<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-23940
ALTERNATIVE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-2791069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Tri-State International, Suite 300, Lincolnshire, IL 60069
-------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(847) 317-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
15,712,356 shares of Common Stock outstanding as of August 1, 1997.
Page 1
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
<TABLE>
<CAPTION>
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
December 31, June 30,
1996 1997
------------ ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,310 $ 5,971
Short-term investments 20,868 19,425
Trade accounts receivable, net of allowance for doubtful accounts 33,207 40,295
Prepaid expenses 455 699
Other receivables 3,363 1,713
---------- ---------
Total current assets 60,203 68,103
---------- ---------
Property and equipment:
Office equipment 3,103 4,150
Furniture and fixtures 1,427 1,652
Software 420 926
Leasehold improvements 307 319
---------- ---------
5,257 7,047
---------- ---------
Less accumulated depreciation and amortization (2,377) (3,142)
---------- ---------
Net property and equipment 2,880 3,905
---------- ---------
Other assets:
Long-term investments 1,026 1,353
Other assets 294 299
---------- ---------
Total other assets 1,320 1,652
---------- ---------
Total assets $ 64,403 $ 73,660
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 324 $ 329
Payroll and related expenses 5,969 8,844
Accrued expenses 1,632 1,135
Income taxes payable 466 927
---------- ---------
Total current liabilities 8,391 11,235
Deferred rent payable 345 279
---------- ---------
Total liabilities 8,736 11,514
Stockholders' equity: ---------- ---------
Preferred Stock, $.01 par value, 1,000,000 shares authorized, none issued and
outstanding -- --
Common Stock, $.01 par value, 50,000,000 shares authorized, 15,651,391 and 15,711,018
shares issued and outstanding at December 31, 1996 and June 30, 1997, respectively 157 157
Additional paid-in capital 23,003 23,111
Unrealized loss on available-for-sale securities (28) (24)
Cumulative translation adjustment 43 41
Retained earnings 32,492 38,861
---------- ---------
Total stockholders' equity 55,667 62,146
---------- ---------
Total liabilities and stockholders' equity $ 64,403 $ 73,660
---------- ---------
---------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1996 1997 1996 1997
------- ------- ------- ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $48,674 $62,803 $94,508 $120,561
Cost of services 30,049 40,939 59,118 79,287
------- ------- ------- -------
Gross profit 18,625 21,864 35,390 41,274
Selling, general and administrative expenses 13,035 16,277 25,424 31,481
------- ------- ------- -------
Income from operations 5,590 5,587 9,966 9,793
Other income, net 243 307 502 724
------- ------- ------- -------
Income before income taxes 5,833 5,894 10,468 10,517
Income taxes 2,438 2,299 4,375 4,148
------- ------- ------- -------
Net income $3,395 $3,595 $6,093 $6,369
------- ------- ------- -------
------- ------- ------- -------
Net earnings per share amounts:
Primary $0.21 $0.23 $0.38 $0.40
------- ------- ------- -------
------- ------- ------- -------
Fully diluted $0.21 $0.23 $0.38 $0.40
------- ------- ------- -------
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding:
Primary 16,315 15,834 16,117 15,830
------- ------- ------- -------
------- ------- ------- -------
Fully diluted 16,318 15,842 16,204 15,841
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1997
------ -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,093 $ 6,369
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 360 766
Allowance for doubtful accounts, net 28 110
Change in assets and liabilities:
Trade accounts receivable (2,700) (7,198)
Prepaid expenses (62) (244)
Other receivables (842) 1,650
Other assets 22 (8)
Accounts payable (40) 5
Payroll and related expenses 1,692 2,875
Accrued expenses 344 (497)
Income taxes payable (418) 461
Deferred rent payable 30 (66)
------ -------
Net cash provided by operating activities 4,507 4,223
------ -------
Cash flows from investing activities:
Purchases of property and equipment (822) (1,790)
Purchases of available-for-sale securities (12,271) (12,205)
Redemption of available-for-sale securities -- 10,890
Redemption of held-to-maturity securities 6,406 2,435
------ -------
Net cash used in investing activities (6,687) (670)
------ -------
Cash flows from financing activities:
Payments received on stock options exercised 1,886 218
Repurchase of common stock (724) (736)
Issuance of common stock under employee stock purchase plan 615 626
------ -------
Net cash provided by financing activities 1,777 108
------ -------
Net increase (decrease) in cash and cash equivalents (403) 3,661
Cash and cash equivalents at beginning of period 4,639 2,310
------ -------
Cash and cash equivalents at end of period $ 4,236 $ 5,971
------ -------
------ -------
Supplemental disclosures:
Cash paid for income taxes $ 5,237 $ 2,056
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented are unaudited, but
in the opinion of management, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with those of the
annual financial statements. Such interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the year ending December 31, 1997. The interim consolidated financial
statements should be read in connection with the audited consolidated financial
statements for the year ended December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The operations of Alternative Resources
Corporation (the "Company") are conducted through a parent holding company and
two operating subsidiaries. The accompanying financial statements include the
consolidated financial position and results of operations of the Company and its
subsidiaries with all intercompany transactions eliminated in their entirety.
