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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition period from ____________________ to
___________________________.
Commission file number: 0-23940
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ALTERNATIVE RESOURCES CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 38-2791069
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Tri-State International, Suite 300
Lincolnshire, Illinois 60069
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 317-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Rights to Purchase Shares of Junior Preferred Stock, Series A Par Value
$.01 per share
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(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /X/
The registrant estimates that the aggregate market value of the registrant's
Common Stock held by non-affiliates of A.R.C, March 22, 1999 (based upon an
estimate that 12.95% of the shares are so owned by non-affiliates and upon the
average of the closing bid and asked prices for the Common Stock on the Nasdaq
National Market) on that date was approximately $97,096,000. Determination of
stock ownership by non-affiliates was made solely for the purpose of responding
to these requirements and registrant is not bound by this determination for any
other purpose.
As of March 22, 1999, 16,015,841 shares of the registrant's Common Stock were
outstanding.
The following documents are incorporated into this Form 10-K by reference:
Certain portions of the Annual Report to Stockholders for the fiscal year
ended December 31, 1998 (Part II).
Certain portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held on May 20, 1999 (Part III).
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PART I
ITEM 1. BUSINESS
OVERVIEW
Alternative Resources Corporation-Registered Trademark- ("A.R.C" or the
Company"), through its subsidiaries, is a leading provider of information
technology (IT) management and staffing services. The Company's clients consist
principally of Fortune 1000 companies and mid-sized companies with sizable and
complex IT operations. The Company serves its clients through a network of 52
branch offices (as of December 31, 1998) located in the United States and
Canada. The Company has experienced substantial growth in revenue driven
primarily by industry trends toward component outsourcing of IT operations,
increased penetration of the Company's existing clients and markets, and the
introduction of new services.
The Company was formed in March 1988 and began providing information
technology staffing services in April 1988. The Company's initial public
offering of securities was in May, 1994.
MAJOR DEVELOPMENTS IN 1998
During the third quarter of 1998, significant changes occurred in the management
structure of A.R.C as Larry Kane, the company's founder and Chief Executive
Officer, retired. Raymond Hipp, an A.R.C board member for five years, assumed
the role of Chief Executive Officer. Other changes in the management structure
included the replacement of several executive positions as well as the expansion
of the senior management team to include several key management positions.
Under the new management team, strategic changes were made to the company's
operating model. These changes were designed to eliminate unnecessary costs and
create a more efficient sales and delivery system for the company's services.
Programs and services that were not considered strategic to the company's core
business were terminated. In connection with these changes, the company incurred
a restructuring charge in the third quarter of 1998. The restructuring charge
consisted of costs associated with branch consolidations, staff reductions and
management changes. The Company also performed a goodwill impairment review in
the third quarter which resulted in a $25.7 million charge to properly reflect
the carrying value of goodwill. The restructuring and goodwill impairment
charges are more fully explained in "Management Discussion and Analysis of
Financial Condition and Results of Operations" and the "Notes to Consolidated
Financial Statements", incorporated by reference in this Form 10-K.
As mentioned above, the Company implemented changes to its operating model in
1998. This included changes to both the sales and recruiting portions of the
model as follows:
o Sales Model - Under the historical A.R.C sales model, the Company's sales
force was required to sell both the staffing and solutions products of the
Company, which are now marketed as Staffing Management and Technology
Management Services, respectively. Because these service lines require very
different selling skills and knowledge, the Company has re-aligned the
sales force. One sales group is focused on A.R.C's IT Staffing Management
business and the other on the higher-end Technology Management Services.
The new technology management sales people, are known as SOLUTIONS
MARKETING MANAGERS and are skilled in selling solutions and dealing with
senior IT management.
o Recruiting Model - The Company added a national recruiting element to its
business model. With this enhancement the Company now has national
recruiters and also maintains a national database of technical
professionals. The information in the
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national database is used by the Company's local offices as an additional
resource to identify technical skills that will meet client needs. This
expanded capability is particularly critical as the Company's business
continues to shift toward higher-end Technology Management Services and
increasing demand for hot IT skills. In addition to the national recruiting
capability, the new recruiting model provides expanded reporting
capabilities on key recruiting metrics such as skills requirements by
geography, utilization rates, etc.
Finally, the Company is in the process of replacing its accounting and financial
reporting systems as well as the systems used by its branch offices to manage
recruiting and project fulfillment activities. These new systems will provide
better management information and enable management to streamline many of the
Company's support processes. Ultimately, this new IT infrastructure provides the
foundation for a more scaleable business, positioning A.R.C for future growth.
This initiative was started in 1997, continued through 1998 and will be
completed in 1999.
A.R.C SERVICES
During the past three years, A.R.C has evolved from a pure IT staffing
company into a solutions-based provider of IT services. The Company's IT
staffing and solutions services are now sold under the names A.R.C Staffing
Management Services and A.R.C Technology Management Services, respectively.
A.R.C's service offerings are designed to provide its clients with flexibility
and expertise to address their IT execution needs whether for managed delivery
of a help desk, data center or network administration; developing applications
to support business processes; deploying technology across an enterprise; or
providing qualified, motivated technical employees for short or long term
engagements.
A.R.C Staffing Management Services, enable clients to adapt their organizations
to changing business or technology needs without adding to fixed costs or making
long term commitments to staff. Client staffing needs are fulfilled in two major
categories:
o Operations - including help desk, desktop support, database administration,
LAN/WAN/telecommunications, and data center operations.
o Applications - including mainframe/midrange, client server desktop,
Internet/Intranet, database/data warehousing and packaged applications; and
A.R.C Staffing Management Services have been offered since the Company's
inception in 1988.
A.R.C Technology Management Services, formerly called Smartsourcing Solutions,
provide management and delivery of infrastructure development and maintenance
expertise, offering managed solutions and best practices methodologies. A.R.C
Technology Management Services assist clients in integrating the resources,
processes and systems for the design, deployment, operation and support of the
clients key IT assets. Technology Management Services are delivered in three
primary functional areas:
o User Support Services
o Technology Deployment Services, and
o Infrastructure Management Services.
The vast majority of the traditional staffing business is invoiced on an hourly
basis. However, under A.R.C Technology Management Services arrangements, the
Company typically utilizes alternative invoicing arrangements. Such arrangements
may include fixed price arrangements or per unit billing. An example of a per
unit billing arrangement would be a price per call on a help desk operation.
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A.R.C APPROACH
The Company has developed a customized approach to the project assignment
process that it believes results in a high degree of client and technical
employee satisfaction, repeat business from clients and a high level of
technical employee retention. The Company believes a superior project assignment
entails developing a comprehensive understanding of clients' needs, matching
clients' needs with requisite skills on a timely basis, and monitoring
performance throughout the project. However, the Company believes that the
professional and interpersonal skills required to interact with clients and
interpret and communicate their needs differ greatly from those required to
manage the recruitment and project assignment of technical employees. Under the
A.R.C approach, project responsibilities are shared between account managers and
resource managers. Account managers focus principally on building and fostering
relationships with clients, understanding the client's organization and
assessing the client's needs, and proposing tailored staffing solutions.
Resource managers focus principally on recruiting and establishing relationships
with technical personnel, assessing their technical and interpersonal skills,
selecting appropriate technical personnel for a project, and monitoring and
motivating technical employees on a project. This separation of responsibilities
allows account managers and resource managers to meet the needs of their
respective constituencies while working together to enhance the prospects of a
superior project assignment.
Each branch office typically has two to four account managers. Each account
manager typically focuses on up to 25 targeted organizations with substantial IT
operations. The Company also employs national account managers who establish and
manage national service arrangements with certain major clients and maintain
those relationships at the corporate office level. Account managers and national
account managers work together to serve the local and national needs of such
clients. As noted earlier, the Company has enhanced its sales model by
stratifying the account manager group into two categories, account managers that
are focused on selling A.R.C's IT staffing management business and account
managers that specialize in selling the Company's higher-end technology
management services. Members of the latter group are also known as SOLUTIONS
MARKETING MANAGERS.
Each branch office typically has two to four resource managers. A resource
manager typically manages an aggregate of 30 to 50 technical employees assigned
to various projects. Recent changes to the recruiting model have added a
national recruiting capability to supplement the local office recruiting and
delivery model. These changes will provide the Company's resource managers with
a national recruiting "reach" and enable them to identify and deploy scarce IT
skill sets needed by their customers that may be available elsewhere in the
country.
The Company operates within a decentralized management structure that gives
branch general managers significant discretion over the operations and
performance of their branch office. The Company believes that its management
structure provides a motivating environment for its staff, creates a responsive
and committed management team, and improves productivity. In addition, the
Company invests significant resources in ongoing training of its branch office
staff to promote consistent execution of the Company's strategy.
Branch general managers are responsible for the overall performance of
their respective branch office and may oversee client support sites. Branch
general managers also assist account managers in developing and maintaining
client relationships and assist resource managers in interviewing and evaluating
technical personnel. Branch general managers typically have significant direct
selling experience with a Fortune 500 company, at least three years of
experience in sales management, and strong interpersonal skills. Each branch
general manager reports to an executive director.
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The Company maintains a Technology Management support staff located at its
headquarters in Lincolnshire, Illinois. This staff of specialists supports
A.R.C's account managers in Technology Management Services offerings to clients.
The staff also provides management oversight and technical support to Technology
Management Services project teams.
RECRUITING OF TECHNICAL PERSONNEL
As the leading edge of technology continues to outpace the availability of
leading edge skills, and as the Company introduces applications support services
to its clients, the recruitment and retention of technical personnel represents
an expanding challenge. To recruit qualified technical personnel, the Company
places newspaper advertisements, maintains a presence at local technical
college(s) and obtains referrals from its technical employees and clients. In
addition, the Company recruits technical personnel through its web site
(www.arcnow.com). As noted earlier, the company has enhanced its recruiting
model in 1998. The Company's new National Technical Recruiters outbound
telemarketing group undertook a broad-based effort to develop relationships with
technical professionals throughout the U.S. and Canada. These efforts were and
will continue to be further supported in individual markets with an expanded
group of local recruiting specialists.
Prospective technical employees are required to complete an extensive
questionnaire regarding skill levels, experience, education and availability,
and to provide references. Resource managers regularly update each branch office
database to reflect changes in technical personnel skill levels and
availability.
In order to retain a qualified workforce, the Company devotes considerable
time and resources towards serving the needs of its technical employees. All
technical employees receive a competitive hourly wage determined by the Company
and are eligible to participate in the Company's 401(k) plan and employee stock
purchase plan and earn bonuses based on referrals of technical personnel. In
addition, technical employees are eligible for educational reimbursement based
on length of service with the Company, which may be used in technical training
programs to improve and expand their technical skills. The Company also provides
technical employees access to computer-based training in its branch offices.
Technical employees also receive a benefits package that allows them to select
from a variety of benefit options, including comprehensive group medical
insurance, vision and dental insurance, long-term disability insurance and group
life insurance. The Company believes that its comprehensive benefits and
training programs encourage technical employees' loyalty and commitment.
OPERATIONS
The Company operates through a network of 52 offices (including client
support sites) located in the United States and Canada. During 1998, the Company
opened four new offices and consolidated offices in several markets which
decreased the number of offices by ten resulting in a net decrease of six
offices for the year. In addition to the Company's principal executive offices
in Lincolnshire, Illinois, as of December 31, 1998, the Company had offices
located in the following metropolitan areas:
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<TABLE>
<CAPTION>
YEAR YEAR
LOCATION OPENED LOCATION OPENED
-------- ------ -------- ------
<S> <C> <C> <C>
- - Detroit, Michigan 1988 - New York, New York 1994
- - Minneapolis, Minnesota 1988 - Rosemont, Illinois 1994
- - Dallas, Texas 1988 - Edison, New Jersey 1994
- Charlotte, North Carolina 1994
- - Boston, Massachusetts 1989
- - Chicago, Illinois 1989 - Rochester, New York 1995
- - Cleveland, Ohio 1989 - Raleigh-Durham, North Carolina 1995
- - Washington, D.C. 1989 - Milwaukee, Wisconsin 1995
- Woodland Hills, California 1995
- - San Francisco, California 1990 - Allentown, Pennsylvania 1995
- - Fort Worth, Texas 1990 - Long Island, New York 1995
- - Atlanta, Georgia 1990
- - Houston, Texas 1990 - Portland, Oregon 1996
- - Los Angeles, California 1990 - Kansas City, Missouri 1996
- - Anaheim, California 1990 - Pittsburgh, Pennsylvania 1996
- Boulder, Colorado 1996
- - Cincinnati, Ohio 1991 - Boise, Idaho 1996
- - Silicon Valley, California 1991 - Hartford, Connecticut 1996
- - Philadelphia, Pennsylvania 1992 - Indianapolis, Indiana 1997
- - Orlando, Florida 1992 - Austin, Texas 1997
- - Baltimore, Maryland 1992 - Montreal, Quebec 1997
- - Saddle Brook, New Jersey 1992 - Valley Forge, Pennsylvania 1997
- - Denver, Colorado 1993 - Fort Collins, Colorado 1998
- - Phoenix, Arizona 1993 - Columbus, Ohio 1998
- - Tampa, Florida 1993 - Salt Lake City, Utah 1998
- - Fort Lauderdale, Florida 1993 - Ottawa, Ontario 1998
- - Seattle, Washington 1993
- - St. Louis, Missouri 1994
- - Toronto, Ontario 1994
- - Stamford, Connecticut 1994
- - Sacramento, California 1994
</TABLE>
Because A.R.C has offices in all large metropolitan markets, future branch
openings will generally involve entry into mid-size markets or divisions of
larger markets. As such, new branches will not grow to be as large as some of
A.R.C's established branches in major markets. In selecting markets for new
branch offices, the Company considers many factors, including the presence of
organizations with substantial IT operations, the availability of internal
management resources, opportunities to expand geographically with existing
clients and overall demographics.
From time to time, the Company opens client support sites in response to
specific client needs. Client support sites are similar to branch offices but
are staffed only by a resource manager and have no selling function. Many client
support sites evolve into full branches as other client opportunities arise
within the local market. The Company may establish additional client support
sites in markets where it does not have an established presence, especially as
national account relationships expand.
CLIENTS
The Company's clients consist principally of Fortune 1000 companies and
mid-sized organizations with sizable and complex IT operations. The IT
requirements of these organizations often provide opportunities for major
projects that extend for multiple years or generate additional projects. During
1998, the Company provided technical staffing solutions to a wide variety of
entities including computer services companies, systems integrators,
telecommunications companies, banking and financial services entities,
manufacturers, distributors, health care providers and utilities. The Company's
computer services and systems integrator clients often subcontract A.R.C's
services to their own customers. In 1998, the Company's largest clients, IBM,
Hewlett Packard and Electronic
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Data Systems Corporation, accounted for approximately 16%, 14% and 10% of the
Company's total revenue, respectively.
A.R.C will typically provide discounts on staffing services to its largest
clients in exchange for the opportunity to sell more volume and the opportunity
to sell its higher margin, value added services, such as its Technology
Management Services . The Company believes that its relationships with these
large clients have contributed significantly to its revenue growth.
COMPETITION
The IT services industry is highly competitive and fragmented and has low
barriers to entry. The Company competes for potential clients with providers of
outsourcing services, systems integrators, computer systems consultants, other
providers of technical staffing services and, to a lesser extent, temporary
personnel agencies. The Company competes for technical personnel with private
and public companies, other providers of technical staffing services, systems
integrators, providers of outsourcing services, computer systems consultants,
clients and temporary personnel agencies.
The Company believes that the principal competitive factors in obtaining
and retaining clients are accurate assessment of clients' requirements, timely
assignment of technical employees with appropriate skills and the price of
services. The Company is dependent upon its ability to continue to attract and
retain technical personnel who possess the technical skills and experience
necessary to meet the IT servicing requirements of its clients. The principal
competitive factors in attracting qualified technical personnel are schedule
flexibility, the availability of training, benefits and compensation, as well as
the availability, quality and variety of projects. The Company believes that
many of the technical personnel included in its branch office databases may also
be pursuing other employment opportunities. Therefore, the Company believes that
responsiveness to the needs of technical personnel is an important factor in the
Company's ability to fill projects.
SEASONALITY
The Company's quarterly results are affected by such factors as employment
taxes and the timing, number and costs ssociated with new branch office
openings. In general, the first two quarters of the year carry a significant
portion of payroll tax expense. As employees reach annual payroll limits,
usually in the third and fourth quarters, the Company's payroll tax expense is
reduced. The timing of branch office openings is dependent upon such factors as
the availability of resources for recruiting and training branch staff, as well
as how quickly office space can be identified and the leases negotiated.
EMPLOYEES
At December 31, 1998, the Company employed 650 staff employees and
approximately 4,100 technical employees. During all of 1998, the Company
employed more than 9,000 technical employees.
FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements from time to time and desires to
take advantage of the "safe harbor," which is afforded such statements under the
Private Securities Litigation Reform Act of 1995, when they are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those in the forward-looking
statements.
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The statements contained in this Form 10-K, including those under "Management's
Discussion and Analysis of Financial condition and Results of Operations,"
statements contained in future filings with the Securities and Exchange
Commission and publicly disseminated press releases, and statements which may be
made from time to time in the future by management of the Company in
presentations to shareholders, prospective investors, and others interested in
the business and financial affairs of the Company, which are not historical
facts, are forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from those set forth in the
forward-looking statements. Any projections of financial performance or
statements concerning expectations as to future developments should not be
construed in any manner as a guarantee that such results or developments will,
in fact, occur. There can be no assurance any forward-looking statement will be
realized or that actual results will not be significantly different from that
set forth in such forward-looking statement.
