<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission file number 0-23940
ALTERNATIVE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2791069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 HART ROAD, SUITE 300, BARRINGTON, IL 60010
(Address of principal executive offices) (Zip code)
(847) 381-6701
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
16,015,942 shares of Common Stock outstanding as of November 5, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2 $ 576
Trade accounts receivable, net of allowance for doubtful accounts 69,347 73,335
Prepaid expenses 512 1,596
Income taxes receivable 6,373 5,654
Other receivables 128 220
Deferred income taxes 2,327 2,327
--------- ---------
Total current assets 78,689 83,708
--------- ---------
Property and equipment:
Office equipment 13,009 11,527
Furniture and fixtures 2,814 1,596
Software 11,011 15,995
Leasehold improvements 831 503
--------- ---------
27,665 29,621
Less accumulated depreciation and amortization 9,595 8,329
--------- ---------
Net property and equipment 18,070 21,292
--------- ---------
Other assets:
Goodwill, net of amortization 39,792 38,686
Other assets 1,404 1,339
--------- ---------
Total other assets 41,196 40,025
--------- ---------
Total assets $ 137,955 $ 145,025
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ -- $ 3,616
Accounts payable 12,513 10,680
Payroll and related expenses 13,179 13,292
Accrued expenses 7,562 4,477
--------- ---------
Total current liabilities 33,254 32,065
Long-term debt 47,000 52,000
Other liabilities 1,698 228
Deferred income taxes 3,474 3,474
--------- ---------
Total liabilities 85,426 87,767
--------- ---------
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
16,015,942 shares issued at December 31, 1998
and September 30, 1999, respectively 160 160
Additional paid-in capital 26,647 26,991
Accumulated other comprehensive income (loss) (11) 28
Retained earnings 28,826 34,782
--------- ---------
55,622 61,961
Less: Treasury stock, at cost, 266,500 and 500,000 shares at
December 31, 1998 and September 30, 1999, respectively 3,093 4,703
--------- ---------
Total stockholders' equity 52,529 57,258
--------- ---------
Total liabilities and stockholders' equity $ 137,955 $ 145,025
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue $ 85,116 $ 84,171 $ 252,328 $ 252,032
Cost of services 56,697 58,902 168,267 170,439
--------- --------- --------- ---------
Gross profit 28,419 25,269 84,061 81,593
Selling, general and administrative expenses 24,441 23,480 69,405 68,926
Restructuring and one-time charges 29,610 -- 29,610 --
--------- --------- --------- ---------
Operating expenses 54,051 23,480 99,015 68,926
--------- --------- --------- ---------
Income (loss) from operations (25,632) 1,789 (14,954) 12,667
Interest expense, net (1,014) (941) (2,555) (2,335)
Other expense, net -- (119) -- (119)
--------- --------- --------- ---------
Income (loss) before income taxes (26,646) 729 (17,509) 10,213
Income taxes (298) 387 3,420 4,257
--------- --------- --------- ---------
Net income (loss) $ (26,348) $ 342 $ (20,929) $ 5,956
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings (loss) per share:
Basic $ (1.67) $ 0.02 $ (1.33) $ 0.38
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ (1.67) $ 0.02 $ (1.33) $ 0.38
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used to compute earnings per share:
Basic 15,817 15,599 15,694 15,685
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 15,817 15,636 15,694 15,745
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended June 30,
------------------------- -------------------------
1998 1999 1998 1999
(Unaudited) (Unaudited)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(26,348) $ 342 $(20,929) $ 5,956
Other comprehensive income, net of tax:
Foreign currency translation adjustment (45) 4 (77) 39
Unrealized holding gains on marketable securities:
Unrealized holding gains arising
during the period -- -- 382 --
Less reclassification adjustment for
gains included in net income -- -- (781) --
-------- -------- -------- --------
Comprehensive income $(26,393) $ 346 $(21,405) $ 5,995
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1998 1999
(Unaudited)
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(20,929) $ 5,956
Adjustments to reconcile net income (loss)to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,937 4,735
Realized net gain on sale of securities (781) --
Gain on sale of software business -- (436)
Loss on leased assets -- 555
Provision for doubtful accounts 341 20
Impairment of goodwill 25,700 --
Change in assets and liabilities:
Trade accounts receivable 16,216 (4,008)
Prepaid expenses 741 (1,084)
Other receivables (3,281) 8
Other assets 66 6
Accounts payable (4,252) (1,833)
Payroll and related expenses 9,871 113
Accrued expenses and other liabilities (4,527) (4,757)
Income taxes (505) 719
-------- --------
Net cash provided by (used in) operating activities 21,597 (6)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (8,617) (7,809)
Payments for acquisitions (5,619) --
Proceeds from sale of software business -- 1,600
Purchases of available-for-sale securities and notes receivable (327) (600)
Redemption of available-for-sale securities 8,884 --
-------- --------
Net cash used in investing activities (5,679) (6,809)
-------- --------
Cash flows from financing activities:
Payments received on stock options exercised 2,519 490
Proceeds from long-term debt 1,500 19,000
Payments on long-term debt (18,000) (14,000)
Repurchase of Common Stock (2,673) (1,610)
Payments to employee stock purchase plan (155) (146)
Cash overdraft -- 3,616
-------- --------
Net cash provided by (used in) financing activities (16,809) 7,350
-------- --------
Effect of exchange rate changes on cash and cash equivalents (77) 39
-------- --------
Net increase (decrease) in cash and cash equivalents (968) 574
Cash and cash equivalents at beginning of period 971 2
-------- --------
Cash and cash equivalents at end of period $ 3 $ 576
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 2,840 $ 2,445
Cash paid for income taxes 5,586 5,559
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 5
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ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented are unaudited, but
in the opinion of management, have been prepared in conformity with generally
accepted accounting principles applied on a basis consistent with those of the
annual financial statements. Such interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the financial position and the results of operations for
the interim periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for the
year ending December 31, 1999. The interim consolidated financial statements
should be read in connection with the audited consolidated financial statements
for the year ended December 31, 1998, included in the December 31, 1998 Form
10-K of Alternative Resources Corporation (the "Company").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPUTATION OF EARNINGS PER SHARE. Basic earnings per share is based on
the weighted average number of common shares outstanding for the period. Diluted
earnings per share is based on the weighted average number of common shares
outstanding and includes the dilutive effect of unexercised stock options using
the treasury stock method.
