SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934
For the transition period from _______________ to ___________
Commission File Number 000-23147
OUTSOURCE INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0675628
(State or jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
1144 EAST NEWPORT CENTER DRIVE, DEERFIELD BEACH, FLORIDA 33442
(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code: (954) 418-6200
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share
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 twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of voting and non-voting common stock held
by nonaffiliates as of March 16, 1998 was approximately $77.4 million (based
upon the closing sale price of $20.25 per share on the Nasdaq Stock MarketSM on
March 16, 1998).
As of March 16, 1998, 8,506,597 shares of the Registrant's Common stock
were outstanding.
The Registrant's Definitive Proxy Statement for the 1998 Annual Meeting
of Shareholders is incorporated by reference in Part III.
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OUTSOURCE INTERNATIONAL, INC.
INDEX
PART I
PAGE
Item 1 - Business .................................................. 2
Item 2 - Properties................................................. 10
Item 3 - Legal Proceedings.......................................... 10
Item 4 - Submission of Matters to a Vote of Security Holders........ 11
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters.................................................... 12
Item 6 - Selected Financial Data.................................... 14
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 16
Item 8 - Financial Statements and Supplementary Data................ 27
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 57
PART III
Item 10 - Directors and Executive Officers of the Registrant........ 57
Item 11 - Executive Compensation.................................... 57
Item 12 - Security Ownership of Certain Beneficial Owners and Management. 57
Item 13 - Certain Relationships and Related Transactions............ 57
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 58
Signatures............................................................ 61
Schedules............................................................. S-1
Index to Exhibits.....................................................
1
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PART 1
ITEM 1 - BUSINESS
Certain statements included in this and other sections of this Form
10-K are forward looking statements and the Company's actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of future
events, which may not prove to be accurate. These forward looking statements
involve risks and uncertainties, some of which are further discussed under the
caption "Forward-Looking Statements: Certain Cautionary Statements" of Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
GENERAL
OutSource International, Inc. (the "Company") is a rapidly growing
national provider of human resource services focusing on the flexible industrial
staffing market through its Tandem division and on the professional employer
organization ("PEO") market through its Synadyne division. The Tandem division
recruits, trains and deploys temporary industrial personnel and provides payroll
administration, risk management and benefits administration services to its
clients. Tandem's clients include businesses in the manufacturing, distribution,
hospitality and construction industries. Through its Synadyne division, the
Company offers a comprehensive package of PEO services including payroll
administration, risk management, benefits administration and human resource
consultation to companies in a wide range of industries. As of March 18, 1998,
the Company and its franchise associates operated 184 offices, with an estimated
39,000 employees in 41 states and the District of Columbia.
As of March 18, 1998, the Tandem division provided approximately 28,000
flexible industrial staffing personnel daily through a nationwide network of 113
Company-owned and 59 franchised offices. The Tandem division has approximately
17,000 clients and on a daily basis provides services to approximately 3,500 of
such clients. Between 1995 and 1997, Company and franchise flexible industrial
staffing revenues increased from $162.3 million to $357.2 million, a compound
annual growth rate of approximately 48%. The Synadyne division, which began in
1994, has approximately 11,000 employees. Between 1995 and 1997, PEO revenues,
excluding revenues from the provision of PEO services to Tandem franchisees,
increased from $78.1 million to $191.2 million, a compound annual growth rate of
approximately 56%. To implement its expansion strategy, the Company completed 27
acquisitions of industrial staffing companies since January 1, 1995, with 76
offices and approximately $147.0 million in annual historical revenue (See
"Acquisitions" under Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations). During this period, the number of
Company-owned flexible staffing and PEO offices increased from ten to 123, the
number of geographic regions served by the Company increased from one to nine,
and the Company implemented advanced information systems, further developed back
office capabilities and invested in other infrastructure enhancements necessary
to support its future growth.
The Company's operation of both a flexible industrial staffing division
and a PEO division provides it with significant competitive advantages. Both
Tandem and Synadyne offer a number of common services including payroll
administration, risk management and benefits administration. The Company designs
and administers these services through common facilities, personnel and
information systems which give the Company the ability to develop and provide a
wider range of services at lower costs than its primary competitors. In
addition, the Company is able to provide a full spectrum of staffing services to
its industrial clients ranging from a temporary employee for one day to
comprehensive outsourcing of human resource functions through the Company's PEO
division.
See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - for information regarding acquisitions and
other growth, revenues and other operating information for the Company's primary
areas of operations, seasonality, and practices related to working capital
items. See Note 8 to the Company's Consolidated Financial Statements for
information regarding significant customers and geographical concentration.
The Company's objective is to become the leading provider of flexible
industrial staffing and PEO services in select geographic regions. To achieve
this objective, the Company's strategy is to (i) provide a comprehensive package
of single-source human resources services, (ii) continue to focus on
under-served markets which provide high growth opportunities, (iii)
geographically cluster offices to achieve regional market leadership, (iv)
increase market penetration through a multi-faceted growth strategy of internal
growth, acquisitions, franchising and strategic alliances, (v) continue to
maximize operating efficiencies through integrated technology and back office
support and, ultimately, (vi) to become the
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"Guardian Employer", whereby the Company will represent a critical mass of jobs
within a defined geographic area enabling to commit to permanent employment,
over time, for its flexible industrial staffing and PEO employees.
COMPANY SERVICES
The Company offers its clients a full array of staffing services through its
Tandem and Synadyne divisions. Tandem focuses on meeting its clients' flexible
industrial staffing needs, targeting opportunities in that fragmented, rapidly
growing market which has to date been under-served by large full service
staffing companies. Significant benefits of Tandem's service include the
client's ability to outsource the recruiting as well as many logistical aspects
of meeting its flexible industrial staffing needs, as well as the benefits of
converting the fixed cost of employees to the variable cost of outsourced
services. Synadyne focuses on providing a professional employer organization
services tosmall and medium sized businesses (those with less than 500
employees), which achieves cost savings arising from the economies of scale
associated with this outsourcing of human resource administration.
Because the Company serves as the employer of record with respect to
both PEO and flexible staffing services, the Company provides certain common
services to both of these markets, utilizing a common support system. The degree
of utilization of these common services depends upon the needs of the clients
and employees. Common services offered by both Tandem and Synadyne include:
PAYROLL ADMINISTRATION. The Company assumes responsibility for payroll and
attendant record-keeping, payroll tax deposits, payroll tax reporting, and all
federal, state, county and city payroll tax reports (including 941s, 940s, W-2s,
W-3s, W-4s and W-5s), state unemployment taxes, employee file maintenance,
unemployment claims and monitoring and responding to changing regulatory
requirements. The Company develops and administers customized payroll policies
and procedures for each of its clients, which are fully integrated from the
clients' offices to the Company's central processing center.
AGGREGATION OF STATUTORY AND NON-STATUTORY EMPLOYEE BENEFITS. Employee
benefits packages can include health care options, such as preferred provider
organizations ("PPOs") and health maintenance organizations ("HMOs"), and
supplemental benefit programs such as dental care, vision care, prescription
drugs, an employee assistance plan and life and disability insurance options.
The Company offers Multi-Employer Retirement Plans and cafeteria plans to its
eligible employees and provides workers' compensation and unemployment
insurance. Workers' compensation is a state-mandated comprehensive insurance
program that requires employers to fund medical expenses, lost wages and other
costs that result from work-related injuries and illnesses, regardless of fault
and without any co-payment by the employee. Unemployment insurance is an
insurance tax imposed by both federal and state governments.
As part of its service package, the Company administers all employee
benefit plans and is responsible for negotiating the benefits provided by, and
costs of, each such plan. The Company's human resources and claims
administration departments serve as liaisons for the delivery of such services
to the client employee and monitor and review workers' compensation claims for
loss control purposes. The Company believes that its ability to provide and
administer a wide variety of employee benefit plans on behalf of its clients
tends to mitigate the competitive disadvantages small businesses normally face
in the areas of employee benefits cost control and employee recruiting and
retention.
HUMAN RESOURCE COMPLIANCE ADMINISTRATION. Because the Company is the
employer of record with respect to both flexible staffing and PEO services and
assumes responsibility for compliance with many employment related regulations,
it is prepared and trained to address compliance and regulatory issues inherent
in an employment relationship. For example, the Company provides compliance
administration services with respect to unemployment claims, workers
compensation claims, and claims arising under the Fair Labor Standards Act. In
addition, the Company assists its clients in understanding and complying with
other employment-related requirements for which the Company does not assume
responsibility.
Generally, the most significant compliance administration services
provided by the Company are in the area of workers' compensation and state
unemployment laws. With respect to workers' compensation, the Company provides
claims management services which include prompt identification and reporting of
injuries to the insurance carrier and local branch office, use of designated
health care providers, case management, fee audits and aggressive back-to-work
programs. Services provided by the Company in the area of state unemployment
compliance include ensuring that only eligible personnel receive unemployment
benefits, assisting in re-employing personnel and auditing state reporting
records and rate formulas.
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PROACTIVE HUMAN RESOURCE MANAGEMENT SERVICES. The basic differences
between the Tandem services and Synadyne services are referred to by the Company
as "Proactive Human Resource Management Services." PEO services are typically
provided for an indefinite time frame, while flexible industrial staffing
assignments are normally contracted for a definite period of time with the
flexibility to meet ongoing business demands. In addition, the flexible
industrial staffing services are often bundled for one base fee, while PEO
services are characterized by a base fee, plus additional fees for added
services.
As part of its base services in both the flexible staffing and PEO
markets, the Company conducts a human resource needs analysis for clients and
client employees. Based on the results of that review, the Company recommends
basic and additional services which the client should implement. Set forth below
are examples of suggested services included within the Company's base service
fee and other services provided on fee-for-service basis in the flexible
industrial staffing and PEO sectors.
<TABLE>
<CAPTION>
FLEXIBLE INDUSTRIAL STAFFING PEO
SERVICE BASE FEE BASE FEE FEE-FOR-SERVICE
<S> <C> <C> <C>
/bullet/ Continuous H/R Review and Analysis X X
/bullet/ Screening X X
/bullet/ Recruiting X X
/bullet/ Training X X
/bullet/ Workforce Deployment X X
/bullet/ Loss Prevention and Safety Training X X
/bullet/ Pre-employment Testing and Assessment X X
/bullet/ Background Searches X X
/bullet/ Compensation Program Design X X
/bullet/ Customized Personnel Management Reports X X
/bullet/ Job Profiling, Description, Application X X
/bullet/ Turnover Tracking and Analysis X X
/bullet/ Customer Service Training X X
</TABLE>
The Company provides certain other services to its PEO clients on a
fee-for-service basis that are also available to its flexible industrial
staffing clients. These services include drug testing policy administration,
outplacement assistance, relocation assistance, executive benefits, affirmative
action plans, opinion surveys and follow-up analysis, exit interviews and
follow-up analysis, management development skills workshops, team building
programs, grammar and business correspondence skills workshops and management
skills assessment.
OPERATIONS
Because of the similarities in the type of services that the Company
offers to its PEO and flexible staffing clients, and due to technological and
communication advances, many of these services are provided from the Company's
national office and support center in Deerfield Beach, Florida.
These services include payroll processing, tax reporting, unemployment
claims, workers' compensation and other insurance claims, insurance procurement,
health and other employee benefits administration, interactive voice mail,
design and production of training programs and materials, accounting, billing
and collections, customized management reporting, employee background checks,
pre-employment testing, affirmative action plans, executive recruiting,
executive benefits, compensation program design, and turnover tracking and
analysis.
TANDEM
Tandem delivers its flexible industrial staffing services through a
nationwide network of 113 Company-owned and 59 franchise recruiting and training
centers. Most Company-owned recruiting and training centers are staffed with a
manager, one or two service and recruiting coordinators, two to four staffing
consultants, an office administrator and one to four clerical assistants. The
number of people in each of the positions will vary by the size of the
recruiting and training centers and degree of penetration of their territory
within the market.
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The Company believes that its success is due in part to its close
familiarity with the businesses of its clients. The Company's sales consultants
visit client job sites regularly to become familiar with the skill required by
the client's business, conduct job site safety inspections and to ensure that
employees are appropriately equipped for the job. To ensure customer
satisfaction, Tandem sales consultants and service coordinators play an active
role in daily work assignments. The Company also familiarizes itself with its
pool of industrial employees. Each employee is subject to a two-day screening
process that evaluates skills, abilities and attitudes. This not only permits
the Company to institute appropriate training programs and assign its workers,
but also helps the Company retain desirable employees.
SYNADYNE
Synadyne delivers basic PEO services through client service teams
consisting of human resource professionals and payroll and benefits specialists
located in each of the two Florida markets the Company serves. The client
service team is assigned as soon as the Company's account executive has secured
the client, thus allowing the account executive to concentrate on sales of PEO
services to additional clients. Although the client service teams have primary
responsibility for servicing their assigned clients, they rely on the Company's
national support center staff to provide advice in specialized areas such as
workers' compensation, unemployment insurance and payroll processing. The
client's principal contact within the client service team is the human resource
professional, whose level of expertise is tailored to each client depending upon
the nature and complexity of the client's business. The Company believes that
its team approach ultimately results in maximum client satisfaction.
SALES AND MARKETING
The Company markets its flexible industrial staffing and PEO services
through two primary marketing channels, direct sales and franchising. The
Company believes this dual-channel approach allows the Company to quickly access
a pool of skilled employees, develop regional brand awareness and ultimately
become a market leader. The Company believes its compound annual revenue growth
rate of approximately 73% from 1995 to 1997 demonstrates the success of this
dual-channel approach. Direct sales and franchising are common to both the
flexible industrial staffing and PEO businesses.
DIRECT SALES FORCE. The Company believes there are significant differences
in the initial sales process and sales cycle between flexible industrial
staffing and PEO service sales. As a result, the Company markets these services
through three distinct, highly trained sales forces who share a common profile.
Flexible industrial staffing services are marketed through sales associates
located in Company-owned Tandem offices nationwide. The Company's PEO services
are marketed through sales associates located in three Synadyne offices in
Florida and a telemarketing center located in the Company's national support
center. The Company's PEO sales associates focus on full service PEO clients
while the telemarketing center staff concentrates on the Company's "small
business" PEO clients (those with fewer than five employees).
Although the sales process and sales cycle are different between the
flexible industrial staffing and PEO businesses, the method and philosophy that
the Company employs in the selection, training and compensation of its sales
force is very similar. It is the Company's philosophy to employ the best sales
force available, and all of the Company's sales associates receive a generous
compensation package which includes commissions throughout the life of the
client's relationship with the Company. All sales associates receive two weeks
of initial classroom and on-the-job training and attend additional training
sessions on a regular basis. The additional training is conducted by specialists
and by sales managers of the respective divisions.
FRANCHISING. The Company offers distinct franchising arrangements for the
flexible staffing and PEO businesses. Under staffing franchising agreements, the
Company grants the franchisee the exclusive right to operate under the Tandem or
Office Ours trade name within a select geographic market in return for a royalty
on staffing services rendered. In contrast, under the PEO franchising agreement,
the franchisee merely serves as a sales agent, receiving a commission for those
services rendered and collected by the Company with no guarantee of market
exclusivity. In either case, the franchisee assumes the marketing costs and, as
a result, the Company believes franchising is a cost-effective method of
building regional brand awareness. As of March 18, 1998, there were 59 Tandem
franchise locations. The Company initiated its PEO franchise program in May 1997
and currently has two PEO franchises. The Company has franchised Office Ours
(clerical staffing) on a limited basis in the past, and is still actively
marketing franchises, but had no such franchises active as of March 18, 1998.
5
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CLIENTS
The Tandem division has approximately 17,000 clients and on a daily
basis provides services to approximately 3,500 of such clients. These companies
represent a cross-section of the industrial sector, of which no single client
represents more than 5% of the Company's total revenues. Tandem's clients
include such companies as Michelin Corporation, AT&T Wireless Services, Inc.,
Toys "R" Us, Inc., Hon Industries Inc. and Waste Management, Inc.
Synadyne provides PEO services to approximately 2,900 companies. These
companies represent a diverse range of industries, including insurance and
staffing. The Company's primary insurance PEO clients are Allstate Insurance
agents. The Company provides basic PEO services to approximately 2,500 Allstate
agents, each of whom has selected the Company from among Allstate's approved
providers. The Company's primary staffing PEO clients are its Tandem franchises.
The Company provides basic PEO services to the employees of its franchises. For
the year ended December 31, 1997, approximately 23% and 15% of the Company's
total PEO revenues were attributed to services provided to Allstate agents and
Tandem franchises, respectively.
The Company attempts to maintain diversity within its client base in
order to decrease its exposure to downturns or volatility in any particular
industry. As part of this client selection strategy, the Company currently
offers its services only to those businesses that operate in certain industries,
eliminating industries that it believes present a higher risk of employee injury
(such as roofing, excavation, chemical manufacturing and maritime). All
prospective clients undergo a rigorous underwriting process to evaluate workers'
compensation risk, group medical history, creditworthiness, unemployment history
and operating stability. Generally, flexible industrial staffing clients do not
sign long-term contracts.
COMPETITION
The staffing market is highly fragmented, characterized by many small
providers in addition to several large public companies, with at least one other
public company focused on flexible industrial staffing. There are limited
barriers to entry and new competitors frequently enter the market. Although a
large percentage of flexible staffing providers are locally operated with fewer
than five offices, many of the large public companies have significantly greater
marketing, financial and other resources than the Company. However, unlike the
Company, almost all of these companies do not focus primarily on flexible
industrial staffing. The Company believes that by focusing primarily on flexible
industrial staffing, it enjoys a competitive advantage over many of its
competitors that attempt to provide a broader base of temporary employees. The
Company also believes that by targeting emerging companies, rather than the
larger companies that are generally being pursued by its competitors, it can
also gain certain competitive advantages. The Company believes that there are
several factors that must be met in order to obtain and retain clients in the
flexible staffing market. These factors include an adequate number of well
located offices, an understanding of clients' specific job requirements, the
ability to reliably provide the correct number of employees on time, the ability
to monitor job performance, and the ability to offer competitive prices. To
attract qualified industrial candidates for flexible employment assignments,
companies must offer competitive wages, vacations and holiday pay, positive work
environments, flexibility of work schedules, and an adequate number of available
work hours. The Company believes it is highly competitive in these areas in the
Chicago market and is reasonably competitive in the other markets in which it
competes.
Competition in the highly fragmented PEO sector is generally on a local
or regional basis, and new competitors frequently enter the market. Several
larger PEO competitors have completed initial public offerings during the past
two years. The primary competitive factors in this sector are quality of
service, choice and quality of benefits, reputation and price. The Company
believes that name recognition, regulatory expertise, financial resources, risk
management, and data processing capability distinguish leading PEOs from the
rest of the industry and that the Company is competitive in all of these areas
in the markets in which it competes. The Company's competitors include (i)
in-house human resource departments, (ii) other PEOs and (iii) providers of
discrete employment-related services such as payroll processing firms,
commercial insurance brokers, human resource consultants and temporary help
firms who might enter the PEO market. Some of these companies have greater
financial and other resources than the Company. The Company believes that
barriers to entry are increasing and are greater than those of the flexible
staffing business. Some of the barriers to entry include: (i) the complexity of
the PEO business and the need for expertise in multiple disciplines, (ii) the
number of years of experience required to establish experience ratings in key
cost areas of workers' compensation, health insurance, and unemployment, (iii)
the need for sophisticated management information systems to track all aspects
of business in a high-growth environment and (iv) increased regulations and
licensing requirements in many states.
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RISK MANAGEMENT PROGRAM--WORKERS' COMPENSATION
The Company believes that careful client selection, pro-active accident
prevention programs, and aggressive control of claims will result in reduced
workers' compensation costs. The Company seeks to prevent workplace injuries by
implementing a variety of training, safety, and mandatory drug-free workplace
programs (including pre-employment screening, random testing, and post-accident
drug monitoring) to ensure that safety awareness is heightened at the sites to
which the Company sends its workers. Further, the Company insists that clients
adhere to ongoing safety practices at the clients' worksite as a necessary
condition to a continued business relationship.
The Company's workers' compensation insurance coverage for calendar
1997 provided for a $250,000 deductible per accident or industrial illness with
an aggregate annual dollar limit on the Company's potential liability for
deductible payments of 2.2% of aggregate annual payroll. This limit was
increased to 2.4% for calendar 1998, which may be increased to the extent the
risk profile of the Company's client list, as expressed by the weighted average
of the manual workers' compensation premium rates of those clients, changes by
more than 15%. As such, the Company's workers' compensation expense for claims
is effectively capped at a contractually agreed upon percentage of payroll and
cannot exceed these amounts for the respective fiscal years. For claims related
to periods prior to 1997, there was no aggregate maximum dollar limit on the
Company's potential liability for deductible payments. From May 1, 1995 through
December 31, 1996, in exchange for a lower excess insurance premium rate, the
Company accepted the responsibility for losses exceeding the $250,000 policy
deductible per accident or industrial illness on a dollar-for-dollar basis, but
only to the extent such losses cumulatively exceed 85% of the excess insurance
premium (excluding the profit and administration component), subject to a
maximum additional premium of approximately $750,000 in 1995 and $1.2 million in
1996. The Company secures its workers' compensation obligations by the issuance
of bank standby letters of credit to its insurance carriers, minimizing the
required current cash outflow for such items.
Each month, the risk management team, comprised of professionals from a
variety of functional areas, reviews workplace accidents for the relevant period
to determine the appropriate reserves. Each quarter, all cases are reviewed to
reconcile the reserves, payments, and expected future costs for each case. The
Company believes it has maintained adequate reserves for all of its workers'
compensation claims. In addition, the Company has selected Gallagher Bassett
Services for third-party claims administration and CRA Managed Care for medical
case management. Each vendor has established designated regional teams for the
handling of the Company's workers' compensation claims. Each regional team is
managed by a Company in-house claims analyst. All claims arising within a given
region are reported to the claims analyst who verifies the employment of the
claimant and assigns the claim to Gallagher Bassett Services and as needed to
CRA Managed Care, for defense and/or processing. Together, the team of the
in-house analyst, the third-party administrator and medical case manager
aggressively follow each claim from its origin to its conclusion.
INFORMATION TECHNOLOGY
The Company believes that the effective use of technology to increase
operational efficiency and enhance client service is a key factor in remaining
competitive. The Company has developed, and continues to invest in, information
support systems at its franchise, Company-owned and corporate headquarters
locations. At the field level, custom developed systems support the day-to-day
operational needs of both Tandem and Office Ours. At the corporate headquarters,
centralized accounting, billing and reporting applications provide support for
all of the field offices and a specialized package provides support for
Synadyne.
In November 1996, the Company entered into a series of major projects
to expand its information infrastructure and replace, or re-develop, many of its
major operational systems in order to support future growth. The initial phase
of the project was an installation of a Company-wide data base management system
that now provides consistency across all applications and allows information to
move between applications. This allows for consolidated reporting and analysis
across all of the Company's divisions.
The second phase of the project, completed in February 1997,
implemented an integrated financial management system for all accounting
functions to streamline the central processing of billing and financial
reporting. The third phase of the project, completed in November 1997, was the
development of a state-of-the-art system to support Synadyne. Since no
comprehensive, commercially available system exists for the PEO industry, the
Company entered into a developmental agreement with F.W. Davison, a provider of
human resource and benefit systems, to produce a system tailored to the needs of
Synadyne. The final phase of the project, now in progress, is the development of
a new support system for the Tandem and Office Ours offices that will use a
centrally based processing resource. Each field office will be connected to a
central processor, via a FRAME relay network connection.
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INDUSTRY REGULATION
OVERVIEW
As an employer, the Company is subject to all federal, state and local
statutes and regulations governing its relationships with its employees and
affecting businesses generally, including its client employees. In addition, as
a result of its PEO operations, the Company is affected by specifically
applicable licensing and other regulatory requirements and by uncertainty in the
application of numerous federal and state laws relating to labor, tax and
employment matters.
