-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FhFqGXp17/+TJJ4i966I+3X8b3ZFJlQRxtb/jfy2fh9TibWaI4hf9PtkjH64iYmI mr0lgCrGWSk+qaMXYiIqBw== 0000924646-99-000012.txt : 19990817 0000924646-99-000012.hdr.sgml : 19990817 ACCESSION NUMBER: 0000924646-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MODIS PROFESSIONAL SERVICES INC CENTRAL INDEX KEY: 0000924646 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 593116655 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24484 FILM NUMBER: 99693068 BUSINESS ADDRESS: STREET 1: 1 INDEPENDENT DR CITY: JACKSONVILLE STATE: FL ZIP: 32202 BUSINESS PHONE: 9043602000 MAIL ADDRESS: STREET 1: 1 INDEPENDENT DR CITY: JACKSONVILLE STATE: FL ZIP: 32202 FORMER COMPANY: FORMER CONFORMED NAME: ACCUSTAFF INC DATE OF NAME CHANGE: 19940606 10-Q 1 FORM 10-Q FOR PERIOD ENDED 6/30/99 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 0-24484 Modis Professional Services, Inc. (Exact name of Registrant as specified in its charter) Florida 59-3116655 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Independent Drive Jacksonville, Florida 32202 (Address of principal executive offices) (Zip code) (904) 360-2000 (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 registrant's classes of common stock, as of the latest practicable date. July 25, 1999. Common Stock, $0.01 par value Outstanding: 95,918,230 (No. of shares) FORWARD LOOKING STATEMENTS This report on Form 10-Q contains forward-looking statements, including but not limited to all of the information under Part I, Item 3, under 'Quantitative and Qualitative Disclosures About Market Risk' (except for historical data). These forward-looking statements are subject to risks, uncertainties or assumptions and may be affected by other factors, including but not limited to: the matters discussed in Part I, Item 2, under 'Three months ended June 30, 1999 compared to three months ended June 30, 1998 - Revenue,' and under 'Six months ended June 30, 1999 compared to six months ended June 30, 1998 - Revenue,' under Part 1, Item 2 'Other Matters - Year 2000 Compliance,' under Part 1, Item 2 'Factors Which May Impact Future Results and Financial Information,' fluctuations in the economy and financial markets in general and in the Company's industry in particular, industry trends towards consolidating vendor lists, the demand for the Company's services, including the impact of changes in utilization rates and effects of the Year 2000 on spending for non-Year 2000 related items, consolidation of major customers, the effect of competition, including the Company's ability to expand into new markets and to maintain profit margins in the face of pricing pressures and wage inflation, the Company's ability to retain significant existing customers or obtain new customers, the Company's ability to recruit, place and retain consultants and professional employees, the Company's ability to identify and complete acquisition targets and to successfully integrate acquired operations into the Company, possible changes in governmental regulations affecting the Company's operations, including possible changes to regulations relating to benefits for consultants and temporary personnel, unexpected fluctuations in interest rates or foreign currency exchange rates, exposure to Year 2000 liability from the Company's Year 2000 remediation and other IT services, loss of key employees, the ability of the Company to successfully complete its previously announced Integration and Strategic Repositioning Plan, and other factors discussed in the Company's previous filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements are based on beliefs and assumptions of the Company's management and on information then currently available to management. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of them in light of new information or future events. Undue reliance should not be placed on such forward-looking statements. Forward-looking statements are not guarantees of performance.
Modis Professional Services, Inc. and Subsidiaries Index Part I Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998........................ 3 Condensed Consolidated Statements of Income for the Three and Six Months ended June 30, 1999 and 1998.. 4 Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 1999 and 1998........ 5 Notes to Condensed Consolidated Financial Statements................................................... 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 10 Item 3 Quantitative and Qualitive Disclosure About Market Risks............................................... 18 Part II Other Information Item 1 Legal Proceedings...................................................................................... 20 Item 2 Changes in Securities and Use of Proceeds.............................................................. 20 Item 3 Defaults Upon Senior Securities........................................................................ 20 Item 4 Submission of Matters to a Vote of Security Holders.................................................... 20 Item 5 Other Information...................................................................................... 20 Item 6 Exhibits and Reports on Form 8-K....................................................................... 20 Signatures............................................................................................. 21 Exhibits
2 Part I. Financial Information Item 1. Financial Statements Modis Professional Services, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (dollar amounts in thousands except per share amounts)
June 30, 1999 December 31, 1998 ------------------- ------------------- (unaudited) Assets Current assets: Cash and cash equivalents $ 26,240 $ 105,816 Accounts receivable, net 358,139 327,185 Prepaid expenses 6,649 11,219 Deferred income taxes 14,613 16,858 Other 30,444 28,460 ------------------- ------------------- Total current assets 436,085 489,538 Furniture, equipment and leasehold improvements, net 39,706 37,577 Goodwill, net 1,053,900 1,025,240 Other assets 17,897 19,526 ------------------- ------------------- Total assets $ 1,547,588 $ 1,571,881 =================== =================== Liabilities and Stockholders' Equity Current liabilities: Notes payable $ 2,409 $ 15,988 Accounts payable and accrued expenses 91,360 206,681 Accrued payroll and related taxes 68,604 60,844 Income taxes payable 31,845 189,887 ------------------- ------------------- Total current liabilities 194,218 473,400 Notes payable, long-term portion 203,759 15,525 Deferred income taxes 16,372 12,846 ------------------- ------------------- Total liabilities 414,349 501,771 ------------------- ------------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued and outstanding - - Common stock, $.01 par value; 400,000,000 shares authorized 95,903,815 and 96,306,323 shares issued and outstanding on June 30, 1999 and December 31, 1998, respectively 959 963 Additional contributed capital 580,852 563,728 Retained earnings 555,088 504,899 Accumulated other comprehensive income (3,660) 520 ------------------- ------------------- Total stockholders' equity 1,133,239 1,070,110 ------------------- ------------------- Total liabilities and stockholders' equity $ 1,547,588 $ 1,571,881 =================== =================== See accompanying notes to condensed consolidated financial statements.
3
Modis Professional Services, Inc. and Subsidiaries Condensed Consolidated Statements of Income (unaudited) (dollar amounts in thousands except per share amounts) Three Months Ended Six Months Ended ------------------------------- ------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) June 30, June 30, June 30, June 30, 1999 1998 1999 1998 ------------- ------------- -------------- ------------- Revenue $ 501,679 $ 425,383 $ 984,545 $ 799,875 Cost of Revenue 366,459 307,573 719,400 577,622 ------------- ------------- -------------- ------------- Gross Profit 135,220 117,810 265,145 222,253 ------------- ------------- -------------- ------------- Operating expenses: General and administrative 79,846 64,807 159,198 120,398 Depreciation and amortization 11,007 9,309 21,890 16,872 ------------- ------------- -------------- ------------- Total operating expenses 90,853 74,116 181,088 137,270 ------------- ------------- -------------- ------------- Income from operations 44,367 43,694 84,057 84,983 ------------- ------------- -------------- ------------- Other income (expense): Interest expense (2,789) (7,352) (4,060) (14,049) Interest income and other, net 1,332 2,746 2,924 3,509 ------------- ------------- -------------- ------------- Total other income (expense) (1,457) (4,606) (1,136) (10,540) ------------- ------------- -------------- ------------- Income from continuing operations before provision for income taxes 42,910 39,088 82,921 74,443 Provision for income taxes 16,949 14,964 32,732 28,222 ------------- ------------- -------------- ------------- Income from continuing operations 25,961 24,124 50,189 46,221 Income from discontinued operations, net of income taxes - 12,634 - 23,113 ------------- ------------- -------------- ------------- Net income $ 25,961 $ 36,758 $ 50,189 $ 69,334 ============= ============= ============== ============= Basic income per common share: from continuing operations $ 0.27 $ 0.22 $ 0.52 $ 0.43 ============= ============= ============== ============= from discontinued operations $ - $ 0.11 $ - $ 0.21 ============= ============= ============== ============= Basic net income per common share $ 0.27 $ 0.33 $ 0.52 $ 0.64 ============= ============= ============== ============= Diluted income per common share: from continuing operations $ 0.27 $ 0.21 $ 0.52 $ 0.40 ============= ============= ============== ============= from discontinued operations $ - $ 0.10 $ - $ 0.19 ============= ============= ============== ============= Diluted net income per common share $ 0.27 $ 0.31 $ 0.52 $ 0.59 ============= ============= ============== ============= Average common shares outstanding, basic 96,152 110,576 96,221 107,922 ============= ============= ============== ============= Average common shares outstanding, diluted 96,653 121,885 96,788 119,444 ============= ============= ============== ============= See accompanying notes to consolidated financial statements.
