<PAGE>
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 NORTH CENTRAL EXPRESSWAY
SUITE 350
DALLAS, TEXAS 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 458-8500
Former name, former address and former fiscal year if changed
since last report:
Indicate by check mark whether registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock of the registrant outstanding on September
30, 1998, was 2,807,797.
Total Number of pages for
this 10-Q filing: 17
----
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 5,771,648 $ 7,500,188
Trade accounts receivable, less allowance for doubtful accounts of
approximately $556,000 and $536,000, respectively...................... 6,341,040 4,882,788
Notes receivable-related party........................................... 31,188 10,387
Prepaid expenses and other current assets................................ 279,228 106,468
Federal income taxes receivable.......................................... 254,477 201,436
Deferred income taxes.................................................... 260,101 243,518
------------ ------------
TOTAL CURRENT ASSETS................................................... 12,937,682 12,944,785
PROPERTY AND EQUIPMENT, NET................................................ 2,739,823 1,389,761
OTHER ASSETS:
Investment in and advances to joint venture.............................. - 226,638
Notes receivable-related party........................................... 2,953 11,385
Deferred income taxes.................................................... 264,913 428,330
Other.................................................................... 533,782 160,657
------------ ------------
$16,479,153 $15,161,556
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses.............................. $ 3,338,251 $ 3,487,470
Current maturities of long-term debt..................................... 14,294 2,026
Current maturities of capital lease obligations.......................... 44,985 -
------------ ------------
TOTAL CURRENT LIABILITIES.............................................. 3,397,530 3,489,496
DEFERRED LEASE RENTS....................................................... 68,208 53,131
LONG-TERM DEBT............................................................. 119,795 66,134
CAPITAL LEASE OBLIGATIONS.................................................. 36,149 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued................................................ - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 3,077,446 and 2,985,946 shares issued, respectively........ 307,745 298,595
Additional paid-in capital............................................... 11,511,229 11,080,504
Retained earnings........................................................ 1,600,325 358,871
Common stock held in treasury (269,649 and 245,849 shares at cost,
respectively).......................................................... (413,247) (185,175)
Receivables from related party........................................... (148,581) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................................ 12,857,471 11,552,795
------------ ------------
$16,479,153 $15,161,556
------------ ------------
------------ ------------
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NET SERVICE REVENUES:
Permanent placement ............................ $ 5,414,696 $ 4,754,278 $15,948,436 $12,735,521
Specialty services ............................. 1,433,193 1,959,330 4,723,381 5,830,028
Contract placement ............................. 3,619,285 2,392,110 9,096,234 6,192,703
Training ....................................... 242,456 - 453,003 -
----------- ----------- ----------- -----------
Total Revenues .............................. 10,709,630 9,105,718 30,221,054 24,758,252
COST OF SERVICES ................................... 7,491,827 6,288,400 21,124,298 17,256,914
----------- ----------- ----------- -----------
GROSS MARGIN ....................................... 3,217,803 2,817,318 9,096,756 7,501,338
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ....................................... (2,801,326) (1,975,252) (7,416,551) (5,692,442)
OTHER INCOME (EXPENSES):
Income (Loss) from joint venture operations .... - 986 (26,209) (18,502)
Interest income (expense), net ................. 86,565 (40,162) 276,489 (114,293)
Other, net ..................................... 3,000 (2,295) 9,019 51,648
----------- ----------- ----------- -----------
89,565 (41,471) 259,299 (81,147)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ............................ 506,042 800,595 1,939,504 1,727,749
INCOME TAXES ....................................... (192,345) (304,028) (698,050) (397,386)
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM .............. 313,697 496,567 1,241,454 1,330,363
EXTRAORDINARY ITEM, gain on debt
restructuring, net of income tax ............... - - - 43,083
----------- ----------- ----------- -----------
NET INCOME ..................................... $ 313,697 $ 496,567 $ 1,241,454 $ 1,373,446
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
Income before extraordinary item .............. $ 0.11 $ 0.28 $ 0.45 $ 0.77
Extraordinary item ............................. - - - 0.03
----------- ----------- ----------- -----------
TOTAL .............................................. $ 0.11 $ 0.28 $ 0.45 $ 0.80
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING .................................... 2,808,896 1,789,062 2,765,611 1,724,062
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED EARNINGS PER SHARE:
Income before extraordinary item .............. $ 0.11 $ 0.26 $ 0.43 $ 0.73
Extraordinary item ............................. - - - 0.02
----------- ----------- ----------- -----------
TOTAL .............................................. $ 0.11 $ 0.26 $ 0.43 $ 0.75
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING .................. 2,891,112 1,884,998 2,887,268 1,833,221
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 1,241,454 $ 1,373,446
Adjustments to reconcile net income to cash provided
by operating activities:
Extraordinary item ......................................... - (43,083)
Depreciation and amortization............................... 383,569 217,681
Other....................................................... - 5,103
Provision for allowances.................................... (21,677) 25,312
Income tax effect of options exercised...................... 160,125 -
Equity in loss of joint venture............................. 26,209 18,502
Deferred income taxes....................................... 146,834 -
Deferred lease rents........................................ 15,077 34,892
Changes in operating assets and liabilities
(net of Joint Venture consolidation):
Accounts receivable......................................... (1,129,515) (1,336,145)
Federal income taxes receivable............................. (53,041) -
Prepaid expenses and other assets........................... (165,301) (124,948)
Trade accounts payable and accrued expenses................. (290,544) 732,574
----------- -----------
Cash provided by operating activities..................... 313,190 903,334
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (1,534,878) (712,828)
Business acquisition costs.................................. (279,518) -
Deposits.................................................... (27,621) (5,647)
Loans and advances to related parties....................... (171,671) (149,905)
Repayment from related parties.............................. 7,631 6,824
Net advances to joint venture............................... (89,730) (127,917)
----------- -----------
Cash used in investing activities ........................ (2,095,787) (989,473)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock under option agreements................... 190,219 90,000
Purchase of treasury stock.................................. (114,944) -
Borrowing under other short-term debt....................... - 186,299
Decrease in borrowings under factoring and
loan arrangements ........................................ - 138,616
Principal payments under long-term debt and capital
lease obligations......................................... (21,218) (16,355)
Book overdraft.............................................. - (98,158)
Deferred offering costs..................................... - (681,001)
----------- -----------
Cash provided by (used in) financing activities........... 54,057 (380,599)
----------- -----------
Decrease in cash and cash equivalents ...................... (1,728,540) (466,738)
Cash and cash equivalents at beginning of year.............. 7,500,188 612,512
----------- -----------
Cash and cash equivalents at end of period.................. $ 5,771,648 $ 145,774
----------- -----------
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 6,588 $ 133,438
----------- -----------
----------- -----------
Cash paid for taxes......................................... $ 530,862 $ 378,951
----------- -----------
----------- -----------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITY:
In connection with the acquisition of certain assets of JCAP, Inc. (dba
Alliance Training Centers) effective June 1, 1998, the Company incurred
deferred payment obligations totaling $75,000, the present value of
which were approximately $67,000. Additionally, the Company assumed
certain capital lease obligations for the lease of computer equipment
with a gross commitment of approximately $110,000, the present value of
which were approximately $101,000.
See notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of
Diversified Corporate Resources, Inc. and its subsidiaries (the
"Company"), all of which are wholly owned. The financial information for
the three and nine months ended September 30, 1998 and 1997, is
unaudited but includes all adjustments (consisting only of normal
recurring accruals) which the Company considers necessary for a fair
presentation of the results for the periods. The financial information
should be read in conjunction with the consolidated financial statements
for the year ended December 31, 1997, included in the Company's Annual
Report on Form 10-K ("Form 10-K"). Operating results for the three and
nine months ended September 30, 1998, are not necessarily indicative of
the results that may be expected for the entire year ending December 31,
1998.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Computer equipment and software............................ $2,280,200 $1,281,305
Office equipment and furniture............................. 1,161,343 536,518
Leasehold improvements..................................... 263,664 160,124
---------- ----------
3,705,207 1,977,947
Less accumulated depreciation and amortization............. (965,384) (588,186)
---------- ----------
$2,739,823 $1,389,761
---------- ----------
---------- ----------
</TABLE>
Included in computer equipment and software are software development
costs in progress of approximately $93,000 at December 31, 1997.
3. INCOME TAXES
The income tax provision (benefit) and the amount computed by applying
the federal statutory income tax rate to income before income taxes
differs as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
1998 1997 1998 1997
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Tax provision (at statutory rate).... $ 177,115 $ 281,334 $ 678,826 $ 605,838
Utilization of net operating loss
Carryforwards................... - - - (338,727)
Other, principally change of
estimate......................... - - (31,467) -
State income tax, net of
federal income tax benefit........ 15,230 22,694 50,691 130,275
----------- ------------- ----------- -------------
Total............................. $ 192,345 $ 304,028 $ 698,050 $ 397,386
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. EARNINGS PER SHARE
Basic EPS was determined by dividing net income by the weighted average
number of shares of Common Stock outstanding during the year and diluted
EPS included these shares plus Common Stock equivalents outstanding
during the year (Common Stock equivalents are excluded if the effects of
inclusion are antidilutive).
The following is a reconciliation of the weighted average number of
shares outstanding during the period for basic and diluted earnings per
share.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Basic....................................... 2,808,896 1,789,062 2,765,611 1,724,062
Net effect of dilutive stock options........ 82,216 95,936 121,657 109,159
--------- --------- --------- ---------
Diluted..................................... 2,891,112 1,884,998 2,887,268 1,833,221
--------- --------- --------- ---------
--------- --------- --------- ---------
Total options and warrants outstanding...... 729,757 322,500 729,757 322,500
Options and warrants not considered
because effects of inclusion would
be antidilutive.......................... 478,757 72,000 82,590 72,000
</TABLE>
5. CONTINGENCIES
The Company was named as a garnishee in a lawsuit against its largest
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. The Company has filed a separate lawsuit
against the plaintiff seeking damages and reimbursement of expense,
alleging that plaintiffs interfered with Company business transactions
and proposed financing resulting in delays of certain transactions, lost
opportunities, lost profits and other significant losses. Additionally,
the Company has been named in a lawsuit filed by two former employees
claiming damages for the fair market value of certain shares of Common
Stock of certain subsidiaries of the Company as well as other damages
for breach of contract and various other allegations. The Company has
filed a third party petition against one of these plaintiffs and a
counterclaim against the other plaintiff. The Company is also involved
in certain other litigation and disputes not previously noted. To the
extent any of the aforementioned matters involve claims against the
Company, management believes such claims are without merit and has
concluded that the ultimate resolution of such matters will not have a
material effect on the Company's consolidated financial statements.
6. NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," SFAS No. 132, "Employers'
Disclosures about Pensions and other Post Retirement Benefits," and SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
Preliminary analysis of these new standards by the Company indicates
that they will not have a material effect on the Company's financial
statements. SFAS No. 131 and 132, are effective for financial statements
for fiscal years beginning after December 15, 1997, and SFAS No. 133
will be effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. BUSINESS ACQUISITIONS
Alliance Training Center:
Effective June 1, 1998, the Company acquired certain assets of JCAP,
Inc., dba Alliance Training Centers ("Alliance"), a privately-held
information technology-training center operating in Richardson and
Irving, Texas, both suburbs of Dallas, Texas. The Company paid a
purchase price equal to the fair value of all of Alliance's furniture,
computer equipment and software and certain deposits and other assets,
plus an earn-out (goodwill) of eight percent (8%) of the annual
after-tax net income of Train International, Inc. ("Train"), a
subsidiary of the Company, in excess of certain base amounts through
December, 2001, subject to certain minimum annual earn-out payments
aggregating $100,000 ($25,000 at closing and $75,000 deferred) and
overall maximum earn-out payments of $250,000. Additionally, the Company
assumed the real estate leases at the Richardson and Irving locations
and certain computer equipment capital leases. The gross future
commitment under these equipment leases was approximately $110,000 and
the present value of the future minimum lease payments was approximately
$101,000.
Following is a summary of the acquisition cost:
<TABLE>
<S> <C>
Costs:
Furniture, computer equipment and software.......................... $ 192,898
Deposits and other assets........................................... 20,935
Goodwill............................................................ 126,306
--------------
Total............................................................ $ 340,139
--------------
--------------
Source:
Cash................................................................ $ 171,858
Present value of minimum deferred earn-out.......................... 67,433
Present value of future minimum lease payments...................... 100,848
--------------
Total............................................................ $ 340,139
--------------
--------------
</TABLE>
The Alliance acquisition was accounted for under the purchase method.
The results of the former Alliance operations are included in the
Statement of Operations beginning June 1, 1998. Goodwill is being
amortized over ten years utilizing the straight-line method. The
contingent earn-out payments will be recorded as goodwill when earned.
The unaudited revenues of Alliance for the year ended December 31, 1997,
and the five months ended May 31, 1998, were approximately $850,000 and
$427,000, respectively. Pro forma results of operations have not been
presented because they are not material in relation to the consolidated
operations of the Company.
Geier Assessment and Performance Systems, Inc.:
Effective August 1, 1998, the Company entered into an agreement with
Geier & Associates, Inc., d/b/a Geier Learning Systems ("GLS") and John
G. Geier, Ph. D. ("Geier") to form Geier Assessment and Performance
Systems, Inc. ("GAPS"), a wholly owned subsidiary of the Company. The
purpose of GAPS is primarily to develop certain software based upon
written material initially developed by GLS and its agents and employees
for use by the Company in testing and improving the work performance of
its agents and employees or its clients' agents and employees. As part
of the agreement, GLS contributed all rights to any software developed
by the Company, GLS or GAPS, subject to the payment of a royalty to GLS,
as well as a license to enhance and sell, subject to the payment of a
royalty to GLS, the GLS written materials. For each year that GAPS is
profitable, GLS will earn an option to purchase five percent, up to an
aggregate of twenty five percent, of GAPS for $0.01 per share.
Acquisition costs associated with this transaction through September 30,
1998 were $35,142.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Texcel, Inc. and Texcel Technical Services, Inc.:
On October 8, 1998, the Company completed the acquisition of
substantially all of the assets and assumed certain liabilities of
Texcel, Inc. and Texcel Technical Services, Inc. (collectively
"Texcel"). The purchase price consists of $1,800,000 in cash, 100,000
shares of the Company's Common Stock and three annual deferred payments
of $880,000 beginning October 1, 1999. The deferred payments will be
reduced up to $200,000 each if certain levels of profitability are not
maintained. The Texcel companies are based in the Philadelphia area and
are engaged in both permanent and temporary placements of technical and
professional specialist primarily in Pennsylvania, Delaware and New
Jersey. Texcel had revenues (unaudited) of approximately $8,000,000 for
the twelve months ended June 30, 1998. In connection with services
rendered to the Company with respect to negotiating and consummating the
acquisition, the Company paid a fee of $89,000 ($54,000 subsequent to
September 30, 1998) to Ms. Deborah Farrington, a non-employee Director of
the Company, pursuant to her consulting agreement with the Company.
Acquisition costs associated with this transaction through September 30,
1998 were $72,518.
8. STOCKHOLDERS EQUITY
On July 17, 1998, the Company's President, M. Ted Dillard (Dillard),
exercised options to purchase 84,000 shares of the Company's Common
Stock for an aggregate purchase price of $257,250. The purchase price
was paid with 7,500 shares of Company Common Stock valued at $89,500
(based upon the closing price of Company Common Stock on July 16, 1998,
on the American Stock Exchange) and the remainder was paid in cash
obtained through a margin loan (the "Margin Loan") secured by shares of
Company Common Stock held by Dillard. In connection with this
transaction the Company loaned Dillard $148,600 (the "Tax Loan") to
cover his income tax liability associated with the transaction. The Tax
Loan was approved by the Compensation Committee of the Board of
Directors and ratified by the Board of Directors. The Tax Loan bears
interest at the applicable federal rate, the interest is payable
quarterly, is collateralized by 20,000 shares of the Company's
Common Stock and is due July 17, 2003. The Company will receive
an income tax deduction related to this transaction. On October 1,
1998, the Company advanced Dillard $38,562 against his 1998
bonus to cover a margin call in connection with the Margin Loan. In
addition, on October 12, 1998, the Board of Directors approved a loan to
Dillard of $125,300 (the "Company Loan") to cover a second margin call
in connection with the Margin Loan and to refinance the Margin Loan. The
Company Loan bears interest at 8%, is payable quarterly, collateralized
by 35,400 shares of the Company's Common Stock and is due October 12,
2001. The collateral securing the Company Loan will be increased if the
market value of the Company's Common Stock declines to the point where
the market value of all stock pledged is less than the stated amount of
the Company Loan.
On October 23, 1998, the Compensation Committee approved, and the Board
of Directors ratified the repricing of options to purchase 298,167 shares
of the Company's Common Stock, which are now held by employees of the
Company. Such action reduces to $5 1/8 per share the exercise price on
the options involved, representing the previous day's closing price of
Company Common Stock. The options previously had exercise prices ranging
from $8.00 per share to $12.75 per share. The Compensation Committee and
the Board of Directors also has imposed a condition that no such options
may be exercised prior to October 23, 1999.
On September 1, 1998, the Board of Directors approved a share repurchase
program authorizing the repurchase of up to 100,000 shares of its Common
Stock. On October 7, 1998, the Board of Directors authorized an
additional 150,000 shares of its Common Stock.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of November 13, 1998, the Company has repurchased 220,700 of these
shares at an average cost per share of $4.65.
9. JOINT VENTURE OPERATIONS
During January 1995, the Company entered into a joint venture agreement
with CFS, Inc., for the purpose of primarily providing personnel
services to certain businesses requiring minority suppliers. 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 substantially all of its personnel and contract
labor on a subcontractor basis at cost. The Company has a 49% ownership
interest in the joint venture and had been allocated 65% of the net
income or loss resulting from the joint venture operations through June
30, 1998. In connection with an agreement to bring certain of the
operations of the joint venture into the Company, the Company has
effectively assumed the operations of the joint venture and effective
July 1, 1998, the operations of the joint venture have been consolidated
with those of the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET SERVICE REVENUES. Net service revenues increased approximately $1.6
million or 17.6% to $10.7 million in the third quarter of 1998, compared to
$9.1 million for the comparable 1997 quarter. This slower than expected
revenue growth is primarily the result of client imposed restrictions on the
hiring of personnel resulting from economic conditions abroad where several
of the Company's clients have extensive operations. It also reflects a
general hiring slowdown in certain industries most affected by recent market
conditions. Permanent placement revenues increased approximately $660,000 or
13.9% to $5.4 million for the quarter ended September 30, 1998, compared to
$4.8 million for the comparable 1997 quarter. As part of its single-source
provider strategy, the Company provides specialty services to its permanent
placement clients. As a result of the demand for permanent placement
personnel, specialty service revenues decreased approximately $526,000 or
26.9% to $1.4 million for the third quarter of 1998, compared to $2.0 million
for the comparable 1997 quarter. Contract placement revenues increased
approximately $1.2 million or 51.3% to $3.6 million in the third quarter of
1998, compared to $2.4 million for the comparable 1997 quarter. Training
revenues were approximately $242,000 for the quarter ended September 30,
1998. The Company reported no training revenues in the comparable 1997
quarter. The increase in net service revenues was primarily attributable to
the Company's continued focus on high-margin, specialty niche employment
markets such as the information technology and engineering/technical
disciplines.
GROSS MARGIN. Gross margin increased approximately $400,000 or 14.2% to $3.2
million in the third quarter of 1998, compared to $2.8 million for the
comparable 1997 quarter. Gross margin as a percentage of net service revenues
decreased to approximately 30.0% in the third quarter of 1998 compared to
approximately 30.9% in the comparable period in 1997. The decrease in gross
margin as a percentage of net service revenues was the result of increased
expenses associated with opening new offices in Denver and expanding training
facilities in Dallas. During the third quarter of 1998 gross margin as a
percentage of sales for the core staffing operations of the Company, without
consideration of the new Denver office or the training operations, was 31.6%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $826,000 or 41.8% to $2.8
million in the third quarter of 1998, compared to $2.0 million for the
comparable 1997 quarter. Selling, general and administrative expenses as a
percentage of net service revenues increased to approximately 26.2% in the
third quarter of 1998 from approximately 21.7% in the comparable 1997
quarter. The increase was primarily attributable to increased expenses
associated with opening new offices, the further development of the Company's
training operations and the expansion of the Company's back office to support
the growth in sales. The new offices increased expenses by approximately
$47,000 while the development of training operations increased expenses by
approximately $276,000.
