SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 N. CENTRAL EXPRESSWAY, SUITE 350 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(972) 458-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of Exchange on Which Registered:
COMMON STOCK, PAR VALUE $.10 PER SHARE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the 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
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 31, 1997, was $3,266,239, based upon the market value of the
Registrant's common stock of $5.35 per share.
Number of shares of common stock of the registrant outstanding on March 31,
1997 was 1,635,312.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated part or parts of this report.
(1) The Registrant's definitive proxy statement in connection with its Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934, is incorporated by reference to Part III of this Report.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Diversified Corporate Resources, Inc. (the "Company") is a Texas corporation
which was incorporated in 1977 under the name of Diversified Human Resources
Group, Inc.; the Company changed its name in 1994. The Company is an employment
services firm that provides professional and technical personnel on a contract
and permanent placement basis to high-end specialty employment markets, such as
the information technology ("IT") market. While the majority of the Company's
revenues are derived from providing IT staffing solutions, the Company also
fills other high value-added employment positions in the engineering and
technical, accounting and finance, and professional and technical sales
disciplines. The Company offers both contract and permanent placement solutions
in a broad variety of disciplines in order to position itself as a single source
provider of solutions that meet all of a client's high-end staffing needs. The
Company manages its operations as a group of interrelated business units, each
of which is incentivized to share leads and draw from each other's information
resources, as well as to achieve strong independent performance. In addition to
maintaining this competitively balanced business model, the Company focuses on
aggressive recruiting and is enhancing its technical training capabilities. The
Company principally serves its clients, including several Fortune 500 companies,
through its network of offices located in Dallas, Houston and Austin, Texas,
Atlanta, Georgia, Chicago, Illinois, Kansas City, Missouri and Raleigh, North
Carolina.
All references in this Form 10-K to the Company include its wholly-owned
subsidiaries. A list of such subsidiaries is filed as an exhibit to this Form
10-K.
INDUSTRY OVERVIEW
The employment services industry has experienced significant growth in
response to both the changing work environment in the United States and
continued growth in the uses of information technology. Fundamental changes in
the employer-employee relationship continue to occur, with employers developing
heightened criteria for permanent employees and greater demand for
project-oriented contract hiring. This trend has been compounded by the ever
increasing rate of change caused by advances in IT and the corresponding need
for access to professionals with up to date IT skills.
The IT services industry has undergone rapid change and growth. IT services
is a term that now encompasses not only computer and communications systems
hardware but also the personnel who design, manage and maintain those systems.
IT projects tend to be significantly longer and more rigorously defined and
require longer-term, more highly-skilled personnel services than traditional
non-permanent staffing placements. At the same time, these services offer the
opportunity for higher profitability than clerical and light industrial staffing
because of the high value-added nature of professional and technical personnel,
the expanding demand for such qualified personnel and the limited number of
sufficiently skilled personnel to fill these positions. The recruiting and
retention of qualified IT professionals is, therefore, a challenge common to all
companies in the IT services industry. Competitive companies have increased
advertising and recruiting efforts and are implementing strategies such as the
use of recruiting teams, the Internet, and the offering of fully benefited
salaried positions, referral bonuses and specialized training programs.
The growth of the IT services industry has been driven by (i) the
interdependence of software applications, (ii) the integration of
telecommunications and computers, (iii) business' increasing reliance on
information technology as a strategic tool, (iv) the shift to distributed
computing and the movement from mainframe to client server environments, and (v)
the proliferation of computer networks, comprised of hardware and software
<PAGE>
manufactured by various vendors. As businesses struggle to integrate multiple
processing platforms and software applications which serve an increasing number
of end-users, systems and applications development has become increasingly
challenging. Furthermore, as businesses continue to focus on their core
competencies but at the same time strive to operate more efficiently with fewer
people, managing and planning staffing requirements to meet IT needs becomes
more difficult. To keep up with these changes, companies require the services of
IT professionals who can manage the integration of computers, operating systems,
networks, and voice and data systems, as well as programming, hardware and
software system design and development, LAN management, Internet Web site
development and management or project staffing. For these employers, contract
personnel offer them the ability to keep personnel costs variable, to achieve
maximum flexibility, and to avoid the negative effects of layoffs.
As a result of technological changes and the continued growth and acceptance
of the use of contract personnel, including IT personnel, management believes
that clients will demand expanded services from their staffing providers.
Management believes that not only do clients desire specialized project staffing
but that clients want the flexibility to take on non-permanent professionals to
fill staffing needs. In addition, the Company believes that a key characteristic
of outsourcing is providing convenience and efficiency to a client and that
clients desire to have their permanent, contract and specialty staffing needs
filled by the same provider.
SALES OF SUBSTANTIALLY ALL OF THE COMPANY'S ASSETS IN 1991 AND SUBSEQUENT
REPOSSESSION
During the period from September 3, 1991 to September 19, 1991, the Company
consummated four separate transactions (the "Purchase Agreements") relating to
the sale of its operating divisions. Taken as a whole, the Purchase Agreements
involved the sale of substantially all of the Company's assets.
As consideration for the Company's agreement to sell its divisions to the
various purchasers involved, the purchasers (a) executed various interest
bearing promissory notes which were payable to the Company over periods of three
to six years; (b) assumed various liabilities and obligations of the Company in
connection with the purchased operations; and (c) agreed to pay the Company a
monthly royalty fee for six years equal to specified percentages of the gross
revenues of the respective divisions purchased by each purchaser. Collection of
the royalty fees and notes receivable, and the discharge of liabilities assumed,
was dependent upon the successful operations of the businesses sold.
Due to the failure of the purchasers to fulfill their obligations, the Company
pursuant to the Purchase Agreements, effectuated foreclosure proceedings to
repossess many of the assets previously sold by the Company.
CURRENT BUSINESS ACTIVITIES
The Company operates along functional lines of contract and permanent
placement of professional personnel, with specialty services consisting of
non-permanent placements being offered to the Company's permanent placement
clients as part of the Company's single source provider strategy. The permanent
placement of professional personnel is generally a fee for placement business,
with specified search parameters and goals. The contract placement of IT and
engineering personnel is generally a more project specific business, with the IT
and engineering personnel of the Company undertaking well defined projects for
periods ranging from four weeks to a year or more. In addition to these
placement services, the Company plans on providing clients, employees and
applicants training and certification through its TrainUSA program. The Company
believes that its focus on high-end niche markets, single source provider
strategy, recruiting and retention of applicants and its future training
programs will provide it with certain competitive advantages.
<PAGE>
PERMANENT PLACEMENT SERVICES
The Company is currently engaged in providing permanent placement services in
Dallas, Houston and Austin, Texas, Atlanta, Georgia, Chicago, Illinois and
Raleigh, North Carolina. The Company offers these services in the following
selected core disciplines:
o Information Technologies - Services include systems
design, consulting, conversions, software development, and
information systems disaster control.
o Engineering/Technical - Services include process
engineering, industrial engineering and manufacturing,
software design and maintenance and related information
technology services. Technical areas serviced include
environmental, construction, plastics, chemical,
telecommunications, computer hardware, food, and metals.
o Financial/Accounting - Services range from project-based
accounting work to recruitment and placement of financial
managers.
o Professional/Technical Sales - Services range from
technical sales/marketing personnel to recruitment and
placement of management personnel.
The Company usually enters into written contracts with clients specifying its
fee arrangements prior to undertaking any permanent placement services on behalf
of such clients. Fees typically range from 15% to 35% of the first year's annual
salary. Although these fees are usually paid by the employer, in certain
instances such fees are paid by the newly placed employee. The Company sometimes
offers its clients a 30 day guarantee of permanent professional placements
during which the Company agrees to replace, without additional charge to the
client, any newly placed employee who leaves such job. If the Company is unable
to replace the employee, it may refund the client's fee or a prorated portion
thereof depending upon the circumstances.
The Company recently began providing permanent clerical and administrative
personnel to its existing clients, primarily to support professional staff and
executive management of those clients. The Company believes that permanent
clerical and administrative placement services will be an important offering as
part of its plan to be a single source provider of placement services to its
clients. The Company is also involved in the recruitment and placement of
medical personnel, including therapists, nurses and doctors.
SPECIALTY SERVICES
As part of its single source provider strategy, the Company also provides
specialty services to its clients consisting of the placement of non-permanent
personnel in all of the Company's disciplines. These services have grown out of
the Company's permanent placement services as clients have increasingly desired
to fill non-permanent employment needs without incurring the associated costs of
hiring, training or providing employee benefits or to fill permanent employment
needs with applicants only after having had that applicant work for the client
prior to committing to such hire. Personnel needs that can be filled by
non-permanent or non-permanent-to-permanent employees are primarily caused by
vacation, illness, resignation, increases in work volume, the need to staff
special projects and a desire for pre-screening of permanent hires.
The Company's specialty services are typically initiated by a client's
<PAGE>
telephone call to the local Company office or as a result of marketing efforts
on the part of the Company. The Company obtains from the client a description of
the order and uses this information to select an appropriate individual from the
office's list of available non-permanent personnel. Clients request
non-permanent personnel for periods generally ranging from one day to several
weeks. The Company generally receives notice of the assignment from 30 minutes
to three days in advance. On the day of the assignment, the Company verifies
both the prompt arrival of the employee and the employee's performance. The
Company charges clients an hourly rate for non-permanent personnel and generally
absorbs all employment costs, including hourly wages, unemployment taxes, social
security taxes and fringe benefits. The Company generally offers clients a
guarantee period during which the Company will refund the client's payment if
the client notifies the Company that it is dissatisfied with the employee's
performance, and the Company is unable to replace the employee.
The Company screens its non-permanent personnel based on interviewing,
testing and reference checking procedures. These procedures also enable the
Company to categorize its non-permanent professional personnel by preference for
job location, hours and work environment. In order to attract high quality
non-permanent professional employees, the Company grants paid vacations,
holidays and other benefits for non-permanent employees who work a specified
minimum number of hours for the Company.
CONTRACT PLACEMENT SERVICES
The Company provides IT contract placement services primarily in the Dallas,
Texas, Kansas City and St. Louis, Missouri and Denver, Colorado markets. The
Company's IT personnel provide services in the following areas:
o project management
o systems analysis, development and design
o product implementation
o systems migration and conversions
o technical writing
o documentation support
o functional support
o company educational and project planning
o testing
o systems and network administration
o hardware, network, and software evaluation services
Contract engagements are generally project oriented and typically last from
four weeks to one year or more. The Company usually enters into written
contracts with clients after becoming an approved vendor. Services are then
provided on a time and materials or purchase order basis. The Company provides
individualized attention to each of its clients and develops and designs
tailored service programs based on its clients' unique needs. All contract
personnel assigned by the Company are Company employees. The Company provides
each of its employees with full benefits plans and ensures that there is full
compliance with all federal, state, and local tax withholding and insurance
guidelines.
The Company has provided personnel and human resource solutions to many of
the nation's largest companies including: DSC Communications, Hitachi America,
American Airlines, Compaq Computer Corp., Mobil Oil, Dr. Pepper/7-UP, Texas
Instruments, MCI, Fidelity Investments, Blockbuster, DST Systems, and TU
Electric. The Company backs all service programs with a firm commitment to
excellence.
<PAGE>
RECRUITING
The Company recruits qualified applicants primarily through referrals from
other applicants and through newspaper advertising, its data base, job fairs and
various media advertisements. The recruiting of skilled IT, engineering, and
financial and accounting professionals is one of the main challenges for the
Company. The Company plans on meeting this challenge in the future with a
broadened multi-faceted approach, including (i) the use of aggressive direct
marketing to targeted groups, such as professional associations and industry
trade schools, (ii) the building of its SearchNet data base system to both
enhance the Company's ability to track applicants and to provide applicants with
better work opportunities, (iii) the use of the Internet to attract applicants,
(iv) the continued offering of competitive wage and benefit packages, and (v) by
improving its training programs.
The Company maintains extensive files of qualified applicants based upon
advertising, recruitment referral and reference checking procedures. In order to
attract permanent and contract assignment candidates, the Company places
emphasis upon its ability to provide placement opportunities, competitive
compensation, quality and varied assignments, and scheduling flexibility.
During periods of low unemployment, the Company experiences greater
difficulty in obtaining applicants for permanent placement. On the other hand,
the number of persons seeking non-permanent employment has increased
irrespective of economic cycles because of changes in the demographics of the
work force and general increases in cost of living which have resulted in a need
for an increased number of two-income households. In addition, applicants for
permanent placement are frequently willing to accept temporary employment during
their search for permanent positions.
TRAINING
The Company provides training to its counselors and managers, both when they
are hired and on an on-going basis throughout their careers. The primary focus
of such training is on how to effectively market the Company's placement
services and how to screen and hire applicants.
The Company has begun to focus on the training of its applicant pool as part
of its single source provider strategy. Management intends to focus more
resources on this aspect of the business in the future.
MARKETING
The Company's marketing efforts are largely implemented at the local office
level. In marketing its placement services to clients, the Company historically
has relied primarily on telephone solicitation, referrals from other Company
offices and, to a lesser extent, on direct mail, yellow pages and newspaper
advertising. Client visits also play an important role in the Company's
marketing efforts. The Company focuses its marketing efforts on the high-end,
specialized niche markets it serves.
Upon receiving an order from a client, the Company attempts to match the
specifications required by the client with qualified applicants and to arrange
interviews between the client and applicants. In certain cases, the Company
markets a highly qualified applicant to a client even when no specific order has
been received. If the client offers a position to the applicant and the
applicant accepts, the Company receives a fee for these services.
<PAGE>
OTHER OPERATIONS AND SERVICES
The Company formed Preferred Funding Corporation ("PFC"), a wholly-owned
subsidiary, in 1994 for the purpose of providing financing to its subsidiary
companies. To date, PFC has facilitated borrowings by the Company, and recently
under an asset based lending arrangement with an unaffiliated third party lender
at lower rates than standard factoring rates. Management of the Company believes
it can reduce the Company's overall cost of funds (which are relatively high
because of the Company's reliance on factoring) thereby improving the Company's
consolidated operating performance.
COMPETITION
The specialty staffing services industry is very competitive and fragmented.
There are relatively limited barriers to entry and new competitors frequently
enter the market. A number of the Company's competitors possess substantially
greater resources than the Company. The Company faces substantial competition
from large national firms and local specialty staffing firms. Large national
firms that offer specialty staffing services include Robert Half International,
Computer Horizons, Inc., and Alternative Resources Corporation. Other firms that
the Company competes with include RCM Technologies, Professional Staff,
Personnel Management, Joulet, ROMAC International, Inc., Source Services Corp.,
Data Processing Corp., Alternative Resources Corp. and General Employment
Enterprises. Local firms are typically operator-owned, and each market generally
has one or more significant competitors. In addition, the Company competes with
national clerical and light industrial staffing firms that also offer specialty
services. These companies include Interim Services, Inc., Norrell Corporation,
AccuStaff Incorporated, and Olsten Corp. In addition. national and regional
accounting firms also offer certain specialty staffing services.
The Company believes that the availability and quality of candidates, the
level of service, the effective monitoring of job performance, the scope of
geographic service and the price of service are the principal elements of
competition. The Company believes that availability of quality candidates is an
especially important facet of competition. Because many candidates pursue other
employment opportunities on a regular basis, it is important that the Company
respond to market conditions affecting candidates. Although the Company believes
it competes favorably with respect to these factors, it expects competition to
increase, and there can be no assurance that the Company will remain
competitive.
REGULATION
Most states require permanent placement firms to be licensed in order to
conduct business. Such licenses may be revoked upon material noncompliance with
state regulations. Any such revocations would have a material adverse effect on
the business of the Company. The Company believes that it is in substantial
compliance with all such regulations and possesses all licenses necessary to
engage in the placement of permanent personnel in the jurisdictions in which it
does business. Various government agencies have advocated proposals from time to
time to license or regulate the placement of non-permanent personnel. The
Company does not believe that such proposals, if enacted, would have a material
adverse effect on its business.
EMPLOYEES
In addition to the non-permanent and contract personnel from time to time
employed by the Company for placement with clients, the Company had
approximately 285 full-time employees as of December 31, 1996. Of these
employees, approximately 250 were personnel consultants and office managers paid
on a commission basis and approximately 35 were administrative and executive
salaried employees. The Company considers its relations with its employees to be
good.
<PAGE>
ITEM 2. PROPERTIES
The Company and its wholly-owned subsidiaries currently lease approximately
41,600 square feet in one building in Dallas, Texas; the terms of such leases
and its amendments range from four years to seven years. The Company also leases
approximately 17,000 square feet in Houston, Texas, 5,200 square feet in Austin,
Texas, 2,000 square feet in Kansas City, Missouri, 10,000 square feet in
Atlanta, Georgia, 3,000 square feet in Chicago, Illinois and 2,000 square feet
in Raleigh, North Carolina. Such leases generally range from three to five
years. The current cost of all of the Company's office leases is approximately
$1,185,000 per annum.
The Company believes that all of its present facilities are adequate for its
current needs and that additional space is available for future expansion upon
acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
On September 5, 1996, a lawsuit was filed in the 114th Judicial District of
the District Court of Wood County, Texas, by Ditto Properties Company ("Ditto
Properties") against USFG-DHRG L.P. No. 2, Inc. a/k/a DCRI L.P. No. 2, Inc.
("USFG No. 2"). In addition, J. Michael Moore and the Company were named as
garnishees in the lawsuit. The venue of the lawsuit has since been transferred
to the District Court of Dallas County, Texas, 298th Judicial District.
In this lawsuit, Ditto Properties seeks to rescind a Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated March 26, 1993, between Ditto
Properties and USFG No.2, pursuant to which Ditto Properties had agreed to
transfer 899,200 shares (the "Shares") of common stock, par value $.10 per share
(the "Common Stock"), of the Company to USFG No. 2, alleging that USFG No. 2 had
failed to perform its obligations under the Stock Purchase Agreement. In
addition to rescission of the Stock Purchase Agreement and the title, ownership
and possession of the Shares, the suit seeks imposition of a constructive trust
upon the Shares for Ditto Properties' benefit and, in the alternative, damages
for breach of contract. The sole shareholder of USFG No. 2 is J. Michael Moore,
Chairman of the Board and Chief Executive Officer of the Company.
The Company was added to this lawsuit as a garnishee only because Ditto
Properties sought to garnish the Shares to the extent that the Shares were in
the hands of J. Michael Moore or the Company. In addition, Ditto Properties
seeks to obtain 250 shares (the "Pledged Shares") of USFG No. 2 that Ditto
Properties alleged were pledged to Ditto Properties pursuant to the Stock
Purchase Agreement. Moreover, Ditto Properties sought to foreclose on the
Pledged Shares and requested attorney's fees.
On October 24, 1996, the parties to this suit agreed to the entry of a
Temporary Order and an Agreed Temporary Order (the "Temporary Order") was
entered by the Court. Under the Temporary Order, certificates evidencing the
Shares, owned directly or beneficially by USFG No. 2, are required to be
delivered to a Special Master pursuant to the terms of the Temporary Order. The
Temporary Order provides that USFG No. 2, its officers, directors and
shareholders may conduct all lawful business, but shall obtain the approval of
the Special Master prior to taking certain specified actions regarding the
Shares, including selling, voting, or pledging the Shares. Notwithstanding the
foregoing, all of USFG No. 2's duties, responsibilities and other obligations
under the Temporary Order, including the requirements that the Shares be
delivered to the Special Master or that the approval of the Special Master for
certain actions relating to the Shares be obtained, automatically expire upon
the depositing with the Special Master by USFG No. 2 of cash in the amount of
$1,500,000. Mr. Moore and the Company, both named only as garnishees in the
suit, were non-suited as a result of the Temporary Order and are no longer in
the case. USFG No. 2 has advised the Company that it believes that Ditto
Properties' claims including its claim for rescission of the stock purchase
agreement and other equitable relief, are without merit.
The Company believes, based on discovery in the case, that the efforts of
Ditto Properties and Donald Ditto, Sr. were designed as an attempted hostile
takeover of the Company. In addition, the Company has filed a seperate lawsuit
against Ditto Properties in a separate lawsuit in Dallas, County, Texas, seeking
damages and the reimbursement of expenses alleging that Ditto Properties and
Donald Ditto, Sr. interfered with Company business transactions and proposed
financings resulting in delays of
<PAGE>
certain transactions, lost opportunities, lost profits and other significant
losses.
In connection with the litigation proceedings, the Company has incurred
legal expenses on its own behalf and, in addition, has funded the legal expenses
of USFG No. 2 incurred in connection with the suit. Management has caused funds
to be advanced on behalf of USFG No. 2 to try to prevent this litigation from
adversely impacting the Company's ability to pursue acquisitions and related
funding strategies. USFG No. 2 has entered into an agreement with the Company
pursuant to which Mr. Moore has agreed to reimburse such legal fees and expenses
deemed personal in nature by the Board. The Board has determined that
approximately 50% of the legal fees paid to the Company's and Mr. Moore's
counsel through October 24, 1996, the date of the Temporary Order, should be
reimbursed by USFG No. 2 to the Company and that all of such fees and expenses
after such date should be reimbursed to the Company. See Notes to the Company's
Consolidated Financial Statements.
On September 13, 1996, a lawsuit was filed in the 44th Judicial District
of the District Court of Dallas County, Texas, by Billie Jean Tapp ("Ms. Tapp")
(which has since been joined by Gary K. Steeds ("Mr. Steeds") as a third party
plaintiff) against the Company, two of the Company's subsidiaries, Management
Alliance Corporation ("MAC") and Information Systems Consulting Corp. ("ISCC")
and three of the Company's officers and directors (J. Michael Moore, M. Ted
Dillard and Donald A. Bailey). The lawsuit has since been administratively
transferred to the District Court of Dallas County, Texas, 160th Judicial
District.
In their lawsuit, Ms. Tapp and Mr. Steeds, (former employees of the Company)
each allege damages in excess of $29 million for breach of contract, conspiracy
and tortious conduct, as well as mismanagement, misappropriation of corporate
assets and self-dealing by Company officers and directors. Their breach of
contract claims include allegations that the Company breached an agreement
purporting to convey up to 20% of the issued and outstanding shares of MAC and
ISCC to each of Ms. Tapp and Mr. Steeds, and certain other alleged agreements.
The Company believes that all of Ms. Tapp's and Mr. Steed's claims are without
merit and has filed an answer and counterclaim against Ms. Tapp and a plea in
abatement and is vigorously defending the lawsuit. In addition, the Company has
filed a third party petition against Mr. Steeds. The Company maintains that
there were no such contractual agreements with Ms. Tapp and Mr. Steeds and that
they are not owed anything by the Company or any of the other defendants in this
case. The Company further denies conspiring to injure either Ms. Tapp or Mr.
Steeds.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
<PAGE>
PART II
ITEM 5.MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and is
listed in the pink sheets under the symbol "HIRE." The following table sets
forth, for the periods indicated, the range of high and low sales prices for the
Common Stock, which were obtained from a market maker for the Common Stock. Such
prices are as follows:
<TABLE>
<CAPTION>
Period High Low
------ -------------- ----------
1995
<S> <C> <C>
1st Quarter................................................. $ .13 $ .13
2nd Quarter................................................. .13 .13
3rd Quarter................................................. .25 .25
4th Quarter................................................. .25 .25
1996
1st Quarter................................................. $ .62 $ .25
2nd Quarter................................................. 1.75 .50
3rd Quarter................................................. 3.75 2.00
4th Quarter................................................. 4.00 3.00
</TABLE>
The Company had approximately 180 holders of record of Common Stock as of
March 31, 1997. While the Company knows that a number of beneficial owners of
its Common Stock hold shares in street name, no estimate has been made as to the
number of shareholders owning stock of the Company in street name.
The Company has not paid any cash dividends on its Common Stock since its
inception. The Company expects that it will retain all available earnings
generated by its operations for the development and growth of its business and
does not anticipate paying any cash dividends in the foreseeable future. Any
future determination as to dividend policy will be made at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of Directors
may deem relevant.
The Company has not sold any securities during 1996 that were not
registered under the Securities Act of 1933, as amended (the "Securities Act").
During 1996, the Company granted options to purchase 30,000 shares of Common
Stock to Mr. Donald Bailey, a member of the Board of Directors of the Company;
and subsequent to December 31, 1996, the Company granted options to purchase
30,000 shares of Common Stock to Samuel E. Hunter, a recently named member of
the Board of Directors of the Company. In addition, the Company granted stock
options to J. Michael Moore, Chairman of the Board and Chief Executive Officer
of the Company, and M. Ted Dillard, President of the Company, to purchase
155,000 and 105,000 shares of Common Stock, respectively. See Note 6 to the
Company's Consolidated Financial Statements for a discussion of the terms of
these options. Neither the grant of these options nor the issuance of the
underlying shares of Common Stock on exercise of such options has been
registered under the Securities Act and, pending an effective registration under
the Securities Act, the shares of Common Stock will be issued pursuant to the
exemption from registration under the Securities Act set forth in Section 4(2)
thereunder.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Effective July 31, 1991, the Company sold substantially all of its assets.
In 1993, the Company repossessed certain of those assets, see "Item 1 - Sale of
Substantially All of the Company's Assets and Subsequent Repossession." Because
no audited financial statements with respect to such assets are available for
1992 or 1993, and because such assets represented a substantial portion of the
assets of the Company in 1992 and 1993, no financial information for 1992 and
1993 has been provided.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA 1996 1995 1994
- --------------------------------------------- ----------- ------------ ------------
(in Thousands, except per share data)
<S> <C> <C> <C>
Net Service Revenues........................ $27,430 $19,358 $15,233
Gross Margin................................ 7,755 5,026 4,101
Income (loss) before income
taxes (benefit) and
extraordinary credit...................... 1,764 346 16
Income (loss) before
extraordinary credit...................... 1,539 286 16
Net income (loss)........................... 1,785 461 224
Primary income (loss) per share:
Before extraordinary credit............... .84 .16 .01
Net income (loss)......................... .98 .26 .13
Fully diluted income per share:
Before extraordinary credit............... .83 .16 .01
Net income (loss)......................... .96 .26 .13
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
- ------------------------------------------------------------------------------------------------
BALANCE SHEET DATA 1996 1995 1994
- --------------------------------------------- ----------- ------------ ------------
(in Thousands)
(End of Period):
<S> <C> <C> <C>
Working Capital............................. $ 361 $ (1,060) $ (1,142)
Total assets................................ 5,129 3,070 2,563
Short-term debt............................. 22 22 102
Long-term debt.............................. 68 90 113
Stockholders' equity
(Capital deficiency)........................ 1,317 (452) (913)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Net service revenues increased approximately 41.7% to $27.4 million in 1996,
compared to $19.4 million for 1995. Permanent placement revenues increased
approximately 37.8% to $12.6 million in 1996, compared to $9.1 million in 1995.
Specialty service revenues increased approximately 77.0% to $7.5 million in
1996, compared to $4.2 million in 1995. Contract placement revenues increased
approximately 22.9% to $7.4 million in 1996. The increases in revenues in 1996
were primarily attributable to the Company's continued focus on high margin,
high-end niche markets as demonstrated by the redeployment of Company management
and marketing resources and the opening of two new local offices (Austin, Texas
<PAGE>
and Raleigh, North Carolina) to service IT clients in those areas, further
implementation of the Company's single source provider strategy through the
continued training and development of the Company's local office management
staff which resulted in sales growth within existing offices and continued
demand for the Company's services.
