal year if changed since last report:
INDICATE BY CHECK MARK WHETHER REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
--- ---
NUMBER OF SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING ON MARCH 31,
1997, WAS 1,635,312.
TOTAL NUMBER OF PAGES FOR
THIS 10-Q FILING: 11
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
MARCH 31, DECEMBER 31,
CURRENT ASSETS: 1997 1996
---------- ------------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 489,430 $ 514,354
Trade accounts receivable, less allowances of
approximately $486,000 and $494,000, respectively 3,643,828 3,387,138
Notes receivable-related party . . . . . . . . . . . . 9,645 114,009
Prepaid expenses and other current assets. . . . . . . 237,523 88,953
----------- -----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . 4,380,426 4,104,454
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET. . . . . . . . . . . . . . . . . . . 1,032,178 701,944
OTHER ASSETS:
Investment in and advances to joint venture. . . . . . 210,305 152,905
Notes receivable-related party . . . . . . . . . . . . 19,210 21,690
Other. . . . . . . . . . . . . . . . . . . . . . . . . 210,232 147,879
----------- -----------
$ 5,852,351 $ 5,128,872
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses. . . . . . . . . $ 3,641,145 $ 3,321,215
Borrowing under factoring and loan agreements. . . . . 526,056 400,682
Other short-term debt. . . . . . . . . . . . . . . . . 182,459 -
Current maturities of long-term debt . . . . . . . . . 16,880 21,834
----------- -----------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . 4,366,540 3,743,731
DEFERRED LEASE LIABILITIES . . . . . . . . . . . . . . . . 12,064 -
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . 67,669 68,157
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued. . . . . . . . . . . . . . . - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 1,881,161 shares issued. . . . . . . . . 188,116 188,116
Additional paid-in capital . . . . . . . . . . . . . . 3,615,151 3,615,151
Accumulated deficit. . . . . . . . . . . . . . . . . . (2,067,153) (2,301,108)
Common stock held in treasury (245,849 and
122,950 shares, respectively) at cost. . . . . . . . (185,175) (185,175)
Receivables from related party . . . . . . . . . . . . (144,861) -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . 1,406,078 1,316,984
----------- -----------
$ 5,852,351 $ 5,128,872
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
------------ -----------
NET SERVICE REVENUES
Permanent placement. . . . . . . . . . . . . $3,680,408 $2,777,261
Specialty services . . . . . . . . . . . . . 1,875,772 1,557,402
Contract placement . . . . . . . . . . . . . 1,722,418 1,879,336
---------- ----------
7,278,598 6,213,999
COST OF SERVICES . . . . . . . . . . . . . . . . . 5,537,829 4,510,925
---------- ----------
GROSS MARGIN . . . . . . . . . . . . . . . . . . . 1,740,769 1,703,074
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES. . . . . . . . . . . . . . . . . . . . . (1,543,599) (1,221,772)
OTHER INCOME (EXPENSES):
Loss from joint venture operations . . . . . (11,212) (34,368)
Interest expense, net. . . . . . . . . . . . (70,525) (69,017)
Other, net . . . . . . . . . . . . . . . . . 32,758 10,179
---------- ----------
(48,979) (93,206)
---------- ----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM. . . . . . . . . . . . . . 148,191 388,096
INCOME TAXES-current benefit (provision) . . . . . 42,681 (50,021)
---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM . . . . . . . . . 190,872 338,075
EXTRAORDINARY ITEM - gain on debt restructuring. . 43,083 -
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . $ 233,955 $ 338,075
---------- ----------
---------- ----------
PRIMARY INCOME PER SHARE:
Income before extraordinary item . . . . . . $ .11 $ .19
Extraordinary item . . . . . . . . . . . . . .02 -
---------- ----------
PRIMARY INCOME PER SHARE . . . . . . . . . . . . . $ .13 $ .19
---------- ----------
---------- ----------
FULLY DILUTED INCOME PER SHARE:
Income before extraordinary item . . . . . . $ .11 $ .19
Extraordinary item . . . . . . . . . . . . . .02 -
---------- ----------
FULLY DILUTED INCOME PER SHARE . . . . . . . . . . $ .13 $ .19
---------- ----------
---------- ----------
PRIMARY WEIGHTED AVERAGE COMMON AND COMMON
SHARES OUTSTANDING. . . . . . . . . . . . . . . . 1,844,741 1,758,211
---------- ----------
---------- ----------
FULLY DILUTED AVERAGE COMMON AND COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . 1,850,800 1,758,211
---------- ----------
---------- ----------
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . .. $ 233,955 $ 338,075
Extraordinary item. . . . . . . . . . . . . . . (43,083) -
Depreciation and amortization . . . . . . . . . 61,911 44,652
Provision for allowances. . . . . . . . . . . . 554,246 117,307
Equity loss in joint venture. . . . . . . . . . 11,212 34,368
Changes in current operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . (810,936) (864,928)
Prepaid expenses and other assets. . . . . (173,080) 2,085
Other assets . . . . . . . . . . . . . . . (62,854) 37,963
Accounts payable and accrued expenses. . . 363,012 395,646
Deferred lease rents . . . . . . . . . . . 12,064 (15,760)
--------- ---------
Net cash provided by operating activities 146,447 89,408
CASH FLOWS FROM INVESTING ACTIVITIES: . . . . .