OTHER INCOME AND EXPENSES. Other income was approximately $90,000 in the
third quarter of 1998 compared to expense of approximately $41,000 in the
comparable 1997 quarter. This was primarily due to interest earnings during
the third quarter of 1998 on the proceeds from the Company's 1997 public
offering, as well as a decrease in interest expense resulting from the
retirement of all short-term debt of the Company during the fourth quarter of
1997.
INCOME TAXES. Income tax expense decreased approximately $112,000 to
$192,000 for the third quarter of 1998, compared to $304,000 for the
comparable 1997 quarter.
NET INCOME. Net income decreased approximately $183,000 or 36.8% to
approximately $314,000 in the third quarter of 1998 as compared to
approximately $497,000 in the comparable 1997 quarter. The decrease was
primarily attributable to losses in the Company's training operations
(approximately $187,000) and start up of the new Denver operations
(approximately $82,000).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET SERVICE REVENUES. Net service revenues increased approximately $5.5
million or 22.1% to $30.2 million for the first nine months of 1998, compared
to $24.8 million for the comparable period in 1997. This slower than expected
revenue growth is primarily the result of client imposed restrictions on the
hiring of personnel resulting from economic conditions abroad where several
of the Company's clients have extensive operations. It also reflects a
general hiring slowdown in certain industries most affected by recent market
conditions. Permanent placement revenues increased approximately $3.2 million
or 25.2% to $15.9 million for the first nine months of 1998 compared to $12.7
million for the comparable period in 1997. The demand for permanent placement
personnel has resulted in a decrease in specialty service revenues of
approximately $1.1 million or 19.0% to $4.7 million for the first nine months
of 1998, compared to $5.8 million for the comparable period in 1997. Contract
placement revenues increased approximately $2.9 million or 46.9% to $9.1
million for the first nine months of 1998, compared to $6.2 million for the
comparable period in 1997. Training revenues were approximately $453,000 for
the first nine months of 1998. The Company reported no training revenues in
the comparable 1997 period. The increase in net service revenues was
primarily attributable to the Company's continued focus on high-margin,
specialty niche employment markets such as the information technology and
engineering/technical disciplines.
GROSS MARGIN. Gross margin increased approximately $1.6 million or 21.3% to
$9.1 million in the first nine months of 1998, compared to $7.5 million for
the comparable 1997 period. Gross margin as a percentage of net service
revenues decreased slightly to approximately 30.1% in the first nine months
of 1998 compared to approximately 30.3% for the comparable 1997 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $1.7 million or 30.3% to $7.4
million for the first nine months of 1998, compared to $5.7 million for the
comparable 1997 period. The increase was primarily the result of increased
expenses associated with opening new offices, the further development and
expansion of the Company's training programs, the expansion of the Company's
back office to support the growth in sales and increased professional fees
associated with investor relations and public reporting. The new Denver
offices increased expenses by approximately $62,000 while the expansion of
the training operations increased expenses by approximately $546,000.
Selling, general and administrative expenses as a percentage of net service
revenues increased to approximately 24.5% in the first nine months of 1998
compared to approximately 23.0% for the comparable 1997 period.
OTHER INCOME AND EXPENSES. Other income was approximately $259,000 for the
first nine months of 1998, compared to an expense of $81,000 for the
comparable period in 1997. This was primarily due to interest earnings on the
proceeds from the Company's 1997 public offering and a current year reduction
of interest expense as a result of the retirement of all short-term debt
during the fourth quarter of 1997.
INCOME TAXES. Income tax expense increased approximately $301,000 to
$698,000 for the first nine months of 1998, compared to $397,000 for the
comparable period in 1997. The Company's effective tax rate increased to 36%
in the first nine months of 1998 compared to 23% in the comparable 1997
period. The increase was primarily due to the utilization of net operating
losses in the 1997 period to offset taxable income.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
NET INCOME. Net income decreased approximately $132,000 or 9.6% to $1.2
million for the first nine months of 1998, compared to $1.4 million for the
comparable period in 1997. Because of the increase in the effective tax rate
described above, a more meaningful comparison is income before income tax and
extraordinary item which increased approximately $212,000 or 12.3% to
approximately $1.9 million in the first nine months of 1998 compared to
approximately $1.7 in the comparable 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased slightly to $9.6 million at September 30,
1998, compared to working capital of approximately $9.5 million at December
31, 1997. The increase was primarily the result of the profitable operations
of the Company.
Cash flow provided by operating activities of approximately $313,000
resulted primarily from the profitable operations of the Company during the
first nine months of 1998. The Company made capital expenditures of
approximately $1.5 million during the first nine months of 1998 associated
with opening new offices, developing its training programs and enhancing its
back office to support its growth.
The Company continues to evaluate various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
Management of the Company anticipates that funds from the fourth quarter 1997
public offering and cash flow from operations will provide adequate liquidity
to fund its internal growth plans and operations for the next twelve months.
The Company's 1998 internal growth plans include the enhancement and
expansion of its training facilities, the development and expansion of its
applicant database and back office, the opening of new profit centers in
existing locations and the opening of offices in new geographic locations. In
addition, the Company continues to explore avenues for growth, including but
not limited to, possible strategic acquisitions. The Company will be required
to obtain additional financing through either debt or equity, in order to
consummate additional significant acquisitions.
Inflation has not had a significant effect on the Company's operating
results.
YEAR 2000 ISSUE
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, any of the Company's computer
programs that have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000 (the "Year 2000 Issue"). This could
result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in normal business activities.
The Company has made a preliminary assessment of the Year 2000 Issue and
has concluded that it will have to modify or replace its accounting software
so that the Company's computer system will function properly with respect to
the Year 2000 Issue. The Company has purchased new accounting and back office
software, which is Year 2000 compliant. The cost of the software was
approximately $150,000. Because the remainder of the Company's systems
applications and hardware were built on up-to-date client server
architecture, they should require no modifications with respect to the Year
2000 Issue. The Company will also initiate communications with its
significant suppliers and large customers to determine the extent to which
the Company is vulnerable to those third parties to minimize their own Year
2000 Issue. There can be no assurance that the systems of other companies
upon which the Company's systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
The Company has begun, but not yet completed, a comprehensive analysis
of the operational problems and costs (including loss of revenues) that would
be reasonably likely to result from the failure by certain third parties to
complete efforts necessary to achieve Year 2000 compliance on a timely basis.
A contingency plan has not been developed for dealing with the most
reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by December 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," SFAS No. 132, "Employers' Disclosures
about Pensions and other Post Retirement Benefits," and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Preliminary
analysis of these new standards by the Company indicates that they will not
have a material effect on the Company's financial statements. SFAS No. 131
and 132, are effective for financial statements for fiscal years beginning
after December 15, 1997, and SFAS No. 133 will be effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999.
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q that reflect
projections or expectations of future financial or economic performance of
the Company, and statements of the Company's plans and objectives for future
operations are "forward-looking" statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934,
as amended. No assurance can be given that actual results or events will not
differ materially from those projected, estimated, assumed or anticipated in
any such forward looking statements. Important factors (the "Cautionary
Disclosures") that could result in such differences include: general economic
conditions in the Company's markets, including inflation, recession, interest
rates and other economic factors; the availability of qualified personnel;
the level of competition experienced by the Company; the Company's ability to
implement its business strategies and to manage its growth; the level of
developmental expenses; the level of litigation expenses; those factors
identified in the Company's Prospectus dated September 30, 1997 as risk
factors; and other factors that affect businesses generally. Subsequent
written and oral "forward-looking" statements attributable to the Company or
persons acting on its behalf are expressly qualified by the Cautionary
Disclosures.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
In connection with the acquisition of Texcel, Inc. and Texcel Technical
Services, Inc. (collectively "Texcel"), the Company issued 100,000 shares of
its Common Stock to the shareholders of Texcel.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
REPRICING OF OPTIONS
On October 23, 1998, the Board of Directors approved the repricing of options
to purchase 298,167 shares of the Company's Common Stock which are now held
by employees of the Company. Such action reduces to $5 1/8 per share the
exercise price on the options involved, representing the previous day's
closing price. The options previously had exercise prices ranging from $8.00
per share to $12.75 per share. The Board of Directors also has imposed a
condition that no such options may be exercised prior to October 23, 1999.
This action does not affect any of the options to purchase shares of the
Company's Common Stock which are held by three members of the Board of
Directors who are not employees of the Company, or options on 100,000 shares
of Common Stock which were granted in April 1998 to J. Michael Moore,
Chairman of the Board and Chief Executive Officer of the Company.
BUSINESS ACQUISITION
On October 8, 1998, the Company completed the acquisition of substantially
all of the assets and assumed certain liabilities of Texcel, Inc. and Texcel
Technical Services, Inc. (collectively "Texcel"). The Company paid a purchase
price consisting of $1,800,000 in cash, 100,000 shares of the Company's
Common Stock and three annual deferred payments of $880,000 beginning October
1, 1999. The deferred payments will be reduced up to $200,000 each if certain
levels of profitability are not maintained. The Texcel companies are based in
the Philadelphia area and are engaged in both permanent and temporary
placements of technical and professional specialist primarily in
Pennsylvania, Delaware and New Jersey. Texcel had revenues (unaudited) of
approximately $8,000,000 for the twelve months ended June 30, 1998. In
connection with services rendered to the Company with respect to negotiating
and consummating the acquisition, the Company paid a fee of $89,000 to Ms.
Deborah Farrington, a non-employee Director of the Company, pursuant to her
consulting agreement with the Company.
ANNUAL MEETING
Pursuant to various rules promulgated by the Securities and Exchange
Commission ("SEC"), a shareholder that seeks to include a proposal in the
Company's proxy statement and form of proxy card for the Annual Meeting of
the Shareholders of the Company to be held in 1999 must timely submit such
proposal in accordance with SEC Rule 14a-8 to the Company, addressed to M.