COMPUTATION OF EARNINGS PER SHARE. Earnings per common and common
equivalent share is based on the average number of common shares and dilutive
common share equivalents outstanding for the three month and six month periods
ended June 30, 1996 and 1997. The amount of dilution is computed using the
treasury stock method.
INVESTMENT SECURITIES. The Company classifies all investment securities
held as of December 31, 1995 as "held-to-maturity" securities under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". As held-to-maturity
securities mature, the proceeds of such securities are reinvested in "available-
for-sale" securities. The Company reports available-for-sale securities at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity.
RECLASSIFICATION. Certain 1996 amounts have been reclassified to conform
with the 1997 presentation.
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Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The Company has experienced substantial growth in revenue driven by
industry trends toward component-based outsourcing of Information Services
operations, increased penetration of existing clients, expansion into new
markets, increased productivity of existing branch offices, the opening of new
branch offices and the introduction of new services. Essentially all of the
Company's revenue is generated from technical resource services that offer the
benefits of outsourcing, while allowing Information Services operations managers
to retain strategic control of their operations.
The Company continues to adapt its business to a more solution-based
model. This is being accomplished through the Company's Smartsourcing-Registered
Trademark- Solutions service offering and to a lesser extent, through recently
formed alliances with leading technology providers.
Smartsourcing-Registered Trademark- Solutions are becoming a more
significant part of the Company's revenue base. Under a Smartsourcing-
Registered Trademark- arrangement, wherein the Company may take over an entire
portion of a client's Information Technology (IT) operations, the Company may
provide for flexibility in invoicing arrangements other than more traditional
hourly billing. Such arrangements may include fixed price or per unit billing,
as well as commitments made by the Company to meet specific service levels.
Management believes that Smartsourcing-Registered Trademark- revenue is an
important measure of clients' confidence and willingness to engage the Company
to provide more comprehensive IT staffing solutions.
During 1996, the Company embarked upon two significant initiatives, the
aforementioned Smartsourcing-Registered Trademark- Solutions service offering
and its General Business program. The General Business program, formerly known
as the Company's Middle Market program, is a sales initiative which targets
midsize customers in the $50 to $500 million revenue range. During the first
six months of 1997, the Company continued to invest in these key initiatives to
drive future growth.
The Company opened one new office in the three month period ended June 30,
1997, and six new offices in the first six months of 1997. As of June 30, 1997,
the Company had 57 offices in the United States and Canada, as compared to 47
offices at June 30, 1996.
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SECOND QUARTER FISCAL 1997 COMPARED TO SECOND QUARTER FISCAL 1996
REVENUE. Revenue increased by 29.0% from $48.7 million in the second
quarter of 1996 to $62.8 million in the second quarter of 1997, primarily as a
result of an increase in the hours of service provided and, to a lesser extent,
from an increase in the average revenue per project hour. The increase in hours
of service was primarily due to increased productivity of existing branch
offices and hours of service provided by new branch offices. The increase in
average revenue per project hour reflects demand for technical employees with
higher skill levels as well as the impact of a price increase in 1997.
GROSS PROFIT. Gross profit increased by 17.4% from $18.6 million in the
second quarter of 1996 to $21.9 million in the second quarter of 1997, again
primarily as a result of an increase in hours of service provided to clients.
Gross margin decreased from 38.3% of revenue in the second quarter of 1996 to
34.8% in the second quarter of 1997. During the second quarter of 1997, the
Company's gross margin was impacted primarily by more favorable pricing to some
of its larger accounts. The Company offers its largest clients volume discounts
from list prices in order to encourage increased and continued usage of Company
services. The Company believes these discounts have contributed significantly
to its revenue growth. In addition, the Company believes its larger account
relationships remain integral to its effort to sell value-added services and
develop new customer relationships.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $13.0 million in the second quarter of
1996 to $16.3 million in the second quarter of 1997, primarily due to increased
commissions, bonuses and staffing expenses associated with revenue and
profitability growth, expenses associated with the General Business initiative,
investment in the infrastructure to support sales and delivery components of the
Smartsourcing-Registered Trademark- Solutions program and an increased number of
offices and their related operating costs. Selling, general and administrative
expenses decreased as a percentage of revenue from 26.8% in the second quarter
of 1996 to 25.9% in the second quarter of 1997, as these expenses are leveraged
over an expanding revenue base. A portion of the revenue growth is attributed
to the Smartsourcing-Registered Trademark- and General Business initiatives.