UNCERTAINTY AS TO THE EMPLOYER RELATIONSHIP
By entering into a co-employment relationship with client employees,
the Company assumes certain obligations and responsibilities of an employer
under federal and state laws. Many of these federal and state laws were enacted
prior to the development of nontraditional employment relationships, such as
PEOs, temporary employment, and outsourcing arrangements, and do not
specifically address the obligations and responsibilities of PEOs. Whether
certain laws apply to the Company depends in many cases upon whether the Company
is deemed to be an "employer" for purposes of the law. The definition of
"employer" under these laws is not uniform and, therefore, the application of
these laws to the Company's business is not always certain. In many cases, a
person's status as an "employer" is determined by application of a common law
test involving the examination of several factors to determine an
employer/employee relationship. Uncertainty as to the application of certain
laws governing "employer" relationships is particularly important to the Company
in federal tax and employee benefit matters.
FEDERAL AND STATE EMPLOYMENT TAXES. The Company assumes the sole
responsibility and liability for the payment of federal and state employment
taxes with respect to wages and salaries paid to its employees, including client
employees. To date, the IRS has relied extensively on the common law test of
employment in determining employer status and the resulting liability for
failure to withhold. However, the IRS has formed an examination division market
segment specialization program for the purpose of examining selected PEOs, such
as the Company, throughout the United States. Upon examination, the IRS may
determine that a PEO is not the employer of the client employees under the
provisions of the Internal Revenue Code of 1986, as amended (the "Code")
applicable to federal employment taxes and, consequently, that the client
companies are exclusively responsible for payment of employment taxes on wages
and salaries paid to such employees.
A determination by the IRS that the Company is not the employer of the
client employees may impact the Company's ability to report employment taxes on
its own account rather than for the accounts of its clients and would increase
administrative burdens on the Company's payroll service function. In addition,
while the Company believes that it can contractually assume the client company's
withholding obligations, in the event the Company fails to meet these
obligations the client company may be held jointly and severally liable. The
Company's management believes that the financial condition and reputation of the
Company has prevented this potential liability from discouraging prospective
clients.
EMPLOYEE BENEFIT PLANS. The Company offers various benefit plans to its
client employees. These plans include Multi-Employer Retirement Plans, a
cafeteria plan, a group health plan, a group life insurance plan, a group
disability insurance plan and an employee assistance plan. Generally, employee
benefit plans are subject to provisions of both the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). In order to
qualify for favorable tax treatment under the Code, the plans must be
established and maintained by an employer for the exclusive benefit of the
Company's employees. An IRS examination of the Company and/or a client company
may determine that the Company is not the employer of client employees under
Code provisions applicable to employee benefit plans. Consequently, the Company
may not be able to offer client employees benefit plans that qualify for
favorable tax treatment. If the IRS were to conclude that the Company is not the
employer of its client employees for plan purposes, client employees could not
continue to make tax favored contributions to the Company's Multi-Employer
Retirement Plans or cafeteria plan. The Company believes that, although
unfavorable to the Company, a prospective application by the IRS of an adverse
conclusion would not have a material adverse effect on its financial position
and results of operations. If such conclusion were applied retroactively,
employees' vested account balances may become taxable immediately, the Company
would lose its tax deduction to the extent the contributions were not vested,
the plan trust would become a taxable trust and penalties could be assessed. In
such a scenario, the Company would face the risk of client dissatisfaction, as
well as potential litigation. A retroactive application by the IRS of an adverse
conclusion could have a material adverse effect on the Company's financial
position, results of operations and liquidity. While the Company believes that a
retroactive disqualification is unlikely, there can be no assurance as to the
ultimate resolution of these issues.
8
<PAGE>
Employee pension and welfare benefit plans are also governed by ERISA.
The United States Supreme Court has held that the common law test of employment
must be applied to determine whether an individual is an employee or an
independent contractor under ERISA. A definitive judicial interpretation of
employer in the context of a PEO arrangement has not been established. If the
Company were found not to be an employer for ERISA purposes, its plans would not
be subject to ERISA. As a result of such finding, the Company and its plans
would not enjoy the preemption of state law provided by ERISA and could be
subject to varying state laws and regulations, as well as to claims based upon
state common laws.
WORKERS' COMPENSATION
Workers' compensation is a state mandated, comprehensive insurance
program that requires employers to fund medical expenses, lost wages and other
costs resulting from work-related injuries and illnesses. In exchange for
providing workers' compensation coverage for employees, employers are generally
immune from any liability for benefits in excess of those provided by the
relevant state statutes. In most states, the extensive benefits coverage for
both medical costs and lost wages is provided through the purchase of commercial
insurance from private insurance companies, participation in state-run insurance
funds, self insurance funds or, if permitted by the state, employer
self-insurance. Workers' compensation benefits and arrangements vary on a
state-by-state basis and are often highly complex.
The Company's ability to use comprehensive workers' compensation
managed care techniques in its PEO operations depends in part on its ability to
contract with or create networks of health care providers. The Company requires
that injured workers use the Company's network of providers. Laws regulating the
operation of managed care provider networks have been adopted by a number of
states. These laws may apply to managed care provider networks having contracts
with the Company or to provider networks which the Company may organize. To the
extent the Company is governed by these regulations, it may be subject to
additional licensing requirements, financial oversight and procedural standards
for beneficiaries and providers. See "--Risk Management Program--Workers'
Compensation."
PEO LICENSING REQUIREMENTS
Approximately one-third of the states, including Florida, have passed
laws that have licensing or registration requirements for PEOs and several
additional states are considering such regulation. Such laws vary from state to
state but generally provide for monitoring the fiscal responsibility of PEOs.
State regulation assists in screening insufficiently capitalized PEO operations
and, in the Company's view, has the effect of legitimizing the PEO industry
generally by resolving interpretative issues concerning employee status for
specific purposes under applicable state law. Existing regulations are
relatively new and, therefore, limited interpretive or enforcement guidance is
available. The Company cannot predict with certainty the nature or direction of
the development of federal, state and local regulations.
In Florida, the Company's PEO operations are licensed under the Florida
Employee Leasing Licensing Act of 1991 (the "Florida Licensing Act"). Among
other things, the Florida Licensing Act requires PEOs and their controlling
persons to be licensed, mandates reporting requirements, allocates several
employer responsibilities and requires the payment of an annual licensing fee
based upon gross payroll amounts. The Florida Licensing Act also requires
licensed PEOs to submit annual audited financial statements and to maintain a
tangible accounting net worth and positive working capital. In addition, the
Florida Licensing Act requires PEOs to (i) reserve the right of direction and
control over leased employees, (ii) enter into written agreements with their
clients, (iii) pay wages to leased employees, (iv) pay and collect payroll
taxes, (v) maintain authority to hire, terminate, discipline and reassign
employees and (vi) retain a right of direction and control over management of
safety, risk and hazard control at the worksite or sites affecting its leased
employees, including the responsibility to perform safety inspections, to
promulgate and administer employment and safety policies, and to manage workers'
compensation claims, claim filings, and related procedures.
TRADEMARKS AND SERVICE MARKS
The Company has registered the following marks with the United States
Patent and Trademark Office: LABOR WORLD, LABOR WORLD in conjunction with globe
logo, LABOR TECHNOLOGIES and Labor Technologies logo OFFICE OURS, Office Ours
clock logo, SYNADYNE, OUTSOURCE INTERNATIONAL--THE LEADER IN HUMAN RESOURCES and
design, and SYNADYNE--A PROFESSIONAL EMPLOYER and design. The Company has
applications pending before the United States Patent and Trademark Office for
federal registration of the following marks: OSI, TANDEM and TANDEM logo design.
These marks all expire at various times from 2002 to 2007. In addition, the
Company has registered the mark OUTSOURCE INTERNATIONAL - THE LEADER IN HUMAN
RESOURCES in 28
9
<PAGE>
states, which registrations expire at various times from 2001 to
2007. See Item 3 - Legal Proceedings.
The Company has applications pending with the Office for Harmonization in
the Internal Market (Trademark and Designs) for European Community registration
of the following marks: OFFICE OURS, SYNADYNE and OUTSOURCE INTERNATIONAL. The
Company also has applications pending with the Canadian Trademarks Office for
Canadian registration of the following marks: SYNADYNE, OFFICE OURS and
OUTSOURCE INTERNATIONAL.
The Company believes that the TANDEM, OFFICE OURS and SYNADYNE marks
are important to its sales and marketing operations and the OUTSOURCE
INTERNATIONAL mark is important to its financial operations.
CORPORATE EMPLOYEES
As of December 31, 1997, the Company had 784 corporate employees, of
whom 75 were employed in PEO service operations, 543 were employed in flexible
staffing service operations, and 166 were employed in shared support services
such as human resources, risk management, and information systems. None of the
Company's employees are covered by collective bargaining agreements. The Company
believes that its relationships with its employees are good.
ITEM 2 - PROPERTIES
The Company owns a 50,000 square foot office building in Deerfield
Beach, Florida, which houses its national office and support center. The Company
also owns small office buildings in Chicago, Illinois and Waukegan, Illinois and
a condominium in Boca Raton, Florida. As of December 31, 1997 the Company also
leased 98 flexible industrial staffing office locations and certain other
facilities, with approximately 245,000 total square feet for an annual base rent
of approximately $2.0 million. A portion of a warehouse is leased from TMT
Properties, Inc., a company controlled by Paul Burrell, the Company's President,
Chief Executive Officer, and Chairman of the Board, on a month-to-month basis
for approximately $2,000 per month. The Company believes that its facilities are
generally adequate for its needs and does not anticipate difficulty in replacing
such facilities or locating additional facilities, if needed.
ITEM 3 - LEGAL PROCEEDINGS
On March 21, 1997, Source Services Corporation ("SSC") filed a Petition
to Cancel Registration with the Trademark Trial and Appeal Board in which SSC
seeks cancellation of the Company's service mark "OutSource International - The
Leader in Human Resources". SSC has alleged that it has been using the service
mark "Source" in various forms since 1986 and, in its petition, alleges that the
Company's use of the "OutSource" service mark violates various provisions of the
Lanham Act. On May 28, 1997, the Company filed an answer to the Petition to
Cancel Registration and asserted various affirmative defenses. If the Company
prevails in the administrative proceeding, the "OutSource" mark will retain its
federal registration. If SSC prevails, the "OutSource" registration would be
cancelled. However, even in the event of a cancellation, the Patent and
Trademark Office has no authority to grant injunctive relief or award damages.
Furthermore, the decision as to whether the Company can continue to use the
"OutSource" service mark cannot be decided in the administrative proceeding, but
rather would have to be separately litigated. On September 23, 1997, Source
Services Corporation filed an action in federal court seeking to enjoin the
Company's use of the name "OUTSOURCE", cancellation by the court of the
Company's "OutSource" service mark and damages. The Company intends to
vigorously defend this matter. Although this matter is in preliminary stages of
litigation, the Company believes that an adverse decision in the case would not
have a material adverse effect on its financial condition or results of
operations.
On September 26, 1997, Tandem Personnel, Inc. filed a complaint in the
Court of Common Pleas of Montgomery County, Pennsylvania seeking a temporary and
permanent injunction in Pennsylvania against the Company's use of "Tandem",
"Tandem Labor World" and/or "Tandem Staffing for Industry", and damages. The
Company thereafter removed the case to the United States District Court for the
Eastern District of Pennsylvania. On February 19, 1998, the Company and Tandem
Personnel, Inc. agreed to settle this matter, resulting in no material effect to
the Company's financial condition or results of operations.
10
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By unanimous written consent dated October 6, 1997, the shareholders of the
Company approved the following actions by the Company:
1. REVERSE STOCK SPLIT. The shareholders approved a reverse stock split
pursuant to which each issued and outstanding share of common stock would be
automatically converted into approximately 0.65 shares of common stock. On
October 21, 1997, the Company effectuated the reverse stock split in accordance
with the terms approved by the shareholders.
2. RIGHTS PLAN. The shareholders approved the adoption of a Shareholder
Protection Rights Agreement (the "Rights Agreement"). Pursuant to the terms of
the Rights Agreement, preferred stock purchase rights (the "Rights") were
distributed as a dividend to holders of record of shares of Common stock as of
October 6, 1997 (the "Record Date") at a rate of one Right for each share of the
common Stock held on the Record Date. Rights also are attached to all shares of
Common Stock issued on or after the Record Date. For a further discussion of
this item, see Part II, Item 2 of the Company's Form 10-Q for the quarterly
period ended September 30, 1997.
3. SERIES A PARTICIPATING PREFERRED STOCK. In connection with the
Rights Plan, the shareholders also approved the designation of a series of
preferred stock, par value $.001 per share (the "Series A Participating
Preferred Stock") and the reservation for issuance upon the exercise of the
Rights of 1,000,000 shares of Series A Participating Preferred Stock. The
shareholders also approved the adoption of amended and restated articles of
incorporation which included the designation of the Series A Participating
Preferred Stock.
11
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
On October 24, 1997, the Company sold 3,000,000 shares of its common stock
to the public and shareholders of the Company sold 700,000 shares of the
Company's common stock to the public (the "Offering") and the Company's Common
Stock commenced trading on the Nasdaq Stock MarketSM under the symbol "OSIX."
There were approximately 46 holders of record of Common Stock as of March 16,
1998. This number does not include the number of shareholders whose shares were
held in "nominee" or "street name", which the Company believes to be
approximately 3,000 as of that date. The table below sets forth, for the period
indicated, the high and low bid prices of the Company's Common Stock as reported
by the Nasdaq Stock MarketSM.
BID PRICES
HIGH LOW
FISCAL YEAR 1997
October 24, 1997 to December 31, 1997(1)..........$ 19.75 $ 10.125
- ----------------
(1) Prior to October 24, 1997, there was no public trading market for the Common
Stock.
The Company has never paid dividends on its Common Stock. The Company
intends to retain earnings, if any, to finance future operations and expansion
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. Any future payment of dividends will depend upon the financial
condition, capital requirements and earnings of the Company and compliance with
cash flow and other financial covenants contained in the Company's revolving
credit facility with a syndicate of lenders led by BankBoston, N.A. (the
"Revolving Facility"), as well as upon other factors that the Board of Directors
may deem relevant.
SALES OF UNREGISTERED SECURITIES
During the fiscal year ended December 31, 1997, and prior to the Offering,
the Company issued the following securities without registration under the
Securities Act:
REORGANIZATION. On February 21, 1997, the Company consummated a
reorganization (the "Reorganization") with nine operating companies existing
under the laws of the State of Florida: OutSource International of America,
Inc., Synadyne I, Inc., Synadyne II, Inc., Synadyne III, Inc., Synadyne IV,
Inc., Synadyne V, Inc., OutSource Franchising, Inc., Capital Staffing Fund,
Inc., and Employees Insurance Services, Inc. (collectively, the "Subsidiaries")
and the shareholders of each of the Subsidiaries (the "Existing Shareholders").
Pursuant to the terms of the Reorganization, the Company acquired all of the
outstanding capital stock of the Subsidiaries from the Existing Shareholders in
exchange for the issuance of 5,448,788 shares of newly issued Common Stock to
the Existing Shareholders, and the payment of approximately $5.7 million in cash
and the issuance of promissory notes in the aggregate principal amount of
approximately $1.4 million to certain of the Existing Shareholders. The Common
Stock was issued pursuant to Section 4(2) under the Securities Act. In
connection with the Reorganization, the Existing Shareholders contributed
approximately $4.3 million in outstanding promissory notes to the capitalization
of the Company. As a result of the Reorganization, the Subsidiaries became
wholly-owned by the Company and the Existing Shareholders own Common Stock in
approximately the same proportion as the capital stock of the Subsidiaries was
owned by them immediately prior to the Reorganization.
SENIOR NOTES. On February 21, 1997, the Company issued senior subordinated
promissory notes (the "Senior Notes") in the principal amounts of $14,000,000
and $11,000,000 to Triumph-Connecticut Limited Partnership and Bachow Investment
Partners III, L.P., respectively (collectively, the "Senior Note Holders"). The
Senior Notes were repaid on October 29, 1997. The securities were issued
pursuant to Section 4(2) of the Securities Act.
12
<PAGE>
WARRANTS. In connection with the issuance of the Senior Notes, the Company
issued 786,517 warrants (the "Initial Warrants") to the Senior Note Holders and
placed 573,787 warrants (the "Additional Warrants") in escrow, pending release
to either the Existing Shareholders or the Senior Note Holders, based upon the
achievement by the Company of certain specified performance criteria. The
Initial Warrants are currently exercisable at an exercise price of $.015 per
share and expire on February 20, 2002. Following the successful consummation of
certain acquisitions by the Company in April 1997, 180,891 Additional Warrants
were released from escrow in April 1997 and distributed to the Existing
Shareholders. The remaining 392,896 Additional Warrants will be released to the
Existing Shareholders or the Senior Note Holders no later than February 1999.
The Additional Warrants are exercisable, upon release from escrow, at an
exercise price of $.015 per share and expire on February 20, 2002. The Company
has agreed to grant the holders of the Initial Warrants and Additional Warrants
demand and piggyback registration rights. The securities were issued pursuant to
Section 4(2) of the Securities Act.
Triumph and Bachow received closing fees of $210,000 and $165,000,
respectively, and Smith Barney Inc. received a placement fee of $1,500,000, in
connection with the issuance of the Senior Notes and the Warrants. The Company
also incurred expenses of $510,016 in connection with this issuance, which
included a reimbursement of $235,356 to Triumph and Bachow for their expenses.
EMPLOYEES INSURANCE SERVICES, INC. On January 14, 1997, Employees Insurance
Services, Inc. issued an aggregate of 315.79 shares of its common stock to
Robert A. Lefcort, Robert A. Lefcort and Nadya I. Schubert as Co-Trustees of the
Robert A. Lefcort Irrevocable Trust dated 2/28/96, Lawrence H. Schubert as
Trustee of the Lawrence H. Schubert Revocable Trust dated 8/25/95, Nadya I.
Schubert as Trustee of the Nadya I. Schubert Revocable Trust dated 8/25/95, Paul
M. Burrell, Alan E. Schubert, Louis A. Morelli as Trustee of the Louis J.
Morelli S Stock Trust dated 1/1/95, Louis J. Morelli, Matthew B. Schubert, Jason
D. Schubert and Alan E. Schubert as Trustees of the Matthew Schubert OutSource
Trust dated 11/24/95, Matthew B. Schubert and Alan E. Schubert as Trustees of
the Jason Schubert OutSource Trust dated 11/24/95, Mindi Wagner, Louis A.
Morelli, Raymond S. Morelli, Louis A. Morelli as Trustee of the Margaret Ann
Janisch S Stock Trust dated 1/1/95 and Margaret Morelli Janisch (the "Subsidiary
Shareholders"). Employees Insurance Services, Inc. received nominal
consideration for the issuance of these shares. The securities were issued
pursuant to Section 4(2) of the Securities Act. No underwriting commissions were
recorded in connection with the foregoing issuances of stock.
OUTSOURCE INTERNATIONAL OF AMERICA, INC. On February 21, 1997, OutSource
International of America, Inc. ("OIA") issued an aggregate of 1,000 shares of
its common stock to the Subsidiary Shareholders. The shares were issued in
connection with the merger of OI with and into OIA. The securities were issued
pursuant to Section 4(2) of the Securities Act. No underwriting commissions were
recorded in connection with the foregoing issuances of stock.
OFFERING PROCEEDS
In Part II, Item 2 of the Company's Form 10-Q for the quarterly period
ended September 30, 1997, the Company reported estimated Offering expenses of
$4,490,000, including underwriting discounts and commissions of $3,150,000 and
other expenses of approximately $1,340,000. The Company also reported estimated
net Offering proceeds after deduction of all expenses of approximately
$40,510,000.
The actual Offering expenses were $4,695,312, including underwriting
discounts and commissions of $3,150,000 and other expenses of $1,545,312,
resulting in net Offering proceeds of $40,304,688. The $208,312 reduction in
these proceeds as compared to the estimate reduced the originally estimated
$10.0 million payment against the Company's revolving facility to $9.9 million
and the originally estimated repayment of related party acquisition debt from
$2.6 million to $2.5 million.
13
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The consolidated balance sheet data and consolidated statement of
income data set forth below as of and for each of the five years in the period
ended December 31, 1997 has been derived from the audited consolidated financial
statements of the Company. The system operating data and other data has been
derived from the Company's records. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's Consolidated Financial Statements and related
notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net revenues.................................... $447,579 $280,171 $149,825 $80,647 $43,472
Cost of revenues................................ 381,273 242,102 126,270 65,813 34,367
-------- ------- ------- ------ ------
Gross profit.................................... 66,306 38,069 23,555 14,834 9,105
Shareholders' compensation...................... 292 2,321 2,370 2,245 1,400
Amortization of intangible assets............... 1,853 424 41 - -
Other selling, general and administrative expenses 53,752 29,841 17,688 9,008 6,098
------ ------ ------ ----- ---------
Operating income................................ 10,409 5,483 3,456 3,581 1,607
Net interest expense............................ 7,877 2,175 1,259 820 263
Other expense (income) (1)...................... 1,821 1,448 (11) (51) (237)
-------- ------- -------- -------- --------
Income before provision (benefit)
for income taxes and extraordinary item (2)... 711 1,860 2,208 2,812 1,581
Pro forma income taxes (3)...................... 296 757 859 1,059 595
-------- ------- -------- -------- --------
Pro forma income before
extraordinary item (2)(3)...................... $ 415 $ 1,103 $ 1,349 $ 1,753 $ 986
=========== ========= ========== ========== ========
Pro forma weighted average basic common
shares outstanding (4)........................ 6,055 5,785 5,785 5,785 5,785
======== ======== ======== ======== ========
Pro forma weighted average diluted common
shares outstanding (4)........................ 7,320 5,843 5,785 5,785 5,785
======== ======= ======== ======= =======
Pro forma basic earnings per share before
extraordinary item............................ $ .07 $ .19 $ .23 $ .30 $ .17
============ =========== =========== ========= =========
Pro forma diluted earnings per share before
extraordinary item............................ $ .06 $ .19 $ .23 $ .30 $ .17
============ =========== ============ ========= =========
OTHER DATA (5):
EBITDA, as adjusted............................. $ 14,871 $ 9,027 $ 6,258 $ 5,993 $ 3,618
========= ========= ========= ======== =======
Net income, as adjusted......................... $ 2,139 $ 3,220 $ 2,586 $ 2,947 $ 1,715
========== ========= ========= ======== =======
Pro forma diluted earnings per share, as adjusted $ .29
==========
SYSTEM OPERATING DATA:
System Revenues (6)............................. $555,802 $389,314 $242,681 $151,408 $92,496
======== ======== ======== ======== =======
Number of employees (end of period)............. 32,000 23,000 16,200 12,200 7,300
Number of offices (end of period)............... 163 150 109 67 47
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)....................... $33,651 $(3,172) $1,540 $1,596 $1,313
Total assets.................................... 105,743 55,877 24,708 13,791 5,923
Revolving Facility and line of credit........... 33,800 9,889 6,468 4,827 1,523
Long-term debt to related parties,
less current maturities........................ - 2,403 - - -
Other long-term debt, less current maturities... 7,737 10,874 2,815 2,713 60
Total shareholders' equity...................... 40,778 4,495 3,603 2,701 1,843
</TABLE>
14
<PAGE>
(1) In 1997, the Company issued warrants ("Warrants") to purchase 1,360,304
shares of the Company's common stock. The holders of the Warrants had a
Put Right, as a result of which the Company recorded a Put Warrants
Liability. Other expense (income) for the year ended December 31, 1997
includes non-operating expense of $1.8 million related to the adjustment
of the initial liability recorded at the time of the issuance of the
Warrants on February 21, 1997 and based on their fair value at that
time, to the fair value of the Warrants at the time of the Offering
("Put Warrants Valuation Adjustment"), when the Put Right terminated. At
the time of the Offering, the Warrants, with an adjusted carrying value
of $20.4 million, were reclassified from debt to additional paid-in
capital. See Note 5 to the Company's Consolidated Financial Statements.