Ted Dillard, Secretary, 12801 North Central Expressway, Suite 350, Dallas,
Texas 75243 no later than
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES - CONTINUED
January 10, 1999. Further, a shareholder may not present a proposal for
inclusion in the Company's proxy statement and form of proxy card related to
the 1999 Annual Meeting and may not submit a matter for consideration at the
1999 Annual Meeting, regardless of whether presented for inclusion in the
Company's proxy statement and form of proxy card, unless the shareholder
shall have timely complied with Company's bylaw requirements which set a
notice deadline after which a shareholder will not be permitted to present a
proposal at the Company's shareholder meetings. The bylaws state that in
order for business to be properly brought before an Annual Meeting by a
shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the Company. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the first anniversary of the preceding year's Annual Meeting. A shareholder's
notice to the Secretary must set forth as to each matter the shareholder
proposes to bring before the meeting a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, the name and address, as they appear on the
Company's books, of the shareholder proposing such business and the name and
address of the beneficial owner, if any, on whose behalf the proposal is
made; the class and number of shares of the Company which are owned
beneficially and of record by such shareholder of record and by the
beneficial owner, if any on whose behalf the proposal is being made; and, any
material interest of such shareholder of record and beneficial owner, if any,
on whose behalf the proposal is made in such business. A notice given
pursuant to this advance notice bylaw will not be timely with respect to the
Company's 1999 Annual Meeting unless duly given by no earlier than March 12,
1999 and no later than April 11, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
2.1 Asset Purchase Agreement, dated as of October 7, 1998, by and among
Diversified Corporate Resources, Inc., DCRI Acquisition Corporation,
Texcel, Inc., Texcel Technical Services, Inc., Thomas W. Rinaldi,
Gary E. Kane, Paul J. Cornely and Deborah A. Janfrancisco. (The
Schedules have been omitted pursuant to Regulation S-K 601(b)(2)).
(Incorporated by reference to Exhibit 2.1 of the Company's Form 8-K
filed on October 21, 1998.)
3.1 Amendment to Bylaws of Diversified Corporate Resources, Inc.*
10.1 Employment Agreement effective as of October 1, 1998, by and between
DCRI Acquisition Corporation, Thomas W. Rinaldi and Diversified
Corporate Resources, Inc. (Incorporated by reference to Exhibit 10.1
of the Company's Form 8-K filed on October 21, 1998.)
10.2 Form of Stock Agreements, dated as of October 8, 1998, by and
between Diversified Corporate Resources, Inc. and certain
non-shareholder employees of DCRI Acquisition Corporation.
(Incorporated by reference to Exhibit 10.2 of the Company's Form 8-K
filed on October 21, 1998.)
10.3 Promissory Note, effective July 17, 1998, by and between Diversified
Corporate Resources, Inc., and M. Ted Dillard.*
10.4 Promissory Note, effective October 12, 1998, by and between
Diversified Corporate Resources, Inc., and M. Ted Dillard.*
10.5 Security Agreement, effective July 17, 1998, by and between
Diversified Corporate Resources, Inc., and M. Ted Dillard.*
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES - CONTINUED
10.6 Security Agreement, effective October 12, 1998, by and between
Diversified Corporate Resources, Inc., and M. Ted Dillard.*
10.7 Consulting Agreement, effective May 12, 1998, by and between
Diversified Corporate Resources, Inc., and Deborah A. Farrington.*
27 Financial Data Schedule*
(*Filed herewith)
b. REPORTS ON FORM 8-K
On October 21, 1998, the Company filed with the Securities and Exchange
Commission a report on Form 8-K with respect to the Texcel acquisition, dated
October 7, 1998. "See Item 5. Other Information" herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: November 16, 1998 By: /s/ J. Michael Moore
-----------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
DATE: November 16, 1998 By: /s/ M. Ted Dillard
---------------------------------
M. Ted Dillard
PRESIDENT AND SECRETARY
DATE: November 16, 1998 By: /s/ Douglas G. Furra
-----------------------------------
Douglas G. Furra
CHIEF FINANCIAL OFFICER
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC.
BYLAW AMENDMENTS
adopted June 10, 1998
1. AMENDMENT TO BYLAWS TO REQUIRE ADVANCE WRITTEN NOTICE OF NOMINATIONS
OF DIRECTORS.
New Section 14 is added to Article II of the Bylaws:
Section 14. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES.
(1) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible to serve as Directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of shareholders (a) by or at the
direction of the Board of Directors or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote for the election
of directors at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(2) Nominations by shareholders shall be made pursuant to timely
notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (a) in the case of an annual
meeting, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is changed by more than 30
days from such anniversary date, notice by the shareholder to be timely
must be so received not later than the close of business on the 10th day
following the earlier of the date on which notice of the date of the
meeting was mailed or public disclosure was made, and (b) in the case of a
special meeting at which directors are to be elected, not later than the
close of business on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public disclosure was made.
Such shareholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to the shareholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such
shareholder and (ii) the class and number of shares of the Corporation that
are beneficially owned by
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such shareholder and also that are owned of record by such shareholder;
and (c) as to the beneficial owner, if any, on whose behalf the nomination
is made, (i) the name and address of such person and (ii) the class and
number of shares of the Corporation that are beneficially owned by such
person. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information required to be set
forth in a shareholder's notice of nomination that pertains to the nominee.
(3) No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Bylaw. The Chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he should
so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions
of this Bylaw, a shareholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder with respect to the matters set forth in
this Bylaw.
2. AMENDMENT TO BYLAWS TO REQUIRE ADVANCE WRITTEN NOTICE OF MATTERS TO BE
BROUGHT BEFORE THE SHAREHOLDERS.
New Section 15 is added to Article II of the Bylaws:
Section 15. NOTICE OF SHAREHOLDER BUSINESS.
(1) At an annual meeting of the shareholders, only such business
shall be conducted as shall have been brought before the meeting (a)
pursuant to the Corporation's notice of meeting, (b) by or at the direction
of the Board of Directors or (c) by any shareholder of the Corporation who
is a shareholder of record at the time of giving of the notice provided for
in this Bylaw, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Bylaw.
(2) For business to be properly brought before an annual meeting by a
shareholder pursuant to clause (c) of paragraph 1 of this Bylaw, the
shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the meeting is changed by more
than 30 days from such anniversary date, notice by the shareholder to be
timely must be received no later than the close of business on the 10th day
following the earlier of the day on which notice of the date of the meeting
was mailed or public disclosure was made. A shareholder's notice to
2
<PAGE>
the secretary shall set forth as to each matter the shareholder proposes to
being before the meeting (a) a brief description of the business desired to
be brought before the meeting and the reasons for conducting such business
at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the shareholder proposing such business, and the
name and address of the beneficial owner, if any, on whose behalf the
proposal is made, (c) the class and number of shares of the Corporation
that are owned beneficially and of record by such stockholder of record and
by the beneficial owner, if any, on whose behalf the proposal is made and
(d) any material interest of such shareholder of record and the beneficial
owner, if any, on whose behalf the proposal is made in such business
(3) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this Bylaw. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance with the
procedures prescribed by these Bylaws, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Bylaw, a shareholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw.
3. AMENDMENT TO BYLAWS RELATING TO THE CONDUCT OF SHAREHOLDER MEETING.
New Section 16 is added to Article II of the Bylaws:
Section 16. CONDUCT OF MEETINGS. The date and time of the opening
and the closing of the polls for each matter upon which the shareholders
will vote at a meeting shall be announced at the meeting by the person
presiding over the meeting. The Board of Directors may adopt by resolution
such rules and regulations for the conduct of the meeting of shareholders
as it shall deem appropriate. Except to the extent inconsistent with such
rules and regulations as adopted by the Board of Directors, the chairman of
any meeting of shareholders shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the
Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iii)
limitations on attendance at or participation in the meeting to
shareholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the
extent determined by the Board of Directors or the
3
<PAGE>
chairman of the meeting, meetings of shareholders shall not be required
to be held in accordance with the rules of parliamentary procedure.
4. AMENDMENT TO BYLAWS RELATING TO THE REMOVAL OF DIRECTOR.
Section 2 of Article II of the Bylaws is amended by removing the last
two sentences of the first paragraph of Section 2 and replacing it with the
following language:
A director may be removed only for cause and only by the affirmative
vote of not less than two-thirds of the voting power represented by all
issued and outstanding shares entitled to vote at a meeting duly called for
such purpose, present in person or represented by proxy at such meeting.
4
<PAGE>
Exhibit 10.3
PROMISSORY NOTE
$148,580.53 As of July 17, 1998
FOR VALUE RECEIVED, the undersigned, M. TED DILLARD, whose address is
2016 St. Andrews, Richardson, TX 75082 (herein referred to as "Maker"),
promises to pay to the order of Diversified Corporate Resources, Inc., a
Texas corporation (herein referred to as "Payee"), at 12801 N. Central
Expwy., Suite 350, Dallas, TX 75243, in lawful money of the United States of
America, the principal sum of ONE HUNDRED FORTY EIGHT THOUSAND FIVE HUNDRED
EIGHTY AND 53/100 ($148,580.53). In addition to said principal sum, Maker
also agrees to pay interest on the unpaid amount thereof computed from and
after the date of this Note until maturity at the rate per annum (herein
called the "Rate") equal to the applicable federal long-term rate of interest
during each month prior to the Maturity Date (as herein defined). In no event
shall the Rate exceed the maximum rate of nonusurious interest allowed from
time to time by law as is now, or to the extent allowed by law as may
hereafter be, in effect (herein called the "Highest Lawful Rate"), with
adjustments in the Rate due to changes in the Highest Lawful Rate, to be made
on the effective date of any applicable change.
The unpaid principal balance of and interest on this Note shall be due
and payable in full on July 17, 2003 (herein such date shall be called the
"Maturity Date"). Interest shall be quarterly on the last day of the month of
January, April, July and October beginning October, 1998.
Maker shall be entitled to prepay this Note in whole or in part at any
time or times without penalty. All payments shall be applied first to accrued
and unpaid interest and the balance, if any, to principal.
Notwithstanding the foregoing, if at any time the Rate exceeds the
Highest Lawful Rate, the Rate to accrue on this Note shall be limited to the
Highest Lawful Rate, but any subsequent reductions in the Rate shall not
reduce the Rate below the Highest Lawful Rate until the total amount of
interest accrued on this Note equals the amount of interest which would have
accrued if the Rate had at all times been in effect without reduction because
of the ceiling of the Highest Lawful Rate.
Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive presentment for payment, notice of non-payment, protest,
demand, notice of protest, notice of intention to accelerate, notice of
acceleration and dishonor, diligence in enforcement and indulgences of every
kind, and hereby agree that this Note and the liens securing its payment may
be extended and re-extended and the time for payment extended and re-extended
from time to time without notice to them or any of them, and they severally
agree that their liability on or with respect to this Note shall not be
affected by any release or change in any security at any time existing or by
any failure to perfect or maintain perfection of any security interest in
such security.