RECLASSIFICATIONS. Certain 1998 amounts have been reclassified to conform
with the 1999 presentation.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and pursuant to the deferral of the
effective date by the Financial Accounting Standards Board is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. 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.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Essentially all of the Company's revenue is generated from information
technology services that offer the benefits of outsourcing, while allowing
information services operations managers to retain strategic control of their
operations.
As of September 30, 1999, the Company had 52 offices in the United States
and Canada, as compared to 54 offices at September 30, 1998. The decrease in the
number of offices is the result of a consolidation of branches.
THIRD QUARTER FISCAL 1999 COMPARED TO THIRD QUARTER FISCAL 1998
REVENUE. Revenue decreased by 1.1% from $85.1 million in the third
quarter of 1998 to $84.2 million in the third quarter of 1999, primarily as a
result of a 6% decrease in time and material revenue, partially offset by an
11% increase in Solutions revenue. The Company was also impacted by an
industry wide decline in demand for IT services due to a reduction in
expenditures in anticipation of the Year 2000. Included in the decrease in
revenue for the third quarter was the impact of phasing out of unprofitable
business inherited from the acquisition of CGI Systems, Inc. (CGI) and
business associated with the acquisition of Writers, Inc. that was not
pursued for strategic reasons. The low margin business from CGI was
identified in the first quarter of 1998 and eliminated during the second and
third quarters of 1998. The combination of revenue from such businesses that
was phased out for profitability or strategic reasons amounted to $2.4
million in the third quarter of 1998.
GROSS PROFIT. Gross profit decreased by 11.1% from $28.4 million in the
third quarter of 1998 to $25.3 million in the third quarter of 1999. Gross
margin decreased from 33.4% of revenue in the third quarter of 1998 to 30.0%
in the third quarter of 1999. The decrease in gross margin was primarily due
to the added wages and training expenses for several new contracts with a
major client. These agreements required us to hire and train technicians
prior to having the service calls turned over to the Company. The process of
turning over the service calls has been taking place as the Company
demonstrates its ability to deliver the required service levels. The
front-end investment in wages and training expenses totaled $1.8 million for
the third quarter of 1999.
OPERATING EXPENSES. Operating expenses decreased from $54.1 million in
the third quarter of 1998 to $23.5 million in the third quarter of 1999. A
significant portion of the decrease is due to a charge of $29.6 million taken
during the third quarter of 1998 for restructuring and other one-time charges
(as discussed below under "Restructuring and Other One-time Charges").
Excluding the restructuring and other one-time charges, selling, general and
administrative expenses decreased from $24.4 million or 28.7% of revenue in
the third quarter of 1998 to $23.5 million or 27.9% of revenue in the third
quarter of 1999. The decrease in selling, general and administrative expenses
resulted primarily from the savings realized from the restructuring of
operations, which included branch consolidations and staff reductions, that
were implemented in the third quarter of 1998. The decrease in selling,
general and administrative expenses was partially offset by increased
expenditures for marketing programs and the amortization of the capitalized
new IT systems that have been implemented in the first and second quarters of
1999. The restructuring included modifications to 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. The full
benefit of the restructuring and one-time charges were not realized in the
third quarter of 1998. Marketing expenditures were approximately $700,000
higher in the third quarter of 1999 versus the third quarter of 1998 due to
costs associated with the Company's efforts to productize its various service
lines.
RESTRUCTURING AND OTHER ONE-TIME CHARGES. The Company incurred a
one-time charge totaling $29.6 million during the third quarter of 1998. The
charge, which is reflected in operating expenses, consisted primarily of a
write-off of goodwill which was the result of an impairment review that was
performed in accordance with the guidelines set forth under Statement of
Financial Accounting Standards SFAS No. 121. The goodwill was originally
generated in conjunction with the acquisitions of CGI and Writers Inc. The
writedown of goodwill represented $25.7 million of the $29.6 million charge.
The balance of the one-time charge represented costs of $1.9 million
related to the recent management changes and expenses totaling $2.0 million
associated with staff reductions and optimizing the Company's operating
model. The costs associated with the recent management changes consisted of
severance pay, relocation and other related expenses. The expenses associated
with staff reductions and optimization of the Company's operating model
consisted of severance pay and occupancy costs in connection with a
consolidation of branches.
INCOME (LOSS) FROM OPERATIONS. Income from operations increased from a
loss of $25.6 million or (30.1%) of revenue in the third quarter of 1998 to
$1.8 million or 2.1% of revenue in the third quarter of 1999. Excluding the
restructuring and one-time charges, income from
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operations decreased from $4.0 million or 4.7% of revenue in the third
quarter of 1998 to $1.8 million or 2.1% of revenue in the third quarter of
1999. The decrease in operating margin resulted from the decrease in gross
margin partially offset by the decrease in selling, general and
administrative expenses detailed above.