In addition to the risks and uncertainties of ordinary business operations, the
forward-looking statements of the Company referred to above are also subject to
the following risks and uncertainties:
- - The Company's ability to attract and retain qualified information
technology professionals
- - The Company's ability to recruit, train, integrate and retain qualified
branch general managers, account managers, and resource managers
- - Competition in the information technology services marketplace
- - The Company's continued ability to initiate and develop client
relationships
- - The Company's ability to identify and respond to trends in information
technology
- - Unforeseen business trends in the Company's national accounts or other
large clients
- - Pricing pressures and/or wage inflation and the resulting impact on gross
profit and net operating margins
- - The ability to successfully integrate acquisitions
- - The ability to successfully open new branch offices and to enter new
geographic markets
- - The Company's overall ability to manage its growth
- - The effect of changes in general economic conditions
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Raymond R. Hipp 56 Chairman of the Board, President and
Chief Executive Officer
Robert V. Carlson 42 Chief Operating Officer
Steven Purcell 48 Senior Vice President, Chief
Financial Officer, Secretary
and Treasurer
Bradley K. Lamers 41 Vice President - Finance
</TABLE>
Mr. Raymond R. Hipp has been Chairman of the Board, President and Chief
Executive Officer of the Company since July 1998. Previously he was Chief
Executive Officer of ITI Marketing Services, a provider of telemarketing
services, from August 1996 until May 1998 when the company was sold. He was a
self-employed management consultant from September 1994 to August 1996. Mr. Hipp
was President of Comdisco Disaster Recovery Services, a provider of business
continuity services for the information technology industry, from 1980 through
August 1994. Mr. Hipp previously held executive and management positions with
International Business Machines Corporation. He currently serves on the Board of
Directors of Gardner Denver Inc.
Mr. Robert V. Carlson has been Chief Operating Officer of the Company since
December 1997 and was named to the Company's Board of Directors in March 1998.
Previously he served as Executive Vice President responsible for the Company's
field operations since November 1996. Mr. Carlson joined the Company in April
1991 as a Branch General Manager, became an Executive Director in December 1993
and was named Vice President in July 1995. Prior to joining the Company, Mr.
Carlson held various sales and marketing positions with General Electric and
Automated Data Processing, Inc.
Mr. Steven Purcell joined the Company in August 1998 as Senior Vice
President, Chief Financial Officer, Secretary and Treasurer. Prior to that he
was chief financial officer for American Business Information a provider of
business and consumer data and data processing services. From 1991 to 1996 he
served as vice president - finance, chief financial officer and treasurer, of
Micro Warehouse, a direct marketer of hardware, software and accessories. From
1985 to 1991, he worked for Electrocomponents, PLCa London-based distributor of
electrical products, serving as chief executive officer for its Misco, Inc.
subsidiary and, prior to that, as vice president - finance for
Electrocomponents, Inc., the U.S. holding company. From 1978 to 1985, he held
positions in finance and accounting with Hubbell Incorporated, a manufacturer of
electrical products, with the most recent being division controller at the
Hubbell Lighting Division. From 1975 to 1978, he was a senior accountant for
Price Waterhouse & Company.
Mr. Bradley K. Lamers joined the Company in March 1995 as Director of Finance
and Controller. He was promoted to Vice President in July 1995. From November
1988 to March 1995, Mr. Lamers served as a division controller for Rogers Foods,
Inc., a wholly owned subsidiary of Universal Foods Corporation.
OTHER SENIOR MANAGEMENT
Wayne D. Bock was named Vice President in charge of ARC's Smartsourcing(R)
Solutions delivery organization, which provides clients with managed IT
services, in January 1998.
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Mr. Bock joined ARC in August 1992 as an executive director. From 1989 to 1992
he was a director of TransUnion Corporation, responsible for IT operations.
Prior to 1989 he was a principal in a family-owned firm.
Robert P. Lane joined ARC as Vice President of Marketing in 1998. He brings 18
years of marketing and business development experience, 14 of which were in the
communications/information technology industry. From 1994 through 1998, Mr. Lane
was vice president of marketing and business programs at Cable & Wireless, Inc.,
a global provider of communications services. At GE Information Systems from
1989 through 1994, he was marketing manager for telecommunications and EDI. From
1984 through 1989, he held various marketing positions at Northern Telecom (now
Nortel).
Sharon A. McKinney was named Senior Vice President of Human Resources in January
1999. Ms. McKinney reports to ARC's chief executive officer and is responsible
for the human resources function within corporate headquarters and across the
entire 52-branch organization. She brings to this newly created position 18
years of domestic and international business and human resources management
experience. Ms. McKinney joined ARC from GE Capital Fleet Services where she
held the position of senior vice president, Global Human Resources. Previously,
Ms. McKinney spent nearly 10 years with Square D Company, which today is known
as Group Schneider, a French company. Following a series of increasingly
responsible human resources positions, Ms. McKinney spent her last three years
at Groupe Schneider as director of human resources based in Paris, France.
Kelly Egan was named Vice President of Workforce Solutions in June 1998. She is
responsible for all programs related to recruiting and retaining professional
technical employees across the company's 52- branch network. Ms. Egan joined ARC
in 1992 as a branch general manager and was promoted to executive director of
ARC's Pacific Northwest region in 1994. She was with Wright Line, a national
systems furniture manufacturer from 1982 to 1992, as an account manager, branch
manager, and region manager.
William T. Miralia was named Vice President of Field Operations in July 1998.
Mr. Miralia is responsible for overall productivity of the company's 52 branch
offices, from both sales and operational perspectives, including revenue and net
income performance. He brings to this newly created position nearly five years
of management experience in ARC's field organization and 10 years in the IT
services industry. Mr. Miralia joined ARC in 1994 as general manager of the
Cleveland, Ohio branch. He was promoted to executive director, Mid-east region
and Canadian operations in 1995. In this role, he was responsible for ARC's
overall sales and operations performance in six midwestern states and Canada.
William T. Miralia was named vice president of field operations for Alternative
Resources Corporation(R) (ARC) in July 1998. Mr. Miralia is responsible for
overall productivity of the company's 52 branch offices, from both sales and
operational perspectives, including revenue and net income performance. He
brings to this newly created position nearly five years of management experience
in ARC's field organization and 10 years in the IT services industry.
David Byrne was named Vice President of National Accounts in September 1998.
National accounts are Fortune 100 corporations that derive their revenue from
sales of information technology (IT) hardware, software and/or services. Mr.
Byrne is responsible for revenue generation for all national accounts as well as
strategic development of new accounts. He brings to his role 19 years of sales
management experience in technology products and services. Since October 1995,
Mr. Byrne had been executive director of ARC's Southern region. He joined ARC in
May 1995 as branch general manager of the Dallas office. Mr. Byrne has held
sales and management positions with a variety of Fortune 500 high technology
manufacturers, including IBM/Rolm, Nextel, and Wang Labs, with specific focus on
strategic account development.
<PAGE>
J. Lawrence Winkelman was named Vice President and Chief Information in January
1999. Mr. Winkelman is responsible for information technology planning,
development and delivery within corporate headquarters and across the entire
52-branch organization. Mr. Winkelman joined ARC from Sanwa Business Credit
Corporation, a subsidiary of Sanwa Bank, Ltd., where he had been senior vice
president and chief information officer for seven years. Prior to 1992, Mr.
Winkelman spent 17 years with GE Financial Services, a subsidiary of General
Electric Company, progressing through a series of information technology
positions with increasing management responsibility. From 1971 to 1975, Mr.
Winkelman worked for General Electric Company. Recruited into GE's Manufacturing
Management Training Program, he held engineering positions in four of GE's
manufacturing businesses.
<PAGE>
ITEM 2. PROPERTIES
The Company's principal executive office is currently located in
approximately 27,000 square feet of office space in Lincolnshire, Illinois,
pursuant to a lease agreement that expires October 31, 2006. The Company leases
office space for all of its branch offices and client support sites. Branch
offices occupy between 1,200 and 4,700 square feet. The lease terms for branch
offices are typically five years.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is a party to various legal
proceedings. The Company does not expect that any currently pending proceedings
will have a material adverse effect on its business, results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information required by this Item is included in the registrant's
Annual Report to Stockholders for the fiscal year ended December 31, 1998, under
the caption "Stockholder Information", which information is set forth in Exhibit
13 to this Form 10-K and is hereby incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is included in the registrant's
Annual Report to Stockholders for the fiscal year ended December 31, 1998, under
the caption "Five Year Summary of Selected Financial Data," which information is
set forth in Exhibit 13 to this Form 10-K and is hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by this Item is included in the registrant's
Annual Report to Stockholders for the fiscal year ended December 31, 1998, under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which information is set forth in Exhibit 13 to this
Form 10-K and is hereby incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The information required by this Item is included in the registrant's
Annual report to Stockholders for the fiscal year ended December 31, 1998, under
the caption "Quantitative and Qualitative Disclosures About Market Risk" which
information is set forth in Exhibit 13 to this Form 10-K and is hereby
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in the registrant's
Annual Report to Stockholders for the fiscal year ended December 31, 1998, under
the captions "Consolidated Balance Sheets," "Consolidated Statements of
Operations," "Consolidated Statements of Comprehensive Income," "Consolidated
Statements of Changes in Stockholders' Equity," "Consolidated Statements of Cash
Flows," "Notes to Consolidated Financial Statements" and "Independent Auditors'
Report," which information is set forth in Exhibit 13 to this Form 10-K and is
hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
a. Directors of the Company
The information required by this Item is set forth in the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on
May 20, 1999, under the caption "Election of Directors," which
information is hereby incorporated herein by reference.
b. Executive Officers of the Company
Reference is made to "Executive Officers of the Registrant" in Part I
of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
1999, under the captions "Executive Compensation," "Board of Directors," and
"Compensation Committee Interlocks and Insider Participation," which
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is set forth in the registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
1999, under the caption "Securities Beneficially Owned by Principal
Stockholders and Management," which information is hereby incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The following financial statements of Alternative Resources Corporation,
included in the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1998 are included in Part II, Item 8:
(i) Consolidated Balance Sheets - as of December 31, 1998 and 1997;
(ii) Consolidated Statements of Operations - years ended December 31,
1998, 1997, and 1996;
(iii) Consolidated Statements of Comprehensive Income - years ended
December 31, 1998, 1997, and 1996;
(iv) Consolidated Statements of Changes in Stockholders' Equity years
ended December 31, 1998, 1997, and 1996;
(v) Consolidated Statements of Cash Flows - years ended December 31,
1998, 1997, and 1996;
(vi) Notes to Consolidated Financial Statements; and
(vii) Independent Auditors' Report from KPMG LLP.
(2) FINANCIAL STATEMENT SCHEDULES
(i) Independent Auditors' Report from KPMG LLP.
(ii) Schedule II - valuation and qualifying accounts.
(3) EXHIBITS
2.1 Stock Purchase and Sale Agreement dated as of October 6, 1997
among Alternative Resources Corporation, Compagnie Generale
d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan and
International Business Machines Corporation. Incorporated by
reference herein to exhibit 2 to the Company's form 8-K dated
November 7, 1997. (File No. 0-23940)
2.2 Amendment Number One dated as of November 7, 1997 to Stock
Purchase and Sale Agreement dated as of October 6, 1997 among
Alternative Resources Corporation, Compagnie Generale
d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan and
International Business Machines Corporation. Incorporated by
reference herein to exhibit 2a to the Company's form 8-K dated
November 7, 1997. (File No. 0-23940)
2.3 I/T Staffing Revenue Escrow Agreement by and among Compagnie
Generale d'Informatique, Joseph R. Ferrandino, Thomas K.
Sheridan, Alternative Resources Corporation and Harris Trust and
Savings Bank dated November 7, 1997. Incorporated by reference
herein to exhibit 2b to the Company's form 8-K dated November 7,
1997. (File No. 0-23940)
3.1 Amended and Restated Certificate of Incorporation, as amended.
3.2 Amended and Restated By-Laws. Incorporated herein by reference to
Exhibit 3.2 to the Company's Form 10-K for the year ended
December 31, 1996. (File No. 0-23940)
<PAGE>
4.1 Rights Agreement dated October 15, 1998 between the Company and
Harris Trust and Savings Bank, incorporated herein by reference
to exhibit 1 to the Company's Form 8-A dated October 20, 1998.
4.2 Credit agreement dated November 7, 1997, incorporated by
reference herein to exhibit 4 to the Company's Form 8-K dated
November 7, 1997. (File No. 0-23940)
Exhibits 10.1 through 10.9 are management contracts or compensatory
plans or arrangements
10.1 Amended and Restated Stock Option Plan. Incorporated herein by
reference to exhibit 10 to the Company's form 10-Q for the period
ended June 30, 1997. (File No. 0-23940)
10.2 Executive Employment Agreement between Alternative Resources
Corporation and Bradley K. Lamers dated July 21, 1995.
Incorporated herein by reference to exhibit 10.9 to the Company's
Form 10-K for the period ended December 31, 1995. (File No.
0-23940)
10.3 Form of Indemnity Agreement between Alternative Resources
Corporation and its directors and officers. Incorporated herein
by reference to exhibit 10.10 to the Company's Registration
Statement on Form S-1, as amended, Registration No. 33-76584.
10.4 Alternative Resources Corporation Employee Stock Purchase Plan.
Incorporated herein by reference to the exhibit 10.12 to the
Company's Registration Statement on Form S-8, Registration No.
33-88918.
10.5 Executive Employment Agreement between Alternative Resources
Corporation and Raymond R. Hipp dated July 23, 1998. Incorporated
herein by reference to the exhibit 10.1 to the Company's Form
10-Q for the period ended September 30, 1998. (File No. 0-23940).
10.6 Executive Employment Agreement between Alternative Resources
Corporation and Steven Purcell dated August 1, 1998. Incorporated
herein by reference to the exhibit 10.2 to the Company's Form
10-Q for the period ended September 30, 1998. (File No. 0-23940).
10.7 Retirement Agreement between Alternative Resources Corporation
and Larry I. Kane dated July 23, 1998. Incorporated herein by
reference to the exhibit 10.3 to the Company's Form 10-Q for the
period ended September 30, 1998. (File No. 0-23940).
10.8 Stock Option Agreement between Alternative Resources Corporation
and Raymond R. Hipp dated July 23, 1998.
10.9 Stock Option Agreement between Alternative Resources Corporation
and Steven Purcell dated August 3, 1998.
13 Certain portions of the 1998 Annual Report to Stockholders
21 Subsidiaries of Alternative Resources Corporation
23 Consent of KPMG LLP
27 Financial Data Schedule
<PAGE>
(b) REPORTS ON FORM 8-K
A Form 8-K dated October 15, 1998 was filed during the fourth quarter of
1998, reporting under Item 5 that the Board of Directors of Alternative
Resources Corporation adopted a Stockholder Rights Agreement.
A Form 8-K dated October 26, 1998 was filed during the fourth quarter of
1998, reporting under Items 5 and 7 the filing of a Certificate of
Designations of Preferred Stock.
(c) EXHIBITS
The exhibits filed as part of this Annual Report on Form 10-K are as
specified in Item 14(a)(3) herein.
(d) FINANCIAL STATEMENT SCHEDULES
The financial statement schedule filed as part of this Annual Report on
Form 10-K is as specified in item 14(a)(2) herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on A.R.C
ALTERNATIVE RESOURCES CORPORATION
By /s/ Raymond R. Hipp
------------------------
Raymond R. Hipp, Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on A.R.C :
SIGNATURE TITLE
--------- -----
/s/ Raymond R. Hipp Chairman of the Board, President and Chief
- ----------------------- Executive Officer (Principle Executive
Raymond R. Hipp Officer)
/s/ Robert V. Carlson Chief Operating Officer and Director
- -----------------------
Robert V. Carlson
/s/ Steven Purcell Senior Vice President, Chief Financial
- ----------------------- Officer, Secretary and Treasurer
Steven Purcell (Principal Financial Officer)
/s/ Bradley K. Lamers Vice President - Finance
- -----------------------
Bradley K. Lamers
/s/ Joanne Brandes Director
- -----------------------
Joanne Brandes
/s/ George B. Cobbe Director
- -----------------------
George B. Cobbe
/s/ Michael E. Harris Director
- -----------------------
Michael E. Harris
/s/ Syd N. Heaton Director
- -----------------------
Syd N. Heaton
Director
- -----------------------
Larry I. Kane
/s/ A. Donald Rully Director
- -----------------------
A. Donald Rully
/s/ Bruce R. Smith Director
- -----------------------
Bruce R. Smith
<PAGE>
ALTERNATIVE RESOURCES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Year Expenses Accounts Deductions Year
- ----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful accounts $662 $1,426 - $384 $1,704
1997
Allowance for doubtful accounts 528 318 - 184 662
1996
Allowance for doubtful accounts 579 278 - 329 528
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alternative Resources Corporation:
Under date of February 8, 1999, we reported on the consolidated balance sheets
of Alternative Resources Corporation and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, comprehensive
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1998, as contained in the 1998 annual
report to stockholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year ended December 31, 1998. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule listed in Item 14(a)(2)(ii). The
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Chicago, Illinois
February 8, 1999
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2.1 Stock Purchase and Sale Agreement dated as of October 6, 1997 among
Alternative Resources Corporation, Compagnie Generale d'Informatique,
Joseph R. Ferrandino, Thomas K. Sheridan and International Business
Machines Corporation. Incorporated by reference herein to exhibit 2 to
the Company's form 8-K dated November 7, 1997. (File No. 0-23940)
2.2 Amendment Number One dated as of November 7, 1997 to Stock Purchase
and Sale Agreement dated as of October 6, 1997 among Alternative
Resources Corporation, Compagnie Generale d'Informatique, Joseph R.
Ferrandino, Thomas K. Sheridan and International Business Machines
Corporation. Incorporated by reference herein to exhibit 2a to the
Company's form 8-K dated November 7, 1997. (File No. 0-23940)
2.3 I/T Staffing Revenue Escrow Agreement by and among Compagnie Generale
d'Informatique, Joseph R. Ferrandino, Thomas K. Sheridan, Alternative
Resources Corporation and Harris Trust and Savings Bank dated November
7, 1997. Incorporated by reference herein to exhibit 2b to the
Company's form 8-K dated November 7, 1997. (File No. 0-23940)
3.1 Amended and Restated Certificate of Incorporation, as amended.
3.2 Amended and Restated By-Laws. Incorporated herein by reference to
Exhibit 3.2 to the Company's Form 10-K for the year ended December 31,
1996. (File No. 0-23940)
4.1 Rights Agreement dated October 15, 1998 between the Company and Harris
Trust and Savings Bank, incorporated herein by reference to exhibit 1
to the Company's Form 8-A dated October 20, 1998.