If the entire unpaid principal balance plus all accrued and unpaid
interest due and owing on this Note is not paid at maturity whether by
acceleration or otherwise and is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization, arrangement or other legal
proceedings for collection hereof, Maker and each other liable party agree to
pay Payee its collection costs, including a reasonable amount for attorneys'
fees, but in no event to exceed the maximum amount
1
<PAGE>
permitted by law. Maker and each other liable party are and shall be directly
and primarily, jointly and severally, liable for the payment of all sums
called for hereunder, and Maker and each other liable party hereby expressly
waive bringing of suit and diligence in taking any action to collect any sums
owing hereon and in the handling of any security hereunder, and Maker and
each other liable party hereby consent to and agree to remain liable hereon
regardless of any renewals, extensions for any period or rearrangements
hereof, or any release or substitution of security herefore, in whole or in
part, with or without notice, from time to time, before or after maturity.
Regardless of any provisions contained in this Note, or any other
instrument executed in connection herewith, no holder of this Note shall ever
be entitled to receive, collect or apply, as interest on the indebtedness
evidenced hereby, any amount in excess of the maximum rate of interest
permitted to be charged by applicable law, and, in the event any such older
ever receives, collects or applies as interest, on the indebtedness evidenced
hereby, any amount in excess of the maximum rate of interest permitted to be
charged by applicable law, such amount which would be excessive interest
shall be deemed a partial prepayment of principal and treated hereunder as
such; and, if the indebtedness evidenced hereby is paid in full, any
remaining excess shall forthwith be paid to Maker. In determining whether or
not the interest paid or payable, under any specific contingency, exceeds the
Highest lawful Rate, the holder shall, to the maximum extent permitted under
applicable law, (a) characterize any non-principal payment as an expense, fee
or premium rather than as interest, (b) exclude voluntary prepayment and the
effects thereof, and (c) amortize, prorate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term
of this Note so that the interest rate is uniform throughout the entire term
of this Note; provided that if this Note is paid and performed in full prior
to the end of the full contemplated term hereof, and if the interest received
for the actual period of existence thereof exceeds the Highest Lawful Rate,
the holder shall refund to Maker the amount of such excess, and, in such
event, no holder shall be subject to any penalties provided by any laws for
contracting for, charging or receiving interest in excess of the Highest
Lawful Rate.
This Note is secured by that certain Security Agreement dated as of
July 17, 1998 executed and delivered by Maker to Payee covering 20,000 shares
of common stock of Maker. Upon the sale of any of the collateral pledged to
secure this note, the proceeds thereof shall be applied to the principal
amount of the Note.
This Note is also secured by all security agreements, collateral
assignments, guaranties, deeds of trust and lien instruments executed by
Maker in favor of Payee or any other holder of this Note, including those
executed simultaneously herewith, those executed heretofore and those
hereafter executed.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas.
MAKER:
-----------------------------------------
M. TED DILLARD
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Exhibit 10.4
PROMISSORY NOTE
$125,300.00 As of October 12, 1998
FOR VALUE RECEIVED, the undersigned, M. TED DILLARD, whose address is 2016
St. Andrews, Richardson, TX 75082 (herein referred to as "Maker"), promises to
pay to the order of Diversified Corporate Resources, Inc., a Texas corporation
(herein referred to as "Payee"), at 12801 N. Central Expwy., Suite 350, Dallas,
TX 75243, in lawful money of the United States of America, the principal sum of
ONE HUNDRED TWENTY FIVE THOUSAND THREE HUNDRED AND 00/100 ($125,300.00). In
addition to said principal sum, Maker also agrees to pay interest on the unpaid
amount thereof computed from and after the date of this Note until maturity at
the rate of eight percent (8%) per annum (herein called the "Rate"). In no event
shall the Rate exceed the maximum rate of nonusurious interest allowed from time
to time by law as is now, or to the extent allowed by law as may hereafter be,
in effect (herein called the "Highest Lawful Rate"), with adjustments in the
Rate due to changes in the Highest Lawful Rate, to be made on the effective date
of any applicable change.
The unpaid principal balance of and interest on this Note shall be due and
payable in full on October 12, 2001 (herein such date shall be called the
"Maturity Date"). Interest shall be quarterly on the last day of the months of
January, April, July and October beginning January, 1999.
Maker shall be entitled to prepay this Note in whole or in part at any
time or times without penalty. All payments shall be applied first to accrued
and unpaid interest and the balance, if any, to principal.
Notwithstanding the foregoing, if at any time the Rate exceeds the Highest
Lawful Rate, the Rate to accrue on this Note shall be limited to the Highest
Lawful Rate, but any subsequent reductions in the Rate shall not reduce the Rate
below the Highest Lawful Rate until the total amount of interest accrued on this
Note equals the amount of interest which would have accrued if the Rate had at
all times been in effect without reduction because of the ceiling of the Highest
Lawful Rate.
Maker and any and all co-makers, endorsers, guarantors and sureties
severally waive presentment for payment, notice of non-payment, protest, demand,
notice of protest, notice of intention to accelerate, notice of acceleration and
dishonor, diligence in enforcement and indulgences of every kind, and hereby
agree that this Note and the liens securing its payment may be extended and
re-extended and the time for payment extended and re-extended from time to time
without notice to them or any of them, and they severally agree that their
liability on or with respect to this Note shall not be affected by any release
or change in any security at any time existing or by any failure to perfect or
maintain perfection of any security interest in such security.
If the entire unpaid principal balance plus all accrued and unpaid
interest due and owing on this Note is not paid at maturity whether by
acceleration or otherwise and is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization, arrangement or other legal proceedings
for collection hereof, Maker and each other liable party agree to pay Payee its
collection costs, including a reasonable amount for attorneys' fees, but in no
event to exceed the maximum amount permitted by law. Maker and each other liable
party are and shall be directly and primarily,
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jointly and severally, liable for the payment of all sums called for
hereunder, and Maker and each other liable party hereby expressly waive
bringing of suit and diligence in taking any action to collect any sums owing
hereon and in the handling of any security hereunder, and Maker and each
other liable party hereby consent to and agree to remain liable hereon
regardless of any renewals, extensions for any period or rearrangements
hereof, or any release or substitution of security herefore, in whole or in
part, with or without notice, from time to time, before or after maturity.
Regardless of any provisions contained in this Note, or any other
instrument executed in connection herewith, no holder of this Note shall ever be
entitled to receive, collect or apply, as interest on the indebtedness evidenced
hereby, any amount in excess of the maximum rate of interest permitted to be
charged by applicable law, and, in the event any such older ever receives,
collects or applies as interest, on the indebtedness evidenced hereby, any
amount in excess of the maximum rate of interest permitted to be charged by
applicable law, such amount which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Maker. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the Highest lawful Rate, the
holder shall, to the maximum extent permitted under applicable law, (a)
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayment and the effects thereof, and (c)
amortize, prorate, allocate and spread, in equal parts, the total amount of
interest throughout the entire contemplated term of this Note so that the
interest rate is uniform throughout the entire term of this Note; provided that
if this Note is paid and performed in full prior to the end of the full
contemplated term hereof, and if the interest received for the actual period of
existence thereof exceeds the Highest Lawful Rate, the holder shall refund to
Maker the amount of such excess, and, in such event, no holder shall be subject
to any penalties provided by any laws for contracting for, charging or receiving
interest in excess of the Highest Lawful Rate.
This Note is secured by that certain Security Agreement dated as of
October 12, 1998 executed and delivered by Maker to Payee covering 35,400 shares
of common stock of Maker. Upon the sale of any of the collateral pledged to
secure this note, the proceeds thereof shall be applied to the principal
amount of the Note.
This Note is also secured by all security agreements, collateral
assignments, guaranties, deeds of trust and lien instruments executed by Maker
in favor of Payee or any other holder of this Note, including those executed
simultaneously herewith, those executed heretofore and those hereafter executed.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas.
MAKER:
----------------------------------------
M. TED DILLARD
2
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Exhibit 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into by and between
DIVERSIFIED CORPORATE RESOURCES, INC., a Texas corporation, whose address is
12801 N. Central Expwy., Suite 350, Dallas, Texas 75243 (herein referred to
as "Secured Party"), and M. TED DILLARD whose address is 2016 St. Andrews,
Richardson, TX 75082 (herein referred to as the "Debtor").
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Debtor hereby grants to Secured Party a
security interest in and to the Collateral, as herein defined, and in
connection therewith the parties hereby agree as follows:
COLLATERAL. To secure payment of the "Indebtedness", as herein
defined, Debtor hereby assigns, transfers and sets over to Secured Party, and
grants to Secured Party, a security interest in and to the following assets
(herein referred to as the "Collateral"): (a) 20,000 shares of common stock
of the Secured Party, (b) such additional shares of common stock of the
Secured Party as shall be required by the Secured Party based upon the terms
of this Security Agreement, and (c) all proceeds (including insurance
proceeds) from the sale, dispositions, or other hypothecation of all or any
part of the aforesaid assets.
INDEBTEDNESS. The term "Indebtedness" as used herein, shall mean
all obligations payable to Secured Party by Debtor pursuant to the terms and
conditions of that certain Promissory Note (the "Note") dated as of July 17,
1998, in the stated amount of $148,580.53, payable by Maker to Secured Party.
REPRESENTATIONS OF DEBTOR. Debtor represents, warrants and agrees
as follows:
(a) The Collateral will not be sold, transferred, pledged or made
subject to a security agreement without the prior written consent of Secured
Party.
(b) Debtor will sign and execute alone or with Secured Party any
financing statement or other document or procure any document, and pay all
costs in connection therewith necessary to protect the security interest
under this Security Agreement against the rights or interests of third
persons.
(c) Debtor will, at Debtor's own expense, do, make, procure, execute
and deliver all acts, things, writings and assurances as Secured Party may at
any time reasonably request to protect, assure or enforce the interests,
rights and remedies of Secured Party created by, provided in or emanating
from this Security Agreement.