Other expense (income) for the year ended December 31, 1996 includes
$1.4 million of unusual charges, primarily professional fees related to
a registration statement filed by the Company with the Securities and
Exchange Commission that was subsequently withdrawn and an internal
investigation into certain Company transactions. See Note 7 to the
Company's Consolidated Financial Statements.
(2) As a result of the use of the proceeds of the Offering to repay the
full balance of the Senior Notes, the Company recorded an extraordinary
loss in 1997 of approximately $13.4 million (net of a $6.6 million
income tax benefit). This loss consists of the unamortized debt discount
and the unamortized debt issuance costs related to the Senior Notes.
(3) Prior to the Reorganization, each of the Subsidiaries elected to be a
subchapter S corporation and, accordingly, were not subject to income
taxes; therefore, there is no provision for income taxes for periods
prior to the Reorganization. Pro forma income taxes and net income have
been computed as if the Company had been fully subject to federal and
applicable state income taxes for such periods. The Company recognized a
one-time tax benefit of $429,000 as a result of the termination, at the
time of the Reorganization, of the Subsidiaries' elections to be treated
as S corporations. This benefit is reflected in the historical results
of operations for the year ended December 31, 1997, but has been removed
from the pro forma results presented for that period.
(4) Basic shares outstanding includes (a) the 5,448,788 shares of Common
Stock issued in connection with the Reorganization, (b) for the periods
prior to the Reorganization, the equivalent number of shares (336,430)
of Common Stock represented by the shares of common stock of the
Subsidiaries purchased from certain shareholders for cash and notes in
the Reorganization and (c) for the periods after the Offering, the sale
by the Company of 3,000,000 shares of Common Stock. Diluted shares
outstanding include the above plus all outstanding options to purchase
Common Stock and Warrants calculated using the treasury stock method.
See Notes 1, 10 and 13 to the Company's Consolidated Financial
Statements.
(5) The other data is presented to reflect the Company's historical results
of operations, adjusted to reflect (a) the elimination of the amount of
compensation expense ($262,000, $2.0 million, $2.0 million, $1.9 million
and $1.2 million for the years ended December 31, 1997, 1996, 1995, 1994
and 1993, respectively) for the Company's founding shareholders and for
the Company's President, Chief Executive Officer, and Chairman of the
Board, who is also a shareholder of the Company, which is in excess of
the compensation for such individuals subsequent to the Reorganization;
(b) the elimination of $1.4 million of unusual charges in the year ended
December 31, 1996 and $1.8 million of non-operating expense arising from
the 1997 Put Warrants Valuation Adjustment, both discussed in Note 1
above; and (c) income taxes computed as if the Company had been subject
to federal and applicable state income taxes for such periods. See
footnote 1 to the table in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations"
for summary operating data reflecting these adjustments.
EBITDA is earnings (net income) before the effect of interest income
and expense, income tax benefit and expense, depreciation expense and
amortization expense. EBITDA is presented because it is a widely
accepted financial indicator used by many investors and analysts to
analyze and compare companies on the basis of operating performance.
EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to operating income or as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
Cash flows for the periods presented were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in):
Operating activities................ $(10,853) $(1,280) $2,787 $1,267 $ 724
Investing activities................ (24,744) (4,834) (2,026) (2,246) (107)
Financing activities................ 37,238 4,647 678 1,028 (609)
------ -------- ------ ------ ------
Net increase (decrease) in cash..... $ 1,641 $(1,467) $1,439 $ 49 $ 8
========= ======== ====== ======= =======
</TABLE>
(6) System revenues is the sum of the Company's net revenues (excluding
revenues from franchise royalties and services performed for the
Franchisees) and the net revenues of the Franchisees. System revenues
provide information regarding the Company's penetration of the market
for its services, as well as the scope and size of the Company's
operations, but are not an alternative to revenues determined in
accordance with generally accepted accounting principles as an indicator
of operating performance. The net revenues of Franchisees, which are not
earned by or available to the Company, are derived from reports that are
unaudited. System revenues consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Company's net revenues................. $447,579 $280,171 $149,825 $ 80,647 $43,472
Less Company revenues from:
Franchise royalties.................. (6,997) (5,671) (4,138) (2,712) (1,586)
Services to franchisees.............. (34,642) (35,079) (7,507) (4,698) -
Add Franchisees' net revenues.......... 149,862 149,893 104,501 78,171 50,610
------- -------- ------- ------- ------
System revenues........................ $555,802 $389,314 $242,681 $151,408 $92,496
======== ======== ======== ======== =======
</TABLE>
15
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a rapidly growing national provider of human resource
services focusing on the flexible industrial staffing market through its Tandem
division and on the PEO market through its Synadyne division. To implement its
expansion strategy, the Company completed 27 acquisitions of industrial staffing
companies from January 1, 1995 through March 18, 1998, with 76 offices and
approximately $147.0 million in annual historical revenue (see "-Acquisitions").
During this period, the number of Company-owned flexible staffing and PEO
offices increased from ten to 123, the number of geographic regions served by
the Company increased from one to nine, and the Company implemented new
information systems, further developed back office capabilities and invested in
other infrastructure enhancements necessary to support its future growth.
The Company's revenues are based upon the salaries and wages of worksite
employees. Flexible staffing and PEO revenues, and related costs of wages,
salaries, employment taxes and benefits related to worksite employees, are
recognized in the period in which those employees perform the flexible staffing
and PEO services. Because the Company is at risk for all of its direct costs,
independent of whether payment is received from its clients, and consistent with
industry practice, all amounts billed to clients for gross salaries and wages,
related employment taxes, health benefits and workers' compensation coverage are
recognized as revenue by the Company, net of credits and allowances. The
Company's primary direct costs are (i) the salaries and wages of worksite
employees (payroll cost), (ii) employment related taxes, (iii) health benefits
and (iv) workers' compensation benefits and insurance (see "Risk Management
Program - Workers' Compensation" under Item 1 - Business).
RESULTS OF OPERATIONS
Effective February 21, 1997, the Company consummated a Reorganization
whereby it acquired all of the outstanding capital stock of its Subsidiaries.
The historical operating results of the Company contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" also
include the historical operating results of the Subsidiaries for the periods
noted.
16
<PAGE>
The following tables set forth the amounts and percentage of net
revenues of certain items in the Company's consolidated statements of income for
the indicated periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues:
Flexible industrial staffing...................... $207,312 $ 97,397 $ 57,791
PEO............................................... 225,836 172,069 85,557
Franchise royalties and other..................... 14,431 10,705 6,477
---------- ---------- ----------
Total net revenues................................ $447,579 $280,171 $149,825
======== ======== ========
Gross profit...................................... $ 66,306 $ 38,069 $ 23,555
Selling, general and administrative expenses (1) 55,897 32,586 20,099
--------- ---------- -----------
Operating income.................................. 10,409 5,483 3,456
Net interest and other expense (1)................ 9,698 3,623 1,248
--------- ---------- ------------
Income before provision (benefit) for
income taxes and extraordinary item........... 711 1,860 2,208
Pro forma income taxes (benefit) (1).............. 296 757 859
--------- ---------- -------------
Pro forma income before
extraordinary item (1)........................ $ 415 $ 1,103 $ 1,349
========= ========== ==========
System Revenues (2)............................... $ 555,802 $389,314 $242,681
========= ======== ========
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
--------- -------- ------
Net revenues:
Flexible industrial staffing....................... 46.3% 34.8% 38.6%
PEO................................................ 50.5 61.4 57.1
Franchise royalties and other...................... 3.2 3.8 4.3
--------- -------- ------
Total net revenues................................. 100.0% 100.0% 100.0%
========== ======== =======
Gross profit....................................... 14.8% 13.6% 15.7%
Selling, general and administrative expenses (1)... 12.5 11.6 13.4
-------- -------- -------
Operating income................................... 2.3 2.0 2.3
Net interest and other expense (1)................. 2.1 1.3 0.8
-------- -------- ------
Income before provision (benefit) for
income taxes and extraordinary item............ 0.2 0.7 1.5
Pro forma income taxes (benefit) (1)............... 0.1 0.3 0.6
-------- ------- -------
Pro forma income before
extraordinary item (1)......................... 0.1% 0.4% 0.9%
========= ======== =========
</TABLE>
- -----------------------
(1) For the years ended December 31, 1995 and 1996, and for the eight week
period ended February 21, 1997, the Company elected to be treated as a
subchapter S corporation and, accordingly, the Company's income was taxed at the
shareholder level. In addition, during those periods, the Company paid
compensation to the Company's founding shareholders and to the Company's
President, Chief Executive Officer, and Chairman of the Board, who is also a
shareholder of the Company ("Shareholder Compensation"). All of the compensation
for the founding shareholders and a portion of the compensation for the
Company's President was discontinued after the Reorganization. The discontinued
Shareholder Compensation was $262,000 in 1997 and $2.0 million in 1996 and in
1995. In 1996, the Company incurred unusual expenses of approximately $1.4
million in relation to a registration statement filed by the Company with the
Securities and Exchange Commission that was subsequently withdrawn and an
internal investigation into certain Company transactions
17
<PAGE>
(See note 7 to the Company's Consolidated Financial Statements). In 1997, the
Company recorded non-operating expense of approximately $1.8 million related to
the Put Warrants Valuation Adjustment and incurred an extraordinary loss (net of
income tax benefit) of approximately $13.4 million (See note 5 to the Company's
Consolidated Financial Statements). The following table sets forth the amounts
and the percentage of certain items in the Company's consolidated statements of
income, adjusted for the above items as follows: (i) selling, general and
administrative expenses excludes discontinued Shareholder Compensation; (ii)
operating income excludes discontinued Shareholder Compensation and (iii) net
income and earnings per share excludes discontinued Shareholder Compensation,
the unusual expenses in 1996 and the 1997 Put Warrants Valuation Adjustment and
the 1997 extraordinary loss and is calculated assuming the Company had been
subject to federal and state income taxes and taxed as a C corporation during
each of these periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C>
Selling, general and administrative expenses,
as adjusted................................... $55,635 $30,635 $18,074
As a percentage of net revenues................. 12.4% 10.9% 12.1%
Operating income, as adjusted................... $10,671 $ 7,434 $ 5,481
As a percentage of net revenues................. 2.4% 2.7% 3.7%
Net income, as adjusted......................... $ 2,139 $ 3,220 $ 2,586
As a percentage of net revenues................. 0.5% 1.1% 1.7%
</TABLE>
- ----------------------
(2) System revenues is the sum of the Company's net revenues (excluding revenues
from franchise royalties and services performed for the Franchisees) and the net
revenues of the Franchisees. System revenues provide information regarding the
Company's penetration of the market for its services, as well as the scope and
size of the Company's operations, but are not an alternative to revenues
determined in accordance with generally accepted accounting principles as an
indicator of operating performance. The net revenues of Franchisees, which are
not earned by or available to the Company, are derived from reports that are
unaudited. System revenues consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Company's net revenues....................... $447,579 $280,171 $149,825
Less Company revenues from:
Franchise royalties...................... (6,997) (5,671) (4,138)
Services to franchisees................... (34,642) (35,079) (7,507)
Add Franchisees' net revenues................ 149,862 149,893 104,501
--------- --------- ---------
System revenues.............................. $555,802 $389,314 $242,681
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET REVENUES. Net revenues increased $167.4 million, or 59.8%, to
$447.6 million in 1997 from $280.2 million in 1996. This increase resulted from
growth in PEO revenues of $53.8 million, or 31.2%, and flexible industrial
staffing revenues growth of $109.9 million, or 112.9%. The increase in PEO
revenues was primarily due to a broadening of the Company's targeted PEO client
base. Flexible industrial staffing revenues increased due to: (i) the 1996
Acquisitions and the 1997 Acquisitions, which resulted in an increase of $64.0
million in revenues; and (ii) internal growth of 47.1% from the comparable 1996
period, which resulted in an increase of $45.9 million due to development of
existing Company-owned locations and an increase in the number of Company-owned
offices. The Company-owned flexible industrial staffing offices increased to 87
locations as of December 31, 1997 from 46 locations as of December 31, 1996,
with 29 of the 41 additional locations arising from the 1997 Acquisitions.
System revenues increased $166.5 million, or 42.8%, to $555.8 million
in 1997 from $389.3 million in 1996. The increase in system revenues was
attributable to the $167.4 million increase in the Company's net revenues
discussed above, of which $0.9 million related to services provided to
franchises. System revenues include franchise revenues which are not earned by
or available to the Company. A $22.7 million, or 22.0%, increase in revenues
from 1996 to 1997 of franchisees operating as of December 31, 1997 was offset by
an equivalent decrease in franchise revenues from 1996 to 1997 as a result of
the Company's conversion of 13 franchise locations to Company-owned locations,
as well as franchisee buyouts of franchise agreements related to another 23
locations in 1997. Buyouts are early terminations of franchise agreements
allowed by the Company in order to allow the Company to develop the related
territories. At the time of the buyout, the Company receives an initial payment
from the former franchise. The Company continues to receive payments from the
former
18
<PAGE>
franchisees based onthe gross revenues of the formerly franchised
locations for up to three years after the termination dates. Although those
gross revenues are not included in the Company's franchisee or system revenues
totals, the initial buyout payment, as well as subsequent payments from the
former franchisees, are reflected in total royalties reported by the Company.
GROSS PROFIT. Gross profit increased $28.2 million, or 74.2%, to $66.3
million in 1997 from $38.1 million in 1996. Gross profit as a percentage of net
revenues increased to 14.8% in 1997 from 13.6% in 1996. This increase was
primarily due to the significantly higher growth rate for flexible industrial
staffing revenues as compared to the growth rate for PEO revenues, which
generate lower gross profit margins. In 1997, PEO net revenues generated gross
profit margins of 3.6% as compared to gross profit margins of 23.5% generated
from flexible industrial staffing revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $23.3 million, or 71.5%, to $55.9 million in
1997 from $32.6 million in 1996. This increase was primarily a result of
operating costs associated with increased flexible industrial staffing volume at
existing locations, the 1996 and 1997 Acquisitions (including the related
amortization of intangible assets), and pre-opening and operating expenses
associated with new office locations in existing flexible industrial staffing
regions. The number of Company-owned flexible industrial staffing offices opened
for less than one year, excluding acquired offices, increased to 18 locations as
of December 31, 1997 from 12 locations as of December 31, 1996. Also, the
Company increased its corporate financial, legal, human resource, information
systems and other staff (and related expenses) in anticipation of operating as a
public company and in order to properly manage expected future growth. These
increases were partially offset by a decrease of $2.0 million in shareholders'
compensation from 1996 to 1997. As a percentage of net revenues, selling,
general and administrative expenses increased to 12.5% in 1997 from 11.6% in
1996. In addition to the items previously discussed, this percentage increase is
also due to the significant increase in 1997 of the flexible industrial staffing
revenues in proportion to total Company revenues. The flexible industrial
staffing operations have higher associated selling, general and administrative
expenses (as a percentage of revenues) than PEO operations.
NET INTEREST AND OTHER EXPENSE. Net interest and other expense
increased by $6.1 million, to $9.7 million in 1997 from $3.6 million in 1996.
This increase included $1.8 million attributable to the Put Warrants Valuation
Adjustment. The remaining net increase is comprised of (i) a $5.7 million
increase in interest expense, including amortization of debt discount and
issuance costs, of which approximately $2.8 million was associated with the
Senior Notes which were issued in the first quarter of 1997, with the remainder
primarily being associated with net additional borrowings of $23.9 million in
1997 under the Revolving Facility to finance working capital requirements and
the 1997 Acquisitions and (ii) a $1.4 million decrease in other charges,
primarily professional fees, related to a registration statement filed by the
Company with the Securities and Exchange Commission that was subsequently
withdrawn and an internal investigation into certain Company transactions, both
events occurring in 1996.
INCOME BEFORE EXTRAORDINARY ITEM. Income before extraordinary item
decreased by $0.7 million, to $0.4 million in 1997 from $1.1 million in 1996.
This decrease was primarily due to the $5.7 million increase in interest expense
and a $1.8 million Put Warrants Valuation Adjustment, as discussed above.
EXTRAORDINARY ITEM. As a result of the use of the proceeds of the
Offering to repay the full balance of the Senior Notes, the Company recorded an
extraordinary loss in the fourth quarter of 1997 of approximately $13.4 million
(net of a $6.6 million income tax benefit). This loss consists of the
unamortized debt discount and the unamortized debt issuance costs related to the
Senior Notes.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET REVENUES. Net revenues increased $130.3 million, or 87.0%, to
$280.2 million in 1996 from $149.8 million in 1995. This increase resulted
primarily from the increase in PEO revenues of $86.5 million, or 101.1%. The
increase in PEO revenues was primarily due to a broadening of the Company's
targeted PEO client base. Flexible industrial staffing revenues grew by $39.6
million, 68.5%, with $13.3 million of the increase resulting from the 1996
Acquisitions and the remainder due to development of existing Company-owned
locations and an increase in the number of Company-owned offices. Company-owned
flexible industrial staffing offices increased from 21 locations as of December
31, 1995 to 46 locations as of December 31, 1996.
System revenues increased $146.6 million, or 60.4%, to $389.3 million
in 1996 from $242.7 million in 1995. The increase in system revenues was
attributable to the $130.3 million increase in the Company's net revenues
discussed above,
19
<PAGE>
of which $29.1 million related to services provided to franchises, and a $45.4
million increase in franchise industrial staffing revenues. System revenues
include franchise revenues which are not earned by or available to the Company.
GROSS PROFIT. Gross profit increased $14.5 million, or 61.6%, to $38.1
million in 1996 from $23.6 million in 1995. Gross profit as a percentage of net
revenues decreased to 13.6% in 1996 from 15.7% in 1995. The Company's gross
profit as a percentage of net revenues decreased from 1995 to 1996 since PEO
revenues, which generate lower gross profit margins than flexible industrial
staffing revenues, increased at a higher rate than the flexible industrial
staffing revenues. In 1996, PEO net revenues generated gross profit margins of
3.7% as compared to gross profit margins of 24.5% generated from flexible
industrial staffing revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $12.5 million, or 62.1%, to $32.6 million in
1996 from $20.1 million in 1995. The increase in selling, general and
administrative expenses in 1996 was primarily a result of an incremental $6.4
million for salaries and other operating costs incurred in continuing the
establishment of flexible industrial staffing offices in seven new geographic
regions. The remainder of the increase was primarily due to marketing and
support costs related to the broadening of the PEO client base, operating costs
associated with increased flexible industrial staffing volume at existing
locations and buildup of corporate infrastructure in contemplation of the 1997
Acquisitions. As a percentage of net revenues, selling, general and
administrative expenses decreased to 11.6% in 1996 from 13.4% in 1995, primarily
due to the significant increase in 1996 of the PEO operations in proportion to
total Company revenues. The PEO operations have lower associated selling,
general and administrative expenses (as a percentage of revenues) than flexible
industrial staffing revenues.
NET INTEREST AND OTHER EXPENSE. Net interest and other expense
increased by $2.4 million, to $3.6 million in 1996 from $1.2 million in 1995.
This increase included $1.4 million attributable to unusual expenses related to
the Company's withdrawal of a registration statement and an internal
investigation into certain Company transactions. The remaining increase of $1.0
million in net interest expense was principally due to interest associated with
net additional borrowings of $3.6 million in 1996 under the Company's line of
credit to finance working capital requirements as well as interest arising from
$4.4 million of indebtedness incurred in connection with the 1996 Acquisitions.
NET INCOME. Net income decreased by $0.2 million, to $1.1 million in
1996 from $1.3 million in 1995. This decrease was primarily due to $1.4 million
of unusual expenses related to the Company's withdrawal of a registration
statement and an internal investigation into certain Company transactions, as
well as an incremental $0.5 million of operating losses incurred in continuing
the establishment of flexible industrial staffing offices in seven new
geographic regions.
ADDITIONAL OPERATING INFORMATION
The following table sets forth the gross profit margins for the
Company's two primary areas of operations for the indicated periods.
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
Flexible industrial staffing.................. 23.5% 24.5% 25.2%
PEO........................................... 3.6 3.7 3.9
The Company's flexible industrial staffing division generates
significantly higher gross profit margins than its PEO division. The higher
flexible industrial staffing division margin reflects compensation for
recruiting, training and other services not required as part of many PEO
relationships, where the employees have already been recruited by the client and
are trained and in place at the beginning of the relationship.
The decrease in the gross profit margin from the Company's flexible
industrial staffing operations in 1997 as compared to 1996 and in 1996 as
compared to 1995 is primarily due to (i) larger contracts obtained by the
Company which have lower gross margin percentages based on correspondingly lower
selling, general and administrative expenses from the economies of scale in
servicing a larger contract and (ii) the impact of two increases in the minimum
wage during the period from October 1, 1996 through December 31, 1997, for which
the Company recovered much of the increased payroll costs via increased billing
rates but without a related profit increase. The Company anticipates these
factors will continue to affect
20
<PAGE>
gross margins from flexible industrial staffing operations, which the Company
expects to be generally offset by lower selling, general and administrative
expenses (measured as a percentage of gross profit) as mentioned above.
The decrease in the gross profit margin from the Company's PEO
operations in 1997 as compared to 1996 and in 1996 as compared to 1995 is
primarily due to (i) a higher average wage and benefit cost per PEO employee,
while the gross profit amount per employee is relatively consistent (See
"-General" for a discussion of the effect of these costs on the Company's
revenue calculation), (ii) lower prices that reflect lower interest costs
incurred by the Company due to a decline in the relative proportion of total PEO
customers receiving credit terms, and (iii) larger contracts obtained by the
Company which have lower gross margin percentages based on correspondingly lower
selling, general and administrative expenses from the economies of scale in
servicing a larger contract. The Company anticipates that these factors will
continue to affect gross margins from PEO operations, which the Company expects
to be generally offset by lower selling, general and administrative expenses
(measured as a percentage of gross profit), as mentioned above.
FLEXIBLE INDUSTRIAL STAFFING:
Net revenues from the Company's flexible industrial staffing services
increased $149.5 million, to $207.3 million in 1997 from $57.8 million in 1995,
or a compound annual growth rate of 89.4%. This increase represented an
increasing share of the Company's total net revenues, to 46.3% in 1997 from
38.6% in 1995, reflecting the Company's focus on growth of these flexible
industrial staffing operations through acquisitions as well as new office
openings. The Company expects this focus to continue for the foreseeable future.
Gross profit from the Company's flexible industrial staffing services
increased $34.1 million, to $48.7 million in 1997 from $14.6 million in 1995, or
a compound annual growth rate of 82.9%. This represented an increasing share of
the Company's total gross profit, to 73.5% in 1997 from 61.9% in 1995.
PEO:
Net revenues from the Company's PEO services increased $140.2 million
to $225.8 million in 1997 from $85.6 million in 1995, or a compound annual
growth rate of 62.5%. However, because of the lower growth rate in PEO revenues
as compared to flexible industrial staffing, this represented a decreasing share
of the Company's total net revenues, to 50.5% in 1997 from 57.1% in 1995,
reflecting the Company's greater focus on growth of its flexible industrial
staffing operations during this period as well as the effect of changes made in
the PEO management structure and marketing approach, particularly during 1997.
The Company expects that PEO sales growth will be modest during 1998 while these
two conditions continue.
Gross profit from the Company's PEO services increased $4.8 million to
$8.0 million in 1997 from $3.3 million in 1995, or a compound annual growth rate
of 56.1%. However, because of the lower gross profit percentage from PEO as
compared to flexible industrial staffing, as well as the lower growth rate in
PEO revenues as compared to flexible industrial staffing, this represented a
decreasing share of the Company's total gross profit, to 12.1% in 1997 from
14.2% in 1996.
FRANCHISE AND OTHER:
Net revenues from the Company's franchise and other services increased
$7.9 million, to $14.4 million in 1997 from $6.5 million in 1995, or a compound
annual growth rate of 49.0%. This increase represented a decreasing share of the
Company's total net revenues, to 3.2% in 1997 from 4.3% in 1995, reflecting the
Company's greater focus on growth of its Company-owned flexible industrial
staffing operations during this period. The Company expects this focus to
continue for the foreseeable future.
