<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 September 30, 1998
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:
15,957,498 shares of Common Stock outstanding as of November 6,
1998.
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 971 $ 3
Short-term investments 7,673 --
Trade accounts receivable, net of allowance for doubtful accounts 83,124 66,567
Prepaid expenses 780 39
Other receivables 3,281 6,562
-------------- ---------------
Total current assets 95,829 73,171
-------------- ---------------
Property and equipment:
Office equipment 7,783 12,034
Furniture and fixtures 2,440 2,710
Software 4,835 8,862
Leasehold improvements 730 799
-------------- ---------------
15,788 24,405
Less accumulated depreciation and amortization (6,562) (8,693)
-------------- ---------------
Net property and equipment 9,226 15,712
-------------- ---------------
Other assets:
Long-term investments 502 --
Goodwill, net of amortization 47,624 29,237
Restricted cash held in escrow 20,000 20,000
Other assets 1,269 1,199
-------------- ---------------
Total other assets 69,395 50,436
-------------- ---------------
Total assets $ 174,450 $ 139,319
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ $ 4,009
8,261
Payroll and related expenses 11,843 21,714
Accrued expenses 9,357 7,330
Income taxes payable 573 68
-------------- ---------------
Total current liabilities 30,034 33,121
Long-term debt 73,500 57,000
Deferred rent payable 271 267
-------------- ---------------
Total liabilities 103,805 90,388
-------------- ---------------
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, 15,777,564 and 15,957,347
shares issued and outstanding at December 31, 1997 and September 30, 1998,
respectively 158 160
Additional paid-in capital 23,886 26,249
Retained earnings 46,581 25,652
Accumulated other comprehensive income 439 (37)
-------------- ---------------
71,064 52,024
Less: Treasury shares, at cost, 19,000 and 266,500 shares at December 31, 1997 and
September 30, 1998, respectively 419 3,093
-------------- ---------------
Total stockholders' equity 70,645 48,931
-------------- ---------------
Total liabilities and stockholders' equity $ 174,450 $ 139,319
============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
ALTERNATIVE RESOURCES CORPORATION
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CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------- --------------------------------
1997 1998 1997 1998
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $66,586 $85,116 $187,147 $252,328
Cost of services 43,233 56,697 122,520 168,267
-------------- -------------- -------------- --------------
Gross profit 23,353 28,419 64,627 84,061
Selling, general and administrative expenses 16,786 24,441 48,267 69,405
Restructuring and one-time charges -- 29,610 -- 29,610
-------------- -------------- -------------- --------------
Operating expenses 16,786 54,051 48,267 99,015
-------------- -------------- -------------- --------------
Income (loss) from operations 6,567 (25,632) 16,360 (14,954)
Other income (expense), net 206 (1,014) 930 (2,555)
-------------- -------------- -------------- --------------
Income (loss) before income taxes 6,773 (26,646) 17,290 (17,509)
Income taxes 2,574 (298) 6,722 3,420
-------------- -------------- -------------- --------------
Net income (loss) $ 4,199 $(26,348) $ 10,568 $ (20,929)
============== ============== ============== ==============
Net earnings (loss) per share:
Basic $ 0.27 $ (1.67) $ 0.67 $ (1.33)
============== ============== ============== ==============
Diluted $ 0.26 $ (1.67) $ 0.66 $ (1.33)
============== ============== ============== ==============
Shares used to compute net earnings (loss) per share:
Basic 15,710 15,817 15,685 15,694
============== ============== ============== ==============
Diluted 16,284 15,817 15,960 15,694
============== ============== ============== ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF
COMPRESHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
1997 1998 1997 1998
------------- -------------- ------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $4,199 $(26,348) $10,568 $(20,929)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 22 (45) 20 (77)
Unrealized holding gains (losses) on
marketable securities:
Unrealized holding gains arising 39 -- 26 382
during the period
Less: reclassification adjustment for (gains) 42 -- 59 (781)
losses included in net income (loss)
------------- -------------- ------------- ---------------
Comprehensive income (loss) $4,302 $(26,393) $10,673 $(21,405)
============= ============== ============= ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1997 1998
---------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,568 $ (20,929)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 1,186 2,937
Allowance for doubtful accounts, net 90 341
Goodwill write-off -- 25,700
Change in assets and liabilities:
Trade accounts receivable (14,453) 16,216
Prepaid expenses (208) 741
Other receivables 1,621 (3,281)
Other assets 13 (7)
Accounts payable (36) (4,252)
Payroll and related expenses 3,646 9,871
Accrued expenses (496) (4,527)
Income taxes payable (99) (505)
Deferred rent payable (65) (4)
---------------- -----------------
Net cash provided by operating activities 1,767 22,301
---------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (3,914) (8,617)
Acquisitions -- (5,619)
Purchases of available-for-sale securities (16,280) (327)
Redemption of available-for-sale securities 15,613 8,103
Redemption of held-to-maturity securities 2,435 --
---------------- -----------------
Net cash used in investing activities (2,146) (6,460)
---------------- -----------------
Cash flows from financing activities:
Payments received on stock options exercised 548 2,519
Proceeds from long-term debt -- 1,500
Payments on long-term debt -- (18,000)
Repurchase of common stock (1,445) (3,701)
Issuance of common stock under employee stock purchase plan 872 873
---------------- -----------------
Net cash used in financing activities (25) (16,809)
---------------- -----------------
Net decrease in cash and cash equivalents (404) (968)
Cash and cash equivalents at beginning of period 2,310 971
---------------- -----------------
Cash and cash equivalents at end of period $ 1,906 $ 3
================ =================
Supplemental disclosures of cash flow information:
Cash paid for interest $ -- $ 2,840
Cash paid for income taxes 5,298 5,586
Supplemental disclosures of noncash financing activities:
Acquisition accrual $ -- $ 2,500
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998. The interim consolidated financial statements
should be read in connection with the audited consolidated financial statements
for the year ended December 31, 1997, included in the December 31, 1997 Form
10-K of Alternative Resources Corporation (the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPUTATION OF EARNINGS PER SHARE. Basic earnings per share is
based on the weighted average number of common shares outstanding for the
period. Diluted earnings per share is based on the weighted average number of
common shares outstanding and includes the dilutive effect of unexercised stock
options using the treasury stock method. Because the Company reported a net loss
for the three month and nine month periods ended September 30, 1998, per share
amounts for those periods have been presented under the basic method only.
RECLASSIFICATIONS. Certain 1997 amounts have been reclassified
to conform with the 1998 presentation.
3. RESTRUCTURING CHARGES.
The Company incurred a restructuring charge totaling $3.9 million during
the third quarter of 1998. The charge, which is reflected in "Restructuring
and One-time Charges" on the consolidated statements of operations, consists of
$1.9 million related to the recent management changes and expenses totaling $2.0
million associated with staff reductions and optimizing the Company's operating
model. The costs associated with the recent management changes consisted of
severance pay, relocation and other related expenses. The expenses associated
with staff reductions and optimization of the Company's operating model consist
of severance pay and occupancy costs in connection with a consolidation of
branches. As of September 30, 1998, $2.0 million has been paid and substantially
all of the remaining restructing costs are expected to be paid by the end of
1998. These optimization actions are expected to result in cost savings of
$3.5 and $4.0 million annually.
4. GOODWILL IMPAIRMENT.
In accordance with the requirements of Statement of Financial Accounting
Standards No. 121, the Company revalued goodwill during the third quarter of
1998 to reflect its appropriate carrying value. This action resulted in a $25.7
million charge to expense during the third quarter of 1998 and is reflected
in "Restructuring and One-time Charges" on the consolidated statements of
operations. The facts and circumstances leading to the impairment of goodwill
value are as follows:
The Company acquired CGI Systems, Inc. (CGI) in the fourth quarter of
1997. During the process of integrating the acquired company as well as
information obtained from an audit of CGI's opening balance sheet, it was
determined that the revenue base and the profitability of the acquired
business was lower than expected. The Company used discounted cash flow
projections over the estimated useful life of the acquired business to
evaluate the appropriate carrying value of the CGI goodwill. This review
supported a CGI goodwill valuation of approximately $29.0 million which
resulted in a write-off of excess goodwill totaling $21.0 million.
During the first quarter of 1998, the Company acquired Writers, Inc.
(Writers), a company which specialized in providing technical writing
services. After unsuccessful attempts to integrate this business into the
Company's business model, management determined that this business was not
strategic to the Company. As a result, the Writers goodwill was revalued to
reflect the projected discounted cash flows from the business that was
acquired. This evaluation resulted in a write-off of substantially all of
Writers goodwill totaling $4.7 million.
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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.
On November 7, 1997, ARC acquired CGI Systems, Inc. (CGI). The acquisition
represented a strategic expansion of ARC's service offerings in the Information
Technology (IT) staffing and managed services area that will allow for a broader
base of solutions to an increasingly sophisticated information technology
marketplace. Additional services, which the Company now provides as a result of
the acquisition, include programming services (formerly known as applications
support); network solutions, including network implementation and Lotus Notes
practices; applications development practices; and application consulting
practices for data warehousing and other applications.