4.2 Credit agreement dated November 7, 1997, incorporated by reference
herein to exhibit 4 to the Company's Form 8-K dated November 7, 1997.
(File No. 0-23940)
Exhibits 10.1 through 10.9 are management contracts or compensatory plans or
arrangements
10.1 Amended and Restated Stock Option Plan. Incorporated herein by
reference to exhibit 10 to the Company's form 10-Q for the period
ended June 30, 1997. (File No. 0-23940)
10.2 Executive Employment Agreement between Alternative Resources
Corporation and Bradley K. Lamers dated July 21, 1995. Incorporated
herein by reference to exhibit 10.9 to the Company's Form 10-K for the
period ended December 31, 1995. (File No. 0-23940)
10.3 Form of Indemnity Agreement between Alternative Resources Corporation
and its directors and officers. Incorporated herein by reference to
Exhibit 10.10 to the Company's Registration Statement on Form S-1, as
amended, Registration No. 33-76584.
<PAGE>
10.4 Alternative Resources Corporation Employee Stock Purchase Plan.
Incorporated herein by reference to the exhibit 10.12 to the Company's
Registration Statement on Form S-8, Registration No. 33-88918.
10.5 Executive Employment Agreement between Alternative Resources
Corporation and Raymond R. Hipp dated July 23, 1998. Incorporated
herein by reference to the exhibit 10.1 to the Company's Form 10-Q for
the period ended September 30, 1998. (File No. 0-23940).
10.6 Executive Employment Agreement between Alternative Resources
Corporation and Steven Purcell dated August 1, 1998. Incorporated
herein by reference to the exhibit 10.2 to the Company's Form 10-Q for
the period ended September 30, 1998. (File No. 0-23940).
10.7 Retirement Agreement between Alternative Resources Corporation and
Larry I. Kane dated July 23, 1998. Incorporated herein by reference to
the exhibit 10.3 to the Company's Form 10-Q for the period ended
September 30, 1998. (File No. 0-23940).
10.8 Stock Option Agreement between Alternative Resources Corporation and
Raymond R. Hipp dated July 23, 1998.
10.9 Stock Option Agreement between Alternative Resources Corporation and
Steven Purcell dated August 3, 1998.
13 Certain portions of 1998 Annual Report to Stockholders
21 Subsidiaries of Alternative Resources Corporation
23 Consent of KPMG LLP
27 Financial Data Schedule
<PAGE>
EXHIBIT 3.1 - AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ALTERNATIVE RESOURCES CORP.
The original Certificate of Incorporation of the corporation was filed with
the Secretary of State of Delaware on March 7, 1988. The name of the corporation
under which it was originally incorporated was Alternative Resources Corp. This
Amended and Restated Certificate of Incorporation not only restates and
integrates the original Certificate of Incorporation and all amendments thereto,
but also includes amendments adopted by the stockholders of the corporation on
the date hereof. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the applicable provisions of Sections 228, 242 and
245 of the General Corporation Law of Delaware and shall become effective upon
filing with the Secretary of State of the State of Delaware.
FIRST: The name of the corporation is ALTERNATIVE RESOURCES CORPORATION.
SECOND: The corporation's registered office in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and the objects and purposes to be
transacted, promoted and carried on are to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is 21,000,000 shares, consisting
of (i) 20,000,000 shares of common stock, $0.01 par value per share ("Common
Stock"), and (ii) 1,000,000 shares of preferred stock, $0.01 par value per share
("Preferred Stock").
The designations, powers, preferences and relative participating, optional
or other special rights and the qualifications, limitations and restrictions
thereof in respect of each class of capital stock of the corporation are as
follows:
A. COMMON STOCK
1. VOTING. Except as otherwise provided by law, each share of Common Stock
shall entitle the holder thereof to one vote in any matter which is submitted to
a vote of stockholders of the corporation.
2. DIVIDENDS. Subject to the express terms of the Preferred Stock
outstanding from time to time, such dividend or distribution as may be
determined by the Board of Directors of the corporation may from time to time be
declared and paid or made upon the Common Stock out of any source at the time
lawfully available for the payment of dividends.
3. LIQUIDATION. The holders of Common Stock shall be entitled to share
ratably upon any liquidation, dissolution or winding up of the affairs of the
corporation (voluntary of involuntary) of all assets of the corporation which
are legally available for distribution, if any, remaining after payment of all
debts and other liabilities and subject to the prior rights of any holders of
Preferred Stock of the preferential amounts, if any, to which they are entitled.
4. PURCHASES. Subject to any applicable provisions of this Article Fourth,
the corporation may at any time or from time to time purchase or otherwise
acquire shares of its Common Stock in any manner now or hereafter permitted by
law, publicly or privately, or pursuant to any agreement.
B. PREFERRED STOCK
Subject to the terms contained in any designation of a series of Preferred
Stock, the Board of Directors is expressly authorized, at any time and from time
to time, to fix, by resolution or resolutions, the following provisions for
shares of any class or classes of Preferred Stock of the
<PAGE>
corporation or any series of any class of Preferred Stock:
1. the designation of such class or series, the number of shares to
constitute such class or series which may be increased or decreased (but not
below the number of shares of that class or series then outstanding) by
resolution of the Board of Directors, and the stated value thereof if different
from the par value thereof;
2. whether the shares of such class or series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights;
3. the dividends, if any, payable on such class or series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of the same class;
4. whether the shares of such class or series shall be subject to
redemption by the corporation, and, if so, the times, prices and other
conditions of such redemption;
5. the amount or amounts payable upon shares of such series upon, and the
rights of the holders of such class or series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the corporation;
6. whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
7. whether the shares of such class or series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of the
same class or any other securities and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
8. the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or other
acquisition by the corporation of the Common Stock or shares of stock of any
other class or any other series of the same class;
9. the conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;
10. the ranking (be it PARI PASSU, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred Stock as to
the payment of dividends, the distribution of assets and all other matters; and
11. any other powers, preferences and relative, participating, optional and
other special rights, and any qualifications, limitations and restrictions
thereof, insofar as they are not inconsistent with the provisions of this
Amended and Restated Certificate of Incorporation, to the full extent permitted
in accordance with the laws of the State of Delaware.
The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. MISCELLANEOUS
1. PREEMPTIVE RIGHTS. No holder of any share of any class of stock of the
corporation shall have any preemptive right to subscribe for or acquire
additional shares of stock of any class of the corporation or warrants or
options to purchase, or securities convertible into, shares of any class of
stock of the corporation.
<PAGE>
2. ISSUANCE OF STOCK. Shares of capital stock of the corporation may be
issued by the corporation from time to time in such amounts and proportions and
for such consideration (not less than the par value thereof in the case of
capital stock having par value) as may be fixed and determined from time to time
by the Board of Directors and as shall be permitted by law.
3. UNCLAIMED DIVIDENDS. Any and all right, title, interest and claim in or
to any dividends declared by the corporation, whether in cash, stock or
otherwise, which are unclaimed by the stockholder entitled thereto for a period
of six years after the close of business on the payment date, shall be and shall
be deemed to be extinguished and abandoned; and such unclaimed dividends in the
possession of the corporation, its transfer agents or other agents or
depositories, shall at such time become the absolute property of the
corporation, free and clear of any and all claims of any persons whatsoever.
D. STOCK SPLIT
Notwithstanding anything in this Amended and Restated Certificate of
Incorporation to the contrary, each share of Common Stock of the corporation
issued and outstanding immediately prior to the effective date of this Amended
and Restated Certificate of Incorporation shall be automatically converted,
without further action, into seven (7) shares of the Common Stock authorized
herein. On such effective date, outstanding certificates representing shares of
Common Stock shall thereafter automatically be deemed to represent certificates
for the number of shares of Common Stock determined as set forth in the
preceding sentence; provided, however, that the holders thereof shall be
entitled to present such certificates to the corporation for replacement with
certificates reflecting such number of shares of Common Stock.
SIXTH: A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The number of Directors
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by the Board of Directors. The Directors of the
corporation shall be divided into three classes: Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-third of the
whole number of the Board of Directors. If the Board of Directors is not evenly
divisible by three, the Board of Directors shall determine the number of
Directors to be elected to each class. The initial member of Class I shall be
Christopher R. Joseph and he shall hold office for a term to expire at the
annual meeting of the stockholders to be held in 1995; the initial members of
Class II shall be Larry I. Kane and Bruce R. Smith and they shall hold office
for a term to expire at the annual meeting of the stockholders to be held in
1996; and the initial member of Class III shall be Robert L. Cummings and he
shall hold office for a term to expire at the annual meeting of the stockholders
to be held in 1997, and in the case of each class, until their respective
successors are duly elected and qualified. At each annual election held
commencing with the annual election in 1994, the Directors elected to succeed
those whose terms expire shall be identified as being of the same class as the
Directors they succeed and shall be elected to hold office for a term to expire
at the third annual meeting of the stockholders after their election and until
their respective successors are duly elected and qualified. Any vacancy on the
Board of Directors that results from an increase in the number of directors may
be filled by a majority of the Board of Directors then in office, provided that
a quorum is present, and any other vacancy occurring in the Board of Directors
may be filled by a majority of the directors then in office, even if less than a
quorum, or by the sole remaining director. If the number of Directors changes,
any increase or decrease in Directors shall be apportioned among the classes so
as to maintain all classes as equal in number as possible, and any additional
Director elected to any class shall hold office for a term which shall coincide
with the terms of the other Directors in such class and until his successor is
duly elected and qualified.
B. STOCKHOLDER NOMINATION OF A DIRECTOR CANDIDATE AND INTRODUCTION OF NEW
BUSINESS. Advance notice of stockholder nominations for the election of
Directors and of new business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in a manner provided by
the By-laws of the corporation.
C. REMOVAL. Any Director may be removed from office as a Director at any
time, but only for cause, and only by the affirmative vote of stockholders of
record holding not less than two-thirds (66 2/3%) of the total outstanding
voting stock of the corporation given at a meeting of the stockholders called
for that purpose.
SEVENTH: A. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of
<PAGE>
the stockholders, for any purpose or purposes (except to the extent otherwise
provided by law or this Amended and Restated Certificate of Incorporation), may
only be called by the Chairman of the Board, the President or a majority of the
Board of Directors then in office.
B. WRITTEN CONSENT BY STOCKHOLDERS WITHOUT A MEETING. No action required or
permitted to be taken at any annual meeting or special meeting of stockholders
of the corporation may be taken by written consent without a meeting of such
stockholders.
EIGHTH: A. AMENDMENT OF BY-LAWS. The Board of Directors of the corporation
is authorized to adopt, amend or repeal the By-laws of the corporation, subject
to applicable law and any applicable provisions in any resolution of the Board
of Directors, except that any By-law provision adopted by the stockholders
amending the By-laws after their initial adoption may be amended or repealed
only by the holders of not less than two-thirds (66 2/3%) of the total
outstanding voting stock of the corporation.
B. ELECTION OF DIRECTORS. Elections of Directors need not be by written
ballot unless the By-laws of the corporation shall so provide.
C. MEETINGS OF STOCKHOLDERS. Meetings of stockholders may be held within or
without the State of Delaware, as the by-laws of the corporation may provide.
D. BOOKS OF CORPORATION. The books of the corporation may be kept at such
place within or without the State of Delaware as the By-laws of the corporation
may provide or as may be designated from time to time by the Board of Directors
of the corporation.
NINTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or the stockholders or class of stockholders of the corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of the
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
TENTH: No Director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, provided that this Article TENTH shall not eliminate or
limit the liability of a Director: (i) for any breach of the Director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the General Corporation Law of the State of
Delaware (or the corresponding provision of any successor act or law); or (iv)
for any transaction from which the Director derived an improper personal
benefit. This Article TENTH shall not eliminate or limit the liability of a
Director for any act or omission occurring prior to the date this Article TENTH
becomes effective. Neither the amendment nor repeal of this Article TENTH, nor
the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article TENTH, shall eliminate or reduce
the effect of this Article TENTH in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article TENTH, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
If the Delaware General Corporation Law is amended after the effective date of
this Article to further eliminate or limit, or to authorize further elimination
or limitation of, the personal liability of directors for breach of fiduciary
duty as a director, then the personal liability of a director to the corporation
or its stockholders shall be eliminated or limited to the full extent permitted
by the Delaware General Corporation Law, as amended. For purposes of this
<PAGE>
Article, "fiduciary duty as a director" shall include any fiduciary duty arising
out of serving at the request of the corporation as a director of another
corporation, partnership, joint venture, trust or other enterprise, and
"personally liable to the corporation" shall include any liability to such other
corporation, partnership, joint venture, trust or other enterprise, and any
liability to the corporation in its capacity as security holder, joint venturer,
partner, beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise. Any repeal or
modification of the foregoing paragraph by the stockholders of the corporation
shall not adversely affect the elimination or limitation of the personal
liability of a director for any act or omission occurring prior to the effective
date of such repeal or modification. This provision shall not eliminate or limit
the liability of a director for any act or omission occurring prior to the
effective date of this Article.
ELEVENTH: The corporation is to have perpetual existence.
TWELFTH: Article Ten of the corporation's original Certificate of
Incorporation is hereby deleted in its entirety and the corporation expressly
elects to be governed by Section 203 of the Delaware General Corporation Law.
THIRTEENTH: Notwithstanding any other provisions of this Amended and
Restated Certificate of Incorporation or the By-laws of the corporation or the
fact that a lesser percentage may be specified by law, this Amended and Restated
Certificate of Incorporation or the By-laws of the corporation, the affirmative
vote of the holders of not less than two-thirds (66 2/3%) of the total voting
power of the outstanding stock of the corporation entitled to vote generally in
the election of Directors, voting together as a single class, shall be required
to amend, alter, adopt any provision inconsistent with or to repeal Article
SIXTH or Article SEVENTH of this Amended and Restated Certificate of
Incorporation. Furthermore, the corporation reserves the right to amend or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon a stockholder herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the corporation has caused this Amended and Restated
Certificate to be signed by its duly authorized officers this 25th day of April,
1994.
ALTERNATIVE RESOURCES
CORPORATION
By: /s/ Larry Kane
------------------------------------
Its: President
------------------------------------
Attest:
/s/ Michael E. Harris
- ----------------------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ALTERNATIVE RESOURCES CORPORATION
* * * * *
ALTERNATIVE RESOURCES CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Company approved and adopted the
following resolution to amend its Amended and Restated Certificate of
Incorporation declaring it advisable and recommended that the amendment be
submitted to the stockholders for their consideration:
RESOLVED, that the first paragraph of ARTICLE FOURTH of the
Company's Amended and Restated Certificate of Incorporation be and
hereby is amended to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock
which the corporation shall have the authority to issue is
51,000,000 shares, consisting of (i) 50,000,000 shares of common
stock, $0.01 par value per share ("Common Stock"), and (ii)
1,000,000 shares of preferred stock, $0.01 par value per share
("Preferred Stock").
SECOND: The amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware by the
affirmative vote of the holders of a majority of the outstanding shares of stock
entitled to vote at a meeting of stockholders.
IN WITNESS WHEREOF, ALTERNATIVE RESOURCES CORPORATION has caused this
certificate to be signed by its Vice President, Chief Financial Officer,
Secretary and Treasurer this 9th day of May, 1996.
ALTERNATIVE RESOURCES CORPORATION
By: /s/ Bradley K. Lamers
-------------------------------------
Name: Bradley K. Lamers
Title: Vice President, Chief Financial
Officer, Secretary and
Treasurer
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF PREFERRED STOCK
of
ALTERNATIVE RESOURCES CORPORATION
We, Raymond R. Hipp, Chairman of the Board of Directors and Steven Purcell,
Secretary, of Alternative Resources Corporation, a corporation organized and
existing under the Delaware General Corporation Law, in accordance with the
provisions of Section 151(g) thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation, the Board of Directors on October 15, 1998,
adopted, ratified and approved this Certificate of Designations the series of
preferred stock designated herein.
Section 1. Designation and Amount. The shares of the series of preferred
stock shall be designated as "Junior Preferred Stock, Series A" (the "Preferred
Stock") and the number of shares constituting the series shall be 200,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of preferred stock ranking prior and superior to the shares
of Preferred Stock with respect to dividends, the holders of shares of
Preferred Stock, in preference to the holders of common stock, $.01 par
value per share, of the Corporation (the "Common Stock") and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the 15th day of March, June,
September and December in each year (each such date being a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $25.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since
the first issue of any share or fraction of a share of Preferred Stock. If
the Corporation shall at any time on or after October 28, 1998 declare or
pay any dividend on Common Stock payable in shares of Common Stock, or
effect a subdivision of combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each case the amount to which holders of
shares of Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other
than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per
share on the Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
<PAGE>
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not
more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time on or after October 28, 1998
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) Except as set forth herein, holders of Preferred Stock shall have no
special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Preferred Stock outstanding shall
have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any other distributions
on, any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Preferred Stock, except
dividends paid ratably on the Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) to the Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire shares of
any such parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Preferred Stock, or any shares of stock ranking on a parity with the
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
<PAGE>
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of preferred
stock and may be reissued as part of a new series of preferred stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Preferred Stock
unless, prior thereto, the holders of shares of Preferred Stock shall have
received $100.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be distributed
per share to holders of Common Stock, or (2) to the holders of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Preferred Stock, except distributions made ratably on the Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time on or
after October 28, 1998 declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Preferred Stock then outstanding shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time on or after October 28, 1998
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Preferred Stock shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Preferred Stock shall not be
redeemable.
Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of two-thirds
or more of the outstanding shares of Preferred Stock, voting together as a
single class.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
<PAGE>
and do affirm the foregoing as true under the penalties of perjury as of this
15th day of October, 1998.
/s/ Raymond R. Hipp
Raymond R. Hipp
Chairman of the Board of
Directors
ATTEST:
/s/ Steven Purcell
Steven Purcell, Secretary
<PAGE>
EXHIBIT 3.1 - AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ALTERNATIVE RESOURCES CORP.
The original Certificate of Incorporation of the corporation was filed with
the Secretary of State of Delaware on March 7, 1988. The name of the corporation
under which it was originally incorporated was Alternative Resources Corp. This
Amended and Restated Certificate of Incorporation not only restates and
integrates the original Certificate of Incorporation and all amendments thereto,
but also includes amendments adopted by the stockholders of the corporation on
the date hereof. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the applicable provisions of Sections 228, 242 and
245 of the General Corporation Law of Delaware and shall become effective upon
filing with the Secretary of State of the State of Delaware.
FIRST: The name of the corporation is ALTERNATIVE RESOURCES CORPORATION.
SECOND: The corporation's registered office in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the corporation's registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business and the objects and purposes to be
transacted, promoted and carried on are to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue is 21,000,000 shares, consisting
of (i) 20,000,000 shares of common stock, $0.01 par value per share ("Common
Stock"), and (ii) 1,000,000 shares of preferred stock, $0.01 par value per share
("Preferred Stock").
The designations, powers, preferences and relative participating, optional
or other special rights and the qualifications, limitations and restrictions
thereof in respect of each class of capital stock of the corporation are as
follows:
A. COMMON STOCK
1. VOTING. Except as otherwise provided by law, each share of Common Stock
shall entitle the holder thereof to one vote in any matter which is submitted to
a vote of stockholders of the corporation.
2. DIVIDENDS. Subject to the express terms of the Preferred Stock
outstanding from time to time, such dividend or distribution as may be
determined by the Board of Directors of the corporation may from time to time be
declared and paid or made upon the Common Stock out of any source at the time
lawfully available for the payment of dividends.
3. LIQUIDATION. The holders of Common Stock shall be entitled to share
ratably upon any liquidation, dissolution or winding up of the affairs of the
corporation (voluntary of involuntary) of all assets of the corporation which
are legally available for distribution, if any, remaining after payment of all
debts and other liabilities and subject to the prior rights of any holders of
Preferred Stock of the preferential amounts, if any, to which they are entitled.
4. PURCHASES. Subject to any applicable provisions of this Article Fourth,
the corporation may at any time or from time to time purchase or otherwise
acquire shares of its Common Stock in any manner now or hereafter permitted by
law, publicly or privately, or pursuant to any agreement.
B. PREFERRED STOCK
Subject to the terms contained in any designation of a series of Preferred
Stock, the Board of Directors is expressly authorized, at any time and from time
to time, to fix, by resolution or resolutions, the following provisions for
shares of any class or classes of Preferred Stock of the
<PAGE>
corporation or any series of any class of Preferred Stock:
1. the designation of such class or series, the number of shares to
constitute such class or series which may be increased or decreased (but not
below the number of shares of that class or series then outstanding) by
resolution of the Board of Directors, and the stated value thereof if different
from the par value thereof;
2. whether the shares of such class or series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights;
3. the dividends, if any, payable on such class or series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of the same class;
4. whether the shares of such class or series shall be subject to
redemption by the corporation, and, if so, the times, prices and other
conditions of such redemption;
5. the amount or amounts payable upon shares of such series upon, and the
rights of the holders of such class or series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the corporation;
6. whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and manner
in which any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
7. whether the shares of such class or series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of the
same class or any other securities and, if so, the price or prices or the rate
or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
8. the limitations and restrictions, if any, to be effective while any
shares of such class or series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or other
acquisition by the corporation of the Common Stock or shares of stock of any
other class or any other series of the same class;
9. the conditions or restrictions, if any, upon the creation of
indebtedness of the corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other series of
the same class or of any other class;
10. the ranking (be it PARI PASSU, junior or senior) of each class or
series vis-a-vis any other class or series of any class of Preferred Stock as to
the payment of dividends, the distribution of assets and all other matters; and
11. any other powers, preferences and relative, participating, optional and
other special rights, and any qualifications, limitations and restrictions
thereof, insofar as they are not inconsistent with the provisions of this
Amended and Restated Certificate of Incorporation, to the full extent permitted
in accordance with the laws of the State of Delaware.
The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
C. MISCELLANEOUS
1. PREEMPTIVE RIGHTS. No holder of any share of any class of stock of the
corporation shall have any preemptive right to subscribe for or acquire
additional shares of stock of any class of the corporation or warrants or
options to purchase, or securities convertible into, shares of any class of
stock of the corporation.
<PAGE>
2. ISSUANCE OF STOCK. Shares of capital stock of the corporation may be
issued by the corporation from time to time in such amounts and proportions and
for such consideration (not less than the par value thereof in the case of
capital stock having par value) as may be fixed and determined from time to time
by the Board of Directors and as shall be permitted by law.
3. UNCLAIMED DIVIDENDS. Any and all right, title, interest and claim in or
to any dividends declared by the corporation, whether in cash, stock or
otherwise, which are unclaimed by the stockholder entitled thereto for a period
of six years after the close of business on the payment date, shall be and shall
be deemed to be extinguished and abandoned; and such unclaimed dividends in the
possession of the corporation, its transfer agents or other agents or
depositories, shall at such time become the absolute property of the
corporation, free and clear of any and all claims of any persons whatsoever.
D. STOCK SPLIT
Notwithstanding anything in this Amended and Restated Certificate of
Incorporation to the contrary, each share of Common Stock of the corporation
issued and outstanding immediately prior to the effective date of this Amended
and Restated Certificate of Incorporation shall be automatically converted,
without further action, into seven (7) shares of the Common Stock authorized
herein. On such effective date, outstanding certificates representing shares of
Common Stock shall thereafter automatically be deemed to represent certificates
for the number of shares of Common Stock determined as set forth in the
preceding sentence; provided, however, that the holders thereof shall be
entitled to present such certificates to the corporation for replacement with
certificates reflecting such number of shares of Common Stock.
SIXTH: A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The number of Directors
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by the Board of Directors. The Directors of the
corporation shall be divided into three classes: Class I, Class II and Class
III. Each class shall consist, as nearly as may be possible, of one-third of the
whole number of the Board of Directors. If the Board of Directors is not evenly
divisible by three, the Board of Directors shall determine the number of
Directors to be elected to each class. The initial member of Class I shall be
Christopher R. Joseph and he shall hold office for a term to expire at the
annual meeting of the stockholders to be held in 1995; the initial members of
Class II shall be Larry I. Kane and Bruce R. Smith and they shall hold office
for a term to expire at the annual meeting of the stockholders to be held in
1996; and the initial member of Class III shall be Robert L. Cummings and he
shall hold office for a term to expire at the annual meeting of the stockholders
to be held in 1997, and in the case of each class, until their respective
successors are duly elected and qualified. At each annual election held
commencing with the annual election in 1994, the Directors elected to succeed
those whose terms expire shall be identified as being of the same class as the
Directors they succeed and shall be elected to hold office for a term to expire
at the third annual meeting of the stockholders after their election and until
their respective successors are duly elected and qualified. Any vacancy on the
Board of Directors that results from an increase in the number of directors may
be filled by a majority of the Board of Directors then in office, provided that
a quorum is present, and any other vacancy occurring in the Board of Directors
may be filled by a majority of the directors then in office, even if less than a
quorum, or by the sole remaining director. If the number of Directors changes,
any increase or decrease in Directors shall be apportioned among the classes so
as to maintain all classes as equal in number as possible, and any additional
Director elected to any class shall hold office for a term which shall coincide
with the terms of the other Directors in such class and until his successor is
duly elected and qualified.
B. STOCKHOLDER NOMINATION OF A DIRECTOR CANDIDATE AND INTRODUCTION OF NEW
BUSINESS. Advance notice of stockholder nominations for the election of
Directors and of new business to be brought by stockholders before any meeting
of the stockholders of the corporation shall be given in a manner provided by
the By-laws of the corporation.
C. REMOVAL. Any Director may be removed from office as a Director at any
time, but only for cause, and only by the affirmative vote of stockholders of
record holding not less than two-thirds (66 2/3%) of the total outstanding
voting stock of the corporation given at a meeting of the stockholders called
for that purpose.
SEVENTH: A. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of
<PAGE>
the stockholders, for any purpose or purposes (except to the extent otherwise
provided by law or this Amended and Restated Certificate of Incorporation), may
only be called by the Chairman of the Board, the President or a majority of the
Board of Directors then in office.
B. WRITTEN CONSENT BY STOCKHOLDERS WITHOUT A MEETING. No action required or
permitted to be taken at any annual meeting or special meeting of stockholders
of the corporation may be taken by written consent without a meeting of such
stockholders.
EIGHTH: A. AMENDMENT OF BY-LAWS. The Board of Directors of the corporation
is authorized to adopt, amend or repeal the By-laws of the corporation, subject
to applicable law and any applicable provisions in any resolution of the Board
of Directors, except that any By-law provision adopted by the stockholders
amending the By-laws after their initial adoption may be amended or repealed
only by the holders of not less than two-thirds (66 2/3%) of the total
outstanding voting stock of the corporation.
B. ELECTION OF DIRECTORS. Elections of Directors need not be by written
ballot unless the By-laws of the corporation shall so provide.
C. MEETINGS OF STOCKHOLDERS. Meetings of stockholders may be held within or
without the State of Delaware, as the by-laws of the corporation may provide.
D. BOOKS OF CORPORATION. The books of the corporation may be kept at such
place within or without the State of Delaware as the By-laws of the corporation
may provide or as may be designated from time to time by the Board of Directors
of the corporation.
NINTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or the stockholders or class of stockholders of the corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of the
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
TENTH: No Director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, provided that this Article TENTH shall not eliminate or
limit the liability of a Director: (i) for any breach of the Director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the General Corporation Law of the State of
Delaware (or the corresponding provision of any successor act or law); or (iv)
for any transaction from which the Director derived an improper personal
benefit. This Article TENTH shall not eliminate or limit the liability of a
Director for any act or omission occurring prior to the date this Article TENTH
becomes effective. Neither the amendment nor repeal of this Article TENTH, nor
the adoption of any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article TENTH, shall eliminate or reduce
the effect of this Article TENTH in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article TENTH, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
If the Delaware General Corporation Law is amended after the effective date of
this Article to further eliminate or limit, or to authorize further elimination
or limitation of, the personal liability of directors for breach of fiduciary
duty as a director, then the personal liability of a director to the corporation
or its stockholders shall be eliminated or limited to the full extent permitted
by the Delaware General Corporation Law, as amended. For purposes of this
<PAGE>
Article, "fiduciary duty as a director" shall include any fiduciary duty arising
out of serving at the request of the corporation as a director of another
corporation, partnership, joint venture, trust or other enterprise, and
"personally liable to the corporation" shall include any liability to such other
corporation, partnership, joint venture, trust or other enterprise, and any
liability to the corporation in its capacity as security holder, joint venturer,
partner, beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise. Any repeal or
modification of the foregoing paragraph by the stockholders of the corporation
shall not adversely affect the elimination or limitation of the personal
liability of a director for any act or omission occurring prior to the effective
date of such repeal or modification. This provision shall not eliminate or limit
the liability of a director for any act or omission occurring prior to the
effective date of this Article.
ELEVENTH: The corporation is to have perpetual existence.
TWELFTH: Article Ten of the corporation's original Certificate of
Incorporation is hereby deleted in its entirety and the corporation expressly
elects to be governed by Section 203 of the Delaware General Corporation Law.
THIRTEENTH: Notwithstanding any other provisions of this Amended and
Restated Certificate of Incorporation or the By-laws of the corporation or the
fact that a lesser percentage may be specified by law, this Amended and Restated
Certificate of Incorporation or the By-laws of the corporation, the affirmative
vote of the holders of not less than two-thirds (66 2/3%) of the total voting
power of the outstanding stock of the corporation entitled to vote generally in
the election of Directors, voting together as a single class, shall be required
to amend, alter, adopt any provision inconsistent with or to repeal Article
SIXTH or Article SEVENTH of this Amended and Restated Certificate of
Incorporation. Furthermore, the corporation reserves the right to amend or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon a stockholder herein are granted subject to this
reservation.
IN WITNESS WHEREOF, the corporation has caused this Amended and Restated
Certificate to be signed by its duly authorized officers this 25th day of April,
1994.
ALTERNATIVE RESOURCES
CORPORATION
By: /s/ Larry Kane
------------------------------------
Its: President
------------------------------------
Attest:
/s/ Michael E. Harris
- ----------------------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ALTERNATIVE RESOURCES CORPORATION
* * * * *
ALTERNATIVE RESOURCES CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Company approved and adopted the
following resolution to amend its Amended and Restated Certificate of
Incorporation declaring it advisable and recommended that the amendment be
submitted to the stockholders for their consideration:
RESOLVED, that the first paragraph of ARTICLE FOURTH of the
Company's Amended and Restated Certificate of Incorporation be and
hereby is amended to read in its entirety as follows:
FOURTH: The total number of shares of all classes of stock
which the corporation shall have the authority to issue is
51,000,000 shares, consisting of (i) 50,000,000 shares of common
stock, $0.01 par value per share ("Common Stock"), and (ii)
1,000,000 shares of preferred stock, $0.01 par value per share
("Preferred Stock").
SECOND: The amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware by the
affirmative vote of the holders of a majority of the outstanding shares of stock
entitled to vote at a meeting of stockholders.
IN WITNESS WHEREOF, ALTERNATIVE RESOURCES CORPORATION has caused this
certificate to be signed by its Vice President, Chief Financial Officer,
Secretary and Treasurer this 9th day of May, 1996.
ALTERNATIVE RESOURCES CORPORATION
By: /s/ Bradley K. Lamers
-------------------------------------
Name: Bradley K. Lamers
Title: Vice President, Chief Financial
Officer, Secretary and
Treasurer
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF PREFERRED STOCK
of
ALTERNATIVE RESOURCES CORPORATION
We, Raymond R. Hipp, Chairman of the Board of Directors and Steven Purcell,
Secretary, of Alternative Resources Corporation, a corporation organized and
existing under the Delaware General Corporation Law, in accordance with the
provisions of Section 151(g) thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation, the Board of Directors on October 15, 1998,
adopted, ratified and approved this Certificate of Designations the series of
preferred stock designated herein.
Section 1. Designation and Amount. The shares of the series of preferred
stock shall be designated as "Junior Preferred Stock, Series A" (the "Preferred
Stock") and the number of shares constituting the series shall be 200,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of preferred stock ranking prior and superior to the shares
of Preferred Stock with respect to dividends, the holders of shares of
Preferred Stock, in preference to the holders of common stock, $.01 par
value per share, of the Corporation (the "Common Stock") and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the 15th day of March, June,
September and December in each year (each such date being a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to the greater of (a) $25.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since
the first issue of any share or fraction of a share of Preferred Stock. If
the Corporation shall at any time on or after October 28, 1998 declare or
pay any dividend on Common Stock payable in shares of Common Stock, or
effect a subdivision of combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each case the amount to which holders of
shares of Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other
than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $25.00 per
share on the Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
<PAGE>
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of
Preferred Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be not
more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Preferred Stock shall entitle the holder thereof to 100 votes on
all matters submitted to a vote of the stockholders of the Corporation. In
the event the Corporation shall at any time on or after October 28, 1998
declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number
of votes per share to which holders of shares of Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) Except as set forth herein, holders of Preferred Stock shall have no
special voting rights and their consent shall not be required (except to
the extent they are entitled to vote with holders of Common Stock as set
forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Preferred Stock outstanding shall
have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, or make any other distributions
on, any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Preferred Stock, except
dividends paid ratably on the Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) to the Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire shares of
any such parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Preferred Stock, or any shares of stock ranking on a parity with the
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
<PAGE>
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of preferred
stock and may be reissued as part of a new series of preferred stock to be
created by resolution or resolutions of the Board of Directors, subject to the
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Preferred Stock
unless, prior thereto, the holders of shares of Preferred Stock shall have
received $100.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be distributed
per share to holders of Common Stock, or (2) to the holders of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Preferred Stock, except distributions made ratably on the Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time on or
after October 28, 1998 declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Preferred Stock then outstanding shall at the same time be similarly exchanged
or changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time on or after October 28, 1998
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Preferred Stock shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Preferred Stock shall not be
redeemable.
Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of two-thirds
or more of the outstanding shares of Preferred Stock, voting together as a
single class.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
<PAGE>
and do affirm the foregoing as true under the penalties of perjury as of this
15th day of October, 1998.
/s/ Raymond R. Hipp
Raymond R. Hipp
Chairman of the Board of
Directors
ATTEST:
/s/ Steven Purcell
Steven Purcell, Secretary
<PAGE>
EXHIBIT 10.8 - STOCK OPTION AGREEMENT BETWEEN ALTERNATIVE RESOURCES CORPORATION
AND RAYMOND R. HIPP
NON-QUALIFIED STOCK OPTION
THIS NON-QUALIFIED STOCK OPTION, granted this 23rd day of July, 1998, by
Alternative Resources Corporation, a Delaware Corporation (the "Company"), to
Raymond Hipp (the "Optionee").
WITNESSETH:
WHEREAS, the Board of Directors of the Company is of the opinion that the
interests of the Company and its subsidiaries will be advanced by encouraging
and enabling those employees of the Company and its subsidiaries, upon whose
judgment, initiative and efforts the Company is largely dependent for the
successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest in the
Company will stimulate such employees and strengthen their desire to remain with
the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and of the services to be
performed by the Optionee, under paragraph 2 hereunder, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. OPTION GRANT. The Company hereby grants to the Optionee an option to
purchase a total of three hundred thousand (300,000) shares of Common Stock of
the Company at an option exercise price of $13.93 per share, being not less than
100% of the Fair Market Value of a share of Common Stock on the date hereof.