Gross profit from the Company's franchise and other services increased
$4.0 million to $9.6 million in 1997, from $5.6 million in 1995, or a compound
annual growth rate of 30.7%. However, primarily because of the lower growth rate
in franchise and other revenues as compared to flexible industrial staffing,
this increase represented a decreasing share of the Company's total gross
profit, to 14.4% in 1997 from 23.9% in 1995.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for working capital and other
needs have been an $85.0 million credit line with a syndicate of lenders led by
BankBoston, N.A. (the "Revolving Facility"), the Senior Notes and borrowings
from related parties. On October 24, 1997, the Company sold 3,000,000 shares of
its Common Stock in an initial public offering for net proceeds, after deducting
all expenses, of approximately $40.3 million, which was used to repay the Senior
Notes and borrowings from related parties, as well as a portion of the Revolving
Facility.
On February 21, 1997, the Company issued Senior Notes in the principal
amount of $25.0 million. The Senior Notes were subordinate to borrowings under
the Revolving Facility, but were repaid in full from the proceeds of the
Offering. The Company used the proceeds of the Senior Notes primarily to fund
flexible industrial staffing acquisitions and to pay shareholder distributions
and other amounts in connection with the Reorganization. In connection with the
issuance of the Senior Notes, the Company issued 786,517 warrants to the Senior
Note Holders and placed an additional 573,787 warrants in escrow. The warrants
are exercisable at a price of $.015 per share.
The Revolving Facility expires in February 2003. Outstanding amounts
under the Revolving Facility are secured by substantially all of the Company's
assets and the pledge of all of the outstanding shares of common stock of each
of the Subsidiaries. Amounts borrowed under the Revolving Facility bear interest
at BankBoston's base rate or Eurodollar rate (at the Company's option) plus a
margin based upon the ratio of the Company's total indebtedness to the Company's
earnings (as defined in the Revolving Facility). As of December 31, 1997, the
Company had outstanding borrowings under the Revolving Facility of $33.8
million, bearing interest at an effective annual rate of 8.3%. The Revolving
Facility contains certain affirmative and negative covenants relating to the
Company's operations. See Note 5 to the Company's Consolidated Financial
Statements.
As of December 31, 1997, the Company had (i) bank standby letters of
credit outstanding, in the aggregate amount of $6.7 million under a $15.0
million letter of credit facility (which is part of the Revolving Facility) to
secure certain workers' compensation obligations; (ii) $2.9 million of
promissory notes outstanding in connection with certain acquisitions, bearing
interest at rates ranging from 4.0% to 10.0%, which are payable primarily during
the next two years, and are subordinated to the repayment of the Revolving
Facility; (iii) obligations under capital leases for property and equipment in
the aggregate amount of $2.8 million; and (iv) obligations under mortgages
totalling $4.3 million. See Note 5 to the Company's Consolidated Financial
Statements.
One of the key elements of the Company's multi-faceted growth strategy
is expansion through acquisitions, which will require significant sources of
financing. These financing sources include cash from operations, seller
financing, bank financing and issuances of the Company's Common Stock. The
Company's previous acquisitions have been primarily in the flexible industrial
staffing area, and the Company expects this trend to continue due to the more
favorable pricing for those businesses (expressed primarily as a multiple of
EBITDA) as compared to PEO businesses. See Note 2 to the Company's Consolidated
Financial Statements.
The Company is a service business and therefore a majority of its
tangible assets are customer accounts receivable. Flexible industrial staffing
employees are paid by the Company on a daily or weekly basis. The Company,
however, receives payment from customers for these services, on average, 45 to
50 days from the presentation date of the invoice. As new flexible staffing
offices are established or acquired, or as existing offices expand, there will
be increasing requirements for cash to fund operations. The Company pays its PEO
employees on a weekly, bi-weekly, semi-monthly or monthly basis for their
services, and currently receives payments on a simultaneous basis from
approximately 90% of its existing customers.
The Company's principal uses of cash are for wages and related payments
to temporary and PEO employees, operating costs, acquisitions, capital
expenditures, advances made to certain Tandem franchise associates to fund their
payroll obligations and repayment of debt and interest thereon.
During the year ended December 31, 1997, cash used in operations was
approximately $10.9 million, compared with $1.3 million in 1996. Cash used in
investing activities during the year ended December 31, 1997 was approximately
$24.4 million, primarily expenditures of $21.9 million for acquisitions
(primarily intangible assets), compared with $4.8 million in 1996 (which
included expenditures of $1.9 million for acquisitions). Cash provided by
financing activities during the year ended December 31, 1997 was approximately
$37.2 million, including $40.3 million net proceeds from the Offering and $23.9
million from borrowings under the Revolving Facility, substantially offset by
payments of $16.1 million for shareholder distributions and other amounts in
connection with the Reorganization and $7.8 million of repayments of long-
22
<PAGE>
term debt (net of note repayments from related parties). Cash provided by
financing activities during the year ended December 31, 1996 was approximately
$4.6 million, primarily $3.6 million from borrowings under a bank line of
credit.
The Company anticipates spending up to approximately $6.0 million
during the next twelve months for new flexible staffing locations, improvements
to its management information and operating systems, upgrades of existing and
acquired locations, and other capital expenditures. This amount does not include
expenditures for industrial staffing and PEO acquisitions, which the Company
believes will be at a minimum equivalent to the recent historical rate over the
next twelve months and will primarily be for goodwill and other intangible
assets.
The Company believes that funds provided by operations, borrowings
under the Revolving Facility and current cash balances will be sufficient to
meet its presently anticipated needs for working capital and capital
expenditures, not including acquisitions for the next twelve months. Depending
on the amount and timing of future acquisitions and their financial structure,
the Company also believes that sufficient liquidity for such acquisitions as
well as its long-term operating requirements will be provided by funds from
operations, expanded or new borrowing facilities, issuance of common stock
and/or additional debt or equity offerings. However, the ability of the Company
to make acquisitions consistent with the recent historical rate is subject to
the Company's ability to successfully negotiate more flexible leverage and
collateral covenants than those presently contained in the Revolving Facility
and/or the Company's ability to finance future acquisitions by issuance of
its Common Stock rather than debt financing primarily used by the Company for
previous acquisitions.
ACQUISITIONS
During 1995, the Company made four flexible industrial staffing
acquisitions (the "1995 Acquisitions") with five offices and approximately $7.0
million in annual historical revenue. During 1996, the Company made five
flexible industrial staffing acquisitions (the "1996 Acquisitions") with 13
offices and approximately $16.0 million in annual historical revenue. During
1997, the Company made eight flexible industrial staffing acquisitions (the
"1997 Acquisitions") with 30 offices and approximately $61.0 million in annual
historical revenue. From January 1, 1998 through March 18, 1998, the Company
made ten flexible industrial staffing acquisitions (the "1998 Acquisitions")
with 28 offices and approximately $63.0 million in annual historical revenue.
The 1995 Acquisitions, the 1996 Acquisitions, the 1997 Acquisitions and the 1998
Acquisitions have resulted in a significant increase in goodwill and other
intangible assets, which has resulted and will continue to result in increased
amortization expense. In addition, the amount of these intangible assets, as a
percentage of the Company's total assets and shareholders' equity, has increased
significantly and while the net unamortized balance of intangible assets as of
December 31, 1997 is not considered to be impaired, any future determination
requiring the write off of a significant portion of unamortized intangible
assets could have a material adverse effect on the Company's financial condition
and results of operations. See Note 2 to the Company's Consolidated Financial
Statements.
SEASONALITY
The Company's quarterly results of operations reflect the seasonality
of higher customer demand for flexible industrial staffing services in the last
two quarters of the year, as compared to the first two quarters. Even though
there is a seasonal reduction of flexible industrial staffing revenues in the
first quarter of a year as compared to the fourth quarter of the prior year, the
Company does not reduce the related core personnel and other operating expenses
since that infrastructure is needed to support anticipated increased revenues in
subsequent quarters. PEO revenues are generally not subject to seasonality to
the same degree as flexible industrial staffing. However, the net income
contribution of PEO revenues, expressed as a percentage of sales, is
significantly lower than for flexible industrial staffing revenues. As a result
of the above factors, the Company traditionally experiences operating income in
the first quarter of a year that is significantly less than (i) the fourth
quarter of the preceding year and (ii) the subsequent three quarters of the same
year. See Note 14 to the Company's Consolidated Financial Statements.
INFLATION
The effects of inflation on the Company's operations were not
significant during the periods presented in the financial statements. Throughout
the periods discussed above, the increases in revenues have resulted primarily
from higher volumes, rather than price increases.
23
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was
issued. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. The Company intends to first implement SFAS No. 130 in its
Consolidated Financial Statements as of and for the three months ended March 31,
1998, and will provide any required disclosures at that time.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 establishes standards for the way
that public companies report selected information about operating segments in
annual financial statements and requires that those companies report selected
information about segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131, which supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise", but
retains the requirement to report information about major customers, requires
that a public company report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 requires that a public company report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. However, SFAS No. 131 does not require the reporting of information that
is not prepared for internal use if reporting it would be impracticable. SFAS
No. 131 also requires that a public company report descriptive information about
the way that the operating segments were determined, the products and services
provided by the operating segments, differences between the measurements used in
reporting segment information and those used in the enterprise's general-purpose
financial statements, and changes in the measurement of segment amounts from
period to period. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company intends to first implement SFAS
No. 131 in its Consolidated Financial Statements as of and for the year ended
December 31, 1998, although it has not determined the effects that
implementation will have.
YEAR 2000 ISSUE
Many computer programs ("software") now being used in business were
written using two digits rather than four to define the applicable year. Such
software may be unable to properly interpret dates beyond the year 1999, which
could lead to business disruptions including but not limited to an inability to
process payroll, cash and invoicing transactions using that software (the "Year
2000" issue). The Year 2000 issue concerns not only software used solely within
a company but also concerns third parties, such as customers, vendors and
creditors, using software that may interact with or affect a company's
operations.
In 1996, the Company initiated a conversion of the primary software
being used in its flexible staffing and PEO operations, as well as its
corporate-wide accounting and billing software. Although this conversion was
undertaken for the primary purposes of achieving a common data structure for all
significant Company applications as well as enhancing processing capacity
and efficiency, it also will result in software that properly interprets dates
beyond the year 1999 ("Year 2000 Compliant"). As of December 31, 1997, this
conversion had been completed, except for (i) the installation of currently
existing and Year 2000 Compliant software in Company-owned and franchised
flexible staffing locations, which the Company will initiate in the second
quarter of 1998 and expects to complete within one year from that date, but no
later than December 31, 1999 and (ii) programming modifications to its corporate
accounting and billing software, which the Company expects to complete by
December 31, 1998, but no later than December 31, 1999.
The Company has capitalized and will continue to capitalize the costs
of purchasing and developing new Year 2000 Compliant software, most of which had
been incurred as of December 31, 1997, but will expense the costs of the
modifications to existing software made solely for purposes of Year 2000
compliance, most of which will be incurred during
24
<PAGE>
1998. Any remaining capitalized balance for software no longer utilized because
of replacement by Year 2000 Compliant software will be expensed at the time such
software is replaced.
The Company is in the process of initiating formal communications with
all of its significant customers, vendors and creditors to determine the extent
to which the Company's interface with software provided by or utilized by those
third parties could be adversely affected by the Year 2000 issue and what
actions those third parties are taking to address that issue on a timely basis.
The Company will take appropriate action based on those responses, but there can
be no assurance that the software provided by or utilized by other companies
which affect the Company's operations will be timely converted and would not
have an adverse effect on the Company.
The Company has already begun internal testing of the adequacy of its
Year 2000 compliance activities to date, and will utilize both internal and
external resources to further test the adequacy of those activities during 1998.
The Company expects to complete the majority of its effort in this area by early
1999 leaving adequate time to assess and correct any significant issues that may
materialize.
The total cost to the Company of these Year 2000 compliance activities
has not been and is not anticipated to be material to the Company's business,
results of operations or financial condition. The costs and time necessary to
complete the Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources,
third party modification plans and other factors. However, there can be no
assurance that these estimates will be achieved and actual results could differ
from the estimates.
FORWARD-LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Form 10-K are forward looking statements, including but not limited to,
statements regarding the Company's expectations or beliefs concerning the
Company's strategy and objectives, expected sales and other operating results,
the effect of changes in the Company's gross margin, the Company's liquidity,
anticipated capital spending, the availability of financing, equity and working
capital to meet the Company's future needs, economic conditions in the Company's
market areas, the potential for and effect of future acquisitions, the adequacy
of the Company's workers' compensation and other insurance coverages, the
Company's ability to resolve the Year 2000 issue and the related costs and the
tax-qualified status of the Company's 401(k) and 413(c) plans. Actual results
may differ materially from those projected or implied in the forward looking
statements. Further, certain forward looking statements are based upon
assumptions of future events, which may not prove to be accurate. These forward
looking statements involve risks and uncertainties, including but not limited to
the Company's dependence on regulatory approvals, its future cash flows, sales,
gross margins and operating costs, the effect of conditions in the staffing
industry, legal proceedings, including those related to the actions of the
Company's temporary or leased employees, the cost and availability of credit,
the Company's ability to raise capital in the public equity markets, the
Company's ability to successfully identify suitable acquisition candidates and
to complete those acquisitions on favorable terms, the ability to successfully
integrate past and future acquisitions into the Company's operations, the
recoverability of the recorded value of goodwill and other intangible assets
arising from past and future acquisitions, the general level of economic
activity and unemployment in the Company's markets, specifically within the
construction and light industrial trades, increased price competition, changes
in government regulations or interpretations thereof, particularly those related
to employment, the continued availability of qualified temporary personnel, the
financial condition of the Company's clients and collection of accounts
receivable, the Company's ability to retain large clients, the Company's ability
to recruit, motivate and retain key management personnel, the costs of complying
with government regulations (including occupational safety and health
provisions, wage and hour requirements - including minimum wage laws, workers'
compensation and unemployment insurance) and the ability of the Company to
increase fees charged to its clients to offset increased costs relating to these
laws and regulations, inclement weather, interruption, impairment or loss of
data integrity or malfunction of information processing systems, uncertainties
regarding government regulation of PEOs, including the possible adoption by the
IRS of an unfavorable position as to the tax-qualified status of employee
benefit plans maintained by PEOs and other risks detailed from time to time by
the Company or in its press releases or in its filings with the Securities and
Exchange Commission.
In addition, the market price of the Company's stock may from time to
time be significantly volatile as a result of, among other things, the Company's
operating results, the operating results of other temporary staffing and PEO
companies, economic conditions and the performance of the stock market in
general.
25
<PAGE>
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all of such factors. Further, management
cannot assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Subsequent written and oral forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by cautionary statements in this paragraph and elsewhere in this Form
10-K, and in other reports filed by the Company with the Securities and Exchange
Commission, and in the Company's Registration Statement on Form S-1 (File No.
333-33443) filed with the Securities and Exchange Commission on August 12, 1997,
as amended by Amendments No. 1 through 3 thereto, and declared effective on
October 23, 1997.
26
<PAGE>
<TABLE>
<CAPTION>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
<S> <C>
Independent Auditors' Report........................................................................ 28
Consolidated Balance Sheets as of December 31, 1997 and 1996........................................ 29
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995.............. 30
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996, and 1995................................................... 31
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.......... 32
Notes to Consolidated Financial Statements.......................................................... 33
</TABLE>
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
OutSource International, Inc. And Subsidiaries:
We have audited the consolidated balance sheets of OutSource
International, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedule listed in the
index at Item 14 (a)2. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of OutSource International,
Inc. and Subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 18, 1998
28
<PAGE>
<TABLE>
<CAPTION>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................................... $ 1,685,474 $ 44,790
Trade accounts receivable, net of allowance for doubtful accounts of
$1,639,767 and $978,250 ....................................... 47,297,608 26,349,648
Funding advances to franchises ..................................... 2,186,150 3,231,839
Notes receivable and other amounts due from related parties ........ -- 4,887,604
Deferred income taxes and other current assets ..................... 5,909,960 420,021
------------- -------------
Total current assets .......................................... 57,079,192 34,933,902
PROPERTY AND EQUIPMENT, net ........................................ 14,953,118 13,127,107
GOODWILL AND OTHER INTANGIBLE ASSETS, net .......................... 30,426,731 7,454,806
OTHER ASSETS ....................................................... 3,283,817 361,333
------------- -------------
Total assets .................................................. $ 105,742,858 $ 55,877,148
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................... $ 1,498,275 $ 2,676,093
Accrued expenses:
Payroll ........................................................ 5,382,295 4,213,723
Payroll taxes .................................................. 2,181,722 2,180,130
Workers' compensation and insurance ............................ 9,086,007 5,463,845
Other .......................................................... 1,863,666 1,401,100
Other current liabilities .......................................... 907,975 1,416,577
Line of credit ..................................................... -- 9,888,507
Current maturities of long-term debt to related parties ............ 100,000 8,872,497
Current maturities of other long-term debt ......................... 2,408,060 1,992,962
------------- -------------
Total current liabilities ..................................... 23,428,000 38,105,434
NON-CURRENT LIABILITIES:
Revolving credit facility .......................................... 33,800,000 --
Long-term debt to related parties, less current maturities ......... -- 2,402,661
2,402,661
Other long-term debt, less current maturities ...................... 7,736,981 10,873,828
------------- -------------
Total liabilities ............................................. 64,964,981 51,381,923
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 2, 6 and 9)
SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 10,000,000 shares authorized, none
issued .......................................................... -- --
Common stock, $.001 par value; 100,000,000 shares authorized;
8,448,788 issued and outstanding at December 31, 1997 ........... 8,449 5,785
Additional paid-in capital ......................................... 53,200,988 95,315
Retained earnings (deficit) ........................................ (12,431,560) 4,394,125
------------- -------------
Total shareholders' equity .................................... 40,777,877 4,495,225
------------- -------------
Total liabilities and shareholders' equity ......................... $ 105,742,858 $ 55,877,148
============= =============
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Net revenues..................................... $447,579,152 $280,171,104 $149,825,165
Cost of revenues................................. 381,273,162 242,102,390 126,270,322
-------------- ------------- -------------
Gross profit..................................... 66,305,990 38,068,714 23,554,843
-------------- ------------- -------------
Selling, general and administrative expenses:
Shareholders' compensation.................. 292,001 2,321,201 2,370,350
Amortization of intangible assets........... 1,852,518 423,550 40,565
Other selling, general and administrative... 53,752,256 29,840,722 17,687,765
-------------- ------------- ------------
Total selling, general and
administrative expenses................. 55,896,775 32,585,743 20,098,680
-------------- ------------- ------------
Operating income................................. 10,409,215 5,483,241 3,456,163
-------------- ------------- ------------
Other expense (income):
Interest expense (net)....................... 7,876,853 2,175,849 1,258,739
Put warrants valuation adjustment............ 1,841,625 -- --
Other expense (income)....................... (20,539) -- (10,995)
Other charges................................ -- 1,447,555 --
-------------- ------------- ------------
Total other expense (income)............... 9,697,939 3,623,404 1,247,744
-------------- ------------- ------------
Income before provision (benefit) for
income taxes and extraordinary item.......... 711,276 1,859,837 2,208,419
Provision (benefit) for income taxes............. (69,083) --
-------------- ------------ ------------
Income before extraordinary item................. 780,359 1,859,837 2,208,419
Extraordinary item - loss on early retirement
of debt, net of income tax benefit (Note 5).. (13,384,416) -- --
--------------- ------------- ------------
Net income (loss)................................ $(12,604,057) $ 1,859,837 $ 2,208,419
UNAUDITED PRO FORMA DATA:
Income before provision (benefit) for
income taxes and extraordinary item.......... $ 711,276 $ 1,859,837 $ 2,208,419
Provision for income taxes....................... 296,000 757,000 859,000
-------------- ------------ ------------
Income before extraordinary item................. 415,276 1,102,837 1,349,419
Extraordinary item, net of income tax benefit.... (13,384,416) -- --
--------------- ------------ ------------
Net income (loss)................................ $(12,969,140) $ 1,102,837 $ 1,349,419
============== ============ ============
Weighted average common shares outstanding:
Basic........................................ 6,055,439 5,785,218 5,785,218
============== ============ =============
Diluted...................................... 7,320,362 5,843,618 5,785,218
============== ============ ============
Earnings (loss) per share:
Basic
Income before extraordinary item......... $ 0.07 $ 0.19 0.23
Extraordinary item, net of
income tax benefit..................... (2.21) -- --
-------------- ------------- ------------
Net income (loss)........................ $ (2.14) $ 0.19 $0.23
============== ============= ============
Diluted
Income before extraordinary item......... $ 0.06 $ 0.19 $ 0.23
Extraordinary item, net of
income tax benefit..................... (1.83) -- --
---------------- ------------ ------------
Net income (loss)........................ $ (1.77) $ 0.19 $ 0.23
=============== ============ ============
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ................... $ 5,785 $ 95,315 $ 2,600,241 $ 2,701,341
Distributions to shareholders ................ -- -- (1,307,223) (1,307,223)
Net income ................................... -- -- 2,208,419 2,208,419
------- ------------ ------------ ------------
Balance, December 31, 1995 ................... 5,785 95,315 3,501,437 3,602,537
Distributions to shareholders ................ -- -- (967,149) (967,149)
Net income ................................... -- -- 1,859,837 1,859,837
------- ------------ ------------ ------------
Balance, December 31, 1996 ................... 5,785 95,315 4,394,125 4,495,225
Net loss for the period from January 1, 1997
through February 21, 1997 ................ -- -- (172,497) (172,497)
Distributions and other payments in
connection with the Reorganization ....... (336) (11,879,636) (4,221,628) (16,101,600)
Contribution of notes payable by shareholders -- 4,300,000 -- 4,300,000
Net loss for the period from February 22, 1997
through December 31, 1997 ................ -- -- (12,431,560) (12,431,560)
Termination of Put Warrants Liability ........ -- 20,383,621 -- 20,383,621
Sale of common stock ......................... 3,000 40,301,688 -- 40,304,688
------- ------------ ------------ ------------
Balance, December 31, 1997 ................... $ 8,449 $ 53,200,988 $(12,431,560) $ 40,777,877
======= ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
<TABLE>
<CAPTION>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................... $(12,604,057) $ 1,859,837 $ 2,208,419
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................................... 4,179,224 1,592,166 765,580
Amortization of debt discount and issuance costs .................. 937,878 -- --
Put warrants valuation adjustment ................................. 1,841,625 -- --
Loss on early retirement of debt .................................. 20,031,515 -- --
Deferred income tax provision (benefit) ........................... (6,716,182) -- --
and equipment ................................................ (18,711) 23,032 --
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable ................................ (20,947,960) (11,353,115) (7,292,532)
Prepaid expenses and other current assets ................ (378,645) 94,297 (301,784)
Other assets ............................................. (1,404,867) (112,674) 153,093
Increase (decrease) in:
Accounts payable ......................................... (519,198) 315,061 644,458
Accrued expenses:
Payroll .............................................. 1,168,572 2,234,500 1,311,169
Payroll taxes ........................................ 1,592 (1,224,960) 2,757,651
Workers' compensation and insurance .................. 3,622,162 3,608,345 1,628,127
Other ................................................ 462,566 778,335 618,304
Other current liabilities ................................ (508,603) 905,105 294,644
----------- ------------ -----------
Net cash provided by (used in) operating activities .. (10,853,089) (1,280,071) 2,787,129
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Funding (advances) repayments to franchises, net ..................... 1,045,689 (805,124) (651,700)
Property and equipment expenditures .................................. (4,104,980) (2,128,826) (1,283,975)
Expenditures for acquisitions ........................................ (21,949,956) (1,949,595) (120,374)
Proceeds from disposal of property and equipment ..................... 262,700 50,093 30,318
----------- ------------ -----------
Net cash used in investing activities ....................... (24,744,547) (4,833,452) (2,025,731)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in excess of outstanding checks over
bank balance, included in accounts payable ....................... (658,620) 278,106 956,171
Net proceeds from line of credit and
revolving credit facility ........................................ 23,911,493 3,620,180 1,641,660
Related party borrowings (repayments) ................................ (1,987,554) 576,503 (475,172)
Proceeds of senior notes and put warrants, net of
issuance costs ................................................... 22,614,984 -- --
Repayment of senior notes ............................................ (25,000,000) -- --
Proceeds of long-term debt ........................................... -- 1,500,000 510,000
Repayment of long-term debt .......................................... (5,845,071) (1,327,875) (647,704)
Proceeds from sale of common stock, net of offering costs ............ 40,304,688 -- --
Distributions and other payments in connection with the Reorganization (16,101,600) -- --
Distributions paid to shareholders ................................... -- -- (1,307,223)
----------- ------------ -----------
Net cash provided by financing activities .......... 37,238,320 4,646,914 677,732
----------- ------------ -----------
Net increase (decrease) in cash ...................................... 1,640,684 (1,466,609) 1,439,130
Cash, beginning of period ............................................ 44,790 1,511,399 72,269
----------- ------------ -----------
Cash, end of period .................................................. $ 1,685,474 $ 44,790 $ 1,511,399
=========== ============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ........................................................ $ 7,090,797 $ 1,841,624 $ 976,295
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: OutSource International, Inc. and Subsidiaries (the
"Company") provide emerging businesses with a single source of customized,
flexible human resource solutions principally through its professional employer
organization ("PEO") services under the tradename Synadyne and its flexible
industrial staffing services under the tradenames Labor World and Tandem. The
Company provides these services through company-owned and franchise locations.
