<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 March 31, 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.)
100 Tri-State International, Suite 300, Lincolnshire, IL 60069
-------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
(847) 317-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO .
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
15,751,524 shares of Common Stock outstanding as of April 30, 1999.
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------------- ------------------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 2 $ 657
Trade accounts receivable, net of allowance for doubtful accounts 69,347 68,885
Prepaid expenses 512 422
Income taxes receivable 6,373 4,730
Other receivables 128 125
Deferred income taxes 2,327 2,327
----------------- ------------------
Total current assets 78,689 77,146
----------------- ------------------
Property and equipment:
Office equipment 13,009 13,653
Furniture and fixtures 2,814 2,849
Software 11,011 13,056
Leasehold improvements 831 862
----------------- ------------------
27,665 30,420
Less accumulated depreciation and amortization 9,595 10,728
----------------- ------------------
Net property and equipment 18,070 19,692
----------------- ------------------
Other assets:
Goodwill, net of amortization 39,792 39,508
Other assets 1,404 1,438
----------------- ------------------
Total other assets 41,196 40,946
----------------- ------------------
Total assets $ 137,955 $ 137,784
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ -- $ 3,375
Accounts payable 12,513 10,491
Payroll and related expenses 13,179 15,243
Accrued expenses 7,562 7,674
----------------- ------------------
Total current liabilities 33,254 36,783
Long-term debt 47,000 42,000
Other liabilities 1,698 182
Deferred income taxes 3,474 3,474
----------------- ------------------
Total liabilities 85,426 82,439
----------------- ------------------
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 16,015,841 shares issued at December 31, 1998 160 160
and March 31, 1999, respectively
Additional paid-in capital 26,647 26,800
Accumulated other comprehensive income (loss) (11) 16
Retained earnings 28,826 31,462
----------------- ------------------
55,622 58,438
Less: Treasury stock, at cost, 266,500 shares 3,093 3,093
----------------- ------------------
Total stockholders' equity 52,529 55,345
----------------- ------------------
Total liabilities and stockholders' equity $ 137,955 $ 137,784
================= ==================
</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
Ended March 31,
-------------------------------
1998 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Revenue $82,829 $81,905
Cost of services 55,167 54,431
-------------- --------------
Gross profit 27,662 27,474
Selling, general and administrative expenses 22,769 22,309
-------------- --------------
Income from operations 4,893 5,165
Other expense, net (401) (687)
-------------- --------------
Income before income taxes 4,492 4,478
Income taxes 1,798 1,842
-------------- --------------
Net income $ 2,694 $ 2,636
============== ==============
Net earnings per share:
Basic $ 0.17 $ 0.17
============== ==============
Diluted $ 0.17 $ 0.17
============== ==============
Shares used to compute
earnings per share:
Basic 15,795 15,734
============== ==============
Diluted 16,308 15,947
============== ==============
</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
Ended March 31,
-------------------------------
1998 1999
------------- ---------------
(Unaudited)
<S> <C> <C>
Net income $ 2,694 $ 2,636
Other comprehensive income, net of tax:
Foreign currency translation adjustment 5 27
Unrealized holding gains on marketable securities:
Unrealized holding gains arising
during the period 70 --
Less reclassification adjustment for
gains included in net income (469) --
------------- ---------------
Comprehensive income $ 2,300 $ 2,663
============= ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1998 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,694 $ 2,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,053 1,417
Realized net gain on sale of securities (781) --
Deferred income taxes (160) --
Provision for doubtful accounts 71 90
Change in assets and liabilities:
Trade accounts receivable 6,079 372
Prepaid expenses (490) 90
Other receivables 589 3
Other assets 539 (34)
Accounts payable (4,082) (2,022)
Payroll and related expenses 10,184 2,064
Accrued expenses and other liabilities (8,014) (1,404)
Income taxes 359 1,643
--------------- ---------------
Net cash provided by operating activities 8,041 4,855
--------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (2,463) (2,755)
Payments for acquisitions (3,000) --
Purchases of available-for-sale securities (327) --
Redemption of available-for-sale securities 8,884 --
--------------- ---------------
Net cash provided by (used in) investing activities 3,094 (2,755)
--------------- ---------------
Cash flows from financing activities:
Payments received on stock options exercised 1,771 198
Proceeds from long-term debt 1,500 --
Payments on long-term debt -- (5,000)
Contributions to employee stock purchase plan (52) (45)
Cash overdraft -- 3,375
--------------- ---------------
Net cash provided by (used in) financing activities 3,219 (1,472)
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 5 27
--------------- ---------------
Net increase in cash and cash equivalents 14,359 655
Cash and cash equivalents at beginning of period 971 2
=============== ===============
Cash and cash equivalents at end of period $ 15,330 $ 657
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 452 $ 982
Cash paid for income taxes 1,199 199
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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ALTERNATIVE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented are unaudited,
but in the opinion of management, have been prepared in conformity with
generally accepted accounting principles applied on a basis consistent with
those of the annual financial statements. Such interim consolidated financial
statements reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial position and the results
of operations for the interim periods presented. The results of operations
for the interim periods presented are not necessarily indicative of the
results to be expected for the year ending December 31, 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 1990 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.