This option is NOT intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. TIME OF EXERCISE. This option may be exercised (in the manner provided
in paragraph 3 hereof) in whole or in part, and from time to time after the date
hereof, subject to the following limitations:
(a) This option may not be exercised during the first six (6) months from
the date hereof. Thereafter, it may be exercised to a maximum cumulative extent
of 2.38% of the total shares covered by this option on and after January 23,
1999, and as to an additional 2.38% of the total shares covered by this option
on and after the last day of each calendar month thereafter through and
including June 23, 2002, after which date this option, to the extent not
previously exercised, may be exercised in full. For practical reasons, the
Company may allow options to be exercised only at the end of each calendar
quarter.
(b) This option may NOT be exercised after the earliest to occur of any of
the following:
(i) after the termination of the Optionee's employment with the Company or
one of its subsidiaries for "cause" (which shall have the same meaning
as set forth in any employment agreement between the Optionee and the
Company);or
(ii) more than thirty (30) days after the termination of the Optionee's
employment with the Company or one of its subsidiaries for any reason
other than a termination by the Company for Cause or by reason of the
Optionee's permanent disability or death (and then only to the extent
the Optionee is in compliance with any covenant not to compete with
the Company as set forth in any employment agreement between the
Optionee and the Company and only to the extent the Optionee could
have exercised this option on the date of termination);
(iii) more than six (6) months after the termination of the Optionee's
employment with the Company or one of its subsidiaries by reason of
the Optionee's permanent disability (within the meaning of Section
22(e)(3) of the
<PAGE>
Code) or death (and then only to the extent the Optionee could have
exercised this option on the date of termination or death); or
(iv) more than 10 years from the date hereof.
3. METHOD OF EXERCISE. This option may be exercised only by notice in
writing delivered to the Treasurer of the Company and accompanied by:
(a) The full purchase price of the shares purchased hereunder payable by a
certified or cashier's check payable to the order of the Company; and
(b) Such other documents or representations (including without limitation
representations as to the intention of the Optionee, or the purchaser under
paragraph 4 below, to acquire the shares for investment) as the Company may
reasonably request in order to comply with securities, tax or other laws then
applicable to the exercise of the option.
4. NON-TRANSFERABILITY; DEATH. This option is not transferable by the
Optionee otherwise than by will or the laws of descent and distribution and is
exercisable during the Optionee's lifetime only by him. If the Optionee dies
while employed by the Company or one of its subsidiaries, this option may be
exercised during the period described in paragraph 2(b)(iii) (but not more than
10 years from the date hereof) by his estate or the person to whom the option
passes by will or the laws of descent and distribution, but only to the extent
that the Optionee could have exercised this option on the date of his death.
5. CANCELLATION. In the event that the Optionee accepts a position within
the Company with less responsibility than the position held at the date of this
grant (as determined by the Company), and for which this grant applies as
detailed in the transmittal letter accompanying this grant, the Company shall
have the right to terminate any non-vested options under this grant, as of the
date the new position is assumed.
6. REGISTRATION. The Company shall not be required to issue or deliver any
certificate for its Common Stock purchased upon the exercise of this option
prior to the admission of such shares to listing on any stock exchange on which
shares may at that time be listed. In the event of the exercise of this option
with respect to any shares subject hereto, the Company shall make prompt
application for such listing. If at any time during the option period the
Company shall be advised by its counsel that shares deliverable upon exercise of
the option are required to be registered under the Federal Securities Act of
1933, as amended, or that delivery of the shares must be accompanied or preceded
by a prospectus meeting the requirements of the Act, the Company will use its
best efforts to effect such registration or provide such prospectus not later
than a reasonable time following each exercise of this option, but delivery of
shares by the Company may be deferred until registration is effected or a
prospectus is made available. The Optionee shall have no interest in shares
covered by this option until certificates for the shares are issued.
7. SUBJECT TO PLAN. This option is subject to all of the terms and
conditions set forth in the Company's Incentive Stock Option Plan (the "Plan"),
as adopted on April 29, 1994 and amended on April 26, 1996 and April 29, 1997.
Any capitalized terms not defined herein shall be subject to the definitions set
forth in the Plan.
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
ACCEPTED Alternative Resources Corporation
/s/ Raymond R. Hipp By: /s/ Bradley K. Lamers
- ------------------- ---------------------
Optionee Its: VICE PRESIDENT
<PAGE>
EXHIBIT 10.9 - STOCK OPTION AGREEMENT BETWEEN ALTERNATIVE RESOURCES CORPORATION
AND STEVEN PURCELL
NON-QUALIFIED STOCK OPTION
THIS NON-QUALIFIED STOCK OPTION, granted this 3rd day of August, 1998, by
Alternative Resources Corporation, a Delaware Corporation (the "Company"), to
Steven Purcell (the "Optionee").
WITNESSETH:
WHEREAS, the Board of Directors of the Company is of the opinion that the
interests of the Company and its subsidiaries will be advanced by encouraging
and enabling those employees of the Company and its subsidiaries, upon whose
judgment, initiative and efforts the Company is largely dependent for the
successful conduct of the business of the Company and its subsidiaries, to
acquire or increase their proprietary interest in the Company, thus providing
them with a more direct stake in its welfare and assuring a closer
identification of their interests with those of the Company; and
WHEREAS, the Board believes that the acquisition of such an interest in the
Company will stimulate such employees and strengthen their desire to remain with
the Company or one of its subsidiaries;
NOW, THEREFORE, in consideration of the premises and of the services to be
performed by the Optionee, under paragraph 2 hereunder, the Company hereby
grants this non-qualified stock option to the Optionee on the terms hereinafter
expressed.
1. OPTION GRANT. The Company hereby grants to the Optionee an option to
purchase a total of two hundred thousand (200,000) shares of Common Stock of the
Company at an option exercise price of $13.81 per share, being not less than
100% of the Fair Market Value of a share of Common Stock on the date hereof.
This option is NOT intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. TIME OF EXERCISE. This option may be exercised (in the manner provided
in paragraph 3 hereof) in whole or in part, and from time to time after the date
hereof, subject to the following limitations:
(a) This option may not be exercised during the first six (6) months from
the date hereof. Thereafter, it may be exercised to a maximum cumulative extent
of 2.38% of the total shares covered by this option on and after February 3,
1999, and as to an additional 2.38% of the total shares covered by this option
on and after the last day of each calendar month thereafter through and
including July 3, 2002, after which date this option, to the extent not
previously exercised, may be exercised in full. For practical reasons, the
Company may allow options to be exercised only at the end of each calendar
quarter.
(b) This option may NOT be exercised after the earliest to occur of any of
the following:
(i) after the termination of the Optionee's employment with the Company or
one of its subsidiaries for "cause" (which shall have the same meaning
as set forth in any employment agreement between the Optionee and the
Company);or
(ii) more than thirty (30) days after the termination of the Optionee's
employment with the Company or one of its subsidiaries for any reason
other than a termination by the Company for Cause or by reason of the
Optionee's permanent disability or death (and then only to the extent
the Optionee is in compliance with any covenant not to compete with
the Company as set forth in any employment agreement between the
Optionee and the Company and only to the extent the Optionee could
have exercised this option on the date of termination);
(iii) more than six (6) months after the termination of the Optionee's
employment with the Company or one of its subsidiaries by reason of
the Optionee's permanent disability (within the meaning of Section
22(e)(3) of the Code) or death (and then only to the extent the
Optionee could have exercised this option on the date of termination
or death); or
<PAGE>
(iv) more than 10 years from the date hereof.
3. METHOD OF EXERCISE. This option may be exercised only by notice in
writing delivered to the Treasurer of the Company and accompanied by:
(a) The full purchase price of the shares purchased hereunder payable by a
certified or cashier's check payable to the order of the Company; and
(b) Such other documents or representations (including without limitation
representations as to the intention of the Optionee, or the purchaser under
paragraph 4 below, to acquire the shares for investment) as the Company may
reasonably request in order to comply with securities, tax or other laws then
applicable to the exercise of the option.
4. NON-TRANSFERABILITY; DEATH. This option is not transferable by the
Optionee otherwise than by will or the laws of descent and distribution and is
exercisable during the Optionee's lifetime only by him. If the Optionee dies
while employed by the Company or one of its subsidiaries, this option may be
exercised during the period described in paragraph 2(b)(iii) (but not more than
10 years from the date hereof) by his estate or the person to whom the option
passes by will or the laws of descent and distribution, but only to the extent
that the Optionee could have exercised this option on the date of his death.
5. CANCELLATION. In the event that the Optionee accepts a position within
the Company with less responsibility than the position held at the date of this
grant (as determined by the Company), and for which this grant applies as
detailed in the transmittal letter accompanying this grant, the Company shall
have the right to terminate any non-vested options under this grant, as of the
date the new position is assumed.
6. REGISTRATION. The Company shall not be required to issue or deliver any
certificate for its Common Stock purchased upon the exercise of this option
prior to the admission of such shares to listing on any stock exchange on which
shares may at that time be listed. In the event of the exercise of this option
with respect to any shares subject hereto, the Company shall make prompt
application for such listing. If at any time during the option period the
Company shall be advised by its counsel that shares deliverable upon exercise of
the option are required to be registered under the Federal Securities Act of
1933, as amended, or that delivery of the shares must be accompanied or preceded
by a prospectus meeting the requirements of the Act, the Company will use its
best efforts to effect such registration or provide such prospectus not later
than a reasonable time following each exercise of this option, but delivery of
shares by the Company may be deferred until registration is effected or a
prospectus is made available. The Optionee shall have no interest in shares
covered by this option until certificates for the shares are issued.
7. SUBJECT TO PLAN. This option is subject to all of the terms and
conditions set forth in the Company's Incentive Stock Option Plan (the "Plan"),
as adopted on April 29, 1994 and amended on April 26, 1996 and April 29, 1997.
Any capitalized terms not defined herein shall be subject to the definitions set
forth in the Plan.
IN WITNESS WHEREOF, the Company has caused this non-qualified stock option
to be executed on the date first above written.
ACCEPTED Alternative Resources Corporation
/s/ Steven Purcell By: /s/ Bradley K. Lamers
- ------------------ ---------------------
Optionee Its: VICE PRESIDENT
<PAGE>
Exhibit 13
Five-Year Summary of
- ------------------------------
Selected Financial Data
<TABLE>
<CAPTION>
In thousands, except per share data Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
1998* 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Revenue $ 338,560 $ 262,970 $ 196,728 $ 154,173 $ 94,478
Cost of services 225,127 172,248 124,268 97,401 58,062
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 113,433 90,722 72,460 56,772 36,416
Selling, general and administrative expenses 92,734 68,122 51,538 39,847 26,335
Restructuring and one-time charges 29,610 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (8,911) 22,600 20,922 16,925 10,081
Other income (expense), net (3,324) 232 1,107 713 303
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (12,235) 22,832 22,029 17,638 10,384
Income taxes 5,520 8,743 8,811 7,280 4,194
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (17,755) $ 14,089 $ 13,218 $ 10,358 $ 6,190
Diluted earnings (loss) per share $ (1.13) $ 0.88 $ 0.82 $ 0.65 $ 0.41
- ----------------------------------------------------------------------------------------------------------------------
Shares used in computing diluted
earnings (loss) per share 15,779 16,052 16,077 15,861 14,958
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Number of branches open at period end 52 58 51 42 34
SELECTED BALANCE SHEET DATA
Working capital $ 45,435 $ 65,795 $ 51,812 $ 33,994 $ 19,207
Total assets 137,955 174,450 64,403 47,811 26,581
Stockholders' equity 52,529 70,645 55,667 38,461 19,972
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* As detailed in Management's Discussion and Analysis of Results of Operations,
results for 1998 include pre-tax charges for restructuring and goodwill
impairment totaling $29.6 million. Excluding these items, income from
operations was $20.7 million, net income was $10.4 million and diluted
earnings per share was $0.64.
<PAGE>
management's discussion and analysis of
- --------------------------------------------
financial condition and results of operations
OVERVIEW > Alternative Resources Corporation-Registered Trademark- (A.R.C) is
a leading provider of information technology management and staffing
services. The Company serves Fortune 1000 and mid-sized clients from 52
offices in the U.S. and Canada.
During the third quarter of 1998, significant changes occurred in the management
structure of A.R.C as Larry Kane, the Company's founder and chief executive
officer, retired. Raymond Hipp, an A.R.C board member for four years, assumed
the role of chief executive officer. Other changes in the management structure
included the replacement of several executive positions as well as the expansion
of the senior management team to include several additional key management
positions. These changes led to strategic modifications in the Company's
operating model that were designed to eliminate unnecessary costs and create a
more efficient sales and delivery system for the Company's services. Programs
and activities that were not considered strategic to the Company's core business
were terminated. In connection with these changes, the Company incurred a
restructuring charge in the third quarter of 1998. The restructuring charge,
along with a charge related to the impairment of goodwill, are included as part
of "Restructuring and One-Time Charges" in the Company's 1998 Statement of
Operations. These charges are more fully explained below.
The Company also completed a final settlement agreement with respect to CGI
Systems, Inc. (CGI), which was acquired in the fourth quarter of 1997. One of
the components of the acquisition was subject to a three-year earn-out
agreement. A portion of the purchase price was set aside in an escrow account to
be paid if the earn-out targets were achieved. During the fourth quarter of
1998, A.R.C and the sellers mutually agreed to liquidate the escrow account and
disburse the funds based upon a negotiated split of approximately one-half to
the sellers and one-half to A.R.C. The portion that was paid to the sellers was
reflected by the Company as goodwill as part of the CGI purchase price for the
component of the business to which the escrow was related. The portion that was
disbursed to A.R.C was used to retire a portion of the Company's borrowings
under its bank line of credit.
RESULTS OF OPERATIONS > The following table sets forth the percentage of revenue
represented by certain line items of A.R.C's consolidated statements of
operations for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
- ------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of services 66.5 65.5 63.2
- ------------------------------------------------------------
Gross profit 33.5 34.5 36.8
Selling, general
and administrative
expenses 27.4 25.9 26.2
Restructuring and
one-time charges 8.7 -- --
- ------------------------------------------------------------
Total operating
expenses 36.1 25.9 26.2
- ------------------------------------------------------------
Income (loss) from
operations (2.6) 8.6 10.6
Other income
(expense), net (1.0) 0.1 0.6
- ------------------------------------------------------------
Income (loss) before
income taxes (3.6) 8.7 11.2
Income taxes 1.6 3.3 4.5
- ------------------------------------------------------------
Net income (loss) (5.2)% 5.4% 6.7%
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
RESTRUCTURING AND ONE-TIME CHARGES > The Company incurred restructuring and
one-time charges of $29.6 million in the third quarter of 1998 which consisted
of the following elements:
<TABLE>
<S> <C>
In millions
-------------------------------------------------------
Impairment of goodwill $25.7
Restructuring charge 3.9
-------------------------------------------------------
Total restructuring and one-time charges $29.6
-------------------------------------------------------
</TABLE>
IMPAIRMENT OF GOODWILL > During the third quarter of 1998, the Company
performed an impairment review of goodwill in accordance with the
requirements of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed of." The review indicated that there was an impairment of
value, which resulted in a $25.7 million charge to expense in order to
properly reflect the appropriate carrying value of goodwill. The facts and
circumstances leading to the impairment review and related revaluation are as
follows:
<PAGE>
management's discussion and analysis of
- ---------------------------------------------
financial condition and results of operations
The acquisition of CGI consisted of three components, one of which was subject
to an earn-out agreement. Accordingly, the portion of the purchase price related
to this component of the acquired business was placed in an escrow account to be
paid to the sellers if the earn-out targets were achieved. As such, the ultimate
purchase price for this component of the acquired business was to be determined
pending settlement of the escrow arrangement. As stated earlier, in the fourth
quarter of 1998, the Company and the sellers negotiated an escrow disbursement
agreement whereby approximately one-half of the escrow was paid to the sellers
and one-half to A.R.C. The portion that was paid to the sellers was added to the
CGI goodwill as part of the CGI purchase price. Subsequent to this escrow
settlement, an impairment review was performed on this portion of CGI goodwill
in accordance with SFAS No. 121. The projected future undiscounted cash flows
over the estimated useful life of this portion of the acquired business were
more than sufficient to recover the related carrying value of goodwill.
The portion of the CGI purchase price that was not placed in escrow related to
the other two components of the acquired business. This part of the purchase
price was allocated to the net assets acquired with the remainder classified as
goodwill. Subsequent information about these two components of CGI's business
which was obtained through the audit of CGI's opening balance sheet, completed
in the third quarter of 1998, and the integration of the acquired businesses
into the Company's operations, indicated that the revenue base and the
profitability of these two business components were lower than expected. An
impairment was recognized when, in accordance with SFAS No. 121, projected
future undiscounted cash flows for these components of the acquired business
were insufficient to recover the related carrying value of the CGI goodwill. As
such, the carrying value of the CGI goodwill that relates to these components of
the acquired business was written down to the Company's estimate of fair value.
The Company used discounted cash flow projections over the remaining estimated
useful life of the acquired business components to determine the appropriate
value of the related goodwill. This review supported a goodwill valuation of
approximately $29.0 million for these components of the acquired business, which
resulted in a write-off of impaired 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 a
thorough review of the Company's strategic initiatives, management determined
that this business was not strategic to the Company's long-term plans. 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.
RESTRUCTURING CHARGE > The restructuring charge consists of expenses
associated with reorganizing the Company's management structure as well as
expenses related to a restructuring of the Company's operating model. Of the
$3.9 million restructuring charge, $1.9 million represents severance pay and
other employment-related expenses connected with reorganizing the management
structure. The remaining $2.0 million of the restructuring charge represents
costs associated primarily with staff reductions and consolidation of sales
offices as management implemented a plan to reduce operating costs and
optimize the Company's operating model. Management estimates that the
restructuring plan will result in annual savings of $3.0 to $4.0 million in
selling, general and administrative expenses. See Notes to Consolidated
Financial Statements for additional details related to the restructuring
charge.