(d) Debtor will pay to Secured Party all expenses (including
expenses for legal services of every kind) of, or incidental to, the
enforcement of any of the provisions of this Security Agreement, or
incidental to the enforcement, repayment or collection of any of the
Indebtedness, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement of any of the Collateral or receipt of
the proceeds thereof, and for the care of the Collateral and defending or
asserting the rights and claims of the Secured Party in respect thereof, by
litigation or otherwise; and all such expenses shall be Indebtedness within
the terms of this Security Agreement.
REGULATION G. Both parties agree that this transaction may be
subject to Regulation G issued by the Board of Governors of the Federal
Reserve System, which may impose compliance obligations on Debtor.
UNIFORM COMMERCIAL CODE. This Security Agreement shall constitute a
valid and binding security agreement under the Uniform Commercial Code -
Secured Transactions (herein called the "Code") creating in favor of Secured
Party, until the Indebtedness is fully paid, a first and prior security
interest in and to the Collateral. Accordingly, Debtor hereby acknowledges
unto Secured Party that Secured Party shall have, in addition to any and all
other rights, remedies and recourses afforded to
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Secured Party under this Security Agreement or the instruments, all rights,
remedies and recourses afforded to secured parties by the Code.
DEFAULT BY DEBTOR. There will be a default under this Security
Agreement upon the happening of any of the following events or conditions
(herein called an "Event of Default"):
(a) If any Indebtedness secured by this Security Agreement, either
principal or interest, is not paid within ten (10) business days after
Debtor's receipt of written notice of the default.
(b) If the Debtor shall fail to comply with any of the Debtor's
covenants or undertakings in any agreement, instrument or other document
between the Debtor and the Secured Party, and said failure to comply shall
continue for thirty (30) days after written notice of said failure from
Secured Party.
(c) If Debtor shall fail to comply with any of Debtor's covenants
or agreements herein or in any promissory note, agreement, instrument or
other document evidencing, relating to, or executed in connection with or as
security for any of the Indebtedness (such documents are herein referred to
as the "Security Instruments"), and said failure to comply shall continue for
thirty (30) days after receipt of written notice of said failure from Secured
Party; provided, however, if there are any conflicts with respect to any
provisions of this Security Agreement and the security instruments, the terms
of the security instruments will govern and shall be controlling.
(d) If Debtor (i) applies for or consents to the appointment of a
receiver, trustee, custodian or liquidator of all or a substantial part of
Debtors assets, or (ii) files a voluntary petition in bankruptcy or fails
generally to pay Debtor's debts as such debts become due, or (iii) makes a
general assignment for the benefit of creditors, or (iv) files a petition or
answers same wherein Debtor seeks reorganization or rearrangement with
creditors or to take advantage of any insolvency law, or (v) files an answer
admitting the material allegations of a petition filed against Debtor in any
bankruptcy, reorganization, insolvency or similar proceeding.
(e) If an order, judgment or decree is entered by any court of
competent jurisdiction, upon the application of a creditor or otherwise,
adjudicating Debtor as bankrupt or insolvent or approving a petition seeking
reorganization or appointing a receiver, trustee or liquidator of all or any
substantial part of Debtor's assets.
(f) If any warranty, representation or statement contained in this
Security Agreement, or any agreement, instrument or other document made or
furnished to Secured Party by or on behalf of Debtor in connection with this
Security Agreement proves to have been false in any respect when made or
furnished.
REMEDIES.
(a) When an Event of Default occurs, and at any time thereafter,
Secured Party may declare all or a part of the Indebtedness immediately due
and payable and may proceed to enforce payment of same and to exercise any
and all of the rights and remedies provided by the Code, as well as all other
rights and remedies possessed by Secured Party under this Security Agreement
or otherwise at law or in equity. Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at any place
to be designated by Secured Party which is reasonably convenient to both
parties. For purposes of the notice requirements of the Code, Secured Party
and Debtor agree that notice given at least ten (10) days prior to the
related action hereunder is reasonable. Secured Party shall be entitled to
immediate possession of the Collateral and all books and records evidencing
same and shall have authority to enter upon any premises, upon which said
items may be situated, and
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remove same therefrom. Expenses of retaking, holding, preparing for sale,
selling, or the like ("Collection Costs"), shall include, without limitation,
Secured Party's reasonable attorneys' fees and all such expenses shall be
recovered by Secured Party before applying the proceeds from the disposition
of the Collateral toward the Indebtedness. To the extent allowed by the Code,
Secured Party may use Secured Party's discretion in applying the proceeds of
any disposition of the Collateral to the Collection Costs or to the
Indebtedness and Debtor will remain liable for any deficiency remaining after
such disposition. All rights and remedies of Secured Party hereunder are
cumulative and may be exercised singly or concurrently. The exercise of any
right or remedy will not be a waiver of any other.
(b) Secured Party, in addition to the rights and remedies provided
for in the preceding subparagraph, shall have all the rights and remedies of
a secured party under the Uniform Commercial Code as adopted by the state
where the Collateral is located at the date of any such Event of Default, and
Secured Party shall be entitled to all such other rights and remedies as may
now or hereafter exist at law or in equity for the collection of the
Indebtedness and the enforcement of the covenants herein and the foreclosure
of the security interest created hereby and to resort to any remedy provided
hereunder or provided by the Uniform Commercial Code as adopted in the state
where the Collateral is located at the date of an Event of Default, or by any
other law of such state, shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.
(c) Secured Party may remedy any default, without waiving same, or
may waive any default without waiving any prior or subsequent default.
SECURED PARTY'S RIGHTS.
(a) This Security Agreement, Secured Party's rights hereunder or
said Indebtedness hereby secured, may be assigned from time to time, and in
any such case the assignee will be entitled to all of the rights, privileges
and remedies granted in this Security Agreement to Secured Party.
(b) Upon the occurrence of an Event of Default, Secured Party may
execute, sign, endorse, transfer or deliver, in the name of Debtor, notes,
checks, drafts or other instrument for the payment of money and receipts or
any other documents necessary to evidence, perfect or realize upon the
security interest and obligations created by this Security Agreement.
(c) At Secured Party's option, Secured Party may discharge taxes,
liens or security interests or other encumbrances at any time levied or
placed on the Collateral, and may perform or cause to be performed Debtor's
obligations under the Collateral to maintain the same in full force and
effect. Debtor agrees to reimburse Secured Party on demand for any payment
made, or expense incurred, by Secured Party pursuant to the foregoing
authorization, plus interest thereon at the maximum rate of interest allowed
by applicable law.
(d) No remedy herein conferred upon or reserved to Secured Party is
intended to be or shall be exclusive of any other remedy, but every remedy
herein provided is cumulative and is in addition to every other remedy given
hereunder or in any instrument executed in connection herewith, or now or
hereafter existing at law or in equity, or by statute; and every such right
and remedy may be exercised from time to time and as often as may be deemed
expedient. No delay or omission by Secured Party to exercise any right or
remedy arising from any default will impair any such right or remedy or will
be construed to be a waiver thereof or of any such default or an acquiescence
therein.
ADDITIONAL RIGHTS OF SECURED PARTY. The right is expressly granted
to Secured Party, that upon the occurrence of an Event of Default and at
Secured Party's discretion, to receive the income distributions or
distributions following dissolution, and dividends on the Collateral, and to
hold the same as part of the Collateral or apply the same, or both, to the
payment of the Indebtedness, all without notice
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and without liability except to account for property actually received by
Secured Party.
RELEASE OF SECURITY INTEREST. Upon full and complete payment of all
sums owing and to be owing by Debtor to Secured Party and the termination of
any obligations of Debtor under the Security Agreement, together with all
costs incurred in connection therewith, at the request and expense of Debtor,
Secured Party will make, execute and deliver a reassignment of the properties
assigned hereby and of the monies, revenues, proceeds, benefits and payments,
if any, that may be owing upon the aforesaid Collateral to Debtor but without
covenant or warranty, however, of any kind or character, express or implied,
and with the provisions that Secured Party will not be required or called
upon to refund or account for any payments properly made to Secured Party
which have been or may be properly applied to any Indebtedness secured or to
be secured hereby.
VALIDITY OF SECURITY INTEREST. No security taken hereafter as
security for payment of any part or all of the Indebtedness shall impair in
any manner or effect this Security Agreement; all such present and future
additional security to be considered as cumulative security. Any of the
Collateral may be released from this Security Agreement without altering,
varying or diminishing in any way the force, effect, lien, security interest
or charge of this Security Agreement as to the Collateral not expressly
released, and this Agreement shall continue as a first lien, security
interest and charge on all of the Collateral not expressly released until all
sums and indebtedness secured hereby have been paid in full.
NOTICES. Any notice, request or other document shall be in writing
and sent by registered or certified mail, return receipt requested, postage
prepaid and addressed to the party to be notified at the following addresses,
or such other address as such party may hereafter designate by written notice
to all parties, which notice shall be effective as of the date of posting:
(a) If to Secured Party:
Diversified Corporate Resources, Inc.
12801 N. Central Expwy., Suite 350
Dallas, Texas 75243
Attention: CFO
(b) If to Debtor:
M. Ted Dillard
2016 St. Andrews
Richardson, TX 75082
TEXAS LAW. This Security Agreement and the obligations of the
parties hereunder is to be interpreted, construed and enforced in accordance
with the laws of the State of Texas.
SEVERABILITY. If any provision of this Security Agreement or the
application thereof to any person or circumstance is held to be invalid or
unenforceable to any extent, the remainder of this Security Agreement and the
application of such provisions to other persons or circumstances is not to be
affected thereby and is to be enforced to the full extent permitted by law.
SUCCESSORS AND ASSIGNS. This Security Agreement inures to the
benefit of, and is binding upon, Debtor and Secured Party and their
respective heirs, legal representatives, successors and assigns.
GENDER. The use of any gender herein shall include the other
genders.
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SCOPE. Nothing herein contained will in any way limit or be
construed as limiting the right of Secured Party to collect any note, item,
sum or amount secured or to be secured hereby only out of the properties
assigned hereby or out of the revenues, monies, proceeds, benefits and
payments accruing and to accrue unto Debtor, under and by virtue of said
Collateral, but it is expressly understood and provided that all such
Indebtedness and amounts secured and to be secured hereby are, and shall
constitute, absolute and unconditional obligations of Debtor to pay to
Secured Party the amount provided for instruments executed in connection
herewith and all agreements with reference thereto at the time and in the
manner therein specified or provided. Debtor agrees that Debtor will, from
time to time, and upon request of Secured Party, furnish satisfactory proof
that the properties assigned hereby and the revenues, monies, proceeds,
benefits and payments accruing and to accrue under said Collateral are free
and clear of all lawful demands, claims and liens of any and all persons
whomsoever.