4
Modis Professional Services, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (dollar amounts in thousands except for per share amounts) Six Months Ended ------------------------------- June 30, June 30, 1999 1998 (unaudited) (unaudited) --------------- --------------- Cash flows from operating activities: Income from continuing operations $ 50,189 $ 46,221 Adjustments to income from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization 21,890 16,872 Deferred income taxes 5,643 (406) Changes in certain assets and liabilities: Accounts receivable (28,359) (61,530) Prepaid expenses and other assets 6,375 (17,497) Accounts payable and accrued expenses (27,534) 7,389 Accrued payroll and related taxes 13,331 86 Other, net 1,964 (656) --------------- --------------- Net cash provided by (used in) operating activities 43,499 (9,521) --------------- --------------- Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements, net of disposals (7,638) (10,348) Purchase of businesses, including additional earn-outs on acquisitions, net of cash acquired (104,086) (87,345) Income taxes and other cash expenses related to sale of net assets of discontinued commercial operations (191,409) - Advances associated with sale of assets of discontinued health care operations, net of repayments (3,835) (10,216) --------------- --------------- Net cash used in investing activities (306,968) (107,909) --------------- --------------- Cash flows from financing activities: Repurchases of common stock, net of refunds 11,871 - Proceeds from stock options exercised 2,250 39,484 Borrowings on indebtedness 337,000 176,509 Repayments on indebtedness (164,497) (117,074) Other - (357) --------------- --------------- Net cash provided by financing activities 186,624 98,562 --------------- --------------- Effect of exchange rate changes on cash and cash equivalents (2,731) - Net decrease in cash and cash equivalents (79,576) (18,868) Cash provided by discontinued operations - 24,177 Cash and cash equivalents, beginning of period 105,816 23,938 --------------- --------------- Cash and cash equivalents, end of period $ 26,240 $ 29,247 =============== =============== Supplemental noncash investing information: During the first quarter of 1998, the Company issued 4,598,698 shares of its common stock, with a fair value of $130,000 in exchange for all the outstanding common stock of Actium, Incorporated. See accompanying notes to condensed consolidated financial statements.
5 Modis Professional Services, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (dollar amounts in thousands except for per share amounts) 1. Basis of Presentation. The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures usually found in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K, as filed with the Securities and Exchange Commission (SEC) on March 31, 1999. The accompanying consolidated financial statements reflect all adjustments (including normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position and results of operations for the interim periods presented. The results of operations for an interim period are not necessarily indicative of the results of operations for a full fiscal year. 2. Restructuring of Operations In December 1998, the Company's Board of Directors approved an Integration and Strategic Repositioning Plan (the "Plan") to strengthen the overall profitability of the Company by implementing a back office integration program and branch repositioning plan in an effort to consolidate or close branches whose financial performance did not meet the Company's expectations. Pursuant to the Plan, during the fourth quarter of 1998 the Company recorded a restructuring and impairment charge of $34,759. The restructuring component of the Plan is based, in part, on the evaluation of objective evidence of probable obligations to be incurred by the Company or impairment of specifically identified assets. The Plan calls for the consolidation or closing of 23 Professional Services division branches, certain organizational improvements and the consolidation of 15 back office operations. This restructuring, which will result in the elimination of approximately 290 positions, will be completed over a 12- to 18-month period, which began during the first quarter of 1999. The major components of the restructuring and impairment charge include:(1) costs of $7,494 to recognize severance and related benefits for the approximately 290 employees to be terminated. The severance and related benefit accruals are based on the Company's severance plan and other contractual termination provisions. These accruals include amounts to be paid to employees upon termination of employment. Prior to December 31, 1998, management had approved and committed the Company to a plan that involved the involuntary termination of certain employees. The benefit arrangements associated with this plan were communicated to all employees in December 1998. The plan specifically identified the number of employees to be terminated and their job classifications; (2) costs of $2,476 to write down certain furniture, fixtures and computer equipment to net realizable value at branches not performing up to the Company's expectations; (3) costs of $9,936 to write down goodwill associated with the acquisition of Legal Information Technology, Inc. which was acquired in January 1997, calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 121 in the fourth quarter of 1998; (4) costs of $8,035 to terminate leases and other exit and shutdown costs associated with the consolidated or closed branches including closing the facilities; and (5) costs of $6,818 to adjust accounts receivable due to the expected increase in bad debts which results directly from the termination or change in client relationships which results when branch and administrative employees, who have the knowledge to effectively pursue collections, are terminated. These costs are based upon management's best estimates based upon available information. 6 The following table summarizes the restructuring activity through June 30, 1999 (in millions):
Payments To Write-Down Of Payments On Employees Certain Property, Cancelled Write-Down Of Involuntarily Plant and Facility Certain Terminated (a) Equipment (b) Leases (a) Receivables (b) Total ----------------- ------------------ ---------------- ------------------ --------------- Balances as of December 31, 1998 $ 7,494 $ 2,476 $ 8,035 $ 6,818 $ 24,823 Charges during the three months ended March 31, 1999 (1,959) (125) (308) - (2,392) Charges during the three months ended June 30, 1999 (2,439) (1,876) (573) (990) (5,878) ------- ------- ------- ------- ------- Balances as of June 30, 1999 $ 3,096 $ 475 $ 7,154 $ 5,828 $ 16,553 ======= ======= ======= ======= ======= (a): Cash; (b): Noncash
As of June 30, 1999, the $16,553 balance in the restructuring accrual was included in the balance sheet caption 'Accounts payable and accrued expenses'. 3. Segment Reporting The Company discloses segment information in accordance with SFAS No. 131, 'Disclosure About Segments of an Enterprise and Related Information,' which requires companies to report selected segment information on a quarterly basis and to report certain entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The Company has two reportable segments: information technology and professional services. The Company's reportable segments are strategic business units that offer different services and are managed separately as each business unit requires different resources and marketing strategies. The information technology segment provides computer related consulting services. The professional services segment provides personnel who perform specialized services such as accounting, legal, technical, outplacement and scientific. Discontinued operations of the Company are not contained within the scope of this footnote. The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 2 to the Consolidated Financial Statements on Form 10-K filed with the SEC on March 31, 1999 and all intersegment sales and transfers are eliminated. No one customer represents more than 5% of the Company's overall revenue. Therefore, the Company does not believe it has a material reliance on any one customer as the Company is able to provide services to numerous Fortune 1000 and other leading businesses. The Company evaluates segment performance based on revenues, gross margin and pre-tax income from continuing operations. The Company does not allocate income taxes or unusual items to the segments. The following table summarizes segment and geographic information: 7
Three Months Ended Six Months Ended ------------------------------- -------------------------------- June 30, June 30, June 30, June 30, 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- Revenue IT $ 354,543 $ 292,700 $ 698,456 $ 545,713 Professional 147,136 132,683 286,089 254,162 ------------ ------------ ------------ ------------ Total Revenue $ 501,679 $ 425,383 $ 984,545 $ 799,875 ============ ============ ============ ============ Gross Profit IT $ 86,508 $ 77,330 $ 171,092 $ 143,455 Professional 48,712 40,480 94,053 78,798 ------------ ------------ ------------ ------------ Total Gross Profit $ 135,220 $ 117,810 $ 265,145 $ 222,253 ============ ============ ============ ============ Pre-tax Income from Continuing Operations IT $ 29,948 $ 29,138 $ 58,333 $ 53,374 Professional 12,962 9,950 24,588 21,069 ------------ ------------ ------------ ------------ Total Pre-tax Income from Continuing Operations $ 42,910 $ 39,088 $ 82,921 $ 74,443 ============ ============ ============ ============ Geographic Areas Revenues United States $ 369,141 $ 370,348 $ 761,620 $ 696,981 U.K. 126,831 50,153 211,662 91,945 Other 5,707 4,882 11,263 10,949 ------------ ------------ ------------ ------------ Total $ 501,679 $ 425,383 $ 984,545 $ 799,875 ============ ============ ============ ============ June 30, December 31, ------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------- Assets IT $ 1,077,851 $ 1,043,722 Professional 396,562 394,563 ------------ ------------ 1,474,413 1,438,285 Corporate 73,175 133,596 ------------ ------------ Total Assets $ 1,547,588 $ 1,571,881 ============ ============ Geographic Areas Identifiable Assets United States $ 1,189,707 $ 1,222,821 U.K. 351,949 345,182 Other 5,932 3,878 ------------ ------------ Total $ 1,547,588 $ 1,571,881 ============ ============
8 4. Comprehensive Income The Company discloses other comprehensive income in accordance with SFAS No. 130, 'Reporting Comprehensive Income'. A summary of comprehensive income for the three and six months ended June 30, 1999 and 1998 is as follows:
Foreign Currency Total Net Translation Comprehensive Three Months Ended, Income Adjustments Income - ---------------------------------------------------------------------------------------- June 30, 1998 $ 36,758 $ 895 $ 37,653 June 30, 1999 $ 25,961 $ (2,068) 23,893
Foreign Currency Total Net Translation Comprehensive Six Months Ended, Income Adjustments Income - ---------------------------------------------------------------------------------------- June 30, 1998 $ 69,334 $ 706 $ 70,040 June 30, 1999 $ 50,189 $ (4,180) $ 46,009