The restructuring and one-time charges impacted the Company's 1998 statement of
operations by decreasing income before income taxes by $29.6 million, decreasing
net income by $28.1 million and decreasing earnings per share by $1.77.
FISCAL 1998 COMPARED TO FISCAL 1997> Revenue increased by 28.7% from $263.0
million in 1997 to $338.6 million in 1998, primarily as a result of an
increase in the Company's value-added Smartsourcing-RegisteredTrademark-
Solutions (Solutions) business and, to a lesser extent, an increase in the
Company's traditional staffing services. Revenue from Solutions services
increased 57% over 1997 amounts while revenue from traditional staffing
services increased 20% over the prior year. A portion of the increase in both
Solutions revenue and staffing revenue was due to the CGI acquisition which
added programming services to both the Solutions and the staffing services
lines. The balance of the growth in revenue is the result of increased
<PAGE>
management's discussion and analysis of
- ---------------------------------------------
financial condition and results of operations
productivity from the Company's network of branch offices. Beginning in the
first quarter of 1999, the Company's traditional staffing and Solutions services
have been renamed A.R.C Staffing Management Services and A.R.C Technology
Management Services, respectively, and will be referred to as such in subsequent
communications.
GROSS PROFIT Gross profit increased by 25.0% from $90.7 million in 1997 to
$113.4 million in 1998, as a result of an increase in the volume of services
provided to clients. Gross margin declined from 34.5% in 1997 to 33.5% in 1998,
principally from the lower margin businesses that were assumed from the CGI
acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses increased from $68.1 million in 1997 to $122.3
million in 1998. Excluding the restructuring and one-time charges taken in
1998, selling, general and administrative expenses increased from $68.1
million in 1997 to $92.7 million in 1998 primarily due to increases in
variable expenses that are tied to revenue growth such as commissions,
bonuses and staffing expenses; and the addition of management and support
costs associated with certain portions of the business which were acquired
via the CGI acquisition. Selling, general and administrative expenses
increased as a percentage of revenue from 25.9% in 1997 to 36.1% in 1998.
Excluding the restructuring and one-time charges taken in 1998, selling,
general and administrative expenses increased as a percentage of revenue from
25.9% in 1997 to 27.4% in 1998, reflecting an increase in certain fixed
expenses such as recruiting costs associated with the implementation of a
centralized recruiting function to supplement existing local recruiting
efforts, costs associated with the aforementioned expansion of the senior
management team, and goodwill amortization expense related to the
acquisitions of CGI Systems, Inc. and Writers, Inc.
INCOME (LOSS) FROM OPERATIONS Income (loss) from operations decreased from
$22.6 million in 1997 to a loss of $8.9 million in 1998. Excluding the
restructuring and one-time charge taken in 1998, income (loss) from
operations decreased from $22.6 million in 1997 to $20.7 million reflecting
the lower gross margin business acquired as part of the CGI acquisition and
higher selling, general and administrative expenses. Income (loss) from
operations as a percentage of total revenue decreased from 8.6% to (2.6)%.
Excluding the restructuring and one-time charge taken in 1998, income (loss)
from operations as a percentage of total revenue decreased from 8.6% to 6.1%.
OTHER INCOME (EXPENSE) Other income (expense) consists of interest income net of
any interest expense. The Company incurred $3.3 million of net interest expense
in 1998 compared with $232,000 of net interest income in 1997. In 1998, the
Company incurred a full year of interest expense on borrowings under a line of
credit which was used to finance the CGI acquisition in the fourth quarter of
1997.
PROVISION FOR INCOME TAXES The provision for income taxes decreased from $8.7
million in 1997 to $5.5 million in 1998. Excluding the tax effect associated
with the restructuring and one-time charges taken in 1998, the provision for
income taxes decreased from $8.7 million, or an effective tax rate of 38.3%, in
1997 to $7.0 million, or an effective tax rate of 40.2%, in 1998. The increase
in the effective tax rate in 1998 was due to nondeductible goodwill amortization
expense in 1998. Excluding the impact of goodwill, the 1998 effective tax rate
was 38.0%.
NET INCOME (LOSS) Net income decreased from $14.1 million in 1997 to a loss of
$17.8 million in 1998. Excluding the restructuring and one-time charges taken in
1998, net income decreased from $14.1 million in 1997 to $10.4 million in 1998
and, as a percentage of total revenue, decreased from 5.4% in 1997 to 3.1% in
1998.
FISCAL 1997 COMPARED TO FISCAL 1996 > Revenue increased by 33.7% from $196.7
million in 1996 to $263.0 million in 1997, primarily as a result of an
increase in the hours of service provided to clients from 5.7 million in 1996
to 7.2 million in 1997, and, to a lesser extent, an increase in the average
revenue per project hour. The increase in hours of service was primarily from
increased productivity of existing branch offices. Branch offices opened
prior to the beginning of 1996 contributed 78.3% of A.R.C's revenue growth
from 1996 to 1997. The increase in average revenue per project hour reflects
demand for technical employees with higher skills and an increase in prices.
The acquisition of CGI contributed $5.9 million, or 3.0% of the revenue
increase.
<PAGE>
management's discussion and analysis of
- ---------------------------------------------
financial condition and results of operations
GROSS PROFIT Gross profit increased by 25.2% from $72.5 million in 1996 to
$90.7 million in 1997, primarily as a result of an increase in hours of
service provided to clients. Gross margin declined from 36.8% in 1996 to
34.5% in 1997, principally as a result of increased volume discounts to our
largest clients. A.R.C offers its largest clients volume discounts from list
prices in order to encourage increased and continued usage of A.R.C's
services. In addition, these arrangements provide A.R.C with the opportunity
to sell its value-added services such as Smartsourcing-RegisteredTrademark-
Solutions,to these clients. A.R.C believes these arrangements have
contributed significantly to its overall revenue growth as well as growth
within its Smartsourcing-RegisteredTrademark- Solutions service line.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses increased from $51.5 million in 1996 to $68.1 million
in 1997, primarily due to increased commissions, bonuses and staffing
expenses associated with revenue and profitability growth, a full year of
expenses associated with the Company's initiative to penetrate middle markets
and Smartsourcing-RegisteredTrademark- Solutions initiatives that were
launched in 1996 and an increased number of branch offices and their related
operating costs. Selling, general and administrative expenses decreased as a
percentage of revenue from 26.2% in 1996 to 25.9% in 1997, reflecting greater
operating efficiencies and economies of scale gained from a larger revenue
base.
INCOME FROM OPERATIONS Income from operations increased from $20.9 million in
1996 to $22.6 million in 1997, and decreased as a percentage of total revenue
from 10.6% to 8.6%. The 1997 income from operations was impacted by the
aforementioned acquisitions and integration costs during the fourth quarter of
1997.
OTHER INCOME Other income consists of interest income net of any interest
expense. Other income decreased in 1997 due to interest expense associated
with the financing of the CGI acquisition.
PROVISION FOR INCOME TAXES The provision for income taxes decreased from $8.8
million, or an effective tax rate of 40.0%, in 1996 to $8.7 million, or an
effective tax rate of 38.3%, in 1997. The decrease in the effective tax rate in
1997 was the result of a tax planning initiative implemented in 1996.
NET INCOME Net income increased from $13.2 million in 1996 to $14.1 million in
1997, and decreased as a percentage of total revenue from 6.7% in 1996 to 5.4%
in 1997.
LIQUIDITY AND CAPITAL RESOURCES > A.R.C has historically financed its operations
and capital expenditures through sales of equity securities, a bank line of
credit and cash generated from operations. Net cash flow provided by operations
was $3.8 million in 1996. Net cash used in operations was $144,000 in 1997 while
net cash provided by operations was $23.0 million in 1998. Net cash flow in 1998
was favorably impacted by the payment of approximately $8.0 million of accounts
receivable, net of related accounts payable, in 1998 that were a part of the CGI
acquisition and were included in the Company's balance sheet as of December 31,
1997. Working capital increased from $51.8 million at December 31, 1996 to $65.8
million at December 31, 1997 and decreased to $45.4 million at December 31,
1998. During 1998, the Company used its available cash to reduce long-term debt
that was incurred under its bank line of credit.
A.R.C financed the acquisition of CGI with cash from short-term investments and
borrowings under a $75.0 million revolving bank credit facility. As of December
31, 1997 and 1998, the total borrowings under the revolving credit facility were
$73.5 million and $47.0 million, respectively.
The Company is in the process of replacing its accounting and financial
reporting systems as well as the systems used by its branch offices to manage
recruiting and project fulfillment activities. These new systems will allow
management to better manage projects through enhanced accounting and reporting
capabilities. In addition, they are necessary to accommodate future growth.
These projects were started in 1997, continued through 1998 and will be
completed in 1999. During 1998, the Company spent $11.9 million on capital
expenditures compared with $6.3 million in 1997 and $1.8 million in 1996. The
majority of the expenditures in 1998 were related to the aforementioned systems
replacement.
<PAGE>
management's discussion and analysis of
- ---------------------------------------------
financial condition and results of operations
A.R.C believes its cash balances, available credit facility and funds from
operations will be sufficient to meet all of its anticipated cash requirements
for at least the next 12 months including funding requirements for expansion of
its office network and completion of its system replacement activities.
YEAR 2000 CONSIDERATIONS > INTERNAL ACCOUNTING AND FINANCIAL SYSTEMS During the
process of replacing its information systems, the Company has also considered
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. Although the replacement of the Company's
enterprise wide systems is being done for business purposes, it coincidentally
addresses Year 2000 issues. As such, management believes that the Company will
not incur significant additional expenditures, over and above the cost of
installing the new systems, to address Year 2000 issues associated with the
Company's internal systems. It is estimated that an additional $4 to $5 million
will be expended in 1999 to complete the aforementioned replacement systems.
VENDORS, SUPPLIERS AND BUSINESS PARTNERS The Company's main "supplier" is its
technical employees. As long as the Company has adequate internal resources in
the form of systems 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 Company also purchases products and services from third parties and intends
to seek written assurances from its material vendors and suppliers that there
will be no interruption of service or acceptable product as a result of the Year
2000 issue. Based in part on the assurances received or not received, the
Company intends to devise contingency plans to mitigate the negative effects on
the Company in the event the Year 2000 issue results in the unavailability of
products or services. The Company cannot assure that any contingency plan will
prevent product or service interruption by one or more of the Company's third
party vendors or suppliers from having a material adverse effect on the Company.
It is planned that these relationships will be evaluated through all of 1999,
and changes to the supply chain as are deemed by management to be appropriate
and feasible will be made.
The Company will be at risk from external infrastructure failures, including
electrical power, telephone, and transportation, among others. Investigation
and assessment of infrastructure is beyond the scope and resources of the
Company. Among the risks arising from these sources are the Company's
inability to conduct business in its offices or at client sites that lose
electrical power or experience failure or elevator, security, HVAC or other
building systems; downtime for billable personnel who are unable to travel to
or from engagement locations if airline or other transportation providers
cannot provide service; and disruption to Company business if telephone or
cellular communication is unavailable.
CLIENTS In many instances the services that the Company provides to its
clients are performed at the client's site, and require the use of the
client's information systems. In the event that the Company's clients
experience Year 2000 problems that impair or prevent access to clients'
systems, the Company may be impaired in its ability to perform services at
those client sites that experience such problems. The Company's technical
employees might, therefore, generateless revenue during that period.
At this time, the Company is not able to assess the ultimate risk to the Company
with respect to potential Year 2000 issues of its clients. However, aside from
its three largest clients, which account for an aggregate of approximately 40
percent of the Company's revenue, the Company is not heavily dependent on any
other single client. The Company has been monitoring, and will continue to
monitor, all available public disclosures of its three largest clients in order
to assess their progress in addressing their respective Year 2000 issues.
<PAGE>
management's discussion and analysis of
- ---------------------------------------------
financial condition and results of operations
The Company's efforts to assess and address Year 2000 issues associated with
vendors, suppliers, business partners and clients are being accomplished using
the Company's internal resources. At this time, management does not believe that
the Company will incur material incremental costs in connection with this
initiative. This cost assessment is dependent in large part upon the information
received from these third parties. As such, the assessment of incremental costs
associated with the Company's Year 2000 initiative will be updated throughout
1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," was issued in March 1998 and is effective for fiscal years
beginning after December 15, 1998. The SOP requires that certain internal and
external costs be expensed or capitalized when incurred to develop or obtain
software for internal use. Generally, costs incurred during the preliminary
project and post-implementation/operation stages, as well as conversion and
general and administrative costs are to be expensed as incurred. Certain
costs incurred during the application and development stage are to be
capitalized. The adoption of this standard as of January 1, 1999, is not
anticipated to have a material impact on the Company's current accounting
policy for internal use software.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998 and is effective for all fiscal quarters of all fiscal
years beginning after June 15,1999. SFAS No. 133 establishes a comprehensive
standard for the recognition and measurement of derivative instruments and
hedging activities. The Company is currently evaluating the impact of SFAS
No. 133 on its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk
inherent in the Company's financial instrument subject to such risks is the
potential market value loss associated with derivative financial instruments and
additional interest expense associated with floating-rate debt resulting from
adverse changes in interest rates.
The Company uses an interest rate swap agreement to reduce exposure to
interest rate fluctuations on its debt. At December 31, 1998, the Company had
an interest rate swap agreement that effectively converted a majority of its
outstanding bank debt from floating interest rates to a fixed interest rate
of 6.3%. This interest rate swap agreement covers $35.0 million notional
amount of debt. At December 31, 1998, $47.0 million of debt was outstanding
under its bank line of credit. Since the interest rate for the portion of the
debt that is covered by the interest rate swap agreement is effectively
fixed, changes in interest rates would have no impact on future interest
expense for that portion of the debt. Therefore, there is no earnings or
liquidity risk associated with either the interest rate swap agreement or
that portion of the debt to which the swap agreement relates. The fair market
value of the interest rate swap is the estimated amount, based upon
discounted cash flows, the Company would pay or receive to terminate the swap
agreement. At December 31, 1998, a 50 basis point decrease in interest rates
would result in an approximate $805,000 increase in the current cost of $1.5
million to terminate the swap agreement.