IN WITNESS WHEREOF, this Security Agreement is effective as of July
17, 1998, but is actually executed this 16th day of November 1998.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:
-----------------------------------
Name:
----------------------------
Title:
----------------------------
-----------------------------------
M. Ted Dillard
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THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me, a Notary Public, on the
___ day of November, 1998, by ______________, as ______________ of Diversified
Corporate Resources, Inc., a Texas corporation, for and on behalf of such
corporation and for the purposes therein set forth.
--------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me, a Notary Public, on the ___
day of November, 1998, by M. Ted Dillard.
--------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires
6
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Exhibit 10.6
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into by and between
DIVERSIFIED CORORATE RESOURCES, INC., a Texas corporation, whose address is
12801 N. Central Expwy., Suite 350, Dallas, Texas 75243 (herein referred to as
"Secured Party"), and M. TED DILLARD whose address is 2016 St. Andrews,
Richardson, TX 75082 (herein referred to as the "Debtor").
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Debtor hereby grants to Secured Party a security
interest in and to the Collateral, as herein defined, and in connection
therewith the parties hereby agree as follows:
COLLATERAL. To secure payment of the "Indebtedness", as herein
defined, Debtor hereby assigns, transfers and sets over to Secured Party, and
grants to Secured Party, a security interest in and to the following assets
(herein referred to as the "Collateral"): (a) 35,400 shares of common stock of
the Secured Party, (b) such additional shares of common stock of the Secured
Party as shall be required by the Secured Party based upon the terms of this
Security Agreement, and (c) all proceeds (including insurance proceeds) from the
sale, disposition, or other hypothecation of all or any part of the aforesaid
assets.
INDEBTEDNESS. The term "Indebtedness" as used herein, shall mean: all
obligations payable to Secured Party by Debtor pursuant to the terms and
conditions of that certain Promissory Note (the "Note") dated as of October 12,
1998, in the state amount of $125,300, payable by Maker to Secured Party.
REPRESENTATIONS OF DEBTOR. Debtor represents, warrants and agrees as
follows:
(a) The Collateral will not be sold, transferred, pledged or made
subject to a security agreement without the prior written consent of Secured
Party.
(b) Debtor will sign and execute alone or with Secured Party any
financing statement or other document or procure any document, and pay all costs
in connection therewith necessary to protect the security interest under this
Security Agreement against the rights or interests of third persons.
(c) Debtor will, at Debtor's own expense, do, make, procure, execute
and deliver all acts, things, writings and assurances as Secured Party may at
any time reasonably request to protect, assure or enforce the interests, rights
and remedies of Secured Party created by, provided in or emanating from this
Security Agreement.
(d) Debtor will pay to Secured Party all expenses (including expenses
for legal services of every kind) of, or incidental to, the enforcement of any
of the provisions of this Security Agreement, or incidental to the enforcement,
repayment or collection of any of the Indebtedness, or any actual or attempted
sale, or any exchange, enforcement, collection, compromise or settlement of any
of the Collateral or receipt of the proceeds thereof, and for the care of the
Collateral and defending or asserting the rights and claims of the Secured Party
in respect thereof, by litigation or otherwise; and all such expenses shall be
Indebtedness within the terms of this Security Agreement.
(e) If the market value (the "Market Value") of the shares of common
stock of Secured Party is not equal to the unpaid portion of the Note (the
"Unpaid Amount"), the Debtor will assign, transfer and send over to Secured
Party such number of shares of common stock of Secured Party as shall be
sufficient to satisfy Secured Party's requirements that the Market Value is not
at least equal to the Unpaid Amount. For purposes hereof, the Market Value of
the common stock of Secured
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Party shall be based each day upon the closing price of the common stock of
Secured party on the American Stock Exchange.
REPRESENTATIONS OF SECURED PARTY. Secured Party represents, warrants
and agrees:
(a) If the Market Value hereafter exceeds the Unpaid Amount, for a
period of thirty (30) days, the Secured Party will release as Collateral such
number of shares of common stock as shall equal the amount of the Market Value
in excess of the Unpaid Amount. The actual number of shares of common stock to
be released as Collateral shall be based upon the determination of the Board of
Directors of Secured Party.
(b) If and to the extent Debtor shall request in writing, and provided
that the Market Value will equal or exceed the Unpaid Amount subsequent to any
sale of Collateral, Secured Party shall allow the Collateral, in whole or in
part, to be sold to repay the Unpaid Amount.
(c) Secured Party will execute such additional documents as shall be
equal to effectuate the provisions of this Security Agreement.
REGULATION G. Both parties agree that this transaction may be
subject to Regulation G issued by the Board of Governors of the Federal
Reserve System, which may impose compliance obligations on Debtor.
UNIFORM COMMERCIAL CODE. This Security Agreement shall constitute a
valid and binding security agreement under the Uniform Commercial Code - Secured
Transactions (herein called the "Code") creating in favor of Secured Party,
until the Indebtedness is fully paid, a first and prior security interest in and
to the Collateral. Accordingly, Debtor hereby acknowledges unto Secured Party
that Secured Party shall have, in addition to any and all other rights, remedies
and recourses afforded to Secured Party under this Security Agreement or the
instruments, all rights, remedies and recourses afforded to secured parties by
the Code.
DEFAULT BY DEBTOR. There will be a default under this Security
Agreement upon the happening of any of the following events or conditions
(herein called an "Event of Default"):
(a) If any Indebtedness secured by this Security Agreement, either
principal or interest, is not paid within ten (10) business days after receipt
of written notice of the default.
(b) If the Debtor shall fail to comply with any of the Debtor's
covenants or undertakings in any agreement, instrument or other document between
the Debtor and the Secured Party, and said failure to comply shall continue for
thirty (30) days after written notice of said failure from Secured Party.
(c) If Debtor shall fail to comply with any of Debtor's covenants or
agreements herein or in any promissory note, agreement, instrument or other
document evidencing, relating to, or executed in connection with or as security
for any of the Indebtedness (such documents are herein referred to as the
"Security Instruments"), and said failure to comply shall continue for thirty
(30) days after receipt of written notice of said failure from Secured Party;
provided, however, if there are any conflicts with respect to any provisions of
this Security Agreement and the security instruments, the terms of the security
instruments will govern and shall be controlling.
(d) If Debtor (i) applies for or consents to the appointment of a
receiver, trustee, custodian or liquidator of all or a substantial part of
Debtor's assets, or (ii) files a voluntary petition in bankruptcy or fails
generally to pay Debtor's debts as such debts become due, or (iii) makes a
general assignment for the benefit of creditors, or (iv) files a petition or
answers same wherein Debtor seeks reorganization or rearrangement with creditors
or to take advantage of any insolvency law, or (v) files an answer admitting the
material allegations of a petition filed against Debtor in any bankruptcy,
reorganization, insolvency or similar proceeding.
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(e) If an order, judgment or decree is entered by any court of
competent jurisdiction, upon the application of a creditor or otherwise,
adjudicating Debtor as bankrupt or insolvent or approving a petition seeking
reorganization or appointing a receiver, trustee or liquidator of all or any
substantial part of Debtor's assets.
(f) If any warranty, representation or statement contained in this
Security Agreement, or any agreement, instrument or other document made or
furnished to Secured Party by or on behalf of Debtor in connection with this
Security Agreement proves to have been false in any respect when made or
furnished.
REMEDIES.
(a) When an Event of Default occurs, and at any time thereafter,
Secured Party may declare all or a part of the Indebtedness immediately due and
payable and may proceed to enforce payment of same and to exercise any and all
of the rights and remedies provided by the Code, as well as all other rights and
remedies possessed by Secured Party under this Security Agreement or otherwise
at law or in equity. Secured Party may require Debtor to assemble the Collateral
and make it available to Secured Party at any place to be designated by Secured
Party which is reasonably convenient to both parties. For purposes of the notice
requirements of the Code, Secured Party and Debtor agree that notice given at
least ten (10) days prior to the related action hereunder is reasonable. Secured
Party shall be entitled to immediate possession of the Collateral and all books
and records evidencing same and shall have authority to enter upon any premises,
upon which said items may be situated, and remove same therefrom. Expenses of
retaking, holding, preparing for sale, selling, or the like ("Collection
Costs"), shall include, without limitation, Secured Party's reasonable
attorneys' fees and all such expenses shall be recovered by Secured Party before
applying the proceeds from the disposition of the Collateral toward the
Indebtedness. To the extent allowed by the Code, Secured Party may use Secured
Party's discretion in applying the proceeds of any disposition of the Collateral
to the Collection Costs or to the Indebtedness and Debtor will remain liable for
any deficiency remaining after such disposition. All rights and remedies of
Secured Party hereunder are cumulative and may be exercised singly or
concurrently. The exercise of any right or remedy will not be a waiver of any
other.
(b) Secured Party, in addition to the rights and remedies provided for
in the preceding subparagraph, shall have all the rights and remedies of a
secured party under the Uniform Commercial Code as adopted by the state where
the Collateral is located at the date of any such Event of Default, and Secured
Party shall be entitled to all such other rights and remedies as may now or
hereafter exist at law or in equity for the collection of the Indebtedness and
the enforcement of the covenants herein and the foreclosure of the security
interest created hereby and to resort to any remedy provided hereunder or
provided by the Uniform Commercial Code as adopted in the state where the
Collateral is located at the date of an Event of Default, or by any other law of
such state, shall not prevent the concurrent or subsequent employment of any
other appropriate remedy or remedies.
(c) Secured Party may remedy any default, without waiving same, or may
waive any default without waiving any prior or subsequent default.
SECURED PARTY'S RIGHTS.
(a) This Security Agreement, Secured Party's rights hereunder or said
Indebtedness hereby secured, may be assigned from time to time, and in any such
case the assignee will be entitled to all of the rights, privileges and remedies
granted in this Security Agreement to Secured Party.
(b) Upon the occurrence of an Event of Default, Secured Party may
execute, sign,
3
<PAGE>
endorse, transfer or deliver, in the name of Debtor, notes, checks, drafts or
other instrument for the payment of money and receipts or any other documents
necessary to evidence, perfect or realize upon the security interest and
obligations created by this Security Agreement.