Gross margin increased approximately 54.3% to $7.8 million in 1996, compared
to $5.0 million in 1995. Gross margin as a percentage of net service revenues
increased to 28.3% in 1996 from 26.0% in 1995, primarily as a result of the
Company's focus on higher margin business, particularly IT, and the Company
implementing programs, allowing fixed costs to be spread over a larger revenue
base.
Selling, general and administrative expenses increased approximately 26.8% to
$5.7 million in 1996, compared to $4.5 million in 1995; representing 20.8% of
1996 revenues. The increase was primarily the result of increased marketing and
recruiting expenses, increased expenditures on the Company's back office,
including accounting, support staff and management information systems to
support the Company's growth strategies, as well as the overall growth in the
Company's business. Included in the increase in selling, general and
administrative expenses was an increase in selling expenses of $261,000 in 1996
over the comparable period in 1995, an increase of $773,000 in general and
administrative expenses primarily for back office administration to support the
Company's growth and an increase of $172,000 primarily related to the
litigations described in Item 3-Legal Proceedings.
Other expenses increased approximately $105,000 to $288,000 in 1996, compared
to $183,000 in 1995, primarily due to increased losses from joint venture
operations and a writedown of long-lived assets.
Provisions for income taxes increased from approximately $60,000 in 1995 to
approximately $225,000 in 1996, as a result of increases in the Company's
taxable income.
As a result of the above factors, net income increased approximately 287.5%
to $1.8 million in 1996, as compared to $461,000 in 1995.
1995 COMPARED TO 1994
Net service revenues increased approximately 27.1% to $19.4 million in 1995,
compared to $15.2 million in 1994. Permanent placement revenues increased
approximately 22.1% to $9.1 million in 1995, compared to $7.5 million in 1994.
Specialty service revenues increased approximately 46.2% to $4.2 million in
1995, compared to $2.9 million in 1994. Contract placement revenues increased
approximately 23.4% to $6.0 million in 1995, compared to $4.9 million in 1994.
The increases in revenues in 1995 were primarily attributable to the
implementation of the Company's strategy to focus on high-end niche markets, the
Company's expansion of its specialty service offerings in all of its offices as
part of the Company's strategy to become a single source provider of staffing
solutions and continued demand for the Company's services.
Gross margin increased approximately 22.6% to $5.0 million in 1995, compared
to $4.1 million in 1994. Gross margin decreased to 26.0% in 1995 from 26.9% in
1994, primarily as a result of increases in employee payroll expenses, as well
as specialty service and contract labor compensation, to meet competitive
pressures.
Selling, general and administrative expenses increased approximately 8.4% in
1995 to $4.5 million, compared to $4.1 million in 1994. The increase was
primarily the result of increased expenditures on the Company's back office,
including accounting, support staff and management information systems, to
support the Company's growth strategies, as well as the overall growth in the
Company's business. Included in the increase in selling, general and
<PAGE>
administrative expenses was an increase in selling expenses of $114,000 in 1995
over the comparable period in 1994, and an increase of $236,000 in general and
administrative expenses primarily for back office administration to support the
Company's growth.
Other expenses increased approximately $245,000 in 1995 to $183,000, compared
to other income of $62,000 in 1994, primarily due to decreased gains on
foreclosed assets, losses from joint venture operations and increased interest
expense resulting from an increase in factored accounts receivable.
Provision for income taxes increased from zero in 1994 to approximately
$60,000 in 1995, as a result of increases in the Company's taxable income.
As a result of the above factors, net income increased approximately 105.2%
to $461,000 in 1995, compared to $224,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $361,000 at December 31, 1996, compared with a working
capital deficit of $1.0 million at December 31, 1995. The increase in working
capital of approximately $1.4 million during 1996 was primarily due to the
Company's profitable operations.
Cash flow provided by operating activities of $1.2 million resulted primarily
from the profitable operation of the Company and an increase in accounts payable
and accrued expenses, which supported increases in accounts receivable resulting
from revenue growth. The Company made capital expenditures of approximately
$424,000 in 1996, primarily to improve its facilities and back office. Net
reductions in debt associated with financing activities approximated $284,000 in
1996.
The Company has entered into factoring arrangements involving advances on its
outstanding accounts receivable for fees ranging from 2% to 7% of factored
receivables, based on the number of days the receivable is outstanding. The
proceeds from factored accounts receivable were used to fund the operations of
the Company's business during 1996, 1995 and 1994. In addition, in 1996 the
Company entered into a loan agreement, which replaced one of the Company's
factoring arrangements, providing for borrowings of up to $1 million, subject to
an accounts receivable borrowing base. The interest rate on this arrangement is
the lender's prime rate plus 2.5%, and the Company must pay a monthly
administrative fee of 0.6% multiplied by the average daily outstanding balance
under the arrangement. The maximum amount outstanding under these arrangements
were approximately $985,000, $762,000 and $650,000 during 1996, 1995 and 1994,
respectively.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information for this item has been omitted, inasmuch as the Company
will include this information in its definitive proxy statement to be filed with
the Commission, pursuant to Regulation 14A, within 120 days of the close of the
fiscal year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information for this item has been omitted, inasmuch as the Company
will include this information in its definitive proxy statement to be filed with
the Commission, pursuant to Regulation 14A, within 120 days of the close of the
fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information for this item has been omitted, inasmuch as the Company
will include this information in its definitive proxy statement to be filed with
the Commission, pursuant to Regulation 14A, within 120 days of the close of the
fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for this item has been omitted, inasmuch as the Company
will include this information in its definitive proxy statement to be filed with
the Commission, pursuant to Regulation 14A, within 120 days of the close of the
fiscal year ended December 31, 1996.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (i) and (ii) Financial Statements and Schedules.
Reference is made to the listing on page 16 of all financial
statements and schedules filed as a part of this report.
All other schedules are omitted as they are not applicable or not
required, or because the required information is included in the
financial statements or notes thereto.
(iii) Exhibits
Reference is made to the Index to Exhibits on pages 34 through 37 for
a list of all exhibits filed as part of this report.
(b) Reports on Form 8-K.
Not Applicable.
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page No.
<S> <C>
Independent Auditor's Report.............................................................................. 17
Consolidated Balance Sheets - December 31, 1996 and 1995.................................................. 18
Consolidated Statements of Operations - Years Ended December 31, 1996, 1995, and 1994..................... 19
Consolidated Statements of Stockholders' Equity (Capital Deficiency) - Years Ended
December 31, 1996, 1995, and 1994.................................................................... 20
Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995, and 1994..................... 21
Notes to Consolidated Financial Statements................................................................ 22
Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 1996,
1995,
and 1994............................................................................................. 33
</TABLE>
All other schedules have been omitted because they are either not applicable or
the information required by the schedule is included in the financial statements
or the notes thereto.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Diversified Corporate Resources, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of
Diversified Corporate Resources, Inc. and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity (capital deficiency), and cash flows for each of the three years in the
period ended December 31, 1996. Our audits also included the financial statement
schedule listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidate financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material aspects, the consolidated financial position of
Diversified Corporate Resources, Inc. and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Weaver and Tidwell, L.L.P.
------------------------------
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
April 10, 1997
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
CURRENT ASSETS: 1996 1995
---------------- ----------------
<S> <C> <C>
Cash and cash equivalents..................................................... $ 514,354 $ 69,627
Accounts receivable, less allowance for doubtful accounts
of approximately $494,000 and $412,000, respectively......................... 3,387,138 2,140,623
Notes receivable (Note 9)..................................................... 114,009 13,052
Prepaid expenses and other current assets..................................... 88,953 96,806
---------------- ----------------
TOTAL CURRENT ASSETS........................................................ 4,104,454 2,320,108
EQUIPMENT, FURNITURE AND LEASEHOLD
IMPROVEMENTS, NET (Note 3).................................................... 701,944 467,043
OTHER ASSETS:
Investment in and advances to joint venture (Note 12).......................... 152,905 103,838
Notes receivable (Note 9)...................................................... 21,690 -
Other.......................................................................... 147,879 179,153
================ ================
$5,128,872 $3,070,142
================ ================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts payable and accrued expenses (Note 4)................................ $3,721,897 $3,358,163
Current maturities of long-term debt (Note 5)................................. 21,834 21,603
---------------- ----------------
TOTAL CURRENT LIABILITIES.................................................... 3,743,731 3,379,766
DEFERRED LEASE RENTS................................................................ - 52,531
LONG TERM DEBT (Note 5)............................................................. 68,157 90,048
COMMITMENTS AND CONTINGENCIES (Notes 2 and 11)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (Note 6):
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............................................................ (2,301,108) (4,086,045)
Common stock held in treasury (245,849 and 122,950 shares,
respectively), at cost..................................................... (185,175) (169,425)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY).............................. 1,316,984 (452,203)
---------------- ----------------
$5,128,872 $3,070,142
================ ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
----------------- --------------- ----------------
NET SERVICE REVENUES
<S> <C> <C> <C>
Permanent Placement......................................... $12,573,995 $ 9,124,545 $ 7,471,318
Specialty Services.......................................... 7,451,563 4,209,685 2,879,143
Contract Placement.......................................... 7,404,730 6,023,655 4,882,253
----------------- --------------- ----------------
27,430,288 19,357,885 15,232,714
COST OF SERVICES (Note 1)....................................... 19,675,352 14,332,011 11,131,682
----------------- --------------- ----------------
GROSS MARGIN.................................................... 7,754,936 5,025,874 4,101,032
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................................................ (5,702,992) (4,497,097) (4,146,979)
OTHER INCOME (EXPENSES):
Gain (loss) on sale of assets held for sale, net............ (23,207) 16,784 (14,397)
Gain on foreclosure of division assets...................... 2,620 22,815 133,000
Loss from joint venture operations.......................... (90,313) (47,826) -
Interest expense, net....................................... (235,327) (237,111) (140,916)
Other, net.................................................. 57,869 62,487 84,524
----------------- --------------- ----------------
(288,358) (182,851) 62,211
----------------- --------------- ----------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ..................................... 1,763,586 345,926 16,264
INCOME TAXES, net of tax benefit from utilization
of net operating loss carry forward (Note 7)................ (224,774) (60,054) -
----------------- --------------- ----------------
INCOME BEFORE EXTRAORDINARY ITEM............................... 1,538,812 285,872 16,264
EXTRAORDINARY ITEM - gain on debt
restructuring, net of income tax (Note 8)................... 246,125 174,811 208,212
----------------- --------------- ----------------
NET INCOME................................................ $1,784,937 $ 460,683 $ 224,476
================= =============== ================
PRIMARY INCOME PER SHARE:
Income before extraordinary item............................ $ .84 $ .16 $ .01
Extraordinary item.......................................... .14 .10 .12
----------------- --------------- ----------------
PRIMARY INCOME PER SHARE........................................ $ .98 $ .26 $ .13
================= =============== ================
FULLY DILUTED INCOME PER SHARE:
Income before extraordinary item............................ $ .83 $ .16 $ .01
Extraordinary item.......................................... .13 .10 .12
----------------- --------------- ----------------
FULLY DILUTED INCOME PER SHARE.................................. $ .96 $ .26 $ .13
================= =============== ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated Treasury
stock capital deficit stock Total
------------ -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $ 188,116 $ 3,615,151 $ (4,771,204) $ (169,425) $(1,137,362)
Net income......................... - - 224,476 - 224,476
------------ -------------- -------------- ------------- --------------
BALANCE, December 31, 1994............. 188,116 3,615,151 (4,546,728) (169,425) (912,886)
Net income......................... - - 460,683 - 460,683
------------ -------------- -------------- ------------- --------------
BALANCE, December 31, 1995............. 188,116 3,615,151 (4,086,045) (169,425) (452,203)
Net income......................... - - 1,784,937 - 1,784,937
Treasury stock purchase............ - - - (15,750) (15,750)
------------ -------------- -------------- ------------- --------------
BALANCE, December 31, 1996.............$ 188,116 $ 3,615,151 $ (2,301,108) $ (185,175) $ 1,316,984
============ ============== ============== ============= ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
---------------- --------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income......................................................... $ 1,784,937 $ 460,683 $ 224,476
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................................... 188,760 132,182 86,026
Provision for losses on accounts receivable...................... 81,434 207,363 41,000
Increase in accounts receivable.................................. (1,327,949) (473,232) (898,070)
Decrease in receivables from net assets foreclosed............... - - 236,973
Decrease in refundable federal income taxes...................... - - 30,779
(Increase) decrease in current maturities of
notes receivable................................................ (100,957) 12,311 (4,471)
(Increase) decrease in prepaid expenses and
other current assets............................................ 7,853 (90,602) (150,331)
(Increase) decrease in long term notes receivable................ (21,690) 11,533 22,576
Increase in other assets......................................... (108,106) (17,910) (135,387)
Increase in fixed assets from foreclosure........................ - - (177,884)
Increase in accounts payable and accrued expenses................ 610,701 104,419 805,221
Decrease in deferred lease rents................................. (52,531) (65,066) (80,273)
Decrease in obligations resulting from
settlement agreements........................................... - - (217,150)
Equity in loss of joint venture.................................. 90,313 47,336 -
Obligations written off in restructuring......................... - (20,634) -
---------------- --------------- ----------------
Net cash provided by (used in) operating activities........... 1,152,765 308,383 (216,515)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................... (423,661) (312,396) (157,014)
---------------- --------------- ----------------
Net cash used in investing activities........................... (423,661) (312,396) (157,014)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loan...................................... - - 10,000
Issuance of notes payable.......................................... - - 50,000
Repayment of short-term debt....................................... - (64,500) (110,000)
Increase (decrease) in proceeds from factored receivables.......... (246,967) 110,637 396,931
Purchase of treasury stock......................................... (15,750) - -
Principal payments under long-term debt
obligations to others............................................. (21,660) (18,277) (30,397)
---------------- --------------- ----------------
Net cash provided by (used in) financing activities............. (284,377) 27,860 316,534
---------------- --------------- ----------------
Net increase (decrease) in cash and
cash equivalents.................................................. 444,727 23,847 (56,995)
Cash and cash equivalents at beginning of year..................... 69,627 45,780 102,775
================ =============== ================
Cash and cash equivalents at end of year........................... $ 514,354 $ 69,627 $ 45,780
================ =============== ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for interest............................. $ 249,000 $ 264,000 $ 163,000
</TABLE>
See notes to consolidated financial statements
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"). All intercompany
accounts and transactions have been eliminated in consolidation.
Nature of Operations and Concentration of Credit Risk
The Company is a Texas corporation and is engaged, through its wholly-owned
subsidiaries, in the permanent and specialty placement of personnel in various
industries, and in contract placement services. The Company operates offices in
a number of cities which are responsible for marketing to clients, recruitment
of personnel, operations, local advertising, credit and collections. The
Company's executive offices provide centralized training, payroll, collections
and certain accounting and administrative services for its offices. The Company
maintains cash on deposit in interest bearing accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses on such
accounts and believes it is not exposed to any significant credit risk on cash
and equivalents.
Revenue Recognition
Fees for placement of permanent personnel are recognized as income at the
time the applicants accept employment. Provision is made for estimated losses in
realization (principally due to applicants not commencing employment or not
remaining in employment for the guaranteed period). Revenue from specialty
services and contract placements are recognized upon performance of services by
the Company. Cost of services consists of expenses for the operation of the
Company's offices (principally commissions, direct wages paid to non-permanent
personnel, and payroll taxes) and a provision for uncollectible accounts
(approximately $165,000 in 1996 and $116,000 in 1995 and 1994). Accounts
receivable at December 31, 1996 and 1995, includes approximately $185,000 of
unbilled receivables which will be billed during 1997 and $36,000 of unbilled
receivables that were billed in 1996, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments purchased
with remaining maturities of three months or less to be cash equivalents for
purposes of the consolidated statements of cash flows.
Depreciation and Amortization
Equipment, furniture, and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the individual assets (which range from three to
seven years) or the related lease terms, if applicable, whichever is shorter.
Intangible assets are amortized on the straight-line method over their estimated
useful lives which range from three to ten years.
Leases
Capital leases are recorded at the inception of the lease at the lower of
the discounted present value of future minimum lease payments or the fair value
of the asset.
Rent expense on operating leases is recorded on a straight-line basis over
the terms of the leases.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently payable plus deferred
taxes related primarily to differences between the basis of installment sales,
property and equipment and accounts receivable for financial and income tax
reporting. The deferred taxes represent the future tax return consequences of
those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
Income Per Share
Income per share was determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding (common stock equivalents are excluded if the effects of inclusion
are antidilutive). The weighted average number of primary shares outstanding for
the years ended December 31, 1996, 1995, and 1994 were 1,814,016 , 1,758,211 and
1,758,211, respectively. For the years ended December 31, 1996, 1995 and 1994,
the fully diluted shares outstanding were 1,860,284, 1,758,211 and 1,758,211,
respectively.
Reclassifications
The Consolidated Statements of Operations for prior years have been restated
to reflect gross margin and selling, general and administrative expenses on a
consistent basis with the current year presentation. Certain other amounts
previously reported in the 1995 and 1994 financial statements have been
reclassified for comparative purposes.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," was issued. The statement was adopted by the Company in the
first quarter of 1996. Under provisions of the statement, impairments, measured
using fair market value, are recognized whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable and the future undiscounted cash flows attributable to the asset are
less than its carrying value. Accordingly, the Company recognized a reduction in
market value of a certain long-lived asset.
This write down resulted in a charge to 1996 earnings of approximately $37,000.
In October 1995, SFAS No. 123, "Stock Based Compensation," was issued. This
statement requires the Company to choose between two different methods of
accounting for stock options. The statement defines a fair-value-based method of
accounting for stock options but allows an entity to continue to measure
compensation cost for stock options using the accounting prescribed by APB
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Use of the
APB 25 accounting method results in no compensation cost being recognized if
options are granted at an exercise price at the current market value of the
stock. The Company will continue to use the intrinsic value method under APB 25
but is required by SFAS 123 to make pro forma disclosure of net income and
earnings per share as if the fair value method had been applied in its 1996
financial statements. See Note 6 to the consolidated financial statements for a
more complete discussion of this matter.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SALE AND REPOSSESSION OF ASSETS:
General
In May, 1993, the Company repossessed from one of the purchasers of Company
assets most of the assets (the "Power Placement Assets") previously sold by the
Company to such purchaser.
Pursuant to an agreement dated December 16, 1993 and after operating the
Power Placement Assets since May, 1993, the Company sold the capital stock of
Recruiters Network Group, Inc. ("RNG"), a wholly-owned subsidiary of the Company
formed to operate these assets, to Donald A. Bailey ("Bailey"), then acting
President of and a Director of the Company. As part of the purchase agreement,
Bailey provided funding to enable RNG to reimburse the Company for RNG payroll
costs, RNG issued a $40,000 promissory note payable to the Company (secured by
RNG stock, RNG assets and personally guaranteed by Bailey), RNG issued a $15,000
promissory note payable to a former landlord of the Company and guaranteed by
Bailey, and $57,400 was paid to the Company in the form of one or more
affiliates of Bailey releasing the Company from certain obligations and
liabilities payable by the Company to Bailey. These promissory notes are
reflected as notes receivable in the balance sheet at December 31, 1995. Prior
to the sale, the Company had considered closing RNG due to recurring operating
losses during 1993. As of the date of this report all promissory notes have been
paid in full.
In December of 1992, another purchaser of Company assets caused both
Management Alliance Group Corp., formerly named Financial Recruiters, Inc.
("MAGC") and Gary K. Steeds, Inc. ("GKS") to seek protection from their
respective creditors under the federal bankruptcy laws.
In 1993, the Company was able to obtain the necessary court approval to
allow the Company to foreclose upon the accounts receivable and certain other
assets of MAGC and GKS. The Company foreclosed upon MAGC and GKS assets on
January 3, 1994. During December, 1993, the Company formed Management Alliance
Corporation ("MAC") and Information Systems Consulting Corp. ("ISC"), two
wholly-owned subsidiary corporations, to operate the employment placement
service businesses which MAGC and GKS operated prior to the aforesaid
foreclosure action taken by the Company.
Financial Information
The Company's Consolidated Statement of Operations includes income from the
operation of the repossessed employment placement service businesses for the
years ended December 31, 1996, 1995 and 1994.
Costs of services consist primarily of expenses for the payrolls associated
with the operation of the Company's offices (principally commissions, direct
wages paid to non-permanent personnel, and payroll taxes) and a provision for
uncollectible accounts (approximately $165,000, $116,000 and $116,000 in 1996,
1995 and 1994, respectively).
During the years ended December 31, 1996, 1995 and 1994, and due to the
various foreclosure transactions described above, the Company has recognized
gains of $3,000, $23,000 and $133,000, respectively, on the foreclosure of
divisional assets; such gains primarily represent deferred income from note
payments and Company liabilities assumed and paid by the third party purchasers
of the Company's divisional assets.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the net book value of the MAGC and GKS assets
foreclosed upon and repossessed by the Company on January 3, 1994:
<TABLE>
<CAPTION>
INFORMATION
MANAGEMENT SYSTEMS
ALLIANCE CONSULTING
CORPORATION CORP. CORPORATE TOTAL
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Accounts receivable $ 267,186 $ 228,510 $ 1,505 $ 497,201
Receivables from affiliates 143,955 183,273 - 327,228
Equipment, furniture and
leasehold improvements, net 99,839 62,386 15,659 177,884
Other assets 26,282 - 87,462 113,744
Accounts payable, office reserves,
accrued rents and expenses, notes and
capital lease obligations (387,780) (311,101) (128,250) (827,131)
---------------- --------------- --------------- ---------------
Net Book Value $ 149,482 $ 163,068 $ (23,624) $ 288,926
================ =============== =============== ===============
</TABLE>
The adjusted net book value of the MAGC and GKS assets, which were
repossessed at January 3, 1994, are reflected in the gain on foreclosure of
divisional assets in the Consolidated Statement of Operations for the years
ended December 31, 1996, 1995 and 1994.
3. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS:
Equipment, furniture and leasehold improvements consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Office equipment and furniture.................................. $ 1,368,378 $ 944,717
Less accumulated depreciation and amortization.................. (666,434) (477,674)
================= =================
$ 701,944 $ 467,043
================= =================
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Accounts payable................................................. $ 516,469 $ 727,866
Accrued expenses................................................. 437,421 371,603
Accrued compensation............................................. 1,743,183 1,031,434
Accrued payroll taxes............................................ 134,874 178,704
Factored accounts receivable liability........................... 400,682 647,650
Cash overdraft................................................... - 192,624
Other ........................................................... 489,268 208,282
================= =================
$ 3,721,897 $ 3,358,163
================= =================
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has entered into factoring arrangements involving advances on
its outstanding accounts receivable for fees ranging from 2% to 7% of the
factored receivable, based on the number of days the receivable is outstanding.
In addition, on August 26, 1996, the Company entered into an asset based lending
arrangement with fees and interest based upon the average outstanding bank line
of credit balance each month. Management anticipates that its average cost of
funds under this arrangement will be 18% to 20% during 1997. The maximum amount
outstanding under these arrangements was approximately $985,000, $762,000 and
$650,000 during 1996, 1995 and 1994, respectively. The proceeds from accounts
receivable pledged under these arrangements were used to fund the operations of
the Company during the years ended December 31, 1996, 1995 and 1994.
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1995
----------------- -----------------
Long-term debt consists of:
Non-interest bearing note due to the Federal Deposit Insurance
<S> <C> <C> <C>
Corporation with quarterly installments of $5,000 due July 1997..... $ 20,000 $ 40,000
Adjustable rate (approximately 10%) mortgage note due in monthly
installments through June, 2013..................................... 69,991 71,651
----------------- -----------------
89,991 111,651
Less current maturities of long-term debt........................... (21,834) (21,603)
================= =================
Total long-term debt................................................ $ 68,157 $ 90,048
================= =================
</TABLE>
During the year ended December 31, 1994, the Company settled a 9% adjustable
rate note payable to the FDIC and a 10% promissory note also due to the FDIC in
November, 1993, for $5,000 down and a non-interest bearing note for $60,000
payable in $5,000 quarterly installments.
Approximately $95,000 in obligations assumed by third party purchasers
during 1991, was recorded by the Company as part of the foreclosure upon and
repossession of assets previously owned by the Company. The obligations included
a $70,000 mortgage note payable that is secured by a first lien on certain real
estate, which now has a net book value of $50,000.
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
Total
-----------
<S> <C>
1997........................................................ $ 21,834
1998........................................................ 2,026
1999........................................................ 2,238
2000........................................................ 2,473
2001........................................................ 2,732
2002 and thereafter......................................... 58,688
-----------
$ 89,991
</TABLE>
6. STOCKHOLDERS' EQUITY:
Pursuant to the terms of two purchase agreements, the Company was to
receive 27,499 and 278,352 shares, respectively, of the Company's common stock
from two former officers and directors of the Company in connection with these
agreements. A former officer and director had pledged certain shares to various
lenders to secure certain debts, which are currently in default. As a result of
a breach of certain pledge agreements operating in favor of the Federal Deposit
Insurance Corporation ("FDIC"), the FDIC foreclosed
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on a total of 100,000 shares of the Company's common stock. At December 31,
1996, 112,349 shares of common stock of the former officers and directors has
been conveyed to the Company.
In October, 1995, options to purchase 50,000 shares of Common Stock
(150,000 shares in the aggregate) were granted to each of the following: J.
Michael Moore, the Chairman of the Board and Chief Executive Officer of the
Company, M. Ted Dillard, President, Secretary, Treasurer, and director of the
Company, and Donald A. Bailey, a director of the Company. The terms and
conditions of each of these options are as follows: (a) each of the optionees
(i) were immediately vested as to 15,000 shares (45,000 shares in the
aggregate), (ii) became vested as to the remaining 35,000 shares, (105,000
shares in the aggregate) on December 31, 1996, (b) vesting is contingent upon
the optionee's continued involvement as an officer or director of the Company,
(c) at such time as an optionee becomes vested with respect to shares of Common
Stock, such optionee may thereafter purchase the number of shares to which the
optionee is vested, subject to certain conditions, (d) the option price for
options exercised is $.50 per share, (e) subject to earlier termination as
herein provided, vested options (i) may be exercised at any time or times within
five years from the date of vesting, and (ii) must be exercised prior to the
expiration of five years from the date of vesting, and (f) if an optionee ceases
to be an officer or director of the Company, the options then vested as to such
optionee must be exercised within the earlier of (i) six calendar months from
the date on which optionee's continuous involvement with the Company is
terminated for any reason other than as provided in subsections (ii) and (iii)
below, (ii) twelve calendar months from the date on which optionee's continuous
involvement with the Company is terminated due to death, total disability or
retirement at age 65, (iii) three months from the date of termination of
employment of optionee by the Company for cause, or (iv) October 31, 2000 (five
years from the date of authorization of these options). Pursuant to a Board of
Directors meeting on December 27, 1996, the Board of Directors unanimously
approved the immediate vesting of all of the aforementioned options effective
December 31, 1996. Subsequent to December 31, 1996, M. Ted Dillard and Donald A.
Bailey exercised their right to purchase these stock options. While their funds
have been tendered, no shares have been issued as of the date of this report.
Under provisions of the Company's 1996 Nonqualified Stock Option Plan (the
"Plan"), options to purchase an aggregate of 600,000 shares of the Company's
common stock may be granted to key personnel of the Company. Options may be
granted for a term of up to ten years to purchase common stock at a price or
prices established by the Board of Directors of the Company. At December 31,
1996, options to purchase 320,000 shares of common stock had been granted to
four individuals (each of whom is now an officer or director of the Company) at
prices which range from $2.50 per share to $8.00 per share.