A portion of the Company's outstanding floating-rate debt, which totaled $12.0
million as of December 31, 1998, is not covered by an interest rate swap
agreement. An adverse change in interest rates during the time that this portion
of the loan is outstanding would cause an increase in the amount of interest
paid. Although the Company may pay down the loan prior to the expiration of the
line of credit in November 2000, if this portion of the Company's borrowings
were to remain outstanding for the remaining term of the borrowing agreement, a
100 basis point increase in LIBOR as of December 31, 1998, would increase by
$120,000 the amount of annual interest paid on this portion of the debt and
annualized interest expense recognized in the financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
In thousands, except per share data 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2 $ 971
Short-term investments -- 7,673
Trade accounts receivable, net of allowance for doubtful accounts,
$1,704 in 1998 and $662 in 1997 69,347 83,124
Prepaid expenses 512 780
Income taxes receivable 6,373 2,207
Other receivables 128 274
Deferred income taxes 2,327 800
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 78,689 95,829
- ----------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Office equipment 13,009 7,783
Furniture and fixtures 2,814 2,440
Software 11,011 4,835
Leasehold improvements 831 730
- ----------------------------------------------------------------------------------------------------------------------
27,665 15,788
Less accumulated depreciation and amortization 9,595 6,562
- ----------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 18,070 9,226
- ----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Long-term investments -- 502
Goodwill, net of amortization, $1,236 in 1998 and $176 in 1997 39,792 47,624
Restricted cash held in escrow -- 20,000
Other assets 1,404 1,269
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 41,196 69,395
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 137,955 $ 174,450
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable $ 12,513 $ 8,261
Payroll and related expenses 13,179 11,843
Accrued expenses 7,562 9,357
Income taxes payable -- 573
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 33,254 30,034
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt 47,000 73,500
Other liabilities 1,698 271
Deferred income taxes 3,474 --
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 85,426 103,805
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;
15,957,498 and 15,777,564 shares issued in 1998 and 1997, respectively) 160 158
Additional paid-in capital 26,647 23,886
Accumulated other comprehensive income (loss) (11) 439
Retained earnings 28,826 46,581
- ----------------------------------------------------------------------------------------------------------------------
55,622 71,064
Less: Treasury shares, at cost (266,500 and 19,000 shares in 1998 and 1997, respectively) (3,093) (419)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 52,529 70,645
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 137,955 $ 174,450
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------
<TABLE>
<CAPTION>
In thousands, except per share data YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 338,560 $ 262,970 $ 196,728
- -----------------------------------------------------------------------------------------------------------------------
Cost of services 225,127 172,248 124,268
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 113,433 90,722 72,460
Selling, general and administrative expenses 92,734 68,122 51,538
Restructuring and one-time charges 29,610 -- --
- -----------------------------------------------------------------------------------------------------------------------
Operating expenses 122,344 68,122 51,538
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (8,911) 22,600 20,922
Other income (expense), net (3,324) 232 1,107
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (12,235) 22,832 22,029
Income taxes 5,520 8,743 8,811
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (17,755) $ 14,089 $ 13,218
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share:
Basic $ (1.13) $ 0.90 $ 0.85
Diluted $ (1.13) $ 0.88 $ 0.82
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Shares used to compute net earnings (loss) per share:
Basic 15,779 15,703 15,523
Diluted 15,779 16,052 16,077
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
In thousands YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (17,755) $ 14,089 $ 13,218
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (51) (3) 61
Unrealized gains (losses) securities:
Unrealized holding gains (losses) arising during the period 237 347 (58)
Less: reclassification adjustment for (gains) losses included
in net income (loss) (484) (82) 41
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (298) 262 44
- -----------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (18,053) $ 14,351 $ 13,262
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
<TABLE>
<CAPTION>
In thousands
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
PREFERRED STOCK ISSUED IN TREASURY ADDITIONAL
--------------- ----------------------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 ....................... -- $ -- 15,347 $ 153 -- $ -- $19,052
Exercise of stock options ................. -- -- 304 4 -- -- 2,909
Repurchase of
Common Stock ............................ -- -- (55) -- -- -- (1,500)
Issuance of Common
Stock under employee
stock purchase plan ..................... -- -- 55 -- -- -- 1,305
Translation adjustment .................... -- -- -- -- -- -- --
Unrealized loss on
available-for-sale
securities ............................. -- -- -- -- -- -- --
Tax benefit recognized on
stock options exercised ................. -- -- -- -- -- -- 1,237
NET INCOME ................................ -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 ....................... -- -- 15,651 157 -- -- 23,003
Exercise of stock options ................. -- -- 126 1 -- -- 897
Repurchase of
Common Stock ............................ -- -- (68) -- (19) (419) (1,330)
Issuance of Common
Stock under employee
stock purchase plan ..................... -- -- 68 -- -- -- 1,131
Translation adjustment .................... -- -- -- -- -- -- --
Unrealized gain on
available-for-sale
securities ............................. -- -- -- -- -- -- --
Tax benefit recognized on
stock options exercised ................. -- -- -- -- -- -- 185
NET INCOME ................................ -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 ....................... -- -- 15,777 158 (19) (419) 23,886
Exercise of stock options ................. -- -- 180 2 -- -- 2,524
Repurchase of
Common Stock ............................ -- -- (99) -- (248) (2,674) (1,427)
Issuance of Common
Stock under employee
stock purchase plan ..................... -- -- 99 -- -- -- 1,213
Translation adjustment .................... -- -- -- -- -- -- --
Unrealized loss on
available-for-sale
securities ............................. -- -- -- -- -- -- --
Tax benefit recognized on
stock options exercised ................. -- -- -- -- -- -- 451
NET LOSS .................................. -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 ....................... -- $ -- 15,957 $ 160 (267) $ (3,093) $ 26,647
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------
UNREALIZED
GAIN/(LOSS)
ON AVAILABLE- CUMULATIVE
RETAINED FOR-SALE TRANSLATION
EARNINGS SECURITIES ADJUSTMENT TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 ....................... $19,274 -- $ (18) $38,461
Exercise of stock options ................. -- -- -- 2,913
Repurchase of
Common Stock ............................ -- -- -- (1,500)
Issuance of Common
Stock under employee
stock purchase plan ..................... -- -- -- 1,305
Translation adjustment .................... -- -- 61 61
Unrealized loss on
available-for-sale
securities ............................. -- (28) -- (28)
Tax benefit recognized on
stock options exercised ................. -- -- -- 1,237
NET INCOME ................................ 13,218 -- -- 13,218
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 ....................... 32,492 (28) 43 55,667
Exercise of stock options ................. -- -- -- 898
Repurchase of
Common Stock ............................ -- -- -- (1,749)
Issuance of Common
Stock under employee
stock purchase plan ..................... -- -- -- 1,131
Translation adjustment .................... -- -- (3) (3)
Unrealized gain on
available-for-sale
securities ............................. -- 427 -- 427
Tax benefit recognized on
stock options exercised ................. -- -- -- 185
NET INCOME ................................ 14,089 -- -- 14,089
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 ....................... 46,581 399 40 70,645
Exercise of stock options ................. -- -- -- 2,526
Repurchase of
Common Stock ............................ -- -- -- (4,101)
Issuance of Common
Stock under employee
stock purchase plan ..................... -- -- -- 1,213
Translation adjustment .................... -- -- (51) (51)
Unrealized loss on
available-for-sale
securities ............................. -- (399) -- (399)
Tax benefit recognized on
stock options exercised ................. -- -- -- 451
NET LOSS .................................. (17,755) -- -- (17,755)
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 ....................... $28,826 $ -- $(11) $52,529
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
In thousands Year Ended December 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (17,755) $14,089 $ 13,218
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 4,093 1,975 946
Realized net gain on sales of securities (781) -- --
Deferred income taxes 1,947 160 (651)
Allowance for doubtful accounts 1,042 134 (51)
Impairment of goodwill and other purchase accounting adjustments 23,044 -- --
Change in assets and liabilities:
Trade accounts receivable 12,735 (19,592) (8,535)
Prepaid expenses 268 163 63
Other receivables 146 557 (167)
Other assets (186) (15) (30)
Accounts payable 4,252 (10,106) (113)
Payroll and related expenses 1,336 4,820 (113)
Accrued expenses and other liabilities (2,868) 7,368 (436)
Income taxes (4,288) 303 (287)
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 22,985 (144) 3,844
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (11,877) (6,321) (1,770)
Payments for acquisitions (13,772) (62,100) --
Restricted cash received from (held in) escrow 20,000 (20,000) --
Purchases of available-for-sale securities (327) (16,815) (24,152)
Redemption of available-for-sale securities 8,884 28,526 4,620
Redemption of held-to-maturity securities -- 2,435 15,147
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,908 (74,275) (6,155)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments received on stock options exercised 2,526 898 2,913
Proceeds from long-term debt 3,500 73,500 --
Payments on long-term debt (30,000) -- --
Repurchase of common stock (4,101) (1,749) (1,500)
Issuance of common stock under employee stock purchase plan 1,213 1,131 1,305
Loan origination fees -- (700) --
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (26,862) 73,080 2,718
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (969) (1,339) 407
Cash and cash equivalents at beginning of year 971 2,310 1,903
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2 $ 971 $ 2,310
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 3,873 $ 382 $ --
Cash paid for income taxes 5,379 8,121 9,753
Supplemental disclosures of noncash activities:
Tax benefit on stock options exercised $ 451 $ 185 $ 1,237
Acquisition accrual 2,500 -- --
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES >
ORGANIZATION AND NATURE OF BUSINESS Alternative Resources Corporation (the
"Company") was incorporated in Delaware on March 8, 1988. The Company provides
comprehensive information technology (IT) services that allow clients to stay
focused on mission-critical activities of their business. Customized solutions
vary based on the nature and length of client projects, the degree of day-to-day
management responsibility clients wish to delegate, and the flexibility desired.
The Company historically has focused on five information technology environments
including: 1) help desk, 2) desktop support, 3) LAN/WAN/telecommunications, 4)
client/server, and 5) data center operations. With the acquisition of CGI
Systems, Inc. on November 7, 1997, A.R.C broadened the scope of its services to
focus on the following additional environments; applications development,
applications maintenance, groupware, Internet, Intranet, and electronic
commerce.
PRINCIPLES OF CONSOLIDATION The operations of the Company are conducted through
a parent holding company and three operating subsidiaries. The accompanying
financial statements include the consolidated financial position and results of
operations of the Company and its subsidiaries with all intercompany
transactions eliminated in their entirety.
SEGMENT INFORMATION Management has considered the requirements of Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information," and has determined that the Company
has one operating segment. A.R.C provides its services through two primary
service lines, staffing and Smartsourcing(R) Solutions, which we are now calling
A.R.C Staffing Management Services and A.R.C Technology Management Services,
respectively. These service lines do not meet the definition of "segment" within
the meaning of SFAS 131, as discrete financial information is unavailable. To
date, discrete information by service line has not been considered relevant by
management for purposes of making decisions about allocations of resources as
both service lines share the same pool of technical resources and client base,
as well as the same distribution model.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS Cash and cash equivalents include all deposits in banks and
highly liquid investments with original maturities of three months or less.
INVESTMENT SECURITIES Marketable securities purchased after December 31, 1995,
are classified as available-for-sale under Statement of Financial Accounting
Standards No. 115 and are recorded at fair market value, with unrealized holding
gains or losses, if any, recorded as a separate component of stockholders'
equity. The Company does not invest in trading securities. The Company uses the
specific identification basis of accounting for individual securities.
GOODWILL Goodwill, which represents the excess of purchase price over fair
market value of net assets acquired, is amortized on a straight-line basis over
40 years. Adjustments to the carrying value of goodwill are made if the sum of
expected future net cash flows from the business acquired is less than book
value.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the respective assets ranging from three to seven years. Software includes
development costs for IT projects currently in progress and will be amortized
upon completion over seven years. Leasehold improvements are amortized using the
straight-line method over the life of the related leases, generally three to
five years.
TRANSLATION OF FOREIGN CURRENCIES Assets and liabilities of the Company's
Canadian branch offices are translated at the rate of exchange in effect on the
balance sheet date; income and expenses are translated at the weighted average
rates of exchange prevailing during the year. The related translation
adjustments are reflected as a cumulative translation adjustment in
stockholders' equity. Foreign currency transaction gains and losses for the
years presented were not material.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUE RECOGNITION Revenues are recognized, net of volume discounts, as
services are performed. The Company provides some of its services under fixed
price contracts. In these instances, revenue is recognized using the percentage
of completion method.
INCOME TAXES Deferred tax assets and liabilities are recognized for the future
tax consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK OPTIONS Prior to January 1, 1996, the Company accounted for its stock
options in accordance with the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations. Under APB 25, no compensation cost has been recognized for the
Company's stock-based compensation plans. On January 1, 1996, the Company
adopted SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS 123
also allows entities to continue to apply the provisions of APB 25 and provide
pro forma disclosures for its stock-based compensation plans as if the
fair-value-based method defined in SFAS 123 had been applied. The Company
elected to continue to apply the provisions of APB 25 and provide the pro forma
disclosures required by SFAS 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of the Company's
financial instruments, except for long-term debt, approximate their fair values
due to the short maturity of these instruments. The carrying amount of long-term
debt approximates its fair value due to its variable interest rate.
DERIVATIVES The Company utilizes a derivative financial instrument to reduce its
exposure to market risks from changes in interest rates. This derivative
financial instrument, an interest rate swap agreement, is an off-balance-sheet
instrument and, therefore, has no carrying value. The purpose of the swap is to
fix the interest rate on variable rate debt and reduce certain exposures to
interest rate fluctuations. At December 31, 1998, the Company had interest rate
swaps with a notional amount of $35.0 million and variable rate debt outstanding
of $47.0 million. Under this agreement, the Company will pay the counterparty
interest at a weighted average fixed rate of 6.3% and the counterparty will pay
the Company at a variable rate based on LIBOR from the preceding quarter end.
The variable rate applicable to the swap agreement was 5.3% at December 31,
1998. The fair market value of the interest rate swap at December 31, 1998, was
a loss of $1.5 million, which was based on quoted market prices that reflect the
present value of estimated future variable rate payments. The Company was not
required to collateralize this agreement. The Company does not believe there is
a material credit risk related to the inability of the counterparty to honor
their portion of the agreement.
COMPUTATION OF EARNINGS PER SHARE Basic earnings per share is based on the
weighted average number of common shares outstanding for the year. Diluted
earnings per share is based on the weighted average number of common shares
outstanding and includes the dilutive effect of unexercised vested stock options
using the treasury stock method. Dilutive securities have not been included in
the weighted average shares used for the calculation of earnings per share in
periods of net loss because the effect of such securities would be
anti-dilutive. At December 31, 1998, potentially dilutive securities consisted
of options to purchase 3.3 million shares of common stock.
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- ------------ ----- ----- ------
<S> <C> <C> <C>
Basic shares 15,779 15,703 15,523
Plus incremental shares
from stock options -- 349 554
------ ------ ------
Diluted shares 15,779 16,052 16,077
------ ------ ------
------ ------ ------
</TABLE>
RECLASSIFICATIONS Certain prior year balances have been reclassified in order to
conform to the current year presentation.
2) ACQUISITIONS> 1998 During the first quarter of 1998, the Company acquired all
of the outstanding stock of Writers, Inc. (Writers), a company specializing in
providing technical writing services. The acquisition was accounted for under
the purchase method and, accordingly, the purchase price of $5.5 million has
been allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values. See Footnote 3 --
Restructuring and One-Time Charges for results of impairment review relative to
the Writers acquisition.
1997 On November 7, 1997, the Company acquired all of the outstanding stock of
CGI Systems, Inc. (CGI). CGI provided A.R.C with a range of information
technology services including applications support; network solutions, including
network implementation and Lotus Notes practices; applications development
practices; and applications consulting practices for SAP, data warehousing and
other applications. The acquisition represented a strategic expansion of A.R.C's
service offerings in the IT staffing and managed services area, which would
allow for a broader base of solutions to an increasingly sophisticated
information technology marketplace.
The initial purchase price for CGI was $60.0 million with a potential payout of
up to an additional $20.0 million over the next three years if certain targets
were achieved. The purchase price was financed with cash from short-term
investments and borrowings under a $75.0 million revolving credit facility. The
$20.0 million potential additional payout was reported in other assets as
restricted cash held in escrow as of December 31, 1997. The business that was
acquired consisted of three components, with two components related to the $60.0
million initial payment. The third component corresponded to the $20.0 million
earn-out agreement. During the fourth quarter of 1998, the Company and the
sellers negotiated an escrow disbursement agreement whereby approximately
one-half of the escrow was paid to the sellers and one-half was released to
A.R.C. The portion that was paid to the sellers was added to the CGI goodwill as
part of the CGI purchase price. Acquisition costs relating to the purchase of
CGI amounted to $2.1 million. These costs included investment banking and other
professional fees, employee severance, costs of closing office facilities and
various other expenses.
The acquisition of CGI was accounted for under the purchase method. Accordingly,
the purchase price has been allocated to identifiable tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values.
The consolidated statements of operations reflect the results of operations of
CGI since the acquisition date. The preliminary allocation of purchase price
resulted in goodwill of $45.7 million which is being amortized on a
straight-line basis over 40 years.
During the third quarter of 1998, an audit of the CGI balance sheet as of the
acquisition date was completed. Information obtained from the audit, which was
supported by information obtained during the integration of the acquired
business into the Company's operations, indicated that the revenue base and
profitability of the two components of the acquired business that were not
subject to the earn-out arrangement were lower than expected. An impairment
review, conducted in accordance with SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," resulted in a
decrease of $21.0 million in the carrying value of goodwill related to these
portions of the acquired business. The remaining goodwill reflects the estimated
value of this business using projected discounted cash flows over their
remaining life.
The following pro forma information combines the consolidated results of
operations as if the acquisition of CGI had been consummated as of January 1,
1996, and includes the impact of certain acquisition related adjustments.
Acquisition adjustments include the amortization of goodwill and other
intangibles, interest expense related to the acquisition debt and the related
income tax effects. This summary is provided for informational purposes only.
Since the financial information set forth below is based on operating results of
CGI when it was not under the control of A.R.C, the information presented is not
indicative of the results which would have actually been obtained, had the
acquisition been completed as of January 1, 1996, nor are they indicative of
future results.
<TABLE>
<CAPTION>
(Unaudited)
-------------------
In thousands, except per share data 1997 1996
------ -----
<S> <C> <C>
Revenue $ 315,360 $ 236,839
Net income 13,326 11,101
Net income per share $ 0.83 $ 0.69
--------- ---------
</TABLE>
3) RESTRUCTURING AND ONE-TIME CHARGES > In the third quarter of 1998, the
Company recorded a $29.6 million charge consisting of the following:
<TABLE>
<CAPTION>
In millions
- -----------
<S> <C>
Impairment of goodwill $ 25.7
Restructuring charge 3.9
- --------------------------------------
Total charges $ 29.6
</TABLE>
IMPAIRMENT OF GOODWILL During the third quarter of 1998, the Company performed
an impairment review of goodwill in accordance with the requirements of SFAS No.
121. The review indicated that there was an impairment of value, which resulted
in a $25.7 million charge to expense in order to properly reflect the
appropriate carrying value of goodwill. The facts and circumstances leading to
the impairment review and related revaluation are as follows:
The Company acquired CGI Systems, Inc. in the fourth quarter of 1997. The
acquisition consisted of three components, one of which was subject to an
earn-out agreement. Accordingly, the portion of the purchase price related to
this component of the acquired business was placed in an escrow account to be
paid to the sellers if the earn-out targets were achieved. As such, the ultimate
purchase price for this component of the acquired business was to be determined
pending settlement of the escrow arrangement. During the fourth quarter of 1998,
the Company and the sellers negotiated an escrow disbursement agreement whereby
approximately one-half of the escrow was paid to the sellers and one-half was
released to A.R.C. The portion that was paid to the sellers was added to the CGI
goodwill as part of the CGI purchase price. An impairment review was performed
on this portion of CGI goodwill, in accordance with SFAS No. 121, subsequent to
this escrow settlement. The projected future undiscounted cash flows over the
estimated useful life of this portion of the acquired business were more than
sufficient to support the recovery of the related carrying value of goodwill.
The portion of the purchase price that was not placed in escrow related to the
other two components of the acquired business. This part of the purchase price
was allocated to the net assets acquired with the remainder classified as
goodwill. Subsequent information about these two components of CGI's business
which was obtained through the audit of CGI's opening balance sheet, completed
in the third quarter of 1998, and the integration of the acquired company into
the Company's operations, indicated that the revenue base and the profitability
of CGI was lower than expected. An impairment was recognized when, in accordance
with SFAS No. 121, projected future undiscounted cash flows for these components
of the acquired business were insufficient to recover the related carrying value
of the CGI goodwill. As such, the carrying value of the CGI goodwill that
relates to these components of the acquired business was written down to the
Company's estimate of fair value. The Company used discounted cash flow
projections over the remaining estimated useful life of the acquired business to
determine the appropriate value of the CGI goodwill. This review supported a CGI
goodwill valuation related to these portions of the acquired business of
approximately $29.0 million, which resulted in a write-off of impaired goodwill
totaling $21.0 million.
During the first quarter of 1998, the Company acquired Writers, Inc. (Writers),
a company that specialized in providing technical writing services. After a
thorough review of the Company's strategic initiatives, management determined
that this business was not strategic to the Company's long-term plans. As a
result, the Writers goodwill was revalued during the third quarter 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.