INCOME FROM OPERATIONS. Income from operations was $5.6 million in the
second quarter of 1996 and 1997, or 11.5% and 8.9% of total revenue,
respectively.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $2.4 million, or an effective tax rate of 41.8%, in the second
quarter of 1996 to $2.3 million, an effective tax rate of 39.0%, in the second
quarter of 1997. The decrease in the effective tax rate is the result of a tax
planning initiative implemented in 1996.
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NET INCOME. The Company's net income increased from $3.4 million in the
second quarter of 1996, or 7.0% of total revenue, to $3.6 million in the second
quarter of 1997, or 5.7% of total revenue.
FIRST SIX MONTHS FISCAL 1997 COMPARED TO FIRST SIX MONTHS FISCAL 1996
REVENUE. Revenue increased by 27.6% from $94.5 million in the first six
months of 1996 to $120.6 million in the first six months of 1997, primarily as a
result of an increase in the hours of service provided and, to a lesser extent,
from an increase in the average revenue per project hour. The increase in hours
of service was primarily due to increased productivity of existing branch
offices and hours of service provided by new branch offices. The increase in
average revenue per project hour reflects demand for technical employees with
higher skill levels as well as the impact of a price increase in 1997.
GROSS PROFIT. Gross profit increased by 16.6% from $35.4 million in the
first six months of 1996 to $41.3 million in the first six months of 1997, again
primarily as a result of an increase in hours of service provided to clients.
Gross margin decreased from 37.4% of revenue in the first six months of 1996 to
34.2% in the first six months of 1997. During the first six months of 1997, the
Company's gross margin was impacted primarily by more favorable pricing to some
of its larger accounts. The Company offers its largest clients volume discounts
from list prices in order to encourage increased and continued usage of Company
services. The Company believes these discounts have contributed significantly
to its revenue growth. In addition, the Company believes its larger account
relationships remain integral to its effort to sell value-added services and
develop new customer relationships.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $25.4 million in the first six months of
1996 to $31.5 million in the first six months of 1997, primarily due to
increased commissions, bonuses and staffing expenses associated with revenue and
profitability growth, expenses associated with the General Business initiative,
investment in the infrastructure to support sales and delivery components of the
Smartsourcing-Registered Trademark- Solutions program and an increased number of
offices and their related operating costs. Selling, general and administrative
expenses decreased as a percentage of revenue from 26.9% in the first six months
of 1996 to 26.1% in the first six months of 1997, as these expenses are
leveraged over an expanding revenue base. A portion of the revenue growth is
attributed to the Smartsourcing-Registered Trademark- and General Business
initiatives.
INCOME FROM OPERATIONS. Income from operations decreased from $10.0
million in the first six months of 1996, or 10.5% of total revenue, to $9.8
million in the first six months of 1997, or 8.1% of total revenue.
Page 8
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PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $4.4 million, or an effective tax rate of 41.8%, in the first six
months of 1996 to $4.1 million, an effective tax rate of 39.4%, in the first six
months of 1997. The decrease in the effective tax rate is the result of a tax
planning initiative implemented in 1996.
NET INCOME. The Company's net income increased from $6.1 million in the
first six months of 1996, or 6.4% of total revenue, to $6.4 million in the first
six months of 1997, or 5.3% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1997, cash flow generated from operations
was $4.2 million resulting primarily from earnings, increased accrued payroll
expenses, and decreases in other receivables partially offset by a significant
increase in accounts receivable. The increase in accounts receivable reflects
the increased volume of business and the increased number of clients requesting
monthly instead of weekly billing during 1997. Working capital increased from
$51.8 million at December 31, 1996, to $56.9 million at June 30, 1997.
The Board of Directors has authorized the repurchase, of up to the
lesser of 300,000 shares or $5,000,000, of its common shares. The repurchase
of common shares is to offset the dilutive effect of the Company's stock
option grants to employees. Shares will be purchased from time to time,
depending on market conditions and other factors, at the then-prevailing
market prices.