The acquired business has been assimilated into ARC's core business.
The programming services components of the business include both the base of
business that was acquired and the incremental business associated with the
rollout of programming services to the Company's branch network. While
management's discussion and analysis will include a comparison of the results
of operations for the three month and nine month periods of 1997 and 1998, it
is not possible to accurately identify what portion of the changes relate
specifically to the base of business that was acquired, due to the
aforementioned assimilation. On a go-forward basis, the Company's service
lines will continue to be time and material staffing services and solutions
projects, principally our Smartsourcing-Registered Trademark- Solutions and
project-related work. These service lines will contain the Company's
traditional operations support business as well as the newly added
programming services business.
The Company continues to adapt its business to a more solutions-based
model. This is being accomplished through the Company's
Smartsourcing-Registered Trademark- Solutions service offering. Under a
Smartsourcing-Registered Trademark-arrangement, wherein the Company may take
over an
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entire portion of a client's 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.
The Company underwent significant changes in management during the third
quarter. On July 31, 1998, Larry Kane, the Company's Chairman and CEO, retired.
Mr. Kane remains as a member of the Company's Board of Directors. On August 1,
1998, Raymond Hipp was appointed as the Company's Chairman, CEO and President.
Mr. Hipp had been a member of the Company's Board of Directors for 4 years prior
to assuming the Chairman and Executive positions. On August 5, 1998, Steven
Purcell was appointed as the Company's Chief Financial Officer. There were
certain one-time charges incurred during the third quarter associated with these
and other changes. See "Restructuring and Other One-Time Charges" below.
As of September 30, 1998, the Company had 54 offices in the United States
and Canada, as compared to 57 offices at September 30, 1997. The decrease in the
number of offices is the result of a consolidation of branches during the third
quarter of 1998. See "Restructuring and Other One-time Charges" below.
THIRD QUARTER FISCAL 1998 COMPARED TO THIRD QUARTER FISCAL 1997
REVENUE. Revenue increased by 27.8% from $66.6 million in the third
quarter of 1997 to $85.1 million in the third quarter of 1998, 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, hours of service provided by new branch offices, the addition of the
CGI business, and the rollout of programming services to the Company's branch
network. The increase in average revenue per project hour reflects demand for
technical employees with higher skill levels as well as the addition of the
programming services business, which carries a higher hourly bill rate.
GROSS PROFIT. Gross profit increased by 21.7% from $23.4 million in the
third quarter of 1997 to $28.4 million in the third quarter of 1998, again
primarily as a result of an increase in hours of service provided to clients.
Gross margin decreased from 35.1% of revenue in the third quarter of 1997 to
33.4% in the third quarter of 1998. The decrease in gross margin was
primarily due to the inclusion of the lower margin business acquired from
CGI. This business is being transitioned to higher margin alternatives as
quickly as client relationships and business conditions warrant. Gross margin
in the Company's
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core service lines of operations support and Smartsourcing-Registered
Trademark-Solutions were slightly higher in the third quarter of 1998 as
compared with the third quarter of 1997.
OPERATING EXPENSES. Operating expenses increased from $16.8 million in
the third quarter of 1997 to $54.1 million in the third quarter of 1998. A
significant portion of the increase is due to a charge of $29.6 million taken
during the third quarter of 1998 for restructuring and other one-time charges
(as discussed below under "Restructuring and Other One-time Charges"). Excluding
the restructuring and other one-time charges, selling, general and
administrative expenses increased from $16.8 million, or 25.2% of revenue in the
third quarter of 1997, to $24.4 million or 28.7% of revenue in the third quarter
of 1998. A portion of total selling, general and administrative expenses
normally increases as revenue increases. The types of expenses that are
dependent upon revenue are commissions, bonuses and certain branch related
expenses as the Company opens new offices and expands existing offices. While
these types of expenses impact the total amount expended on selling, general and
administrative expenses from one period to the next, they normally do not
significantly impact selling, general and administrative expenses as a
percentage of revenue.
There were several factors that contributed to the increase in selling,
general and administrative expenses as a percentage of revenue in third quarter
of 1998. The Company's increasing cost structure prompted a management review of
the Company's operating model and supporting programs during the quarter. The
result was the consolidation of several branches, elimination of various
programs that were not considered strategic to the business and termination of
approximately 50 people (see "Restructuring and Other One-Time Charges" below).
The full benefit of these changes were not realized in the third quarter of
1998.
The other factor that contributed to the increase in selling, general
and administrative expenses as a percentage of revenue during the quarter was an
increase in the Company's bad debt reserves. The charge for the third quarter of
1998, which was $1.1 million as compared to $100,000 in the third quarter of
1997, was the result of a thorough review of all accounts receivable by
management in an effort to resolve all past due amounts. Management believes
that all problem accounts have been identified and that the Company is now
adequately reserved to cover any potential collectibility problems.
RESTRUCTURING AND OTHER ONE-TIME CHARGES. The Company incurred a
one-time charge totaling $29.6 million during the third quarter of 1998. The
charge, which is reflected in operating expenses, consists primarily of a
write-off of goodwill which was the result of an impairment review that was
performed in accordance with the guidelines set forth under Statement of
Financial Accounting Standards SFAS No. 121. The
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goodwill was originally generated in conjunction with the acquisitions of CGI
and Writers Inc. The writedown of goodwill represented $25.7 million of the
$29.6 million charge.
The balance of the one-time charge represents costs of $1.9 million
related to the recent management changes and expenses totaling $2.0 million
associated with staff reductions and optimizing the Company's operating
model. The costs associated with the recent management changes consisted of
severance pay, relocation and other related expenses. The expenses associated
with staff reductions and optimization of the Company's operating model
consist of severance pay and occupancy costs in connection with a
consolidation of branches. These optimization actions are expected to result
in between $3.5 and $4.0 million of cost savings annually.
INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from $6.6
million in the third quarter of 1997, or 9.9% of total revenue, to a loss of
$25.6 million in the third quarter of 1998, or (30.1)% of total revenue.
Excluding the restructuring and other one-time charges, income from operations
decreased from $6.6 million in the third quarter of 1997, or 9.9% of total
revenue, to $4.0 million in the third quarter of 1998, or 4.7% of total revenue.
OTHER INCOME (EXPENSE). Other income (expense) for the third quarter of
1997 consisted of interest income earned on the Company's outstanding cash and
investment positions. For the third quarter of 1998, other income (expense)
consisted of interest expense related to the 3-year revolving line of credit
used to finance the acquisition of CGI (see "Liquidity and Capital Resources"
below).
PROVISION (BENEFIT) FOR INCOME TAXES. The Company's provision for income
taxes decreased from $2.6 million, or an effective tax rate of 38.0%, in the
third quarter of 1997 to a benefit of $0.3 million, or an effective tax rate of
1.1%, in the third quarter of 1998. The amortization and write-off of goodwill,
which is not tax deductible, caused the effective tax rate to change.
NET INCOME (LOSS). The Company's net income decreased from $4.2 million in
the third quarter of 1997, or 6.3% of total revenue, to a loss of $26.3 million
in the third quarter of 1998, or (31.0)% of total revenue. Excluding the
restructuring and other one-time charges, net income decreased from $4.2 million
in the third quarter of 1997, or 6.3% of total revenue, to $1.8 million in the
third quarter of 1998, or 2.1% of total revenue.
FIRST NINE MONTHS FISCAL 1998 COMPARED TO FIRST NINE MONTHS QUARTER FISCAL 1997
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REVENUE. Revenue increased by 34.8% from $187.1 million in the first nine
months of 1997 to $252.3 million in the first nine months of 1998, 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, hours of service provided by new branch offices, the addition of
the CGI business, and the rollout of programming services to the Company's
branch network. The increase in average revenue per project hour reflects demand
for technical employees with higher skill levels as well as the addition of the
programming services business, which carries a higher hourly bill rate.
GROSS PROFIT. Gross profit increased by 30.1% from $64.6 million in the
first nine months of 1997 to $84.1 million in the first nine months of 1998,
again primarily as a result of an increase in hours of service provided to
clients. Gross margin decreased from 34.5% of revenue in the first nine months
of 1997 to 33.3% in the first nine months of 1998. The decrease in gross margin
was primarily due to the inclusion of the lower margin business acquired from
CGI. This business is being transitioned to higher margin alternatives as
quickly as client relationships and business conditions warrant. Gross margin in
the Company's core service lines of operations support and Smartsourcing(R)
Solutions were slightly higher in the first nine months of 1998 as compared with
the first nine months of 1997.
OPERATING EXPENSES. Operating expenses increased from $48.3 million in
the first nine months of 1997 to $99.0 million in the first nine months of 1998.
A significant portion of the increase is due to a charge of $29.6 million taken
during the third quarter of 1998 for restructuring and other one-time charges
(as discussed above under "Restructuring and Other One-time Charges" for the
third quarter fiscal 1998). Excluding the restructuring and other one-time
charges, selling, general and administrative expenses increased from $48.3
million, or 25.7% of revenue in the first nine months of 1997, to $69.4 million
or 27.5% of revenue in the first nine months of 1998. A portion of selling,
general and administrative expenses normally increases as revenue increases. The
types of expenses that are dependent upon revenue are commissions, bonuses and
certain branch related expenses as the Company opens new offices and expands
existing offices. While these types of expenses impact the total amount expended
on selling, general and administrative expenses from one period to the next,
they normally do not significantly impact selling, general and administrative
expenses as a percentage of revenue.