(c) At Secured Party's option, Secured Party may discharge taxes,
liens or security interests or other encumbrances at any time levied or placed
on the Collateral, and may perform or cause to be performed Debtor's obligations
under the Collateral to maintain the same in full force and effect. Debtor
agrees to reimburse Secured Party on demand for any payment made, or expense
incurred, by Secured Party pursuant to the foregoing authorization, plus
interest thereon at the maximum rate of interest allowed by applicable law.
(d) No remedy herein conferred upon or reserved to Secured Party is
intended to be or shall be exclusive of any other remedy, but every remedy
herein provided is cumulative and is in addition to every other remedy given
hereunder or in any instrument executed in connection herewith, or now or
hereafter existing at law or in equity, or by statute; and every such right and
remedy may be exercised from time to time and as often as may be deemed
expedient. No delay or omission by Secured Party to exercise any right or remedy
arising from any default will impair any such right or remedy or will be
construed to be a waiver thereof or of any such default or an acquiescence
therein.
ADDITIONAL RIGHTS OF SECURED PARTY. The right is expressly granted to
Secured Party, that upon the occurrence of an Event of Default and at Secured
Party's discretion, to receive the income distributions or distributions
following dissolution, and dividends on the Collateral, and to hold the same as
part of the Collateral or apply the same, or both, to the payment of the
Indebtedness, all without notice and without liability except to account for
property actually received by Secured Party.
RELEASE OF SECURITY INTEREST. Upon full and complete payment of all
sums owing and to be owing by Debtor to Secured Party and the termination of any
obligations of Debtor under the Security Agreement, together with all costs
incurred in connection therewith, at the request and expense of Debtor, Secured
Party will make, execute and deliver a reassignment of the properties assigned
hereby and of the monies, revenues, proceeds, benefits and payments, if any,
that may be owing upon the aforesaid Collateral to Debtor but without covenant
or warranty, however, of any kind or character, express or implied, and with the
provisions that Secured Party will not be required or called upon to refund or
account for any payments properly made to Secured Party which have been or may
be properly applied to any Indebtedness secured or to be secured hereby.
VALIDITY OF SECURITY INTEREST. No security taken hereafter as security
for payment of any part or all of the Indebtedness shall impair in any manner or
effect this Security Agreement; all such present and future additional security
to be considered as cumulative security. Any of the Collateral may be released
from this Security Agreement without altering, varying or diminishing in any way
the force, effect, lien, security interest or charge of this Security Agreement
as to the Collateral not expressly released, and this Agreement shall continue
as a first lien, security interest and charge on all of the Collateral not
expressly released until all sums and indebtedness secured hereby have been paid
in full.
NOTICES. Any notice, request or other document shall be in writing and
sent by registered or certified mail, return receipt requested, postage prepaid
and addressed to the party to be notified at the following addresses, or such
other address as such party may hereafter designate by written notice to all
parties, which notice shall be effective as of the date of posting:
4
<PAGE>
(a) If to Secured Party:
Diversified Corporate Resources, Inc.
12801 N. Central Expwy., Suite 350
Dallas, Texas 75243
Attention: CFO
(b) If to Debtor:
M. Ted Dillard
2016 St. Andrews
Richardson, TX 75082
TEXAS LAW. This Security Agreement and the obligations of the parties
hereunder is to be interpreted, construed and enforced in accordance with the
laws of the State of Texas.
SEVERABILITY. If any provision of this Security Agreement or the
application thereof to any person or circumstance is held to be invalid or
unenforceable to any extent, the remainder of this Security Agreement and the
application of such provisions to other persons or circumstances is not to be
affected thereby and is to be enforced to the full extent permitted by law.
SUCCESSORS AND ASSIGNS. This Security Agreement inures to the benefit
of, and is binding upon, Debtor and Secured Party and their respective heirs,
legal representatives, successors and assigns.
GENDER. The use of any gender herein shall include the other genders.
SCOPE. Nothing herein contained will in any way limit or be construed
as limiting the right of Secured Party to collect any note, item, sum or amount
secured or to be secured hereby only out of the properties assigned hereby or
out of the revenues, monies, proceeds, benefits and payments accruing and to
accrue unto Debtor, under and by virtue of said Collateral, but it is expressly
understood and provided that all such Indebtedness and amounts secured and to be
secured hereby are, and shall constitute, absolute and unconditional obligations
of Debtor to pay to Secured Party the amount provided for instruments executed
in connection herewith and all agreements with reference thereto at the time and
in the manner therein specified or provided. Debtor agrees that Debtor will,
from time to time, and upon request of Secured Party, furnish satisfactory proof
that the properties assigned hereby and the revenues, monies, proceeds, benefits
and payments accruing and to accrue under said Collateral are free and clear of
all lawful demands, claims and liens of any and all persons whomsoever.
IN WITNESS WHEREOF, this Security Agreement is effective as of October
12, 1998, but is actually executed this 16th day of November 1998.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:
-------------------------------------------
Name:
------------------------------------
Title:
------------------------------------
------------------------------------
M. Ted Dillard
5
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me, a Notary Public, on the
___ day of November, 1998, by _________________, as _________________ of
Diversified Corporate Resources, Inc., a Texas corporation, for and on behalf
of such corporation and for the purposes therein set forth.
----------------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me, a Notary Public, on the
___ day of November, 1998, by M. Ted Dillard.
--------------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires:
6
<PAGE>
DEBORAH A. FARRINGTON
929 PARK AVENUE
NEW YORK, NY 10028
(212) 772-3597
FAX: (212) 570-9465
Mr. Michael Moore
Chairman & CEO
Mr. Ted Dillard
President
Diversified Corporate Resources, Inc.
North Central Plaza III
12801 N. Central Expwy., Suite 350
Dallas, TX. 75243 May 12, 1998
Dear Mike and Ted:
RE: CONSULTING AGREEMENT
I am pleased to set forth the basic terms of a Consulting Agreement (the
"Agreement") between Diversified Corporate Resources, Inc. ("DCRI" or the
"Company") and me with respect to services you wish me to provide to the
Company for its merger and acquisition ("M&A") program and related
financing plans. I am pleased to be working with the Company in this
capacity, in addition to my regular duties as a member of the Board of
Directors.
As discussed, I will work with you to support the M&A efforts and financing
needs of DCRI and to provide the following services:
- - - Assist in developing a strategic plan for DCRI and determine acquisition
criteria (have worked with the Company on this over the past few months);
- - - Work with intermediaries as well as directly with target companies to
identify, review and select acquisition possibilities;
- - - Once acquisition possibilities have been selected, work with DCRI
management to negotiate appropriate documents, including letter of
intent and definitive agreement; assist the Company in planning and
coordinating due diligence and other work necessary to complete
acquisitions, following approval by DCRI's management and Board of
Directors;
- - - Assist in arranging financing as needed to complete acquisitions.
In consideration for the above services, DCRI agrees to pay to me:
<PAGE>
2
1) A one time retainer fee of $15,000 in recognition of the substantial
start-up efforts required in implementing an M&A program for the Company,
2) $4,000 per month payable on the first of each month beginning with May's
fee which is due immediately,
3) For companies identified by me (rather than brought to DCRI by
intermediaries to whom the Company owes a fee) which the Company acquires,
fees shall be agreed upon and approved by the Board of Directors on a case by
case basis,
4) For financing identified and arranged by me, such fees as shall be
approved by the Board of Directors, depending on the scope of services
provided and circumstances, and
5) Such other fees as shall be approved by the Board of Directors, depending
on the services provided.
Payment of any fees due me other than the monthly consulting fees shall be
due at the closing of any acquisitions and funding of financings. You shall
also agree to pay all reasonable expenses incurred with respect to my work on
behalf of the Company pursuant to this Agreement. In addition, after
discussion with you, we may agree to hire others on a consulting or other
basis, as appropriate, to assist me in these efforts. I plan to commit
approximately five days a month, or about 40 hours, to these activities
(please note, my normal consulting fee is a minimum of $1,200 per day). If I
find that substantially more time is required than this, we agree to
renegotiate the Agreement, as we both shall agree is appropriate in the sole
discretion of both parties.
My services under this Agreement shall commence on the date of this Agreement
and shall continue thereafter until November 30, 1998, unless earlier
terminated or renewed as provided in this Agreement. This Agreement shall
terminate immediately in the event of my death or disability that prevents
me from performing my duties hereunder in a manner reasonably satisfactory to
the Board of directors of DCRI; provided however, that my estate shall be
paid the monthly consulting fee through the date of death or disability, and
the success fees referred to above, if any, for acquisitions and financing
identified by me. This Agreement may be renewed upon the written agreement
of the parties heretofore on or prior to October 31, 1998 for a term and an
amount to be negotiated by the parties in their sole discretion.
In performing my services under this Agreement, I shall be an independent
contractor and, as between DCRI and me, DCRI shall not be responsible for
withholding collection or payment of income taxes or for other taxes of any
nature on behalf of me. Nothing contained in this Agreement shall make me the
agent, employee, joint venturer or partner of DCRI or provide me with the
power or authority to bind DCRI to any contract, agreement or arrangements
with any individual or entity except, with the prior written approval of DCRI.
The Agreement embodies the final, entire agreement among the parties hereto
and supersedes any and all prior commitments, agreements, representations,
and understandings, whether written or oral, relating to the subject matter
hereof and may not be contradicted or varied by evidence of prior,
contemporaneous, or subsequent oral agreements or discussions of the parties
hereto. There are no unwritten oral agreements
<PAGE>
3
among the parties hereto. No variations, modifications, or changes herein
shall be binding upon any party unless set forth in a document duly executed
by or on behalf of such party.
You agree to indemnify me from and defend me against any and all claims made
against me arising out of any of the activities described above, including
reasonable attorneys' fees, but excluding claims based on my willful
misconduct or gross negligence.
I look forward to working with DCRI on these exciting and important
activities and ask that an appropriate officer sign below to indicate your
agreement to these terms.
I understand that the terms of this Agreement are subject to approval by the
Board of Directors.
Sincerely,
/s/ Deborah A. Farrington
Agreed and accepted:
/s/ M. Ted Dillard, President 6-18-98
- - -------------------------------------------------------------------------------
Name: Date:
Diversified Corporate Resources, Inc.
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<PERIOD-START> JAN-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
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<SECURITIES> 0 0
<RECEIVABLES> 6,341,040 6,341,040
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