The Company believes its cash balances and funds provided by operations
will be sufficient to finance continued expansion of its office network and to
meet all of its anticipated cash requirements for at least the next twelve
months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
was issued in February 1997. The Company is required to adopt the new standard
for periods ending after December 15, 1997. All prior period earnings per share
data presented must be restated after adoption. The standard establishes new
methods for computing and presenting earnings per share and replaces the
presentation of primary and fully-diluted earnings per share with basic and
diluted earnings per share.
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PART II - OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Alternatives Resources
Corporation was held on April 29, 1997.
(b) The individuals specified in (c) below were elected as directors at
the meeting and the terms of office of JoAnne Brandes, Michael E.
Harris, Robert V. Carlson, Larry I. Kane and Bruce R. Smith as
directors continued after the meeting.
(c) Set forth below is the tabulation of the votes with respect to the
election of Raymond R. Hipp, A. Donald Rully and Richard Williams as
Class III Directors.
Withhold
Director For Authority
---------------- ----------- --------------
Raymond R. Hipp 13,140,820 424,012
A. Donald Rully 13,139,496 425,336
Richard Williams 13,140,589 424,243
Set forth below is the tabulation of the votes on approval of an
amendment to the Company's Amended and Restated Incentive Stock
Option Plan increasing the number of shares of common stock
available for grant thereunder by 736,000 shares to a total of
4,000,000.
Broker
For Against Abstain Nonvotes
---------- -------- -------- --------
11,367,446 2,088,435 35,232 73,228
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of Regulation S-K:
Exhibit Number Description
-------------- ------------
10 Amended and Restated Incentive Stock Option Plan
27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form 8-K for
the quarter.
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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.
ALTERNATIVE RESOURCES CORPORATION
Date: August 12, 1997 /s/ Bradley K. Lamers
_______________________________
Bradley K. Lamers
Vice President, Chief Financial Officer,
Secretary, and Treasurer
Page 11
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EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------
10 Amended and Restated Incentive
Stock Option Plan
27 Financial Data Schedule
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
AMENDED AND RESTATED
INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The Alternative Resources Corporation Incentive Stock
Option Plan (the "PLAN"), as amended and restated, is intended to provide
incentives which will attract and retain highly competent persons as
officers, key employees and independent contractor consultants of Alternative
Resources Corporation and its subsidiaries (the "COMPANY"), by providing them
opportunities to acquire shares of Common Stock of the Company ("COMMON
STOCK") or to receive monetary payments based on the value of such shares
pursuant to the Awards described herein.
2. ADMINISTRATION. The Plan will be administered by the Compensation
Committee (the "COMMITTEE") appointed by the Board of Directors of the
Company from among its members which shall be comprised of not less than two
non-employee members of the Board; PROVIDED, HOWEVER, that as long as the
Common Stock of the Company is registered under the Securities Exchange Act
of 1934, members of the Committee must qualify as disinterested persons
within the meaning of Securities and Exchange Commission Regulation Section
240.16b-3. The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Awards granted hereunder as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all participants and their legal representatives. No member of
the Board, no member of the Committee and no employee of the Company shall be
liable for any act or failure to act hereunder, by any other member or
employee or by any agent to whom duties in connection with the administration
of this Plan have been delegated or, except in circumstances involving his or
her bad faith, gross negligence or fraud, for any act or failure to act by
such member of the Board or employee.
3. PARTICIPANTS. Participants will consist of such officers, key
employees and independent contractor consultants of the Company as the
Committee in its sole discretion determines to be significantly responsible
for the success and future growth and profitability of the Company and whom
the Committee may designate from time to time to receive Awards under the
Plan. Designation of a participant in any year shall not require the
Committee to designate such person to receive an Award in any other year or,
once designated, to receive the same type or amount of Awards as granted to
the participant in any year. The Committee shall consider such factors as it
deems pertinent in selecting participants and in determining the amount and
type of their respective Awards. In addition, non-employee directors of the
Company shall have the benefits provided in Section 6(h) hereof.
<PAGE>
4. TYPES OF AWARDS. Awards under the Plan may be granted in any one or
a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, and (d) Performance Units, all as described below (collectively
"AWARDS").
5. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for
issuance under the Plan an aggregate of four million (4,000,000) shares of
Common Stock, which may be authorized but unissued or treasury shares. Any
shares subject to an Award hereunder may thereafter be subject to new Awards
under this Plan if there is a lapse, cancellation, expiration, or termination
of any such Awards prior to issuance of the shares or if shares are issued
under such Awards and thereafter are reacquired by the Company pursuant to
rights reserved by the Company upon issuance thereof.