There were several factors that contributed to the increase in selling,
general and administrative expenses as a percentage of revenue in the first nine
months of 1998. The Company's increasing cost structure prompted a management
review of the Company's operating model and supporting programs during the third
quarter. The result was the consolidation of several branches, elimination of
various programs that were not
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considered strategic to the business and termination of approximately 50
people (see "Restructuring and Other One-Time Charges" below). The full
benefit of these changes were not realized in the the first nine months of
1998.
The other factor that contributed to the increase in selling, general
and administrative expenses as a percentage of revenue during the first nine
months was an increase in the Company's bad debt reserves. The charge for the
first nine months of 1998, which was $1.3 million as compared to $200,000 in the
first nine months of 1997, was the result of a thorough review of all accounts
receivable during the third quarter by management in an effort to resolve all
past due amounts. Management believes that all problem accounts have been
identified and that the Company is now adequately reserved to cover any
potential collectibility problems.
RESTRUCTURING AND OTHER ONE-TIME CHARGES. The Company incurred a
one-time charge totaling $29.6 million during the third quarter of 1998. The
charge, which is reflected in selling, general and administrative expenses,
consists primarily of a write-off of goodwill which was the result of an
impairment review that was performed in accordance with the guidelines set
forth under SFAS No. 121. The goodwill was originally generated in
conjunction with the acquisitions of CGI and Writers Inc. The writedown of
goodwill represented $25.7 million of the $29.6 million charge.
The balance of the one-time charge represents costs of $1.9 million
related to the recent management changes and expenses totaling $2.0 million
associated with staff reductions and optimizing the Company's operating model.
The costs associated with the recent management changes consisted of severance
pay, relocation and other related expenses. The expenses associated with staff
reductions and optimization of the Company's operating model consist of
severance pay and occupancy costs in connection with a consolidation of
branches. These optimization actions are expected to result in between $3.5 and
$4.0 million of cost savings annually.
INCOME (LOSS) FROM OPERATIONS. Income from operations decreased from $16.4
million in the first nine months of 1997, or 8.7% of total revenue, to a loss of
$15.0 million in the first nine months of 1998, or (5.9)% of total revenue.
Excluding the restructuring and other one-time charges, income from operations
decreased from $16.4 million in the first nine months of 1997, or 8.7% of total
revenue, to $14.7 million in the first nine months of 1998, or 5.8% of total
revenue.
OTHER INCOME (EXPENSE). Other income (expense) for the first nine months
of 1997 consisted of interest income earned on the Company's outstanding cash
and investment positions. For the first nine months of 1998, other income
(expense) consisted of interest
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expense related to the 3-year revolving line of credit used to finance the
acquisition of CGI (see "Liquidity and Capital Resources" below). Interest
expense was offset by interest income and by gains on the liquidation of
investments during the first nine months as the Company converted its
investment positions into cash.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
decreased from $6.7 million, or an effective tax rate of 38.9%, in the first
nine months of 1997 to $3.4 million, on a pre-tax loss of $17.5 million in the
first nine months of 1998. The amortization and write-off of goodwill, which is
not tax deductible, caused the effective tax rate to change.
NET INCOME (LOSS). The Company's net income decreased from $10.6 million
in the first nine months of 1997, or 5.6% of total revenue, to a loss of $(20.9)
million in the first nine months of 1998, or (8.3)% of total revenue. Excluding
the restructuring and other one-time charges, net income decreased from $10.6
million in the first nine months of 1997, or 5.6% of total revenue, to $7.2
million in the first nine months of 1998, or 2.9% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, cash flow generated from
operations was $22.3 million resulting primarily from earnings net of the
goodwill write-off, decreases in trade accounts receivable and increased
accrued payroll expenses, partially offset by decreases in accounts payable
and accrued expenses. A significant portion of the reduction in accounts
receivable resulted from the collection of receivables acquired as part of
the CGI acquisition. Working capital decreased from $65.8 million at December
31, 1997, to $40.1 million at September 30, 1998 as cash provided by
operations was used to repay a portion of long-term debt.
During the first nine months of 1998 cash flows were used to make payments
on long-term debt of $18.0 million, to repurchase common stock of $3.7 million
and to make improvements to the Company's information systems infrastructure of
approximately $8.0 million.
In connection with the acquisition of CGI, the Company established a $75
million, 3-year revolving line of credit that was used to finance the
acquisition. Total borrowings under the line at September 30, 1998 were $57.0
million. 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.
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<PAGE>
YEAR 2000 CONSIDERATIONS
INTERNAL ACCOUNTING AND FINANCIAL SYSTEMS
As part of an overall updating and enhancement of our Company's
information systems, we are is in the process of replacing our entire
accounting and financial reporting systems as well as our branch systems
infrastructure which is used to support our recruiting and project management
activities. During the process of updating our information systems the
Company is also addressing the Year 2000 compliance issue. One of the
criteria used in selecting the hardware and software which will replace the
Company's existing systems was that it had to be Year 2000 compliant. When
completed, these systems will support the Company's entire business
processing needs as well as all financial reporting needs. A portion of the
replacement systems are currently installed and functioning and management
projects that the remainder will be installed and fully functional by
mid-year 1999. As a result of this initiative, management believes that any
Year 2000 issues that may arise with respect to the Company's internal
financial and accounting systems will not have a material adverse effect.
CLIENTS
The Company does not believe that there are significant Year 2000 risks
associated with its normal client business relations such as invoicing and
communication. There are sufficient alternatives available to prevent a complete
shutdown of these types of processes.
With respect to the inability of one of the Company's clients to remain
in business because of Year 2000 compliance, approximately 40% of the Company's
revenue is derived from three very large customers; IBM, Hewlett Packard and
EDS. The Company has reviewed all available public disclosures of these
companies with respect to Year 2000 readiness and will continue to monitor such
disclosures and communicate with them as to their progress toward Year 2000
compliance.
The Company is not heavily dependent upon any other client whose Year
2000 issue might significantly impact the Company's business.
VENDORS, SUPPLIERS AND BUSINESS PARTNERS
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<PAGE>
The Company's main "supplier" is its technical employees. As long as
the Company has adequate internal resources in the form of system
infrastructure to staff and manage projects (see "Internal Accounting and
Financial Systems" section above), management believes that there are no
material Year 2000 issues associated with this group. The Year 2000 issue
presents a number of other risks and uncertainties relative to the Company's
business including utilities failures, the nature of government responses to
these issues and the competition for people who have the necessary skills to
resolve such issues. While the Company believes that the Year 2000 issue will
not have a material effect on its business, management is unable to determine
the ultimate impact that this issue may have on the Company at this time.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for the Company's 1998 annual financial statements. SFAS No.
131 establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of Business Enterprise," but retains the
requirement to report information about major customers.
The Company is currently evaluating the impact this statement will have on
its financial statements.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES
On October 15, 1998 the Board of Directors adopted a Shareholders'
Rights Plan and declared a distribution of one Preferred Stock Purchase
Right for each outstanding share of the Company's common stock.
Reference is made to the Company's Form 8-K reports filed October 22,
1998 and October 29, 1998 for additional information regarding the
plan.
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:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <C>
10.1 Executive Employment Agreement between Alternative Resources
Corporation and Raymond R. Hipp dated July 23, 1998.
10.2 Executive Employment Agreement between Alternative Resources
Corporation and Steven Purcell dated August 1, 1998.
10.3 Retirement Agreement between Alternative Resources Corporation and
Larry I. Kane dated July 23, 1998.
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
(b) The registrant was not required to file any reports on Form 8-K for
the quarter.
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<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.
ALTERNATIVE RESOURCES CORPORATION
Date: November 13, 1998 /s/ Steven Purcell
----------------------
Steven Purcell
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
Page 17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -------------
<C> <S>
10.1 Executive Employment Agreement between Alternative Resources
Corporation and Raymond R. Hipp dated July 23, 1998.
10.2 Executive Employment Agreement between Alternative Resources
Corporation and Steven Purcell dated August 1, 1998.
10.3 Retirement Agreement between Alternative Resources Corporation and
Larry I. Kane dated July 23, 1998.
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
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<PAGE>
EXHIBIT 10.1 - EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN
ALTERNATIVE RESOURCES CORPORATION AND RAYMOND R. HIPP
DATED AS OF JULY 23, 1998
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made effective as of July 23,
1998 by and between Alternative Resources Corporation (the "Company") and
Raymond R. Hipp (the "Executive").
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive, and the Executive agrees to
be employed by the Company for the Period of Employment as provided in Section
III A. below upon the terms and conditions provided in the Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to serve as Chief
Executive Officer, President and Chairman of the Board of the Company, and to be
responsible for the typical management responsibilities expected of an officer
holding such positions and such other responsibilities consistent with such
positions as may be assigned to the Executive from time to time by the Board of
Directors of the Company.