INTEREST EXPENSE. Interest expense, net, decreased from $1.0 million in
the third quarter of 1998 to $941,000 in the third quarter of 1999. The
decrease in interest expense from the third quarter of 1998 to the third
quarter of 1999 is the result of the Company reducing its outstanding debt.
Long-term debt decreased from $57.0 million at September 30, 1998 to $52.0
million at September 30, 1999.
OTHER EXPENSE. During the quarter, the Company moved its corporate office
to consolidate several locations and to provide additional space to establish an
off-site helpdesk function for its customers. A non-cash charge of
$555,000 was recorded in connection with the sublease of its former corporate
office space which represented the difference between the Company's lease
payment and the sublease income over the life of the agreements. The new
corporate lease provides additional space at a lower cost per square foot than
the former lease. In addition, the Company sold a small software-related
component of the business that was acquired as a part of the CGI acquisition for
a gain of $436,000.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from a benefit of $298,000 in the third quarter of 1998 to $387,000 in
the third quarter of 1999. Excluding the tax effect associated with the
restructuring and one-time charges taken in 1998, the provision for income taxes
decreased from $1.2 million, or an effective tax rate of 40.1%, in the third
quarter of 1998 to $387,000, or an effective tax rate of 53.0%, in the third
quarter of 1999. The increase in the effective tax rate in the third quarter of
1999 was due to effect of the nondeductible goodwill amortization expense.
Excluding the impact of goodwill, the third quarter of 1999 effective tax rate
was 39.1%.
NET INCOME (LOSS). The Company's net income increased from a loss of $26.3
million in the third quarter of 1998, or (31.0%) of total revenue, to $342,000
in the third quarter of 1999, or 0.4% of total revenue. Excluding the
restructuring and other one-time charges, net income decreased from $1.8 million
in the third quarter of 1998, or 2.1% of revenue, to $342,000 in the third
quarter of 1999, or 0.4% of total revenue.
FIRST NINE MONTHS FISCAL 1999 COMPARED TO FIRST NINE MONTHS FISCAL 1998
REVENUE. Revenue decreased by 0.1% from $252.3 million in the first
nine months of 1998 to $252.0 million in the first nine months of 1999,
primarily as a result of 2% decrease in time and material revenue, offset by
a 5% increase in Solutions revenue. The Company was also impacted by an
industry wide decline in demand for IT services due to a reduction in
expenditures in anticipation of the Year 2000. Included in the decrease in
revenue for the first nine months was the impact of phasing out of
unprofitable business inherited from the acquisition of CGI Systems, Inc.
(CGI) and business associated with the acquisition of Writers, Inc. that was
not pursued. The low margin business from CGI was identified in the first
quarter of 1998 and eliminated during the second and third quarters of 1998.
The combination of revenue from such businesses that was phased out for
profitability or strategic reasons amounted to $12.2 million during the first
nine months of 1999.
GROSS PROFIT. Gross profit decreased by 2.9% from $84.1 million in the
first nine months of 1998 to $81.6 million in the first nine months of 1999.
Gross margin decreased from 33.3% of revenue in the first nine months of 1998
to 32.4% in the first nine months of 1999. The decrease in gross margin was
primarily due to the added wages and training expenses for several new
contracts with a major client that began during the third quarter of 1999.
These agreements required us to hire and train technicians prior to having
the services calls turned over to the Company. The process of turning over
the service calls has been taking place as the Company demonstrates its
ability to deliver the required service levels. The front-end investment in
wages and training expenses totaled $1.8 million for the third quarter of
1999.
OPERATING EXPENSES. Operating expenses decreased from $99.0 million in the
first nine months of 1998 to $68.9 million in the first nine months of 1999. A
significant portion of the decrease is due to a charge of $29.6 million taken
during the third quarter of 1998 for restructuring and other one-time charges
(as discussed below under "Restructuring and Other One-time Charges"). Excluding
the restructuring and other one-time charges, selling, general and
administrative expenses decreased from $69.4 million or 27.5% of revenue in the
first nine months of 1998 to $68.9 million or 27.3% of revenue in the first nine
months of 1999. The decrease in selling, general and administrative expenses
resulted primarily the savings realized from the restructuring of operations,
which included branch consolidations and staff reductions, that were implemented
in the third quarter of 1998. The decrease in selling, general and
administrative expenses was partially offset by increased expenditures for
marketing programs and the amortization of the capitalized new IT systems that
have been implemented in the first and second quarters of 1999. The
restructuring included modifications to 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. The full benefit of the
restructuring and one-time charges
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were not realized in the third quarter of 1998. Marketing expenditures were
higher in the first nine months of 1999 versus the first nine months of 1998
due to costs associated with the Company's efforts to productize its various
service lines. The costs included expenses associated with designing and
printing sales collateral as well as costs related to changing the Company's
logo.
RESTRUCTURING AND OTHER ONE-TIME CHARGES. The Company incurred a
one-time charge totaling $29.6 million during the third quarter of 1998. The
charge, which is reflected in operating expenses, consisted primarily of a
write-off of goodwill which was the result of an impairment review that was
performed in accordance with the guidelines set forth under Statement of
Financial Accounting Standards SFAS No. 121. The goodwill was originally
generated in conjunction with the acquisitions of CGI and Writers Inc. The
writedown of goodwill represented $25.7 million of the $29.6 million charge.
The balance of the one-time charge represented costs of $1.9 million
related to the recent management changes and expenses totaling $2.0 million
associated with staff reductions and optimizing the Company's operating
model. The costs associated with the recent management changes consisted of
severance pay, relocation and other related expenses. The expenses associated
with staff reductions and optimization of the Company's operating model
consisted of severance pay and occupancy costs in connection with a
consolidation of branches.