Capital expenditures . . . . . . . . . . . (392,144) (102,281)
Deposits . . . . . . . . . . . . . . . . . 500 3,769
Loans to related parties . . . . . . . . . (15,668) (22,500)
Repayment from related parties . . . . . . 2,162 -
Net advances to joint venture. . . . . . . (68,612) 2,198
--------- ---------
Net cash used in investing activities. . . (473,762) (118,814)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under other short term debt. . . 182,459
Increase (decrease) in proceeds from factored
receivables 125,374 87,816
Principal payments under long-term debt obligations (5,442) (10,346)
--------- ---------
Net cash provided by financing activities 302,391 77,470
Net increase (decrease)in cash and cash
equivalents (24,924) 48,064
Cash and cash equivalents at beginning of year 514,354 69,627
--------- ---------
Cash and cash equivalents at end of period $ 489,430 $ 117,691
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of
Diversified Corporate Resources, Inc. and its subsidiaries (the "Company"),
all of which are wholly owned. The financial information for the three
months ended March 31, 1997 and 1996, is unaudited but includes all
adjustments (consisting only of normal recurring accruals) which the Company
considers necessary for a fair presentation of the results for the period.
The financial information should be read in conjunction with the consolidated
financial statements for the year ended December 31, 1996, included in the
Company's annual report on Form 10-K. Operating results for the three months
ended March 31, 1997, are not necessarily indicative of the results that may
be expected for the entire year ended December 31, 1997.
RECLASSIFICATIONS
Certain amounts in the December 31 and March 31, 1996, Consolidated
Financial Statements have been reclassified to conform to the 1997
presentation.
2. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS
Equipment, furniture and leasehold improvements consist of:
March 31, December 31,
1997 1996
---------- ------------
Computer equipment . . . . . . . . . . . . $ 881,343 $ 567,646
Office equipment and furniture . . . . . . 761,529 697,947
Leasehold improvements . . . . . . . . . . 117,651 102,785
---------- ----------
1,760,523 1,368,378
Less accumulated depreciation and
amortization 728,345 666,434
---------- ----------
$1,032,178 $ 701,944
---------- ----------
---------- ----------
3. ACCOUNTS RECEIVABLE FROM RELATED PARTY
During the first quarter of 1997 and during 1996, the Company paid
various expenses on behalf of J. Michael Moore or various entities which he
controls amounting to approximately $16,000 and $160,000, respectively. Mr.