PEO services include payroll administration, workers' compensation
insurance, health, life and disability insurance, retirement plans, and human
resource compliance, administration and management. Flexible industrial staffing
services include certain PEO services, as well as recruiting, training and
workforce re-deployment services.
PUBLIC OFFERING: The Company sold 3,000,000 shares of its common stock
to the public (the "Offering") at $15.00 per share on October 24, 1997, and
received proceeds of $40,304,688, net of offering costs and expenses of
$4,695,312.
REORGANIZATION: On February 21, 1997, a Reorganization was consummated
in which nine companies under common ownership and management became
wholly-owned subsidiaries of OutSource International, Inc. (the
"Reorganization"). OutSource International, Inc. was incorporated in April 1996
for the purpose of becoming the parent holding company, but was inactive with no
assets, liabilities or operations prior to the Reorganization.
The nine companies which became subsidiaries of OutSource
International, Inc. are OutSource International of America, Inc., OutSource
Franchising, Inc., Synadyne I, Inc., Synadyne II, Inc., Synadyne III, Inc.,
Synadyne IV, Inc., Synadyne V, Inc., Employees Insurance Services, Inc. and
Capital Staffing Fund, Inc. (the "Initial Subsidiaries"). Except for Capital
Staffing Fund, Inc., the outstanding common stock of each of the Initial
Subsidiaries was owned prior to the Reorganization by the same shareholders with
identical ownership percentages. The shareholders and their ownership
percentages were: (a) a control group consisting of two brothers, who were
founders, their immediate families and four family trusts (the "S
Group")--58.2%; (b) a control group consisting of an individual, who was a
founder, his immediate family and two family trusts (the "M Group")--29.1%; (c)
the chief executive officer of the Initial Subsidiaries (the "CEO")--9.7%; and
(d) the executive vice president of the Initial Subsidiaries and a family trust
(the "EVP")--3.0%. The shareholders and their ownership percentages of Capital
Staffing Fund, Inc. prior to the Reorganization were: S Group--48.5%; M
Group--24.25 %; CEO--24.25% and EVP--3.0%.
In 1974, the three founders began the flexible industrial staffing
services business which became the operations of the Initial Subsidiaries, and
these operations expanded to also include franchising of flexible industrial
staffing services, PEO services, and funding services to certain franchises. The
operations of the Initial Subsidiaries historically have been integrated to
provide a single source of human resource services for customers under the
direction of a single executive management group and with a centralized
administrative and business support center.
33
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Reorganization consisted of (a) the distribution by the Initial
Subsidiaries, which were S corporations, of previously undistributed accumulated
taxable earnings to all shareholders, in proportion to their ownership
interests, a portion of which was used to repay $4,300,000 in notes receivable
of OutSource Franchising, Inc. from its shareholders, in proportion to their
ownership interests; (b) the contribution to paid-in capital of Synadyne II,
Inc. and Synadyne III, Inc. of $4,300,000 in notes payable by such Initial
Subsidiaries to their shareholders, in proportion to their ownership interests;
and (c) the exchange by all of the shareholders of all of their shares of common
stock in the Initial Subsidiaries for shares of common stock in OutSource
International, Inc., except that the founders in the S Group and M Group
received cash and notes for a portion of their common stock, aggregating 5.8% of
the total ownership interests in the Initial Subsidiaries (the equivalent of
336,430 shares of common stock of OutSource International, Inc.). The following
is a summary of the cash paid, notes issued (which were paid in full at the time
of the Offering), cash paid and immediately returned to the Company by the
Shareholders for repayment of OutSource Franchising, Inc. notes receivable,
contribution to additional paid-in capital, and common stock of OutSource
International, Inc. issued in the Reorganization:
<TABLE>
<CAPTION>
CASH PAID NOTES (PAID TOTAL ISSUANCE OF
(RETURNED TO REPAY AT TIME OF SHAREHOLDER COMMON STOCK
CASH NOTES RECEIVABLE) THE OFFERING) DISTRIBUTIONS SHARES PERCENTAGE
------------ ----------------- ------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
S Group............ $ 5,840,800 $2,502,000 $1,420,000 $ 9,762,800 3,131,667 57.5%
M Group............ 3,849,900 1,251,000 -- 5,100,900 1,552,315 28.5%
CEO................ 225,760 417,000 325,000 967,760 591,249 10.8%
EVP................ 140,140 130,000 -- 270,140 173,557 3.2%
----------- -------------- ------------ ------------- ---------- -------
$10,056,600 $4,300,000 $1,745,000 16,101,600 5,448,788 100.0%
=========== ========== ========== ========= ======
Less contribution to additional paid-in capital of notes
payable to Synadyne II, Inc. and Synadyne III, Inc................ (4,300,000)
------------
Net charge to shareholders' equity................................ $ 11,801,600
============
</TABLE>
All shareholders of the Initial Subsidiaries owned virtually the same
proportion of the common stock of OutSource International, Inc. after the
Reorganization as they owned of the Initial Subsidiaries prior to the
Reorganization. Additionally, all of the Subsidiaries were historically an
integrated operation under the direction of a single executive management group
and with a centralized administrative and business support center, which
continued after the Reorganization. Accordingly, the Reorganization was
accounted for as a combination of companies at historical cost. The effects of
the Reorganization on common stock have been reflected retroactively in the
financial statements of prior years.
Subsequent to the Reorganization, all compensation for the three
founders (principal shareholders) was discontinued, and the Initial Subsidiaries
terminated their elections to be treated as S corporations. The distribution by
the Initial Subsidiaries to all shareholders at the time of the Reorganization
is subject to adjustment based upon the final determination of taxable income
through February 21, 1997.
A summary of the Company's significant accounting policies follows:
BASIS OF PRESENTATION: The accompanying consolidated financial
statements present the financial position, results of operations and cash flows
of OutSource International, Inc. and the Subsidiaries, (consisting of the
Initial Subsidiaries plus three subsidiaries incorporated subsequent to the
Reorganization- Staff All, Inc., Mass Staff, Inc., and OutSource of Nevada,
Inc.) as well as SMSB Associates ("SMSB"), a Florida limited partnership
comprised of the Company's three principal shareholders and the CEO. SMSB, a
special purpose entity which leases certain properties to the Company, is
consolidated in these financial statements from January 1, 1995 to September 30,
1997, based on the criteria for a non-substantive lessor in Emerging Issues Task
Force No. 90-15, due to the control exercised by the Company over the assets of
SMSB during that period. Effective October 1, 1997 the Company discontinued the
consolidation of SMSB's assets and liabilities in these financial statements,
based on the Company's determination that SMSB was no longer a non-substantive
lessor as defined by EITF No. 90-15. All significant intercompany balances and
transactions are eliminated in consolidation.
34
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PERVASIVENESS OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION: All flexible staffing and PEO revenues are based
upon the gross payroll of the Company's flexible staffing and PEO employees plus
a corresponding fee. The Company's fee structure is based upon the estimated
costs of employment related taxes, health benefits, workers' compensation
benefits, insurance and other services offered by the Company plus a negotiated
mark-up. All flexible staffing and PEO customers are invoiced on a weekly to
monthly billing cycle. The flexible staffing and PEO revenues, and related costs
of wages, salaries, employment taxes and benefits related to worksite employees,
are recognized in the period in which those employees perform the flexible
staffing and PEO services. Because the Company is at risk for all of its direct
costs, independent of whether payment is received from its clients, and
consistent with industry practice, all amounts billed to clients for gross
salaries and wages, related employment taxes, health benefits and workers'
compensation coverage are recognized as revenue by the Company, net of credits
and allowances.
Initial franchise fees are generally recognized when substantially all
services or conditions relating to the franchise sale have been performed or
satisfied by the Company. Costs relating to such fees are charged to selling,
general and administrative expenses when incurred. When the fees are collected
over an extended period of time and no reasonable basis for estimating
collections exists, the fees are recognized as income when received through the
use of the installment method. Royalties, which are based on gross sales and
gross profit of the related franchisees, are recognized as revenue when earned
and become receivable from the franchisees.
FUNDING ADVANCES: The Company makes advances on behalf of certain of
its franchises to fund the payroll and other related costs for industrial
personnel provided by those franchises to their clients. The advances are
secured by the franchises' accounts receivable from these clients. The Company
invoices the clients and receives payment directly from the clients as part of
this arrangement. These payments are applied to reimburse outstanding advances,
and to pay franchise royalties and the fee charged for these funding and billing
services, with any remaining amounts remitted to the franchise. The funding fee
is charged and recognized as revenue by the Company as the weekly invoices are
produced.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost and
depreciated or amortized on accelerated and straight-line bases over the
estimated useful service lives of the respective assets. Leasehold improvements
are stated at cost and amortized over the shorter of the term of the lease or
estimated useful life of the improvement. Amortization of property under capital
leases, leasehold improvements and computer software is included in depreciation
expense. The estimated useful lives of buildings range from 15 to 32 years,
while the estimated useful lives of other items range from 5 to 7 years.
LONG-LIVED ASSETS: In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of", impairments, measured using fair
value, are recognized whenever events or changes in circumstances indicate that
the carrying amount of long-lived assets may not be recoverable and the
projected future undiscounted cash flows attributed to the assets are less than
their carrying values.
35
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS: Identifiable intangible assets include customer
lists, employee lists and covenants not to compete acquired in connection with
acquisitions. Such assets are recorded at fair value on the date of acquisition
as determined by management with assistance by an independent valuation
consultant and are being amortized over the estimated periods to be benefitted,
ranging from 1 to 15 years.
Goodwill relates to the excess of cost over the fair value of net
assets of the businesses acquired. Amortization is calculated on a straight-line
basis over periods ranging from 15 to 40 years. The overall business strategy of
the Company includes the acquisition and integration of independent and
franchise flexible staffing and PEO operations. The Company believes that this
strategy creates synergies, achieves operating efficiencies and allows the
Company to be more competitive in its pricing, all of which will provide
benefits for the foreseeable future.
Management assesses on an ongoing basis if there has been an impairment
in the carrying value of its intangible assets. If the undiscounted future cash
flows over the remaining amortization period of the respective intangible asset
indicates that the value assigned to the intangible asset may not be
recoverable, the carrying value of the respective intangible asset will be
reduced. The amount of any such impairment would be determined by comparing
anticipated discounted future cash flows from acquired businesses with the
carrying value of the related assets. In performing this analysis, management
considers such factors as current results, trends and future prospects, in
addition to other relevant factors.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS: The following
methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value.
CASH, RECEIVABLES, FUNDING ADVANCES TO FRANCHISES, ACCOUNTS PAYABLE,
ACCRUED EXPENSES, EXCEPT WORKERS' COMPENSATION AND INSURANCE, OTHER CURRENT
LIABILITIES AND OTHER AMOUNTS DUE FROM AND TO RELATED PARTIES: The carrying
amounts approximate fair value because of the short maturity of those
instruments. Although the accrued workers' compensation and insurance liability
is anticipated to be paid over a number of years, due to the lack of a defined
payment schedule and the estimates inherent in establishing the recorded
liability amount, management believes that it is not practical to estimate the
fair value of this financial instrument.
NOTES RECEIVABLE, LINE OF CREDIT, REVOLVING CREDIT FACILITY AND
LONG-TERM DEBT: The carrying amounts approximate the fair value at December 31,
1996 and 1997, because the interest rates on these instruments approximate
interest rates currently available for similar borrowings.
INCOME TAXES: Effective February 21, 1997, the Initial Subsidiaries
terminated their elections to be treated as S corporations under applicable
provisions of the Internal Revenue Code. Prior to the date such election was
terminated, items of income, loss, credits, and deductions were not taxed within
the Company but were reported on the income tax returns of the Initial
Subsidiaries' shareholders. Accordingly, no provision for income taxes was
recorded.
Since the Reorganization on February 21, 1997, the Company provides for
income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes",
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for (a) the differences between financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income and (b)
net operating loss and tax credit carryforwards. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense equals the taxes payable or refundable for
the period plus or minus the change in the period of deferred tax assets and
liabilities.
36
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WORKERS' COMPENSATION: Effective January 1, 1997 through December 31,
1997, the Company's workers' compensation insurance coverage provided for a
$250,000 deductible per accident or industrial illness with an aggregate maximum
dollar limit based on 2.2% of covered payroll. For claims related to periods
prior to 1997, there was no aggregate maximum dollar limit on the Company's
liability for deductible payments. From May 1, 1995 through December 31, 1996,
in exchange for a lower excess insurance premium rate, the Company accepted the
responsibility for certain losses exceeding the $250,000 policy deductible per
accident or industrial illness on a dollar-for-dollar basis, but only to the
extent such losses cumulatively exceed 85% of the excess insurance premiums
(excluding the profit and administration component) and subject to a maximum
additional premium (approximately $750,000 in 1995 and $1,200,000 in 1996). The
Company employs an independent third-party administrator to assist management in
establishing an appropriate accrual for the uninsured portion of workers'
compensation claims, including claims incurred but not reported, based on prior
experience and other relevant data. However, the Company is only required to pay
such claims as they actually arise, which may be over a period extending up to 5
years after the related incident occurred.
AMORTIZATION OF DEBT DISCOUNT AND ISSUANCE COSTS: The Company records
debt discount as a contra-liability and debt issuance costs as a non-current
asset. Both are amortized to interest expense using the interest method.
STOCK BASED COMPENSATION: The Company uses the accounting methods
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and provides the pro forma disclosures required by SFAS
No. 123, "Stock Based Compensation".
ADVERTISING: The Company expenses advertising and promotional
expenditures as incurred. Total advertising and promotional expenses were
approximately $1,807,000, $726,000 and $651,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, SFAS No. 130, "Reporting
Comprehensive Income", was issued. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 requires that a company (a) classify
items of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company intends to first
implement SFAS No. 130 in its Consolidated Financial Statements as of and for
the three months ended March 31, 1998, and will provide any required disclosures
at that time.
37
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", was issued. SFAS No. 131 establishes
standards for the way that public companies report selected information about
operating segments in annual financial statements and requires that those
companies report selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131, which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise", but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 requires that a public company report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. However, SFAS No. 131 does not require the reporting of information that
is not prepared for internal use if reporting it would be impracticable. SFAS
No. 131 also requires that a public company report descriptive information about
the way that the operating segments were determined, the products and services
provided by the operating segments, differences between the measurements used in
reporting segment information and those used in the enterprise's general-purpose
financial statements, and changes in the measurement of segment amounts from
period to period. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company intends to first implement SFAS
No. 131 in its Consolidated Financial Statements as of and for the year ended
December 31, 1998, although it has not determined the effects that
implementation will have.
RECLASSIFICATIONS: Certain reclassifications have been made in amounts for prior
periods to conform to current period presentation.
38
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS
Goodwill and other intangible assets consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
WEIGHTED AVERAGE
1997 1996 AMORTIZATION PERIODS
------------- ----------- --------------------
<S> <C> <C> <C>
Goodwill............................. $ 26,669,872 $7,072,872 32.7 years
Customer lists....................... 4,672,178 658,015 5.5 years
Covenants not to compete............. 1,204,841 110,644 9.4 years
Employee lists....................... 196,479 77,390 .2 year
------------- -----------
Goodwill and other intangible
assets............................ 32,743,370 7,918,921 27.7 years
Less accumulated amortization........ 2,316,639 464,115
------------- -----------
Goodwill and other intangible
assets, net....................... $ 30,426,731 $7,454,806
============ ==========
</TABLE>
The costs of each acquisition have been allocated to the assets
acquired and liabilities assumed based on their fair values at the date of
acquisition as determined by management with the assistance of an independent
valuation consultant. The costs of the acquisitions in 1997 have been allocated
on a preliminary basis while the Company obtains final information regarding the
fair value of assets acquired and liabilities assumed. Although the allocation
and amortization periods are subject to adjustment, the Company does not expect
that such adjustments will have a material effect on the consolidated financial
statements.
Effective January 1, 1995, the Company purchased the franchise rights
for two flexible staffing locations from All Temps, Inc. and converted these
locations to Company-owned locations. The terms of the purchase, as set forth in
an asset purchase agreement, required the Company to pay a purchase price based
on a percentage of gross profits for five years. At the time of the transaction,
three of the four shareholders of the franchise were shareholders with a
cumulative controlling interest in the Company. Therefore, the acquisition was
accounted for as a business combination of entities under common control and the
purchase of the remaining minority interest in the franchise. No material
tangible assets were acquired. Effective October 1, 1996 the purchase price was
renegotiated and the remaining portion of the five year earnout due to the
shareholders of the Company was settled in exchange for a promissory note of
$799,000 bearing interest at 10.0% per annum, due on demand. This note,
including accrued interest, was paid on February 24, 1997. This purchase price
renegotiation did not affect the payment of the remaining portion of the five
year earnout due to the minority interest, except that the Company agreed that
the remaining payments to the minority interest would be no less than $40,000
per year from 1997 through 1999 and no less than $150,000 on a cumulative basis
for that three year period. In December 1997, the Company paid $141,000 to the
minority interest, which is expected to be the final amount due under the
renegotiated terms although the Company is still subject to making further
payments based on gross profits through 1999. During 1995 and 1996, $250,907 and
$1,128,136, respectively, of the purchase price was accrued, with $219,543 and
$967,151 payable to shareholders of the Company in 1995 and 1996, respectively,
recorded as a distribution and the remainder as goodwill.
Effective June 4, 1995, the Company purchased the franchise rights for
one flexible staffing location from WAD, Inc. and converted this location to a
Company-owned location. The terms of the purchase, as set forth in an asset
purchase agreement, require the Company to pay a purchase price based on a
percentage of gross profits for five years. Both shareholders of the franchise
are shareholders and officers of the Company but do not hold a controlling
interest. Effective October 1, 1996 the purchase price was renegotiated and the
remaining portion of the five year earnout was settled in exchange for a
promissory note of $731,982 bearing interest at 10.0% per annum, with the
portion in excess of $400,000 due on demand. The demand portion of $331,982 plus
accrued interest was paid on February 24, 1997 and the remaining balance of
$400,000, initially payable in equal quarterly installments of principal and
interest over two years, was repaid on October 31, 1997. During 1995 and 1996,
$79,693 and $887,383, respectively, of the purchase price was accrued.
39
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS (CONTINUED)
During 1995, the Company purchased the franchise rights for two
flexible staffing locations from Komco Inc. and Demark, Inc. and converted them
to Company-owned locations. The terms of the purchases, as set forth in asset
purchase agreements, required the Company to pay $178,292 plus a percentage of
revenues for a period ranging up to two years. The total purchase price recorded
as of December 31, 1997 was $284,481.
Effective April 1, 1996, the Company purchased the franchise rights for
eight flexible staffing locations from Payray, Inc. and Tri-Temps, Inc. and
converted these locations to Company-owned locations. Some shareholders of the
franchises are shareholders of the Company but do not hold a controlling
interest in the Company. The terms of the purchase, as set forth in an asset
purchase agreement, required the Company to pay $4,922,745 with $750,000 due at
closing and a note for the remainder to be paid in 60 monthly installments plus
10.0% per annum interest through July 1, 1996 and 14.0% per annum interest
thereafter. On February 21, 1997, these payment terms were renegotiated. The
renegotiated terms called for a payment of $1,250,000 against the outstanding
balance and a note for the remainder of $2,573,703 to be paid in 48 equal
monthly installments including interest of 14.0% per annum, commencing April 1,
1997, but fully payable at the time of an initial public offering. The remaining
outstanding balance was accordingly paid at the time of the Offering.
Effective May 4, 1996, the Company purchased certain assets and the
business of CST Services Inc., a flexible staffing operation not previously
affiliated with the Company. The terms of the purchase, as set forth in an asset
purchase agreement, required the Company to pay up to $1,780,000 with $1,200,000
due at closing, a $200,000 note to be paid in two annual installments plus
interest at 7.0% per annum and annual contingent payments, not to exceed an
aggregate of $380,000, based upon income before taxes of the acquired operation
for the two years following the acquisition. The total purchase price recorded
was $1,400,000 and $1,726,490 as of December 31, 1996 and December 31, 1997,
respectively.
During 1996, the Company purchased the franchise rights for four
flexible staffing locations from Temp Aid, Inc., LL Corps, Inc. and Kesi, Inc.
and converted them to Company-owned locations. The terms of the purchases, as
set forth in asset purchase agreements, required the Company to pay $250,912
plus a percentage of revenues for a period ranging up to two years. The total
purchase price recorded as of December 31, 1997 was $291,190.
Primarily during the first three months of 1997, the Company purchased
the franchise rights for 13 flexible staffing locations from LaPorte, Inc.,
Superior Temporaries, Inc. and Labor World of Minneapolis, Inc., and converted
these locations to Company-owned locations. The total purchase price was
$11,125,000 (of which $9,000,000 related to Superior Temporaries, Inc.), with
$10,475,000 paid at closing and notes issued for $650,000.
During the first three months of 1997, the Company purchased flexible
staffing operations with 17 locations from Apex, Inc., Standby Personnel of
Colorado Springs, Inc., Staff Net, Inc., Staff Management, Inc. and Stand-By,
Inc. (none previously affiliated with the Company). The total purchase price was
$14,070,000, with $10,910,000 paid at closing and notes issued for $3,160,000.
Certain sellers received options to purchase a total of 8,126 shares of the
Company's common stock at their fair market value at the date of issuance. Such
options were issued March 12, 1997 and were still outstanding at December 31,
1997 - See Note 10. The contractual purchase price of Standby Personnel of
Colorado Springs, Inc. was $3,100,000, which may increase or decrease by an
amount not to exceed $500,000, based on the gross profit from the acquired
locations for the two years following the acquisition. The contractual purchase
price of Stand-By, Inc. was $5,500,000, which may increase by an amount not to
exceed $60,000 or decrease by an amount not to exceed $500,000, based on the
gross profit from the acquired locations for the two years following the
acquisition.
The above acquisitions, except All Temps, Inc., have been accounted for
as purchases. The results of operations of the acquired businesses are included
in the Company's consolidated statements of income from the effective date of
acquisition. The additional payments based on future revenues, gross margin or
income before income taxes of certain acquired businesses are not contingent on
continuing employment of the sellers. Such additional amounts, if paid, will be
recorded as additional purchase price.
40
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS (CONTINUED)
The following unaudited pro forma results of operations have been
prepared assuming the acquisitions described above had occurred as of the
beginning of the periods presented, including adjustments to the historical
financial statements for additional amortization of intangible assets, increased
interest on borrowings to finance the acquisitions and discontinuance of certain
compensation previously paid by the acquired businesses to their shareholders.