SECTION III
TERMS AND DUTIES
A. PERIOD OF EMPLOYMENT
The term of Executive's employment under this Agreement will commence
as of August 1, 1998, and shall continue through December 31, 1999, subject to
extension or termination as provided in this Agreement (the "Period of
Employment"). The term shall be extended for an additional one year period as of
December 31, 1999 and as of each December 31 thereafter, unless either party
gives ninety (90) days prior notice of its intent not to extend.
B. DUTIES
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<PAGE>
During the Period of Employment, the Executive shall devote all of his
business time, attention and skill to the business and affairs of the Company
and its subsidiaries, except that Executive may (i) participate in the affairs
of any governmental, educational or other charitable institution, or engage in
professional speaking and writing activities, so long as the Board of Directors
of the Company, does not determine, in good faith, that such activities
unreasonably interfere with the business of the Company or diminish the
Executive's obligations under the Agreement; or (ii) serve as a member of the
board of directors of other corporations, so long as the Board of Directors of
the Company, in its discretion, specifically approves such service, and in
either case, the Executive shall be entitled to retain all fees, royalties and
other compensation derived from such activities in addition to the compensation
and other benefits payable to him under the Agreement; and provided further,
that the Executive may invest his personal or family funds in any form or manner
he may choose that will not require any services on his part in the operation of
or the affairs of the companies in which such investments are made. The
Executive will perform faithfully the duties consistent with his position as
Chief Executive Officer, President and Chairman of the Board which may be
assigned to him from time to time by the Board of Directors.
SECTION IV
COMPENSATION AND BENEFITS
A. SIGNING BONUS
On or before August 3, 1998, the Company shall pay the Executive a
bonus of Two Hundred Fifty Thousand Dollars ($250,000). Executive agrees that if
he terminates his employment with the Company voluntarily (other than in
connection with a disability as defined in Section VI) prior to August 1, 1999,
he shall repay the full amount of such bonus to the Company.
B. BASE SALARY
During the Period of Employment, the Company agrees to pay the
Executive a base salary ("Base Salary") of Three Hundred Thousand Dollars
($300,000). Such Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than
bi-weekly installments. The Executive shall not be considered for an increase
in Base Salary until after January 1, 2000.
C. ANNUAL INCENTIVE AWARDS
The Executive will not be eligible for an annual incentive compensation
award for the period August 1, 1998 to December 31, 1998. The Executive shall be
eligible for an incentive compensation award for calendar year 1999 of up to One
Hundred Fifty Four Thousand One Hundred Sixty Nine Dollars ($154,169),
calculated by subtracting One Hundred Forty Five Thousand Eight Hundred Thirty
One Dollars ($145,831) from the amount (the "Gross Amount) determined under the
chart set forth below, based on the following process:
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<PAGE>
(i) The Gross Amount shall equal the sum of Portions A, B, C and D to
the extent earned under these provisions;
(ii) The corresponding Amount of each Portion shall be fully earned
if both the Revenue Target and the EPS Target for such Portion
are met or exceeded;
(iii) If only the Revenue Target for a given Portion is met or
exceeded, 40% of the corresponding Amount shall be earned; if
only the EPS Target is met or exceeded, 60% of the
corresponding Amount shall be earned; and
(iv) The chart is as follows:
<TABLE>
<CAPTION>
PORTION AMOUNT REVENUE TARGET EARNINGS PER SHARE
("EPS") TARGET
<S> <C> <C> <C>
A. $100,000 $450 million $1.44
B. 100,000 460 million 1.48
C. 50,000 470 million 1.53
D. 50,000 480 million 1.57
</TABLE>
For purposes of the above calculation, Revenue and Earnings Per Share shall be
determined by the independent auditors of the Corporation in their discretion.
Notwithstanding the foregoing, if the Gross Amount is less than $145,831, the
Executive shall not be required to pay the difference to the Company.
D. OPTIONS
The Company will take all actions necessary to grant to Executive, as
of July 23, 1998, a non-qualified stock option to purchase 300,000 shares of the
Company's common stock at an exercise price equal to the closing price of the
common stock as reported in the WALL STREET JOURNAL for trading on July 23, 1998
and with a term of ten years. The option will not be exercisable until January
31, 1999 and shall become exercisable with respect to 7,143 shares on January
31, 1999 and with respect to an additional 7,143 shares on the last day of each
succeeding month, with the option becoming exercisable with respect to the final
7,137 shares on June 30, 2002.
In addition, if the Revenue of the Corporation (as described in
Paragraph C) for the first six months of 1999 meets or exceeds $220 million
or EPS (as so described) of the Corporation meets or exceeds $0.66, the
Corporation shall grant to Executive as of June 30, 1999, at an
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<PAGE>
exercise price equal to the closing price on June 30, 1999, an additional
option covering a number of shares equal to (i) 75,000, if both Revenue and
EPS meet or exceed such targets; (ii) 30,000 if the Revenue target is met or
exceeded, but the EPS target is not; or (iii) 45,000 if the EPS target is met
or exceeded, but the Revenue target is not. Such additional option shall be
an incentive stock option under Section 422 of the Internal Revenue Code, to
the extent feasible under the Company's Stock Option Plan (the "Plan"). The
option described in this paragraph shall not be exercisable until December
31, 1999 and shall become exercisable with respect to one forty-second
(1/42nd) of the shares subject thereto (rounded to the nearest whole share)
on December 31, 1999 and additionally with respect to the same number of
shares on the last day of each succeeding month, with the option becoming
exercisable with respect to the remaining number of the shares subject
thereto on May 31, 2003.
The options described above shall be in the form approved by the Board of
Directors of the Company and, except as otherwise provided herein, shall be
governed by terms and provisions comparable to those applicable to options
granted under the Plan.
Notwithstanding the foregoing, if (i) the Period of Employment ends
because the Company ends the automatic extension thereof under Section IV A. of
this Agreement; (ii) the Company terminates the employment of the Executive
Without Cause as defined in Section VIII; (iii) the Executive's employment
hereunder terminates because of his death or disability (as defined in Section
VI); or (iv) there is a change in control of the Company, such options shall
become fully exercisable and shall remain exercisable for the remainder of their
term.
For purposes of this Agreement, a "change in control" of the Company
shall be deemed to occur in connection with any of the following events with
respect to the Company:
(i) The acquisition by an entity, person or group (including all
affiliates of such entity, person or group) of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (which definition shall apply
even if the Company is not then subject to such Act), of
capital stock of the Company entitled to exercise more than
30% of the outstanding voting power of all capital stock of
the Company ("Voting Stock");
(ii) The effective time of (i) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding Voting Stock immediately
prior to such merger or consolidation (other than the
surviving or resulting corporation or any affiliate thereof)
hold less than 50% of the Voting Stock of the surviving or
resulting corporation, or (ii) a transfer of more than 50% (in
value) of the assets of the Company other than to a transferee
in which the Company owns at least 50% of the Voting Stock; or
(iii) The election to the Board of Directors of the Company of the
lesser of (i) three directors or (ii) directors constituting a
majority of the number of directors of the Company then in
office, without the recommendation of the existing Board of
Directors.
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<PAGE>
E. ADDITIONAL BENEFITS
The Executive will be entitled to participate in all compensation or
employee benefit plans or programs and receive all benefits and perquisites
for which any salaried executive employees are eligible under any existing or
future plan or program established by the Company for salaried executive
employees. The Executive will participate to the extent permissible under the
terms and provisions of such plans or programs in accordance with plan or
program provisions. These may include group hospitalization, health, dental
care, life or other insurance, tax qualified pension, savings, thrift and
profit sharing plans, termination pay programs, sick leave plans, travel or
accident insurance, short and long term disability insurance, and contingent
compensation plans including capital accumulation programs, restricted stock
programs, stock purchase programs and stock option plans. Nothing in this
Agreement will preclude the Company from amending or terminating any of the
plans or programs applicable to salaried executive employees of the Company.
Notwithstanding the foregoing sentence, no such amendment or termination
shall reduce or otherwise adversely affect Executive's rights under Section
IV C. of this Agreement. In addition to the foregoing benefits, Executive
shall be entitled to receive the following:
(i) term life insurance of not less than $250,000; and
(ii) a paid vacation of four (4) weeks during each twelve (12)
month period during the Period of Employment.
F. RELOCATION
The Company shall pay Executive's actual expenses incurred since
July 9, 1998 for the Executive's relocation to Barrington Hills, Illinois,
including Realtor fees on his Omaha, Nebraska residence, reasonable moving
costs and travel, and temporary living expenses in the North or Northwest
Suburbs of Chicago through August 9, 1998. In addition, the Company shall
provide the Executive with a tax gross-up payment in an amount necessary to
pay his federal and state income taxes attributable to payments under this
paragraph F. (including taxes attributable to such gross-up payment).
G. ADJUSTMENTS
Notwithstanding any provision here and to the contrary, the Company
and the Executive agree that the Board of Directors of the Company shall
reevaluate the Revenue and EPS Targets set forth in Section IV C. and D. as
part of the approval of the 1999 Operating Plan for the Company. To the
extent deemed necessary by the Board of Directors to align such targets with
such Operating Plan, such targets hereunder shall be adjusted.