In December, 1996, options to purchase an additional 30,000 shares of Common
Stock were granted to Mr. Bailey; subsequently, Samuel E. Hunter, an individual
recently named as a member of the Board of Directors of the Company, was also
granted options to purchase 30,000 shares of Common Stock. The terms and
conditions of these options are as follows: (a) each of the optionees will
become vested as to their option shares on a prorata quarterly basis commencing
January 1, 1997 and ending on December 31, 1999, (b) prior to such options
becoming vested, vesting is contingent upon the optionee's continued involvement
as a director of the Company, (c) at such time as an optionee becomes vested
with respect to shares of Common Stock, such optionee may thereafter purchase
the number of shares to which the optionee is vested, subject to certain
conditions, (d) the option price for options exercised is $3.00, $4.00 and $5.00
per share for options vesting in 1997, 1998 and 1999, respectively, (e) subject
to earlier termination as herein provided, vested options (i) may be exercised
at any time prior to termination, and (ii) must be exercised prior to December
31, 2001, and (f) if an optionee ceases to be a director of the Company, the
options then vested as to such optionee must be exercised within the earlier of
(i) six calendar months from the date on which optionee's continuous involvement
with the Company is terminated for any reason other than death or disability,
(ii) twelve calendar months from the date on which optionee's continuous
involvement with the Company is terminated due to death or disability, or (iii)
December 31, 2001.
In December, 1996, the Board of Directors of the Company approved the
issuance of additional stock options to Messrs. Moore and Dillard pursuant to a
plan under which Messrs. Moore and Dillard have the right to purchase,
respectively, 155,000 and 105,000 shares of Common Stock at varying prices
subject to
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the following conditions: (a) effective as of December 31, 1996, Mr. Moore
became vested as to 77,500 shares and Mr. Dillard became vested as to 52,500
shares, (b) Mr. Moore will become vested as to an additional 46,500 shares and
31,000 shares, respectively, on December 31, of the years 1997 and 1998, (c) Mr.
Dillard will become vested as to an additional 31,500 shares and 21,000 shares,
respectively, on December 31, of the years 1997 and 1998, (d) prior to the
options becoming vested, vesting is contingent upon the optionee's continued
involvement as an officer or director of the Company, (e) the per share exercise
price for options becoming vested in 1996, 1997 and 1998 are, respectively,
$2.50, $4.00 and the lesser of $8.00 or the price per share if the Company
effectuates a public offering of its Common Stock subsequent to the date hereof
and prior to December 31, 1998, and (f) subject to earlier termination as herein
provided, vested options (i) may be exercised at any time or times prior to
termination, and (ii) must be exercised prior to December 31, 2001, and (g) if
an optionee ceases to be an officer and director of the Company, the options
then vested as to such optionee must be exercised within the earlier of (i) six
calendar months from the date on which optionee's continuous involvement with
the Company is terminated for any reason other than due to death or disability,
(ii) twelve calendar months from the date on which optionee's continuous
involvement with the Company is terminated due to death or disability, or (iii)
December 31, 2001.
In 1996, the Company entered into an agreement with a consultant (who is
not otherwise affiliated with the Company) which provides for payment to the
consultant of (a) a placement fee of 0.1% of the amount of all long-term debt
(other than secured, bank indebtedness) or equity capital raised by the Company
during the period of the agreement, and (b) an acquisition fee of 0.5% of the
purchase price of any business acquired by the Company during the period of the
agreement, provided that the consultant supplies the lead or provides due
diligence relating to such acquisition. This agreement includes provisions
related to the grant of stock options to the consultant, but no options have
been granted because the Board of Directors of the Company did not approve the
grant of such options. This agreement may be canceled by either party upon
thirty days notice.
As disclosed in Note 1 to the financial statements, the Company continues to
use the intrinsic value based method to measure stock based compensation. If the
Company had used the fair value method required by SFAS 123, compensation
expense would have increased by $218,400 for the year ended December 31, 1996.
There would have been no material effect on income taxes. Primary and fully
diluted earnings per share would have decreased by $.12. The effect on earnings
and earnings per share for the year ended December 31, 1995, would have been
insignificant.
7. FEDERAL INCOME TAXES:
The income tax provision and the amount computed by applying the federal
statutory income tax rate to income (loss) before income taxes differs as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
--------------- ------------- -------------
<S> <C> <C> <C>
Tax provision (benefit at statutory rate)................... $ 599,619 $ 156,632 $ 76,322
Net operating loss carried forward to future periods........ (599,619) (156,632) (76,322)
Alternative minimum tax..................................... 28,105 - -
State income taxes.......................................... 200,544 60,054 -
=============== ============= =============
Total................................................ $ 228,649 $ 60,054 $ -
=============== ============= =============
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation of income taxes is:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
--------------- ------------- -------------
<S> <C> <C> <C>
Operations...................................................... $ 224,774 $ 60,054 $ -
Extraordinary item.............................................. 3,875 - -
=============== ============= =============
Total.................................................... $ 228,649 $ 60,054 $ -
=============== ============= =============
</TABLE>
The components of the Company's deferred tax asset (liability) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
Net operating loss carryforward........................................... $ 872,700 $ 1,483,100
Allowance for doubtful accounts........................................... 167,900 142,000
Other..................................................................... 15,100 39,200
---------------- ----------------
Gross deferred tax asset.................................................. 1,055,700 1,664,300
Valuation allowance....................................................... (1,055,700) (1,664,300)
---------------- ----------------
$ - $ -
================= ================
</TABLE>
The Company's valuation allowance decreased $608,600 and $111,840 during the
years ended December 31, 1996 and 1995, respectively. The Company has a net
operating loss carryforward of approximately $2,567,000 as of December 31, 1996,
which, if unused, expires in 2006 through 2008. However, due to a more than 50%
change in ownership beginning with an April 1991 transaction, the Company's net
operating loss carryforward is subject to certain limitations pursuant to
provisions of the Internal Revenue Code. The amount of the Company's net
operating loss available for use as of December 31, 1996, was approximately
$274,000. An additional $467,000 will become available annually through 2001.
8. DEBT RESTRUCTURING:
During the years ended December 31, 1996, 1995 and 1994, the Company settled
certain delinquent accounts payable on a discounted basis as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Gain on Debt Restructuring, net of income taxes .................. $246,125 $174,811 $208,212
========= ========== ==========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
Pursuant to an agreement dated December 16, 1993 and after operating the
Power Placement Assets since May, 1993, the Company sold the capital stock of
Recruiters Network Group, Inc. ("RNG"), a wholly-owned subsidiary of the Company
formed to operate these assets, to an officer and director of the Company. As
part of the purchase agreement the officer and director provided funding to
enable RNG to reimburse the Company for RNG payroll costs, RNG issued a $40,000
promissory note payable to the Company (secured by RNG stock, RNG assets and
personally guaranteed by the officer and director), RNG issued a $15,000
promissory note payable to a former landlord of the Company and guaranteed by
the officer and director, and $57,400 was paid to the Company in the form of the
officer and a director releasing the Company from certain obligations and
liabilities payable by the Company to this officer and director.
Pursuant to the terms of two purchase agreements for the sale of certain
assets by the Company in 1991, the Company was to receive 27,499 and 278,352
shares, respectively, of the Company's common stock from two former officers and
directors of the Company. One of these individuals pledged certain shares to
various lenders to secure certain debts, which are currently in default. As a
result of a breach of certain pledge
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreements operating in favor of the Federal Deposit Insurance Corporation
("FDIC"), the FDIC foreclosed on a total of 100,000 shares of the Company's
common stock which had been pledged by one of these individuals to the Company.
At December 31, 1996, 112,349 shares of the common stock of these former
officers and directors have been conveyed to the Company.
During 1991, USFG-DHRG #1, Ltd. ("USFG Ltd."), then the controlling
stockholder of the Company, loaned the Company $175,000 on a one-year, 10% note,
due November 3, 1992, to be used in the operations of the business. The Company
made principal payments of $75,500 during 1992, and borrowed from USFG Ltd. an
additional $50,000 during the year. During 1993, the Company borrowed from USFG
Ltd. an additional $100,000, and repaid $135,000. During 1994 and 1995, the
Company repaid $100,000 and $14,500, respectively, of such loan. As of December
31, 1995, these loans were repaid in full.
The Company leased approximately 2,000 square feet for approximately $2,000
per month from United States Funding Group, Inc. ("USFG") through January, 1996,
which was used as its principal offices. USFG is wholly owned by J. Michael
Moore, Chairman of the Board and Chief Executive Officer of the Company.
During 1996 and 1995, the Company paid various expenses on behalf of USFG
and Mr. Moore in the amount of approximately $160,000 and $25,000, respectively.
Of the $160,000 in 1996, approximately $105,000 (which represents approximately
50% of the total legal expense) relates to litigation defense associated with a
lawsuit with Ditto Properties, Inc., in connection with the Company being named
therein as garnishee. (See Part I, Item 3. Legal Proceedings.) Mr. Moore has
agreed to reimburse the Company for advancing such litigation expenses and has
executed a note to the Company. The note has a six month maturity and is
expected to be repaid during 1997. The Company has reflected such loans in notes
receivable and prepaid expenses and other current assets for 1996 and prepaid
expenses and other current assets in 1995 in the Consolidated Balance Sheets.
The remaining loans bear interest at 10% and includes monthly payments over 36
months.
In January of 1996, the Company loaned $25,000 to United States Funding
Group Oil and Gas, Inc., an entity wholly-owned by Mr. Moore, Chairman of the
Board and Chief Executive Officer of the Company. Such loan was evidenced by a
promissory note bearing interest at the rate of 1% per month on the unpaid
balance. In addition, a 10% loan origination and administration fee was charged.
Payments on the loan were scheduled on a monthly basis with a minimum payment of
$2,000 plus interest due on the last day of each month. As of March 31, 1997,
this note has been paid in full.
During 1995, the Company advanced a total of $37,000 to former officers of
its wholly-owned subsidiary companies. During 1996, an additional advance of
$4,000 was made. These advances are reflected in prepaid expenses and other
current assets in the balance sheet at December 31, 1995. The balance of $41,000
was written off when the former officer left the Company during 1996.
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc. for the purpose of providing personnel services to certain
businesses requiring minority suppliers and to others. Laurie Moore, the wife of
J. Michael Moore, the Chief Executive Officer and Chairman of the Board of the
Company, was a minority shareholder of CFS, Inc. until her interest was
purchased by the majority shareholder of CFS, Inc. in 1996, which was made
effective retroactive to January 1, 1995. (See Note 12. Joint Venture
Operations, for more information.)
10. EMPLOYEE BENEFIT PLANS:
During the year ended December 31, 1991, the Company adopted the Diversified
Human Resources Group, Inc. Employees' Stock Ownership Plan ("ESOP"). Due to the
financial difficulties incurred by the Company during the year ended December
31, 1991, an initial contribution was not made to the ESOP, and to date, no
contributions have been made. Management is currently evaluating the possibility
of initiating the ESOP or some other form of stock ownership plan for certain of
its employees.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES:
Leases
The Company rents office space under various operating leases. The Company
is liable for the future minimum lease payments for the periods subsequent to
December 31, 1996, as follows:
<TABLE>
<CAPTION>
Operating
leases
---------------
<S> <C>
1997.......................................... $ 1,185,027
1998.......................................... 1,136,944
1999.......................................... 972,221
2000.......................................... 821,959
2001.......................................... 774,737
2002 and thereafter........................... 848,392
---------------
5,739,280
Less sublease income...................................... -
---------------
Future minimum lease payments............................. $ 5,739,280
===============
</TABLE>
The aggregate amount of past due rental payments owed by the Company to one
of its landlords was approximately $31,000 as of December 31, 1996. The Company
has previously negotiated with this landlord, and plans to settle this
obligation during renegotiation of the lease when it expires. Such amount is
reflected in the 1997 future minimum lease payments set forth in the table
above. Rent expense was approximately $1,027,000, $894,000 and $897,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
Employment Agreements
The Company had entered into employment contracts with certain key officers
at December 31, 1996.
The Board of Directors of the Company approved employment agreements with
both J. Michael Moore, Chairman of the Board and Chief Executive Officer of the
Company, and M. Ted Dillard, President, Secretary and Treasurer of the Company,
the terms of which are as follows: (a) annual compensation of $150,000 for Mr.
Moore and $125,000 for Mr. Dillard, (b) a term of three (3) years with the
possibility of renewal unless terminated and (c) the right to participate in any
and all retirement plans and fringe benefit programs which the Company now has
in effect or may hereafter adopt.
Subsequent to December 31, 1996, the Company has formed EMSR, Inc. (formerly
an office of the Company) as a wholly-owned subsidiary of the Company.
Management has entered into a preliminary agreement with Scott Higby, the
President of EMSR, Inc., for an equity arrangement pursuant to which Mr. Higby
will be granted stock options that will vest over a four year period. The option
calls for a nominal exercise price whereby Mr. Higby may exercise options
granting him up to 25% of the stock of EMSR, Inc. on a prorata basis over a four
year period.
Other Contingencies
As discussed in Note 9, 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.)
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
December 31, 1996 and 1995. Management believes that certain other litigation
are without merit and has concluded that the ultimate resolution of such
disputes will not have a material effect on the Company's consolidated financial
statements.
12. JOINT VENTURE OPERATIONS:
During January, 1995, the Company entered into a joint venture agreement
with CFS, Inc., for the purpose of providing personnel services to certain
businesses requiring minority suppliers and to others. CFS, Inc. is a minority
operated corporation, which because of its status, supplies services to clients
requiring a certain portion of its business to be allocated to minority owned
and operated vendors. The Company provides CFS, Inc. with personnel and contract
labor on a subcontractor basis. Laurie Moore, the wife of J. Michael Moore, the
Chief Executive Officer and Chairman of the Board of the Company, owned 49% of
the Supplier. The majority shareholder of CFS, Inc. purchased the 49% ownership
interest of Ms. Moore, pursuant to a transaction which was made effective
retroactive to January 1, 1995. Ms. Moore received no monetary gain on this
transaction. The Company has a 49% ownership interest in the joint venture and
is allocated 65% of the net income or loss resulting from the joint venture
operations. The joint venture had assets of $150,000 and a debt of $291,000 owed
to the Company at December 31, 1996. The joint venture recorded net losses for
the years ended December 31, 1996 and 1995, respectively, of $139,000 and
$74,000. Accordingly, the Company recognized $90,000 and $48,000, respectively,
in losses from joint venture operations in the Consolidated Statement of
Operations for the year ended December 31, 1996 and 1995.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED CHARGED TO BALANCE
BEGINNING TO COSTS OTHER AT END OF
Description OF PERIOD & EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ----------- ------------- -----------
For the Year Ended December 31, 1994:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts........$ 164,000 $ 116,000 $ 803,000 (1) $ 878,000 $ 205,000
========== ========== =========== ============= ===========
Valuation allowance for
deferred taxes.........................$1,851,494 $ - $ - $ 75,354 $1,776,140
========== ========== =========== ============= ===========
For the Year Ended December 31, 1995: (1)
Allowance for doubtful accounts........$ 205,000 $ 116,000 $1,028,000 $ 937,000 $ 412,000
=========== ========== =========== ============= ===========
Valuation allowance for
deferred taxes.........................$1,776,140 $ - $ - $ 111,840 $1,664,300
=========== ========== =========== ============= ===========
For the Year Ended December 31, 1996: (1)
Allowance for doubtful accounts........$ 412,000 $ 165,000 $1,256,000 $ 1,339,000 $ 494,000
=========== ========== =========== ============= ===========
Valuation allowance for
deferred taxes.........................$ 1,664,300 $ - $ - $ 608,600 $1,055,700
=========== ========== =========== ============= ===========
<FN>
(1) Estimated reduction in sales for applicants who accepted employment, but
did not start work or did not remain in employment for the guaranteed
period.
</FN>
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
2(a) Agreement and Plan of Merger. (1)
3(a) Articles of Incorporation of the Registrant as amended. (1)
3(b) Amended and Restated By-laws of the Registrant. (1)
10(a)Agreement dated December 14, 1992 between the Registrant and Veritas,
Inc., a Texas corporation. (2)
10(b)Agreement dated March 11, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and First In Temporaries, Inc., a
Florida corporation. (2)
10(c)Agreement dated March 12, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and Nesco Service Company, a Delaware
general partnership. (2)
10(d)Agreement dated as of April 5, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and Shear Healthcare Resources, Inc., a
Florida corporation. (2)
10(e)Agreement dated April 1, 1993 between TNI, Inc., a wholly owned
subsidiary of the Registrant, and Management Alliance Group Corp., a
Texas corporation. (2)
10(f)Foreclosure Agreement dated May 3, 1993 between the Company, Power
Placement Corporation, a Texas corporation, P&E Group, Inc., a Texas
corporation, and Cary Tobolka, an individual. (2)
10(g)Employment Contract Agreement executed April 21, 1994 between
Management Alliance Corporation and Information Systems Consulting
Corp., wholly-owned Texas subsidiaries of the Registrant, and Gary K.
Steeds, Dallas, Texas, an employee. (6)(10)
10(h)Employment Contract Agreement effective December 1, 1993 between
Management Alliance Corporation and Information Systems Consulting
Corp, wholly-owned Texas subsidiaries of the Registrant, and Billie J.
Tapp, Dallas, Texas, an employee. (6)(10)
10(i)Interim Employment Contract Agreement effective December 1, 1993
between Management Alliance Corporation and Information Systems
Consulting Corp., wholly-owned Texas subsidiaries of the Registrant,
and Gary K. Steeds, Dallas, Texas, an employee. (6)(10)
10(j)Item not used.
10(k)Settlement Agreement by and between the Registrant and
Bailey/Appel/DH Group. (3)
10(l)Option Agreement by and between the Registrant and Bailey/Appel/DH
Group. (3)
10(m)Joint and Mutual Release by and between the Registrant and
Bailey/Appel/DH Group. (3)
10(n)The Diversified Human Resources Group, Inc. Employees' Stock
Ownership Plan. (3)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
10(o)Settlement and Sale of Stock by and between Registrant and D. Joy
Perkins. (3)
o STOCK OPTION, CONSULTING AND RELEASE AGREEMENT by and between
Registrant and D. Joy Perkins, dated December 4, 1990.
o RESIGNATION AGREEMENT by and between Registrant and Perkins,
dated December 4, 1990.
o OPTION AGREEMENT by and between Registrant and Perkins, dated
December 4, 1990.
o STOCK PLEDGE AGREEMENT by Registrant in favor of Perkins, dated
December 4, 1990.
o $35,000 PROMISSORY NOTE made payable to Registrant from Perkins,
dated December 4, 1990, paid in full by transfer of Registrant's
Common Stock pursuant to Option Agreement.
o $104,425 PROMISSORY NOTE made payable to Perkins from Registrant,
dated January 3, 1991.
o STOCK PLEDGE AGREEMENT by and between Registrant and Perkins,
dated January 3, 1991.
o CONSULTING AGREEMENT by and between Registrant and Perkins, dated
December 4, 1990.
o JOINT AND MUTUAL RELEASE by and between Registrant and Perkins,
dated December 4, 1990.
o NONSOLICITATION AND NONDISCLOSURE AGREEMENT by and between
Registrant and Perkins, dated December 4, 1990. (1)
10(p)Amendment No. 1 to the Diversified Human Resources Group, Inc.
nonqualified Stock Option Agreement. (3)(10)
10(q)Settlement Agreement and Joint and Mutual Release entered into by the
Registrant, the Directors of the Registrant, William M. Brothers, an
individual, and Southwest Securities Incorporated, a Texas
Corporation, dated May 1, 1991. (4)
10(r)Option Agreement and Amendment to Option Agreement by and between the
Registrant and three former directors, dated April 30, 1991 and June
5, 1991, respectively. (4)(10)
10(s)Agreement for transfer of medical insurance plan sponsorship and plan
assets dated February 1, 1992. (4)
10(t)Agreement for transfer of 401(k) plan sponsorship and plan assets
dated April 27, 1992. (4)
10(u)First Asset Purchase Agreement dated August 29, 1991, entered into by
the Registrant and Veritas, Inc., a Texas corporation. (4)
10(v)Second Asset Purchase Agreement dated September 3, 1991, entered into
by the Registrant and P&E Group, Inc., a Texas Corporation. (4)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
10(w)Third Asset Purchase Agreement dated August 28, 1991, entered into by
the Registrant and Financial Recruiters, Inc., a Texas corporation.
(4)
10(x)Fourth Asset Purchase Agreement dated September 19, 1991, entered
into by the Registrant and Gary K. Steeds, Inc., a Texas corporation.
(4)
10(y)Tri-Party Agreement dated January 4, 1994, entered into by the
Registrant and Management Alliance Corporation and Information Systems
Consulting Corp., Texas corporations, that are wholly-owned
subsidiaries of the Registrant. (5)
10(z)Agreement dated December 29, 1993, entered into by the Registrant,
Recruiters Network Group, Inc., a Texas corporation, and Donald A.
Bailey, acting President and director of the Registrant (5).
10(z)(i) Joint Venture Agreement dated April 20, 1995, entered into by
Management Alliance Corporation, Texas corporation that is a
wholly-owned subsidiary of the Registrant, and CFS, Inc., a minority
owned business. (7)
10(z)(ii) Contract Agreement for Franchise Packaging and Market Plan dated
April 21, 1995, entered into by Management Alliance Corporation, a
Texas corporation that is a wholly-owned subsidiary of the Registrant,
and the Research Market Center, owned by an individual. (7)
10(z)(iii) Employment Contract Agreement entered into June 9, 1995, between
Management Alliance Corporation, a wholly-owned subsidiary of the
Registrant, and Anthony J. Bruno, Chicago, Illinois, an
employee.(7)(10)
10(z)(iv) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and J. Michael Moore, executed December 1,
1995.(8)(10)
10(z)(v) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and M. Ted Dillard, executed December 1, 1995.(8)(10)
10(z)(vi) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and Donald A. Bailey, executed December 1,
1995.(8)(10)
10(z)(vii) Loan Agreement by and between Information Systems Consulting
Corp. (a wholly-owned subsidiary of the Company) and Concord Growth
Corp. executed August 26, 1996.(9)
10(z)(viii) Amendment to Loan Agreement by and between Information Systems
Consulting Corp. and Concord Growth Corp. (9)
10(z)(ix) General Continuing Guaranty of Preferred Funding Corporation in
favor of Concord Growth Corporation (9)
10(z)(x) General Continuing Guaranty of the Company in favor of Concord
Growth Corporation (9)
10(z)(xi) General Continuing Guaranty of Management Alliance Corporation in
favor of Concord Growth Corporation (9)
10(z)(xii) The Registrant's 1996 Nonqualified Stock Option Plan, effective
as of December 27, 1996.(9)(10)
10(z)(xiii) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and J. Michael Moore, executed April 10, 1997.(9)(10)
10(z)(xiv)Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and M. Ted Dillard, executed April 10, 1997.(9)(10)
10(z)(xv) Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and Donald A. Bailey, executed April 10, 1997.(9)(10)
10(z)(xvi)Stock Option Agreement by and between Diversified Corporate
Resources, Inc. and Samuel E. Hunter, executed April 10, 1997.(9)(10)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
10(z)(xvii)Employment Contract by and between Diversified Corporate
Resources, Inc. and J. Michael Moore, executed April 10, 1997.(9)(10)
10(z)(xviii)Employment Contract by and between Diversified Corporate
Resources, Inc. and M. Ted Dillard, executed April 10, 1997.(9)(10)
17(a)Resignation of Director-Employment Termination Agreement by and
between Registrant and D. Joy Perkins, dated December 4, 1990. (3)
21 List of Subsidiaries. (9)
- --------------------------------------------
(1) Filed as an exhibit of corresponding number to Registration Statement
No. 33-760 FW on Form S-18 and incorporated herein by reference.
(2) Filed as an exhibit to Form 8-K dated March 26, 1993, and incorporated
herein by reference.
(3) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1990, and incorporated herein by reference.
(4) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1991, and incorporated herein by reference.
(5) Filed as an exhibit to Form 8K for January 4, 1994, and incorporated
herein by reference.
(6) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1993, and incorporated herein by reference.
(7) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31,1994, and incorporated herein by reference.
(8) Filed as an exhibit of corresponding number in Form 10-K for the year
ended December 31, 1995, and incorporated herein by reference.
(9) Filed herewith.
(10) Stock option plans, management contracts or compensatory arrangements.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Diversified Corporate Resources, Inc.
Date: April 15, 1997 By: /s/ J. Michael Moore
-----------------------
J. Michael Moore
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
/s/ J. Michael Moore Chairman and Chief Executive Officer
- ------------------------
J. Michael Moore
/s/ M. Ted Dillard President, Principal Financial Officer
- ------------------------ and Director
M. Ted Dillard
/s/ Donald A. Bailey Director
- ------------------------
Donald A. Bailey
/s/ Samuel E. Hunter Director
- ------------------------
Samuel E. Hunter
LOAN AGREEMENT
This Loan Agreement (the "Agreement") is entered into as of August 26,
1996, between Information Systems Consulting Corp., a Corporation ("Borrower"),
with its chief executive office and principal place of business located at the
address set forth below Borrower's signature line, and Concord Growth
Corporation ("Lender"), concerning loans and other credit accommodations to be
made by Lender to Borrower.
Capitalized terms used in this Agreement shall have the meanings
assigned to them in Section 8.11, Definitions, or in such other Section of this
Agreement as is identified in Section 8.11.
1. LOANS AND OTHER CREDIT ACCOMMODATIONS
1.1. LOANS. Subject to the terms and conditions in this Agreement,
Lender shall make revolving loans to Borrower from time to time against Eligible
Accounts (each, an "Advance") up to a maximum aggregate amount outstanding at
any time not to exceed the lesser of (a) eighty five percent (85%) (the "Advance
Rate") of the aggregate amount of all Eligible Accounts, or (b) one million
Dollars ($1,000,000) (the "Maximum Credit"). Except as otherwise provided in
this Agreement, Advances may be borrowed, repaid and reborrowed.
In the event the aggregate outstanding Advances shall at any time
exceed the foregoing limitation, Borrower shall immediately repay the Advances
in the amount of such excess.