6. STOCK OPTIONS. "STOCK OPTIONS" will consist of awards from the
Company, in the form of agreements, which will enable the holder to purchase
a specific number of shares of Common Stock, at set terms and at a fixed
purchase price. Stock Options may be "INCENTIVE STOCK OPTIONS" within the
meaning of Section 422 of the Internal Revenue Code ("INCENTIVE STOCK
OPTIONS") or Stock Options which do not constitute Incentive Stock Options
("NONQUALIFIED STOCK OPTIONS"). The Committee will have the authority to
grant to any participant one or more Incentive Stock Options, Nonqualified
Stock Options, or both types of Stock Options (in each case with or without
Stock Appreciation Rights). Each Stock Option shall be subject to such terms
and conditions consistent with the Plan as the Committee may impose from time
to time, subject to the following limitations:
(a) EXERCISE PRICE. Each Stock Option granted hereunder shall
have such per-share exercise price as the Committee may determine at the date
of grant provided, however, that the per-share exercise price for Incentive
Stock Options shall not be less than 100% of the Fair Market Value of the
Common Stock on the date the option is granted and provided further that the
per-share exercise price for Nonqualified Stock Options shall not be less
than 85% of the Fair Market Value of the Common Stock on the date the option
is granted.
(b) PAYMENT OF EXERCISE PRICE. The option exercise price may be
paid by check or, in the discretion of the Committee, by the delivery of
shares of Common Stock of the Company then owned by the participant;
provided, however, that option agreements may provide that payment of the
exercise price by delivery of shares of Common Stock of the Company then
owned by the participant may be made only if such payment does not result in
a charge to earnings for financial accounting purposes as determined by the
Committee. In the discretion of the Committee, payment may also be made by
delivering a properly executed exercise notice to the Company together with a
copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds to pay the exercise price. To
facilitate the foregoing, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
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(c) EXERCISE PERIOD. Stock Options granted under the Plan shall
be exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee, PROVIDED, HOWEVER that no Stock
Options shall be exercisable earlier than six months after the date they are
granted. In addition, Stock Options shall not be exercisable later than ten
years after the date they are granted. All Stock Options shall terminate at
such earlier times and upon such conditions or circumstances as the Committee
shall in its discretion set forth in such option at the date of grant,
provided however that if a participant's employment or engagement with the
Company is terminated other than by reason of the participant's death or
disability, the participant's option will terminate thirty (30) days after
such termination, and in the event of a termination due to death or
disability, the participant's option will terminate six (6) months after such
termination.
(d) LIMITATIONS ON STOCK OPTIONS. Incentive Stock Options may be
granted only to participants who are employees of the Company or one of its
subsidiaries (within the meaning of Section 424(f) of the Internal Revenue
Code) at the date of grant. The aggregate Fair Market Value (determined as
of the time the option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a participant
during any calendar year (under all option plans of the Company) shall not
exceed $100,000. Stock Options may not be granted to any participant who, at
the time of grant, owns stock possessing (after the application of the
attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company, unless the
option price is fixed at not less than 110% of the Fair Market Value of the
Common Stock on the date of grant and the exercise of such option is
prohibited by its terms after the expiration of five years from the date of
grant of such option.
(e) REDESIGNATION AS NON-QUALIFIED STOCK OPTIONS. Options
designated as "INCENTIVE STOCK OPTIONS" that fail to continue to meet the
requirements of Section 422 of the Internal Revenue Code shall be
redesignated as non-qualified options for Federal income tax purposes
automatically without further action by the Committee on the date of such
failure to continue to meet the requirements of Section 422 of the Code.
(f) LIMITATION OF RIGHTS IN SHARES. The recipient of a Stock
Option shall not be deemed for any purpose to be a stockholder of the Company
with respect to any of the shares subject thereto except to the extent that
the Stock Option shall have been exercised and, in addition, a certificate
shall have been issued and delivered to the participant.
(g) INDIVIDUAL LIMITATION ON NUMBER OF SHARES. The number of
shares subject to Stock Options which may be granted during any calendar year
to any one participant shall not exceed two hundred six thousand four hundred
(206,400) shares.