Page 24
<PAGE>
H. LEGAL FEES
The Company shall reimburse the Executive for reasonable legal fees
incurred by him in the negotiation of this Agreement.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel and
other expenses incurred by the Executive in connection with the performance of
his duties and responsibilities under this Agreement. Executive must support all
expenditures with customary receipts and expense reports subject to review by
the Company's Chief Financial Officer.
SECTION VI
DISABILITY
A. PAYMENTS
Executive's employment hereunder may be terminated by the Company if
(i) Executive becomes physically or mentally incapacitated, (ii) is unable
for a period of one hundred eighty (180) consecutive days to perform his
material duties and responsibilities and (iii) a determination is made
regarding Executive's continued incapacity by a physician appointed by the
Company (such continued incapacity is hereinafter referred to as
"disability"). Upon any such termination for disability, Executive shall be
entitled to receive (i) his Base Salary, as well as the annual incentive
award, prorated in each case through the date on which the Executive is first
eligible to receive payment of long term disability benefits in lieu of Base
Salary under the Company's long term disability benefit plan as then in
effect covering the Executive, and (ii) his accrued benefits under the terms
of the plans, policies and procedures of the Company.
B. ASSISTANCE TO THE COMPANY
During the period the Executive is receiving payments of either regular
compensation or disability insurance benefits described in this Agreement and as
long as he is physically and mentally able to do so, the Executive will furnish
information and assistance to the Company and from time to time will make
himself available to the Company with respect to areas and matters in which he
was involved during his employment with the Company.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, (i) Executive's estate shall be entitled to receive his Base
Salary, as well as the annual incentive award, prorated in each case through
the date of Executive's death, and (ii) Executive's designated beneficiary or
estate, as the case may be, shall be entitled to his accrued benefits,
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<PAGE>
including, but not limited to, life insurance proceeds, under the terms of
the plans, policies and procedures of the Company.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. TERMINATION WITHOUT CAUSE
If the Company terminates Executive's employment Without Cause during
the Term of Employment, as defined in this Agreement, or the Term of Employment
ends because the Company ends the automatic extension thereof under Section III
A. of this Agreement, the Company will pay to the Executive in a lump sum, his
Base Salary for a period of twenty-four (24) months. Earned but unpaid Base
Salary will be paid in a lump sum at the time of such termination. The Company
also will pay the Executive in a lump sum upon such termination an amount equal
to a prorated portion of the annual incentive award for the year in which the
termination occurred. The benefits and perquisites described in this Agreement
as in effect at the date of termination of employment will be continued for the
then remaining Period of Employment.
B. TERMINATION WITH CAUSE
If the Company terminates Executive With Cause, (i) Executive shall be
entitled to receive his Base Salary prorated through the date of Executive's
termination, and (ii) Executive shall be entitled to his accrued benefits under
the terms of the plans, policies and procedures of the Company.
C. EFFECT OF CERTAIN TERMINATIONS
Upon termination of the Executive's employment for reasons other than
due to death, disability, or pursuant to Paragraph A of this Section, or upon
Executive's resignation, the Period of Employment and the Company's obligation
to make payments under this Agreement will cease as of the date of termination
except as expressly defined in this Agreement. Executive shall have the right to
voluntarily terminate this Agreement, other than for Good Reason or in
conjunction with a Change in Control, upon two weeks' prior notice to the
Company. If Executive voluntarily terminates his employment with the Company,
(i) Executive shall be entitled to receive his Base Salary prorated through the
date of Executive's voluntary termination, and (ii) Executive shall be entitled
to his accrued benefits under the terms of the plans, policies and procedures of
the Company.
D. DEFINITIONS
For this Agreement, the following terms have the following meanings:
(1) Termination "With Cause" means termination of the
Executive's employment by the Company's Board of Directors acting in good
faith by written notice by the
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<PAGE>
Company to the Executive specifying the event relied upon for such
termination, due to the Executive's serious, willful misconduct with respect
to his duties under this Agreement, including, but not limited to, conviction
for a felony or perpetration of a common law fraud, which has resulted or is
likely to result in material economic damage to the Company.
(2) Termination "Without Cause" means termination by the
Company of the Executive's employment other than due to death, disability, or
termination With Cause.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
A. COOPERATION DURING AND AFTER EMPLOYMENT
The Executive will, with reasonable notice during or after the Period
of Employment, furnish information as may be in his possession and cooperate
with the Company as may reasonably be requested in connection with any claims or
legal actions in which the Company is or may become a party.
B. CONFIDENTIAL INFORMATION
The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is
a unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Agreement. The Executive will not during the Period of Employment or
after, except to the extent reasonably necessary in performance of the duties
under this Agreement, give to any person, firm, association, corporation or
governmental agency any information concerning the affairs, business,
clients, customers or other relationships of the Company, except as required
by law. The Executive will not make use of this type of information for his
own purposes or for the benefit of any person or organization other than the
Company. The Executive will also use his best efforts to prevent the
disclosure of this information by others. All records, memoranda, etc.,
relating to the business of the Company, whether made by the Executive or
otherwise coming into his possession, are confidential and will remain the
property of the Company.
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<PAGE>
C. CERTAIN RESTRICTED ACTIVITIES
During the Period of Employment and for a one (1) year period
thereafter, the Executive will not use his status with the Company to obtain
goods or services from another organization other than in the ordinary course
of business. During the Period of Employment and for a one (1) year period
following termination of the Period of Employment: the Executive will not
make any statements or perform any acts intended to advance the interest of
any existing or prospective competitors of the Company in any way that will
injure the interest of the Company; the Executive, without prior express
written approval by the Board of Directors of the Company, will not directly
or indirectly own or hold any proprietary interest in or be employed by or
receive compensation from any party engaged in the same or any similar
business in the same geographic areas the Company does business; and the
Executive, without express prior written approval from the Board of
Directors, will not solicit any members of the then current customers,
clients or suppliers of the Company or discuss with any employee of the
Company information or operation of any business intended to compete with the
Company. For the purposes of the Agreement, proprietary interest means legal
or equitable ownership, whether through stock holdings or otherwise, of a
debt or equity interest (including options, warrants, rights and convertible
interest) in a business firm or entity, or ownership of more than 2% of any
class of equity interest in a publicly-held company. The Executive
acknowledges that the covenants contained herein are reasonable as to
geographic and temporal scope. For a twelve (12) month period after
termination of the Period of Employment for any reason, the Executive will
not hire any employee of the Company or solicit, other than by means of a
general solicitation to the public such as a newspaper advertisement, or
encourage any such employee to leave the employ of the Company.
D. REMEDIES
The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section IX would cause irreparable harm
to the Company not compensable in monetary damages and that the Company shall
be entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section IX without being required to prove damages or furnish any bond or
other security. The Executive hereby acknowledge the necessity of protection
against the competition of, and certain other possible adverse actions by,
the Executive and that the nature and scope of such protection has been
carefully considered by the parties. The period provided and the area covered
are expressly represented and agreed to be fair, reasonable and necessary.
If, however, any court or arbitrator determines that the restrictions
described herein are not reasonable, the court or arbitration panel may
modify, rewrite or interpret such restrictions to include as much of their
nature and scope as will render them enforceable.
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<PAGE>
SECTION X
INDEMNIFICATION, LITIGATION
The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and by-laws of the Company whichever affords the
greater protection to the Executive. The Company will use its best efforts to
obtain and maintain customary directors and officers liability insurance,
covering Executive. The foregoing indemnification shall continue to apply
following termination of the Period of Employment for actions or omissions
during the Period of Employment.
SECTION XI
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.
SECTION XII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and supersedes any prior
employment, severance, or other similar agreements between the Company, its
predecessors and its affiliates, and the Executive.
SECTION XIII
MODIFICATION
Subject to Section IV G., this Agreement may not be modified or amended
except in writing signed by the parties. No term or condition of this Agreement
will be deemed to have been waived, except in writing by the party charged with
waiver. A waiver shall operate only as to the specific term or condition waived
and will not constitute a waiver for the future or act on anything other than
that which is specifically waived.
SECTION XIV
GOVERNING LAW; ARBITRATION
This Agreement and its validity, interpretation, performance and
enforcement shall be governed by the laws of the State of Illinois, without
giving effect to the choice of law provisions thereof.
Any dispute among the parties hereto shall be settled by arbitration in
accordance with the then applicable rules of the American Arbitration
Association and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
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<PAGE>
SECTION XV
NOTICES
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid by registered mail, return receipt requested,
or when delivered if by hand, overnight delivery services or confirmed facsimile
transmission, to the following:
(a) If to the Company, at:
Alternative Resources Corporation
100 Tri-State International, Suite 300
Lincolnshire, IL 60069
Attention: Chairperson, Governance Committee of Board
of Directors
or at such other address as may have been furnished to the Executive by the
Company in writing, or
(b) If to the Executive, at:
120 Buckley Road
Barrington Hills, IL 60010
or such other address as may have been furnished to the Company by the
Executive in writing.