The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations During fiscal 1998, the Company sold its assets that were unrelated to its Information Technology and Professional Services divisions. Effective March 30, 1998, the Company sold the Health Care division for consideration of $8.0 million, consisting of $3.0 million in cash and $5.0 million in a note receivable due March 30, 2000 bearing interest at 2% in excess of the prime rate. In addition, the Company retained the accounts receivable of the Health Care division of approximately $28.2 million. On September 27, 1998, the Company sold its Commercial operations and its Teleservices division for $850 million, prior to any purchase price adjustments, for cash. As a result of these transactions, the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations have been reclassified to report the results of operations of its Commercial, Teleservices and Health Care divisions as discontinued operations for all periods presented. The following detailed analysis of operations should be read in conjunction with the 1998 Financial Statements and related notes included in the Company's Form 10-K filed on March 31, 1999. THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 Results from Continuing Operations Revenue. Revenue increased $76.3 million, or 17.9%, to $501.7 million in the three months ended June 30, 1999, from $425.4 million in the year earlier period. The increase was attributable by division to: Information Technology, $61.8 million or an increase of 21.1%, and Professional Services, $14.5 million or an increase of 10.9%. The increases in the Information Technology and Professional Services divisions were due to both internal growth and to the revenues of acquired companies. The revenue for the Company's Information Technology division is obtained through the modis Solutions and modis Consulting business units. modis Solutions provided approximately 32.7% and 28.6% of the division's revenue for the three months ended June 30, 1999 and 1998, as compared to 67.3% and 71.4% which was provided by the division's modis Consulting unit during the same respective periods. The Company plans to continue to expand the percentage of revenue contributed through its modis Solutions unit as it expands that unit's offerings throughout the offices of the modis Consulting unit through various cross-selling efforts. Management has observed a current trend in the industry which may possibly enhance the effectiveness of its strategy. This trend involves the movement of large users of IT services to larger national and international providers of IT services. The Company has seen a trend among large national and international customers towards scaled-back, preferred vendor lists for supplying IT services. The Company believes it is well positioned as one of the companies which can successfully offer services to these customers and achieve selection as a preferred provider. Approximately 3.3% of the Information Technology division's total revenue is derived from two United Kingdom customers. If these or other customers reduce spending on IT services or exclude the Company from their vendor lists, then the fiscal 1999 IT division revenues may experience a decrease if the revenue associated with such customers cannot be replaced. Another trend in the industry that may limit the Company's operating strategy has been articulated by some industry analysts who have speculated that non Year 2000 related IT spending may be negatively affected in the third and fourth quarters of calendar 1999. This theory speculates, among other things, that customers will focus their efforts in the third and fourth quarters of calendar 1999 on testing and implementing legacy systems which have undergone Year 2000 remediation. The theory further speculates that this focus will result in a curtailment of spending on such IT services as ERP implementation and custom software development. As the Company's modis Solutions unit provides ERP implementation and custom software development services, if spending is curtailed, the Company may possibly experience some weakness in its ERP practice. The Company's Professional Services division consists of the accounting and finance, legal, technical and engineering, career management and consulting and scientific units which contributed 39.4%, 13.1%, 32.8%, 9.5% and 5.2%, respectively, of the Professional Services division's revenues by group during the three months ended June 30, 1999 as compared to 32.0%, 16.1%, 36.3%, 8.7% and 6.9%, respectively, during the year earlier period. 10 Gross Profit. Gross profit increased $17.4 million, or 14.8%, to $135.2 million in the three months ended June 30, 1999, from $117.8 million in the year earlier period. Gross margin decreased to 27.0% from 27.7% for the same respective periods. The gross margin in the IT division decreased from 26.4% to 24.4% for the three months ended June 30, 1998 and 1999, respectively. The overall decrease in the IT division's gross margin was mainly due to the increased percentage of the Information Technology division's revenues generated by the U.K. operations, which generally contribute a lower gross margin percentage. In addition, as the division's Consulting Unit increases the amount of revenue generated as a result of Preferred Vendor relationships, certain gross margin concessions may be made in exchange for an increase in overall gross profit. The gross margin in the Professional Services division increased to 33.1% in the three months ended June 30, 1999 from 30.5% in the year earlier period. Operating Expenses. Operating expenses increased $16.8 million, or 22.7%, to $90.9 million in the three months ended June 30, 1999, from $74.1 million in the year earlier period. Operating expenses as a percentage of revenue increased to 18.1% in the three months ended June 30, 1999, from 17.4% in the year earlier period. The Company's general and administrative ("G&A") expenses increased $15.0 million or 23.1% to $79.8 million in the three months ended June 30, 1999, from $64.8 million in the year earlier period. The increase in G&A expenses was primarily related to the effects of acquisitions made by the Company, internal growth of operating companies post-acquisition, investments made to improve infrastructure and to develop technical practices and increased expenses at the corporate level to support the growth of the Company, including sales, marketing and brand recognition. Included in G&A expenses during both the three months ended June 30, 1999 and 1998 are the costs associated with projects underway to ensure accurate date recognition and data processing with respect to Year 2000 as it relates to the Company's business, operations, customers and vendors. These costs have been immaterial to date and are not expected to have a material impact on the Company's results of operations, financial condition or liquidity in the future. See 'OTHER MATTERS - Year 2000 Compliance' below. Income from Operations. Income from operations increased $0.7 million, or 1.6%, to $44.4 million in the three months ended June 30, 1999, from $43.7 million in the year earlier period. Income from operations as a percentage of revenue decreased to 8.8% in the three months ended June 30, 1999, from 10.3% in the year earlier period. Other Income (Expense). Interest expense decreased $4.6 million, or 62.2%, to $2.8 million in the three months ended June 30, 1999, from $7.4 million in the year earlier period. Interest expense was offset in the three months ended June 30, 1999 by interest and other income of $1.3 million from (1) investment income from certain investments owned by the Company and (2) interest income earned from cash on hand at certain subsidiaries of the Company. Income Taxes. The Company's effective tax rate was 39.5% in the three months ended June 30, 1999, compared to 38.3% in the year earlier period. The increase in the effective tax rate was due to the increase in certain non-deductible expense items, the majority of which are non-deductible goodwill amortization resulting from tax-free mergers accounted for under the purchase method of accounting. Income from Continuing Operations. As a result of the foregoing, income from continuing operations increased $1.9 million, or 7.9%, to $26.0 million in the three months ended June 30, 1999, from $24.1 million in the year earlier period. Income from continuing operations as a percentage of revenue decreased to 5.2% in the three months ended June 30, 1999, from 5.7% in the year earlier period. Results from Discontinued Operations Income from Discontinued Operations. Income from the discontinued commercial operations, after tax, were $12.6 million for the three months ended June 30, 1998. Additionally, for the three months ended June 30, 1998, reported revenues from discontinued operations were $312.5 million and operating income for the discontinued operations were $ 21.5 million. Results of discontinued operations include allocations of consolidated interest expense totaling $1.3 million for the three months ended June 30, 1998. The allocations were based on the historic funding needs of the discontinued operations, including: the purchases of property, plant and equipment, acquisitions, current income tax liabilities and fluctuating working capital needs. Due to the sale of the Commercial operations and Teleservices division on September 27, 1998, and the sale of the Health Care division on March 30, 1998, the three months ended June 30, 1999 results did not include any operations of the Commercial, Teleservices or Health Care divisions. 11 SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 From continuing operations Revenue. Revenue increased $184.6 million, or 23.1%, to $984.5 million in the six months ended June 30, 1999 from $799.9 million in the year earlier period. The increase was attributable by division to: Information Technology, $152.7 million or an increase of 28.0%; and Professional Services, $31.9 million, or an increase of 12.6%. The increases in the Information Technology and Professional Services divisions were due to both internal growth and to the revenues of acquired companies. The revenue for the Company's Information Technology division is obtained through the modis Solutions and modis Consulting business units. modis Solutions provided approximately 31.9% and 25.1% of the division's revenue for the six months ended June 30, 1999 and 1998, as compared to 68.1% and 74.9% which was provided by the division's modis Consulting unit during the same respective periods. The Company plans to continue to expand the percentage of revenue contributed through its modis Solutions unit as it expands that unit's offerings throughout the offices of the modis Consulting unit through various cross-selling efforts. Management has observed a current trend in the industry which may possibly enhance the effectiveness of its strategy. This trend involves the movement of large users of IT services to larger national and international providers of IT services. The Company has seen a trend among large national and international customers towards scaled-back, preferred vendor lists for supplying IT services. The Company believes it is well positioned as one of the companies which can successfully offer services to these customers and achieve selection as a preferred provider. Approximately 3.4% of the Information Technology division's total revenue is derived from two United Kingdom customers. If these or other customers reduce spending on IT services or exclude the Company from their vendor lists, then the fiscal 1999 IT division revenues may experience a decrease if the revenue associated with such customers cannot be replaced. Another trend in the industry that may limit the Company's operating strategy has been articulated by some industry analysts who have speculated that non Year 2000 related IT spending may be negatively affected in the third and fourth quarters of calendar 1999. This theory speculates, among other things, that customers will focus their efforts in the third and fourth quarters of calendar 1999 on testing and implementing legacy systems which have undergone Year 2000 remediation. The theory further speculates that this focus will result in a curtailment of spending on such IT services as ERP implementation and custom software development. As the Company's modis Solutions unit provides ERP implementation and custom software development services, if spending is curtailed, the Company may possibly experience some weakness in its ERP practice. The Company's Professional Services division consists of the accounting and finance, legal, technical and engineering, career management and consulting and scientific units which contributed 38.1%, 13.9%, 32.3%, 10.4% and 5.3%, respectively, of the Professional Services division's revenues by group during the six months ended June 30, 1999 as compared to 32.3%, 16.2%, 35.9%, 9.0% and 6.6%, respectively, during the year earlier period. During the first quarter of 1999, the Company created and filled the position of President and COO of the Professional Services division. This position will be responsible for the operations of all business units of the Professional Services division. The Company believes this position will create inertia to improve the platform for better operational results throughout the entire Professional Services division. Additionally, the Special Counsel unit of the Professional Services division formed strategic alliances with International Paper and The Document Company Xerox in the six months ended June 30, 1999. Gross Profit. Gross profit increased $42.8 million or 19.3% to $265.1 million in the six months ended June 30, 1999 from $222.3 million in the year earlier period. Gross margin decreased to 26.9% in the six months ended June 30, 1999 from 27.8% in the year earlier period. The gross margin in the IT division decreased from 26.3% to 24.5% for the six months ended June 30, 1998 and 1999, respectively. The overall decrease in the IT division's gross margin was mainly due to the increased percentage of the Information Technology division's revenues generated by the U.K. operations, which generally contribute a lower gross margin percentage. In addition, as the division's Consulting Unit increases the amount of revenue generated as a result of Preferred Vendor relationships, certain gross margin concessions may be made in exchange for an increase in overall gross profit. The gross margin in the Professional division increased to 32.9% in the six months ended June 30, 1999 from 31.0% in the year earlier period. 