1.2. ELIGIBLE ACCOUNTS. "Eligible Accounts" are accounts which are and
remain acceptable to Lender as Collateral for lending purposes. General criteria
for Eligible Accounts are set forth below but may be revised from time to time
by Lender, in its sole judgment, upon notice to Borrower; provided, that Lender
may, in its sole discretion, make exceptions to any of the general criteria
described below on a case by case basis without implying changes to such
criteria:
(a) such account was created in the ordinary course of Borrower's
business;
(b) such account is represented by an invoice in form acceptable
to Lender;
(c) the invoice that is delivered by Borrower to the account
debtor with respect to such account instructs the account
debtor to make payment directly to the Lockbox;
(d) Borrower has delivered to Lender such original documents as
Lender may have requested pursuant to Section 3.2 in
connection with such account and, if requested by Lender,
Lender shall have received from the account debtor a
verification of such account, satisfactory to Lender;
(e) the amount of such account represented by the invoice is
absolutely owing to Borrower [except for any discounts for
prompt payment provided by Borrower to account debtors in the
normal course of Borrower's business which are approved in
advance by Lender];
(f) the goods giving rise to such account were not at the time of
the sale subject to any liens except those permitted in the
Security Agreement;
(g) such account is not evidenced by chattel paper or an
instrument of any kind;
(h) such account is due not more than thirty (30) days from the
date of the invoice;
CORPDAL:64287.1 28722-00003
1
<PAGE>
(i) such account arises from a bona fide completed sale of goods
or performance of services, which goods and services have been
delivered to, or performed for, and in either case accepted
by, the account debtor;
(j) such account does not arise from the delivery of any toolings,
samples, trial merchandise, promotional or demonstration
material;
(k) such account does not arise from a sale to an individual
acting with respect to his or her own personal, family or
household consumption;
(1) such account does not arise from progress billings (i.e.,
billings representing a percentage of the amount due upon
completion or achievement of a contractual milestone but where
failure to complete or deliver the remaining work or goods may
constitute an offset, defense or counterclaim to payment);
(m) such account does not arise from a retention (i.e., a
percentage of the amount payable to Borrower pursuant to the
contract which is withheld by the account debtor until a time
after completion) nor is such account subject to holdbacks for
retention;
(n) such account does not arise from a bill and hold sale (i.e., a
sale in which the account debtor has been invoiced without
either delivery or acceptance of the goods or services or
transfer of title of the goods, even when the goods are held
and the invoices are issued at the account debtor's request);
(o) such account does not arise from a sale on consignment, "sale
or return" or "sale on approval" (i.e., sales in which title
purports not to pass or has not passed to the account debtor
until payment, resale, acceptance or otherwise);
(p) such account does not arise from a guaranteed sale (i.e., a
sale in which the account debtor reserves the right to return
any unsold goods even if title purports to pass to the account
debtor);
(q) such account does not arise on terms under which payment may
be conditional or contingent in any way;
(r) there are no contra relationships (i.e., a situation in which
the Borrower owes the account debtor money), setoffs,
deductions, allowances, counterclaims or disputes existing
with respect to such account and there are no other facts
existing or threatened which would impair or delay the
collectibility of all or any
(s) neither the account debtor nor any officer or employee of the
account debtor is an officer, employee or agent of or is
affiliated with Borrower, directly or indirectly;
(t) the account debtor is neither the United States nor any State,
subdivision, municipality, department or agency of the United
States, unless there has been compliance with the Federal
Assignment of Claims Act or any similar State or local law, if
applicable;
(u) the ccount debtor's chief executive office and principal
place of business are located in the United States;
(v) the account debtor is not the subject of any bankruptcy or
insolvency proceeding of any kind;
(w) such account is owed by an account debtor deemed creditworthy
at all times by Lender;
(x) there are no facts existing or threatened which might result
in any adverse change in the account debtor's financial
condition;
CORPDAL:64287.1 28722-00003
2
<PAGE>
(y) such account has not remained unpaid for more than ninety (90)
days after the original invoice date;
(z) such account is not owed by an account debtor who is or whose
affiliates are past due upon other accounts owed to Borrower
comprising more than twenty-five percent (25%) of the accounts
of such account debtor or its affiliates owed to Borrower;
(aa) such account is owed by an account debtor whose total
indebtedness to Borrower does not exceed the amount of any
customer credit limit as established, and changed, from time
to time by Lender on notice to Borrower (accounts excluded
from Eligible Accounts solely by reason of this subsection
(aa) shall nevertheless be considered Eligible Accounts in an
amount not to exceed the customer credit limits);
(bb) the aggregate amount of all accounts owed by the account
debtor and/or such account debtor's affiliates does not exceed
twenty percent (20%) of the aggregate amount of all otherwise
Eligible Accounts (accounts excluded from Eligible Accounts
solely by reason of this subsection (bb) shall nevertheless be
considered Eligible Accounts in an amount not to exceed twenty
percent (20%) of the aggregate face amount of all otherwise
Eligible Accounts).
1.3. ACCOMMODATIONS. Lender may, in its sole discretion, provide
additional loans or financial accommodations (the "Accommodations") to Borrower.
Such Accommodations, if made, shall be evidenced by, and repayable in accordance
with, one or more secured promissory notes in form and substance acceptable to
Lender (each, an "Accommodation Note"), and shall constitute Obligations under
this Agreement.
1.4. INVENTORY LOANS. In the event Lender has agreed or hereafter
agrees to provide loans to Borrower against any inventory of Borrower, such
loans shall be upon the terms and conditions set forth in an Inventory Rider
signed by Borrower and Lender (the "Inventory Rider") and shall constitute
Obligations under this Agreement. Any such inventory loans shall not, when added
to the outstanding Advances exceed the Maximum Credit.
1.5. RESERVES. Lender shall have the right to establish reserves
against the amount of the Advances available under Section 1.1 to the extent
necessary, in Lender's credit judgment, to ensure payment of the Obligations
(the "Reserves"). Lender may, at its option, implement Reserves by either (i)
designating as ineligible a sufficient amount of accounts that would otherwise
be Eligible Accounts so as to reduce Borrower's availability by the amount of
the intended Reserve, (ii) changing the Advance Rate set forth in Section 1.1,
[or (iii) establishing a cash collateral account in Lender's name to hold
collections as Lender's cash collateral].
2. INTEREST AND FEES
2.1. FACILITY FEE. Borrower shall pay Lender on the date hereof, a
facility fee (the "Facility Fee") in the amount of one half of one percent
(.50%) of the Maximum Credit, which fee is fully earned and non-refundable as of
the date each such payment is due and shall be deducted from the proceeds of the
first advance under the Maximum Credit.
CORPDAL:64287.1 28722-00003
3
<PAGE>
2.2. INTEREST. Borrower shall pay interest to Lender on the outstanding
Advances under this Agreement at a floating rate per annum equal to the Prime
Rate plus two and one half percent (Prime + 2.5 % (the "Interest Rate"), which
interest shall be payable and calculated as hereinafter set forth. Borrower
shall pay such interest to Lender on the first day of each month in an amount
equal to (a) the quotient obtained by dividing the sum of the daily unpaid
Advances outstanding on each day during the immediately preceding month by the
actual number of days in such month (the "Average Daily Balance"), multiplied by
(b) the quotient obtained by dividing the Interest Rate by 360, multiplied by
(c) the actual number of days in the immediately preceding month. The lnterest
Rate shall increase or decrease monthly, on the first day of each month, by the
amount of any increase or decrease in the Prime Rate. For purposes of this
Agreement, the "Prime Rate" is the prime rate of interest publicly listed by the
Western Edition of the Wall Street Journal on the first day of each month or, if
the first day of such month is not a business day, on the last business day of
the immediately preceding month. In the event the prime commercial interest rate
listed by the Wall Street Journal is a range, the highest rate in the range
shall be the "Prime Rate".
2.3. DEFAULT RATE. Upon and after either (a) notification to Borrower
of the occurrence of an Event of Default, or (b) termination of this Agreement,
until the date that all Obligations are indefeasibly paid and satisfied in full,
interest shall accrue on all Obligations at a rate equal to the sum of the
Interest Rate otherwise payable to Lender plus twelve percent (12%).
2.4. ADMINISTRATIVE FEE. Borrower shall pay Lender on the first
day of each month an administrative fee (the "Administrative Fee") in an amount
equal to (a) the Average Daily Balance for the immediately preceding month,
multiplied by (b) six-tenths of one percent (0.6%).
2.5. MONTHLY MINIMUM FEE. Lender would not have entered into this
Agreement and agreed to provide Borrower with the financing hereunder unless
Borrower guaranteed Lender that the sum of the interest as set forth in Section
2.2, in any Inventory Rider and in any Accommodation Note, and the
administrative fees set forth in Section 2.4, in any Inventory Rider and in any
Accommodation Note, paid to Lender in each month would be at least seven
thousand five hundred Dollars ($7,500) (the "Monthly Minimum Fee"). In the event
the aggregate amount of such interest and administrative fees payable on the
first day of any month is less than the Monthly Minimum Fee, then Borrower shall
pay to Lender on the first day of such month the Monthly Minimum Fee in
satisfaction of the interest and administrative fees payable during such month.
2.6. EARLY TERMINATION FEE. In the event either (a) Borrower terminates
this Agreement prior to the end of any Term, (b) Lender terminates this
Agreement with respect to further Advances, inventory loans and other
Accommodations upon and after the occurrence of any Event of Default, or (c)
this Agreement automatically terminates upon the occurrence of an Event of
Default under Sections 6.1(i) or (j) as set forth in Section 6.2, in view of the
impracticality and extreme difficult of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, in addition to all other Obligations, Borrower shall pay to Lender,
upon the effective date of any such termination, an
CORPDAL:64287.1 28722-00003
4
<PAGE>
early termination fee equal to the Minimum Monthly Fee multiplied by a maximum
of three months, or the remaining number of months in this agreement.
2.7. AUDIT FEES. Lender or its designees may conduct Quarterly
examinations of the Collateral and Borrower's operations, unless an Event of
Default has occurred and is continuing, in which event the number of audits
conducted will be in Lender's reasonable discretion. Borrower shall pay Lender
audit fees not to exceed six hundred Dollars ($600) per day plus expenses per
audit. Audit fees shall be payable upon demand by Lender.
2.8. MAXIMUM LAWFUL RATE. In no event shall charges constituting
interest under this Agreement exceed the highest rate permitted under applicable
law. In the event that a court of competent jurisdiction makes a final
determination that Lender has received interest under this Agreement in excess
of the maximum lawful rate, then such excess shall be deemed a payment of
principal and applied against the principal under this Agreement, and the
interest payable under this Agreement shall be deemed amended to the amount
payable under the maximum lawful rate.
2.9. CALCULATIONS BASED ON 360 DAY YEAR. Interest and any other
amounts payable by Borrower to Lender based on a per annum rate shall be
calculated on the basis of actual number of days elapsed over a 360-day year.
2.10. CHARGES TO LOAN ACCOUNT. At Lender's option, all principal,
interest, fees, costs, expenses and other charges provided for in this
Agreement, or in any other Loan Documents may be charged to any loan account of
Borrower maintained by Lender either by (a) deducting such amounts from any
Advance requested by Borrower and made by Lender, or (b) treating such amounts
as additional Advances.
3. ADMINISTRATION AND COLLECTION
3.1. DELIVERY OF INVOICES. Borrower shall deliver a copy of each
invoice to Lender as such invoice is generated and delivered to an account
debtor or at least once per week in a batch. Borrower's granting of credits,
discounts, allowances, deductions, return authorizations or the like with
respect to any account will be promptly reported to Lender in writing.
3.2. DELIVERY OF EVIDENCE OF SHIPMENT AND OTHER ACCOUNT INFORMATION.
Borrower shall deliver to Lender proof of rendition at services, shipment, and
delivery of goods at the same time Borrower delivers the invoices to Lender with
respect to such services or goods pursuant to Section 3.1. Borrower shall
deliver to Lender such other agreements and documents relating to the accounts
or other Collateral, including assignments to Lender, at such times as Lender
may request and in the manner specified by Lender.
3.3. LOCKBOX: COLLECTION OF COLLATERAL. Borrower shall instruct each
account debtor to make all payments owed to Borrower in Borrower's name or
properly registered trade name as set forth in the Security Agreement directly
to a lockbox acceptable to Lender (the "Lockbox"). Borrower shall include on
each invoice delivered to an account debtor a stamp or computer generated
instruction directing the account debtor to make all payments directly to the
Lockbox.
CORPDAL:64287.1 28722-00003
5
<PAGE>
Such instructions shall not be changed without Lender's prior written consent.
Payments on all Borrower's accounts and all other proceeds of Collateral shall
be made directly to the Lockbox, whether or not Lender is providing financing
for such account. All payments received in the Lockbox by 10:00 a.m. on any
business day shall be deposited in an account designated by and acceptable to
Lender on the same day and credited to Borrower's loan account as set forth in
Section 3.5. At Lender's request, all invoices and statements sent to any
account debtor, other obligor or bailee, shall state that the accounts and such
other Collateral have been assigned to Lender and are payable directly and only
to Lender. Upon demand by Lender, Borrower shall reimburse Lender for the costs
incurred by Lender in establishing and maintaining the Lockbox.
3.4. PAYMENT IN KIND: DELIVERY TO LENDER. Notwithstanding Borrower's
instructions to account debtors and other persons, in the event Borrower
receives any payments on accounts or other proceeds of Collateral, Borrower will
hold such payments in trust and safekeeping for Lender and immediately turn over
to Lender the identical check or other form of payment received by Borrower with
any necessary endorsement or assignment.
3.5. CREDITING OF PAYMENTS. All Obligations shall be payable at
Lender's office set forth below, at Lender's bank as identified to Borrower, or
at such other place as Lender may expressly designate from time to time. For
purposes of determining availability under this Agreement, payments on financed
accounts and other payments with respect to the Collateral and Obligations will
be credited to the loan account of Borrower upon the date of Lender's receipt of
advice from Lender's bank that such payments have been credited to Lender's
account or in the case of payments received directly in kind by Lender, upon the
date of Lender's deposit thereof at Lender's bank, subject in either case to
final payment and collection. Solely for the purpose of calculating interest and
fees under this Agreement, including interest and fees under any Inventory Rider
and any Accommodation Note, payments on financed accounts and other payments
with respect to Collateral and Obligations shall be deemed received by Lender
two (2) business days after the date of Lender's receipt of advice from Lender's
bank that such payments have been credited to Lender's account or in the case of
payments received directly in kind by Lender, two (2) business days after the
date of Lender's deposit thereof at Lender's bank, subject in either case to
final payment and collection.
3.6. Intentionally omitted.
3.7. ACCOUNT VERIFICATION. Lender may at any time, but without any duty
to do so, whether or not an Event of Default has occurred, and without notice to
or assent of Borrower, in Lender's own name, pseudonymously, or by its designee:
(a) request any account debtor, other obligor or bailee by telephone or in
writing for verification of accounts and other Collateral; (b) notify any
account debtor that the accounts and other Collateral that includes a monetary
obligation have been assigned to Lender by Borrower and that payment thereof is
to be made directly to Lender; and (c) demand, collect or enforce payment of any
accounts or such other Collateral. Upon Lander's request, Borrower shall assist
Lender in connection with any request, notification or demand hereunder.
CORPDAL:64287.1 28722-00003
6
<PAGE>
3.8. LOAN ACCOUNT. Lender shall render to Borrower monthly a loan
account statement. Each statement shall be considered correct and binding upon
Borrower as an account stated, except to the extent that Lender receives, within
thirty (30) days after the mailing of such statement, written notice from
Borrower of any specific exceptions by Borrower to that statement.
4. INTENTIONALLY OMITTED.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions to making any Advances, inventory and other loans and
Accommodations by Lender to Borrower:
5.1. ACCOUNT REPRESENTATIONS AND WARRANTIES. Each account submitted to
Lender meets each of the eligibility requirements in Section 1.2, except as
either (a) disclosed in writing to Lender at the time Borrower submits such
account to Lender, or (b) is evident on the invoice representing such account.
Each account, including Eligible and non-Eligible Accounts, (i) is a bona fide
account, (ii) represents indebtedness owed to Borrower, and (iii) is in all
respects what it purports to be. All statements made and all unpaid balances and
other information appearing in the invoices, agreements, proofs of rendition of
services and delivery of goods and other documentation relating to the accounts,
and all confirmatory assignments, schedules, statements of account and books and
records with respect thereto, are true and correct and in all respects what they
purport to be.
5.2. USE OF PROCEEDS; SINGLE LOAN. Borrower shall use the proceeds of
Advances and other loans or Accommodations made by Lender to Borrower for legal
and proper business purposes, and not for any personal, family, or household
purposes. All Advances and other loans and Accommodations shall constitute one
general Obligation and shall be secured by Lender's security interest in all of
the Collateral.
5.3. COMPLIANCE WITH LAWS; PAYMENT OF TAXES. Borrower is and at all
times will continue to be in compliance with the requirements of all material
laws, rules, regulations and orders of any governmental authority relating to
its business, including those relating to taxes (including payment and
withholding of payroll taxes, employer and employee contributions and similar
items), securities, employee retirement and welfare benefits, employee health
and safety, labor and environmental matters, and all material agreements or
other instruments binding on Borrower or its property. Borrower shall pay all
taxes, assessments and governmental charges against Borrower same are being
contested in good faith and, at Lender's option, Reserves are established for
the amount contested and penalties which may accrue thereon.
5.4. DELIVERY OF AGINGS AND FINANCIAL INFORMATION. Borrower shall keep
and maintain its books and records in accordance with generally accepted
accounting principles, consistently applied. Borrower shall, at its sole
expense, deliver to Lender (a) on or before the thirtieth (3Oth) day at each
month, true and complete monthly agings of its accounts receivable and accounts
and notes payable, and monthly inventory reports and bank statements, and (b) on
or before the
CORPDAL:64287.1 28722-00003
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<PAGE>
thirtieth (30th) day of each month, true and correct monthly internally prepared
interim financial statements. Annually, Borrower shall, at its sole expense,
deliver to Lender true and correct (a) financial statements of Borrower prepared
according to generally accepted accounting principles, as soon as available, but
in no event later than one hundred five (105) days after the end of Borrower's
fiscal year, and (b) tax returns within ten (10) days after such tax returns are
filed with the appropriate taxing authorities. Lender may require that annual
financial statements be prepared and certified by an independent certified
public accountant acceptable to Lender. Borrower shall also cause each person or
entity that is or becomes a guarantor to deliver to Lender year end financial
statements of such guarantor within forty five (45) days after the end of each
such period. All of the information required above shall be in such form, and
together with such other information with respect to the business of Borrower or
any guarantor, as Lender may request.
5.5. NO SALE OF COLLATERAL, MERGER OR ACQUISITION OF INTEREST. Borrower
shall not, directly or indirectly, without the prior written consent of Lender:
(a) sell, lease, transfer, assign, or otherwise dispose of any part of the
Collateral or any material portion of its other assets other than sales of
inventory to buyers in the ordinary course of business; (b) consolidate with or
merge into any other entity.
5.6. NO LOANS, DIVIDENDS, TRANSACTIONS WITH AFFILIATES. Borrower shall
not, directly or indirectly, without the prior written consent of Lender: (a)
lend money or property to, guarantee, pay or assume indebtedness of, or invest
in (by capital contribution or otherwise), any person, corporation or other
entity (including any officer, director, employee, shareholder or affiliate of
Borrower); (b) declare or pay any dividends on, redeem, or otherwise make any
distributions on account of, any shares of any class of stock or other equity
interest of Borrower now or hereafter outstanding; or (c) enter into any sale,
lease or other transaction with any officer, director, employee, shareholder or
affiliate of Borrower on terms that are less favorable to Borrower than those
which might be obtained at the time from persons who are not an officer,
director, employee, shareholder or affiliate of Borrower.
5.7. REPLACEMENT OF OFFICERS AND GENERAL PARTNERS. If Borrower is a
corporation and the chief executive officer, chief operating officer or chief
financial officer existing on the date of this agreement shall resign or
otherwise cease to be actively employed by Borrower in such capacity, Borrower
shall appoint a replacement or substitution reasonably satisfactory to Lender
within fifteen (15) days after the effective date of such resignation or the
date such person ceases to be actively employed by Borrower. If Borrower is a
partnership and any general partner withdraws or ceases to perform its duties in
such capacity, such general partner shall be replaced with a new general partner
reasonably satisfactory to lender within fifteen (15) days after the effective
date of such withdrawal or the date such general partner ceases to perform its
duties.
5.8. FINANCIAL COVENANTS. Borrower shall:
(a) at all times maintain working capital of not less than NA Dollars
($NA), as determined in accordance with generally accepted accounting principles
in effect on the date hereof, consistently applied;
CORPDAL:64287.1 28722-00003
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<PAGE>
(b) at all times maintain net worth of not less than NA Dollars ($NA),
as determined in accordance with generally accepted accounting principles in
effect on the date hereof, consistently applied: and
(c) not, directly or indirectly, expend or commit to expend, for fixed
or capital assets (including capital lease obligations) an amount in excess of
NA Dollars ($NA ) in any fiscal year of Borrower;
(d) maintain positive cash flow (defined as Earnings Before Interest,
Taxes, Depreciation, Amortization) on a quarterly basis, as determined in
accordance with generally accepted accounting principles in effecting the date
hereof, consistently applied.
(e) maintain profitability of no less than fifty thousand Dollars
($50,000), on a quarterly basis, as determined in accordance with generally
accepted accounting principles in effect on the date hereof, consistently
applied.
5.9. LITIGATION. There are no actions, suits, proceedings,
investigations or claims pending, or to the knowledge of Borrower threatened,
against Borrower or any of Borrower's assets, except as disclosed to Lender in
writing before the date of this Agreement. Borrower shall promptly notify Lender
in writing of any loss, damage, suit, proceeding, investigation, or claim
relating to a material portion of the Collateral or that may result in a
material adverse change in Borrower's business, assets, liabilities or
condition.
5.10. NO PAYMENTS TO SUBORDINATED CREDITORS. Borrower shall not make
any payments to any of the Subordinated Creditors on account of principal,
interest or any other indebtedness other than permitted payments as consented to
by Lender in writing, unless and until all of the Obligations are indefeasibly
paid and satisfied in full.
5.11. SURVIVAL AND CONTINUATION OF REPRESENTATIONS. Each representation
and warranty contained in this Agreement and the other Loan Documents shall be
continuous and shall remain accurate, complete and not misleading during the
Term of this Agreement, and all such representations and warranties shall
survive the execution and delivery by Borrower and Lender of this Agreement and
the other Loan Documents.
5.12. ORGANIZATION AND QUALIFICATION. Borrower is, and shall continue
to be, a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is qualified and
authorized to do business and is, and shall continue to be, in good standing as
a foreign corporation in each State where is conducts business and in which the
failure to so qualify would have a material adverse effect on the financial
condition, business or properties of Borrower.
5.13. CORPORATE POWER AND AUTHORITY. Borrower is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and each of
the other Loan Documents to which it is a party. The execution, delivery and
performance of this Agreement and each of the other Loan Documents have been
duly authorized by all necessary corporate action and do not
CORPDAL:64287.1 28722-00003
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<PAGE>
and will not contravene Borrower's charter, articles or certificate of
incorporation or by-laws or result in a breach of or constitute a default under
any indenture, loan agreement or any other agreement, lease or instrument to
which Borrower is a party or by which it or its properties may be bound.
5.14. ENFORCEABLE AGREEMENT. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding obligation of Borrower enforceable against it in accordance with its
terms.
6. EVENTS OF DEFAULT AND REMEDIES
6.1. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "Event of Default" under this Agreement:
(a) Borrower fails to pay as and when due any of the Obligations;
(b) Borrower fails to perform or breaches any of the material covenants
or terms of this Agreement, the Security Agreement or any other Loan Document
(other than a covenant or term which is dealt with specifically elsewhere in
this Section 6.1);
(c) Any representation, warranty or statement of fact made by Borrower
to Lender in this Agreement, the Security Agreement or any other Loan Document
or otherwise, or to any affiliate of Lender, shall be inaccurate or misleading
in any material respect;
(d) Any guarantor revokes, terminates or fails to perform any of the
terms of any guaranty, endorsement or other agreement of such party in favor of
Lender or any affiliate of Lender;
(e) Notice of a federal tax lien is filed against Borrower or Borrower
fails to pay any payroll or withholding taxes;
(f) Any judgment, writ of attachment or similar process involving an
amount in excess of twenty thousand Dollars ($20,000) is obtained against
Borrower or any guarantor, or any of their representative assets, and remains
undischarged for thirty (30) days after it is obtained;
(g) Borrower or any guarantor (if Borrower or guarantor is a
partnership or corporation) or any general partner of Borrower or any guarantor
(if such general partner is a corporation), is dissolved, or Borrower or any
guarantor (if Borrower or guarantor is a corporation) fails to maintain its
corporate existence in good standing, or the usual business of Borrower or any
guarantor ceases or is suspended;
(h) Borrower (if Borrower is a natural person), any guarantor (if such
guarantor is a natural person) or any general partner of Borrower or any
guarantor (if Borrower or such guarantor is a partnership and the general
partner is a natural person), dies and. with respect to the death of a guarantor
or a general partner such guarantor or general partner has not been
CORPDAL:64287.1 28722-00003
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<PAGE>
replaced within ten (10) days of the death of such guarantor or general partner
by another person as creditworthy in Lender's reasonable judgment as the
original guarantor or general partner;
(i) Borrower or any guarantor becomes insolvent, makes an assignment
for the benefit of creditors, makes or sends notice of a bulk transfer or calls
a general meeting of its creditors or principal creditors;
(j) Any petition or application for any relief under the bankruptcy
laws of the United States now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed by or against Borrower or any guarantor
(k) The indictment of Borrower or any guarantor under any criminal
statute, or commencement of criminal or civil proceedings against Borrower or
any guarantor, pursuant to which statute or proceedings the penalties or
remedies sought or available include forfeiture of any at the property of
Borrower or such guarantor;
(1) Any default or event of default exists under any agreement,
document or instrument at any time executed and/or delivered to Lender or any of
its affiliates, by an affiliate of Borrower;
(m) If Borrower is a corporation, any change in the controlling
ownership of Borrower occurs;
(n) Borrower makes any payment to a Subordinated Creditor in violation
of the terms of any agreement entered into between such Subordinated Creditor
and Lender, a copy of which has been delivered to Borrower.
6.2. REMEDIES. Upon the occurrence of an Event of Default and at any
time thereafter, Lender may, without notice, exercise any or all of the rights
and remedies provided in the Security Agreement, the other Loan Documents or
under applicable law, including the immediate termination of any further
Advances, inventory and other loans and Accommodations, the declaration of all
Obligations to be immediately due and payable, and the enforcement of Lender's
security interest in all or any portion of the Collateral, provided, that
immediately upon the occurrence at an Event of Default of a type described in
Section 6.1 (i) or (ii), this Agreement shall automatically terminate without
notice or demand of any kind and the Obligations shall be immediately due and
payable.
7. GOVERNING LAW; WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION;
OTHER WAIVERS.
7.1. INCORPORATION OF SECURITY AGREEMENT PROVISIONS RELATING TO
GOVERNING LAW, WAIVER OF JURY TRIAL, CONSENT TO JURISDICTION NO IMPLIED WAIVER
AND RELEASE. Sections 5.1, 5.2, 5.3, 5.4 and 5.5 of the Security Agreement
relating to governing law, waiver of jury trial, consent to jurisdiction, no
implied waiver and release apply to this Agreement and to the Security
CORPDAL:64287.1 28722-00003
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<PAGE>
Agreement and other Loan Documents, and are hereby incorporated into this
Agreement by reference.
7.2. WAIVER OF SETOFF. Borrower hereby irrevocably waives any right
to offset against amounts owed by Borrower to Lender under the Loan Documents
any claims or counterclaims that may be asserted by Borrower.
8. OTHER FEES AND EXPENSES; TERM OF AGREEMENT; MISCELLANEOUS
8.1. OTHER FEES AND EXPENSES. Borrower shall pay Lender immediately
upon demand, those fees and expenses described in Section 3.6 of the Security
Agreement.