SECTION XVI
BINDING AGREEMENT
This Agreement shall be binding on the parties' successors, heirs
and assigns.
SECTION XVII
MISCELLANEOUS
A. MULTIPLE COUNTERPARTS
This Agreement may be executed simultaneously in multiple counterparts
each of the same force and effect.
B. SEVERABILITY
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If any phrase, clause or provision of this Agreement is declared
invalid or unenforceable by an arbitrator or court of competent jurisdiction,
such phrase, clause or provision shall be deemed severed from this Agreement,
but will not affect any other provisions of this Agreement, which shall
otherwise remain in full force and effect. In addition, there will be
automatically substituted herein for such severed phrase, clause or provision
a phrase, clause or provision as similar as possible which is valid and
enforceable.
C. HEADINGS
The headings and subheadings of this Agreement are inserted for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
D. CONSTRUCTION
The Company and the Executive acknowledge that this Agreement was the
result of arm's-length negotiations between sophisticated parties each
represented by legal counsel. Each and every provision of this Agreement shall
be construed as though both parties participated equally in the drafting of
same, and any rule of construction that a document shall be construed against
the drafting party shall not be applicable to this Agreement.
E. SURVIVORSHIP
The provisions of Sections IV-XVII shall survive the termination or
expiration of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY
ALTERNATIVE RESOURCES CORPORATION
By: /s/ Joanne Brandes
------------------------------------
JoAnne Brandes, Chairperson
Governance Committee of the Board of Directors
EXECUTIVE
/s/ Raymond R. Hipp
------------------------------------
Raymond R. Hipp
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<PAGE>
EXHIBIT 10.2 - EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN
ALTERNATIVE RESOURCES CORPORATION AND STEVEN PURCELL
DATED AS OF AUGUST 1, 1998
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made effective as of August 1,
1998 by and between Alternative Resources Corporation (the "Company") and Steven
Purcell (the "Executive").
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive, and the Executive agrees to
be employed by the Company for the Period of Employment as provided in Section
III A. below upon the terms and conditions provided in the Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to serve as
Senior Vice President -- Finance and Chief Financial Officer of the Company, and
to be responsible for the typical responsibilities expected of an officer
holding such positions and such other responsibilities consistent with such
positions as may be assigned to the Executive from time to time by the Chief
Executive Officer of the Company.
SECTION III
TERMS AND DUTIES
A. PERIOD OF EMPLOYMENT
The term of Executive's employment under this Agreement will commence
as of August 1, 1998, and shall continue through December 31, 1999, subject to
extension or termination as provided in this Agreement (the "Period of
Employment"). The term shall be extended for an additional one year period as of
December 31, 1999 and as of each December 31 thereafter, unless either party
gives ninety (90) days prior notice of its intent not to extend.
B. DUTIES
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During the Period of Employment, the Executive shall devote all of
his business time, attention and skill to the business and affairs of the
Company and its subsidiaries, except that Executive may (i) during August of
1998, perform services for his prior employer as necessary to assist in an
orderly transition of his duties for such employer, so long as the Chief
Executive Officer of the Company does not determine that such activities
unreasonably interfere with his duties hereunder; (ii) participate in the
affairs of any governmental, educational or other charitable institution, or
engage in professional speaking and writing activities, so long as the Board
of Directors of the Company, does not determine, in good faith, that such
activities unreasonably interfere with the business of the Company or
diminish the Executive's obligations under the Agreement; or (iii) serve as a
member of the board of directors of other corporations, so long as the Board
of Directors of the Company, in its discretion, specifically approves such
service, and in any such case, the Executive shall be entitled to retain all
fees, royalties and other compensation derived from such activities in
addition to the compensation and other benefits payable to him under the
Agreement; and provided further, that the Executive may invest his personal
or family funds in any form or manner he may choose that will not require any
services on his part in the operation of or the affairs of the companies in
which such investments are made. The Executive will perform faithfully the
duties consistent with his position as Senior Vice President -- Finance and
Chief Financial Officer which may be assigned to him from time to time by the
Chief Executive Officer.
SECTION IV
COMPENSATION AND BENEFITS
A. SIGNING BONUS
On or before August 7, 1998, the Company shall pay the Executive a
bonus of One Hundred Fifty Thousand Dollars ($150,000). Executive agrees that if
he terminates his employment with the Company voluntarily (other than in
connection with a disability as defined in Section VI) prior to August 1, 1999,
he shall repay the full amount of such bonus to the Company.
B. BASE SALARY
During the Period of Employment, the Company agrees to pay the
Executive a base salary ("Base Salary") of Two Hundred and Fifty Thousand
Dollars ($250,000). Such Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than bi-weekly
installments. The Executive shall not be considered for an increase in Base
Salary until after January 1, 2000.
C. ANNUAL INCENTIVE AWARDS
The Executive will not be eligible for an annual incentive compensation
award for the period August 1, 1998 to December 31, 1998. The Executive shall be
eligible for an incentive compensation award for calendar year 1999 of up to
Eighty-Seven Thousand Five Hundred Dollars ($87,500), calculated by subtracting
Eighty-Seven Thousand Five Hundred Dollars
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($87,500) from the amount (the "Gross Amount) determined under the chart set
forth below, based on the following process:
(i) The Gross Amount shall equal the sum of Portions A, B, C and
D to the extent earned under these provisions;
(ii) The corresponding Amount of each Portion shall be fully earned
if both the Revenue Target and the EPS Target for such Portion
are met or exceeded;
(iii) If only the Revenue Target for a given Portion is met or
exceeded, 40% of the corresponding Amount shall be earned; if
only the EPS Target is met or exceeded, 60% of the
corresponding Amount shall be earned; and
(iv) The chart is as follows:
<TABLE>
<CAPTION>
PORTION AMOUNT REVENUE TARGET EARNINGS PER SHARE
("EPS") TARGET
<S> <C> <C> <C>
A. $50,000 $450 million $1.44
B. 50,000 460 million 1.48
C. 50,000 470 million 1.53
D. 25,000 480 million 1.57
</TABLE>
For purposes of the above calculation, Revenue and Earnings Per Share shall be
determined by the independent auditors of the Corporation in their discretion.
Notwithstanding the foregoing, if the Gross Amount is less than Eighty-Seven
Thousand Five Hundred Dollars ($87,500), the Executive shall not be required to
pay the difference to the Company.
D. OPTIONS
The Company will take all actions necessary to grant to Executive,
as of August 3, 1998, a non-qualified stock option to purchase 200,000 shares
of the Company's common stock at an exercise price equal to the closing price
of the common stock as reported in the WALL STREET JOURNAL for trading on
August 3, 1998 and with a term of ten years. The option will not be
exercisable until January 31, 1999 and shall become exercisable with respect
to 4,762 shares on January 31, 1999 and with respect to an additional 4,762
shares on the last day of each succeeding month, with the option becoming
exercisable with respect to the final 4,758 shares on June 30, 2002. The
option shall be in the form approved by the Board of Directors of the Company
and, except as otherwise provided herein, shall be governed by terms and
provisions comparable to those applicable to options granted under the
Company's Stock Option Plan.
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<PAGE>
Notwithstanding the foregoing, if (i) the Period of Employment ends
because the Company ends the automatic extension thereof under Section III A. of
this Agreement; (ii) the Company terminates the employment of the Executive
Without Cause as defined in Section VIII; (iii) the Executive's employment
hereunder terminates because of his death or disability (as defined in Section
VI); or (iv) there is a change in control of the Company, such option shall
become fully exercisable and shall remain exercisable for the remainder of their
term.
For purposes of this Agreement, a "change in control" of the Company
shall be deemed to occur in connection with any of the following events with
respect to the Company:
(i) The acquisition by an entity, person or group (including all
affiliates of such entity, person or group) of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (which definition shall apply
even if the Company is not then subject to such Act), of
capital stock of the Company entitled to exercise more than
30% of the outstanding voting power of all capital stock of
the Company ("Voting Stock");
(ii) The effective time of (i) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding Voting Stock immediately
prior to such merger or consolidation (other than the
surviving or resulting corporation or any affiliate thereof)
hold less than 50% of the Voting Stock of the surviving or
resulting corporation, or (ii) a transfer of more than 50% (in
value) of the assets of the Company other than to a transferee
in which the Company owns at least 50% of the Voting Stock; or
(iii) The election to the Board of Directors of the Company of the
lesser of (i) three directors or (ii) directors constituting a
majority of the number of directors of the Company then in
office, without the recommendation of the existing Board of
Directors.