12 Operating Expenses. Operating expenses increased $43.8 million, or 31.9%, to $181.1 million in the six months ended June 30, 1999 from $137.3 million in the year earlier period. Operating expenses as a percentage of revenue increased to 18.4% in the six months ended June 30, 1999 from 17.2% in the year earlier period. The Company's general and administrative ("G&A") expenses increased $38.8 million or 32.2% to $159.2 million in the six months ended June 30, 1999, from $120.4 million in the year earlier period. The increase in G&A expenses was primarily related to the effects of acquisitions made by the Company, internal growth of operating companies post-acquisition, investments made to improve infrastructure and to develop technical practices and increased expenses at the corporate level to support the growth of the Company, including sales, marketing and brand recognition. Included in G&A expenses during both the six months ended June 30, 1999 and 1998 are the costs associated with projects underway to ensure accurate date recognition and data processing with respect to Year 2000 as it relates to the Company's business, operations, customers and vendors. These costs have been immaterial to date and are not expected to have a material impact on the Company's results of operations, financial condition or liquidity in the future. See 'OTHER MATTERS - Year 2000 Compliance' below. Income from Operations. Income from operations decreased $0.9 million, or 1.1% to $84.1 million in the six months ended June 30, 1999 from $85.0 million in the year earlier period. Income from operations as a percentage of revenue decreased to 8.5% in the six months ended June 30, 1999 from 10.6% in the year earlier period. Other Income (Expense). Interest expense decreased $9.9 million, or 70.7%, to $4.1 million in the six months ended June 30, 1999, from $14.0 million in the year earlier period. Interest expense was offset in the six months ended June 30, 1999 by interest and other income of $2.9 million from (1) investment income from certain investments owned by the Company and (2) interest income earned from cash on hand at certain subsidiaries of the Company. Immediately subsequent to the sale of the Company's Commercial operations and Teleservices divisions in September 1998, the Company paid off and terminated the Company's then existing credit facility. The new and currently existing facility did not have a balance at December 31, 1998 and the Company did not begin borrowing on the facility until late in the first quarter of 1999. Income Taxes. The Company's effective tax rate was 39.5% in the six months ended June 30, 1999, compared to 37.9% in the year earlier period. The increase in the effective tax rate was due to the increase in certain non-deductible expense items, the majority of which are non-deductible goodwill amortization resulting from tax-free mergers accounted for under the purchase method of accounting. Income from continuing operations. As a result of the foregoing, income from continuing operations increased $4.0 million, or 8.7%, to $50.2 million in the six months ended June 30, 1999 from $46.2 million in the year earlier period. Income from continuing operations as a percentage of revenue decreased to 5.1% in the six months ended June 30, 1999 from 5.8% in the year earlier period. From discontinued operations Income from Discontinued Operations. Income from the discontinued commercial operations, after tax, were $23.1 million for the six months ended June 30, 1998. Additionally, for the six months ended June 30, 1998, reported revenues from discontinued operations were $589.7 million and operating income for the discontinued operations were $ 39.6 million. Results of discontinued operations include allocations of consolidated interest expense totaling $2.7 million for the six months ended June 30, 1998. The allocations were based on the historic funding needs of the discontinued operations, including: the purchases of property, plant and equipment, acquisitions, current income tax liabilities and fluctuating working capital needs. Due to the sale of the Commercial operations and Teleservices division on September 27, 1998, and the sale of the Health Care division on March 30, 1998, the six months ended June 30, 1999 results did not include any operations of the Commercial, Teleservices or Health Care divisions. 13 LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements have principally related to the acquisition of businesses, working capital needs and capital expenditures. These requirements have been met through a combination of bank debt, issuances of Common Stock and internally generated funds. The Company's operating cash flows and working capital requirements are affected significantly by the timing of payroll and by the receipt of payment from the customer. Generally, the Company pays its Information Technology and Professional Services consultants semi-monthly, and receives payments from customers within 30 to 80 days from the date of invoice. The Company had working capital of $241.9 million and $16.1 million as of June 30, 1999 and December 31, 1998, respectively. The Company had cash and cash equivalents of $26.2 million and $105.8 million as of June 30, 1999 and December 31, 1998, respectively. The principal reasons for the increase in the Company's working capital is that included in current liabilities at December 31, 1998 were (1) amounts related to earn-out payments due to the former owners of acquired companies and (2) a $175 million current tax liability relating to the sale of its Commercial operations and Teleservices division. The majority of these amounts were paid in the first quarter of fiscal 1999. The Company generated $43.5 million of cash flows from operations during the six months ended June 30, 1999 versus using $9.5 million during the same period in fiscal 1998. The increase in cash flow from operations in the six months ended June 30, 1999 is due to the reduction in cash needed to fund accounts receivable and cash flows provided from acquired companies. The Company used $307.0 million for investing activities in the six months ended June 30, 1999 mainly as a result of the payment of the current tax liability, net worth adjustment and certain transaction expenses relating to the sale of the Company's Commercial operations and Teleservices division. Additionally, the Company used $104.1 million for acquisitions and earn-out payments and $7.6 million for capital expenditures. In the six months ended June 30, 1998, the Company used $107.9 million for investing activities, of which $87.3 million was used for acquisitions and earn-out payments and $10.3 million was used for capital expenditures. For the six months ended June 30, 1999, the Company did not pay any indemnification claims resulting from the sale of the Company's Commercial, Teleservices and Health Care divisions in 1998. Although the Company has received certain claims for indemnification or notices of possible claims pursuant to such obligations, the Company believes that it has meritorious defenses against such claims and does not believe that such claims, if successful, would have a material adverse effect on the Company's financial condition or results of operations. For the six months ended June 30, 1999 and 1998, the Company generated $186.6 million and $98.6 million of cash flows from financing activities, respectively. For both the six months ended June 30, 1999 and 1998, these amounts primarily represent net borrowings from the Company's credit facility. For the six months ended June 30, 1999, these net borrowings were used primarily to satisfy the current tax liability, net worth adjustment, and certain transaction expenses relating to the sale of the Company's Commercial operations and Teleservices division while for the six months ended June 30, 1998 these net borrowings were used primarily to fund acquisitions and earn-out payments. On October 31, 1998, the Company's Board of Directors authorized the repurchase of up to $200.0 million of the Company's Common Stock pursuant to a share buyback program. On December 4, 1998, the Company's Board of Directors increased the authorized share buyback program by an additional $110.0 million, bringing the total authorized repurchase amount to $310.0 million. As of December 31, 1998, the Company had repurchased approximately 21,751,000 shares under the share buyback program. Included in the shares repurchased as of December 31, 1998 were approximately 6,150,000 shares repurchased under an accelerated stock acquisition plan ("ASAP"). The Company entered into the ASAP with a certain brokerage firm which agreed to sell to the Company shares of its Common Stock at a certain cost. The brokerage firm borrowed these shares from its customers and was required to enter into market transactions, subject to Company approval, and purchase shares of Company Common Stock to return to its customers. The Company, pursuant to the ASAP, agreed to compensate the brokerage firm for any increases in the Company's stock price that would cause the brokerage firm to pay an amount to purchase the stock over the ASAP price. Conversely, the Company would receive a refund in the purchase price if the Company's stock price fell below the ASAP price. Subsequent to December 31, 1998, the Company used refunded proceeds from the ASAP to complete the program during January and February 1999, with the repurchase of approximately 597,000 shares, bringing the total shares repurchased under the program to approximately 22,348,000 shares. All of these shares were retired upon purchase. The Company is also obligated under various acquisition agreements to make earn-out payments to former stockholders of acquired companies over the next four years. The Company estimates that the amount of these payments will total $8.4 million for the remainder of 1999, and $26.2 million, $10.1 million and $2.9 million annually, for the next three years. The Company anticipates that the cash generated by the operations of the acquired companies will provide a substantial part of the capital required to fund these payments. 