8.2. EFFECTIVENESS; TERM. This Agreement shall only become effective
upon execution and delivery by Borrower and Lender and, unless earlier
terminated as provided in this Agreement, shall continue in full force and
effect for an initial term of twelve (12) months from the date of this Agreement
as set forth in the introductory paragraph hereof and shall be deemed
automatically renewed for successive twelve (12)-month periods. Unless earlier
terminated as provided in this Agreement, all Obligations shall be due and
payable in full at the expiration of the last renewal Term. This Agreement may
be terminated prior to the end of the initial or any renewal term (each, a
"Term") as follows:
(a) Borrower or Lender may terminate this Agreement as of the end of
any Term by either party giving the other written notice at least thirty (30)
days prior to the end of such Term. If either Borrower or Lender so notifies the
other, all Obligations shall be due and payable in full at the end of such Term;
(b) In addition to being able to terminate this Agreement at the end of
each Term, Borrower may terminate this Agreement at any other time after giving
Lender at least thirty (30) days prior written notice and paying Lander an Early
Termination Fee as set forth in Section 2.6. Any such termination shall be
effective upon payment to Lender in full at all Obligations, including the Early
Termination Fee; and
(c) Lender shall also have the right to terminate this Agreement as set
forth in Section 6.2 upon and after the occurrence of an Event of Default or, as
set forth in Section 6.2, this Agreement shall automatically terminate following
the occurrence of an Event of Default under Section 6.1(i) or(j). Upon any such
termination following an Event of Default, all Obligations, including the Early
Termination Fee, shall be due and payable in full.
8.3. DEPOSIT TO ALLOW FOR OPEN ACCOMMODATIONS AND REMITTANCE ITEMS.
Upon termination of this Agreement by Borrower, as permitted herein, in addition
to payment of all Obligations, Borrower shall deposit such amount of cash
collateral as Lender determines is necessary to secure Lender from loss or
expense, including reasonable attorneys' fees, in connection with any open
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
CORPDAL:64287.1 28722-00003
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<PAGE>
8.4. CONTINUING OBLIGATIONS UPON TERMINATION. No termination of this
Agreement, including any termination set forth in Section 8.2 or 6.2, shall
relieve or discharge Borrower of its obligations, duties and covenants hereunder
until such time as all Obligations to Lender have been indefeasibly paid and
satisfied in full. Without limiting the generality of the foregoing, all
security interests and liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral, and all warranties, representations,
covenants, agreements and waivers of Borrower, shall continue in full force and
effect until released and terminated by Lender in writing after full and final
payment of all Obligations.
8.5. NOTICES. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth below its
signature line and to Borrower at its chief executive office set forth below its
signature line, or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy, immediately upon receipt: if by overnight delivery
service, one
8.6. PARTICIPATIONS; SECURITIZATION. Lender may assign and sell
Participations in its rights and obligations under this Agreement and the other
Loan Documents. Lender may include the loans made pursuant to this Agreement and
the other Loan Documents in a pool of loans in which Lender sells undivided
interests as part of a securitization program.
(a) Assignment of Loans. Borrower understands that Lender may from time
to time transfer and assign Loans and its rights under this Agreement to one or
more assignees. Borrower hereby consents to these transfers and assignments by
Lender to one or more assignees. Borrower hereby consents that any such assignee
may exercise the rights of Lender hereunder. Borrower further hereby consents
and acknowledges that any and all defenses, claims or counterclaims that it may
have against Lender shall be limited to, and may only be brought against, Lender
and shall not extend to any assignee, including but not limited to funding
obligations.
(b) Borrower and Lender intend that any and all direct or indirect
assignees of the Lender of the type set forth above shall be third party
beneficiaries of this Agreement.
8.7. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect the Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
8.8 INTEGRATION. This Agreement, the Security Agreement and the other
Loan Documents contain the entire agreement at the parties as to the subject
matter hereof. All prior commitments, proposals and negotiations concerning the
subject matter hereof are merged herein. Neither this Agreement, the Security
Agreement nor any of the other Loan Documents shall be amended, modified or
discharged orally or by course of conduct, but only by a written agreement
signed by an authorized officer of Lender and Borrower. This Agreement shall be
binding upon and inure to the benefit of each at the parties hereto and their
respective successors and assigns,
CORPDAL:64287.1 28722-00003
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<PAGE>
except that Borrower shall not assign this Agreement or any of its rights
hereunder without the prior written consent of Lender.
8.9. HEADINGS. All title and section headings used in this Agreement
are for convenience only and shall not be used in interpreting this Agreement.
8.10. COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which shall be an original but all of which shall
constitute one and the same agreement.
8.11. DEFINITIONS. All terms used herein which are defined in the
Uniform Commercial Code as in effect in California shall have the meanings given
therein unless otherwise defined in this Agreement. All references to the
singular or plural herein shall include the singular and plural, unless the
context otherwise requires. Unless otherwise specified any reference to a
"Section" shall refer to the relevant Section of this Agreement. The term
"including" is not limiting or exclusive. Capitalized terms used in this
Agreement shall have the following respective meanings when used herein:
"Accommodations" shall have the meaning set forth in Section 1.3.
"Accommodation Note" shall have the meaning set forth in Section 1.3.
"Administrative Fee" shall have the meaning set forth in Section 2.4.
"Advance" shall have the meaning set forth in Section 1.1.
"Advance Rate" shall have the meaning set forth in Section 1.1.
"Agreement" shall mean this Loan Agreement, as the same may be amended,
supplemented, extended or restated from time to time.
"Average Daily Balance" shall have the meaning set forth in
Section 2.2.
"Borrower" shall mean the Borrower as identified in the introductory
paragraph of this Agreement, and its successors and assigns.
"Collateral" shall have the meaning set forth in the Security
Agreement.
"Early Termination Fee" shall have the meaning set forth in
Section 2.6.
"Eligible Accounts" shall have the meaning set forth in Section 1.2.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Facility Fee" shall have the meaning set forth in Section 2.1.
CORPDAL:64287.1 28722-00003
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<PAGE>
"Interest Rate" shall have the meaning set forth in Section 2.2.
"Inventory Rider" shall have the meaning set forth in Section 1.4.
"Lender" shall mean the Lender as identified in the introductory
paragraph of this Agreement, and its successors and assigns.
"Loan Documents" shall mean this Agreement, any Inventory Rider, any
Accommodation Notes, the Security Agreement, and all instruments, documents,
agreements and other writings signed by Borrower or any Guarantor and delivered
to Lender in connection with this Agreement or otherwise, whether now existing
or hereafter arising, as the same may be amended, supplemented, extended or
restated from time to time.
"Lockbox" shall have the meaning set forth in Section 3.3.
"Maximum Credit" shall have the meaning set forth in Section 1.1.
"Monthly Minimum Fee" shall have the meaning set forth in Section 2.5.
"Obligations" shall mean any and all loans, advances, fees, charges,
indebtedness and obligations of every kind owing by Borrower to Lender, and/or
Lender's affiliates, or incurred by Lender on behalf of Borrower, or otherwise,
and whether now existing or hereafter arising, including all Advances, inventory
loans, Accommodations, Finance Fees, interest, Administrative Fees, Early
Termination Fees, Facility Fees, attorneys' fees and expenses.
"Reserves" shall have the meaning set forth in Section 1.5.
"Security Agreement" shall mean the Security Agreement executed by
Borrower and Lender dated August 26 , 1996, pursuant to which Borrower grants to
Lender a security interest in and lien upon its personal property, as the same
may be amended, supplemented, extended or restated from time to time.
"Subordinated Creditors" shall mean NA.
"Term" shall have the meaning set forth in Section 8.2.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
at the date first stated above.
"Borrower"
Information Systems Consulting Corp.
By:
----------------------
Title:
-------------------
Address of Borrower's Chief Executive Office and Principal Place
of Business
12801 N. Central Expressway, Suite 350
Dallas, TX 75243
Telephone: 214-788-2755
Facsimile: 214-960-6936
"Lender"
CONCORD GROWTH CORPORATION
By:
----------------------
Title:
-------------------
Address:
1170 East Meadow Drive
Palo Alto, CA 94303-4234
Telephone: 415-493-0921
Facsimile: 415-857-0900
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<PAGE>
ADDENDUM TO
LOAN AGREEMENT
The LOAN AGREEMENT dated August 26, 1996 (the "Agreement"), between
Concord Growth Corporation, a California corporation, and Information Systems
Consulting Corp., a corporation; and
The LOAN AGREEMENT dated August 26, 1996 (the "Agreement"), between
Concord Growth Corporation, a California corporation, and Preferred Funding
Corporation, a corporation, are hereby amended in the specific sections(s) as
follows:
Section 1.1 (b) Loans. Notwithstanding the terms set forth herein,
the Maximum Credit shall not at any time exceed the
lesser of One Million Dollars ($1,000,000) in
aggregate among the two above mentioned Borrowers.
THIS ADDENDUM AFFECTS ONLY THE ABOVE LISTED SECTION(S) OF THE AGREEMENT
AND ALL OTHER PROVISIONS OF THE AGREEMENT SHALL REMAIN UNCHANGED AND IN FORCE AS
WRITTEN OR THEREAFTER AMENDED IN WRITING.
This addendum is attached to and made a part of the Loan Agreement
between Lender and the undersigned on August 26, 1996.
BORROWER:
INFORMATION SYSTEMS CONSULTING CORP.
BY:
----------------------------------------
----------------------------------------
(PRINT NAME AND TITLE)
DATE:
--------------------------------------
BORROWER:
PREFERRED FUNDING CORPORATION
BY:
----------------------------------------
----------------------------------------
(PRINT NAME AND TITLE)
DATE:
--------------------------------------
CORPDAL:64287.1 28722-00003
17
AMENDMENT TO
LOAN AGREEMENT
Amendment #1
Dated August 26, 1996
The LOAN AGREEMENT dated August 26, 1996 (the "Agreement"), between Concord
Growth Corporation, a California corporation, and information Systems Consulting
Corp., a corporation; and
The LOAN AGREEMENT dated August 26, 1996 (the "Agreement'), between Concord
Growth Corporation, a California corporation, and Preferred Funding Corporation,
a corporation, are hereby amended in the specific sections(s) as follows:
Section 1.2 ELIGIBLE ACCOUNTS. Notwithstanding the terms set forth
herein, Subsection (cc) has been added to read:
(cc) Eligible Accounts shall include, the aggregate
amount of all accounts owed by U. S. Sprint and
American Airlines and/or their affiliates that
does not each exceed forty percent (40%) of the
aggregate amount of all otherwise Eligible
Accounts.
Section 1.3 ACCOMMODATIONS.
(a) Advances under the Accommodation Note shall be
paid by Lender directly to equipment vendors upon
receipt of (i) a bona fide purchase order or
invoice issued by said vendor; and (ii) subject
to Section 5.4(a).
Section 3.1 DELIVERY OF INVOICES. Notwithstanding the terms set forth
herein, Subsection
(a) has been added to read:
(a) Borrower shall submit to Lender Bills of Sale for
equipment purchased from Advances under the
Accommodation Note within seven (7) days from
date of purchase.
Section 5.4 DELIVERY OF AGINGS AND FINANCIAL INFORMATION.
Notwithstanding the terms set forth herein, Subsection
(a) has been added to read:
(a) Borrower shall deliver to Lender on or before the
thirtieth day (30) day of each month, Accounts
Receivable Aging Report from the preceding month
for Management Alliance Corporation ("MAC"),
which shall be provided by MAC and its lender,
Metro Factors, evidencing unencumbered eligible
Accounts Receivable equal to or greater than 150%
of the Accommodation Advances.
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Section 5.8 FINANCIAL COVENANTS. Notwithstanding the terms set forth
herein, Subsection
(f) has been added to read:
(f) Borrower shall notify Lender in writing within
fifteen (15) days of the occurrence of the
Inter-company accounts receivable exceeding
$2,000,000.
Section 6.1 EVENTS OF DEFAULT. Notwithstanding the terms set forth
herein, Subsection (o) has been added to read:
(o) A default under MAC's agreement with its lender,
Metro Factors, shall constitute a default under
Borrower's Accommodation facility with Lender.
THE AMENDMENT AFFECTS ONLY THE ABOVE LISTED SECTION(S) OF THE AGREEMENT AND ALL
OTHER PROVISIONS OF THE AGREEMENT SHALL REMAIN UNCHANGED AND IN FORCE AS WRITTEN
OR THEREAFTER AMENDED IN WRITING.
This Amendment shall become effective when it is accepted and executed by an
authorized officer of Lender.
AGREED:
BORROWER:
INFORMATION SYSTEMS CONSULTING CORP.
BY:
----------------------------------------
----------------------------------------
(PRINT NAME AND TITLE)
DATE:
--------------------------------------
BORROWER:
PREFERRED FUNDING CORPORATION
BY:
----------------------------------------
----------------------------------------
(PRINT NAME AND TITLE)
DATE:
--------------------------------------
CORPDAL:64289.1 28722-00003
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<PAGE>
ACCEPTED:
LENDER:
CONCORD GROWTH CORPORATION
BY:
----------------------------------------
----------------------------------------
(PRINT NAME AND TITLE)
DATE:
--------------------------------------
CORPDAL:64289.1 28722-00003
3
GENERAL CONTINUING GUARANTY
(v. 102595)
In order to induce CONCORD GROWTH CORPORATION, a California
corporation, and any other Co-Lender or Participant as specified in the
Agreements ("Lender") to extend and/or to continue to extend financial
accommodations to the Borrower specified below ("Borrower") pursuant to the
terms and conditions of that certain Loan Agreement and Security Agreement of
the date specified below, or pursuant to any other present or future agreement
between Lender and Borrower (hereinafter collectively referred to as the
"Agreements"), and in consideration thereof, and in consideration of any loans,
advances, or financial accommodations heretofore or hereafter granted by Lender
to or for the account of Borrower, whether pursuant to the Agreements, or
otherwise, the undersigned officer(s), authorized agent(s) or third party
guarantors of Borrower (hereinafter collectively and individually referred to as
the "Guarantor") hereby, jointly and severally, guarantees, promises and
undertakes as follows:
1. GUARANTY AT OBLIGATIONS. Guarantor unconditionally, absolutely and
irrevocably guarantees and promises to pay to Lender, on order or demand, in
lawful money of the United States, any and all indebtedness and obligations of
Borrower to Lender and the payment to Lender of all sums which may be presently
due and owing to Lender from Borrower whether under the Agreements or otherwise.
The terms "Indebtedness" and "obligations" are (hereinafter collectively
referred to as the "obligations") used herein in their most comprehensive sense
and include any and all advances, debts, obligations and liabilities of
Borrower, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, and however arising (including, without
limitation, indebtedness owing by Borrower to third parties who have granted
Lender a security interest in the accounts, chattel paper and general
intangibles of said third party; and further including, without limitation, any
and all attorneys' fees, expenses, costs, premiums, charges and interest owed by
Borrower to Lender, whether under the Agreements, or otherwise) whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether Borrower may be liable individually or jointly with
others, whether recovery upon such indebtedness may be or hereafter becomes
barred by any statute of limitations or whether such indebtedness may be or
hereafter becomes otherwise unenforceable, and includes Borrower's prompt, full
and faithful performance, observance and discharge of each and every term,
condition, agreement, representation, warranty undertaking and provision to be
performed by Borrower under this Agreements.
2. CONTINUING GUARANTY. This General Continuing Guaranty (the
"Guaranty") is a continuing guaranty which shall remain effective until this
Guaranty has been expressly terminated and relates to any obligations including
those which arise under successive transactions which shall either continue the
Obligations from time to time or renew them after they have been satisfied. Any
such termination shall be applicable only after written notice to Lender, and
only to transactions having their inception after the effective date of
termination and shall not affect any rights or obligations arising out of
transactions having their inception prior to such date. No termination shall be
effective until such time as Lender is no longer committed or otherwise
obligated to make any loans or advances, or to grant any credit to Borrower. In
the absence of
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<PAGE>
any termination of this Guaranty, Guarantor agrees that nothing shall discharge
or satisfy its obligations created hereunder except for the full payment and
performance of the Obligations with interest.
3. RIGHTS ARE INDEPENDENT. Guarantor agrees that it is directly and
primarily liable to Lender, that the obligations hereunder are independent of
the obligations of Borrower and that a separate action or actions may be brought
and prosecuted against Guarantor, whether action is brought against Borrower or
whether Borrower is joined in any such action or actions. Guarantor agrees that
any releases which may be given by Lender to Borrower or any other guarantor or
endorser shall not release ft from this Guaranty.
4. DEFAULT. In the event that any bankruptcy, insolvency, receivership
or similar proceeding is instituted by or against Guarantor and/or the Borrower
or in the event that either the Guarantor or Borrower become insolvent, make an
assignment for the benefit of creditors or attempt to effect a composition with
creditors, or it there be any default under the Agreements (whether declared or
not), then, at Lender's election, without notice or demand, the obligations of
Guarantor created hereunder shall become due, payable and enforceable against
Guarantor whether or not the Obligations are then due and payable.
5. INDEMNIFICATION. Guarantor agrees to indemnity Lender and hold
Lender harmless against all obligations, demands and liabilities, by whomsoever
asserted and against all losses in any way suffered, incurred or paid by Lender
as a result of or in any way arising out of, following or consequential to
transactions with Borrower whether under the Agreements, or otherwise, and also
agrees that this Guaranty shall not be impaired by any modification, supplement,
extension or amendment of any contract or agreement to which Lender and Borrower
may herafter agree, nor by any modification, release or other alteration or any
of the Obligations hereby guaranteed or of any security therefor, nor by any
agreements or arrangements whatever with Borrower or anyone else.
6. CONSENT TO MODIFICATIONS. Guarantor hereby authorizes Lender,
without notice or demand and without affecting its liability hereunder, from
time to time to:
6.1. renew, compromise, extend, accelerate or otherwise change the
time for payment or the terms of any of the Obligations, or
any part thereof, including, without limitation, increasing or
decreasing the rate of interest thereof;
6.2. take and hold security for the payment of the Obligations
guaranteed hereby, and exchange, enforce, and release any such
security;
6.3. apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine;
6.4. release or substitute any one or more endorser(s) or
guarantor(s); and
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<PAGE>
6.5. assign, without notice, this Guaranty in whole or in part and
Lender's rights hereunder to anyone at any time.
Guarantor agrees that Lender may do any or all of the foregoing in such
manner, upon such terms, and at such times as Lender, in its discretion, deems
advisable, without, in any way or respect, impairing, affecting, reducing or
releasing Guarantor from its undertakings hereunder and Guarantor hereby
consents to each and all of the foregoing acts, events and occurrences.
7. WAIVER OF DEFENSES. Guarantor hereby waives any right to assert
against Lender as a defense, counterclaim, set-off on crossclaim, any defense
(legal or equitable), set-off, counterclaim and claim which Guarantor may now or
at any time hereafter have against Borrower and any other party liable to Lender
in any way or manner.
Guarantor hereby waives all defenses, counterclaims and off-sets of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity or enforceability of the Agreements or any
security interest thereunder.
Guarantor hereby waives any defense arising by reason of any claim or
defense based upon an election of remedies by Lender, which, in any manner
impairs, affects, reduces, releases, destroys or extinguishes Guarantor's
subrogation rights, rights to proceed against Borrower for reimbursement, or any
other rights of the Guarantor to proceed against Borrower or against any other
rights of the Guarantor or against any other person or security, including, but
not limited to, any defense based upon an election of remedies by Lender under
the provisions of Section 580(d) of the California Code of Civil Procedure, or
any similar law of California or of any other state, or of the United States.
Guarantor waives ail presentments, demands for performance, notices of
non-performance, protests, notices of protests, notices of dishonor, notices of
default, notice of acceptance of this Guaranty, and notices of the existence,
creating or incurring of new or additional indebtedness, and all other notices
or formalities to which Guarantor may be entitled.
8. WAIVER OF JURY TRIAL. GUARANTOR WAIVES ANY RIGHT TO A JURY TRIAL IN
ANY ACTION HEREUNDER OR ARISING OUT OF LENDER'S TRANSACTIONS WITH BORROWER.
9. WAIVER OF RIGHTS OF SUBROGATION. The Guarantor shall have no right
of subrogation, reimbursement, exoneration, contribution or any other rights
that would result in the Guarantor being deemed a creditor of Borrower under the
United States Bankruptcy Code or any other law or for any other purpose and the
Guarantor hereby irrevocably waives all such rights, the right to assert any
such rights and any right to enforce any remedy which Guarantor may now or
hereafter have against Borrower and hereby irrevocably waives any benefit of and
any right to participate in, any security now or hereafter held by Lender,
whether any of the foregoing rights arise in equity, at law or by contract.
As a condition to payment or performance by Guarantor under this
Guaranty, Lender shall not be required to, and Guarantor hereby waives any and
all rights to require Lender to prosecute
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<PAGE>
or seek to enforce any remedies against Borrower or any other party liable to
Lender on account of the Obligations or to require Lender to seek to enforce or
resort to any remedies with respect to any security interests, liens or
encumbrances granted to Lender by Borrower or any other party on account of the
Obligations.
Any and all present and future debts and obligations of Borrower to
Guarantor are hereby postponed in favor of and subordinated to the full payment
and performance of all present and future debts and obligations of Borrower to
Lender. All monies or other property of Guarantor at any time in Lender's
possession may be held by Lender as security for any and all obligations of
Guarantor to Lender no matter now existing or hereafter arising, whether
absolute or contingent, whether due or to become due, and whether under this
Guaranty or otherwise. Guarantor also agrees that Lender's books and records
showing the account between Lender and Borrower shall be admissible in any
action or proceeding and shall be binding upon Guarantor for the purpose of
establishing the terms set forth therein and shall constitute prima facie proof
thereof.
10. FINANCIAL CONDITION OF BORROWER. Guarantor is presently informed of
the financial condition of the Borrower and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of nonpayment of the
Obligations. Guarantor hereby covenants that it will continue to keep itself
informed of Borrower's financial condition and of all other circumstances which
bear upon the risk of nonpayment. Absent a written request for such information
by the Guarantor to Lender, Guarantor hereby waives its right, if any, to
require, and Lender is relieved of any obligation or duty to disclose to
Guarantor any information which Lender may now or hereafter acquire concerning
such condition or circumstances.
11. TERMINATION. The Guarantor's obligation under this Guaranty shall
continue in full force and effect until Borrower's Obligations are fully paid,
performed and discharged and Lender gives the Guarantor written notice of that
fact. Borrower's Obligations shall not be considered fully paid, performed and
discharged unless and until all payments by Borrower to Lender are no longer
subject to any right on the part of any person whomsoever; including but not
limited to Borrower, Borrower as a debtor-in-possession, or any trustee or
receiver in bankruptcy, to set aside such payments or seek to recoup the amount
of such payments, or any part thereof. The foregoing shall include, by way of
example and not by way of limitation, ail rights to recover preferences voidable
under Title 11 of the United States Code. In the event that any such payments by
Borrower to Lender are set aside after the making thereof, in whole or in part,
or settled without litigation, to the extent of such settlement, all of which is
within Lender's discretion, Guarantor shall be liable for the full amount Lender
is required to repay plus costs, interest, attorneys' fees and any and all
expenses which Lender paid or incurred in connection therewith.
No termination of this Guaranty shall be effective except by notice
sent to Lender by certified mail, return receipt requested (which shall be
evidenced by a property validated return receipt), naming a termination date
effective not less than ninety (90) days after the receipt of such notice by
Lender. Such a termination shall not be effective as to any Guarantor who has
not given
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<PAGE>
such notice and shall not affect the application of this Guaranty to any
transaction or Indebtedness effected prior to the effective date of termination.
12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of
Lender's successors and assigns. The death of Guarantor shall not terminate this
Guaranty.
13. MODIFICATIONS. This Guaranty cannot be modified orally. No
modification of this Guaranty shall be effective for any purpose unless it is in
writing and executed by an officer of Lender authorized to do so. All prior
agreements, understandings, representations and negotiations; if any, are merged
into this Guaranty.
14. ATTORNEYS' FEE. Guarantor agrees to pay all attorneys' fees and
all other costs and out-of-pocket expenses which may be incurred by Lender in
the enforcement of this Guaranty or in any way arising out of, following, or
consequential to the enforcement of Borrower's Obligations, whether under this
Guaranty, the Agreements, or otherwise.
15. JOINT AND SEVERAL. In all cases where the word "Guarantor" is used
in this Guaranty, it shall mean and apply equally to each and all of the
individuals and/or entities which have executed this Guaranty. All of the
obligations of the Guarantor hereunder shall be joint and several.
16. GOVERNING LAW. All acts and transactions hereunder and the rights
and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California.
17. ADDITIONAL WAIVERS. Guarantor waives all rights and defenses
arising out of an election of remedies by the Lender, even though that election
of remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed the Guarantor's rights of subrogation and
reimbursement against the principal by operation of Section 580d of the Code of
Civil Procedure or otherwise.
18. SECTION NUMBERS AND HEADINGS. Section numbers and section titles
have been set forth herein for convenience only; they shall not be construed to
limit or extend the meaning of any part of this Guaranty.
The Borrower: Information Systems Consulting Corp.
Date of Loan Agreement between Lender and Borrower: August 26, 1996
Date of this Corporate Continuing Guaranty: August 26, 1996
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<PAGE>
AGREED:
"GUARANTOR"
Signature:
-----------------------------------
By Officer and Title: M. Ted Dillard, President
Corporate Name: Preferred Funding Corporation
Corporate Address: 12801 N. Central Expressway, Suite 350
City, State, Zip: Dallas, TX 75243
Federal Tax I.D.: 75-252228
DATE:
---------------------------
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<PAGE>
CERTIFIED COPY OF RESOLUTIONS
(V-11/89.1)
RESOLVED, that the General Continuing Guaranty of the date specified
below between this company and Concord Growth Corporation and any other
Co-Lender or Participant as specified in the Agreement (herein "Lender") and all
other agreements and documents connected therewith be, and the same hereby are,
approved on the terms and conditions as set forth therein;
RESOLVED, that any officer of this company is authorized and directed
to enter into said agreement and all other agreements and documents connected
therewith and to execute the same for and on behalf of this company on the terms
and conditions set forth therein;
RESOLVED, that any officer of this company is authorized and directed
to negotiate, agree upon, exercise and deliver, from time to time, in the name
of , and on behalf of, this company, such agreements, amendments and supplements
to said agreement or any other agreement or document connected therewith,
documents, instruments, certificates, notices, and further assurances, and to
perform any and all such acts and things as may be required by Lender in
connection with said agreement or any other agreement or document connected
therewith, or may to him seem necessary or proper to implement and effect
complete consummation of said agreement or any other agreement or document
connected therewith in all respects and the purposes set forth in these
resolutions
RESOLVED, That any officer of this Company is authorized to guarantee
payment thereof on the company's behalf.
RESOLVED, that these resolutions shall remain in full force and effect
until written notes of their amendment or repeal shall be received by Lender and
until all indebtedness and obligations arising out of said agreement and all
other agreements and documents connected therewith shall have been paid and
satisfied in full.