Moore is the Chairman of the Board and Chief Executive Officer of the
Company. Of these amounts, approximately $10,000 and $105,000 are related to
the litigation defense associated with a lawsuit with Ditto Properties, Inc.,
in connection with the Company being named therein as garnishee. (See Part 1,
Item 3, Legal Proceedings, in the Company's Form 10-K for the year ended
December 31, 1996.) In addition, Mr. Moore and various entities that he
controls owe the Company other uncollateralized advances amounting to
approximately $30,000 and $25,000, respectively, at March 31, 1997 and
December 31, 1996. The balance of these uncollateralized receivables at
March 31, 1997, of approximately $145,000 is reflected as receivables from
related party in Stockholders' Equity in the Consolidated Balance Sheet. The
balance of the uncollateralized receivables at December 31, 1996, of
approximately $130,000 is reflected in notes receivable-related party and
prepaid expenses and other current assets in the Consolidated Balance Sheet.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
4. INCOME TAXES
The income tax provision and the amount computed by applying the federal
statutory income tax rate to income before income taxes differs as follows:
For the three months ended March 31,
------------------------------------
1997 1996
------------ -------------
Tax provision (benefit at statutory rate). . . $ 79,545 $ 114,946
Utilization of net operating loss
carryforwards (79,545) (114,946)
Alternative minimum tax. . . . . . . . . . . . - -
State income taxes . . . . . . . . . . . . . . (42,681) 50,021
-------- ---------
Total. . . . . . . . . . . . . . . . $(42,681) $ 50,021
-------- ---------
-------- ---------
5. LONG-TERM DEBT
On August 26, 1996, the Company entered into a $300,000 line of credit
agreement for the purchase of fixed assets. Interest is payable monthly at
prime plus 2.5% and the fixed assets financed are pledged as collateral. The
line of credit of $182,000 at March 31, 1997, will convert into long-term
debt upon $300,000 being advanced. The long-term debt will have a five year
term and bear interest monthly at prime plus 2.5%.
6. CONTINGENCIES
The Company was named as a garnishee in a lawsuit against the majority
shareholder, which the Company believes is without merit. As the result of an
Agreed Temporary Order dated October 24,1996, the Company was non-suited in
this matter. Additionally, the Company has been named in a lawsuit filed by
two former employees claiming damages in excess of $29 million each for
breach of contract and various other allegations. Management believes these
claims to be without merit. (See Part I, Item 3. Legal Proceedings in the
Form 10-K for the year ended December 31, 1996.)
The Company is involved in certain other litigation and disputes not
previously noted. Management believes claims are adequately provided for in
accounts payable and accrued expenses in the Company's financial statements
at March 31, 1997 and December 31, 1996. Management believes that these
matters are without merit and has concluded that the ultimate resolution of
such will not have a material effect on the Company's consolidated financial
statements.
7. NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("Statement 128") which is effective for the Company's fiscal year beginning
January 1, 1997. Statement 128 specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS"). Some of the changes
made to current EPS standards include: (i) eliminating the presentation of
primary EPS and replacing it with basic EPS, with the principal difference
being that common stock equivalents are not considered in computing basic
EPS, (ii) eliminating the modified treasury stock method and the three
percent materiality provision, and (iii) revising the contingent share
provision and the supplemental EPS data requirements. Statement 128 also
requires dual presentation of basic and diluted EPS on the face of the income
statement, as well as a reconciliation of the numerator and denominator used
in the two computations of EPS. Basic EPS is defined by Statement 128 as net
income
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(UNAUDITED)
from continuing operations divided by the average number of common shares
outstanding without the consideration of common stock equivalents which may
be dilutive to EPS. The Company's current methodology for computing its
fully diluted EPS will not change in future periods as a result of its
adoption of Statement 128. Implementation of Statement 128 is not expected
to have a material effect on the Company's EPS; however, the impact has not
yet been determined by management.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net service revenues increased approximately $1.1 million or 17.1% to
$7.3 million in the first quarter of 1997, compared to $6.2 million for the
comparable 1996 quarter. First quarter 1997 net service revenues were
reduced by approximately $350,000 for a provision taken by the Company for
losses for applicants who accepted employment but did not start work or did
not remain in employment for the guaranteed period compared to $112,000 in
1996, which included an $81,000 credit for a change in estimates of the
December 1995 allowance. In spite of this provision, permanent placement
revenues increased approximately $903,000 or 32.5% to $3.7 million for the
quarter ended March 31, 1997, compared to $2.8 million for the comparable
1996 quarter. Specialty service revenues increased approximately $318,000 or
20.4% to $1.9 million for the first quarter of 1997, compared to $1.6 million
for the comparable 1996 quarter. The increases in permanent placement and
specialty services were primarily attributable to the Company's continued
focus on high-end niche employment markets, such as the information
technology and engineering/technical disciplines. New offices opened since
the end of the first quarter in 1996 also contributed $170,000 to revenues
during the first quarter of 1997. Contract placement revenues decreased
approximately $157,000 or 8.3% to $1.7 million in the first quarter of 1997,
compared to $1.9 million for the comparable 1996 quarter. Contract placement
revenues declined slightly as a result of a lower number of people on job
assignments than were anticipated for the first quarter of 1997. The
decrease in personnel on assignment was primarily attributable to certain
contracts coming to an end, the Company not replacing these contracts until
late in the quarter, and certain personnel being converted to permanent
positions. In addition, due to unusually high recruiter turnover at the end
of 1996, it took management longer to train new recruiters to assist in
finding qualified applicants for its job orders during the first quarter of
1997.