14 The Company anticipates that capital expenditures for furniture and equipment, including improvements to its management information and operating systems during the remainder of 1999 will be approximately $6.0 million. The Company anticipates recurring expenditures in future years to be approximately $15.0 million per year. In connection with the Company's sale of its health care operations, the Company entered into an agreement with the purchaser of the health care assets whereby the Company agreed to make advances to the purchaser to fund its working capital requirements not to exceed the lesser of $25.0 million or 85% of accounts receivable through September 30, 1999. These advances are collateralized by all the assets of the sold operations. As of June 30, 1999, the Company had advanced approximately $19.7 million under this agreement. Additionally, the Company has $5.0 million in notes receivable from the sale of the health care operations, which is offset by a reserve of $1.5 million. The Company believes that funds provided by operations, available borrowings under the credit facility, and current amounts of cash will be sufficient to meet its presently anticipated needs for working capital, capital expenditures and acquisitions for at least the next 12 months. Indebtedness of the Company On October 30, 1998, the Company entered into a $500 million revolving credit facility which is syndicated to a group of 13 banks with NationsBank, N.A., as principal agent. The facility expires on October 21, 2003. Outstanding amounts under the credit facility bear interest at certain floating rates as specified by the credit facility. The credit facility contains certain financial and non-financial covenants relating to the Company's operations, including maintaining certain financial ratios. Repayment of the credit facility is guaranteed by the material subsidiaries of the Company. In addition, approval is required by the majority of the lenders when the cash consideration of an individual acquisition exceeds 10% of consolidated stockholders' equity of the Company. As of July 25, 1999, the Company had a balance of $192.0 million outstanding under the credit facility. The Company also had outstanding letters of credit in the amount of $1.5 million, reducing the amount of funds available under the credit facility to $306.5 million, as of July 25, 1999. The Company also has certain notes payable to shareholders of acquired companies. The notes payable bear interest at rates ranging from 4.3% to 8.0% and have repayment terms from January 1999 to November 2004. As of July 25, the Company owed approximately $12.8 million in such acquisition indebtedness. SEASONALITY The company's quarterly operating results are affected primarily by the number of billing days in the quarter and the seasonality of its customers' businesses. Demand for services in the information technology and professional services businesses is typically lower during the first quarter until customers' operating budgets are finalized and the profitability of the Company's consultants is generally lower in the fourth quarter due to fewer billing days because of the higher number of holidays and vacation days. 15 OTHER MATTERS Year 2000 Compliance During 1997 the Company began projects to address potential problems within the Company's operations which could result from the century change in the Year 2000. In 1998, the Company created a Year 2000 Project Office to oversee Year 2000 related projects and to address potential problems within the Company's operations, which could result from the century change in the Year 2000. The Project Office reports to the Company's Board of Directors, is staffed primarily with representatives of the Company's Information Systems Department and has access to key associates in all areas of the Company's operations. The Project Office also uses outside consultants on an as-needed basis. A four-phase approach has been utilized to address the Year 2000 issues: (1) an inventory phase to identify all computer-based systems and applications (including embedded systems) which might not be Year 2000 compliant; (2) an assessment phase to determine what revisions or replacements would be necessary to achieve Year 2000 compliance and identification of remediation priorities which would best serve the Company's business interests; (3) a conversion phase to implement the actions necessary to achieve compliance and to conduct the tests necessary to verify that the systems are operational; and (4) an implementation phase to transition the compliant systems into the everyday operations of the Company. Management believes that the four phases are approximately 100%, 100%, 85%, and 80% complete, respectively. The Company's corporate accounting, payroll and human resources systems are recent implementations (installed since June 1997) of mainstream computer products from vendors such as PeopleSoft, Informix, Microsoft, Digital Equipment Corporation and Compaq. The Company has completed Year 2000 required upgrades for corporate hardware systems, operating systems, network systems, database systems and applications systems with the exception of the project to upgrade the Company's PeopleSoft financial applications from version 6.1 to Year 2000 compliant version 7.5. This project is in process and on schedule, with an anticipated completion date of early September 1999. The Company operates approximately 263 branches, primarily in the U.S., Canada and the United Kingdom. The branch network relies on a variety of front office automation systems to provide sales support for resume tracking and client contact management. Because of the diverse architectural nature of these systems together with the relative ease with which backup/contingency procedures can be implemented in the event of an individual branch system outage, the Company does not believe that these systems pose a material Year 2000 risk. Nevertheless, the Company has completed inventory and assessment phases for all branch locations. In conjunction with other business related integration projects, the Company is actively replacing noncompliant Year 2000 branch hardware and software with Year 2000 compliant products. The Company expects that this replacement process will be complete in North America in early September 1999. The company expects this replacement process will be complete for United Kingdom offices in October 1999. To date, the Company has found that less than 10% of branch workstations require hardware or software upgrades for Year 2000 purposes. Milestones and implementation dates and the cost of the Company's Year 2000 readiness program are subject to change based on new circumstances that may arise or new information becoming available, that may change underlying assumptions or requirements. Further, there are no assurances that the Company will identify all data handling problems in its business systems or that the Company will be able to successfully remedy Year 2000 items that are discovered. Non-IT systems have also been assessed and inventoried. Potential Year 2000 risks in these systems include landlord-controlled systems, such as heating and cooling systems, automated security systems, elevators, and office equipment, phone systems, facsimile machines and copiers. The Company has requested assessments of non-IT systems for Year 2000 compliance from landlords and office equipment vendors. Based on these responses that the Company has received, the Company believes that the Year 2000 risk of non-IT systems failure is not material. The Company budgeted $2.0 million to address the Year 2000 issues to, which includes the estimated cost of the salaries of associates and the fees of consultants addressing the issue. This cost represents approximately 12% of the Company's total MIS budget. Approximately $1.9 has been incurred to date for outside consultants, software and hardware applications, and dedicated personnel. The Company does not separately track the internal costs incurred for portions of the Year 2000 compliance project that are completed as a part of other business related projects. Such costs are principally the related payroll costs for the Company's information systems group. The Company believes that cash flows from operations and funds available under the Company's credit facility as well as cash on hand are sufficient to fund these costs. 16 As a part of the Year 2000 review, the Company is examining its relationships with certain key outside vendors and others with whom it has significant business relationships to determine to the extent practical the degree of such parties' Year 2000 compliance and to develop strategies and alternatives for working with them through the century change. Other than its banking relationships, which include only large, federally insured institutions, and utilities (electrical power, telecommunications, water and related items), the Company does not have a relationship with any third-party which is material to the operations of the Company and, therefore, believes that the failure of any such party to be Year 2000 compliant would not have a material adverse effect on the Company. However, banking or utility failures at the Company's branches or with its customers could have a material effect on the Company's revenue sources and could disrupt the payment cycle of certain of the Company's customers. Should the Company or a third party with whom the Company deals have a systems failure due to the century change, the Company does not expect any such effect to be material. The Company is developing contingency plans for alternative methods of transaction processing and estimates that such plans will be finalized by August 1999. 17 Item 3. Quantitative And Qualitative Disclosures About Market Risk The following assessment of the Company's market risks does not include uncertainties that are either nonfinancial or nonquantifiable, such as political, economic, tax and other credit risks. Interest Rates. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's short-term and long-term debt obligations and to the Company's investments. The Company's investment portfolio consists of cash and cash equivalents including deposits in banks, government securities, money market funds, and short-term investments with maturities, when acquired, of 90 days or less. The Company is adverse to principal loss and ensures the safety and preservation of its invested funds by placing these funds with high credit quality issuers. The Company constantly evaluates its invested funds to respond appropriately to a reduction in the credit rating of any investment issuer or guarantor. The Company's short-term and long-term debt obligations totaled approximately $206.2 million as of June 30, 1999 and the Company had $301.2 million available under its current credit facility. The debt obligations consist of (1) notes payable to former shareholders of acquired corporations, are at a fixed rate of interest, and extend through 2004 and (2) amounts outstanding under the credit facility which expires in 2003. The interest rate risk on the note obligations is immaterial due to the dollar amount and fixed nature of these obligations. The interest rate on the credit facility is variable, with the rate on borrowings outstanding at June 30, 1999 at 5.6%. As of June 30, 1999, the Company has not entered into any interest rate instruments to reduce its exposure to interest rate risk. Foreign Currency Exchange Rates. Foreign currency exchange rate changes impact translations of foreign denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. The Company generated approximately 26.4% and 22.6% of its consolidated revenues for the three and six months ended June 30, 1999 consolidated revenues from international operations, respectively, 95.7% and 94.9%of which were from the United Kingdom and 4.3% and 5.1% of which were from other countries, respectively. Thus, 95.7% and 94.9%of international revenues for the three and six months ended June 30, 1999 were derived from the United Kingdom, whose currency, has not fluctuated materially against the United States dollar since the Company began operating in the United Kingdom. The Company recorded unrealized cumulative foreign exchange translation losses of $3,660 as of June 30, 1999, and unrealized cumulative foreign exchange translation gains of $520 as of December 31, 1998. The cumulative amounts are recorded as a separate component of stockholders' equity under the caption 'Accumulated other comprehensive income'. The Company did not hold and has not entered into any foreign currency derivative instruments as of June 30, 1999. 