The unaudited pro forma operating results are not necessarily indicative of
operating results that would have occurred had these acquisitions been
consummated as of the beginning of the periods presented, or of future operating
results.
YEARS ENDED DECEMBER 31,
1997 1996
------------ ------------
UNAUDITED PRO FORMA:
Net revenues.................................. $458,828,299 $346,752,517
Operating income.............................. 10,569,920 8,182,631
Income before provision for income
taxes and extraordinary item................. 209,221 1,184,014
Income before extraordinary item.............. 278,304 1,184,014
The following unaudited pro forma information, as adjusted, has been
prepared on the same basis as the preceding data and also reflects the pro forma
adjustment for income taxes and weighted average shares outstanding as discussed
in Note 13, except that the number of diluted shares attributable to outstanding
options and warrants has been increased by 85,892 shares for the year ended
December 31, 1997, and 625,248 shares for the year ended December 31, 1996, in
order to reflect an adjustment in the calculation of proceeds from the exercise
of warrants associated with the portion of the Senior Notes utilized to finance
the above acquisitions:
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
---------- ----------
UNAUDITED PRO FORMA, AS ADJUSTED:
Income before provision for income taxes
and extraordinary item...................... $209,221 $1,184,014
Pro forma provision for income taxes.............. 209,000 530,930
---------- ----------
Pro forma income before extraordinary item........$ 221 $ 653,084
========== =========
Weighted average common shares outstanding:
Basic.......................................... 6,055,439 5,785,218
========== =========
Diluted........................................ 7,406,254 6,468,866
========== =========
Earnings per share, before extraordinary item:
Basic..........................................$ .00 $ .11
========== ==========
Diluted........................................$ .00 $ .10
========== ==========
41
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS (CONTINUED)
During the first quarter of 1998 through March 2, the Company purchased
the franchise rights for six flexible staffing locations from Freuhling and
Jackson, Inc., F.J.R. Enterprises, Inc., EJ Services, Inc. and EAZY Temporary,
Inc., and converted these locations to Company-owned locations. The total
purchase price was $5,425,000, with $3,300,000 paid at closing and notes issued
for $2,125,000, payable over two years plus interest at 6.0% per annum. The
amount due under one of these notes may increase or decrease by an amount not to
exceed $250,000, based on the gross profit from the acquired locations for the
year following the acquisition.
During the first quarter of 1998 through February 16, the Company
purchased flexible staffing operations with 18 locations from Tempus, Inc. and
Grafton, Inc. (none previously affiliated with the Company). The total purchase
price was $4,835,000, with $3,335,000 paid at closing plus a $1,500,000 note
payable over two years plus interest at 6.5% per annum. The amount due under the
note may decrease by up to $300,000, based on the 1997 gross profit of the
acquired locations. Immediately following the acquisition from Tempus, Inc., the
Company sold four of the acquired locations to Cruel Dave Enterprises, LLC (a
franchisee of the Company) for a $780,000 note, payable over five years plus
interest at 8.0% per annum.
During the first quarter of 1998 through March 18, the Company
purchased 100% of the common stock of Employment Consultants, Inc., X-Tra Help,
Inc. and Co-Staff, Inc. (none previously affiliated with the Company), which
were flexible staffing operations with four locations. The total purchase price
(which includes $2,100,000 for net tangible assets) was $10,659,500, with
$6,909,500 in cash and $775,000 in the Company's common stock (57,809 shares)
delivered at closing. The remainder of the purchase price was satisfied with the
issuance of notes totalling $2,975,000 and payable over two years plus interest
at 6.0% per annum. However, one of the notes may increase without limit or
decrease by up to $875,000 based on the gross profit from the acquired locations
for the two years following the acquisition. In the event gross profit for those
two years was equal to 1997 gross profit, the note would decrease by
approximately $125,000. In the event gross profit increased by 25% in each of
those two years as compared to the prior year, the note would increase by
approximately $150,000.
Effective February 16, 1998, the Company purchased the franchise rights
for four flexible staffing locations from LM Investors, Inc. and converted these
locations to Company-owned locations. The shareholders of the franchises are
shareholders of the Company but do not hold a controlling interest in the
Company. The purchase price was $6,800,000, with $5,000,000 paid at closing plus
a note for $1,700,000 bearing interest at 7.25% per annum and payable quarterly
over three years. The remaining $100,000 represents the Company's assumption of
the seller's liabilities under certain employment contracts. In addition, the
Company has agreed to concessions amounting to approximately $60,000 and
agreements not to compete of up to six months (excluding acquisitions) in the
event the sellers wish to buy out of their remaining franchise agreements
(representing four flexible staffing locations) with the Company. See Note 6
regarding options for certain franchise territories granted in connection with
this transaction.
42
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
AS OF DECEMBER 31,
-------------------------
1997 1996
----------- -----------
Buildings and land ........................... $ 6,209,537 $ 6,459,439
Furniture, fixtures and equipment ............ 6,935,642 4,108,625
Computer software ............................ 4,061,103 2,321,094
Leasehold improvements ....................... 2,034,319 1,031,106
Vehicles ..................................... 499,769 132,703
Assets held for disposal ..................... -- 2,090,000
----------- -----------
Property and equipment ....................... 19,740,370 16,142,967
Less accumulated depreciation and amortization 4,787,252 3,015,860
----------- -----------
Property and equipment, net .................. $14,953,118 $13,127,107
=========== ===========
Depreciation and amortization expense for property and equipment for
the years ended December 31, 1997, 1996 and 1995 amounted to $2,326,706,
$1,168,616 and $725,016, respectively.
Assets held for disposal are a building and land owned by SMSB and
formerly utilized by the Company as its national office and support center. See
Notes 1 and 6.
43
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INCOME TAXES
The net deferred tax asset as of December 31, 1997 includes deferred
tax assets and liabilities attributable to the following items, including
amounts recorded as a result of the February 21, 1997 termination of the
elections by the Initial Subsidiaries to be treated as S corporations:
<TABLE>
<CAPTION>
TOTAL CURRENT NON-CURRENT
----------- ----------- -----------
<S> <C> <C> <C>
Workers' compensation accrual ............................ $ 2,692,586 $ 2,692,586 $ --
Debt discount related to warrants ........................ 1,933,622 -- 1,933,622
Allowance for doubtful accounts .......................... 617,044 617,044 --
Change from cash to accrual tax basis .................... (1,148,948) (362,826) (786,122)
Net operating loss carryforward .......................... 1,330,393 1,330,393 --
Employment tax credit carryforward ....................... 834,097 834,097 --
Other .................................................... 457,388 -- 457,388
----------- ----------- -----------
Net deferred tax asset, included in prepaid expenses and
other current assets and in other assets, respectively $ 6,716,182 $ 5,111,294 $ 1,604,888
=========== =========== ===========
</TABLE>
Management has determined, based on the Company's history of prior
taxable earnings and its expectations for the future, that taxable income will
more likely than not be sufficient to fully realize deferred tax assets and
accordingly, has not reduced deferred tax assets by a valuation allowance. The
net operating loss carryforward of $3,535,459, as well as the employment tax
credit carryforward of $834, 097, expire in 2012.
The components of the income tax benefit for the year ended December
31, 1997 are as follows:
Federal - Current............................ $ 2,054,000
State - Current.............................. 494,383
Federal - Deferred........................... (2,234,897)
State - Deferred............................. (382,569)
------------
Income tax benefit...........................$ (69,083)
=============
The Company also recorded a $6,647,099 income tax benefit as a direct
reduction of the extraordinary loss arising from early debt retirement (see Note
5). This benefit eliminated the liability arising from the current portion of
the $69,083 tax benefit shown above.
The Company's effective tax rate for the year ended December 31, 1997
differed from the statutory federal rate
of 35%, as follows:
<TABLE>
<CAPTION>
AMOUNT RATE
-------- ------
<S> <C> <C>
Statutory rate applied to income before income taxes
and extraordinary item................................... $248,947 35.0%
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit................ 73,797 10.4%
Effect of termination of S corporation status............. (423,897) (59.6%)
Loss prior to termination of S corporation status......... 58,652 8.2%
Put warrants valuation adjustment......................... 445,320 62.6%
Employment tax credits.................................... (550,504) (77.4%)
Nondeductible expenses.................................... 56,546 8.0%
Other..................................................... 22,056 3.1%
--------- ------
Total..................................................... $(69,083) (9.7%)
======== ======
</TABLE>
The tax benefit of $6,647,099 related to the 1997 extraordinary loss
was 33.2% of that loss, which differed from the statutory federal rate of 35%
due to a portion of the debt discount that was included in the extraordinary
loss being non-deductible for tax purposes.
44
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. DEBT
BANK FINANCING: On February 21, 1997, following the Reorganization, the
Company entered into a revolving credit facility ("Revolving Credit Facility"),
which was amended on November 24, 1997, to allow for a remaining term of
approximately five years and to increase the maximum amount available for
borrowing to $85,000,000, which includes a letter of credit facility of
$15,000,000. The interest rate on the Revolving Credit Facility is based on: 1)
the bank's prime rate (8.5% at December 31, 1997) plus a margin of up to 0.25%
according to the Company's consolidated debt to earnings ratio (as defined by
the terms of the Revolving Credit Facility) or 2) the Eurodollar base rate
(5.9688% at December 31, 1997) plus a margin from 1.25% to 2.25% according to
the Company's consolidated debt to earnings ratio. The effective interest rate
at December 31, 1997 was 8.3%. The letter of credit fee at December 31, 1997 was
1.50% per annum, but may reduce to as low as 0.75% per annum according to the
Company's consolidated debt to earnings ratio. Revolving Credit Facility
borrowings are collateralized by all tangible and intangible assets of the
Company and are governed by certain covenants, which include an interest
coverage ratio, a cash flow coverage ratio, an indebtedness to EBITDA (earnings
before interest, taxes, depreciation and amortization) ratio and the current
ratio. The terms of the Revolving Credit Facility also require prior bank
approval of most acquisitions and borrowings from third parties. In February
1998 the Company entered into an interest rate collar agreement, as required by
the terms of the Revolving Credit Facility (see Note 6).
The Company secures its liability for the deductible portion of its
workers' compensation coverage by the issuance of Letters of Credit to its
insurance carriers, which amounted to $6,676,382 at December 31, 1997.
Prior to February 21, 1997, the Company had a line of credit facility
("Line of Credit") dated July 20, 1995 with two commercial lending institutions
which was amended on November 21, 1995, May 8, 1996 and June 28, 1996. The Line
of Credit, which included a letter of credit facility ("Letter of Credit"), was
for a term of three years with an expiration date of June 30, 1998. The maximum
amount available for Line of Credit borrowings and Letter of Credit issuances
was $14,900,000. These Line of Credit borrowings and Letter of Credit issuances
were permitted based upon certain formulas outlined in the Line of Credit
Agreement and were collateralized by the accounts receivable of the Company and
the personal guarantees of the Company's principal shareholders. At December 31,
1996 the Line of Credit borrowing interest rate was at prime plus 2% (10.25% per
annum) and the Letter of Credit fee was 1% per annum.
Prior to July 20, 1995, the Company had a line of credit agreement with
terms requiring the shareholders' personal guarantees, allowing for borrowings
up to $5,300,000 limited by eligible receivables and collateralized by
substantially all of the assets of the Subsidiaries. These borrowings incurred
interest at prime plus 2% per annum.
SENIOR NOTES: On February 21, 1997, following the Reorganization, the
Company entered into senior subordinated note agreements ("Senior Notes") with
two investors (the "Senior Note Holders") for borrowings totaling $25,000,000,
with payments of $10,000,000 in March 2001 and $15,000,000 in February 2002, and
quarterly interest payments at 11% per annum through February 1999 and 12.5%
thereafter. The Senior Notes were repaid in full from the proceeds of the
Offering. The Company also issued to the Senior Note Holders warrants to
purchase 786,517 shares of common stock at $.015 per share to be exercised at
the discretion of the Senior Note Holders and expiring five years from issuance
(the "A warrants"). These warrants had not been exercised as of December 31,
1997.
In connection with the Senior Notes, warrants to purchase 573,787
shares of the Company's common stock at $.015 per share were issued by the
Company into escrow. In April 1997, warrants to purchase 180,891 shares (the "B
warrants") were released from escrow to the Company's shareholders as of
February 21, 1997, as a result of the Company's consummation of the last of
certain acquisitions in accordance with conditions of the agreements related to
the Senior Notes. These warrants had not been exercised as of December 31, 1997.
The remaining warrants to purchase 392,896 shares (the "C warrants") will be
released from escrow on or before February 1999. The C warrants will be released
to the same Company shareholders that received the B warrants, if by that date
the Company has fully repaid the Senior Notes and has had a qualified public
offering or qualified sale that results in a specified market valuation of the A
warrants. In the event that all conditions have been met at that time except
that the market valuation of the A warrants meets a specified lower threshold,
50% of the C warrants will be released to the Senior Note Holders and 50% will
be released to the now existing Company shareholders. If the Senior Notes have
not been repaid or such lower market valuation threshold for the A warrants is
not achieved by February 1999, all of the C warrants will be released to the
Senior Note Holders. The warrants in escrow are exercisable any time after being
released from escrow and expire in February 2002.
45
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. DEBT (CONTINUED)
The A warrants issued to the Senior Note Holders, as well as the B and
C warrants placed in escrow, all contained a put right, whereby the Company
would be required at the holder's option to purchase the warrants for the
"publicly traded" fair value of those warrants should the Company not consummate
a qualified initial public offering, as defined in the warrant agreement, by
February 2001. This put right was terminated as a result of the Company's
October 1997 Offering.
The proceeds of the Senior Notes were recorded as a liability. The fair
value of the A warrants issued to the Investors, plus the fair value of the B
and C warrants, was recorded as debt discount, which is a contra-account to the
Senior Notes liability and is periodically amortized using the interest method,
resulting in a level effective rate of 55.7% per annum applied to the sum of the
face amount of the debt less the unamortized discount. Interest expense
(including discount amortization of $745,636) of $2,655,358 was recorded related
to these Senior Notes for the year ended December 31, 1997.
The B and C warrants were designed to provide the Senior Note Holders
with additional consideration for their $25 million investment if certain
performance criteria (in the case of the B warrants) are not met or if certain
triggering events (in the case of the C warrants) do not occur. Therefore, the
value of the B and C warrants is, in substance, embedded within the $25 million
subordinated debt proceeds and, as such, was accounted for in the same manner as
the A warrants. Accordingly, the amount allocated from the $25 million
subordinated debt proceeds to the detachable stock purchase warrants includes
the fair value of the B and C warrants. The original debt discount, based on the
fair value of the A warrants issued to the Senior Note Holders plus the fair
value of B and C warrants, was $18,541,996. The fair value of the warrants was
determined by an independent appraiser as of the date of their issuance.
Due to the put option included in all of the warrants, their fair value
of $18,541,996 at the date of issuance was classified as a liability which was
adjusted to fair value at each reporting date until the put option terminated.
This liability was adjusted to a fair value of $20,383,621 as of October 24,
1997, with the cumulative adjustment of $1,841,625 included in non-operating
expense for the year ended December 31, 1997. The fair value of the warrants
recorded as of October 24, 1997 was equal to the price of the Company's shares
sold to the public at that time (see Note 10), less the warrant exercise price.
As a result of the termination of the put right at the time of the Company's
October 1997 Offering, the final put warrants liability was reclassified from
debt to additional paid-in capital at that time.
The Company incurred $2,385,016 of costs related to the issuance of the
Senior Notes, which were recorded in other non-current assets and amortized to
interest expense using the interest method. Amortization of $149,861 was
recorded for the year ended December 31, 1997.
As a result of the early repayment of the Senior Notes in October 1997,
the Company recorded an extraordinary loss of $13,384,416 (net of a $6,647,099
income tax benefit). This loss consists of the unamortized debt discount and the
unamortized debt issuance costs related to the Senior Notes.
46
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. DEBT (CONTINUED)
LONG-TERM DEBT:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Obligations under capital leases. See
discussion below.............................................. $2,818,210 $ 7,801,224
Acquisition notes payable, subordinated to the
Revolving Credit Facility and payable over two years at imputed interest
rates ranging from 7.0% to
12.0% per annum. See Note 2................................... 2,876,696 200,689
Mortgage notes payable in monthly installments and
collateralized by buildings and land. The interest
rates range from 8.5% to prime plus 2.0% per
annum (10.5% at December 31, 1997)............................ 4,332,760 2,472,063
Notes payable in monthly installments and
collateralized by property and equipment. The
interest rates range from 5.9% to 13.0% per annum............. 117,375 126,147
Term and equipment notes payable in quarterly
installments, with an interest rate of
prime plus 2.0%............................................... -- 2,266,667
----------- ------------
Long-term debt................................................. 10,145,041 12,866,790
Less current maturities of long-term debt...................... 2,408,060 1,992,962
----------- ------------
Long-term debt, less current maturities........................ $7,736,981 $10,873,828
========== ===========
</TABLE>
The aggregate annual principal payments on long-term debt (including
obligations under capital leases) are as follows as of December 31, 1997:
<TABLE>
<CAPTION>
YEAR
----
<S> <C> <C>
1998...................................................... $ 2,408,060
1999...................................................... 2,103,411
2000...................................................... 1,020,015
2001...................................................... 803,050
2002...................................................... 513,651
Thereafter................................................ 3,296,854
-----------
$10,145,041
===========
</TABLE>
CAPITAL LEASES: Since December 1996, the Company has occupied an office
building for its national office and support center under a 15 year capital
lease agreement with an unrelated party, having annual lease payments of
approximately $610,000. The Company had an option to buy the building during the
first two years of the lease term and in December 1997 it exercised that option.
Prior to that purchase, the capitalized costs relating to this lease were equal
to the purchase option price.
As of December 31, 1997, furniture, fixtures, equipment and computer
software held under capital leases and included in property and equipment were
$2,789,943, net of accumulated depreciation of approximately $398,344. As of
December 31, 1996, buildings and other assets held under capital leases and
included in property and equipment were $7,818,393, net of accumulated
depreciation of approximately $57,000.
47
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. DEBT (CONTINUED)
The following is a summary of future minimum lease payments, and their
present value, required under all capital leases for the years ended after
December 31, 1997:
YEAR
----
1998................................................ $ 830,715
1999................................................ 815,052
2000................................................ 811,117
2001................................................ 715,461
2002................................................ 120,397
Thereafter.......................................... --
-----------
Total future minimum lease payments................. 3,292,742
Less amount representing interest................... (474,532)
-----------
Present value of net minimum lease payments......... $2,818,210
==========
NOTE 6. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS: The Company conducts its operations in various
leased facilities under leases that are classified as operating leases for
financial reporting purposes. The leases provide for the Company to pay real
estate taxes, common area maintenance and certain other expenses. Lease terms,
excluding renewal option periods exercisable by the Company at escalated rents,
expire between 1998 and 2002. Also, certain equipment used in the Company's
operations are leased under operating leases. The following is a summary of
fixed minimum lease commitments required under all operating leases for the
years ended after December 31, 1997:
YEAR RENTAL AMOUNT
---- -------------
1998................................................... $1,963,503
1999................................................... 1,436,327
2000................................................... 1,132,228
2001................................................... 1,089,730
2002................................................... 232,485
----------
Total.................................................. $5,854,273
==========
Rent expense, including equipment rental, was $2,198,014, $878,300 and
$373,090 for the years ended December 31, 1997, 1996 and 1995, respectively.
FRANCHISE AGREEMENTS: The Company has granted 55, 75 and 67 Tandem
franchises (some covering multiple locations) as of December 31, 1997, 1996 and
1995, respectively. In consideration for royalties paid by the franchise
holders, the agreements provide, among other things, that the Company will
provide the franchise holder with the following for terms ranging from 10 to 15
years with varying renewal options: exclusive geographical areas of operations,
continuing advisory and support services and access to the Company's
confidential operating manuals.
Subsequent to December 31, 1997 and in connection with the Company's
acquisition of certain franchise rights from LM Investors, Inc. (see Note 2),
the Company granted one of the principals of the sellers (and a minority
shareholder in the Company) the exclusive option to purchase franchise rights in
five specifically identified geographic areas. These options expire at various
times from 12 to 42 months after the February 1998 acquisition date.
48
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
<TABLE>
<CAPTION>
The following tables set forth various revenues from industrial
staffing franchises as well as a schedule showing industrial staffing franchise
offices opened and purchased by the Company, as well as the number of Company
owned industrial staffing locations. The Company's franchising activities in its
other divisions is not significant.
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
PEO services....................................... $34,641,670 $35,078,655 $ 7,507,774
Royalties.......................................... 6,996,670 5,670,458 4,137,150
Payroll funding services........................... 713,690 1,288,205 718,807
Initial franchise fees............................. 15,000 84,000 446,000
Other.............................................. 15,330 41,000 70,000
----------- ------------ ------------
Total revenues.................................. $42,382,360 $42,162,318 $12,879,731
=========== =========== ===========
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
Number of franchise locations, beginning................. 95 83 57
New franchises sold...................................... 6 24 31
Franchises closed/Buyouts................................ (23) -- --
Franchises converted to
Company - owned locations.............................. (13) (12) (5)
--- --- --
Number of franchise locations, ending.................... 65 95 83
Number of Company owned locations........................ 87 46 21
-- -- --
Total locations........................................ 152 141 104
=== === ===
</TABLE>
PEO services revenues are based on the payroll and other related costs
for industrial personnel provided by the franchises to their clients, under a
relationship whereby the Company is the employer of those industrial personnel.
The Company's gross profit margin on these services is approximately 1.5% of the
related revenues. See Note 1 for a discussion of initial franchise fees,
royalties, and payroll funding services (funding advances). The Company's gross
profit margin on these services is 100% of the related revenues.
Buyouts are early terminations of franchise agreements allowed by the
Company in order to allow the Company to develop the related territories. At the
time of the buyout, the Company receives an initial payment from the former
franchisee. The Company continues to receive payments from the former
franchisees based on the gross revenues of the formerly franchised locations for
up to three years after the termination dates. The initial buyout payment, as
well as subsequent payments from the former franchisees, are included in total
royalties shown above.
GUARANTEES: The Company believes that it has a contingent liability as
an actual or implied guarantor of mortgages having an outstanding principal
balance of approximately $1.7 million at December 31, 1997. These mortgages are
secured by a building and land previously leased by the Company from SMSB for
use as the Company's national office and support center. SMSB has entered into a
contract for the sale of this property to an unrelated third party for a price
in excess of these outstanding mortgages, which SMSB will pay in full upon the
closing of the sale.
LITIGATION: The Company is involved in litigation with regard to one of
the service marks used in its operations. Although this matter is in preliminary
stages, the Company believes that an adverse decision in the case would not have
a material adverse effect on its financial condition or results of operations.
49
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
INTEREST RATE COLLAR AGREEMENT: In February 1998, the Company entered
into an interest rate collar agreement which involves the exchange of fixed and
floating rate interest payments periodically over the life of the agreement
without the exchange of the underlying principal amounts. The differential to be
paid or received is accrued as interest rates change and recognized over the
life of the agreement as an adjustment to interest expense. The agreement is a
five year notional $42.5 million interest rate collar, whereby the Company
receives interest on that notional amount to the extent 30 day LIBOR exceeds
6.25% per annum, and pays interest on that amount to the extent 30 day LIBOR is
less than 5.43% per annum.
This derivative financial instrument is being used by the Company to
reduce interest rate volatility and the associated risks arising from the
floating rate structure of its Revolving Credit Facility, and is not held or
issued for trading purposes. The Company believes that unrealized gains or
losses related to the instrument are immaterial.
EMPLOYMENT AGREEMENTS: During 1997, the Company entered into employment
agreements with the CEO and six other officers. Under the terms of those
agreements, in the event that the Company terminates any of those executives
without cause or the executive resigns for good reason, the terminated executive
will receive, among other things, severance compensation, including a multiple
of the officer's annual base salary and bonus. In addition, all incentive stock
options become immediately exercisable. Similar severance provisions apply if
any of those executives is terminated within two years (three years for the CEO)
after the occurrence of a "change of control", as defined.