(h) AUTOMATIC GRANT TO NON-EMPLOYEE DIRECTORS. Each non-employee
director of the Company who is a member of the Board on the date of the
Company's annual meeting of shareholders, beginning with the 1995 annual
meeting and continuing for each
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annual meeting thereafter, and each non-employee director of the Company who
becomes a member of the Board for the first time other than at the time of
the Company's annual meeting of shareholders, shall automatically receive, on
the date of such annual meeting, or on the date such person first becomes a
member of the Board, as the case may be, a Nonqualified Stock Option to
purchase 5,000 shares of Common Stock, at an exercise price per share equal
to 100% of the Fair Market Value of the Common Stock on the date of receipt
of such option. Any options granted under this Section 6(h) shall not be
exercisable for a period of one year from the date of grant and will
terminate upon the earlier of (i) ninety (90) days after the date on which
the director ceases to serve on the Board or (ii) ten (10) years after the
date of grant of the option. For purposes of this Plan, a non-employee
director is any person who is a member of the Board of the Company and who is
neither an employee of the Company nor affiliated with a controlling
shareholder of the Company.
7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion,
grant Stock Appreciation Rights to the holders of any Stock Options granted
hereunder. In addition, Stock Appreciation Rights may be granted
independently of and without relation to options. Each Stock Appreciation
Right shall be subject to such terms and conditions consistent with the Plan
as the Committee shall impose from time to time, including the following:
(a) A Stock Appreciation Right relating to a Nonqualified Stock
Option may be made part of such option at the time of its grant or at any
time thereafter up to six months prior to its expiration, and a Stock
Appreciation Right relating to an Incentive Stock Option may be made part of
such option only at the time of its grant.
(b) Each Stock Appreciation Right will entitle the holder to elect
to receive the appreciation in the Fair Market Value of the shares subject
thereto up to the date the right is exercised. In the case of a right issued
in relation to a Stock Option, such appreciation shall be measured from not
less than the option price and in the case of a right issued independently of
any Stock Option, such appreciation shall be measured from not less than 85%
of the Fair Market Value of the Common Stock on the date the right is
granted. Payment of such appreciation shall be made in cash or in Common
Stock, or a combination thereof, as set forth in the award, but no Stock
Appreciation Right shall entitle the holder to receive, upon exercise
thereof, more than the number of shares of Common Stock (or cash of equal
value) with respect to which the right is granted.
(c) Each Stock Appreciation Right will be exercisable at the times
and to the extent set forth therein, but no Stock Appreciation Right may be
exercisable earlier than six months after the date it was granted or later
than the earlier of (i) the term of the related option, if any, or (ii)
fifteen years after it was granted. Exercise of a Stock Appreciation Right
shall reduce the number of shares issuable under the Plan (and the related
option, if any) by the number of shares with respect to which the right is
exercised.
-4-
<PAGE>
(d) The number of shares subject to Stock Appreciation Rights
which may be granted during any calendar year to any one participant shall
not exceed two hundred six thousand four hundred (206,400) shares.
8. STOCK AWARDS. Stock Awards will consist of Common Stock transferred
to participants without other payment therefor as additional compensation for
services rendered or to be rendered to the Company. Stock Awards shall be
subject to such terms and conditions as the Committee determines appropriate,
including, without limitation, restrictions on the sale or other disposition
of such shares and rights of the Company to reacquire such shares for no
consideration upon termination of the participant's employment within
specified periods. The Committee may require the participant to deliver a
duly signed stock power, endorsed in blank, relating to the Common Stock
covered by such an Award. The Committee may also require that the stock
certificates evidencing such shares be held in custody until the restrictions
thereon shall have lapsed. Except as otherwise provided in the written Stock
Award, each participant shall have, with respect to the shares of Common
Stock subject to a Stock Award, all of the rights of a holder of shares of
Common Stock of the Company, including the right to receive dividends and to
vote the shares.
9. PERFORMANCE UNITS. Performance Units may be awarded either alone or
in addition to other Awards granted under this Plan and shall consist of the
right to receive Common Stock or cash of an equivalent value at the end of a
specified Performance Period (defined below). The Committee shall determine
the participants to whom and the time or times at which shall be awarded,
the number of Performance Units to be awarded to any person, the duration of
the period (the "PERFORMANCE PERIOD") during which, and the conditions under
which, receipt of the Shares will be deferred, and the other terms and
conditions of the Award in addition to those set forth in this Section 9.
The Committee may condition the grant of Performance Units upon the
attainment of specified performance goals or such other factors or criteria
as the Committee shall determine. Performance Units awarded pursuant to this
Section 9 shall be subject to the following terms and conditions:
(a) DIVIDENDS. Unless otherwise determined by the Committee at
the time of the grant of the Award, amounts equal to any dividends declared
during the Performance Period with respect to the number of shares of Common
Stock covered by a Performance Unit Award will not be paid to the participant.