Gross margin increased approximately $38,000 or 2.2 % to $1.7 million in
the first quarter of 1997. Gross margin as a percentage of net service
revenues declined to 23.9% in the first quarter of 1997 compared to 27.4% in
the comparable period in 1996. The decrease in percentage was primarily the
result of an increase in the provision for uncollectible accounts of
approximately $204,000 for the first quarter of 1997, compared to $5,000 for
the comparable 1996 quarter. This increase was primarily the result of a
$56,000 reduction in the allowance during the first quarter of 1996,
resulting from a change in estimate of the December 31, 1995 allowance, and
an increase in the provision for uncollectible accounts receivable during the
first quarter of 1997 to increase the allowance for bad debt due to an
increase in non-performing accounts aging beyond 75 days at March 31, 1997.
Subsequent to March 31, 1997, approximately $48,000 has been collected on
these accounts. As discussed above, contract placement revenues were down as
a result of the above mentioned lower number of personnel on assignment. As
the result of lower contract placement revenues to cover certain field
payroll and related costs, contract placement gross margins were lower than
anticipated during the first quarter of 1997. The above mentioned increase
in the provision for uncollectible accounts receivable and the decrease in
contract margins for the first quarter of 1997, resulted in an approximately
3.5% decrease in gross margins in the first quarter of 1997 compared to the
first quarter of 1996.
Selling, general and administrative expenses increased approximately
$322,000 or 26.3% to $1.5 million in the first quarter of 1997 compared to
$1.2 million in the comparable quarter in 1996. Selling, general and
administrative expenses as a percentage of net service revenues increased to
21.2% in the first quarter of 1997 from 19.7% in the comparable quarter in
1996. The dollar increase was primarily the result of increased marketing
and recruiting expenses for the Company's back office to support the growth
in sales and litigation expenses. Included in the increase in selling,
general and administrative expenses were increases in selling expenses of
approximately $150,000, general and administrative expenses of approximately
$44,000 and litigation expenses of approximately $128,000 for the first
quarter of 1997 compared to the comparable quarter in 1996. (See Part 1.
Item 3. Legal Proceedings, in the Company's Form 10-K for the year ended
December 31, 1996.) During the first quarter of 1997, the Company also
<PAGE>
lowered its provision for estimated outstanding medical insurance claims
associated with its self-insured medical insurance program, which reduced
general and administrative expenses by $50,000.
Other expenses declined approximately $44,000 to $49,000 in the first
quarter of 1997 compared to approximately $93,000 in the comparable quarter
in 1996. The decrease in expenses was the result of a decrease in the loss
from joint venture operations and the collection of a receivable previously
written off associated with a prior year sale of assets.
The income tax benefit was approximately $43,000 for the first quarter
of 1997, compared to an income tax expense of approximately $50,000 for the
first quarter of 1996. This decrease of approximately $93,000 resulted
primarily from a first quarter 1997 credit of approximately $68,000 relating
to an estimated prior year provision taken by the Company for state income
tax expense.
The extraordinary item-gain on debt restructuring, net of income taxes,
of approximately $43,000 during the first quarter of 1997 resulted from the
Company settling certain prior year delinquent accounts payable on a
discounted basis.