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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.
During the first quarter of 1999 the Company continued to adapt and
adjust the new business model that was implemented in the last half of 1998.
The new business model has been implemented to focus our sales forces efforts
and control our operating costs. The Company continues to adapt its business
to a more solutions-based model. This is being accomplished through the
Company's technology management service offering. Under a technology
management service arrangement, the Company may take over an entire portion
of a client's IT operations, and make commitments to meet specific service
levels. Management believes that technology management service revenue is an
important measure of clients' confidence and willingness to engage the
Company to provide more comprehensive IT staffing solutions.
As of March 31, 1999, the Company had 52 offices in the United States
and Canada, as compared to 56 offices at March 31, 1998. The decrease in the
number of offices is the result of a consolidation of branches during the
third quarter of 1998.
FIRST QUARTER FISCAL 1999 COMPARED TO FIRST QUARTER FISCAL 1998
REVENUE. Revenue decreased by 1.1% from $82.8 million in the first
quarter of 1998 to $81.9 million in the first quarter of 1999, primarily as a
result of shedding unprofitable business inherited from the acquisition of
CGI Systems, Inc. (CGI), which was acquired during the fourth quarter of
1997. The low margin business was identified in the first quarter of 1998 and
eliminated during the second and third quarters of 1998.
GROSS PROFIT. Gross profit decreased by 0.7% from $27.7 million in the
first quarter of 1998 to $27.5 million in the first quarter of 1999. Gross
margin increased from 33.4% of revenue in the first quarter of 1998 to 33.5%
in the first quarter of 1999. The increase in gross margin was primarily due
to shedding the lower margin business acquired from CGI.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $22.8 million in the first quarter of
1998 to $22.3 million in the first quarter of 1999. A portion of the decrease
in selling, general and administrative expenses is the result of the
restructuring of operations, which included branch consolidations and staff
reductions, that were implemented in the third quarter of 1998. The charges
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.
INCOME FROM OPERATIONS. Income from operations increased from $4.9
million in the first quarter of 1998 to $5.2 million in the first quarter of
1999. Operating margin increased from 5.9% in the first quarter of 1998 to
6.3% in the first quarter of 1999. The increase in operating margin resulted
primarily by the savings from the restructuring of operations, which included
branch consolidations and staff reductions,.
OTHER EXPENSE. Other expense for the first quarter of 1998 consisted of
interest expense of $1.2 million offset by net gains of $781,000 on the
liquidation of investments as the Company converted its investment positions
into cash. For the first quarter of 1999, other expense consisted of interest
expense of $786,000 offset by $99,000 of interest income.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
was unchanged at $1.8 million in the first quarter of 1998 and 1999. The
effective tax rate increased from 40.0% in the first quarter of 1998 to 41.1%
in the first quarter of 1999. The amount of amortization of goodwill which is
not tax deductible, caused the effective tax rate to change slightly.