(b) PAYMENT. Subject to the provisions of the written Award and
this Plan, at the expiration of the Performance Period, share certificates
and/or cash of an equivalent value (as the Committee may determine) shall be
delivered to the participant, or his or her legal representative, in a number
or amount equal to the vested shares covered by the Performance Unit Award.
(c) TERMINATION OF EMPLOYMENT. Subject to the applicable
provisions of the written Award and this Plan, upon termination of a
participant's employment with the
-5-
<PAGE>
Company for any reason during the Performance Period for a given Award, the
Performance Units in question will vest or be forfeited in accordance with
the terms and conditions established by the Committee.
10. ADJUSTMENT PROVISIONS.
(a) If the Company shall at any time change the number of issued
shares of Common Stock without new consideration to the Company (such as by
stock dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the Common Stock) or make a distribution of cash or property which
has a substantial impact on the value of issued Common Stock, the total
number of shares available for Awards under this Plan shall be appropriately
adjusted and the number of shares covered by each outstanding Award and the
reference price or Fair Market Value for each outstanding Award shall be
adjusted so that the net value of such Award shall not be changed.
(b) In the case of any sale of assets, merger, consolidation,
combination or other corporate reorganization or restructuring of the Company
with or into another corporation which results in the outstanding Common Stock
being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "ACQUISITION"), subject to the
provisions of this Plan and any limitation applicable to the Award:
(i) any Participant to whom a Stock Option has been granted
shall have the right thereafter and during the term of the Stock
Option, to receive upon exercise thereof the Acquisition Consideration
(as defined below) receivable upon the Acquisition by a holder of the
number of shares of Common Stock which might have been obtained upon
exercise of the Stock Option or portion thereof, as the case may be,
immediately prior to the Acquisition;
(ii) any Participant to whom a Stock Appreciation Right has
been granted shall have the right thereafter and during the term of
such right to receive upon exercise thereof the difference on the
exercise date between the aggregate Fair Market Value of the
Acquisition Consideration receivable upon such acquisition by a holder
of the number of shares of Common Stock which are covered by such
right and the aggregate reference price of such right; and
(iii) any Participant to whom Performance Units have been
awarded shall have the right thereafter and during the term of such
Award, upon fulfillment of the term of the Award, to receive on the
date or dates set forth in the Award, the Acquisition Consideration
receivable upon such
-6-
<PAGE>
acquisition by a holder of the number of shares of Common Stock which
are covered by such Award.
The term "ACQUISITION CONSIDERATION" shall mean the kind and amount of
securities, cash or other property or any combination thereof receivable in
respect of one share of Common Stock upon consummation of an Acquisition.
(c) Notwithstanding any other provision of this Plan, the
Committee may authorize the issuance, continuation or assumption of Awards or
provide for other equitable adjustments after changes in the Common Stock
resulting from any other merger, consolidation, sale of assets, acquisition
of property or stock, recapitalization, reorganization or similar occurrence
upon such terms and conditions as it may deem equitable and appropriate.
(d) In the event that another corporation or business entity is
being acquired by the Company, and the Company assumes outstanding employee
stock options and/or stock appreciation rights and/or the obligation to make
future grants of options or rights to employees of the acquired entity, the
aggregate number of shares of Common Stock available for Awards under this
Plan shall be increased accordingly.
11. NONTRANSFERABILITY.
(a) Each Award granted under the Plan to a participant shall not
be transferable by him otherwise than by law or by will or the laws of
descent and distribution, and shall be exercisable, during his lifetime, only
by him. In the event of the death of a participant while the participant is
rendering services to the Company, each Award theretofore granted to him
shall be exercisable during the period of six (6) months after his death (but
not beyond the stated duration of the Award) and then only: (i) by the
executor or administrator of the estate of the deceased participant or the
person or persons to whom the deceased participant's rights under the Award
shall pass by will or the laws of descent and distribution; and (ii) to the
extent that the deceased participant was entitled to do so at the date of his
death.
(b) Notwithstanding Section 11(a), in the discretion of the
Committee, Awards granted hereunder may be transferred to members of the
participant's immediate family (which for purposes of this Plan shall be
limited to the participant's children, grandchildren and spouse), or to one
or more trusts for the benefit of such family members or partnerships in
which such family members and/or trusts are the only partners, but only if
the Award expressly so provides.