NOTE 7. OTHER CHARGES
In 1996, the Company incurred $1,447,555 of expenses, primarily
professional fees, related to (a) a Form S-1 Registration Statement filed by the
Company with the Securities and Exchange Commission that the Company withdrew
and (b) subsequent due diligence, which included an internal investigation of
allegations regarding payments by the Company to a management employee of a
customer of the Company. Based on the findings of the investigation, the Company
paid restitution to the customer, is continuing to transact business with the
customer and believes that further expenses or liabilities, if any, related to
this matter will not be material to its financial position or results of
operations. These expenses have been separately disclosed as other charges in
the consolidated statement of income due to their unusual nature.
NOTE 8. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF RISK
For the years ended December 31, 1997, 1996 and 1995, approximately
12%, 16% and 21%, respectively, of the Company's revenues were from PEO services
performed for individual insurance agent offices under a preferred provider
designation granted to the Company on a regional basis by the agents' common
corporate employer. The Company had received this designation in 31, 31 and 22
states as of December 31, 1997, 1996 and 1995, respectively. The following is a
summary of net revenues, cost of revenues and gross profits related to all PEO
services, including the above:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues.......................... $225,836,000 $172,069,000 $85,557,000
Cost of revenues...................... 217,810,000 165,702,000 82,220,000
Gross profit.......................... 8,026,000 6,367,000 3,337,000
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, approximately
19%, 27% and 39%, respectively, of the Company's revenues were from the
provision of services to customers in the Chicago, Illinois area. For each of
the years ended December 31, 1997, 1996 and 1995, approximately 29% of the
Company's revenues were from the provision of services to customers in the South
Florida area.
50
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF RISK (CONTINUED)
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash, trade accounts receivable and funding
advances to franchises. The Company places its cash with what it believes to be
high credit quality institutions. At times cash deposits may be in excess of the
FDIC insurance limit. The Company grants credit to its customers generally
without collateral and regularly assesses their financial strength. Funding
advances to franchises are collateralized by the franchises' accounts receivable
from their clients. The Company believes that credit risk related to its trade
accounts receivable and funding advances is limited due to diversification of
the accounts based on geography and industry as well as the lack of material
concentration of balances due from any one customer.
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company had a 401(k) single-employer retirement plan and two 413(c)
multi-employer retirement plan covering all employees except for (a) employees
under the age of 21 for all plans, (b) employees with less than one year of
service for all plans, (c) certain temporary employees for the 413(c) plan and
(d) all highly compensated employees as defined by the Internal Revenue Code for
the 401(k) plan and certain highly compensated employees for the 413(c) plans.
One of the 413(c) plans was established for use by not-for-profit
employers only, effective January 1, 1996.
On February 28, 1997, the 401(k) plan and the 413 (c) plan established
for use by not-for-profit employers were made inactive by the Company. All
participating employees were enrolled in the currently active 413(c) plan for
future contributions and all previously contributed net assets remained in the
inactive plans for eventual distribution to the employees upon retirement or
other qualifying event. .
Eligible employees who participate elect to contribute to the plan an
amount up to 15% of their salary. Each year, the Company's Board of Directors
determines a matching percentage to contribute to each participant's account; if
a determination is not made, the matching percentage is 50% of the participant's
contributions, limited to the first 6% of each participant's salary contributed
by the participants. This matching policy may vary in the case of PEO employees,
although all matching amounts related to PEO employees are recovered by the
Company in its charges to the respective PEO customers. Matching contributions
by the Company for its employees, which includes PEO employees, were $485,326,
$309,222 and $39,070 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Pursuant to the terms of the previous 401(k) plan, highly compensated
employees were not eligible to participate. However, as a result of
administrative errors, some highly compensated employees have been permitted to
make elective salary deferral contributions. The Company has sought IRS approval
regarding the proposed correction under the Voluntary Closing Agreement Program
("VCAP"). There will be a penalty payable by the Company, associated with a
correction under the VCAP, although the Company believes this penalty will be
insignificant.
NOTE 10. SHAREHOLDERS' EQUITY
VOTING TRUST: The Company's three principal shareholders resigned from
the Company's Board of Directors in November 1996. On February 21, 1997, in
connection with the issuance of the Senior Notes and the closing of the
Revolving Credit Facility, 4,683,982 shares of the common stock of the Company,
owned by those shareholders and their families, were placed in a voting trust,
with a term of ten years. On October 24, 1997, at the time of the Offering,
700,000 shares were released from the voting trust and sold to the public. Under
the terms of the voting trust and agreement among the Company, the Company's
shareholders at that time and the Senior Note Holders, the shares of common
stock in the voting trust, which represent approximately 47% of the common stock
of the Company as of December 31, 1997, will be voted in favor of the election
of a Board of Directors having seven members and comprised of three directors
nominated by the CEO of the Company, two directors nominated by the Senior Note
Holders, and two independent directors nominated by the vote of both directors
nominated by the Senior Note Holders and at least two of the directors nominated
by the CEO of the Company.
51
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED)
Should the warrants to purchase 392,896 shares, as discussed in Note 5, be
released from escrow to the Senior Note Holders, the number of directors would
be increased by two, with the additional directors nominated by the Senior Note
Holders. Further, the shares in the voting trust will be voted as recommended by
the Board of Directors for any merger, acquisition or sale of the Company, or
any changes to the Articles of Incorporation or Bylaws of the Company. On any
other matter requiring a vote by the shareholders, the shares in the voting
trust will be voted as directed by the current CEO of the Company.
REVERSE STOCK SPLIT: On October 21, 1997, the Company effectuated a
reverse stock split pursuant to which each then issued and outstanding share of
common stock was converted into approximately 0.65 shares of common stock. The
effect of this reverse split has been retroactively applied to all share, option
and warrant amounts, including the related option and warrant exercise prices.
INCENTIVE STOCK OPTION PLAN: During 1995, a Subsidiary of the Company
established an incentive stock option plan ("Stock Option Plan") for that
Subsidiary only, whereby incentive stock options could be granted to employees
to purchase a specified number of shares of common stock at a price not less
than fair market value on the date of the grant and for a term not to exceed 10
years. Once awarded, these options become vested and exercisable at 25% per
year, unless special terms are established at the time the option is granted.
On January 1, 1996, the Subsidiary granted options to purchase 815,860
shares of common stock at an exercise price of $4.77 per share, which an
independent appraiser determined to be the fair market value of that
Subsidiary's common stock on the date of grant. On February 18, 1997, the
Company adopted the Stock Option Plan and, pursuant to the terms of the Stock
Option Plan, adjusted the number of shares of common stock subject to then
outstanding options to 318,568, and the exercise price of such options to $10.38
per share, such conversion determined by an independent appraiser as of the date
of grant. On March 12, 1997, the Company granted options to purchase 221,473
shares of the Company's common stock, with the exercise price of $11.42 per
share based on the fair market value of the Company's common stock, as
determined by an independent appraiser as of the date of the grant. The March
12, 1997 grant included 8,126 options issued in connection with acquisitions
(See Note 2). All options granted subsequent to the Offering have an exercise
price equal to the public market price of the shares at the grant date.
The total number of shares of common stock reserved for issuance under
the stock option plan is 1,040,000. As of December 31, 1997, the status of all
outstanding option grants was as follows:
<TABLE>
<CAPTION>
GRANT DATE OPTIONS GRANTED OPTIONS OUTSTANDING EXERCISABLE OPTIONS EXERCISE PRICE
---------- --------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
January 1, 1996............. 318,568 278,180 77,268 $10.38
March 12, 1997.............. 221,473 182,243 - 11.42
September 2, 1997........... 116,933 103,055 - 15.00
October 30, 1997............ 1,625 1,625 - 14.75
December 23, 1997........... 2,238 2,238 - 11.75
--------- -----
567,341 77,268
========= ======
</TABLE>
The weighted average remaining contractual life of the above options
was 9.0 years as of December 31, 1996 and 8.7 years as of December 31, 1997. The
weighted average exercise price was $11.57 per share as of December 31, 1997.
No options had been exercised as of December 31, 1997.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, because the
exercise price of the Company's employee stock option equals the fair value of
the underlying stock on the grant date, no compensation is recognized. However
SFAS 123, "Accounting for Stock-Based Compensation", requires presentation of
pro forma net income as if the Company had accounted for its employee stock
options granted subsequent to December 31, 1994, under the fair value method.
The Company has estimated the fair value of stock options granted to employees
on January 1, 1996, March 12, 1997 and September 2, 1997 to be $2.20, $2.59 and
$3.41 per option as of the respective grant dates, using the Black-Scholes
option pricing model with the following assumptions: risk free interest rate of
6.12% for the 1996 grant,
52
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED)
6.65% for the March 1997 grant and 6.65% for the September 1997 grant; no
volatility factor because the Company was not a public entity when the options
were granted; no expected dividends; and expected option life of 4 years.
Options granted subsequent to the Offering are not material for this
calculation. For purposes of pro forma disclosure, the estimated fair value of
the options is amortized to expense over the vesting period. Under the fair
value method, the Company's unaudited pro forma income (before extraordinary
item) would have been $240,928 ($0.04 basic earnings per share and $0.03 diluted
earnings per share) for the year ended December 31, 1997 and $992,765 for the
year ended December 31, 1996 ($0.17 basic and diluted earnings per share).
During January 1998, the Company granted options to purchase 259,646
shares of the Company's common stock, with an exercise price of $13.88 per
share, equal to the public market price of the shares at the grant date. 92,448
of those options vested immediately upon grant. During March 1998, the Company
granted options to purchase 84,270 shares of the Company's common stock, with
exercise prices ranging from $18.88 to $21.00 per share, equal to the public
market price of the shares at the grant date. See Note 2 regarding 1998 option
grants in connection with acquisitions.
NOTE 11. RELATED PARTY TRANSACTIONS
REVENUES: Certain shareholders of the Company owned franchises from
which the Company received the following revenues in the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
PEO services....................... $349,326 $13,505,481 $4,466,241
Royalties.......................... 194,273 684,122 547,477
-------- ----------- ----------
Included in net revenues........... $543,599 $14,189,603 $5,013,718
======== =========== ==========
These franchises owed the Company $92,431, $150,763 and $251,912 at
December 31, 1997, 1996 and 1995 respectively, primarily related to the above
items.
RECEIVABLES: The Company had the following notes and advances
receivable due on demand from shareholders and affiliates. The notes had an
interest rate of 10% per annum and the advances were non-interest bearing.
</TABLE>
AS OF DECEMBER 31,
---------------------------
1997 1996
---- ----
Notes receivable from shareholders............ $ -- $4,300,000
Advances due from:
Shareholders................................ -- 477,417
Affiliates.................................. -- 110,187
--------- ----------
Notes receivable and other amounts
due from related parties................... $ -- $4,887,604
========== ==========
Total interest income from notes receivable and other amounts due from
related parties was $65,694, $29,233 and $-0- for the years ended December 31,
1997, 1996 and 1995, respectively.
53
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RELATED PARTY TRANSACTIONS--(CONTINUED)
LONG-TERM DEBT:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Acquisition notes payable, subordinated to the Revolving
Credit Facility and Senior Notes. The interest rates range
from 7% to 14% per annum. These notes were repaid from the
proceeds of the Senior Notes and the Offering, except for
$100,000 repaid in March 1998. See Note 2...................... $ 100,000 $5,573,966
Demand notes payable due to shareholders of the Company
with an interest rate of 10% per annum. These notes were
contributed to the additional paid-in capital of Synadyne II,
Inc. and Synadyne III, Inc. in connection with the
Reorganization. See Note 1...................................... -- 4,300,000
Notes payable in quarterly installments beginning in February
1999, subordinated to the Revolving Credit Facility and
Senior Notes. The interest rate was 21% per annum. These
Notes were repaid from the proceeds of the Offering............. -- 1,401,192
---------- -----------
Long-term debt to related parties................................ 100,000 11,275,158
Less current maturities of long-term debt to related parties..... 100,000 8,872,497
---------- -----------
Long-term debt to related parties, less current maturities....... $ -- $2,402,661
========== ==========
</TABLE>
Total interest expense for long-term debt to related parties was
$546,786, $667,265 and $136,326 for the years ended December 31, 1997, 1996 and
1995, respectively.
OTHER TRANSACTIONS:
During 1997, the Company purchased certain real estate from SMSB for
$840,000, such assets having a net book value as reflected on SMSB's financial
statements of $608,126 at the time of purchase. See Note 6 regarding the
Company's guarantee of mortgages on other SMSB owned real estate.
A law firm owned by a shareholder of the Company received legal fees
for services rendered to the Company during 1997, 1996, and 1995 in the
approximate amounts of $148,000, $97,000, and $80,000 respectively.
The Company employed one of its minority shareholders (a member of the
S group) in a non-management position at an annual salary of approximately
$40,000 during 1997, 1996 and 1995. This arrangement was discontinued in March
1998.
Since July 1997, the Company has leased on a month to month basis a
portion of a warehouse controlled by the Company's President and CEO, for
approximately $2,000 per month. As a result of the Company's 1996 acquisition of
franchise rights from Payray, Inc. and Tri-Temps, Inc. (see Note 2), the Company
subsequently leased from one of the sellers, a minority shareholder of the
Company, four flexible industrial staffing offices, for rental payments of
$49,200 and $32,800 in 1997 and 1996, respectively. The Company made an
additional payment of $71,300 to that seller shareholder in 1997 in order to
terminate the leases and satisfy the Company's remaining liability.
54
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND FINANCING ACTIVITIES
The consolidated statements of cash flows do not include the following
noncash investing and financing activities:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Acquisitions:
Tangible and intangible assets
acquired.......................... $26,650,688 $8,497,841 $248,666
Liabilities assumed................. (186,319) (146,991) (4,885)
Debt issued......................... (3,516,413) (6,401,255) (123,407)
---------- ---------- ---------
Cash paid............................... $22,033,793 $1,949,595 $120,374
=========== ========== ========
Increase in property and equipment
and long-term debt, primarily
capitalized leases....... $ 812,596 $7,370,322 $ 55,926
============ ========== =========
Refinancing of capitilized leases
and mortgages on buildings
and land...................... $ 4,338,650 $ -- $ --
============ =========== =========
Reclassification of Put Warrants
Liability to additional paid-in
capital...................... $20,383,621 $ -- $ --
=========== =========== =========
Shareholders' contribution to
additional paid-in capital in
connection with the Reorganization $ 4,300,000 $ -- $ --
============ =========== =========
"Discontinuance of consolidation of
(Illegible) building and related
mortgage debt"............... $1,665,015 $ -- $ --
============= =========== =========
Debt to shareholders for distributions $ -- $ 967,150 $ --
============= =========== =========
</TABLE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. UNAUDITED PRO FORMA DATA
Pro forma net income includes adjustments made to historical net income
for pro forma income taxes computed as if the Company had been fully subject to
federal and applicable state income taxes. The Company calculates pro forma
earnings per share in accordance with the requirements of SFAS No. 128,
"Earnings Per Share".
The pro forma weighted average shares outstanding (6,055,439 for the
year ended December 31, 1997 and 5,785,218 for the years ended December 31, 1996
and 1995) used to calculate pro forma basic earnings per share includes (a) the
5,448,788 shares of common stock issued in connection with the Reorganization,
(b) for the periods prior to the Reorganization, the equivalent number of shares
(46,211 for the year ended December 31, 1997 and 336,430 for the years ended
December 31, 1996 and 1995) of common stock represented by the shares of common
stock of the Initial Subsidiaries purchased from certain shareholders for cash
and notes in the Reorganization (see Note 1) and (c) for the year ended December
31, 1997, 560,440 shares representing the pro-rata portion of 3,000,000 shares
sold in the Company's October 1997 Offering.
The pro forma weighted average shares outstanding (7,320,362 for the
year ended December 31, 1997, 5,843,618 for the year ended December 31, 1996 and
5,785,218 for the year ended December 31, 1995) used to calculate pro forma
diluted earnings per share includes the above items plus all outstanding options
and warrants to purchase common stock calculated using the treasury stock method
(1,264,923 for the year ended December 31, 1997 and 58,618 for the year ended
December 31, 1996). However, options to purchase 104,680 shares of common stock
with a weighted average exercise price of $15.00 per share which were
outstanding at December 31, 1997 were not included in the calculation of pro
forma diluted earnings per share because their effect would be antidilutive.
55
<PAGE>
OUTSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth the amounts of certain items in the
Company's consolidated statements of income for the four quarters of 1997 and
1996:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------------
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenues......................... $85,374 $107,823 $121,976 $132,406
Gross profit......................... 11,135 16,224 19,052 19,895
Operating income..................... 575 2,223 3,311 4,078
Pro forma income (loss) before
extraordinary item................. 1,233 (2,700) 93 1,789
Earnings (loss) per share (basic) before
extraordinary item................. .22 (.50) .02 .23
Earnings (loss) per share (diluted)
before extraordinary item.......... .20 (.39) .01 .20
Pro forma net income (loss).......... 1,233 (2,700) 93 (11,595)
1996
--------------------------------------------------------------------
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues......................... $51,169 $64,953 $77,680 $86,369
Gross profit......................... 6,690 9,062 10,982 11,335
Operating income..................... 483 1,474 2,345 1,181
Pro forma income (loss) before
extraordinary item................. 71 598 447 (13)
Earnings per share (basic) before
extraordinary item................. .01 .10 .08 .00
Earnings per share (diluted)
before extraordinary item.......... .01 .10 .08 .00
Pro forma net income (loss).......... 71 598 447 (13)
</TABLE>
See Note 5 for an explanation of the extraordinary loss of $13,384,416
recorded by the Company in the fourth quarter of 1997. See Note 13 for an
explanation of the adjustments made to arrive at pro forma net income.
56
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This item is not applicable.
PART III
All of the information required by Part III is omitted from this report
in that the Registrant will file a Definitive Proxy Statement pursuant to
Regulation 14A ("the Definitive Proxy Statement") not later than 120 days after
the end of the last financial year covered by this report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
the Company's Definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Company's Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Company's Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the Company's Definitive Proxy Statement.
57
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following Financial Statements (with accompanying notes) have
been included in Part II, Item 8 of this 10-K:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996, and 1995 Consolidated Statements of Shareholders'
Equity for the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996, and 1995 Notes to Consolidated Financial
Statements
2. The following schedules are filed herewith:
Schedule
Number Schedule Description
II Valuation and Qualifying Accounts - Years Ended December
31, 1997, 1996 and 1995.
(B) No reports were filed on Form 8-K during the quarter ended December 31,
1997.
(C) The following exhibits are filed herewith:
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1 Amended and Restated Agreement Among Shareholders dated February 21,
1997(1)
2.2 Articles of Share Exchange among OutSource International, Inc., Capital
Staffing Fund, Inc., OutSource Franchising, Inc., Synadyne I, Inc.,
Synadyne II, Inc., Synadyne III, Inc., Synadyne IV, Inc., Synadyne V,
Inc., Employees Insurance Services, Inc. and OutSource International of
America, Inc. dated February 21, 1997(1)
3.1 Amended and Restated Articles of Incorporation of the Company(2)
3.2 Amended and Restated Bylaws of the Company(3)
4.3 Shareholder Protection Rights Agreement(3)
4.6 Warrant Dated February 21, 1997 Issued to Triumph-Connecticut Limited
Partnership(1)
4.7 Warrant Dated February 21, 1997 Issued to Bachow Investment Partners
III, L.P.(1)
4.8 Warrant Dated February 21, 1997 Issued to State Street Bank and Trust
Company of Connecticut, N.A., as Escrow Agent(1)
9 Voting Trust Agreement among OutSource International, Inc., Richard J.
Williams and Paul M. Burrell, as Trustees, and certain shareholders of
Outsource International, Inc. dated as of February 21, 1997(1)
10.1 Securities Purchase Agreement among Triumph-Connecticut Limited
Partnership, Bachow Investment Partners III, L.P., OutSource
International, Inc., Capital Staffing Fund, Inc., OutSource
Franchising, Inc., Synadyne I, Inc., Synadyne II, Inc., Synadyne III,
Inc., Synadyne IV, Inc., Synadyne V, Inc., Employees Insurance
Services, Inc. and OutSource International of America, Inc. dated as of
February 21, 1997(1)
10.2 Escrow Agreement Among State Street Bank and Trust Company of
Connecticut, N.A., certain shareholders of OutSource International,
Inc., and OutSource International, Inc. dated as of February 21,
1997(1)
58
<PAGE>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.3 Registration Rights Agreement among OutSource International, Inc.,
Triumph-Connecticut Limited Partnership, Bachow Investment Partners
III, L.P., and shareholders of OutSource International, Inc. dated as
of February 21, 1997(1)
10.4 Agreement among Shareholders and Investors in OutSource International,
Inc. dated as of February 21, 1997(1)
10.5 Asset Purchase Agreement among Pay-Ray, Inc., Tri-Temps, Inc.,
Employees Unlimited, Inc. and OutSource International, Inc. dated as of
April 1, 1996, as amended on February 21, 1997(1)
10.6 Asset Purchase Agreement among CST Services, Inc., Claire Schmidt and
OutSource International, Inc. dated as of May 6, 1996(1)
10.7 Asset Purchase Agreement among Standby Personnel of Colorado Springs,
Inc., Adrian Walker and OutSource International, Inc. dated as of
February 24, 1997(1)
10.8 Asset Purchase Agreement between Staff Management Services, Inc. and
OutSource International, Inc. dated as of March 3, 1997(1)
10.9 Asset Purchase Agreement between Superior Temporaries, Inc. and
OutSource International, Inc. dated as of March 3, 1997(1)
10.10 Asset Purchase Agreement among Stand-By, Inc., Carlene Walker and
OutSource International of America, Inc. dated as of March 31, 1997(1)
10.11 Employment Agreement between Paul M. Burrell and the Company dated as
of February 21, 1997(1)*
10.12 Employment Agreement between Robert A. Lefcort and the Company dated as
of March 3, 1997(1)*
10.13 Employment Agreement between Robert E. Tomlinson and the Company dated
as of March 3, 1997(1)*
10.14 Employment Agreement between James E. Money and the Company dated as of
March 3, 1997(1)
10.15 Employment Agreement between Robert J. Mitchell and the Company dated
as of March 3, 1997(1)
10.16 Employment Agreement between Benjamin J. Cueto and the Company dated as
of September 2, 1997*
10.18 Stock Option Plan, As Amended and Restated Effective February 1, 1997
and as Amended Effective September 2, 1997*
10.19 Second Amended and Restated Credit Agreement dated as of November 26,
1997
10.20 OI Pledge Agreement made by OutSource International, Inc. in favor of
Bank of Boston Connecticut, as Agent, dated as of February 21, 1997(1)
10.21 OI Security Agreement made by OutSource International, Inc. in favor of
Bank of Boston Connecticut, as Agent, dated as of February 21, 1997(1)
10.22 Subsidiary Security Agreement made by Capital Staffing Fund, Inc.,
OutSource Franchising, Inc., Synadyne I, Inc., Synadyne II, Inc.,
Synadyne III, Inc., Synadyne IV, Inc., Synadyne V, Inc., Employees
Insurance Services, Inc. and OutSource International of America, Inc.
in favor of Bank of Boston Connecticut, As Agent, dated as of February
21, 1997(1)
10.23 Subsidiary Guarantee by Capital Staffing Fund, Inc., OutSource
Franchising, Inc., Synadyne I, Inc., Synadyne II, Inc., Synadyne III,
Inc., Synadyne IV, Inc., Synadyne V, Inc., Employees Insurance Services,
Inc. and OutSource International of America, Inc. in favor of Bank of
Boston Connecticut, As Agent, dated as of February 21, 1997(1)
10.24 Trademark Security Agreement made by OutSource International, Inc. and
OutSource Franchising, Inc. in favor of Bank of Boston Connecticut
dated as of February 21, 1997(1)
10.33 Form of Accumulated Adjustments Account Promissory Note dated February
20, 1997 issued by Capital Staffing Fund, Inc., OutSource Franchising,
Inc. and OutSource International of America, Inc. to the following
shareholders of the Company and Schedule of Allocation of AAA
Distribution to such shareholders: Lawrence H. Schubert Revocable
Trust; Robert A. Lefcort Irrevocable Trust; Nadya I. Schubert Revocable
Trust; Louis J. Morelli S Stock Trust; Margaret Ann Janisch S Stock
Trust; Matthew Schubert OutSource Trust; Jason Schubert OutSource
Trust; Alan E. Schubert; Louis A. Morelli; Louis J. Morelli; Raymond S.