18 FACTORS WHICH MAY IMPACT FUTURE RESULTS AND FINANCIAL CONDITION Effect of Fluctuations in the General Economy Demand for the Company's information technology and professional business services is significantly affected by the general level of economic activity in the markets served by the Company. During periods of slowing economic activity, companies may reduce the use of outside consultants and staff augmentation services prior to undertaking layoffs of full-time employees. Also during such periods, companies may elect to defer installation of new information technology systems and platforms (such as Enterprise Resource Planning systems) or upgrades to existing systems and platforms. Year 2000 remediation and testing for existing information technology systems may have a similar effect. As a result, any significant economic downturn or Year 2000 impact could have a material adverse effect on the Company's results of operations or financial condition. The Company may also be adversely effected by consolidations through mergers and otherwise of main customers or between major customers with non-customers. These consolidations as well as corporate downsizings may result in redundant functions or services and a resulting reduction in demand by such customers for the Company's services. Also, spending for outsourced business services may be put on hold until the consolidations are completed. Competition The Company's industry segments are intensely competitive and highly fragmented, with few barriers to entry by potential competitors. The Company faces significant competition in the markets that it serves and will face significant competition in any geographic market that it may enter. In each market and industry segment in which the Company operates, it competes for both clients and qualified professionals with other firms offering similar services. Competition creates an aggressive pricing environment and higher wage costs, which puts pressure on gross margins. Ability to Recruit and Retain Professional Employees The Company depends on its ability to recruit and retain employees who possess the skills, experience and/or professional certifications necessary to meet the requirements of the Company's clients. Competition for individuals possessing the requisite criteria is intense, particularly in certain specialized IT and professional skill areas. The Company often competes with its own clients in attracting and retaining qualified personnel. There can be no assurance that qualified personnel will be available and recruited in sufficient numbers on economic terms acceptable to the Company. The continuing shortage of qualified IT consultants may adversely affect the Company's ability to increase revenue. This shortage may be exacerbated by the difficulties of utilizing the services of qualified foreign nationals working in the United States under H-1B visas. The use of these consultants requires both the Company and these foreign nationals to comply with United States immigration laws. Ability to Continue Acquisition Strategy; Ability to Integrate Acquired Operations The Company has experienced significant growth in the past through acquisitions. Although the Company continues to seek acquisition opportunities, there can be no assurance that the Company will be able to negotiate acquisitions on economic terms acceptable to the Company or that the Company will be able to successfully identify acquisition candidates and integrate all acquired operations into the Company. Possible Changes in Governmental Regulations From time to time, legislation is proposed in the United States Congress, state legislative bodies and by foreign governments that would have the effect of requiring employers to provide the same or similar employee benefits to consultants and other temporary personnel as those provided to full-time employees. The enactment of such legislation would eliminate one of the key economic reasons for outsourcing certain human resources and could significantly adversely impact the Company's staff augmentation business. In addition, the Company's costs could increase as a result of future laws or regulations that address insurance, benefits or other employment-related matters. There can be no assurance that the Company could successfully pass any such increased costs to its clients. Possible Year 2000 Exposure The IT division performs both Year 2000 remediation services as well as system upgrades and enhancements for clients. There is some possibility that customers who experience system failures related to Year 2000 may institute actions against their IT vendors, including the Company. There is no ability to quantify the likelihood or merit of any such claims; but if a significant number of such claims are asserted against the Company or if one or more customers assert meritorious claims, such claims may result in material adverse effects on the Company's results of operations and financial condition. 19 Part II. Other Information Item 1. Legal Proceedings No disclosure required. Item 2. Changes in Securities No disclosure required. Item 3. Defaults Upon Senior Securities No disclosure required. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of the Company's shareholders was held on May 26, 1999. Proxies were solicited from shareholders of record on the close of business on March 24, 1999. On March 24, 1999, there were 95,798,567 shares outstanding and entitled to vote at the Annual Meeting. The shareholder vote on the issues presented at the Annual Meeting was as follows: ELECTION OF DIRECTORS All of the following persons nominated were elected to serve as directors and received the number of votes set opposite their names:
Name For Withhold Authority - ---------------------------------------------------------------------------------------- Derek E. Dewan 81,392,294 548,130 Daniel M. Doyle 81,537,064 403,360 Peter J. Tanous 81,545,213 395,211 T. Wayne Davis 81,538,574 401,850 John K. Anderson, Jr. 81,538,824 401,600 Michael D. Abney 81,491,143 449,281
Item 5. Other Information No disclosure required. Item 6. Exhibits and Reports on Form 8-K A. Exhibits 10.2 Modis Professional Services, Inc. amended and restated Non-Employee Director Stock Plan. 10.10 Executive Employment Agreement with Derek E. Dewan. 10.11 Executive Employment Agreement with Michael D. Abney. 10.12 Executive Employment Agreement with Marc M. Mayo. 10.13 Executive Employment Agreement with Timothy D. Payne. 10.14 Executive Employment Agreement with George Bajalia. 10.15 Executive Employment Agreement with Robert P. Crouch. 11 Calculation of Per Share Earnings. 27 Financial Data Schedule. B. Reports on Form 8-K No disclosure required 20 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ DEREK E. DEWAN President, Chairman August 16, 1999 - ---------------------- of the Board and Chief Derek E. Dewan Executive Officer /s/ MICHAEL D. ABNEY Senior Vice President, August 16, 1999 - ---------------------- Chief Financial Officer, Michael D. Abney Treasurer, and Director /s/ ROBERT P. CROUCH Vice President and August 16, 1999 - ---------------------- Chief Accounting Officer Robert P. Crouch 21 EX-10.2 2 EXHIBIT 10.2 NON-EMPLOYEE DIRECTOR STOCK PLAN MODIS PROFESSIONAL SERVICES, INC. (FORMERLY ACCUSTAFF INCORPORATED) AMENDED AND RESTATED NON-EMPLOYEE DIRECTOR STOCK PLAN AMENDED AND RESTATED MODIS PROFESSIONAL SERVICES, INC. NON-EMPLOYEE DIRECTOR STOCK PLAN 1. PURPOSES The purposes of the Modis Professional Services, Inc. Non-Employee Director Stock Option Plan are to provide an incentive and reward to the Company's non-employee directors. 2. DEFINITIONS 2.1 For purposes of the Plan the following terms shall have the definition which is attributed to them unless another definition is clearly indicated by a particular usage and context. (a) 'Agreement' means the written document issued by the Board to a Participant whereby an Award is made to that Participant. (b) 'Award' means the issuance pursuant to the Plan of an Option. (c) 'Awarded Shares' means Shares subject to outstanding Awards. (d) 'Board' means the Company's Board of Directors. (e) 'Change in Control' shall mean the occurrence of either of the following events: (i) A change in the composition of the Board of Directors as a result of which fewer than one-half of the incumbent directors are directors who either: (1) Had been directors of the Company 24 months prior to such change; or (2) Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or (ii) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act), other than any person who is a shareholder of the Company on or before the effective date of the Plan, by the acquisition or aggregation of Securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that any change in the relative beneficial ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company. (f) 'Code' means the Internal Revenue Code of 1986, as amended. (g) 'Company' means Modis Professional Services, Inc., a corporation incorporated under the laws of the state of Florida, and any successor thereto. (h) 'Director' means a member of the Board. (i) 'Effective Date of Grant' means the effective date of grant for each Option established by Section 5.1 of the Plan. (j) 'Employee' means any individual who performs services as a common law employee for the Company, a Parent or Subsidiary, and is included on the regular payroll of the Company, a Parent or Subsidiary. (k) 'Fair Market Value' means the value established by the Board based upon such factors as the Board in its sole discretion shall decide including, but not limited to, a valuation prepared by an independent third party appraiser selected, or approved, by the Board. If at any time the Stock is traded on an established trading system, it means the last sale price reported on any stock exchange or over-the-counter trading system on which Shares are trading on a specified date or, if not so trading, the average of the closing bid and asked prices for a Share on a specified date. If no sale has been made on the specified date, then prices on the last preceding day on which any such sale shall have been made shall be used in determining fair market value under either method prescribed in the previous sentence. (l) 'Option' means the right to purchase from the Company a stated number of Shares at a specified price. (m) 'Option Price' means the purchase price per Share subject to an Option. (n) 'Parent' means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of a granting of an option, each of the corporations (other than the Company) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain within the meaning of Code Section 424(e) and any regulations or rulings promulgated thereunder. (o) 'Participant' means a Director who has received an Award under the Plan. (p) 'Permanent and Total Disability' shall have the same meaning as given to that term by Code Section 22(e)(3) and any regulations or rulings promulgated thereunder. (q) 'Plan' means the AccuStaff Incorporated Non-Employee Director Stock Plan, as evidenced herein and as amended from time to time. (r) 'Rule 16b-3' means Rule 16b-3 as promulgated by the Securities and Exchange Commission under the 1934 Act, or any successor rule or regulation thereto. (s) 'Share' means one share of the common stock, $.01 par value, of the Company. (t) 'Subsidiary' means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Award, each of the corporations (other than the last corporation) in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, within the meaning of Code Section 424(f) and any regulations or rulings promulgated thereunder. (u) '1933 Act' means the Securities Act of 1933, as amended. (v) '1934 Act' means the Securities Exchange Act of 1934, as amended. 3. ADMINISTRATION 3.1 The Plan is intended to meet the requirements of Rule 16b-3 adopted under the 1934 Act and accordingly is intended to be self-governing. To this end, the Plan requires no discretionary action by any administrative body with regard to any transaction under the Plan. 3.2 The Plan shall be administered by the full Board. 3.3 The action of a majority of the Board at which a quorum is present, or an action approved in writing by a majority of the Board, shall be the valid actions of the Board. 3.4 The Board shall have the authority to interpret and construe the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the details and provisions of each Agreement and make all other determinations necessary or advisable for the administration of the Plan, including, without limitation, the amending or modifying of outstanding Options or Awards, provided that the Participant consents to such action. The Board shall also have the discretion and authority to specify, with respect to Options or Awards of a particular Participant, the effect upon such Participant's right to exercise an Option or Award upon death, which effect might include acceleration of the date at which an Option or Award may be exercised in full; provided, however, that in no event may an Option or Award be exercised after the expiration of ten (10) years from the Effective Date of Grant. The interpretation and construction by the Board of any provisions of the Plan or any Option or Award granted under it and all actions of the Board shall be binding on all parties hereto. No member of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Option or Award granted under it. 4. ELIGIBILITY 4.1 Each Director who is not an Employee shall be a Participant. 