As a result of the above factors, net income decreased approximately
$104,000 or 30.8% to approximately $234,000 in the first quarter of 1997 as
compared to $338,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $14,000 at March 31, 1997, compared to
working capital of approximately $361,000 at December 31, 1996. The decrease
in working capital of approximately $347,000 during the first quarter of 1997
was primarily due to an increase in the Company's current maturities of
long-term debt associated with borrowing on an equipment line of credit for
the purchase of computer equipment and other fixed assets of $182,000 during
the first quarter of 1997, a reclassification made as of March 31, 1997, of
receivables from a related party of approximately $155,000 to stockholders'
equity from current assets (notes receivable-related party and prepaid
expenses and other current assets) at December 31, 1996.
Cash flow provided by operating activities of approximately $146,000
resulted primarily from the profitable operations of the Company during the
first quarter of 1997. The Company made capital expenditures of
approximately $392,000 in the first quarter of 1997, primarily to improve its
computer systems, data base operations, and back office operations. In
addition, the Company borrowed approximately $182,000 on a line of credit to
purchase computer equipment to support its back office operations, and
increased its factored accounts receivable borrowings by $125,000 to fund its
operations during the first quarter of 1997.
The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
Management of the Company anticipates that the cash flow from operations
will provide adequate liquidity to fund its operations for the foreseeable
future.
Inflation has not had a significant effect on the Company's operating
results.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
10.1* Amended and Restated 1996 Nonqualified Stock Option Plan
* Management Compensation Plan
b. REPORTS ON FORM 8-K
On April 25, 1997, the Company filed a Form 8-K announcing the
termination of Weaver & Tidwell L.L.P. as the Company's independent
accounting firm as of April 17, 1997, and the engagement of Coopers
& Lybrand L.L.P. as the Company's independent accounting firm as of
April 22, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: May 20, 1997 By: /s/ J. MICHAEL MOORE
---------------------------------
J. Michael Moore,
CHIEF EXECUTIVE OFFICER
DATE: May 20, 1997 By: /s/ M. Ted Dillard
---------------------------------
M. Ted Dillard
PRESIDENT AND PRINCIPAL FINANCIAL OFFICER
<PAGE>
INDEX TO EXHIBITS
No. Description
- --- -----------
10.1 Amended and Restated 1996 Nonqualified Stock
Option Plan
27 Financial Data Schedule
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC.
AMENDED AND RESTATED 1996 NONQUALIFIED STOCK OPTION PLAN
ARTICLE I. GENERAL PURPOSE OF PLAN
The name of this plan is the Amended and Restated 1996 Nonqualified Stock
Option Plan (the "Plan") of Diversified Corporate Resources, Inc., a Texas
corporation (the "Company"), which amends and restates the Diversified
Corporate Resources, Inc. 1996 Nonqualified Stock Option Plan in its
entirety. The purpose of the Plan is to enable the Company, to obtain and
retain the services of the types of employees, officers and directors who
will contribute to the Company's long range success and to provide incentives
which are linked directly to increases in share value which will inure to the
benefit of all shareholders of the Company.
ARTICLE II. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"COMMITTEE" means the Compensation Committee of the Company or, in the
absence of a Compensation Committee, a committee composed of one or more
officers of the Company as selected from time to time by the Board of
Directors of the Company.
"COMPANY" means Diversified Corporate Resources, Inc. (or any successor
business entity) and all of its subsidiaries.
"DATE OF GRANT" means the date on which the Board of Directors adopts a
resolution expressly granting a Stock Option to a Participant.
"ELIGIBLE PERSON" means any person who is a key employee (including
officers) of the Company or entity which is the parent of, or a subsidiary
of, the Company, or a director of the Company.
"EXERCISE PRICE" means the price at which the Shares subject to a Stock
Option may be purchased.
"PARTICIPANT" means any Eligible Person selected by the Board of
Directors to receive grants of Stock Options.
"PLAN" means the Company's Amended and Restated 1996 Nonqualified Stock
Option Plan.
1
<PAGE>
"RETIREMENT" means retirement from active employment with the Company, or
any parent or subsidiary of the Company.
"SHARES" means shares of Common Stock of the Company.
"STOCK OPTION" means any option to purchase Shares granted pursuant to
the Plan.