12. OTHER PROVISIONS. Awards under the Plan may also be subject to
such other provisions (whether or not applicable to the Award granted to any
other participant) as the Committee determines appropriate, including without
limitation, provisions for the
-7-
<PAGE>
installment purchase of Common Stock under Stock Options, provisions for the
installment exercise of Stock Appreciation Rights, provisions to assist the
participant in financing the acquisition of Common Stock, provisions for the
forfeiture of, or restrictions on resale or other disposition of Shares
acquired under any form of Award, provisions for the acceleration of vesting
and/or the payment of the value of Awards to participants in the event of a
change of control of the Company, provisions for the forfeiture of, or
provisions to comply with Federal and state securities laws, or
understandings or conditions as to the participant's employment in addition
to those specifically provided for under the Plan.
13. FAIR MARKET VALUE. For purposes of this Plan and any Benefits
awarded hereunder, Fair Market Value of Common Stock shall be the mean
between the highest and lowest sale prices for the Company's Common Stock as
reported in THE WALL STREET JOURNAL under the heading "NASDAQ NATIONAL
MARKET" (or equivalent recognized source of quotations) on the date of
calculation (or on the next preceding trading date if Common Stock was not
traded on the date of calculation), provided, however, that if the Company's
Common Stock is not at any time listed for trading on the NASDAQ National
Market System, Fair Market Value shall mean the amount determined in good
faith by the Committee as the fair market value of the Common Stock of the
Company.
14. WITHHOLDING. All payments or distributions made pursuant to the
Plan shall be net of any amounts required to be withheld pursuant to
applicable federal, state and local tax withholding requirements. If the
Company proposes or is required to distribute Common Stock pursuant to the
Plan, it may require the recipient to remit to it an amount sufficient to
satisfy applicable federal, state and local tax withholding requirements, if
any, prior to the delivery of any certificates for such Common Stock. The
Committee may, in its discretion and subject to such rules as it may adopt,
permit an optionee or award holder to (i) pay all or a portion of the
federal, state and local withholding taxes arising in connection with the
exercise of a Stock Option, or (ii) the receipt of a Stock Award, by electing
to have the Company withhold shares of Common Stock having a Fair Market
Value equal to the amount to be withheld.
15. TENURE. A participant's right, if any, to continue to serve the
Company as an officer, employee, independent contractor consultant or
otherwise, shall not be enlarged or otherwise affected by his or her
designation as a participant under the Plan, nor shall this Plan in any way
interfere with the right of the Company, subject to the terms of any separate
employment agreement or other agreement to the contrary, at any time to
terminate such employment or engagement or to increase or decrease the
compensation of the participant from the rate in existence at the time of the
grant of an Award.
16. DURATION, AMENDMENT AND TERMINATION. No Award shall be granted
after December 31, 2003; provided, however, that the terms and conditions
applicable to any Award granted prior to such date may thereafter be amended
or modified by mutual agreement between the Company and the participant or
such other persons as may then have
-8-
<PAGE>
an interest therein. Also, by mutual agreement between the Company and a
participant hereunder or under any other present or future plan of the
Company, Awards may be granted to such participant in substitution and
exchange for, and in cancellation of, any Awards previously granted such
participant under this Plan, or any other present or future plan of the
Company. The Board of Directors may amend the Plan from time to time or
terminate the Plan at any time PROVIDED, HOWEVER, that Section 6(h) of this
Plan may not be amended more frequently than once every six months. However,
no action authorized by this paragraph shall change the terms and conditions
of any existing Award without the participant's consent. No amendment of the
Plan shall, without approval of the stockholders of the Company, (i)
materially increase the total number of shares which may be issued under the
Plan; (ii) materially modify the requirements as to eligibility for Awards
under the Plan; (iii) result in any member of the Committee losing his or her
status as a disinterested person under Securities and Exchange Commission
Regulation Section 240.16b-3 to the extent applicable; (iv) result in the
Plan losing its status as a protected plan under Securities and Exchange
Commission Rule 16b-3 to the extent applicable; or (v) extend the term of
this Plan.
17. GOVERNING LAW. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Illinois (regardless of the law that might otherwise govern under applicable
Illinois principles of conflict of laws).
18. STOCKHOLDER APPROVAL. The Plan as amended and restated has been
approved by the stockholders of the Company on April 29, 1997.
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S 10-Q FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,971
<SECURITIES> 19,425
<RECEIVABLES> 40,295
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,103
<PP&E> 7,047
<DEPRECIATION> 3,142
<TOTAL-ASSETS> 73,660
<CURRENT-LIABILITIES> 11,235
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 61,989
<TOTAL-LIABILITY-AND-EQUITY> 73,660
<SALES> 0
<TOTAL-REVENUES> 120,561
<CGS> 0
<TOTAL-COSTS> 79,287
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,517
<INCOME-TAX> 4,148
<INCOME-CONTINUING> 6,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,369
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