The undersigned, as the duly constituted Secretary of this company does
hereby certify that the foregoing is a true and correct copy of the resolutions
duly adopted at a meeting of the Board of Directors of this company, duly
called, noticed and held on the date specified below. at which meeting there was
at all times present and acting a quorum of the members of said Board; that said
resolutions are in full force and effect; and that the following is a true and
correct list of the present officers of this company:
Date of General Continuing Guaranty: August 26, 1996
Presidents Name: M. Ted Dillard
Vice-President's Name:
Corp. Secretary's Name: J. Michael Moore
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<PAGE>
CFO/Treasurer's Name: J. Michael Moore
Corporate Secretary's Signature:
Name of Company: Preferred Funding Corporation
Date company's Board of Directors adopted above resolutions:
(Seal)
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CORPDAL:64283.1 28722-00003
GENERAL CONTINUING GUARANTY
(v. 102595)
In order to induce CONCORD GROWTH CORPORATION, a California
corporation, and any other Co-Lender or Participant as specified in the
Agreements ("Lender") to extend and/or to continue to extend financial
accommodations to the Borrower specified below ("Borrower") pursuant to the
terms and conditions of that certain Loan Agreement and Security Agreement of
the date specified below, or pursuant to any other present or future agreement
between Lender and Borrower (hereinafter collectively referred to as the
"Agreements"), and in consideration thereof, and in consideration of any loans,
advances, or financial accommodations heretofore or hereafter granted by Lender
to or for the account of Borrower, whether pursuant to the Agreements, or
otherwise, the undersigned officer(s), authorized agent(s) or third party
guarantors of Borrower (hereinafter collectively and individually referred to as
the "Guarantor") hereby, jointly and severally, guarantees, promises and
undertakes as follows:
1. GUARANTY AT OBLIGATIONS. Guarantor unconditionally, absolutely and
irrevocably guarantees and promises to pay to Lender, on order or demand, in
lawful money of the United States, any and all indebtedness and obligations of
Borrower to Lender and the payment to Lender of all sums which may be presently
due and owing to Lender from Borrower whether under the Agreements or otherwise.
The terms "Indebtedness" and "obligations" are (hereinafter collectively
referred to as the "obligations") used herein in their most comprehensive sense
and include any and all advances, debts, obligations and liabilities of
Borrower, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, and however arising (including, without
limitation, indebtedness owing by Borrower to third parties who have granted
Lender a security interest in the accounts, chattel paper and general
intangibles of said third party; and further including, without limitation, any
and all attorneys' fees, expenses, costs, premiums, charges and interest owed by
Borrower to Lender, whether under the Agreements, or otherwise) whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether Borrower may be liable individually or jointly with
others, whether recovery upon such indebtedness may be or hereafter becomes
barred by any statute of limitations or whether such indebtedness may be or
hereafter becomes otherwise unenforceable, and includes Borrower's prompt, full
and faithful performance, observance and discharge of each and every term,
condition, agreement, representation, warranty undertaking and provision to be
performed by Borrower under this Agreements.
2. CONTINUING GUARANTY. This General Continuing Guaranty (the
"Guaranty") is a continuing guaranty which shall remain effective until this
Guaranty has been expressly terminated and relates to any obligations including
those which arise under successive transactions which shall either continue the
Obligations from time to time or renew them after they have been satisfied. Any
such termination shall be applicable only after written notice to Lender, and
only to transactions having their inception after the effective date of
termination and shall not affect any rights or obligations arising out of
transactions having their inception prior to such date. No termination shall be
effective until such time as Lender is no longer committed or otherwise
obligated to make any loans or advances, or to grant any credit to Borrower. In
the absence of
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<PAGE>
any termination of this Guaranty, Guarantor agrees that nothing shall discharge
or satisfy its obligations created hereunder except for the full payment and
performance of the Obligations with interest.
3. RIGHTS ARE INDEPENDENT. Guarantor agrees that it is directly and
primarily liable to Lender, that the obligations hereunder are independent of
the obligations of Borrower and that a separate action or actions may be brought
and prosecuted against Guarantor, whether action is brought against Borrower or
whether Borrower is joined in any such action or actions. Guarantor agrees that
any releases which may be given by Lender to Borrower or any other guarantor or
endorser shall not release ft from this Guaranty.
4. DEFAULT. In the event that any bankruptcy, insolvency, receivership
or similar proceeding is instituted by or against Guarantor and/or the Borrower
or in the event that either the Guarantor or Borrower become insolvent, make an
assignment for the benefit of creditors or attempt to effect a composition with
creditors, or it there be any default under the Agreements (whether declared or
not), then, at Lender's election, without notice or demand, the obligations of
Guarantor created hereunder shall become due, payable and enforceable against
Guarantor whether or not the Obligations are then due and payable.
5. INDEMNIFICATION. Guarantor agrees to indemnity Lender and hold
Lender harmless against all obligations, demands and liabilities, by whomsoever
asserted and against all losses in any way suffered, incurred or paid by Lender
as a result of or in any way arising out of, following or consequential to
transactions with Borrower whether under the Agreements, or otherwise, and also
agrees that this Guaranty shall not be impaired by any modification, supplement,
extension or amendment of any contract or agreement to which Lender and Borrower
may herafter agree, nor by any modification, release or other alteration or any
of the Obligations hereby guaranteed or of any security therefor, nor by any
agreements or arrangements whatever with Borrower or anyone else.
6. CONSENT TO MODIFICATIONS. Guarantor hereby authorizes Lender,
without notice or demand and without affecting its liability hereunder, from
time to time to:
6.1. renew, compromise, extend, accelerate or otherwise change the
time for payment or the terms of any of the Obligations, or
any part thereof, including, without limitation, increasing or
decreasing the rate of interest thereof;
6.2. take and hold security for the payment of the Obligations
guaranteed hereby, and exchange, enforce, and release any such
security;
6.3. apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine;
6.4. release or substitute any one or more endorser(s) or
guarantor(s); and
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<PAGE>
6.5. assign, without notice, this Guaranty in whole or in part and
Lender's rights hereunder to anyone at any time.
Guarantor agrees that Lender may do any or all of the foregoing in such
manner, upon such terms, and at such times as Lender, in its discretion, deems
advisable, without, in any way or respect, impairing, affecting, reducing or
releasing Guarantor from its undertakings hereunder and Guarantor hereby
consents to each and all of the foregoing acts, events and occurrences.
7. WAIVER OF DEFENSES. Guarantor hereby waives any right to assert
against Lender as a defense, counterclaim, set-off on crossclaim, any defense
(legal or equitable), set-off, counterclaim and claim which Guarantor may now or
at any time hereafter have against Borrower and any other party liable to Lender
in any way or manner.
Guarantor hereby waives all defenses, counterclaims and off-sets of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity or enforceability of the Agreements or any
security interest thereunder.
Guarantor hereby waives any defense arising by reason of any claim or
defense based upon an election of remedies by Lender, which, in any manner
impairs, affects, reduces, releases, destroys or extinguishes Guarantor's
subrogation rights, rights to proceed against Borrower for reimbursement, or any
other rights of the Guarantor to proceed against Borrower or against any other
rights of the Guarantor or against any other person or security, including, but
not limited to, any defense based upon an election of remedies by Lender under
the provisions of Section 580(d) of the California Code of Civil Procedure, or
any similar law of California or of any other state, or of the United States.
Guarantor waives ail presentments, demands for performance, notices of
non-performance, protests, notices of protests, notices of dishonor, notices of
default, notice of acceptance of this Guaranty, and notices of the existence,
creating or incurring of new or additional indebtedness, and all other notices
or formalities to which Guarantor may be entitled.
8. WAIVER OF JURY TRIAL. GUARANTOR WAIVES ANY RIGHT TO A JURY TRIAL IN
ANY ACTION HEREUNDER OR ARISING OUT OF LENDER'S TRANSACTIONS WITH BORROWER.
9. WAIVER OF RIGHTS OF SUBROGATION. The Guarantor shall have no right
of subrogation, reimbursement, exoneration, contribution or any other rights
that would result in the Guarantor being deemed a creditor of Borrower under the
United States Bankruptcy Code or any other law or for any other purpose and the
Guarantor hereby irrevocably waives all such rights, the right to assert any
such rights and any right to enforce any remedy which Guarantor may now or
hereafter have against Borrower and hereby irrevocably waives any benefit of and
any right to participate in, any security now or hereafter held by Lender,
whether any of the foregoing rights arise in equity, at law or by contract.
As a condition to payment or performance by Guarantor under this
Guaranty, Lender shall not be required to, and Guarantor hereby waives any and
all rights to require Lender to prosecute
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<PAGE>
or seek to enforce any remedies against Borrower or any other party liable to
Lender on account of the Obligations or to require Lender to seek to enforce or
resort to any remedies with respect to any security interests, liens or
encumbrances granted to Lender by Borrower or any other party on account of the
Obligations.
Any and all present and future debts and obligations of Borrower to
Guarantor are hereby postponed in favor of and subordinated to the full payment
and performance of all present and future debts and obligations of Borrower to
Lender. All monies or other property of Guarantor at any time in Lender's
possession may be held by Lender as security for any and all obligations of
Guarantor to Lender no matter now existing or hereafter arising, whether
absolute or contingent, whether due or to become due, and whether under this
Guaranty or otherwise. Guarantor also agrees that Lender's books and records
showing the account between Lender and Borrower shall be admissible in any
action or proceeding and shall be binding upon Guarantor for the purpose of
establishing the terms set forth therein and shall constitute prima facie proof
thereof.
10. FINANCIAL CONDITION OF BORROWER. Guarantor is presently informed of
the financial condition of the Borrower and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of nonpayment of the
Obligations. Guarantor hereby covenants that it will continue to keep itself
informed of Borrower's financial condition and of all other circumstances which
bear upon the risk of nonpayment. Absent a written request for such information
by the Guarantor to Lender, Guarantor hereby waives its right, if any, to
require, and Lender is relieved of any obligation or duty to disclose to
Guarantor any information which Lender may now or hereafter acquire concerning
such condition or circumstances.
11. TERMINATION. The Guarantor's obligation under this Guaranty shall
continue in full force and effect until Borrower's Obligations are fully paid,
performed and discharged and Lender gives the Guarantor written notice of that
fact. Borrower's Obligations shall not be considered fully paid, performed and
discharged unless and until all payments by Borrower to Lender are no longer
subject to any right on the part of any person whomsoever; including but not
limited to Borrower, Borrower as a debtor-in-possession, or any trustee or
receiver in bankruptcy, to set aside such payments or seek to recoup the amount
of such payments, or any part thereof. The foregoing shall include, by way of
example and not by way of limitation, ail rights to recover preferences voidable
under Title 11 of the United States Code. In the event that any such payments by
Borrower to Lender are set aside after the making thereof, in whole or in part,
or settled without litigation, to the extent of such settlement, all of which is
within Lender's discretion, Guarantor shall be liable for the full amount Lender
is required to repay plus costs, interest, attorneys' fees and any and all
expenses which Lender paid or incurred in connection therewith.
No termination of this Guaranty shall be effective except by notice
sent to Lender by certified mail, return receipt requested (which shall be
evidenced by a property validated return receipt), naming a termination date
effective not less than ninety (90) days after the receipt of such notice by
Lender. Such a termination shall not be effective as to any Guarantor who has
not given
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<PAGE>
such notice and shall not affect the application of this Guaranty to any
transaction or Indebtedness effected prior to the effective date of termination.
12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of
Lender's successors and assigns. The death of Guarantor shall not terminate this
Guaranty.
13. MODIFICATIONS. This Guaranty cannot be modified orally. No modification
of this Guaranty shall be effective for any purpose unless it is in writing and
executed by an officer of Lender authorized to do so. All prior agreements,
understandings, representations and negotiations; if any, are merged into this
Guaranty.
14. ATTORNEYS' FEE. Guarantor agrees to pay all attorneys' fees and all
other costs and out-of-pocket expenses which may be incurred by Lender in the
enforcement of this Guaranty or in any way arising out of, following, or
consequential to the enforcement of Borrower's Obligations, whether under this
Guaranty, the Agreements, or otherwise.
15. JOINT AND SEVERAL. In all cases where the word "Guarantor" is used in
this Guaranty, it shall mean and apply equally to each and all of the
individuals and/or entities which have executed this Guaranty. All of the
obligations of the Guarantor hereunder shall be joint and several.
16. GOVERNING LAW. All acts and transactions hereunder and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
in accordance with the laws of the State of California.
17. ADDITIONAL WAIVERS. Guarantor waives all rights and defenses arising
out of an election of remedies by the Lender, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed the Guarantor's rights of subrogation and
reimbursement against the principal by operation of Section 580d of the Code of
Civil Procedure or otherwise.
18. SECTION NUMBERS AND HEADINGS. Section numbers and section titles have
been set forth herein for convenience only; they shall not be construed to limit
or extend the meaning of any part of this Guaranty.
The Borrower: Information Systems Consulting Corp.
Date of Loan Agreement between Lender and Borrower: August 26, 1996
Date of this Corporate Continuing Guaranty: August 26, 1996
INITIAL ____ PAGE 5
CORPDAL:64281.1 28722-00003
<PAGE>
AGREED:
"GUARANTOR"
Signature:
-----------------------------------
By Officer and Title: M. Ted Dillard, President
Corporate Name: Diversified Corporate Resources, Inc.
Corporate Address: 12801 N. Central Expressway, Suite 350
City, State, Zip: Dallas, TX 75243
Federal Tax I.D.:
DATE:
-------------------------
INITIAL ____ PAGE 6
CORPDAL:64281.1 28722-00003
<PAGE>
CERTIFIED COPY OF RESOLUTIONS
(V-11/89.1)
RESOLVED, that the General Continuing Guaranty of the date specified
below between this company and Concord Growth Corporation and any other
Co-Lender or Participant as specified in the Agreement (herein "Lender") and all
other agreements and documents connected therewith be, and the same hereby are,
approved on the terms and conditions as set forth therein;
RESOLVED, that any officer of this company is authorized and directed
to enter into said agreement and all other agreements and documents connected
therewith and to execute the same for and on behalf of this company on the terms
and conditions set forth therein;
RESOLVED, that any officer of this company is authorized and directed
to negotiate, agree upon, exercise and deliver, from time to time, in the name
of , and on behalf of, this company, such agreements, amendments and supplements
to said agreement or any other agreement or document connected therewith,
documents, instruments, certificates, notices, and further assurances, and to
perform any and all such acts and things as may be required by Lender in
connection with said agreement or any other agreement or document connected
therewith, or may to him seem necessary or proper to implement and effect
complete consummation of said agreement or any other agreement or document
connected therewith in all respects and the purposes set forth in these
resolutions
RESOLVED, That any officer of this Company is authorized to guarantee
payment thereof on the company's behalf.
RESOLVED, that these resolutions shall remain in full force and effect
until written notes of their amendment or repeal shall be received by Lender and
until all indebtedness and obligations arising out of said agreement and all
other agreements and documents connected therewith shall have been paid and
satisfied in full.
The undersigned, as the duly constituted Secretary of this company does
hereby certify that the foregoing is a true and correct copy of the resolutions
duly adopted at a meeting of the Board of Directors of this company, duly
called, noticed and held on the date specified below. at which meeting there was
at all times present and acting a quorum of the members of said Board; that said
resolutions are in full force and effect; and that the following is a true and
correct list of the present officers of this company:
Date of General Continuing Guaranty: August 26, 1996
CEO Name: M. Moore
Vice-President's Name:
Corp. Secretary's Name: T. Dillard
INITIAL ____ PAGE 7
CORPDAL:64281.1 28722-00003
<PAGE>
CFO/Treasurer's Name: T. Dillard
Corporate Secretary's Signature:
Name of Company: Diversified Corporate Resources, Inc.
Date company's Board of Directors adopted above resolutions:
(Seal)
INITIAL ____ PAGE 8
CORPDAL:64281.1 28722-00003
GENERAL CONTINUING GUARANTY
(v. 102595)
In order to induce CONCORD GROWTH CORPORATION, a California
corporation, and any other Co-Lender or Participant as specified in the
Agreements ("Lender") to extend and/or to continue to extend financial
accommodations to the Borrower specified below ("Borrower") pursuant to the
terms and conditions of that certain Loan Agreement and Security Agreement of
the date specified below, or pursuant to any other present or future agreement
between Lender and Borrower (hereinafter collectively referred to as the
"Agreements"), and in consideration thereof, and in consideration of any loans,
advances, or financial accommodations heretofore or hereafter granted by Lender
to or for the account of Borrower, whether pursuant to the Agreements, or
otherwise, the undersigned officer(s), authorized agent(s) or third party
guarantors of Borrower (hereinafter collectively and individually referred to as
the "Guarantor") hereby, jointly and severally, guarantees, promises and
undertakes as follows:
1. GUARANTY AT OBLIGATIONS. Guarantor unconditionally, absolutely and
irrevocably guarantees and promises to pay to Lender, on order or demand, in
lawful money of the United States, any and all indebtedness and obligations of
Borrower to Lender and the payment to Lender of all sums which may be presently
due and owing to Lender from Borrower whether under the Agreements or otherwise.
The terms "Indebtedness" and "obligations" are (hereinafter collectively
referred to as the "obligations") used herein in their most comprehensive sense
and include any and all advances, debts, obligations and liabilities of
Borrower, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, and however arising (including, without
limitation, indebtedness owing by Borrower to third parties who have granted
Lender a security interest in the accounts, chattel paper and general
intangibles of said third party; and further including, without limitation, any
and all attorneys' fees, expenses, costs, premiums, charges and interest owed by
Borrower to Lender, whether under the Agreements, or otherwise) whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether Borrower may be liable individually or jointly with
others, whether recovery upon such indebtedness may be or hereafter becomes
barred by any statute of limitations or whether such indebtedness may be or
hereafter becomes otherwise unenforceable, and includes Borrower's prompt, full
and faithful performance, observance and discharge of each and every term,
condition, agreement, representation, warranty undertaking and provision to be
performed by Borrower under this Agreements.
2. CONTINUING GUARANTY. This General Continuing Guaranty (the
"Guaranty") is a continuing guaranty which shall remain effective until this
Guaranty has been expressly terminated and relates to any obligations including
those which arise under successive transactions which shall either continue the
Obligations from time to time or renew them after they have been satisfied. Any
such termination shall be applicable only after written notice to Lender, and
only to transactions having their inception after the effective date of
termination and shall not affect any rights or obligations arising out of
transactions having their inception prior to such date. No termination shall be
effective until such time as Lender is no longer committed or otherwise
obligated to make any loans or advances, or to grant any credit to Borrower. In
the absence of
INITIAL ____ PAGE 1
CORPDAL:64284.1 28722-00003
<PAGE>
any termination of this Guaranty, Guarantor agrees that nothing shall discharge
or satisfy its obligations created hereunder except for the full payment and
performance of the Obligations with interest.
3. RIGHTS ARE INDEPENDENT. Guarantor agrees that it is directly and
primarily liable to Lender, that the obligations hereunder are independent of
the obligations of Borrower and that a separate action or actions may be brought
and prosecuted against Guarantor, whether action is brought against Borrower or
whether Borrower is joined in any such action or actions. Guarantor agrees that
any releases which may be given by Lender to Borrower or any other guarantor or
endorser shall not release ft from this Guaranty.
4. DEFAULT. In the event that any bankruptcy, insolvency, receivership
or similar proceeding is instituted by or against Guarantor and/or the Borrower
or in the event that either the Guarantor or Borrower become insolvent, make an
assignment for the benefit of creditors or attempt to effect a composition with
creditors, or it there be any default under the Agreements (whether declared or
not), then, at Lender's election, without notice or demand, the obligations of
Guarantor created hereunder shall become due, payable and enforceable against
Guarantor whether or not the Obligations are then due and payable.
5. INDEMNIFICATION. Guarantor agrees to indemnity Lender and hold
Lender harmless against all obligations, demands and liabilities, by whomsoever
asserted and against all losses in any way suffered, incurred or paid by Lender
as a result of or in any way arising out of, following or consequential to
transactions with Borrower whether under the Agreements, or otherwise, and also
agrees that this Guaranty shall not be impaired by any modification, supplement,
extension or amendment of any contract or agreement to which Lender and Borrower
may herafter agree, nor by any modification, release or other alteration or any
of the Obligations hereby guaranteed or of any security therefor, nor by any
agreements or arrangements whatever with Borrower or anyone else.
6. CONSENT TO MODIFICATIONS. Guarantor hereby authorizes Lender,
without notice or demand and without affecting its liability hereunder, from
time to time to:
6.1. renew, compromise, extend, accelerate or otherwise change the
time for payment or the terms of any of the Obligations, or
any part thereof, including, without limitation, increasing or
decreasing the rate of interest thereof;
6.2. take and hold security for the payment of the Obligations
guaranteed hereby, and exchange, enforce, and release any such
security;
6.3. apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine;
6.4. release or substitute any one or more endorser(s) or
guarantor(s); and
INITIAL ____ PAGE 2
CORPDAL:64284.1 28722-00003
<PAGE>
6.5. assign, without notice, this Guaranty in whole or in part and
Lender's rights hereunder to anyone at any time.
Guarantor agrees that Lender may do any or all of the foregoing in such
manner, upon such terms, and at such times as Lender, in its discretion, deems
advisable, without, in any way or respect, impairing, affecting, reducing or
releasing Guarantor from its undertakings hereunder and Guarantor hereby
consents to each and all of the foregoing acts, events and occurrences.
7. WAIVER OF DEFENSES. Guarantor hereby waives any right to assert
against Lender as a defense, counterclaim, set-off on crossclaim, any defense
(legal or equitable), set-off, counterclaim and claim which Guarantor may now or
at any time hereafter have against Borrower and any other party liable to Lender
in any way or manner.
Guarantor hereby waives all defenses, counterclaims and off-sets of any
kind or nature, arising directly or indirectly from the present or future lack
of perfection, sufficiency, validity or enforceability of the Agreements or any
security interest thereunder.
Guarantor hereby waives any defense arising by reason of any claim or
defense based upon an election of remedies by Lender, which, in any manner
impairs, affects, reduces, releases, destroys or extinguishes Guarantor's
subrogation rights, rights to proceed against Borrower for reimbursement, or any
other rights of the Guarantor to proceed against Borrower or against any other
rights of the Guarantor or against any other person or security, including, but
not limited to, any defense based upon an election of remedies by Lender under
the provisions of Section 580(d) of the California Code of Civil Procedure, or
any similar law of California or of any other state, or of the United States.
Guarantor waives ail presentments, demands for performance, notices of
non-performance, protests, notices of protests, notices of dishonor, notices of
default, notice of acceptance of this Guaranty, and notices of the existence,
creating or incurring of new or additional indebtedness, and all other notices
or formalities to which Guarantor may be entitled.
8. WAIVER OF JURY TRIAL. GUARANTOR WAIVES ANY RIGHT TO A JURY TRIAL IN
ANY ACTION HEREUNDER OR ARISING OUT OF LENDER'S TRANSACTIONS WITH BORROWER.
9. WAIVER OF RIGHTS OF SUBROGATION. The Guarantor shall have no right
of subrogation, reimbursement, exoneration, contribution or any other rights
that would result in the Guarantor being deemed a creditor of Borrower under the
United States Bankruptcy Code or any other law or for any other purpose and the
Guarantor hereby irrevocably waives all such rights, the right to assert any
such rights and any right to enforce any remedy which Guarantor may now or
hereafter have against Borrower and hereby irrevocably waives any benefit of and
any right to participate in, any security now or hereafter held by Lender,
whether any of the foregoing rights arise in equity, at law or by contract.
As a condition to payment or performance by Guarantor under this
Guaranty, Lender shall not be required to, and Guarantor hereby waives any and
all rights to require Lender to prosecute
INITIAL ____ PAGE 3
CORPDAL:64284.1 28722-00003
<PAGE>
or seek to enforce any remedies against Borrower or any other party liable to
Lender on account of the Obligations or to require Lender to seek to enforce or
resort to any remedies with respect to any security interests, liens or
encumbrances granted to Lender by Borrower or any other party on account of the
Obligations.
Any and all present and future debts and obligations of Borrower to
Guarantor are hereby postponed in favor of and subordinated to the full payment
and performance of all present and future debts and obligations of Borrower to
Lender. All monies or other property of Guarantor at any time in Lender's
possession may be held by Lender as security for any and all obligations of
Guarantor to Lender no matter now existing or hereafter arising, whether
absolute or contingent, whether due or to become due, and whether under this
Guaranty or otherwise. Guarantor also agrees that Lender's books and records
showing the account between Lender and Borrower shall be admissible in any
action or proceeding and shall be binding upon Guarantor for the purpose of
establishing the terms set forth therein and shall constitute prima facie proof
thereof.
10. FINANCIAL CONDITION OF BORROWER. Guarantor is presently informed of
the financial condition of the Borrower and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of nonpayment of the
Obligations. Guarantor hereby covenants that it will continue to keep itself
informed of Borrower's financial condition and of all other circumstances which
bear upon the risk of nonpayment. Absent a written request for such information
by the Guarantor to Lender, Guarantor hereby waives its right, if any, to
require, and Lender is relieved of any obligation or duty to disclose to
Guarantor any information which Lender may now or hereafter acquire concerning
such condition or circumstances.
11. TERMINATION. The Guarantor's obligation under this Guaranty shall
continue in full force and effect until Borrower's Obligations are fully paid,
performed and discharged and Lender gives the Guarantor written notice of that
fact. Borrower's Obligations shall not be considered fully paid, performed and
discharged unless and until all payments by Borrower to Lender are no longer
subject to any right on the part of any person whomsoever; including but not
limited to Borrower, Borrower as a debtor-in-possession, or any trustee or
receiver in bankruptcy, to set aside such payments or seek to recoup the amount
of such payments, or any part thereof. The foregoing shall include, by way of
example and not by way of limitation, ail rights to recover preferences voidable
under Title 11 of the United States Code. In the event that any such payments by
Borrower to Lender are set aside after the making thereof, in whole or in part,
or settled without litigation, to the extent of such settlement, all of which is
within Lender's discretion, Guarantor shall be liable for the full amount Lender
is required to repay plus costs, interest, attorneys' fees and any and all
expenses which Lender paid or incurred in connection therewith.
No termination of this Guaranty shall be effective except by notice
sent to Lender by certified mail, return receipt requested (which shall be
evidenced by a property validated return receipt), naming a termination date
effective not less than ninety (90) days after the receipt of such notice by
Lender. Such a termination shall not be effective as to any Guarantor who has
not given
INITIAL ____ PAGE 4
CORPDAL:64284.1 28722-00003
<PAGE>
such notice and shall not affect the application of this Guaranty to any
transaction or Indebtedness effected prior to the effective date of termination.
12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the
successors and assigns of the Guarantor and shall inure to the benefit of
Lender's successors and assigns. The death of Guarantor shall not terminate this
Guaranty.
13. MODIFICATIONS. This Guaranty cannot be modified orally. No modification
of this Guaranty shall be effective for any purpose unless it is in writing and
executed by an officer of Lender authorized to do so. All prior agreements,
understandings, representations and negotiations; if any, are merged into this
Guaranty.
14. ATTORNEYS' FEE. Guarantor agrees to pay all attorneys' fees and all
other costs and out-of-pocket expenses which may be incurred by Lender in the
enforcement of this Guaranty or in any way arising out of, following, or
consequential to the enforcement of Borrower's Obligations, whether under this
Guaranty, the Agreements, or otherwise.
15. JOINT AND SEVERAL. In all cases where the word "Guarantor" is used in
this Guaranty, it shall mean and apply equally to each and all of the
individuals and/or entities which have executed this Guaranty. All of the
obligations of the Guarantor hereunder shall be joint and several.
16. GOVERNING LAW. All acts and transactions hereunder and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
in accordance with the laws of the State of California.
17. ADDITIONAL WAIVERS. Guarantor waives all rights and defenses arising
out of an election of remedies by the Lender, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed the Guarantor's rights of subrogation and
reimbursement against the principal by operation of Section 580d of the Code of
Civil Procedure or otherwise.