INCOME (LOSS) FROM OPERATIONS. Income from operations increased from a
loss of $15.0 million or (5.9%) of revenue in the first nine months of 1998
to $12.7 million or 5.0% of revenue in the first nine months of 1999.
Excluding the restructuring and one-time charges, income from operations
decreased from $14.7 million or 5.8% of revenue in the first nine months of
1998 to $12.7 million or 5.0% of revenue in the first nine months of 1999.
The decrease in operating margin resulted from the decrease in gross margin
partially offset by the decrease in selling, general and administrative
expenses detailed above under Operating Expenses.
INTEREST EXPENSE. Interest expense, net, decreased from $2.6 million in
the first nine months of 1998 to $2.3 million in the first nine months of
1999. The decrease in interest expense from the first nine months of 1998 to
the first nine months of 1999 is the result of the Company reducing its
outstanding debt. Long-term debt decreased from $57.0 million at September
30, 1998 to $52.0 million at September 30, 1999.
OTHER EXPENSE. During the third quarter, the Company moved its
corporate office to consolidate several locations and to provide additional
space to establish an off-site helpdesk function for its customers. A
non-cash charge of $555,000 was recorded in connection with the sublease of
its former corporate office space which represented the difference between
the Company's lease payment and the sublease income over the life of the
agreements. The new corporate lease provides additional space at a lower cost
per square foot than the former lease. In addition, the Company sold a small
software-related component of the business that was acquired as a part of the
CGI acquisition for a gain of $436,000.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased from $3.4 million, on a pre-tax loss of $17.5 million in the first
nine months of 1998 to $4.3 million, or an effective rate of 41.7% in the
first nine months of 1999. The amortization of goodwill and write-off of
goodwill, which is not tax deductible, caused the effective tax rate to
change.
NET INCOME (LOSS). The Company's net income increased from a loss of
$20.9 million in the first nine months of 1998, or (8.3)% of total revenue,
to $6.0 million in the first nine months of 1999, or 2.4% of total revenue.
Excluding the restructuring and other one-time charges, net income decreased
from $7.2 million in the first nine months of 1998, or 2.9% of revenue, to
$6.0 million in the first nine months of 1999, or 2.4% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999, cash flows used by operations
were $6,000 resulting primarily from decreased accounts payable and accrued
expenses and increases in accounts receivable and prepaid expenses, partially
offset by earnings, depreciation and amortization. Cash flows were used to
make improvements to the Company's information systems infrastructure and for
other fixed asset purchases aggregating approximately $7.8 million and to
purchase treasury shares of $1.6 million. The Company's long-term debt
increased $5.0 million during the first nine months of 1999. On September 30,
1999, the Company borrowed $5.0 million to fund two payrolls on that date.
Working capital increased from $45.4 million at December 31, 1998, to $51.6
million at September 30, 1999.
On April 27, 1999, the Company's Board of Directors authorized the
repurchase of up to one million shares of its outstanding stock. Purchases
may be made at the Company's option from time to time, subject to market
conditions, in open market transactions at prevailing prices or through
privately negotiated transactions. As of September 30, 1999, the Company had
repurchased 200,000 shares under this program. In addition, the Company holds
300,000 shares of treasury stock purchased under a previous repurchase
program.
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In connection with the acquisition of CGI, the Company established a
$75.0 million, 3-year revolving line of credit that was used to finance the
acquisition. Total borrowings outstanding under the line at September 30,
1999 were $52.0 million.
The Company 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.
YEAR 2000 CONSIDERATIONS
INTERNAL ACCOUNTING AND FINANCIAL SYSTEMS
During the recently completed process of replacing its information
systems, the Company has addressed the Year 2000 compliance issue. One of the
criteria used in selecting the hardware and software, which replaced the
Company's existing systems, was that it had to be Year 2000 compliant. These
systems support the Company's entire business processing needs as well as all
financial reporting needs. Although the replacement of the Company's
enterprise wide systems was done for business purposes, it simultaneously
addressed the Year 2000 compliance 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. The Company believes that its
internal accounting and financial systems are Year 2000 compliant.
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
has received written assurances from its material vendors and suppliers that
in their opinion there will be no interruption of service or acceptable
product as a result of the Year 2000 issue for the products and services they
supply. Based in part on the assurances received or not received, the Company
has devised and is documenting 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 of 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 the Company's business if
telephone or cellular communication is unavailable. As part of its
contingency planning effort, the Company has prepared plans to support its
critical business activities at other of its offices that may not be affected
by an infrastructure failure.
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,
generate less 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.
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
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part upon the information received from these third parties.
ITEM 3. - 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 September 30, 1999, 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 September 30, 1999, $52.0 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 September 30, 1999, a 50 basis point decrease in interest rates
would result in an approximate $600,000 increase in the cost to terminate the
swap agreement which currently can be terminated at no cost.
A portion of the Company's outstanding floating-rate debt, which totaled
$17.0 million as of September 30, 1999, 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 September 30,
1999, would increase by $170,000 the amount of annual interest paid on this
portion of the debt and annualized interest expense recognized in the
financial statements.
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PART II - OTHER INFORMATION
ITEM 5. - OTHER INFORMATION
Subsequent Events: As part of its October 26, 1999, earnings announcement and
related teleconference, the Company announced that it will be reengineering
its existing sales and delivery model during the fourth quarter of 1999. The
sales model will be realigned to focus on driving revenue growth from the
sales team. The delivery model will take advantage of streamlining our
operations and obtaining economies of scale with our newly implemented
enterprise wide IT systems. The efficiencies are expected to reduce the costs
required to provide our services. The reengineering plan was not finalized as
of the date of this filing. The announcement of the final plan will be
provided in a subsequent 8-K filing.