ARTICLE III. ADMINISTRATION
SECTION 3.1 THE ADMINISTRATOR.
a. The Plan shall be administered by the Committee.
b. Only the Committee shall have the power and authority to grant
Stock Options to Eligible Persons, pursuant to the terms of the Plan. The
Committee shall determine (i) those Eligible Persons to whom Stock Options
are to be granted, (ii) the number of Shares to be made subject to each
Stock Option, and (iii) the terms and conditions of each Stock Option,
including, without limitation, the exercise price and the medium of
payment.
c. All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on the Company and the Participants.
ARTICLE IV. SHARES SUBJECT TO THE PLAN
SECTION 4.1 SHARES SUBJECT TO THE PLAN. Subject to adjustment as herein
provided, the total number of Shares reserved and available for issuance
under the Plan shall be 450,000 Shares which shall consist, in whole or in
part, of authorized and unissued shares of Common Stock of the Company.
SECTION 4.2 UNEXERCISED SHARE OPTIONS. To the extent that any Stock
Options expire or are otherwise terminated without being exercised, the
Shares underlying such Stock Options shall again be available for issuance in
connection with future Stock Options granted under the Plan.
ARTICLE V. ELIGIBILITY
All persons who are Eligible Persons shall be eligible to be granted
Stock Options hereunder subject to the limitations set forth in this Plan.
ARTICLE VI. STOCK OPTIONS
SECTION 6.1 GENERAL. The Plan provides for the grant of Stock Options
to Eligible Persons selected by the Committee for participation in the Plan.
Each grant of Stock Options pursuant to the Plan shall be evidenced by a
Stock Option agreement between the Participant and the Company in the form
from time to time adopted by the Committee and containing such terms
2
<PAGE>
and conditions which the Committee deems appropriate. The provisions of the
various Stock Option agreements entered into under the Plan need not be
identical.
SECTION 6.2 TERMS AND CONDITIONS OF THE STOCK OPTIONS. Each Stock
Option granted pursuant to the Plan shall be evidenced by a written Stock
Option agreement between the Company and the Participant, which agreement
shall comply with and be subject to the following terms and conditions:
a. NUMBER OF SHARES. Each Stock Option agreement shall state the
number of Shares which may be purchased upon exercise of the Stock Option.
b. EXERCISE PRICE. Each Stock Option agreement shall state the
Exercise Price.
c. MEDIUM AND TIME OF PAYMENT. To the extent permitted under the
Texas law, as currently in effect, the Exercise Price shall be paid in
full, at the time of exercise, in cash or, with the approval of the
Committee, in Shares which have a fair market value equal to the Exercise
Price or in a combination of cash and such Shares.
d. RESTRICTIONS ON TRANSFER OF SHARES. Each Stock Option agreement
may contain such restrictions on the transfer of Shares sold under the Plan
as the Committee may determine, including, without limitation, rights of
repurchase and rights of first refusal.
e. TERM AND EXERCISE OF STOCK OPTION. Stock Options shall be
exercisable over the exercise period at the times the Committee may
determine, as reflected in the related Stock Option agreements. The
exercise period of any Stock Option shall not exceed ten (10) years from
the Date of Grant. The exercise period shall be subject to earlier
termination as provided in this Plan. A Stock Option may be exercised, as
to any or all full Shares as to which the Stock Option has become
exercisable, by giving written notice of such exercise to the Company.
ARTICLE VII. ADJUSTMENTS
SECTION 7.1 EFFECT OF CERTAIN CHANGES.
a. If there is any change in the number of Shares outstanding
through the distribution of Shares or through a recapitalization resulting
in Share splits or combinations or exchanges of the Shares outstanding, (i)
the number of Shares covered by Stock Options outstanding; (ii) the number
of Shares reserved and available for issuance under the Plan; and (iii)
the Exercise Price in effect prior to such change shall be proportionately
adjusted by the Committee to reflect any increase or decrease in the number
of Shares issued; PROVIDED, that any fractional Shares resulting from the
adjustment shall be eliminated.