18. SECTION NUMBERS AND HEADINGS. Section numbers and section titles have
been set forth herein for convenience only; they shall not be construed to limit
or extend the meaning of any part of this Guaranty.
The Borrower: Information Systems Consulting Corp.
Date of Loan Agreement between Lender and Borrower: August 26, 1996
Date of this Corporate Continuing Guaranty: August 26, 1996
INITIAL ____ PAGE 5
CORPDAL:64284.1 28722-00003
<PAGE>
AGREED:
"GUARANTOR"
Signature:
-----------------------------------
By Officer and Title: M. Ted Dillard, Secretary
Corporate Name: Management Alliance Corporation
Corporate Address: 12801 N. Central Expressway, Suite 350
City, State, Zip: Dallas, TX 75243
Federal Tax I.D.:
DATE:
-----------------------------
INITIAL ____ PAGE 6
CORPDAL:64284.1 28722-00003
<PAGE>
CERTIFIED COPY OF RESOLUTIONS
(V-11/89.1)
RESOLVED, that the General Continuing Guaranty of the date specified
below between this company and Concord Growth Corporation and any other
Co-Lender or Participant as specified in the Agreement (herein "Lender") and all
other agreements and documents connected therewith be, and the same hereby are,
approved on the terms and conditions as set forth therein;
RESOLVED, that any officer of this company is authorized and directed
to enter into said agreement and all other agreements and documents connected
therewith and to execute the same for and on behalf of this company on the terms
and conditions set forth therein;
RESOLVED, that any officer of this company is authorized and directed
to negotiate, agree upon, exercise and deliver, from time to time, in the name
of , and on behalf of, this company, such agreements, amendments and supplements
to said agreement or any other agreement or document connected therewith,
documents, instruments, certificates, notices, and further assurances, and to
perform any and all such acts and things as may be required by Lender in
connection with said agreement or any other agreement or document connected
therewith, or may to him seem necessary or proper to implement and effect
complete consummation of said agreement or any other agreement or document
connected therewith in all respects and the purposes set forth in these
resolutions
RESOLVED, That any officer of this Company is authorized to guarantee
payment thereof on the company's behalf.
RESOLVED, that these resolutions shall remain in full force and effect
until written notes of their amendment or repeal shall be received by Lender and
until all indebtedness and obligations arising out of said agreement and all
other agreements and documents connected therewith shall have been paid and
satisfied in full.
The undersigned, as the duly constituted Secretary of this company does
hereby certify that the foregoing is a true and correct copy of the resolutions
duly adopted at a meeting of the Board of Directors of this company, duly
called, noticed and held on the date specified below. at which meeting there was
at all times present and acting a quorum of the members of said Board; that said
resolutions are in full force and effect; and that the following is a true and
correct list of the present officers of this company:
Date of General Continuing Guaranty: August 26, 1996
CEO Name: M. Moore
Vice-President's Name:
Corp. Secretary's Name: T. Dillard
INITIAL ____ PAGE 7
CORPDAL:64284.1 28722-00003
<PAGE>
CFO/Treasurer's Name: T. Dillard
Corporate Secretary's Signature:
Name of Company: Management Alliance Corporation
Date company's Board of Directors adopted above resolutions:
(Seal)
INITIAL ____ PAGE 8
CORPDAL:64284.1 28722-00003
<PAGE>
ADDENDUM TO GENERAL CONTINUING GUARANTY
The GENERAL CONTINUING GUARANTY dated August 26, 1996 (the
"Agreement"), guaranteeing the Obligations of Information Systems Consulting
Corp. a corporation, on behalf of Concord Growth Corporation, a California
corporation, and;
The GENERAL CONTINUING GUARANTY dated August 26, 1996 (the
"Agreement"), guaranteeing the Obligations of Preferred Funding Corporation, a
corporation, on behalf of Concord Growth Corporation, a California corporation,
are hereby amended in the specific sections(s) as follows:
1.1 GRANT OF SECURITY INTEREST. To secure the payment and performance
in full of all Obligations, Guarantor hereby grants to Lender a continuing
security interest in and lien upon, and a right of setoff against, and Guarantor
hereby assigns and pledges to Lender for security purposes, all of Guarantor's
right, title and interest in and to all Accounts and proceeds, whether now owned
or existing or hereafter acquired or arising, wherever located (collectively,
the "Collateral").
1.2 ENCUMBRANCES AGAINST COLLATERAL. Guarantor has and at all times
will continue to have good and marketable fits to all of the Collateral, free
and clear of all liens, security interests, claims or encumbrances of any kind.
The liens and security interests granted by Guarantor to Lender in the
Collateral are first priority liens and security interests.
THIS ADDENDUM EFFECTS ONLY THE ABOVE LISTED SECTION(S) OF THE
GUARANTEES AND ALL OTHER PROVISIONS OF THE GUARANTEES SHALL REMAIN UNCHANGED AND
IN FORCE AS WRITTEN OR THEREAFTER AMENDED IN WRITING.
This addendum is attached to and made a part of the General Continuing
Guarantees on August 26, 1996.
AGREED:
"GUARANTOR"
Signature:
---------------------
By Officer and Title:
Corporate Name: Management Alliance Corporation
Corporate Address: 12801 N. Central Expressway, Suite 350
City, State, Zip: Dallas, TX 75243
FederaJ Tax I.D.:
DATE:
--------------------------
INITIAL ____ PAGE 9
CORPDAL:64284.1 28722-00003
DIVERSIFIED CORPORATE RESOURCES, INC.
1996 NONQUALIFIED STOCK OPTION PLAN
ARTICLE I. GENERAL PURPOSE OF PLAN
The name of this plan is the 1996 Nonqualified Stock Option Plan (the
"Plan") of Diversified Corporate Resources, Inc., a Texas corporation (the
"Company"). The purpose of the Plan is to enable the Company (the "Company"), to
obtain and retain the services of the types of employees and officers 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 a committee 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.
"EXERCISE PRICE" means the price at which the Shares subject to a Stock
Option may be purchased.
"KEY EMPLOYEE" means any person employed by the Company, or any parent
or subsidiary of the Company, as a full-time employee in a key managerial
capacity.
"PARTICIPANT" means any Eligible Person selected by the Board of
Directors to receive grants of Stock Options.
"PLAN" means the Company's 1996 Nonqualified Stock Option Plan.
CORPDAL:64550.1 28722-00003
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 Board of Directors of the Company shall have the
power and authority to grant Stock Options to Eligible Persons,
pursuant to the terms of the Plan. The Board of Directors 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 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 600,000 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 Key Employees (including officers) of the Company,
or any parent or any subsidiary of the Company, who are responsible for or
contribute to the management, growth or profitability of the business of the
Company, or any parent or subsidiary of the Company, shall be eligible to be
granted Stock Options hereunder subject to the limitations set forth in this
Plan.
ARTICLE VI. STOCK OPTIONS
CORPDAL:64550.1 28722-00003
2
<PAGE>
SECTION 6.1 GENERAL. The Plan provides for the grant of Stock Options
to Eligible Persons selected by the Board of Directors 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 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
Board of Directors, 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 Agreement. 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; and (ii) the Exercise Price in effect prior to such change
shall be proportionately adjusted by the Committee to reflect any
increase or decrease in the
CORPDAL:64550.1 28722-00003
3
<PAGE>
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-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 Board of
Directors; 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 member
with respect to Stock Option 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
CORPDAL:64550.1 28722-00003
4
<PAGE>
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
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
CORPDAL:64550.1 28722-00003
5
<PAGE>
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.
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 members 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.
CORPDAL:64550.1 28722-00003
6
<PAGE>
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 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 Agreement 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 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 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.
CORPDAL:64550.1 28722-00003
7
STOCK OPTION AGREEMENT RE: MOORE
THIS AGREEMENT is entered into by and between Diversified Corporate
Resources, Inc., a Texas corporation (herein called "Company"), and J. Michael
Moore (herein called "Optionee").
WHEREAS, the Optionee is an officer and director of the Company; and
WHEREAS, the Company considers it desirable and in its best interests
that Optionee
be given an opportunity to acquire an equity interest in the Company in the form
of an option to purchase shares of common stock of the Company (the "Common
Stock"); and
WHEREAS, the options covered by this Agreement are issued pursuant to
the Company's 1996 Nonqualified Stock Option Plan (the "Plan").
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. GRANT OF OPTION. The Company shall and does hereby grant to Optionee
the right, privilege and option to purchase 155,000 shares (the "Shares") of
Common Stock for the prices per share in the manner and subject to the
conditions hereinafter provided.
2. TIME OF EXERCISE AND PRICES OF OPTION. Subject to the terms hereof,
the option herein granted must be exercised in whole or in part at any time or
times prior to December 31, 2001. The option herein granted (a) shall be
immediately exercisable as to 77,500 shares of Common Stock, the exercise price
of this portion of the option shall be $2.50 per share of Common Stock, (b)
shall become exercisable as to an additional 46,500 shares of Common Stock if
the Optionee is still an officer or director of the Company on December 31,
1997; the exercise price of this portion of the option shall be $4.00 per share,
and (c) shall become exercisable as to the balance of 31,000 shares of Common
Stock if the Optionee is still
B:\STOCKOPT.AG7
1
<PAGE>
an officer or director of the Company on December 31, 1998; the exercise price
of this portion of the option is the lesser of (i) $8.00 per share, or (ii) the
price per share at which shares of Common Stock are sold to the public in 1997
or 1998 if with the Company effectuates a public sale of its Common Stock in
1997 or 1998 using an investment banking firm selected by the Board of Directors
of the Company (in the event of multiple sales to the public during 1997 and
1998, the price per share of the initial sale shall be applicable). The parties
hereto acknowledge and agree that (A) the requirement that vesting is contingent
upon the Optionee being an officer or director of the Company is applicable
regardless of the reason that the Optionee may cease to be an officer or
director of the Company, and (B) subject to the restrictions herein as to when
the option is exercisable, the Optionee shall have the right to select the
portion of the option, and the related option price, if and when the Optionee
exercises any of this option.
3. METHOD OF EXERCISE. The option herein granted (or any part thereof)
must be exercised by written notice directed to the Company at its principal
place of business, accompanied by check in payment of the option price (the
number of shares being purchased multiplied by the applicable purchase price per
share). The Company shall undertake to make prompt delivery of the stock
certificate(s) evidencing such part of the Shares, provided that if any law or
regulation requires the Company to take any action with respect to the Shares
specified in such notice before the issuance thereof, then the date of delivery
of such Shares shall be extended for the period necessary to take such action.
4. TERMINATION OF OPTION. To the extent not theretofore exercised, the
option herein granted shall terminate on the earlier of (a) December 31, 2001,
(b) one hundred eighty (180) days from the date on which Optionee's employment
with the Company is terminated for any reason other than the death or disability
of the Optionee, and (c) one (1) year
2
<PAGE>
from the date on which Optionee's employment with the Company is terminated if
such termination is due to death or disability of the Optionee.
5. RECLASSIFICATION, CONSOLIDATION, OR MERGER. If and to the extent
that the number of shares of Common Stock of the Company shall be increased or
reduced by change in par value, split-up, reclassification, distribution of a
dividend payable in stock, or the like, the number of shares of Common Stock
subject to the option herein granted, and the option price therefor shall be
appropriately adjusted. If the Company merges with one or more entities in a
transaction in which the Company is not the surviving entity, (a) this option
shall thereafter apply to shares of stock of the surviving entity issuable to
the holders of Common Stock, and (b) the number of shares of stock subject to
option and the option price(s) therefor shall be appropriately adjusted in a
manner consistent with the terms and conditions of the aforesaid merger.
6. RIGHTS PRIOR TO EXERCISE OF OPTION. The option herein granted is
nontransferable by Optionee except as herein otherwise provided. Unless the
Optionee is deceased or disabled, with the determination of the existence or
nonexistence of such disability such disability left to the reasonable
discretion of the Board of Directors of the Company, the option herein may only
be exercised by the Optionee. If the Optionee dies during the period of time
that all or any of part of this option is exercisable, the Optionee's executor
or legal representative may exercise all or any part of this option at any time
or times during the period of time in which the option herein is granted. If the
Optionee is disabled, as aforesaid, the Optionee's legal representative shall
have the right to exercise all or any part of this option at any time or times
during the period of time in which the Optionee is disabled and the option
herein granted has not expired by the terms of this Agreement. With respect to
the shares of
3
<PAGE>
stock which are subject to the option herein granted, Optionee shall have no
rights as a stockholder until payment of the option price for the shares being
purchased by exercise of the option herein granted, and the issuance of the
shares involved.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
successors and assigns.
8. MULTIPLE ORIGINALS. This Agreement may be executed in multiple
counterparts with each counterpart constituting an original for all purposes.
9. TOTAL AGREEMENT. This Agreement may not be amended or revised
except by a written instrument executed by both of the parties to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the 10th day of April, 1997.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:/s/ M. Ted Dillard
---------------------------
M. Ted Dillard, President
OPTIONEE:
/s/ J. Michael Moore
---------------------------
J. Michael Moore
4
STOCK OPTION AGREEMENT RE: DILLARD
THIS AGREEMENT is entered into by and between Diversified Corporate
Resources, Inc., a Texas corporation (herein called "Company"), and M. Ted
Dillard (herein called "Optionee").
WHEREAS, the Optionee is an officer and director of the Company; and
WHEREAS, the Company considers it desirable and in its best interests
that Optionee
be given an opportunity to acquire an equity interest in the Company in the form
of an option to purchase shares of common stock of the Company (the "Common
Stock"); and
WHEREAS, the options covered by this Agreement are issued pursuant to
the Company's 1996 Nonqualified Stock Option Plan (the "Plan").
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. GRANT OF OPTION. The Company shall and does hereby grant to Optionee
the right, privilege and option to purchase 105,000 shares (the "Shares") of
Common Stock for the prices per share in the manner and subject to the
conditions hereinafter provided.
2. TIME OF EXERCISE AND PRICES OF OPTION. Subject to the terms hereof,
the option herein granted must be exercised in whole or in part at any time or
times prior to December 31, 2001. The option herein granted (a) shall be
immediately exercisable as to 52,500 shares of Common Stock, the exercise price
of this portion of the option shall be $2.50 per share of Common Stock, (b)
shall become exercisable as to an additional 31,500 shares of Common Stock if
the Optionee is still an officer or director of the Company on December 31,
1997; the exercise price of this portion of the option shall be $4.00 per share,
and (c) shall become exercisable as to the balance of 21,000 shares of Common
Stock if the Optionee is still
C:\WP60\01\JBO\2764\01\STOCKOPT.AG8
1
<PAGE>
an officer or director of the Company on December 31, 1998; the exercise price
of this portion of the option is the lesser of (i) $8.00 per share, or (ii) the
price per share at which shares of Common Stock are sold to the public in 1997
or 1998 if with the Company effectuates a public sale of its Common Stock in
1997 or 1998 using an investment banking firm selected by the Board of Directors
of the Company (in the event of multiple sales to the public during 1997 and
1998, the price per share of the initial sale shall be applicable). The parties
hereto acknowledge and agree that (A) the requirement that vesting is contingent
upon the Optionee being an officer or director of the Company is applicable
regardless of the reason that the Optionee may cease to be an officer or
director of the Company, and (B) subject to the restrictions herein as to when
the option is exercisable, the Optionee shall have the right to select the
portion of the option, and the related option price, if and when the Optionee
exercises any of this option.
3. METHOD OF EXERCISE. The option herein granted (or any part thereof)
must be exercised by written notice directed to the Company at its principal
place of business, accompanied by check in payment of the option price (the
number of shares being purchased multiplied by the applicable purchase price per
share). The Company shall undertake to make prompt delivery of the stock
certificate(s) evidencing such part of the Shares, provided that if any law or
regulation requires the Company to take any action with respect to the Shares
specified in such notice before the issuance thereof, then the date of delivery
of such Shares shall be extended for the period necessary to take such action.
4. TERMINATION OF OPTION. To the extent not theretofore exercised, the
option herein granted shall terminate on the earlier of (a) December 31, 2001,
(b) one hundred eighty (180) days from the date on which Optionee's employment
with the Company is terminated for any reason other than the death or disability
of the Optionee, and (c) one (1) year
2
<PAGE>
from the date on which Optionee's employment with the Company is terminated if
such termination is due to death or disability of the Optionee.
5. RECLASSIFICATION, CONSOLIDATION, OR MERGER. If and to the extent
that the number of shares of Common Stock of the Company shall be increased or
reduced by change in par value, split-up, reclassification, distribution of a
dividend payable in stock, or the like, the number of shares of Common Stock
subject to the option herein granted, and the option price therefor shall be
appropriately adjusted. If the Company merges with one or more entities in a
transaction in which the Company is not the surviving entity, (a) this option
shall thereafter apply to shares of stock of the surviving entity issuable to
the holders of Common Stock, and (b) the number of shares of stock subject to
option and the option price(s) therefor shall be appropriately adjusted in a
manner consistent with the terms and conditions of the aforesaid merger.
6. RIGHTS PRIOR TO EXERCISE OF OPTION. The option herein granted is
nontransferable by Optionee except as herein otherwise provided. Unless the
Optionee is deceased or disabled, with the determination of the existence or
nonexistence of such disability such disability left to the reasonable
discretion of the Board of Directors of the Company, the option herein may only
be exercised by the Optionee. If the Optionee dies during the period of time
that all or any of part of this option is exercisable, the Optionee's executor
or legal representative may exercise all or any part of this option at any time
or times during the period of time in which the option herein is granted. If the
Optionee is disabled, as aforesaid, the Optionee's legal representative shall
have the right to exercise all or any part of this option at any time or times
during the period of time in which the Optionee is disabled and the option
herein granted has not expired by the terms of this Agreement. With respect to
the shares of
3
<PAGE>
stock which are subject to the option herein granted, Optionee shall have no
rights as a stockholder until payment of the option price for the shares being
purchased by exercise of the option herein granted, and the issuance of the
shares involved.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
successors and assigns.
8. MULTIPLE ORIGINALS. This Agreement may be executed in multiple
counterparts with each counterpart constituting an original for all purposes.
9. TOTAL AGREEMENT. This Agreement may not be amended or revised
except by a written instrument executed by both of the parties to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the 10th day of April, 1997.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:/s/ J. Michael Moore
----------------------------
J. Michael Moore, Chairman of the
Board and Chief Executive Officer
OPTIONEE:
/s/ M. Ted Dillard
----------------------------
M. Ted Dillard
4
STOCK OPTION AGREEMENT RE: BAILEY
THIS AGREEMENT is entered into by and between Diversified Corporate
Resources, Inc., a Texas corporation (herein called "Company"), and Donald A.
Bailey (herein called "Optionee").
WHEREAS, the Optionee is an officer and director of the Company; and
WHEREAS, the Company considers it desirable and in its best interests
that Optionee
be given an opportunity to acquire an equity interest in the Company in the form
of an option to purchase shares of common stock of the Company (the "Common
Stock"); and
WHEREAS, the options covered by this Agreement are issued pursuant to
the Company's 1996 Nonqualified Stock Option Plan (the "Plan").
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. GRANT OF OPTION. The Company shall and does hereby grant to Optionee
the right, privilege and option to purchase 30,000 shares (the "Shares") of
Common Stock for the prices per share in the manner and subject to the
conditions hereinafter provided.
2. TIME OF EXERCISE AND PRICES OF OPTION. Subject to the terms hereof,
the option herein granted must be exercised in whole or in part at any time or
times prior to December 31, 2001. The option herein granted shall become
exercisable as to 2,500 shares of Common Stock if the Optionee is a director of
the Company on the last day of each calendar quarter (which shall end during the
months of March, June, September and December) during the years 1997, 1998 and
1999 (example: if the Optionee is a director of the Company on March 31, 1997,
he will become vested, and entitled to exercise, as to options for 2,500 shares
of Common Stock). The exercise price for shares to which Optionee shall become
vested in 1997,
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1
<PAGE>
1998 and 1999 shall be $3.00 per share, $4.00 per share and $5.00 per share,
respectively. The parties hereto acknowledge and agree that (a) the requirement
that vesting is contingent upon the Optionee being a director of the Company is
applicable regardless of the reason that the Optionee may cease to be a director
of the Company, and (b) subject to the restrictions herein as to when the option
is exercisable, the Optionee shall have the right to select the portion of the
option, and the related option price, if and when the Optionee exercises any of
this option.
3. METHOD OF EXERCISE. The option herein granted (or any part thereof)
must be exercised by written notice directed to the Company at its principal
place of business, accompanied by check in payment of the option price (the
number of shares being purchased multiplied by the applicable purchase price per
share). The Company shall undertake to make prompt delivery of the stock
certificate(s) evidencing such part of the Shares, provided that if any law or
regulation requires the Company to take any action with respect to the Shares
specified in such notice before the issuance thereof, then the date of delivery
of such Shares shall be extended for the period necessary to take such action.
4. TERMINATION OF OPTION. To the extent not theretofore exercised, the
option herein granted shall terminate on the earlier of (a) December 31, 2001,
(b) six (6) months from the date on which Optionee ceases to be a director of
the Company for any reason other than death or disability of the Optionee, and
(c) one (1) year from the date on which Optionee ceases to be a director of the
Company if such event is due to death or disability of the Optionee.
5. RECLASSIFICATION, CONSOLIDATION, OR MERGER. If and to the extent
that the number of shares of Common Stock of the Company shall be increased or
reduced by change in par value, split-up, reclassification, distribution of a
dividend payable in stock, or the
2
<PAGE>
like, the number of shares of Common Stock subject to the option herein granted,
and the option price therefor shall be appropriately adjusted. If the Company
merges with one or more entities in a transaction in which the Company is not
the surviving entity, (a) this option shall thereafter apply to shares of stock
of the surviving entity issuable to the holders of Common Stock, and (b) the
number of shares of stock subject to option and the option price(s) therefor
shall be appropriately adjusted in a manner consistent with the terms and
conditions of the aforesaid merger.
6. RIGHTS PRIOR TO EXERCISE OF OPTION. The option herein granted is
nontransferable by Optionee except as herein otherwise provided. Unless the
Optionee is deceased or disabled, with the determination of the existence or
nonexistence of such disability such disability left to the reasonable
discretion of the Board of Directors of the Company, the option herein may only
be exercised by the Optionee. If the Optionee dies during the period of time
that all or any of part of this option is exercisable, the Optionee's executor
or legal representative may exercise all or any part of this option at any time
or times during the period of time in which the option herein is granted. If the
Optionee is disabled, as aforesaid, the Optionee's legal representative shall
have the right to exercise all or any part of this option at any time or times
during the period of time in which the Optionee is disabled and the option
herein granted has not expired by the terms of this Agreement. With respect to
the shares of stock which are subject to the option herein granted, Optionee
shall have no rights as a stockholder until payment of the option price for the
shares being purchased by exercise of the option herein granted, and the
issuance of the shares involved.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
successors and assigns.
3
<PAGE>
8. MULTIPLE ORIGINALS. This Agreement may be executed in multiple
counterparts with each counterpart constituting an original for all purposes.
9. TOTAL AGREEMENT. This Agreement may not be amended or revised except
by a written instrument executed by both of the parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the 10th day of April, 1997.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:/s/ J. Michael Moore
------------------------
J. Michael Moore
Chairman of the Board and Chief
Executive Officer
OPTIONEE:
/s/ Donald A. Bailey
-----------------------
Donald A. Bailey
4
STOCK OPTION AGREEMENT RE: HUNTER
THIS AGREEMENT is entered into by and between Diversified Corporate
Resources, Inc., a Texas corporation (herein called "Company"), and Samuel E.
Hunter (herein called "Optionee").
WHEREAS, the Optionee is an officer and director of the Company; and
WHEREAS, the Company considers it desirable and in its best interests
that Optionee
be given an opportunity to acquire an equity interest in the Company in the form
of an option to purchase shares of common stock of the Company (the "Common
Stock"); and
WHEREAS, the options covered by this Agreement are issued pursuant to
the Company's 1996 Nonqualified Stock Option Plan (the "Plan").
NOW, THEREFORE, in consideration of the premises, it is agreed as
follows:
1. GRANT OF OPTION. The Company shall and does hereby grant to Optionee
the right, privilege and option to purchase 30,000 shares (the "Shares") of
Common Stock for the prices per share in the manner and subject to the
conditions hereinafter provided.
2. TIME OF EXERCISE AND PRICES OF OPTION. Subject to the terms hereof,
the option herein granted must be exercised in whole or in part at any time or
times prior to December 31, 2001. The option herein granted shall become
exercisable as to 2,500 shares of Common Stock if the Optionee is a director of
the Company on the last day of each calendar quarter (which shall end during the
months of March, June, September and December) during the years 1997, 1998 and
1999 (example: if the Optionee is a director of the Company on March 31, 1997,
he will become vested, and entitled to exercise, as to options for 2,500 shares
of Common Stock). The exercise price for shares to which Optionee shall become
vested in 1997,
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<PAGE>
1998 and 1999 shall be $3.00 per share, $4.00 per share and $5.00 per share,
respectively. The parties hereto acknowledge and agree that (a) the requirement
that vesting is contingent upon the Optionee being a director of the Company is
applicable regardless of the reason that the Optionee may cease to be a director
of the Company, and (b) subject to the restrictions herein as to when the option
is exercisable, the Optionee shall have the right to select the portion of the
option, and the related option price, if and when the Optionee exercises any of
this option.
3. METHOD OF EXERCISE. The option herein granted (or any part thereof)
must be exercised by written notice directed to the Company at its principal
place of business, accompanied by check in payment of the option price (the
number of shares being purchased multiplied by the applicable purchase price per
share). The Company shall undertake to make prompt delivery of the stock
certificate(s) evidencing such part of the Shares, provided that if any law or
regulation requires the Company to take any action with respect to the Shares
specified in such notice before the issuance thereof, then the date of delivery
of such Shares shall be extended for the period necessary to take such action.
4. TERMINATION OF OPTION. To the extent not theretofore exercised, the
option herein granted shall terminate on the earlier of (a) December 31, 2001,
(b) six (6) months from the date on which Optionee ceases to be a director of
the Company for any reason other than death or disability of the Optionee, and
(c) one (1) year from the date on which Optionee ceases to be a director of the
Company if such event is due to death or disability of the Optionee.
5. RECLASSIFICATION, CONSOLIDATION, OR MERGER. If and to the extent
that the number of shares of Common Stock of the Company shall be increased or
reduced by change in par value, split-up, reclassification, distribution of a
dividend payable in stock, or the
2
<PAGE>
like, the number of shares of Common Stock subject to the option herein granted,
and the option price therefor shall be appropriately adjusted. If the Company
merges with one or more entities in a transaction in which the Company is not
the surviving entity, (a) this option shall thereafter apply to shares of stock
of the surviving entity issuable to the holders of Common Stock, and (b) the
number of shares of stock subject to option and the option price(s) therefor
shall be appropriately adjusted in a manner consistent with the terms and
conditions of the aforesaid merger.
6. RIGHTS PRIOR TO EXERCISE OF OPTION. The option herein granted is
nontransferable by Optionee except as herein otherwise provided. Unless the
Optionee is deceased or disabled, with the determination of the existence or
nonexistence of such disability such disability left to the reasonable
discretion of the Board of Directors of the Company, the option herein may only
be exercised by the Optionee. If the Optionee dies during the period of time
that all or any of part of this option is exercisable, the Optionee's executor
or legal representative may exercise all or any part of this option at any time
or times during the period of time in which the option herein is granted. If the
Optionee is disabled, as aforesaid, the Optionee's legal representative shall
have the right to exercise all or any part of this option at any time or times
during the period of time in which the Optionee is disabled and the option
herein granted has not expired by the terms of this Agreement. With respect to
the shares of stock which are subject to the option herein granted, Optionee
shall have no rights as a stockholder until payment of the option price for the
shares being purchased by exercise of the option herein granted, and the
issuance of the shares involved.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
successors and assigns.