David Nolan joined the Company on July 1, 1999 in the newly created position
of President of Field Operations. Mr. Nolan brings to the Company extensive
sales, marketing and business development experience from IBM, Comdisco and,
most recently, Lucent Technologies.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of Regulation S-K:
EXHIBIT NUMBER DESCRIPTION
10.1 Executive Employment Agreement
Between Alternative
Resources Corporation and David Nolan
Dated July 1, 1999.
10.2 Stock Option Agreement Between Alternative
Resources Corporation and David Nolan
Dated July 23, 1999.
27 Financial Data Schedule
(b) The registrant was not required to file any reports on Form 8-K for
the quarter.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALTERNATIVE RESOURCES CORPORATION
Date: November 14, 1999 /s/ Steven Purcell
----------------------
Steven Purcell
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
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EXHIBIT INDEX
Exhibit
Number Description
10.1 Executive Employment Agreement Between
Alternative Resources Corporation and
David Nolan Dated July 1, 1999.
10.2 Stock Option Agreement Between Alternative
Resources Corporation and David Nolan
Dated July 23, 1999.
27 Financial Data Schedule
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EXHIBIT 10.1 - EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ALTERNATIVE RESOURCES
CORPORATION AND DAVID NOLAN DATED JULY 1, 1999
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made effective as of July 1, 1999
by and between Alternative Resources Corporation (the "Company") and David Nolan
(the "Executive").
In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:
SECTION I
EMPLOYMENT
The Company agrees to employ the Executive, and the Executive agrees to be
employed by the Company for the Period of Employment as provided in Section III
A. below upon the terms and conditions provided in the Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to serve as
President, ARC Field Operations, and to be responsible for the typical
responsibilities expected of an officer holding such positions and such other
responsibilities consistent with such positions as may be assigned to the
Executive from time to time by the Chief Executive Officer of the Company.
SECTION III
TERMS AND DUTIES
A. PERIOD OF EMPLOYMENT
The term of Executive's employment under this Agreement will commence
as of July 1, 1999, and shall continue through December 31, 1999, subject to
extension or termination as provided in this Agreement (the "Period of
Employment"). The term shall be extended for an additional one year period as of
December 31, 1999 and as of each December 31 thereafter, unless either party
gives ninety (90) days prior notice of its intent not to extend.
B. DUTIES
During the Period of Employment, the Executive shall devote all of his
business time, attention and skill to the business and affairs of the Company
and its subsidiaries, except that Executive may (i) during July of 1999, perform
services for his prior employer as necessary to assist in an orderly transition
of his duties for such employer, so long as the Chief Executive Officer of the
Company does not determine that such activities unreasonably interfere with his
duties hereunder; (ii) participate in the affairs of any governmental,
educational or other charitable institution, or engage in professional speaking
and writing activities, so long as the Board of Directors of the Company, does
not determine, in good faith, that such activities unreasonably interfere with
the business of the Company or diminish the Executive's obligations under the
Agreement; or (iii) serve as a member of the board of directors of other
corporations, so long as the Board of Directors of the Company, in its
discretion, specifically approves such service, and in any such case, the
Executive shall be entitled to retain all fees, royalties and other compensation
derived from such activities in addition to the compensation and other benefits
payable to him under the Agreement; and provided further, that the Executive may
invest his personal or family funds in any form or manner he may choose that
will not require any services on his part in the operation of or the affairs of
the companies in which such investments are made. The Executive will perform
faithfully the duties consistent with his position as President, ARC Field
Operations that may be assigned from him from time to time by the Chief
Executive Officer.
SECTION IV
COMPENSATION AND BENEFITS
BASE SALARY
During the Period of Employment, the Company agrees to pay the
Executive a base salary ("Base Salary") of Two Hundred and Fifty Thousand
Dollars ($250,000). Such Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than bi-weekly
installments.
ANNUAL INCENTIVE AWARDS
The Executive will not be eligible for an annual incentive compensation
award for the period of July 1, 1999 to December 31, 1999. The Executive shall
be eligible for an incentive compensation award for calendar year 2000 of up to
One Hundred and Fifty Thousand Dollars ($150,000). The incentive compensation is
awarded based upon ARC's corporate performance as well as individual goals
jointly established with the Chief Executive Officer.
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OPTIONS
The Company will take all actions necessary to grant to Executive, as
of July 1, 1999, a non-qualified stock option to purchase 200,000 shares of the
Company's common stock at an exercise price equal to the closing price of the
common stock as reported in the WALL STREET JOURNAL for trading on the date the
grant is approved by the Board of Directors and with a term of ten years. The
option will not be exercisable until January 31, 2000 and shall become
exercisable with respect to 4,762 shares on January 31, 2000 and with respect to
an additional 4,762 shares on the last day of each succeeding month, with the
option becoming exercisable with respect to the final 4,758 shares on June 30,
2003. The option shall be in the form approved by the Board of Directors of the
Company and, except as otherwise provided herein, shall be governed by terms and
provisions comparable to those applicable to options granted under the Company's
Stock Option Plan.
Notwithstanding the foregoing, if (i) the Period of Employment ends
because the Company ends the automatic extension thereof under Section III A. of
this Agreement; (ii) the Company terminates the employment of the Executive
Without Cause as defined in Section VIII; (iii) the Executive's employment
hereunder terminates because of his death or disability (as defined in Section
VI); or (iv) there is a change in control of the Company, such option shall
become fully exercisable and shall remain exercisable for the remainder of their
term.