5. AWARD OF OPTION 5.1 (a) On the date on which a Participant is first elected or appointed as a Director of the Company during the existence of the Plan, such Participant shall automatically be granted a non-qualified Option to purchase 60,000 Shares (an 'Initial Grant'). (b) Each year on the date on which a Participant is reelected as a Director of the Company during the existence of the Plan, such Participant shall automatically be granted a non-qualified Option to purchase 20,000 Shares (an 'Annual Grant'). (c) The maximum number of Shares (underlying Options granted pursuant to Sections 5.1(a) and 5.1(b)) granted to a Participant serving as a Director of the Company prior to the Company's 1996 annual meeting of stockholders shall not exceedm 160,000 during the lifetime of his service to the Company. The maximum number of Shares (underlying Options granted pursuant to Sections 5.1(a) and 5.1(b)) granted to a Participant first elected a Director of the Company on or after the Company's 1996 annual meeting of stockholders shall not exceed 100,000 during the lifetime of his service to the Company. (d) The Board shall have the authority to grant additional Options, in excess of those described in Sections 5.1(a) and 5.1(b), to a Participant as the Board may determine in its discretion. 5.2 The Option Price per share shall be the Fair Market Value of a Share on the Effective Date of Grant. 6. STOCK 6.1 The aggregate number of Shares which may be issued under the Plan shall be 1,600,000 Shares. 6.2 In the event that any outstanding Award under the Plan expires or is terminated for any reason, the Awarded Shares subject to that Award may again be the subject of an Award under the Plan. 7. TERMS AND CONDITIONS 7.1 Awards granted pursuant to the Plan shall be evidenced by Agreements, which Agreements shall contain or shall be subject to the following terms and conditions, whether or not such terms and conditions are specifically included therein: (a) Number of Shares. Each Initial Grant Agreement shall state that it pertains to 60,000 Shares. Each Annual Grant Agreement shall state that is pertains to 20,000 Shares. (b) Date. Each Agreement shall state the Effective Date of Grant. (c) Price. Each Agreement shall state the Option Price. (d) Method and Time of Payment. With respect to any Award, or portion thereof, the Option Price shall be payable on the exercise of the Award and shall be paid in cash, in Shares (including Shares acquired pursuant to the Plan), or a combination of both. Shares transferred in payment of the Option Price shall be valued as of date of transfer based on their then Fair Market Value. (e) Transfer of Option or Stock. No Award shall be transferable by the Participant, except by will or the laws of descent and distribution or to the extent such transfer is to a member of the Optionee's immediate family or to a trust for the benefit of such an immediate family member. If an option is transferred to any member of the Optionee's immediate family or to a trust for the benefit of such an immediate family member, it shall be exercisable solely by the transferee. (f) Recapitalization. Appropriate adjustments shall be made in the number of Awarded Shares and in the aggregate number of Shares which may be issued under the Plan in order to give effect to changes made in the number of outstanding Shares as a result of a merger, consolidation, recapitalization, reclassification, combination, stock dividend, stock split, or other relevant change. Notwithstanding the foregoing, (i) Options subject to grant or previously granted under the Plan at the time of any event described above shall be subject to only such adjustment as shall be necessary to maintain the proportionate interest of the Participant and preserve, without exceeding, the value of such Options, and (ii) the number of Shares subject to award under the Plan at the time of any event described above shall be subject to only such adjustment as shall be necessary to maintain the relative proportionate interest represented by such Shares immediately prior to any such event. (g) Investment Purpose. (i) The Company shall not be obligated to sell or issue any Shares pursuant to any Award unless such Shares are at the time effectively registered or exempt from registration under the 1933 Act. The determination of whether a Share is exempt from registration shall be made by the Company's legal counsel and its determination shall be conclusive and binding on all parties hereto. (ii) Notwithstanding anything in the Plan to the contrary, each Award under the Plan shall be granted on the condition that the purchases of Shares thereunder shall be for investment purposes and not with a view for resale or distribution except that in the event the Shares subject to such Award are registered under the 1933 Act, or in the event of a resale of such Shares without such registration that would otherwise be permissible, such condition shall be inoperative if in the opinion of counsel for the Company such condition is not required under the 1933 Act or any other applicable law, regulation, or rule of any governmental agency. (h) Vesting Schedule. An Option may not be exercised prior to the date it is vested. Each Initial Grant shall be subject to a vesting schedule which will provide that 20% of the total Shares subject to the Option shall vest on each of the first five (5) anniversaries of the Effective Grant Date. Each Annual Grant shall be subject to a vesting schedule which will provide that 33 1/3% of the total Shares subject to the Option shall vest on each of the first three (3) anniversaries of the Effective Grant Date. The Board, at its discretion, may amend the vesting schedule of any particular Option or Award, including the acceleration of the date which an Option may be exercised in full. (i) Duration of Award. Options granted pursuant to the Plan will have a term of ten (10) years from the Effective Date of Grant. An Option granted pursuant to an Award shall terminate when it has been fully exercised, unless terminated sooner pursuant to the provisions of this paragraph 7.1(i). If for any reason a Participant ceases to be a Director of the Company one year or more after the Director's initial election or appointment to the Board while holding an Option granted under the Plan, such Options as have vested on or prior to such time shall continue to be exercisable for a period of three (3) years after such termination or the remainder of the term of the Option, whichever is shorter. If for any reason a Participant ceases to be a Director of the Company within one year after the Director's initial election or appointment to the Board, such Option shall be canceled as of the date of such termination. (j) Effect of Death or Disability. The Committee may determine, at the time of granting an Option or thereafter, the affect upon an individual's right to exercise such Option of the individual's death or Disability, which affect may include immediate or deferred termination of such individual's rights under the Option, or acceleration of the date at which an Option may be exercised in full. (k) Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable on an accelerated basis in the event that a Change in Control occurs with respect to the Company (and the Committee shall have the discretion to modify the definition of a Change in Control in a particular Option Agreement). If the Committee finds that there is a reasonable possibility that, within the succeeding six months, a Change in Control will occur with respect to the Company, then the Committee may determine that all outstanding Options shall be exercisable on an accelerated basis. 7.2 The Company may place such legends on stock certificates representing the Shares as the Company, in its sole discretion, deems necessary or appropriate to reflect restrictions under the Plan, the Agreement, the Code, the securities laws or otherwise. 7.3 Notwithstanding any provision herein to the contrary, service as a Director shall be at the pleasure of the shareholders of the Company. Nothing contained in the Plan or in any Award granted pursuant to it shall confer upon any Participant a right to continue as a Director. 7.4 Any person entitled to exercise an Option may do so in whole or in part by delivering to the Company at its principal office, attention Corporate Secretary, a written notice of exercise. The written notice shall specify the number of Shares for which an option is being exercised. The notice shall be accompanied by full payment of the option Price for the Shares being purchased. During the Participant's lifetime, an option may be exercised only by the Participant, or on the Participant's behalf by the Participant's legal guardian. 7.5 A Participant shall have no rights as a stockholder with respect to any Shares subject to an Option until the date of the issuance of a stock certificate to him for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Plan Section 7.1(f). 8. AMENDMENT OR DISCONTINUANCE OF PLAN 8.1 The Board may at any time amend, suspend or discontinue the Plan; provided, however, that without further approval of the shareholders of the Company no amendments by the Board shall: (a) Change the class of persons eligible to participate; (b) Increase the aggregate number of Shares which may be issued under the Plan, except as provided in Section 6.1 of the Plan; or (c) Otherwise be made if shareholder approval is required to satisfy the requirements of Rule 16(b)(3) promulgated under the 1934 Act. 8.2 No amendment to the Plan shall alter or impair any Award granted under the Plan without the consent of the holders thereof. 8.3 Articles 4, 5 and 7 of the Plan, in the aggregate, may not be amended more than once every six months, unless such amendment is permitted by Rule 16b-3(c)(2)(ii)(B) under the 1934 Act. 9. INDEMNIFICATION OF BOARD In addition to such other rights of indemnification as they may have as Directors, the members of the Board shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually incurred in connection with the defense of any pending, threatened or possible action, suit or proceeding, or in connection with any pending, threatened or possible appeal therein, to which they or any of them may be a party by reason of any actual or alleged action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Board member is liable for gross negligence or willful misconduct in the performance of his duties; provided that within sixty days after institution of anysuch action, suit or proceeding a Board member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. 10. NO OBLIGATION TO EXERCISE OPTION The granting of an Option shall impose no obligation upon the Participant to exercise such Option. 11. EFFECTIVE DATE; DURATION OF THE PLAN 11.1 The Plan shall become effective as of December 29, 1993. 11.2 No Award may be made after the tenth anniversary of the effective date of the Plan. EX-10.10 3 EMPLOYMENT AGREEMENT WITH DEREK E. DEWAN EXECUTIVE EMPLOYMENT AGREEMENT THIS AGREEMENT is made effective as of the 1st day of January, 1999, by and between MODIS PROFESSIONAL SERVICES, INC., a Florida corporation, and its successors ("Employer"), and DEREK E. DEWAN, a resident of the State of Florida ("Executive"). WHEREAS, the Employer and the Executive entered into an employment agreement dated December 31, 1993 which has subsequently been amended; and WHEREAS, the Employer and the Executive desire to enter into an amended and restated employment agreement (the "Agreement"), which Agreement shall replace and thereby supersede all prior employment agreements and amendments thereto previously executed between the Employer and the Executive; NOW, THEREFORE, in consideration of the mutual promises, agreements and covenants, and subject to the terms and conditions contained in this Agreement, the Employer and Executive, intending to be legally bound, hereby agree as follows: 1. Employment. Employer hereby employs Executive as President and Chief Executive Officer, and Executive hereby accepts employment by Employer, in accordance with and subject to the terms and conditions of this Agreement. 2. Duties and Authority. During the Employment Period (as hereinafter defined), Executive will occupy the position of President, Chief Executive Officer, and member of the Board of Directors of Employer (the 'Board'). As President and Chief Executive Officer, Executive shall be in charge of the operations of Employer and shall have full authority and responsibility, subject to the general direction and control of the Board, for formulating policies and administering the affairs of Employer in all respects, and otherwise performing such duties as are customarily performed by the President, Chief Executive Officer and member of the board of directors of a company of similar size and structure to Employer. In the absence of the Chairman of the Board, Executive will preside over meetings of the shareholders and the Board. Executive agrees to devote his full time, attention and best efforts to the performance of his duties hereunder; provided, however, it shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic, or charitable boards or committees, so long as such activities do not materially interfere with the performance of the Executive's responsibilities as an employee of the Employer in accordance with this Agreement. 