3
<PAGE>
8. MULTIPLE ORIGINALS. This Agreement may be executed in multiple
counterparts with each counterpart constituting an original for all purposes.
9. TOTAL AGREEMENT. This Agreement may not be amended or revised except
by a written instrument executed by both of the parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the 10th day of April, 1997.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:/s/ J. Michael Moore
--------------------------
J. Michael Moore
Chairman of the Board and Chief
Executive Officer
OPTIONEE:
/s/ Samuel E. Hunter
--------------------------
Samuel E. Hunter
4
EMPLOYMENT AGREEMENT RE: J. MICHAEL MOORE
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between Diversified Corporate Resources, Inc., a Texas corporation (herein
referred to as the "Company"), and J. Michael Moore (herein referred to as the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to continue to employ the Executive and
the Executive desires to continue to be employed by the Company; and
WHEREAS, the purpose of this document is to set forth the terms and
conditions of such employment.
NOW THEREFORE, for and in consideration of the mutual advantages and
benefits accruing respectively to the parties hereto, the mutual promises
hereinafter made and the acts to be performed by the respective parties hereto,
the Company and the Executive do hereby contract and agree as follows:
1. Employment. The Company hereby employs the Executive as the Chief
Executive Officer of the Company, and the Executive hereby accepts such
employment, to perform the duties and render services as herein set forth. Such
employment shall continue during the term of this Agreement.
2. Term. Except in the case of earlier termination as herein
specifically provided, the Executive's employment with the Company pursuant to
this Agreement shall be for a period of three (3) years beginning January 1,
1997 and ending December 31, 1999 (the "Termination Date"). The parties agree
that the Termination Date then in effect shall be automatically extended for one
(1) year unless (a) the Agreement has already been terminated for some reason
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1
<PAGE>
permitted hereunder, or (b) one of the parties hereto shall give written notice
to the other at least six (6) months in advance of the Termination Date then in
effect.
3. Base Compensation. As base compensation for the services of
Executive during the term hereof, the Company shall pay the Executive a salary
at an annual rate to be fixed from time to time by the Board of Directors of the
Company but in no event less than $150,000.00 plus any additional compensation
which the Board of Directors of the Company may from time to time determine. The
Executive's salary hereunder shall be paid in equal semi-monthly installments
(subject to reduction for such payroll and withholding deductions as may be
required by law), and may be paid, in whole or in part, by one or more of the
subsidiaries (the "Subsidiaries") of the Company.
In addition to the Executive's base salary, the Executive shall be
entitled to each of the following (at the Company's expenses unless otherwise
indicated): (a) the right to receive an annual bonus pursuant to (i) the stock
bonus plan adopted by the Board of Directors of the Company at its meeting on
December 27, 1996, (ii) any bonus plans now in effect or hereafter adopted by
any of the Subsidiaries, and (iii) such other bonus plan(s) which the Board of
Directors of the Company may hereafter adopt, (b) health insurance coverage now
or hereafter in effect which shall provide for payment of health, dental and
related expenses incurred during the term of this Agreement with respect to the
Executive, the Executive's spouse or the Executive's children, and which shall
contain such benefits and options as shall be made available to other executives
of the Company and/or the Subsidiaries, (c) the right to participate in any and
all 401(k) plans and Section 125 plans now in effect or hereafter adopted by the
Company, (d) the right to participate in (i) the Executive Stock Option Plan
heretofore adopted by the Board of Directors, (ii) any and all stock options
which have been or may hereafter be granted to the Executive in his capacity as
a director of the Company, including the option
2
<PAGE>
heretofore granted to the Executive giving the Executive the option to purchase
50,000 shares of the Company's common stock, and (iii) any stock option plans
for employees and/or executives of the Company which may hereafter be adopted by
the Board of Directors of the Company or by the Board of Directors of any of the
subsidiaries of the Company (including, but not by way of limitation, the option
plan(s) providing for the purchase of 155,000 shares of the Company's common
stock pursuant to resolutions adopted by the Board of Directors of the Company
at its meeting on December 27, 1996, as such resolutions have been amended to
date by the Board of Directors of the Company), (e) the right to all fringe
benefits generally made available to other executives and/or employees of the
Company, and (f) the right to participate in any and all retirement and/or
incentive plans now in effect or hereafter implemented by the Company or any of
the subsidiaries of the Company.
In addition to the foregoing, the Executive shall be entitled to (a)
such vacation leave as shall be permitted by the Company's standard policies, or
(b) if such standard policies provide for a lesser amount of vacation leave,
minimum annual vacation leave of three (3) weeks per year with full pay, and
thirty (30) days per year of sick leave with full pay (this number of days of
sick leave may be extended if the Board of Directors of the Company approves).
The Executive shall also be entitled to receive such fees and/or
compensation as shall be granted to the Executive by the Board of Directors of
the Company in connection with the Executive serving as a member of the Board of
Directors of the Company, and/or any and all of the subsidiaries of the Company.
4. Duties and Services. During the term of this Agreement, the
Executive agrees to (a) do his utmost to enhance and develop the best interests
and welfare of the Company, (b) give his best efforts and skill to advancing and
promoting the growth and success of the Company, and (c) perform such duties or
render such services as the Board of Directors of the
3
<PAGE>
Company may, from time to time, reasonably confer upon or impose on the
Executive. It is understood that the Executive shall report directly to the
Board of Directors of the Company.
5. Termination.
a. The Company may terminate the Executive's employment
pursuant to this Agreement at any time for "cause" as herein defined. The term
"cause" shall mean any of the following events: (i) the Executive's conviction
or plea of guilty to a crime involving moral turpitude, (ii) any acts of
dishonesty or theft on the part of the Executive which, in the opinion of the
Board of Directors of the Company, is detrimental to the best interests of the
Company, and (iii) intentional and material violation by the Executive of any
written policy of the Board of Directors of the Company which is not corrected
within ninety (90) days after receipt by the Executive of a detailed written
explanation from the Board of Directors of the Company. Any decision by the
Board of Directors of the Company to terminate the Executive for cause must be
approved by the favorable vote of seventy-five percent (75%) of all members of
the Board of Directors of the Company excluding the Executive.
b. The Company may terminate the Executive as an employee of
the Company at any time during the term of this Agreement if a majority of all
of the members of the Board of Directors of the Company approves a resolution
authorizing such action and reflecting that such action is in the best interests
of the Company. However, unless the Executive's employment is terminated for
"cause" (as herein defined), any termination of the Executive's employment shall
not terminate the Company's obligations to pay to the Executive the severance
benefits as hereinafter set forth, or to comply with the other requirements of
this Agreement.
c. The Executive may terminate his employment with the Company
at any time by giving ninety (90) days written notice to the Company.
4
<PAGE>
d. The Executive's employment by the Company shall
automatically terminate on the date of the Executive's death if the Executive
dies during the term of this Agreement.
e. If the Executive is incapacitated by an accident, sickness
or otherwise, so as to render him mentally or physically incapable of performing
the services required of him pursuant to this Agreement, Executive's employment
by the Company shall terminate at such time as the Board of Directors of the
Company determines (with at least seventy-five percent of the directors other
than the Executive voting in favor) that the Executive is so disabled and that
this Agreement should be terminated by reason of such disability.
Notwithstanding the foregoing, the Executive shall have the right to contest any
determination of disability by the Board of Directors of the Company. In the
event that the Executive does contest such determination, such matter shall be
resolved by arbitration pursuant to Section 12(c) of this Agreement.
6. Severance and Other Payments.
a. If the Executive's employment pursuant to this Agreement is
terminated for "cause" (as herein defined) or due to the death or disability (as
determined pursuant to paragraph 5(e) of this Agreement) of the Executive, the
Company shall not be obligated to pay or provide any severance compensation or
benefits to the Executive.
b. If the Executive's employment with the Company is
terminated under Paragraph 5(b) of this Agreement, the Company agrees to pay to
the Executive an amount equal to the base compensation which would have been
paid to the Executive during the period of time from the date of the termination
of the Executive's employment with the Company until the Termination Date and
for a period of twelve (12) months following the Termination Date. In addition
to the foregoing severance payment, the Executive and his family shall continue
to
5
<PAGE>
participate in the Company's group health plan, at no cost to the Executive,
until the Termination Date.
c. If the Executive's employment is terminated during the term
of this Agreement, for any reason other than cause, the Executive (i) shall be
entitled to receive a prorata share (based upon the number of months employed
during the calendar year in which employment with the Company is terminated) of
any bonus or incentive compensation which the Executive would otherwise have
been entitled to receive had he remained employed for the entirety of the
calendar year involved, and (ii) shall have twelve (12) months to exercise any
stock options heretofore or hereafter granted to the Executive by the Board of
Directors of the Company.
d. During the time of Executive's employment with the Company
and all of its subsidiaries, the Company shall fund a deferred compensation
program for the Executive in the amount of $2,000.00 per month. Such program
shall be pursuant to a written policy to be adopted by the Company on or before
July 1, 1997.
7. Working Conditions. The Company will provide the Executive with a
private office and secretarial services.
8. Relocation. In the event that the Board of Directors of the Company
relocates the primary office of the Executive outside of the Dallas, Texas
metropolitan area, the Company shall pay all moving expenses of the Executive to
the place of the new office. Absent the written consent of the Executive, the
Company shall not relocate the primary office of the Executive to an
office/location which is not the general corporate office of the Company.
9. Travel and Entertainment. The Executive is authorized to incur
reasonable business expenses on behalf of the Company, including, but not by way
of limitation, expenditures of entertainment, gifts and travel; if any expenses
are of a kind or a cost in excess
6
<PAGE>
of the written policies established by the Board of Directors of the Company,
such expenses must be expressly authorized by the Board of Directors of the
Company. The Company agrees to reimburse the Executive for all such expenses
upon the Executive's presentation of an itemized account of such expenditures.
10. Non-Competition Agreement. In the event that the termination of
employment of the Executive pursuant to this Agreement is effectuated by the
Executive electing to terminate his employment pursuant to this Agreement, the
Executive agrees that the Executive shall not, for a one year period of time
following the date of termination of this Agreement, within Dallas, Dallas
County, Texas or within a radius of fifty (50) miles from any business location
of the Company and its subsidiaries in the continental United States on the
Termination Date, enter into or engage generally in direct competition with the
Company either as an individual on his own or as a partner or joint venturer, or
as an employee or agent for any person, or as an officer, director, shareholder
or otherwise of any entity other than the Company or an affiliate of the
Company.
11. Notices. All notices or other instruments or communications
provided for in this Agreement shall be in writing and signed by the party
giving same and shall be deemed properly given if delivered in person, including
delivery by overnight courier, or if sent by registered or certified United
States mail, postage pre-paid, addressed to such party at the address listed
below. Each party may, by notice to the other party, specify any other address
for the receipt of such notices, instruments or communications. Any notice,
instrument or communication sent by telegram shall be deemed properly given only
when received by the person to whom it is sent.
12. Miscellaneous.
7
<PAGE>
a. Subject to the condition that this Agreement is not
assignable by either party without the prior written consent of the other party,
the terms and provisions of this Agreement shall inure to the benefit of, and
shall be binding on, the parties hereto and their respective heirs,
representatives, successors and assigns.
b. This Agreement supersedes all other agreements, either oral
or in writing, between the parties to this Agreement, with respect to the
employment of the Executive by the Company. This Agreement contains the entire
understanding of the parties and all of the covenants and agreement between the
parties with respect to such employment. Any such prior agreements are hereby
terminated without obligation for any payments otherwise due thereunder.
c. Any controversy between the parties to this Agreement
involving the construction or application of any of the terms, covenants, or
conditions of this Agreement shall be submitted to arbitration if either party
to this Agreement shall request arbitration by notice in writing to the other
party. In such event, the parties to this Agreement shall, within thirty (30)
days after this Paragraph 12(c) is invoked, both appoint one person as an
arbitrator to hear and determine the dispute, and if such arbitrators shall be
unable to agree within fifteen (15) days after selection of the second of the
two, then the two arbitrators so chosen shall, within fifteen (15) days, select
a third impartial arbitrator whose decision shall be final and conclusive upon
the parties to this Agreement. The decision of the third arbitrator shall be
rendered within fifteen (15) days after selection. The expenses of arbitration
proceedings conducted pursuant to this Agreement shall be borne by the party
incurring the cost; the expenses of a third arbitrator shall be borne equally by
the Company and the Executive.
d. In the event of any litigation between the parties related
to the compliance with the terms and conditions of this Agreement, the parties
hereto acknowledge and agree that (i) such litigation proceedings must be held
in Dallas County, Texas, and (ii) the prevailing party
8
<PAGE>
in such litigation proceedings shall be entitled to recover, from the
nonprevailing party, reasonable attorneys' fees and expenses incurred in
connection with the dispute involved.
e. This Agreement has been made under and shall be governed by
the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the 1st day of January, 1997, but actually executed this 10th
day of April, 1997.
COMPANY:
DIVERSIFIED CORPORATE RESOURCES, INC.
By:/s/ M. Ted Dillard
------------------------
M. Ted Dillard, President
Address: 12801 North Central Expressway
Suite 350
Dallas, TX 75243
/s/ J. Michael Moore
---------------------
J. Michael Moore
Address:
9
EMPLOYMENT AGREEMENT RE: M. TED DILLARD
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between Diversified Corporate Resources, Inc., a Texas corporation (herein
referred to as the "Company"), and M. Ted Dillard (herein referred to as the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to continue to employ the Executive and
the Executive desires to continue to be employed by the Company; and
WHEREAS, the purpose of this document is to set forth the terms and
conditions of such employment.
NOW THEREFORE, for and in consideration of the mutual advantages and
benefits accruing respectively to the parties hereto, the mutual promises
hereinafter made and the acts to be performed by the respective parties hereto,
the Company and the Executive do hereby contract and agree as follows:
1. Employment. The Company hereby employs the Executive as the
President of the Company, and the Executive hereby accepts such employment, to
perform the duties and render services as herein set forth. Such employment
shall continue during the term of this Agreement.
2. Term. Except in the case of earlier termination as herein
specifically provided, the Executive's employment with the Company pursuant to
this Agreement shall be for a period of three (3) years beginning January 1,
1997 and ending December 31, 1999 (the "Termination Date"). The parties agree
that the Termination Date then in effect shall be automatically extended for one
(1) year unless (a) the Agreement has already been terminated for some reason
permitted hereunder, or (b) one of the parties hereto shall give written notice
to the other at least six (6) months in advance of the Termination Date then in
effect.
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3. Base Compensation. As base compensation for the services of
Executive during the term hereof, the Company shall pay the Executive a salary
at an annual rate to be fixed from time to time by the Board of Directors of the
Company but in no event less than $125,000.00 plus any additional compensation
which the Board of Directors of the Company may from time to time determine. The
Executive's salary hereunder shall be paid in equal semi-monthly installments
(subject to reduction for such payroll and withholding deductions as may be
required by law), and may be paid, in whole or in part, by one or more of the
subsidiaries (the "Subsidiaries") of the Company.
In addition to the Executive's base salary, the Executive shall be
entitled to each of the following (at the Company's expenses unless otherwise
indicated): (a) the right to receive an annual bonus pursuant to (i) the stock
bonus plan adopted by the Board of Directors of the Company at its meeting on
December 27, 1996, (ii) any bonus plans now in effect or hereafter adopted by
any of the Subsidiaries, and (iii) such other bonus plan(s) which the Board of
Directors of the Company may hereafter adopt, (b) health insurance coverage now
or hereafter in effect which shall provide for payment of health, dental and
related expenses incurred during the term of this Agreement with respect to the
Executive, the Executive's spouse or the Executive's children, and which shall
contain such benefits and options as shall be made available to other executives
of the Company and/or the Subsidiaries, (c) the right to participate in any and
all 401(k) plans and Section 125 plans now in effect or hereafter adopted by the
Company, (d) the right to participate in (i) the Executive Stock Option Plan
heretofore adopted by the Board of Directors, (ii) any and all stock options
which have been or may hereafter be granted to the Executive in his capacity as
a director of the Company, including the option heretofore granted to the
Executive giving the Executive the option to purchase 50,000 shares of the
Company's common stock, and (iii) any stock option plans for employees and/or
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<PAGE>
executives of the Company which may hereafter be adopted by the Board of
Directors of the Company or by the Board of Directors of any of the subsidiaries
of the Company (including, but not by way of limitation, the option plan(s)
providing for the purchase of 105,000 shares of the Company's common stock
pursuant to resolutions approved by the Board of Directors of the Company at its
meeting on December 27, 1996, as such resolutions have been amended to date by
the Board of Directors of the Company), (e) the right to all fringe benefits
generally made available to other executives and/or employees of the Company,
and (f) the right to participate in any and all retirement and/or incentive
plans now in effect or hereafter implemented by the Company or any of the
subsidiaries of the Company.
In addition to the foregoing, the Executive shall be entitled to (a)
such vacation leave as shall be permitted by the Company's standard policies, or
(b) if such standard policies provide for a lesser amount of vacation leave,
minimum annual vacation leave of three (3) weeks per year with full pay, and
thirty (30) days per year of sick leave with full pay (this number of days of
sick leave may be extended if the Board of Directors of the Company approves).
The Executive shall also be entitled to receive such fees and/or
compensation as shall be granted to the Executive by the Board of Directors of
the Company in connection with the Executive serving as a member of the Board of
Directors of the Company, and/or any and all of the subsidiaries of the Company.
4. Duties and Services. During the term of this Agreement, the
Executive agrees to (a) do his utmost to enhance and develop the best interests
and welfare of the Company, (b) give his best efforts and skill to advancing and
promoting the growth and success of the Company, and (c) perform such duties or
render such services as the Board of Directors of the Company may, from time to
time, reasonably confer upon or impose on the Executive. It is
3
<PAGE>
understood that the Executive shall report directly to the Chairman of the Board
and Chief Executive Officer of the Company.
5. Termination.
a. The Company may terminate the Executive's employment
pursuant to this Agreement at any time for "cause" as herein defined. The term
"cause" shall mean any of the following events: (i) the Executive's conviction
or plea of guilty to a crime involving moral turpitude, (ii) any acts of
dishonesty or theft on the part of the Executive which, in the opinion of the
Board of Directors of the Company, is detrimental to the best interests of the
Company, and (iii) intentional and material violation by the Executive of any
written policy of the Board of Directors of the Company which is not corrected
within ninety (90) days after receipt by the Executive of a detailed written
explanation from the Board of Directors of the Company. Any decision by the
Board of Directors of the Company to terminate the Executive for cause must be
approved by the favorable vote of seventy-five percent (75%) of all members of
the Board of Directors of the Company excluding the Executive.
b. The Company may terminate the Executive as an employee of
the Company at any time during the term of this Agreement if a majority of all
of the members of the Board of Directors of the Company approves a resolution
authorizing such action and reflecting that such action is in the best interests
of the Company. However, unless the Executive's employment is terminated for
"cause" (as herein defined), any termination of the Executive's employment shall
not terminate the Company's obligations to pay to the Executive the severance
benefits as hereinafter set forth, or to comply with the other requirements of
this Agreement.
c. The Executive may terminate his employment with the Company
at any time by giving ninety (90) days written notice to the Company.
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<PAGE>
d. The Executive's employment by the Company shall
automatically terminate on the date of the Executive's death if the Executive
dies during the term of this Agreement.
e. If the Executive is incapacitated by an accident, sickness
or otherwise, so as to render him mentally or physically incapable of performing
the services required of him pursuant to this Agreement, Executive's employment
by the Company shall terminate at such time as the Board of Directors of the
Company determines (with at least seventy-five percent of the directors other
than the Executive voting in favor) that the Executive is so disabled and that
this Agreement should be terminated by reason of such disability.
Notwithstanding the foregoing, the Executive shall have the right to contest any
determination of disability by the Board of Directors of the Company. In the
event that the Executive does contest such determination, such matter shall be
resolved by arbitration pursuant to Section 12(c) of this Agreement.
6. Severance and Other Payments.
a. If the Executive's employment pursuant to this Agreement is
terminated for "cause" (as herein defined) or due to the death or disability (as
determined pursuant to paragraph 5(e) of this Agreement) of the Executive, the
Company shall not be obligated to pay or provide any severance compensation or
benefits to the Executive.
b. If the Executive's employment with the Company is
terminated under Paragraph 5(b) of this Agreement, the Company agrees to pay to
the Executive an amount equal to the base compensation which would have been
paid to the Executive during the period of time from the date of the termination
of the Executive's employment with the Company until the Termination Date and
for a period of twelve (12) months following the Termination Date. In addition
to the foregoing severance payment, the Executive and his family shall continue
to
5
<PAGE>
participate in the Company's group health plan, at no cost to the Executive,
until the Termination Date.
c. If the Executive's employment is terminated during the term
of this Agreement, for any reason other than cause, the Executive (i) shall be
entitled to receive a prorata share (based upon the number of months employed
during the calendar year in which employment with the Company is terminated) of
any bonus or incentive compensation which the Executive would otherwise have
been entitled to receive had he remained employed for the entirety of the
calendar year involved, and (ii) shall have twelve (12) months to exercise any
stock options heretofore or hereafter granted to the Executive by the Board of
Directors of the Company.
d. During the time of Executive's employment with the Company
and all of its subsidiaries, the Company shall fund a deferred compensation
program for the Executive in the amount of $1,500.00 per month. Such program
shall be pursuant to a written policy to be adopted by the Company on or before
July 1, 1997.
7. Working Conditions. The Company will provide the Executive with a
private office and secretarial services.
8. Relocation. In the event that the Board of Directors of the Company
relocates the primary office of the Executive outside of the Dallas, Texas
metropolitan area, the Company shall pay all moving expenses of the Executive to
the place of the new office. Absent the written consent of the Executive, the
Company shall not relocate the primary office of the Executive to an
office/location which is not the general corporate office of the Company.
9. Travel and Entertainment. The Executive is authorized to incur
reasonable business expenses on behalf of the Company, including, but not by way
of limitation, expenditures of entertainment, gifts and travel; if any expenses
are of a kind or a cost in excess
6
<PAGE>
of the written policies established by the Board of Directors of the Company,
such expenses must be expressly authorized by the Board of Directors of the
Company. The Company agrees to reimburse the Executive for all such expenses
upon the Executive's presentation of an itemized account of such expenditures.
In addition to the foregoing, the Executive is entitled to incur, and to be
reimbursed by the Company, various and sundry fees, costs and expenses
(including, but not by way of limitation, fees and costs involved in attending
continuing education sessions) in connection with the Executive continuing to be
licensed in Texas as a certified public accountant, certified management
accountant and a certified financial planner.
10. Non-Competition Agreement. In the event that the termination of
employment of the Executive pursuant to this Agreement is effectuated by the
Executive electing to terminate his employment pursuant to this Agreement, the
Executive agrees that the Executive shall not, for a one year period of time
following the date of termination of this Agreement, within Dallas, Dallas
County, Texas or within a radius of fifty (50) miles from any business location
of the Company and its subsidiaries in the continental United States on the
Termination Date, enter into or engage generally in direct competition with the
Company either as an individual on his own or as a partner or joint venturer, or
as an employee or agent for any person, or as an officer, director, shareholder
or otherwise of any entity other than the Company or an affiliate of the
Company.
11. Notices. All notices or other instruments or communications
provided for in this Agreement shall be in writing and signed by the party
giving same and shall be deemed properly given if delivered in person, including
delivery by overnight courier, or if sent by registered or certified United
States mail, postage pre-paid, addressed to such party at the address listed
below. Each party may, by notice to the other party, specify any other address
for the receipt of such notices, instruments or communications. Any notice,
instrument or communication sent
7
<PAGE>
by telegram shall be deemed properly given only when received by the person to
whom it is sent.
12. Miscellaneous.
a. Subject to the condition that this Agreement is not
assignable by either party without the prior written consent of the other party,
the terms and provisions of this Agreement shall inure to the benefit of, and
shall be binding on, the parties hereto and their respective heirs,
representatives, successors and assigns.
b. This Agreement supersedes all other agreements, either oral
or in writing, between the parties to this Agreement, with respect to the
employment of the Executive by the Company. This Agreement contains the entire
understanding of the parties and all of the covenants and agreement between the
parties with respect to such employment. Any such prior agreements are hereby
terminated without obligation for any payments otherwise due thereunder.
c. Any controversy between the parties to this Agreement
involving the construction or application of any of the terms, covenants, or
conditions of this Agreement shall be submitted to arbitration if either party
to this Agreement shall request arbitration by notice in writing to the other
party. In such event, the parties to this Agreement shall, within thirty (30)
days after this Paragraph 12(c) is invoked, both appoint one person as an
arbitrator to hear and determine the dispute, and if such arbitrators shall be
unable to agree within fifteen (15) days after selection of the second of the
two, then the two arbitrators so chosen shall, within fifteen (15) days, select
a third impartial arbitrator whose decision shall be final and conclusive upon
the parties to this Agreement. The decision of the third arbitrator shall be
rendered within fifteen (15) days after selection. The expenses of arbitration
proceedings conducted pursuant to this Agreement shall be borne by the party
incurring the cost; the expenses of a third arbitrator shall be borne equally by
the Company and the Executive.
8
<PAGE>
d. In the event of any litigation between the parties related
to the compliance with the terms and conditions of this Agreement, the parties
hereto acknowledge and agree that (i) such litigation proceedings must be held
in Dallas County, Texas, and (ii) the prevailing party in such litigation
proceedings shall be entitled to recover, from the nonprevailing party,
reasonable attorneys' fees and expenses incurred in connection with the dispute
involved.
e. This Agreement has been made under and shall be governed by
the laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the 1st day of January, 1997, but actually executed this 10th
day of April, 1997.
COMPANY:
DIVERSIFIED CORPORATE RESOURCES, INC.
By:/s/ J. Michael Moore
----------------------------
J. Michael Moore, Chairman of the Board
and Chief Executive Officer
Address: 12801 North Central Expressway
Suite 350
Dallas, TX 75243
/s/ M. Ted Dillard
----------------------------
M. Ted Dillard
Address: 2016 St. Andrews
Richardson, Texas 75082
9
EXHIBIT 21
SUBSIDIARIES
Diversified Human Resources Group, Inc. Texas
DHRG Northeast, Inc. Texas
DHRG of California, Inc. Texas
EMSR, Inc. Texas
Information Systems Consulting Corp. Texas
Management Alliance Corporation Texas
Management Alliance Group
of Independent Companies, Inc. Texas
Preferred Funding Corporation Texas
Recruiters Network Group, Inc. Texas
TNI, Inc. Texas
Healthcare Resources, Inc. Florida
Power Industry Personnel, Inc. Connecticut
Power & Electronics Personnel, Inc. California
Power Services, Inc. South Carolina
Pacific Power Services, Inc. Washington
Western Power Services Washington
Northeast Power & Electronics New York
Mid-Atlantic Power Services Virginia
Technical Careers of Pennsylvania Pennsylvania
Western Technical Careers, Inc. Arizona
All of the above listed companies are wholly owned subsidiaries.
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