For purposes of the Agreement, a "change in control" of the Company
shall be deemed to occur in connection with any of the following events with
respect to the Company:
(i) The acquisition by an entity, person or group (including
all affiliates of such entity, person or group) of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (which definition shall apply
even if the Company is not then subject to such Act), of
capital stock of the Company entitled to exercise more that
30% of the outstanding voting power of all capital stock of
the Company ("Voting Stock");
(ii) The effective time of (i) a merger or consolidation of
the Company with one or more other corporations as a result of
which the holders of the outstanding Voting Stock immediately
prior to such merger or consolidation (other than the
surviving or resulting corporation or any affiliate thereof)
hold less than 50% of the Voting Stock of the surviving or
resulting corporation, or (ii) a transfer of more than 50% (in
value) of the assets of the Company other than to a transferee
in which the Company owns at least 50% of the Voting Stock; or
(iii) The election to the Board of Directors of the Company of
the lesser of (i) three directors or (ii) directors
constituting a majority of the number of directors of the
Company then in office, without the recommendation of the
existing Board of Directors.
ADDITIONAL BENEFITS
The Executive will be entitled to participate in all compensation or
employee benefit plans or programs and receive all benefits and perquisites for
which any salaried executive employees are eligible under any existing or future
plan or program established by the Company for salaried executive employees. The
Executive will participate to the extent permissible under the terms and
provisions of such plans or programs in accordance with plan or program
provisions. These may include group hospitalization, health, dental care, life
or other insurance, tax qualified pension, savings, thrift and profit sharing
plans, termination pay programs, sick leave plans, travel or accident insurance,
short and long term disability insurance, and contingent compensation plans
including capital accumulation programs, restricted stock programs, stock
purchase programs and stock option plans. Nothing in this Agreement will
preclude the Company from amending or terminating any of the plans or programs
applicable to salaried executive employees of the Company. Notwithstanding the
foregoing sentence, no such amendment or termination shall reduce or otherwise
adversely affect Executive's rights under Section IV C. of this Agreement. In
addition to the foregoing benefits, Executive shall be entitled to receive the
following:
(i) term life insurance of not less than $250,000; and
(ii) a paid vacation of four (4) weeks during each twelve (12) month
period during the Period of Employment.
ADJUSTMENTS
Notwithstanding any provision here and to the contrary, the Company and
the Executive agree that the Board of Directors of the Company shall reevaluate
the incentive compensation set forth in Section IV B. as part of the approval of
the 1999 Operating Plan for the Company. To the extent deemed necessary by the
board of Directors to align such targets with such Operating Plan, such targets
hereunder shall be adjusted.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel and
other expenses incurred by the Executive in connection with the performance of
his duties and responsibilities under this Agreement. Executive must support all
expenditures with customary receipts and expense reports subject to review by
the Company.
SECTION VI
DISABILITY
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A. PAYMENTS
Executive's employment hereunder may be terminated by the Company if
(i) Executive becomes physically or mentally incapacitated, (ii) is unable for a
period of one hundred eighty (180) consecutive days to perform his material
duties and responsibilities and (iii) a determination is made regarding
Executive's continued incapacity by a physician appointed by the Company (such
continued incapacity is hereinafter referred to as "disability"). Upon any such
termination for disability, Executive shall be entitled to receive (i) his Base
Salary, as well as the annual incentive award, prorated in each case through the
date on which the Executive is first eligible to receive payment of long term
disability benefits in lieu of Base Salary under the Company's long term
disability benefit plan as then in effect covering the Executive, and (ii) his
accrued benefits under the terms of the plans, policies and procedures of the
Company.
B. ASSISTANCE TO THE COMPANY
During the period the Executive is receiving payments of either regular
compensation or disability insurance benefits described in this Agreement and as
long as he is physically and mentally able to do so, the Executive will furnish
information and assistance to the Company and from time to time will make
himself available to the Company with respect to areas and matters in which he
was involved during his employment with the Company.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, (i) Executive's estate shall be entitled to receive his Base Salary,
as well as the annual incentive award, prorated in each case through the date of
the Executive's death, and (ii) Executive's designated beneficiary or estate, as
the case may be, shall be entitled to his accrued benefits, including, but not
limited to, life insurance proceeds, under the terms of the plans, policies and
procedures of the Company.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. TERMINATION WITHOUT CAUSE
If the Company terminates Executive's employment Without Cause during
the Term of Employment, as defined in this Agreement, or the Term of Employment
ends because the Company ends the automatic extension thereof under Section III
A. of this Agreement, the Company will pay to the Executive in a lump sum, his
Base Salary for a period of twenty four (24) months. Earned but unpaid Base
Salary will be paid in a lump sum at the time of such termination. The Company
also will pay the Executive in a lump sum upon such termination an amount equal
to a prorated portion of the annual incentive award for the year in which the
termination occurred. The benefits and perquisites described in this Agreement
as in effect at the date of termination of employment will be continued for the
then remaining Period of Employment.
B. TERMINATION WITH CAUSE
If the Company terminates Executive With Cause, (i) Executive shall be
entitled to receive his Base Salary prorated through the date of Executive's
termination, and (ii) Executive shall be entitled to his accrued benefits under
the terms of the plans, policies and procedures of the Company.