E. ADDITIONAL BENEFITS
The Executive will be entitled to participate in all compensation or
employee benefit plans or programs and receive all benefits and perquisites for
which any salaried executive employees are eligible under any existing or future
plan or program established by the Company for salaried executive employees. The
Executive will participate to the extent permissible under the terms and
provisions of such plans or programs in accordance with plan or program
provisions. These may include group hospitalization, health, dental care, life
or other insurance, tax qualified pension, savings, thrift and profit sharing
plans, termination pay programs, sick leave plans, travel or accident insurance,
short and long term disability insurance, and contingent compensation plans
including capital accumulation programs, restricted stock programs, stock
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purchase programs and stock option plans. Nothing in this Agreement will
preclude the Company from amending or terminating any of the plans or programs
applicable to salaried executive employees of the Company. Notwithstanding the
foregoing sentence, no such amendment or termination shall reduce or otherwise
adversely affect Executive's rights under Section IV C. of this Agreement. In
addition to the foregoing benefits, Executive shall be entitled to receive the
following:
(i) term life insurance of not less than $250,000; and
(ii) a paid vacation of four (4) weeks during each twelve (12)
month period during the Period of Employment.
F. RELOCATION
The Company will provide an apartment for the Executive's exclusive
use, and reasonable living expenses for the Period of Employment through
December 31, 1999, and will reimburse the Executive for his or his wife's travel
expenses for one trip every other week to Omaha (for him) or Chicago (for her);
provided that if the Chief Executive Officer of the Company determines in good
faith that the interests of the Company would best be served by the Executive's
relocation to the Chicago area, then the Executive shall be required to so
relocate as soon as practicable, and the Company shall pay the Executive's
relocation expenses (including Realtor's fees on his Omaha, Nebraska residence
and reasonable moving costs and travel) but only to the extent they exceed fifty
percent (50%) of amount the Company paid the Executive for temporary living
expenses including the value of the apartment described in the first sentence
hereof. In addition, the Company shall provide the Executive with a tax gross-up
payment in an amount necessary to pay his federal and state income taxes
attributable to payments (and the value of such apartment) under this paragraph
F. (including taxes attributable to such gross-up payment).
G. ADJUSTMENTS
Notwithstanding any provision here and to the contrary, the Company and
the Executive agree that the Board of Directors of the Company shall reevaluate
the Revenue and EPS Targets set forth in Section IV C. and D. as part of the
approval of the 1999 Operating Plan for the Company. To the extent deemed
necessary by the Board of Directors to align such targets with such Operating
Plan, such targets hereunder shall be adjusted.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel and
other expenses incurred by the Executive in connection with the performance of
his duties and responsibilities under this Agreement. Executive must support all
expenditures with customary receipts and expense reports subject to review by
the Company.
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<PAGE>
SECTION VI
DISABILITY
A. PAYMENTS
Executive's employment hereunder may be terminated by the Company if
(i) Executive becomes physically or mentally incapacitated, (ii) is unable for a
period of one hundred eighty (180) consecutive days to perform his material
duties and responsibilities and (iii) a determination is made regarding
Executive's continued incapacity by a physician appointed by the Company (such
continued incapacity is hereinafter referred to as "disability"). Upon any such
termination for disability, Executive shall be entitled to receive (i) his Base
Salary, as well as the annual incentive award, prorated in each case through the
date on which the Executive is first eligible to receive payment of long term
disability benefits in lieu of Base Salary under the Company's long term
disability benefit plan as then in effect covering the Executive, and (ii) his
accrued benefits under the terms of the plans, policies and procedures of the
Company.
B. ASSISTANCE TO THE COMPANY
During the period the Executive is receiving payments of either regular
compensation or disability insurance benefits described in this Agreement and as
long as he is physically and mentally able to do so, the Executive will furnish
information and assistance to the Company and from time to time will make
himself available to the Company with respect to areas and matters in which he
was involved during his employment with the Company.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, (i) Executive's estate shall be entitled to receive his Base Salary,
as well as the annual incentive award, prorated in each case through the date of
Executive's death, and (ii) Executive's designated beneficiary or estate, as the
case may be, shall be entitled to his accrued benefits, including, but not
limited to, life insurance proceeds, under the terms of the plans, policies and
procedures of the Company.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. TERMINATION WITHOUT CAUSE
If the Company terminates Executive's employment Without Cause
during the Term of Employment, as defined in this Agreement, or the Term of
Employment ends because the Company ends the automatic extension thereof
under Section III A. of this Agreement, the
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Company will pay to the Executive in a lump sum, his Base Salary for a period
of twenty-four (24) months. Earned but unpaid Base Salary will be paid in a
lump sum at the time of such termination. The Company also will pay the
Executive in a lump sum upon such termination an amount equal to a prorated
portion of the annual incentive award for the year in which the termination
occurred. The benefits and perquisites described in this Agreement as in
effect at the date of termination of employment will be continued for the
then remaining Period of Employment.
B. TERMINATION WITH CAUSE
If the Company terminates Executive With Cause, (i) Executive shall be
entitled to receive his Base Salary prorated through the date of Executive's
termination, and (ii) Executive shall be entitled to his accrued benefits under
the terms of the plans, policies and procedures of the Company.
C. EFFECT OF CERTAIN TERMINATIONS
Upon termination of the Executive's employment for reasons other than
due to death, disability, or pursuant to Paragraph A of this Section, or upon
Executive's resignation, the Period of Employment and the Company's obligation
to make payments under this Agreement will cease as of the date of termination
except as expressly defined in this Agreement. Executive shall have the right to
voluntarily terminate this Agreement, other than for Good Reason or in
conjunction with a Change in Control, upon two weeks' prior notice to the
Company. If Executive voluntarily terminates his employment with the Company,
(i) Executive shall be entitled to receive his Base Salary prorated through the
date of Executive's voluntary termination, and (ii) Executive shall be entitled
to his accrued benefits under the terms of the plans, policies and procedures of
the Company.
D. DEFINITIONS
For this Agreement, the following terms have the following meanings:
(1) Termination "With Cause" means termination of the
Executive's employment by the Company's Board of Directors acting in good
faith by written notice by the Company to the Executive specifying the event
relied upon for such termination, due to the Executive's serious, willful
misconduct with respect to his duties under this Agreement, including, but
not limited to, conviction for a felony or perpetration of a common law
fraud, which has resulted or is likely to result in material economic damage
to the Company.
(2) Termination "Without Cause" means termination by the
Company of the Executive's employment other than due to death, disability, or
termination With Cause.
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<PAGE>
SECTION IX
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
A. COOPERATION DURING AND AFTER EMPLOYMENT
The Executive will, with reasonable notice during or after the Period
of Employment, furnish information as may be in his possession and cooperate
with the Company as may reasonably be requested in connection with any claims or
legal actions in which the Company is or may become a party.
B. CONFIDENTIAL INFORMATION
The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company, as hereinafter defined, is confidential and is a unique and
valuable asset of the Company. Access to and knowledge of this information are
essential to the performance of the Executive's duties under this Agreement. The
Executive will not during the Period of Employment or after, except to the
extent reasonably necessary in performance of the duties under this Agreement,
give to any person, firm, association, corporation or governmental agency any
information concerning the affairs, business, clients, customers or other
relationships of the Company, except as required by law. The Executive will not
make use of this type of information for his own purposes or for the benefit of
any person or organization other than the Company. The Executive will also use
his best efforts to prevent the disclosure of this information by others. All
records, memoranda, etc., relating to the business of the Company, whether made
by the Executive or otherwise coming into his possession, are confidential and
will remain the property of the Company.
C. CERTAIN RESTRICTED ACTIVITIES
During the Period of Employment and for a one (1) year period
thereafter, the Executive will not use his status with the Company to obtain
goods or services from another organization other than in the ordinary course
of business. During the Period of Employment and for a one (1) year period
following termination of the Period of Employment: the Executive will not
make any statements or perform any acts intended to advance the interest of
any existing or prospective competitors of the Company in any way that will
injure the interest of the Company; the Executive, without prior express
written approval by the Board of Directors of the Company, will not directly
or indirectly own or hold any proprietary interest in or be employed by or
receive compensation from any party engaged in the same or any similar
business in the same geographic areas the Company does business; and the
Executive, without express prior written approval from the Board of
Directors, will not solicit any members of the then current customers,
clients or suppliers of the Company or discuss with any employee of the
Company information or operation of any business intended to compete with the
Company. For the purposes of the Agreement, proprietary interest means legal
or equitable ownership, whether through stock holdings or otherwise, of a
debt or equity interest (including options, warrants, rights and
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convertible interest) in a business firm or entity, or ownership of more than
2% of any class of equity interest in a publicly-held company. The Executive
acknowledges that the covenants contained herein are reasonable as to
geographic and temporal scope. For a twelve (12) month period after
termination of the Period of Employment for any reason, the Executive will
not hire any employee of the Company or solicit, other than by means of a
general solicitation to the public such as a newspaper advertisement, or
encourage any such employee to leave the employ of the Company.
D. REMEDIES
The Executive acknowledges that his breach or threatened or attempted
breach of any provision of Section IX would cause irreparable harm to the
Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section IX without being required to prove damages or furnish any bond or other
security. The Executive hereby acknowledge the necessity of protection against
the competition of, and certain other possible adverse actions by, the Executive
and that the nature and scope of such protection has been carefully considered
by the parties. The period provided and the area covered are expressly
represented and agreed to be fair, reasonable and necessary. If, however, any
court or arbitrator determines that the restrictions described herein are not
reasonable, the court or arbitration panel may modify, rewrite or interpret such
restrictions to include as much of their nature and scope as will render them
enforceable.