RESTRUCTURING CHARGE The restructuring charge consists of expenses associated
with reorganizing the Company's management structure as well as expenses related
to a restructuring of the Company's operating model. Of the $3.9 million
restructuring charge, $1.9 million represents severance pay and other
employment-related expenses connected with reorganizing the management
structure. The remaining $2.0 million of the restructuring charge represents
costs associated primarily with staff reductions and consolidation of sales
offices as management implemented a plan to reduce operating costs and optimize
the Company's operating model.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The primary components of the restructuring charge can be summarized as
follows:
<TABLE>
<CAPTION>
TOTAL RESERVE AT
INITIAL CASH DECEMBER
In thousands RESERVE PAYMENTS 31, 1998
- ------------ --------- -------- --------
<S> <C> <C> <C>
MANAGEMENT CHANGES:
Severance $ 1,372 $(1,272) $ 100
Other employment-
related expenses 685 (547) 138
- --------------------------------------------------------------------
Total charges related to
management changes 2,057 (1,819) 238
OPERATING MODEL CHANGES:
Severance 1,209 (793) 416
Office consolidation 436 (124) 312
Miscellaneous 208 (182) 26
- --------------------------------------------------------------------
Total charges related
to operating
model changes 1,853 (1,098) 754
- --------------------------------------------------------------------
Total restructuring
charge $ 3,910 $ (2,917) $ 993
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
The Company's plan to reduce operating costs and optimize the business model
consisted of the elimination of certain programs and positions that were not
considered strategic to the business. In addition, the Company closed six sales
offices and consolidated their operations with other offices in order to gain
operating efficiencies. In conjunction with these activities, 43 positions were
eliminated. Most of the expense associated with office consolidation relates to
ongoing lease obligations for these unused locations, net of anticipated
sublease income. Of the total $29.6 million charge for the impairment of
goodwill and restructuring, $25.7 million represents a non-cash charge to
earnings, $2.9 million was paid in 1998 and approximately $1.0 million will be
paid out in future periods. A majority of the unpaid reserve as of December 31,
1998, relates to future severance commitments and lease obligations, most of
which should be paid in 1999.
4) INVESTMENTS > There were no investments held as of December 31, 1998. The
aggregate fair value and amortized cost of investments classified as
available-for-sale are as follows at December 31, 1997:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AGGREGATE HOLDINGS
SALE --------------- AMORTIZED
In thousands VALUE GAINS LOSSES COST BASIS
- ------------ --------- ----- ------ ----------
<S> <C> <C> <C> <C>
Equity securities $4,374 $519 $(157) $4,012
US Treasury and
Federal agency debt securities 500 1 -- 499
State and municipal debt securities 1,009 9 -- 1,000
Corporate debt securities 2,292 35 (8) 2,265
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS $8,175 $564 $(165) $7,776
- -----------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of available-for-sale securities were $8.9 million and
$14.9 million in 1998 and 1997, respectively. Gross realized gains were $891,000
and losses were $110,000 in 1998. Gross realized gains and losses were not
significant in 1997 and 1996.
5) LONG-TERM BORROWINGS > The Company entered into a $75.0 million revolving
credit facility to, in part, finance the acquisition of CGI and to meet
anticipated cash needs. As of December 31, 1998 and 1997, the total
borrowings under the revolving credit facility were $47.0 million and $73.5
million, respectively. The average interest rate on the revolving credit
facility was 6.6% and 6.7% in 1998 and 1997, respectively. The range of
interest rates on the revolving credit facility as of December 31, 1998 was
5.9% to 6.8%. The revolving credit facility expires in November 2000. The
Company has an irrevocable standby letter of credit for $2.5 million which
expires on April 30, 2000.
6) STOCKHOLDERS' EQUITY > In April 1996, the Company amended the Certificate
of Incorporation to increase the number of authorized shares of Common Stock
to 50,000,000.
7) LEASES > The Company leases its office facilities under noncancelable
operating leases. Rental expense for operating leases during 1998, 1997 and
1996 was $3,750,000, $3,258,000 and $2,257,000, respectively.
Future minimum lease payments under noncancelable operating leases (with initial
or remaining lease terms in excess of one year) as of December 31, 1998, are:
<TABLE>
<CAPTION>
In thousands
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ -------
<S> <C>
1999 $ 3,891
2000 3,472
2001 2,801
2002 1,837
2003 1,291
Thereafter 1,561
- ---------------------------------------------
Total $ 14,853
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
8) OTHER INCOME, NET > Other income, net, for the years ended December 31,
1998, 1997, and 1996 is comprised of the following:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- ------------ ------ ----- -----
<S> <C> <C> <C>
Interest income $ 1,479 $ 992 $ 1,107
Interest expense (4,803) (760) --
- -------------------------------------------------------------
$(3,324) $ 232 $ 1,107
- -------------------------------------------------------------
- -------------------------------------------------------------
</TABLE>
9) INCOME TAXES > Income tax expense (benefit) is summarized as follows for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- ------------ ------ ------ ------
<S> <C> <C> <C>
Current:
Federal $ 2,899 $ 7,553 $ 8,312
State 674 1,030 1,150
- -------------------------------------------------------------------------------
Total current 3,573 8,583 9,462
- -------------------------------------------------------------------------------
Deferred:
Federal 1,704 140 (576)
State 243 20 (75)
- -------------------------------------------------------------------------------
Total deferred 1,947 160 (651)
- -------------------------------------------------------------------------------
$ 5,520 $ 8,743 $ 8,811
------- ------- -------
------- ------- -------
</TABLE>
The reason for the difference between the effective tax rate and the corporate
Federal income tax rate for the years ended December 31, 1998, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF INCOME (LOSS) BEFORE TAXES
----------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Federal income tax rate (35.0%) 35.0% 35.0%
Items affecting federal
income tax rate:
State income taxes, net
of Federal tax benefits 4.9% 2.8% 4.1%
Nondeductible
amortization 76.6% -- --
Other (1.4%) 0.5% 0.9%
----- ---- ----
Effective income tax rate 45.1% 38.3% 40.0%
----- ---- ----
----- ---- ----
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998,
and 1997 are as follows:
<TABLE>
<CAPTION>
In thousands 1998 1997
- ------------ ------ -------
<S> <C> <C>
Deferred tax assets:
Property and equipment --
depreciation $ 289 $ 197
Accounts receivable
valuation allowance 380 445
Deferred rent payable 79 109
Accrued liabilities 1,986 872
---------- --------
Gross deferred tax assets 2,734 1,623
---------- --------
Deferred tax liabilities:
Software development costs (3,881) (480)
Acquisition-related accruals -- (239)
Other -- (104)
- ----------------------------------------------------------------------
Gross deferred tax liabilities (3,881) (823)
- ----------------------------------------------------------------------
Net deferred tax asset (liability) $ (1,147) $ 800
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
No valuation allowance for deferred tax assets has been recorded as the Company
believes it is more likely than not the deferred tax assets will be realized in
the future.
10) EMPLOYEE SAVINGS PLAN > The Company sponsors a 401(k) plan ("the Plan").
The Plan covers each employee who has completed 1,000 hours of service in a
12-month period commencing with the start of employment. Contributions to the
Plan are based on percentages of employee salaries, plus a matching
contribution by the Company, in an amount to be determined at the Company's
discretion. Vesting in the Company's contributions is based on length of
service over a five-year period. Contributions by the Company on behalf of
all employees approximated $738,000, $175,000 and $131,000 during 1998, 1997
and 1996, respectively.
11) STOCK OPTIONS > During 1994, the Company amended and restated the stock
option plan adopted in 1992. Under the amended and restated Incentive Stock
Option Plan ("Option Plan"), officers and key employees may be granted
non-qualified stock options, incentive stock options, performance units, and
stock appreciation rights. The Option Plan also provides for automatic annual
grants to each non-affiliate director of non-qualified stock options to
purchase up to 5,000 shares of Common Stock. The purchase price per share for
such options will be equal to the fair market value of a share of Common
Stock on the date of grant. As such, there has been no compensation cost
recognized in operations. Any such options will be exercisable one year after
the date of grant and will terminate upon the earlier of 90 days following
the date on which such director ceases to serve on the Board or 10 years
after the date of grant.
The exercise price of incentive stock options granted under the Option Plan must
be equal to at least 100% of the fair market value of the Company's Common Stock
subject to the option on the date of the grant. The incentive stock options
granted by the Company may not be exercised during the first six months from the
date granted and, thereafter, generally become exercisable at a rate of 2.38% of
the total shares subject to the option on and after the first day of each
calendar month. The maximum term of a stock option under the Option Plan is ten
years.
In the event employment is terminated for any reason other than gross and
willful misconduct, death or disability, vested options are exercisable within
30 days after such termination of employment. Termination due to gross and
willful misconduct terminates the option as of the date of the misconduct. Upon
death or disablement, vested options are exercisable within six months after the
date of death or disablement by the executors, administrators or applicable
guardian of optionee.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1998, the Company issued certain non-qualified stock options outside the
Incentive Stock Option Plan in connection with executive management changes.
These options were issued at the fair market value as of the time of the grant.
The terms and conditions of these grants are similar to the terms and conditions
of options granted under the Incentive Stock Option Plan with the exception that
they provide for accelerated vesting upon a change in control of the Company.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996, respectively: risk-free
interest rates of 5.5%, 6.0% and 6.0%; expected lives of 4 years; expected
volatility of 91%, 47% and 32%; and no dividends expected to be paid.
The following data reflect the pro forma effects of the stock-based compensation
cost for the Company's stock option transactions in accordance with Statement
123:
<TABLE>
<CAPTION>
In thousands,
except per share data 1998 1997 1996
- ---------------------- ------ ------ ------
<S> <C> <C> <C>
Net income (loss)
As reported $ (17,755) $ 14,089 $ 13,218
Pro forma (21,306) 11,002 11,337
Basic earnings (loss) per share
As reported (1.13) 0.90 0.85
Pro forma (1.35) 0.70 0.73
Diluted earnings (loss)
per share
As reported (1.13) 0.88 0.82
Pro forma (1.35) 0.69 0.71
--------- -------- --------
--------- -------- --------
</TABLE>
Stock option transactions for the years ended December 31, 1996, 1997 and 1998
are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
In thousands, EXERCISE
except per share data SHARES PRICE
- ---------------------- ------- ---------
<S> <C> <C>
Balance at December 31, 1995 2,240 $ 20.04
------- ---------
Options granted 1,092 22.62
Options cancelled (406) 21.60
Options exercised (304) 9.58
------- ---------
Balance at December 31, 1996 2,622 $ 22.08
------- ---------
Options granted 1,832 20.35
Options cancelled (1,202) 28.61
Options exercised (126) 9.17
------- ---------
Balance at December 31, 1997 3,126 $ 19.28
------- ---------
Options granted 4,262 11.42
Options cancelled (3,884) 18.53
Options exercised (180) 14.18
------- ---------
Balance at December 31, 1998 3,324 $ 10.42
------- ---------
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, there were 1.1 million,
662,000 and 472,000 options exercisable, respectively. As of December 31, 1998,
there were 242,000 stock options available for future grants under the Company's
Incentive Stock Option Plan. The weighted-average grant-date fair values of
options granted during 1998, 1997 and 1996 were $8.33, $8.22 and $8.88 per
share, respectively.
The following table summarizes information about stock options outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
In thousands OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------- ------ ------------ ---------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0.28 - 9.99 131 7.0 years $ 4.38 66 $ 2.42
10.00 - 10.99 3,003 8.0 10.00 923 10.00
11.00 - 38.12 190 6.7 21.25 106 21.86
- ------- ----- ----- --- ----- ----- ------------
$ 0.28 - 38.12 3,324 7.9 10.42 1,095 $ 10.69
- ------- ----- ----- --- ----- ----- ------------
- ------- ----- ----- --- ----- ----- ------------
</TABLE>
During the third quarter of 1998, the Company's Board of Directors authorized a
repricing of certain incentive stock options that had been previously granted to
employees of the Company. Under this repricing, all outstanding employee stock
options with an exercise price in excess of $10.00 per share were repriced to
reflect a new exercise price of $10.00 per share, which was above the
then-market price of the Company's stock as of the date of the repricing. This
repricing, which did not include any stock options held by outside Board
members, resulted in the repricing of 3.0 million outstanding stock options. All
other terms and conditions of the repriced options remained the same.
12) EMPLOYEE STOCK PURCHASE PLAN > In 1995, the stockholders of the Company
approved the Alternative Resources Corporation Employee Stock Purchase Plan
(the "Stock Purchase Plan"). An aggregate of 300,000 shares of the Company's
Common Stock (subject to adjustment for any dividend, stock split or other
relevant changes in the Company's capitalization) may be sold pursuant to the
Stock Purchase Plan. The Stock Purchase Plan covers each employee who has
completed 1,000 hours of service during the last 12 calendar months preceding
the enrollment date. The Stock Purchase Plan enables employees to purchase
the Company's Common Stock at 85% of the market price. Employees may purchase
the Company's Common Stock through the Stock Purchase Plan only by payroll
deduction. Payroll deductions may not exceed 20% of the employees gross pay
or $21,250 in any one year. During 1998, all Stock Purchase Plan shares were
purchased on the open market. In 1998, 1997 and 1996, the Company's matching
portion to the Stock Purchase Plan amounted to $214,000, $199,000 and
$195,000, respectively.
13) CONCENTRATION OF CREDIT RISK > The Company provides services to clients
including systems integrators, telecommunications companies, banking and
financial services entities, manufacturers, distributors, health care
providers, and utilities throughout the United States. In 1998, 1997 and
1996, the largest client accounted for approximately 16%, 15% and 13%, the
second largest client accounted for approximately 14%, 14% and 10% and the
third largest client accounted for 10%, 12% and 11% of the Company's total
revenues, respectively.
14) LEGAL PROCEEDINGS > The Company is involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
15) COMPREHENSIVE INCOME > During the year, the Company adopted Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." SFAS No. 130 requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
financial information that historically has not been recognized in the
calculation of net income.
There were no unrealized holding gains at year-end as all securities classified
as available-for-sale were sold during 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS ALTERNATIVE RESOURCES CORPORATION >
We have audited the accompanying consolidated balance sheets of Alternative
Resources Corporation and subsidiaries (the Company) as of December 31, 1998
and 1997, and the related consolidated statements of operations,
comprehensive income, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alternative
Resources Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
February 8, 1999
STOCKHOLDER INFORMATION > A.R.C's Common Stock is traded on the Nasdaq Stock
Market under the symbol "ALRC." No cash dividends have been paid on the
Common Stock since the Company's initial public offering in 1994. As of
December 31, 1998, A.R.C had 181 stockholders of record (including brokerage
firms and other nominees) and 15,690,998 outstanding shares of Common Stock.
The table shows the reported high and low sale prices of the Common Stock for
the periods indicated, during the years ended December 31, 1997, and 1998:
<TABLE>
<CAPTION>
1998 1997
High Low High Low
------ ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $26 $18 1/8 $17 7/8 $13 3/4
Second Quarter 21 11/16 11 1/8 22 1/2 13 1/2
Third Quarter 16 1/8 4 5/8 25 1/2 19 3/4
Fourth Quarter 11 7/8 5 1/2 27 3/8 18 1/2
</TABLE>
ANNUAL MEETING > The Annual Meeting of Stockholders will be held Thursday,
May 20, 1999, at 10:00 am local time at:
Auditorium, 200 Tri-State International
Lincolnshire, IL 60069
FORM 10-K REPORT > You may receive, without charge, a copy of the Alternative
Resources Corporation Annual Report on Form 10-K filed with the Securities
and Exchange Commission by writing to Ms. Susan Fisher, Director of Investor
Relations, at the corporate offices address below.
INDEPENDENT AUDITORS >
KPMG LLP
Chicago, Illinois
GENERAL COUNSEL >
McDermott Will & Emery
Chicago, Illinois
TRANSFER AGENT AND REGISTRAR >
Harris Trust and Savings Bank
SH Communications Team, P.O. Box A3504
Chicago, IL 60690-3504
Phone (312) 360-5321
CORPORATE OFFICES >
Alternative Resources Corporation
100 Tri-State International, Suite 300
Lincolnshire, IL 60069
Phone (847) 317-1000
Alternative Resources Corporation-RegisteredTrademark- and
Smartsourcing-RegisteredTrademark- are registered service marks of the
Company.
<PAGE>
EXHIBIT 21 - SUBSIDIARIES OF ALTERNATIVE RESOURCES CORPORATION
ALTERNATIVE RESOURCES CORPORATION
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
ARC Service, Inc. Delaware
ARC Advantage, Inc. Delaware
ARC Solutions, Inc. Delaware
ARC Midholding, Inc. Delaware
Writers, Inc. California
</TABLE>
<PAGE>
EXHIBIT 23 - CONSENT OF KPMG LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Alternative Resources Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-88918, 33-85078 and 333-12693) on Form S-8 of Alternative Resources
Corporation of our reports dated February 8, 1999, relating to the consolidated
balance sheets of Alternative Resources Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, comprehensive income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report is incorporated by reference in the December 31, 1998 annual report
on Form 10-K of Alternative Resources Corporation.
We also consent to the use of our report on the related consolidated financial
statement schedule dated February 8, 1999 included herein.
/s/ KPMG LLP
Chicago, Illinois
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements found in the Company's Annual Report on Form
10-K for the twelve month period ended December 31, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 69,347
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,689
<PP&E> 27,665
<DEPRECIATION> 9,595
<TOTAL-ASSETS> 137,955
<CURRENT-LIABILITIES> 33,254
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 52,369
<TOTAL-LIABILITY-AND-EQUITY> 137,955
<SALES> 0
<TOTAL-REVENUES> 338,560
<CGS> 0
<TOTAL-COSTS> 317,861
<OTHER-EXPENSES> 29,610
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,324
<INCOME-PRETAX> (12,235)
<INCOME-TAX> 5,520
<INCOME-CONTINUING> (17,755)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,755)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