C. EFFECT OF CERTAIN TERMINATIONS
Upon termination of the Executive's employment for reasons other than
due to death, disability, or pursuant to Paragraph A of this Section, or upon
Executive's resignation, the Period of Employment and the Company's obligation
to make payments under this Agreement will cease as of the date of termination
except as expressly defined in this Agreement. Executive shall have the right to
voluntarily terminate this Agreement, other than for Good Reason or in
conjunction with a Change in Control, upon two weeks prior notice to the
Company. If the Executive voluntarily terminates his employment with the
Company, (i) Executive shall be entitled to receive his Base Salary prorated
through the date of Executive's voluntary termination, and (ii) Executive shall
be entitled to his accrued benefits under the terms of the plans, policies and
procedures of the Company.
D. DEFINITIONS
For this Agreement, the following terms have the following meanings:
(1) Termination "With Cause" means termination of the
Executive's employment by the Company's Board of Directors acting in
good faith by written notice by the Company to the Executive specifying
the event relied upon for such termination, due to the Executive's
serious, willful misconduct with respect to his duties under this
Agreement, including, but not limited to, conviction for a felony or
perpetration of a common law fraud, which has resulted or is likely to
result in material economic damage to the Company.
(2) Termination "Without Cause" means termination by the
Company of the Executive's employment other than due to death,
disability, or termination With Cause.
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SECTION IX
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
A. COOPERATION DURING AND AFTER EMPLOYMENT
The Executive will, with reasonable notice during or after the Period
of Employment, furnish information as may be in his possession and cooperate
with the Company as may reasonably be requested in connection with any claims or
legal actions in which the Company is or may become a party.
B. CONFIDENTIAL INFORMATION
The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company, as hereinafter defined, is confidential and is a unique and
valuable asset of the Company. Access to and knowledge of this information are
essential to the performance of the Executive's duties under this Agreement. The
Executive will not during the Period of Employment or after, except to the
extent reasonably necessary in performance of the duties under this Agreement,
give to any person, firm, association, corporation or governmental agency any
information concerning the affairs, business, clients, customers or other
relationships of the Company, except as required by law. The Executive will not
make use of this type of information for his own purposes or for the benefit of
any person or organization other than the Company. The Executive will also use
his best efforts to prevent the disclosure of this information by others. All
records, memoranda, etc., relating to the business of the Company, whether made
by the Executive or otherwise coming into his possession, are confidential and
will remain the property of the Company.
C. CERTAIN RESTRICTED ACTIVITIES
During the Period of Employment and for a one (1) year period
thereafter, the Executive will not use his status with the Company to obtain
goods or services from another organization other than in the ordinary course of
business. During the Period of Employment and for a one (1) year period
following termination of the Period of Employment: the Executive will not make
any statements or perform any acts intended to advance the interest of any
existing or prospective competitors of the Company in any way that will injure
the interest of the Company; the Executive, without prior express written
approval by the Board of Directors of the Company, will not directly or
indirectly own or hold any proprietary interesting or be employed by or receive
compensation from any party engaged in the same or any similar business in the
same geographic areas the Company does business; and the Executive, without
express prior written approval from the Board of Directors, will not solicit any
members of the then current customers, clients or suppliers of the Company or
discuss with any employee of the Company information or operation of any
business intended to compete with the Company. For purposes of the Agreement,
proprietary interest means legal or equitable ownership, whether through stock
holdings or otherwise, of a debt or equity interest (including options,
warrants, rights and convertible interest) in a business firm or entity, or
ownership of more than 2% of any class of equity interest in a publicly held
company. The Executive acknowledges that the covenants contained herein are
reasonable as to geographic and temporal scope. For a twelve (12) month period
after termination of the Period of Employment for any reason, the Executive will
not hire any employee of the Company or solicit, other than by means of a
general solicitation to the public such as a newspaper advertisement, or
encourage any such employee to leave the employ of the Company.
D. REMEDIES
The Executive acknowledges that his breach or threatened or attempted
breach of any provision of Section IX would cause irreparable harm to the
Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section IX without being required to prove damages or furnish any bond or other
security. The Executive hereby acknowledge the necessity of protection against
the competition of, and certain other possible adverse actions by, the Executive
and that the nature and scope of such protection has been carefully considered
by the parties. The period provided and the area covered are expressly
represented and agreed to be fair, reasonable and necessary. If, however, any
court or arbitrator determines that the restrictions described herein are not
reasonable, the court or arbitration panel may modify, rewrite or interpret such
restrictions to include as much of their nature and scope as will render them
enforceable.
SECTION X
INDEMNIFICATION, LITIGATION
The Company will indemnify the Executive to the fullest extent permitted
by the laws of the state of incorporation in effect at that time, or certificate
of incorporation and by-laws of the Company whichever affords the greater
protection to the Executive. The Company will use its best efforts to obtain and
maintain customary directors and officers liability insurance, covering
Executive. The foregoing indemnification shall continue to apply following
termination of the Period of Employment for actions or omissions during the
Period of Employment.
SECTION XI
WITHOLDING TAXES
The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.
SECTION XII
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EFFECT OF PRIOR AGREEMENTS
This Agreement contains the entire understanding between the Company and
the Executive with respect to the subject matter and supersedes any prior
employment, severance, or other similar agreements between the Company, its
predecessors and its affiliates, and the Executive.
SECTION XIII
MODIFICATON
Subject to Section IV E., this Agreement may not be modified or amended
except in writing signed by the parties. No term or condition of this Agreement
will be deemed to have been waived, except in writing by the party charged with
waiver. A waiver shall operate only s to the specific term or condition waived
and will not constitute a waiver for the future or act on anything other than
that which is specifically waived.
SECTION XIV
GOVERNING LAW; ARBITRATION
This Agreement and its validity, interpretation, performance and
enforcement shall be governed by the laws of the State of Illinois, without
giving effect to the choice of law provisions thereof.