b. In the event of the proposed dissolution or liquidation of the
Company, or in the event of any corporate separation or division,
including, but not limited to, a split-
3
<PAGE>
up, split-off or spin-off (each, a "liquidating event"), the Committee may
provide that the holder of any Stock Option then exercisable shall have the
right to exercise such Stock Option subsequent to the liquidating event, at
the price provided in the Stock Option agreement, for the total number of
Shares to which the Stock Option relates (less the number of Shares, if any,
previously purchased pursuant to the Plan), and for the balance of its term,
solely for the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such liquidating
event by a holder of the number of Shares for or with respect to which such
Stock Option might have been exercised immediately prior to such liquidating
event; or the Committee may provide, in the alternative, that each Stock
Option granted under the Plan shall terminate as of a date to be fixed by
the Committee; PROVIDED, that not less than thirty (30) days written notice
of the date so fixed shall be given to each Participant and if such notice
is given, each Participant shall have the right, during the period of thirty
(30) days preceding such termination, to exercise the Stock Option as to all
or any part of the Shares covered thereby, on the condition, however, that
the liquidating event actually occurs; and if the liquidating event actually
occurs, such exercise shall be deemed effective (and, if applicable, the
Participant shall be deemed a shareholder with respect to Stock Options
exercised immediately preceding the occurrence of the liquidating event) on
the date of record for shareholders entitled to share in such liquidating
event, if a record date is set.
c. Each Stock Option outstanding shall terminate upon (i) a merger
or consolidation in which the Company is not the surviving entity, or (ii)
a sale or transfer of all or substantially all of the capital stock or
assets of the Company to any entity or person that is not a parent or
subsidiary and the Company is not the surviving entity ((i) and (ii) shall
be collectively referred to as a "Change of Control") provided that (A)
each Participant to whom no Stock Options have been tendered by the
surviving entity pursuant to the terms of item (B) immediately below shall
have the right, exercisable during a ten-day period ending on the fifth
business day prior to such Change of Control in which the Company is not
the surviving entity, to exercise his or her Stock Option in whole or in
part with respect to the total number of Shares to which the Stock Option
relates (less the number of Shares, if any, previously purchased pursuant
to the Plan), on the condition, however, that the Change of Control is
actually effected; and if the Change of Control is actually effected, such
exercise shall be deemed effective (and, if applicable, the Participant
shall be deemed a shareholder with respect to the Stock Option exercised)
immediately preceding the effective time of such Change of Control (on the
date of record for shareholders entitled to share in the securities or
property distributed in such Change of Control, if a record date is set);
and (B) in its sole and absolute discretion, the surviving entity may, but
shall not be obligated to, tender to any Participant share options with
respect to the surviving entity, and such new share options shall contain
such terms and provisions as shall substantially preserve the rights and
benefits of any Stock Options then outstanding under the Plan.
Notwithstanding the foregoing, in the event of a Change of Control in which
the Company is not the surviving entity, the Committee shall have the right
in its sole discretion to pay to each Participant possessing unexercised
Stock Options, as soon as practicable following consummation of such Change
of Control, an amount equal to the fair market value of all Shares
purchasable (without regard to vesting
4
<PAGE>
provisions) under the unexercised Stock Options LESS the Exercise Price of
such unexercised Stock Options (the "Net Value").
If the Committee elects to pay each Participant the Net Value rather
than grant the Participants the rights described in this Section 7.1(c),
the Participants shall not be entitled to prior notice of such Change of
Control. Upon payment of the Net Value, all Stock Options outstanding
under this Plan shall be null and void and the Participants shall have no
further rights thereunder. The Company shall have the right to withhold
all applicable taxes from the Net Value prior to making payment to the
Participants.
d. Section 7.1(c) shall not apply to a Change of Control in which
the Company is the surviving entity.
e. The determination as to which party to a Change of Control is the
"surviving entity" shall be made by the Board of Directors.
f. In the event of a change in the Shares of the Company as
presently constituted which is limited to a change of all of its authorized
shares with par value into the same number of shares without par value, or
a change in the par value, the shares resulting from any such change shall
be "Shares" within the meaning of the Plan.
g. To the extent that the foregoing adjustments relate to shares or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
h. Except as hereinbefore expressly provided in this Article VII, no
Participant shall have any rights by reason of any subdivision or
consolidation of Shares or the payment of any dividend or any other
increase or decrease in the number of Shares of any class or by reason of
any liquidating event, Change of Control of assets or equity securities of
another equity, or any other issue by the Company of shares of any class,
or securities convertible into shares of any class; and except as provided
in this Article VII, none of the foregoing events shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to Stock Options. The grant of a Stock Option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes
of its capital or business structures or to effect a Change of Control or
to dissolve, liquidate or sell, or transfer all of part of its business or
assets.
i. Except as specifically provided in this Article VII, a
Participant or a transferee of a Stock Option shall have no rights as a
shareholder with respect to any Shares covered by the Stock Options until
the date of the issuance of a Share certificate to him or her for such
Shares, and no adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions of other rights for which the record date is prior to the
date such Share certificate is issued, except as herein provided.