SECTION X
INDEMNIFICATION, LITIGATION
The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and by-laws of the Company whichever affords the
greater protection to the Executive. The Company will use its best efforts to
obtain and maintain customary directors and officers liability insurance,
covering Executive. The foregoing indemnification shall continue to apply
following termination of the Period of Employment for actions or omissions
during the Period of Employment.
SECTION XI
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.
SECTION XII
EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and supersedes any prior
employment, severance, or
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other similar agreements between the Company, its predecessors and its
affiliates, and the Executive.
SECTION XIII
MODIFICATION
Subject to Section IV G., this Agreement may not be modified or amended
except in writing signed by the parties. No term or condition of this Agreement
will be deemed to have been waived, except in writing by the party charged with
waiver. A waiver shall operate only as to the specific term or condition waived
and will not constitute a waiver for the future or act on anything other than
that which is specifically waived.
SECTION XIV
GOVERNING LAW; ARBITRATION
This Agreement and its validity, interpretation, performance and
enforcement shall be governed by the laws of the State of Illinois, without
giving effect to the choice of law provisions thereof.
Any dispute among the parties hereto shall be settled by arbitration in
accordance with the then applicable rules of the American Arbitration
Association and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
SECTION XV
NOTICES
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid by registered mail, return receipt requested,
or when delivered if by hand, overnight delivery services or confirmed facsimile
transmission, to the following:
(a) If to the Company, at:
Alternative Resources Corporation
100 Tri-State International, Suite 300
Lincolnshire, IL 60069
Attention: Chairperson, Governance Committee of Board
of Directors
or at such other address as may have been furnished to the Executive by the
Company in writing, or
(b) If to the Executive, at:
1650 So. 186th Circle
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Omaha, NE 68130
or such other address as may have been furnished to the Company by the
Executive in writing.
SECTION XVI
BINDING AGREEMENT
This Agreement shall be binding on the parties' successors, heirs and
assigns.
SECTION XVII
MISCELLANEOUS
A. MULTIPLE COUNTERPARTS
This Agreement may be executed simultaneously in multiple counterparts
each of the same force and effect.
B. SEVERABILITY
If any phrase, clause or provision of this Agreement is declared
invalid or unenforceable by an arbitrator or court of competent jurisdiction,
such phrase, clause or provision shall be deemed severed from this Agreement,
but will not affect any other provisions of this Agreement, which shall
otherwise remain in full force and effect. In addition, there will be
automatically substituted herein for such severed phrase, clause or provision a
phrase, clause or provision as similar as possible which is valid and
enforceable.
C. HEADINGS
The headings and subheadings of this Agreement are inserted for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
D. CONSTRUCTION
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The Company and the Executive acknowledge that this Agreement was the
result of arm's-length negotiations between sophisticated parties each
represented by legal counsel. Each and every provision of this Agreement shall
be construed as though both parties participated equally in the drafting of
same, and any rule of construction that a document shall be construed against
the drafting party shall not be applicable to this Agreement.
E. SURVIVORSHIP
The provisions of Sections IV-XVII shall survive the termination or
expiration of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY
ALTERNATIVE RESOURCES CORPORATION
By: /s/ RAYMOND R. HIPP
----------------------------------------
Raymond R. Hipp, Chief Executive Officer
and President
EXECUTIVE
/s/ STEVEN PURCELL
----------------------------------------
Steven Purcell
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<PAGE>
EXHIBIT 10.3 - SUMMARY OF RETIREMENT AGREEMENT WITH LARRY
I. KANE DATED EFFECTIVE JULY 31, 1998
1. EMPLOYMENT AND RETIREMENT FROM EMPLOYMENT
Retirement as Chief Executive Officer of the Corporation shall be effective at
the close of business on July 31, 1998, or such earlier date as is mutually
agreed. All salary and any benefits due as of the retirement date according to
the established policies, plans and procedures of the Corporation shall be paid
or made available in accordance with the terms of those established policies,
plans and procedures. Moreover, any benefit continuation or conversion rights
existing under such established plans of the Corporation shall be made available
in accordance with the terms of such established plans.
2. SEVERANCE PAY AND RETIREMENT BENEFITS
The following severance pay and benefits shall be made to Mr. Kane:
(a) Severance pay shall consist of One Million Dollars
($1,000,000.00) payable in a lump sum on August 7, 1998.
(b) Severance benefits shall consist of continued medical, dental,
life, disability and vision insurance coverages for life for
Mr. Kane and spouse on the same basis as provided to employees
of the Corporation and their spouses under the Corporation's
benefit plans (the "Current Plans") as of the date of this
letter (and unaffected by any changes to or eliminations in
the coverages provided to employees of the Corporation after
the date of this letter), but subject to (w) any requirements
for employee contributions; (x) provisions in the Current
Plans under which benefit coverages are decreased or
eliminated at specified ages, (y) prevailing insurance norms
that would result in loss or reduction of coverage as a result
of employment status (such as with respect to disability
coverage), and (z) other conditions, restrictions and
limitations applicable to such coverages, subject to the
following:
(i) At the Corporation's option, such coverages shall be
provided (A) under the Corporation's benefit plans,
unless such coverage is not consistent with the terms
thereof; (B) by providing cash payments as necessary
to pay the premiums on an individual policy or
policies identified by the Corporation that, to the
extent possible under prevailing insurance norms and
the health condition of Mr. Kane and/or spouse, will
provide such coverages; or (C) through a combination
of such plans or such payments;
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<PAGE>
Mr. Larry Kane
July 23, 1998
Page 45
(ii) If at any time, the Corporation ceases to provide one
or more of such coverages to its employees, such
coverages shall be provided by means of cash payments
as described in subparagraph (i);
(iii) Notwithstanding subparagraphs (i) and (ii), at Mr.
Kane or spouse's request, the Corporation's
obligations under this paragraph (b) shall be
discharged by its establishment of an irrevocable
trust (which trust shall provide for a reversion to
the Corporation or its successor of any amounts
remaining after all liabilities have been discharged)
into which the Corporation shall deposit such sums as
are determined to be necessary by an actuary mutually
acceptable to Mr. Kane and the Corporation to make
the cash payments described in subparagraph (i) for
the remaining life expectancy of Mr. Kane and spouse;
provided that, the establishment and funding of such
trust shall be accomplished in a manner that, to the
extent possible, does not result in the recognition
of income to Mr. Kane, unless Mr. Kane consents to
such establishment and/or funding notwithstanding
such tax consequences;
(iv) At any time that Mr. Kane or spouse is eligible for
coverage under Medicare or any government-provided
health care arrangement, such arrangement shall be
the primary provider of medical insurance coverage,
and the Corporation's medical insurance coverage
obligation under this paragraph (b) shall be
discharged by providing payment (directly or, if a
trust has been established as described in
subparagraph (iii), from such trust) for (A) any
government-required premiums; and (B) any premiums
under a Medigap or similar Medicare supplement policy
or arrangement; and
(v) No later than August 31, 1998, Mr. Kane and the
Corporation shall enter into a form of trust
agreement, which shall govern the trust, if any,
established pursuant to subparagraph (iii), which
trust agreement shall not be inconsistent with the
provisions of this paragraph (b) or the rest of the
provisions of this letter agreement.
5. BOARD SERVICE
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<PAGE>
Mr. Kane will retire as Chairman of the Board of Directors of the Corporation,
effective at the same time as retirement from employment. Mr. Kane agrees to
serve as member of the Board of Directors as elected by the shareholders of the
Corporation. As an outside Director, Mr. Kane receives the same compensation and
benefits as other outside Directors, as determined from time to time, including
such compensation and benefits as are provided to new outside Directors
effective at the same time as retirement from employment.
Page 46
<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 NINE MONTH
PERIOD ENDED SEPT. 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 66,567
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73,171
<PP&E> 24,405
<DEPRECIATION> 8,693
<TOTAL-ASSETS> 139,319
<CURRENT-LIABILITIES> 33,121
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 48,771
<TOTAL-LIABILITY-AND-EQUITY> 139,319
<SALES> 0
<TOTAL-REVENUES> 252,328
<CGS> 0
<TOTAL-COSTS> 168,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,559
<INCOME-PRETAX> (17,509)
<INCOME-TAX> 3,420
<INCOME-CONTINUING> (20,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,929)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> (1.33)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENT FOUND IN THE COMPANY'S 10-Q FOR THE NINE MONTH
PERIOD ENDED SEPT. 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,906
<SECURITIES> 16,718
<RECEIVABLES> 47,570
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,599
<PP&E> 9,171
<DEPRECIATION> 3,562
<TOTAL-ASSETS> 78,001
<CURRENT-LIABILITIES> 11,406
<BONDS> 0
0
0
<COMMON> 157
<OTHER-SE> 66,158
<TOTAL-LIABILITY-AND-EQUITY> 78,001
<SALES> 0
<TOTAL-REVENUES> 187,147
<CGS> 0
<TOTAL-COSTS> 122,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,290
<INCOME-TAX> 6,722
<INCOME-CONTINUING> 10,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,568
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.66
</TABLE>