Any dispute among the parties hereto shall be settled by arbitration in
accordance with the then applicable rules of the American Arbitration
Association and judgement upon the award rendered my be entered in any court
having jurisdiction thereof.
SECTION XV
NOTICES
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid by registered mail, return receipt requested,
or when delivered if by hand, overnight delivery services or confirmed facsimile
transmission, to the following:
(a) If to the Company, at:
ALTERNATIVE RESOURCES CORPORATION
100 Tri-State International, Suite 300
Lincolnshire, IL 60069
Attention: Chairperson, Governance Committee of Board
of Directors
or at such other address as my have been furnished to the Executive by the
Company in writing, or
(b) If to the Executive, at:
David Nolan
28400 West Heritage Oak Road
Barrington, IL 60010
or at such other address as may have been furnished to the Company by the
Executive in writing.
SECTION XVI
BINDING AGREEMENT
This Agreement shall be binding on the parties' successors, heirs and
assigns.
SECTION XVII
MISCELLANEOUS
A. MULTIPLE COUNTERPARTS
This Agreement may be executed simultaneously in multiple counterparts
each of the same force and effect.
B. SEVERABILITY
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If any phrase, clause or provision of this Agreement is declared
invalid or unenforceable by an arbitrator or curt of competent jurisdiction,
such phrase, clause or provision shall be deemed severed from this Agreement,
but will not affect any other provisions of this Agreement, which shall
otherwise remain in full force and effect. In addition, there will be
automatically substituted herein for such severed phrase, clause or provision a
phrase, clause or provision as similar as possible which is valid and
enforceable.
C. HEADINGS
The headings and subheadings of this Agreement are inserted for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
D. CONSTRUCTION
The Company and the Executive acknowledge that this Agreement was the
result of arm's length negotiations between sophisticated parties each
represented by legal counsel. Each and every provision of the Agreement shall be
construed as though both parties participated equally in the drafting of same,
and any rule of construction that a document shall be construed against the
drafting party shall not be applicable to this Agreement.
E. SURVIVORSHIP
The provisions of Sections IV-XVII shall survive the termination or
expiration of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY
ALTERNATIVE RESOURCES CORPORATION
By: /s/ Raymond R. Hipp
-----------------------
Raymond R. Hipp, Chairman of the Board
President and Chief Executive Officer
EXECUTIVE
/s/ David Nolan
-----------------------------------------
David Nolan
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EXHIBIT 10.2 - STOCK OPTION AGREEMENT BETWEEN ALTERNATIVE RESOUCES CORPORATION
AND DAVID NOLAN DATED JULY 23, 1999
NON-QUALIFIED STOCK OPTION
THIS NON-QUALIFIED STOCK OPTION, granted this 23rd day of July, 1999,
by Alternative Resources Corporation, a Delaware Corporation (the "Company"), to
David Nolan (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 $7.500 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
24, 2000, 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, 2003, 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 10 years from the date hereof.
Notwithstanding the foregoing, if (i) the Period of Employment ends because the
Company ends the automatic extension thereof under Section IV A. of Employee's
employment agreement with Alternative Resources Corporation; (ii) the Company
terminates the employment of the Executive Without Cause as defined in Section
VIII of Employee's employment agreement with the Company; (iii) the Executive's
employment hereunder terminates because of his death or disability (as defined
in Section VI of Employee's employment agreement); or (iv) there is a change in
control of the Company, such options shall become fully exercisable and shall
remain exercisable for the remainder of their term.
For purposes of this Agreement, a "change in control" of the Company shall be
deemed to occur in connection with any of the following events with respect to
the Company:
(i) The acquisition by an entity, person, group (including all
affiliates of such entity, person or group) of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (which definition shall apply
even if the Company is not then subject to such Act), of
capital stock entitled to exercise more than 30% of the
outstanding voting power of all capital stock of the Company
("Voting Stock");
(ii) The effective time of (i) a merger or consolidation of the
Company with one or more other corporations as a result of
which the holders of the outstanding Voting Stock immediately
prior to such merger of consolidation (other than the
surviving or resulting corporation or any affiliate thereof)
hold less than 50% of the Voting Stock of the surviving or
resulting corporation, or (ii) transfer of more than 50% (in
value) of the assets of the Company other than to a transferee
in which the Company owns at least 50% of the Voting Stock; or
(iii) The election to the Board of Directors of the Company the
lesser of (i) three directors of (ii) directors constituting a
majority of the number of directors of the Company then in
office, without the recommendation of the existing Board of
Directors.
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<PAGE>
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. TERMS AND CONDITIONS. Although this option is not granted pursuant
to the Company's Amended and Restated Incentive Stock Option Plan, the
provisions of Section 2, 10 and 14 of such Plan shall be applicable to this
option as if granted under such 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/ David Nolan By: /s/ Bradley K. Lamers
- ------------------------------------ ------------------------
Optionee Its: VICE PRESIDENT
Page 22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S 10-Q FOR THE NINE
MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 576
<SECURITIES> 0
<RECEIVABLES> 74,797
<ALLOWANCES> 1,462
<INVENTORY> 0
<CURRENT-ASSETS> 83,708
<PP&E> 29,621
<DEPRECIATION> 8,329
<TOTAL-ASSETS> 145,025
<CURRENT-LIABILITIES> 32,065
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 57,098
<TOTAL-LIABILITY-AND-EQUITY> 145,025
<SALES> 0
<TOTAL-REVENUES> 252,032
<CGS> 0
<TOTAL-COSTS> 170,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 2,335
<INCOME-PRETAX> 10,213
<INCOME-TAX> 4,257
<INCOME-CONTINUING> 5,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,956
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.38
</TABLE>