5
<PAGE>
ARTICLE VIII. AMENDMENT AND TERMINATION
The Board of Directors may amend, alter or discontinue the Plan, but no
amendment, alteration or discontinuance shall be made which would impair the
rights of the Participant under any Stock Option theretofore granted without
such Participant's consent, or which without the approval of the shareholders
would (a) except as provided in Article VII, materially increase the total
number of Shares reserved for the purposes of the Plan, (b) materially
increase the benefits accruing to Participants or Eligible Persons under the
Plan, or (c) materially modify the requirements for eligibility under the
Plan.
The Board of Directors may amend the terms of any award theretofore
granted, prospectively or retroactively, but, subject to the terms of the
Plan, no such amendment shall impair the rights of any holder without his or
her consent.
ARTICLE IX. GENERAL PROVISIONS
SECTION 9.1 GENERAL PROVISIONS.
a. The Committee may require each person purchasing Shares pursuant
to the Plan to represent to and agree with the Company in writing that such
person is acquiring the Shares without a view to distribution thereof. The
certificates for such Shares may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer.
b. All certificates for Shares delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the
Committee may deem advisable.
SECTION 9.2 OTHER COMPENSATION ARRANGEMENTS. Nothing contained in this
Plan shall prevent the Company from adopting other or additional compensation
arrangements, subject to shareholder approval if such approval is required;
and such arrangements may be either generally applicable or applicable only
in specific areas.
SECTION 9.3 TERMINATION OF EMPLOYMENT. Except as herein provided or in
any Stock Option agreement, no Stock Option may be exercised unless the
Participant is then in the employ of the Company, or any parent or any
subsidiary of the Company, and unless he or she has remained continuously so
employed since the Date of Grant. If the employment or services of a
Participant shall terminate, unless otherwise provided in the Stock Option
agreement, all Stock Options previously granted to the Participant shall
terminate on the date notice is given or received regarding such termination.
Nothing in the Plan or in any Stock Option granted pursuant to the Plan shall
confer upon an employee any right to continue in the employ of the Company,
or any parent or any subsidiary of the Company, or interfere in any way with
the right of the Company to terminate such employment at any time.
SECTION 9.4 NONTRANSFERABILITY OF STOCK OPTIONS. Stock Options granted
under the Plan shall not be transferable otherwise than by will or by the
laws of descent and distribution, and
6
<PAGE>
Stock Options may be exercised, during the lifetime of the Participant, only
by the Participant or by his or her guardian or legal representative.
SECTION 9.5 REGULATORY MATTERS. Each Stock Option agreement shall
provide that no Shares shall be purchased or sold thereunder unless and until
(a) any then applicable requirements of state or federal laws and regulatory
agencies shall have been fully complied with to the satisfaction of the
Company and its counsel, and (b) if required to do so by the Company, the
Participant shall have executed and delivered to the Company a letter of
investment intent in such form and containing such provisions as the
Committee may require.
SECTION 9.6 DELIVERY. Upon exercise of a Stock Option granted under
this Plan, the Company shall issue a Share certificate on the date of
exercise, which will be delivered to the Participant exercising the Stock
Option as promptly as practicable thereafter.
SECTION 9.7 OTHER PROVISIONS. The Stock Option agreements authorized
under the Plan may contain such other provisions not inconsistent with the
Plan, including, without limitation, restrictions upon the exercise of the
Stock Option, as the Board of Directors may deem advisable.
ARTICLE X. EFFECTIVE DATE OF THE PLAN
The Plan became effective as of December 27, 1996, the date as of which
the Plan was adopted by the Board of Directors.
ARTICLE XI. TERM OF THE PLAN
No Stock Option shall be granted pursuant to the Plan after December 27,
2006 but Stock Options theretofore granted may extend beyond that date.
7
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