NET INCOME. The Company's net income decreased from $2.7 million in the
first quarter of 1998, or 3.3% of total revenue, to $2.6 million in the first
quarter of 1999, or 3.2% of total revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1999, cash flows generated from
operations was $4.9 million resulting primarily from earnings, increased
accrued payroll expenses, decreases in income tax receivables, partially
offset by decreases in accounts payable and accrued expenses. Cash flows were
used to make payments on long-term debt of $5.0 million and to make
improvements to the Company's information systems infrastructure of
approximately $2.8 million. Working capital
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decreased from $45.4 million at December 31, 1998, to $40.4 million at March
31, 1999 as cash provided by operations was used to repay a portion of
long-term debt.
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.
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 under the line at March 31, 1999 were $42.0
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 including funding requirements
for the 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 $2 to $4 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 the Company's 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,
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
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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 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.
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 March 31, 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 March 31, 1999, $42.0 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 March 31, 1999, a 50 basis point decrease in interest rates
would result in an approximate $800,000 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
$7.0 million as of March 31, 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 March 31,
1999, would increase by $70,000 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
Robert V. Carlson, the Company's Chief Operating Officer and a member
of its Board of Directors, resigned effective May 10, 1999. Raymond R. Hipp,
Chairman and Chief Executive Officer, will be assuming the responsibilities
formerly held by Mr. Carlson.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are furnished as an exhibit and numbered
pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
10 Executive Employment Agreement between Alternative
Resources Corporation and Robert Carlson dated
January 1, 1999
27 Financial Data Schedule
</TABLE>
(b) The registrant was not required to file any reports on Form 8-K for
the quarter.
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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: May 12, 1999 /s/ Steven Purcell
-----------------------------------
Steven Purcell
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ ------------
<C> <S>
10 Executive Employment Agreement between Alternative Resources
Corporation and Robert Carlson dated January 1, 1999
27 Financial Data Schedule
</TABLE>
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EXHIBIT 10 - EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN ALTERNATIVE RESOURCES
CORPORATION AND ROBERT CARLSON DATED JANUARY 1, 1999
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") made effective as of January 1,
1999 by and between Alternative Resources Corporation (the "Company") and
Robert Carlson (the "Executive").
In consideration of the mutual covenants contained in the 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
Executive Vice President and Chief Operating Officer of the Company, and to
be responsible for the typical responsibilities expected of an officer
holding such positions and such other responsibilities consistent with such
positions as may be assigned to the Executive from time to time by the Chief
Executive Officer of the Company.
SECTION III
TERMS AND DUTIES
A. PERIOD OF EMPLOYMENT
The term of Executive's employment under this Agreement will
commence as of January 1, 1999 and shall continue through December 31, 1999,
subject to extension or termination as provided in the 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) participate in
the affairs of any governmental, educational or other charitable institution,
or engage in professional speaking and writing activities, so long as the
Board of Directors of the Company, does not determine, in good faith, that
such activities unreasonably interfere with the business of the Company or
diminish the Executive's obligations under the Agreement; or (ii) serve are a
member of the board of directors or 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 Executive Vice President and Chief
Operating Officer which may be assigned to him from time to time by the Chief
Executive Officer.
SECTION IV
COMPENSATION AND BENEFITS
A. BASE SALARY
During the Period of Employment, the Company agrees to pay the
Executive as base salary ("Base Salary") of Two Hundred and Fifty Thousand
Dollars ($250,000). Such Base Salary shall by payable according to the
customary payroll practices of the Company but in no event less frequently
than bi-weekly installments.
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B. ANNUAL INCENTIVE AWARDS
The Executive shall be eligible for an incentive compensation award
for calendar year 1999. Such award to be determined by the Compensation
Committee of the Board of Directors.
C. OPTIONS
The Company may grant the Executives, from time to time, stock
options. 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. If the Company terminates the employment of
the Executive Without Cause as defined in Section VIII; (i) the Executive's
employment hereunder terminates because of his death or disability (as
defined in section VI); or (ii) there is a change in control of the Company,
all options shall become fully exercisable and shall remain exercisable for
the remainder of their term.