3. Initial Term; Employment Period. The initial term of employment shall begin on January 1, 1999, and end on December 31, 2000 (the "Term of this Agreement"). The Term of this Agreement shall be extended automatically for one year on December 31, 2000, and each annual anniversary thereof (the 'Extension Date') unless, and until, at least 90 days prior to the applicable Extension Date either the Employer or the Executive provides written notice to the other party that this Agreement is not to be extended (the later of December 31, 2000 or the last date to which the Term is extended shall be the 'End of Term'). For purposes of this Agreement, the period beginning on January 1, 1999, and ending on the Date of Termination (as hereinafter defined) shall be referred to herein as the "Employment Period." 4. Compensation. During the Employment Period which is in the Term of this Agreement, Executive shall receive the following compensation: a) Base Salary. A base annual salary of $500,000, payable in accordance with the Employer's standard practice for other senior executives. Executive's base salary shall be subject to annual review by the Board for discretionary periodic increases in accordance with the Employer's compensation policies. References to 'Base Salary' in this Agreement shall be to the base salary set forth in this Paragraph 4.a and shall include any increases to such base salary made hereby. b) Incentive Compensation. The Executive shall be entitled to a target incentive compensation opportunity expressed as a percentage of Base Salary of not less than 100% under the Modis Annual Incentive Plan ('Incentive Plan'). 5. Stock Options. a) Grant of Options. Employer shall grant to Executive stock options from time to time during the Employment Period at the discretion of the Compensation Committee of the Board of Directors. These may be made pursuant to the Modis Professional Services, Inc. Amended and Restated 1995 Stock Option Plan, as amended from time to time, or pursuant to a newly established, a successor plan or other plan approved by the Board of Directors. Other forms of equity compensation such as restricted stock, stock appreciation rights or phantom stock may be granted from time to time at the discretion of the Compensation Committee of the Board of Directors (the 'Compensation Committee'). b) Investment Representation. Executive agrees that he will not sell or otherwise dispose of all or any part of the common stock of Employer acquired hereunder unless he shall have received an opinion of counsel, in form and substance satisfactory to counsel for Employer (each party to bear the expense of its own counsel), to the effect that registration of the shares to be sold or disposed of is not required under the Securities Act of 1933, as amended (the 'Act'), or unless there shall be in effect a registration statement under said Act with respect to the proposed sale or disposition of the shares to be sold or disposed of, and Executive shall have complied with all applicable provisions of the Act and the rules and regulations thereunder. c) Registration. If the Employer has not already done so, prior to the exercise of any stock option granted pursuant to this Paragraph 5 or granted pursuant to the Stock Option Agreement between the Company and the Executive dated January 1, 1999, at the Executive's request, the Employer shall as soon as reasonably possible register Executive's shares pursuant to the appropriate form of registration statement under the Act and shall thereafter maintain such registration statement's effectiveness at all required times. d) Exercise. Any existing stock option(s) and any stock options granted after the effective date of this Agreement shall provide for: (i) exercisability of vested options (including those vested under paragraph 5.d)(ii) below) for at least two years following the Executive's termination of employment with the Employer (or if sooner, 10 years from date of grant of the option); (ii) full vesting of options upon a Change in Control (as hereafter defined) or termination of the Executive's employment with the Employer for reasons other than (A) by the Employer for Cause (as hereafter defined), or (B) by the Executive without Good Reason (as hereafter defined); and (iii) exercisability only to the extent vested on the date of the Executive's termination of employment with the Employer, in the event of termination (A) by the Employer for Cause, or (B) by the Executive without Good Reason. e) For purposes of this Agreement, 'Change in Control' shall mean: (i) the acquisition by any person or persons (as such term is used in Section 13(d) of the Securities Exchange Act of 1934) not a shareholder of Employer on June 1, 1998, of legal or beneficial ownership of 35% or more of either (A) the then outstanding shares of common stock of the Employer, or (B) the combined voting power of the then outstanding voting securities of the Employer entitled to vote generally in the election of directors; (ii) individuals who, as of the date hereof, constitute the Board cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Employer's shareholders, was approved by a vote of at least a majority of the directors then comprising the Board shall be considered as though such individual were a member of the Board as of the date hereof; (iii) approval by the shareholders of the Employer of a reorganization, merger, or consolidation, in each case unless the shareholders of the Employer immediately before such reorganization, merger, or consolidation own, directly or indirectly, immediately following such reorganization, merger, or consolidation at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such reorganization, merger, or consolidation in substantially the same proportion as their ownership of the voting securities immediately before such reorganization, merger or consolidation; or (iv) approval by the shareholders of the Employer of (A) a complete liquidation or dissolution of the Employer, or (B) the sale or other disposition of more than 50% of the assets of the Employer within a twelve month period. 6. Benefits. During the term of this Agreement, Executive shall receive the following additional benefits at no cost to the Executive: a) Life Insurance. Employer shall provide and pay for a whole life insurance policy insuring the life of Executive in the amount of $1,000,000, the beneficiary or beneficiaries of which shall be designated by Executive, and which shall be transferable to Executive without cost upon the termination of Executive's employment for any reason and upon Executive's assumption of the obligation to make future premium payments with respect thereto. b) Disability Insurance. Employer shall provide and pay for disability insurance for Executive in the maximum available amount (but not more than sixty percent (60%) of the Executive's Base Salary), with a maximum monthly benefit payable until the earlier to occur of the Executive's death or attaining age 65 and with a waiting period of no more than six (6) months, the beneficiary or beneficiaries of which shall be designated by Executive. Employer shall pay 100% of Base Salary for each month during the disability waiting period and until the insurance provided hereunder begins to make disability payments. For purposes of this Agreement, 'Disability' shall have the meaning set forth in the Employer's long-term disability plan or policy and shall not be considered to have occurred until after the waiting period as required by such plan or policy. c) Medical and Group Insurance. Employer shall include Executive and his dependents in any group medical, dental and hospital or similar plan of Employer in existence from time to time. Employer will purchase individual medical, dental and hospital insurance for Executive if group coverage is not in existence or is unavailable. Post-employment medical, dental and hospital insurance, either as group coverage or an individual policy, will be provided to executive and his dependents at Employer's expense at the same level as other senior executive officers for a period of two years following the Date of Termination. d) Vacation. Executive shall be entitled to five (5) weeks of paid vacation during each calendar year. Unused vacation time will be paid to Executive at calendar year end. e) Automobile. Executive shall receive an automobile allowance of $750 per month. f) Club Dues. Employer shall pay Executive's membership dues for the Gate Governor's Club, the River Club and Sawgrass Country Club (not greater than a total of $10,000 per annum). Upon Compensation Committee approval, Employer shall pay for such other club dues and membership fees for Executive as are reasonable and customary from time to time. g) Communications and Other Equipment. Employer shall provide Executive with, and shall pay all costs of operating and maintaining, cellular telephones, pagers, telephone and cable lines, notebook and desk top computers, facsimile machines, hand-held organizers/palm tops, and such other equipment necessary for Executive to perform his duties at Executive's offices or residences as deemed necessary by Executive. h) Expense Reimbursement. Executive shall be entitled to reimbursement for all reasonable expenses, including meals, telephone, travel, and entertainment, incurred by Executive in the performance of his duties. Executive will maintain records and written receipts as required by federal and state tax authorities to substantiate expenses as an income tax deduction for Employer and shall submit vouchers for expenses for which reimbursement is made. Credit card receipts (American Express, etc.) and other receipts are acceptable along with other corroborative evidence. i) Other Benefits. To the extent not otherwise provided herein (it being the intent not to duplicate benefits), Employer shall provide Executive with no less than the same type and level of other benefits provided by the Employer from time to time to its other executive officers, senior management personnel and Board members. These include, but are not limited to, life and health insurance benefits, participation in pension and profit sharing plans, stock option and stock purchase plans, stock appreciation rights, and stock warrants. 7. Non-Compete and Non-Solicitation; Confidentiality. In consideration of the employment of Executive by Employer, Executive agrees as follows: a) Non-Compete and Non-Solicitation. During the Employment Period and for a period of two years after the Date of Termination, Executive will not, directly or indirectly, within a one hundred fifty mile radius of any office of Employer (or a consolidated subsidiary) in existence on the Date of Termination, own, manage, be employed by, work for, consult for, be an officer or director of, advise, represent, engage in or carry on any business which competes with the business of the Employer at that time. Nothing herein shall be construed to prohibit Executive from rendering professional services subsequent to the Date of Termination as an independent certified public accountant to a business that competes with Employer. During the Employment Period and for a period of two years after the Date of Termination, Executive will not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company (or a consolidated subsidiary) to leave the Company (or a consolidated subsidiary) for any reason whatsoever, or solicit the services of any employee of the Company (or a consolidated subsidiary). b) Non-Disclosure of Information. Executive will not at any time, during or after the term of this Agreement, in any fashion, form, or manner, either directly or indirectly, divulge, disclose, or communicate to any person, firm, or corporation, in any manner whatsoever, any information of any kind, nature, or description concerning any matters affecting or relating to the business of the Employer, including, but not limited to, the names of any of its customers or prospective customers or any other information concerning the business of the Employer, its manner of operation, its