For purposes of this Agreement, a "change in control" of the Company
shall be deemed to occur in connection with any of the following events with
respect to the Company:
(i) The acquisition by an entity, person or group (including all
affiliates of such entity, person or group) of beneficial
ownership, as that term is defined in Rule 13d-3 under the
Securities exchange Act of 1934 (which definition shall apply
even if the Company is not then subject to such Act), of
capital stock of the Company entitled to exercise more 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 the in
office, without the recommendation of the existing Board of
Directors.
D. 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 salaries executive employees are eligible under any existing or
future plan or program established by the Company for salaries executives
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 the
Agreement will preclude the Company from amending or terminating any of the
plans or programs applicable to salaries 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 a paid vacation of four (4) weeks during each
twelve (12) month period during the Period of Employment.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel
and other expenses incurred by the Executive in connection with the
performance of his duties and responsibilities under this Agreement.
Executive must support all expenditures with customary receipts and expense
reports subject to review by the Company.
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SECTION VI
DISABILITY
A. PAYMENTS
Executive's employment hereunder may be terminated by the Company if
(i) Executive becomes physically or mentally incapacitated, (ii) is unable
for a period of one hundred eighty (180) consecutive days to perform his
material duties and responsibilities and (iii) a determination is made
regarding Executive's continued incapacity by a physician appointed by the
Company (such continued incapacity is hereinafter referred to as
"disability"). Upon any such termination for disability, Executive shall be
entitled to receive (i) his Base Salary, as well as the annual incentive
award, prorated in each case through the date on which the Executive is first
eligible to receive payment of long term disability benefits in lieu of Base
Salary under the Company's long term disability benefit plan as then in
effect covering the Executive, and (ii) his accrued benefits under the terms
of the plans, policies and procedures of the company.
B. ASSISTANCE TO THE COMPANY
During the period the Executive is receiving payments of either
regular compensation or disability insurance benefits described in this
Agreement and as long as he is physically and mentally able to do so, the
Executive will furnish information and assistance to the Company and form
time to time will make himself available to the Company with respect areas
and matters in which he was involved during his employment with the Company.
SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, (i) Executive's estate shall be entitled to receive his Base
Salary, as well as the annual incentive award, prorated in each case through
the date of Executive's death, and (ii) Executive's designated beneficiary or
estate, as the case my 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 terminated Executive's employment Without Cause
during the Term of Employment, as defined in the Agreement, or the Term of
Employment ends because the Company ends the automatic extension thereof
under Section II A. of the Agreement, the Company will pay to the Executive
in a lump sum, his Base Salary for a period of twelve (12) 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 the 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 the Agreement. Executive shall
have the right to voluntarily terminate this Agreement, other than for Good
Reason or in conjunction with a Change in Control, upon two weeks' prior
notice to the Company. If Executive voluntarily terminates his employment
with the Company, (i) Executive shall be entitled to receive his Base Salary
prorated through the date of Executive's voluntary termination, and (ii)
Executive shall be entitled to his accrued benefits under the terms of the
plans, policies and procedures of the Company.
Page 15
<PAGE>
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 the Agreement, including, but not
limited to, conviction for a felony or perpetration of a common law fraud,
which has resulted or is likely to result in material economic damage to the
Company.
(2) Termination "Without Cause" means termination by the
Company of the Executive's employment other than due to death, disability, or
termination With Cause.
SECTION IX
OTHER DUTIES OF THE EXECUTIVE DURING
AND AFTER THE PERIOD OF EMPLOYMENT
A. COOPERATION DURING AND AFTER EMPLOYMENT
The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with
any claims or legal actions in which the Company is or may become a party.
B. CONFIDENTIAL INFORMATION
The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other
relationships of the Company, as hereinafter defined, is confidential and is
a unique and valuable asset of the Company. Access to and knowledge of this
information are essential to the performance of the Executive's duties under
this Agreement. The Executive will not during the Period of Employment or
after, except to the extent reasonable 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 statement or perform any acts intended to advance the interest of
any existing or prospective competitors of the Company in any way that will
injure the interest of the Company; the Executive, without prior express
written approval by the Board of Directors of the Company, will not directly
or indirectly own or hold any proprietary interest in or be employed by or
receive compensation from any party engaged in the same or any similar
business in the same geographic areas the Company does business; and the
Executive, without express prior written approval from the Board of
Directors, will not solicit any members of the then current customers,
clients or suppliers of the Company or discuss with any employee of the
Company information or operation of any business intended to compete with the
Company. For the purposes of the Agreement, proprietary interest means legal
or equitable ownership, whether through stock holdings or otherwise, of a
debt or equity interest (including options, warrants, rights and convertible
interest) in a business firm or entity, or ownership of more that 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
Page 16
<PAGE>
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 the termination of the Period of Employment for actions or
omissions during the Period of Employment.
SECTION XI
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any payments under this
Agreement all federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.
SECTION XII
EFFECT OF PRIOR AGREEMENTS
The Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and supersedes any prior
employment, severance, or other similar agreements between the Company, its
predecessors and its affiliates, and the Executive.
SECTION XIII
MODIFICATION
Subject to Section IV G., this Agreement may not be modified or
amended except in writing signed by the parties. No term or condition of this
Agreement will be deemed to have been waived, except in writing by the party
charged with waiver. A waiver shall operate only as to the specific term or
condition waived and will not constitute a waiver for the future or act on
anything other than that which is specifically waived.
SECTION XIV
GOVERNING LAW; ARBITRATION
This Agreement and its validity, interpretation, performance and
enforcement shall be governed by the laws of the State of Illinois, without
giving effect to the choice of law provisions thereof.
An dispute among the parties hereto shall be settled by arbitration
in accordance with the then applicable rules of the American Arbitration
Association and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
SECTION XV
NOTICES
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid by registered mail, return receipt
requested, or when delivered if by hand, overnight delivery services of
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
Page 17
<PAGE>
or at such other address as may have been furnished to the Executive by the
Company in writing, or
(b) If to the Executive, at:
27276 W. Twin Ponds 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
If any phrase, clause or provision of this Agreement is declared
invalid or unenforceable by an arbitrator or court of competent jurisdiction,
such phrase, clause or provision shall be deemed severed from this Agreement,
but will not affect any other provisions of this Agreement, which shall
otherwise remain in full force and effect. In addition, there will
automatically substituted herein for such severed phrase, clause or provision
a phrase, clause or provision as similar as possible which is valid and
enforceable.
C. HEADINGS
The headings and subheadings of this Agreement are inserted for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
D. CONSTRUCTION
The Company and the Executive acknowledge that this Agreement was
the result of arm's-length negotiations between sophisticated parties each
represented by legal counsel. Each and every provision of this Agreement
shall be construed as though both parties participated equally in the
drafting of same, and any rule of construction that a document shall be
construed against the drafting party shall not be applicable to this
Agreement.
E. SURVIVORSHIP
The provisions of Sections IV-XVII shall survive the termination or
expiration of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
COMPANY
ALTERNATIVE RESOURCES CORPORATION
By: /s/ Raymond R. Hipp
------------------------------------------
Raymond R. Hipp, Chief Executive Officer
And President
EXECUTIVE
/s/ Robert Carlson
---------------------------------------------
Robert Carlson
Page 18
<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 THREE
MONTH PERIOD ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 657
<SECURITIES> 0
<RECEIVABLES> 70,593
<ALLOWANCES> 1,708
<INVENTORY> 0
<CURRENT-ASSETS> 77,146
<PP&E> 30,420
<DEPRECIATION> 10,728
<TOTAL-ASSETS> 137,784
<CURRENT-LIABILITIES> 36,783
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 55,185
<TOTAL-LIABILITY-AND-EQUITY> 137,784
<SALES> 0
<TOTAL-REVENUES> 81,905
<CGS> 0
<TOTAL-COSTS> 76,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 687
<INCOME-PRETAX> 4,478
<INCOME-TAX> 1,842
<INCOME-CONTINUING> 2,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,636
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