Morelli; Matthew B. Schubert; Mindi Wagner; Margaret Morelli Janisch;
Robert A. Lefcort; and Paul M. Burrell(1)
59
<PAGE>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.34 Workers' Compensation and Employees Liability Insurance Policy from
January 1, 1997 to January 1, 1998 Policy Period(1)
10.35 Standby Letter of Credit issued by The First National Bank of Boston in
favor of National Union Fire Insurance Company(1)
10.36 Form of Standard Franchise Agreement(1) 10.37 Form of Standard PEO
Services Agreement(1) 21 Subsidiaries of the Company 27 Financial Data
Schedule
21 Subsidiaries of the Company
27.1 Financial Data Schedule
27.2 Financial Data Schedule
- ------------------------
* Compensatory plan or arrangement.
(1) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-1 (Registration Statement No. 333-33443) as filed
with the Securities and Exchange Commission on August 12, 1997
(2) Incorporated by reference to the Exhibits to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (Registration Statement
No. 333-33443) as filed with the Securities and Exchange Commission on
October 21, 1997
(3) Incorporated by reference to the Exhibits to Amendment No. 1 to the
Company's Registration Statement on Form S-1 (Registration Statement
No. 333-33443) as filed with the Securities and Exchange Commission on
September 23, 1997
60
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf of the undersigned, thereunto duly authorized.
OUTSOURCE INTERNATIONAL, INC.
By: /s/ PAUL M. BURRELL
-------------------------------
Paul M. Burrell
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PAUL M. BURRELL President, Chief Executive March 30, 1998
- ------------------------------------ Officer and Chairman of the Board
Paul M. Burrell of Directors
(Principal Executive Officer)
/s/ ROBERT E. TOMLINSON Chief Financial Officer, March 30, 1998
- ------------------------------------ Treasurer and Director
Robert E. Tomlinson (Principal Financial
and Accounting Officer)
/s/ ROBERT A. LEFCORT Executive Vice President, March 30, 1998
- ------------------------------------ Secretary and Director
Robert A. Lefcort
Director March __, 1998
- ------------------------------------
Richard J. Williams
/s/ SAMUEL H. SCHWARTZ Director March 30, 1998
- ------------------------------------
Samuel Schwartz
/s/ DAVID S. HERSHBERG Director March 30, 1998
- ------------------------------------
David S. Hershberg
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
OUTSOURCE INTERNATIONAL, INC. AND AFFILIATES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
CHARGED TO CREDITS
BALANCE, COSTS AND ISSUED AND BALANCE
DESCRIPTION JANUARY 1, 1997 EXPENSES OTHER CHARGE OFFS DECEMBER 31, 1997
----------- ---------------- --------- ------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts and credit memos..... $978,250 $3,123,861 $ - $(2,462,344) $ 1,639,767
CHARGED TO CREDITS
BALANCE, COSTS AND ISSUED AND BALANCE
DESCRIPTION JANUARY 1, 1996 EXPENSES OTHER CHARGE OFFS DECEMBER 31, 1996
----------- ---------------- --------- ------ ------------ ------------------
Allowance for doubtful
accounts and credit memos..... $375,243 $1,442,370 $ - $ (839,363) $ 978,250
CHARGED TO CREDITS
BALANCE, COSTS AND ISSUED AND BALANCE
DESCRIPTION JANUARY 1, 1995 EXPENSES OTHER CHARGE OFFS DECEMBER 31, 1995
----------- ---------------- --------- ------ ------------ ------------------
Allowance for doubtful
accounts and credit memos..... $123,836 $ 867,953 $ - $ (616,546) $ 375,243
</TABLE>
The amounts shown above include credits issued and charge offs for
uncollectible amounts as well as customer credits issued for early payment
discounts, pricing adjustments, customer service concessions, billing
corrections, and other matters.
S-1
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.16 Employment Agreement between Benjamin J. Cueto and the Company dated as
of September 2, 1997
10.18 Stock Option Plan, As Amended and Restated Effective February 1, 1997
and as Amended Effective September 2, 1997
10.19 Second Amended and Restated Credit Agreement dated as of November 26,
1997 21 Subsidiaries of the Company 27 Financial Data Schedule
21 Subsidiaries of the Company
27.1 Financial Data Schedule
27.2 Financial Data Schedule
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
September 2, 1997, by and between OutSource International, Inc., a Florida
corporation (the "Company"), and Benjamin Cueto ("Employee").
WHEREAS, the Company, through its Board of Directors, desires to retain the
services of Employee, and Employee desires to be retained by the Company, on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts employment, as President, Synadyne Division upon the terms subject to
this Agreement.
2. TERM. The term ("Term") of this Agreement shall commence on September 2,
1997 and shall continue until terminated in accordance with the terms hereof.
3. DUTIES. During his employment hereunder, Employee will serve as the
President of the Synadyne Division. Employee shall report directly to the
President of the Company and shall serve at his direction. Employee shall
perform services as assigned by the President of the Company consistent with the
title of Vice President of Business Development. Employee shall diligently
perform such duties and shall devote his entire business skill, time and effort
to his employment and his duties hereunder and shall not during the Term,
directly or indirectly, alone or as a member of a partnership, or as an officer,
director, employee or agent of any other person, firm or business organization
engage in any other business activities or pursuits requiring his personal
service that materially conflict with his duties hereunder or the diligent
performance of such duties. This shall not, however, preclude Employee from
serving on boards of directors of other corporations; provided that such service
does not conflict with the duties of Employee hereunder or result in a conflict
of interest.
4. COMPENSATION.
a. SALARY. During his employment hereunder, Employee shall be paid an
initial salary of $125,000.00 per year, payable in equal installments not
less than monthly ("Base Salary"). The Employee's Base Salary shall be
reviewed at least annually by the Board of Directors or any Committee of
the Board delegated the authority to review executive compensation.
<PAGE>
b. BONUS. In addition to Base Salary, Employee shall be entitled
to participate in the Company's Stock Option Plan, as amended and restated
(the "Stock Option Plan") and, in addition, to participate in a Management
Bonus Program, beginning in calendar year 1998, to be established by the
Company with an initial targeted bonus for calendar year 1998 of $62,500
for Employee, based upon the achievement of mutually agreed upon goals and
objectives (hereafter the "Management Bonus Program"). The bonus, if paid,
shall be based on the following:
(1) 50% Division results
(2) 30% OSI achieving budget
(3) 20% achieving your individual goals as mutually agreed upon
with the President
c. INSURANCE. During his employment hereunder, Employee shall be
entitled to participate in such health, life, disability and other
insurance programs, if any, that the Company may offer to other key
executive employees of the Company from time to time. You will be eligible
for such benefits as of November 1, 1997.
d. OTHER BENEFITS. During his employment hereunder, Employee shall be
entitled to such other benefits, if any, that the Company may offer to
other key executive employees of the Company from time to time. You will
also be reimbursed up to $8500.00 in moving expenses.
e. VACATION. Employee shall be entitled to three weeks' vacation leave
(in addition to holidays) in each calendar year during the Term, or such
additional amount as may be set forth in the vacation policy that the
Company shall establish from time to time. Except with respect to vacation
time unused as the result of a written request by the Company to postpone a
vacation, any unused vacation from one calendar year shall not carry-over
to any subsequent calendar year.
f. EXPENSE REIMBURSEMENT. Employee shall, upon submission of
appropriate supporting documentation, be entitled to reimbursement of
reasonable out-of-pocket expenses incurred in the performance of his duties
hereunder in accordance with policies established by the Company. Such
expenses shall include, without limitation, reasonable travel and
entertainment expenses, gasoline and toll expenses and cellular phone use
charges, if such charges are directly related to the business of the
Company.
5. GROUNDS FOR TERMINATION.
The Board of Directors of the Company may terminate this Agreement for
any reason at any time including, without limitation, for "Cause." As used
herein, "Cause" shall mean any of the following: (i) failure on the part of
Employee to disclose to Company in writing on or before the date hereof
Employee's breach of or default under any employment, non-compete,
confidentiality or other agreement between Employee and any prior employer
of Employee (including without limitation any breach or default that might
result from Employee's entering into or performing his duties and
obligations under this Agreement); (ii) an act of willful misconduct or
gross negligence by Employee in the performance of his material duties or
obligations to the Company; (iii)
2
<PAGE>
indictment of Employee for a felony involving moral turpitude, whether
relating to his employment or otherwise; (iv) an act of dishonesty or
breach of trust on the part of Employee resulting or intended to result
directly or indirectly in personal gain or enrichment at the expense of the
Company; (v) conduct on the part of Employee intended to injure the
business of the Company; (vi) Employee's addiction to any drug or chemical;
(vii) Employee's insubordination unless resulting from Employee's refusal
to do an illegal act; (viii) a material failure of Employee to perform or
observe the provisions of this Agreement (other than by reason of
disability as defined herein). The existence of any of the foregoing events
or conditions, except under clause (iii), shall be determined by the Board
of Directors (excluding the Employee) in the exercise of its reasonable
judgment provided that if such occurrence relates to section (i), (vi) or
(viii) above, it must persist more than (a) five (5) days after notice is
given to Employee by personal delivery or (b) ten (10) days after a notice
is given to Employee by any other means, each notice which details the
occurrence. Notwithstanding the foregoing, if occurrence under sections
(ii), (v), (vii) or (viii) cannot reasonably be remedied within the time
periods set forth, the Board of Directors shall not exercise its right to
terminate under this section if Employee begins to remedy the occurrence
within the time period and continues actively and diligently in good faith
to completely remedy such occurrence. As used herein "insubordination"
means Employee failing to use his best efforts to comply with a written
directive made by the Company's Board of Directors for any action or
inaction not inconsistent with the duties set forth here.
6. TERMINATION BY EMPLOYEE.
Employee may terminate this Agreement with Good Reason. "Good Reason"
means:
a. At any time the Employee is required, without his written consent, to
relocate his office more than seventy-five miles from the location of the
Company's current corporate headquarters;
b. The Company decreases the Employee's compensation below the levels
provided for by the terms of Section 4 (taking into account increases made from
time to time in accordance with Section 4);
c. A material breach of the provisions of this Agreement by the Company
(except those set forth in Paragraph 4.a) and Employee provides at least 15 days
prior written notice to at least two members of the Company's Board of Directors
(other than Employee) of the existence of such breach and his intention to
terminate this Agreement (no such termination shall be effective if such breach
is cured during such period or if the Company is in good faith attempting to
cure such breach);
d. The failure of the Company to comply with the provisions of Paragraph
4.a for an uninterrupted 10 day period; or
e. The Company materially reduces the Employee's benefits under any
employee benefit plan, program or arrangement of the Company (other than a
change that affects all employees similarly situated) from the level in effect
upon the Employee's commencement or participation.
3
<PAGE>
7. PAYMENT AND OTHER PROVISIONS UPON TERMINATION.
a. In the event that: Employee's employment with the Company (including
its subsidiaries) is terminated by the Company for Cause as provided in
Paragraph 5; or Employee terminates his employment without Good Reason as
described in Paragraph 6; then, on or before Employee's last day of
employment with the Company:
i. SALARY AND BONUS PAYMENTS: The Company shall pay in a lump sum
to Employee such amount of compensation due to Employee hereunder for
services rendered to the Company, as well as compensation for unused
vacation time, as has accrued but remains unpaid. Any and all other
rights granted to Employee under this Agreement shall terminate as of
the date of termination.
ii. NONCOMPETITION/NONSOLICITATION PERIOD. The provisions of
Paragraph 14 shall continue to apply with respect to Employee for a
period of one year following the date of termination.
b. In the event that: Employee's employment with the Company (including
its subsidiaries) is terminated by the Company for any reason other than
for Cause as provided in Paragraph 5 and other than as a consequence of
Employee's death, disability, or normal retirement under the Company's
retirement plans and practices; or Employee terminates his employment with
Good Reason as described in Paragraph 6; then:
i. SALARY AND BONUS PAYMENTS: On or before Employee's last day of
employment with the Company, the Company shall pay to Employee, as
compensation for services rendered to the Company, a cash amount equal
to the sum of (x) one-half (1/2) of the amount of Employee's Base
Salary and (y) ninety percent of one-half (1/2) of the amount of the
estimated target bonus under the Management Bonus Program as in effect
immediately prior to his date of termination (the "Cash Amount"). The
final calculation of Employee's target bonus shall be made, and any
remaining bonus amount due to Employee paid, in the manner set forth in
Section 7.a.i. At the election of the Company, the Cash Amount may be
paid to Employee in periodic installments in accordance with the
regular salary payment practices of the Company, with the first such
installment to be paid on or before Employee's last day of employment
with the Company. Notwithstanding the foregoing sentence, the entire
Cash Amount shall be paid to Employee during the period not to exceed
one year following Employee's last day of employment with the Company.
No interest shall be paid with respect to any of the Cash Amount not
paid on the Employee's date of termination.
ii. BENEFIT PLAN COVERAGE: The Company shall maintain in full
force and effect for Employee and his dependents for one year after the
date of termination, all life, health, accident, and disability benefit
plans and other similar employee benefit plans, programs and
arrangements in which Employee or his dependents were entitled to
participate immediately prior to the date of termination, in such
amounts as were in effect immediately prior to the
4
<PAGE>
date of termination, provided that such continued participation is
possible under the general terms and provisions of such benefit plans,
programs and arrangements. In the event that participation in any
benefit plan, program or arrangement described above is barred, or any
such benefit plan, program or arrangement is discontinued or the
benefits thereunder materially reduced, the Company shall arrange to
provide Employee and his dependents for one year after the date of
termination with benefits substantially similar to those that they
were entitled to receive under such benefit plans, programs and
arrangements immediately prior to the date of termination, or, at the
Company's option, a lump sum payment to Employee equal to the
Company's cost immediately prior to termination to provide such
benefits. If immediately prior to the date of termination the Company
provided Employee with any club memberships, Employee will be entitled
to continue such memberships at his sole expense. Notwithstanding any
time period for continued benefits stated in this Paragraph 7.b.ii,
all benefits in this Paragraph 7.b.ii will terminate on the date that
Employee becomes an employee of another employer and eligible to
participate in the employee benefit plans of such other employer. To
the extent that Employee was required to contribute amounts for the
benefits described in this Paragraph 7.b.ii prior to his termination,
he shall continue to contribute such amounts for such time as these
benefits continue in effect after termination.
iii.[INTENTIONALLY OMITTED]
iv. SAVINGS AND OTHER PLANS: Except as otherwise more specifically
provided herein or under the terms of the respective plans relating to
termination of employment, Employee's active participation in any
applicable savings, retirement, profit sharing or supplemental employee
retirement plans or any deferred compensation or similar plan of the
Company or any of its subsidiaries shall continue only through the last
day of his employment. All other provisions, including any distribution
and/or vested rights under such plans, shall be governed by the terms
of those respective plans.
v. NONCOMPETITION/NONSOLICITATION PERIOD. The provisions of
Paragraph 14 shall continue, beyond the time periods set forth in such
paragraph, to apply with respect to Employee for the shorter of (x)
twelve months following the date of termination or (y) until such time
as the Company has failed to comply with the provisions of Paragraph
7.b.i for a an uninterrupted 10-day period and such failure is not
cured within 5 days after written notice of such failure is delivered
to at least two directors of the Company (other than Employee).
c. In the event Employee's employment with the Company (including its
subsidiaries) is terminated by the Company other than for Cause as provided
in Paragraph 5 and other than as a consequence of Employee's death,
disability, or normal retirement under the Company's retirement plans and
practices, and the reason for such termination is not based upon
unsatisfactory performance by Employee of his duties hereunder as stated in
written performance evaluations or other written documents prepared by the
Company, then the following provision shall apply. This same provision
shall also apply if Employee terminates his employment with Good Reason as
described in Paragraph 6.
5
<PAGE>
i. EXERCISABILITY OF STOCK OPTIONS. Notwithstanding the vesting
period provided for in the Stock Option Plan and any related stock
option agreements between the Company and Employee for stock options
("options") and stock appreciation rights ("rights") granted Employee
by the Company, all options and stock appreciation rights shall be
immediately exercisable upon termination of employment. In addition,
Employee will have the right to exercise all options and rights for the
shorter of (x) one year following his termination of employment or (y)
with respect to each option, the remainder of the period of
exercisability under the terms of the appropriate documents that grant
such options.
d. The provisions of this Paragraph 7 shall apply if Employee's
employment is terminated prior to or more than two years after the
occurrence of a Change of Control (as defined in Paragraph 8.c). From the
occurrence of any Change of Control until the second anniversary of such
Change of Control, the provisions of Paragraph 8 shall apply in place of
this Paragraph 7, EXCEPT THAT in the event that after a Change of Control
Employee's employment is terminated by Employee without Good Reason or
Company terminates Employee for Cause, then the provisions of Paragraph 8
shall not apply and the provisions of Paragraph 7.a shall apply.
Termination upon death, disability and retirement are covered by Paragraphs
9, 10, and 11, respectively.
8. PAYMENT AND OTHER PROVISIONS AFTER CHANGE OF CONTROL.
a. SALARY, PERFORMANCE AWARD, AND BONUS PAYMENTS: In the event
Employee's employment with the Company is terminated within two years
following the occurrence of a Change of Control (other than as a
consequence of his death or disability, or of his normal retirement under
the Company's retirement plans and practices) either (x) by the Company for
any reason other than for Cause or (z) by Employee with Good Reason as
provided in Paragraph 6, then Employee shall be entitled to receive from
the Company, the following:
i. BASE SALARY. Employee's Base Salary as in effect at the date
of termination shall be paid on the date of termination;
ii. TARGET BONUS. Ninety percent of the amount of the Employee's
estimated target bonus under the Management Bonus Program for the
fiscal year in which the date of termination occurs shall be paid on
the date of termination; the final calculation of Employee's target
bonus shall be made, and any remaining bonus amount due to Employee
paid, in the manner set forth in Section 7.a.i.; and
iii.[OMITTED INTENTIONALLY]
iv. OTHER BENEFITS. All benefits under Paragraphs 7.b.ii,
7.b.iv and 7.c.i shall be extended to Employee as described in such
paragraphs.
b. NONCOMPETITION/NONSOLICITATION PERIOD. In the event of a termination
under Paragraph 8.a within one year after a Change of Control the
provisions of Paragraph 14 shall continue to apply as stated in paragraph
7.b.v.
6
<PAGE>
c. For purposes of this Agreement, the term "Change of Control" shall
mean:
i. The acquisition, other than from the Company, by any
individual, entity or group (within the meaning of ' 13(d)(3) or '
14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) (any of the foregoing
described in this Paragraph 8.c.i hereafter a "Person") of 33% or more
of either (a) the then outstanding shares of Capital Stock of the
Company (the "Outstanding Capital Stock") or (b) the combined voting
power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Voting
Securities"), PROVIDED, HOWEVER, that any acquisition by (x) the
Company or any of its subsidiaries, or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any of its
subsidiaries or (y) any Person that is eligible, pursuant to Rule
13d-1(b) under the Exchange Act, to file a statement on Schedule 13G
with respect to its beneficial ownership of Voting Securities, whether
or not such Person shall have filed a statement on Schedule 13G, unless
such Person shall have filed a statement on Schedule 13D with respect
to beneficial ownership of 33% or more of the Voting Securities or (z)
any corporation with respect to which, following such acquisition, more
than 60% of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Capital Stock and Voting Securities immediately prior to
such acquisition in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the Outstanding
Capital Stock and Voting Securities, as the case may be, shall not
constitute a Change of Control; or
ii. Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the date hereof whose election or nomination for election
by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the Directors
of the Company (as such terms are used in Rule 14a-11 of Regulation
14A, or any successor section, promulgated under the Exchange Act); or
iii.Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a "Business Combination"), in
each case, with respect to which all or substantially all holders of
the Outstanding Capital Stock and Voting Securities immediately prior
to such Business Combination do not, following such Business
Combination, beneficially own, directly or indirectly, more than 60%
of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
7
<PAGE>
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from Business Combination; or
iv. (a) a complete liquidation or dissolution of the Company or
(b) a sale or other disposition of all or substantially all of the
assets of the Company other than to a corporation with respect to
which, following such sale or disposition, more than 60% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Capital Stock and Voting Securities
immediately prior to such sale or disposition in substantially the same
proportion as their ownership of the Outstanding Capital Stock and
Voting Securities, as the case may be, immediately prior to such sale
or disposition.
9. TERMINATION BY REASON OF DEATH. If Employee shall die while employed by
the Company both prior to termination of employment and during the effective
term of this Agreement, all Employee's rights under this Agreement shall
terminate with the payment of that portion of Base Salary as has accrued but
remains unpaid and a prorated amount of targeted bonus under the Company's
Management Bonus Program through the month in which his death occurs, plus three
additional months of the fixed salary and targeted bonus. The calculation of
Employee's target bonus shall be made, and any bonus amount due to Employee
paid, in the manner set forth in Section 7.a.i. All benefits under Paragraphs
7.b.ii, 7.b.iv and 7.c.i shall be extended to Employee's estate as described in
such paragraphs. In addition, Employee's eligible dependents shall receive
continued benefit plan coverage under Paragraph 7.b.ii for three months from the
date of Employee's death.
10. TERMINATION BY DISABILITY. Employee's employment hereunder may be
terminated by the Company for disability. In such event, all Employee's rights
under this Agreement shall terminate with the payment of that portion of Base
Salary as has accrued but remains unpaid as of the thirtieth (30th) day after
such notice is given EXCEPT that all benefits under Paragraphs 7.b.ii, 7.b.iv
and 7.c.i shall be extended to Employee as described in such paragraphs,
PROVIDED, HOWEVER, that, with respect to Paragraph 7.b.ii, the period for
continued benefit plan coverage shall be limited to six months from the date of
termination. In addition, the noncompetition and nonsolicitation provisions of
Paragraph 14 shall continue to apply to Employee for a period of six months from
the date of termination. For purposes of this Agreement, "disability" is defined
to mean that, as a result of Employee's incapacity due to physical or mental
illness:
a. Employee shall have been absent from his duties as an officer of the
Company on a substantially full-time basis for six (6) consecutive months;
and
b. Within thirty (30) days after the Company notifies Employee in
writing that it intends to replace him, Employee shall not have returned to
the performance of his duties as an officer of the Company on a full-time
basis.
8
<PAGE>
11. RETIREMENT. It is expected that the Compensation Committee of the
Company's Board of Directors will develop a benefit plan for retirement. It is
expected that Employee's rights upon retirement will be specifically described
in such retirement benefit plan. If retirement benefits for Employee are not
specifically described in such plan, the Company shall provide Employee upon
retirement benefits no lesser than the highest level of benefits accorded any
other retiring executive officer during the five year period immediately
preceding Employee's retirement.
12. INDEMNIFICATION. If litigation shall be brought to enforce or interpret
any provision contained herein, the non-prevailing party shall indemnify the
prevailing party for reasonable attorney's fees (including those for
negotiations, trial and appeals) and disbursements incurred by the prevailing
party in such litigation, and hereby agrees to pay prejudgment interest on any
money judgment obtained by the prevailing party calculated at the generally
prevailing NationsBank of Florida, N.A. base rate of interest charged to its
commercial customers in effect from time to time from the date that payment(s)
to him should have been made under this Agreement.
13. [INTENTIONALLY OMITTED]
14. NONCOMPETITION AND NONSOLICITATION.
a. The nature of the system and methods employed in the Company's
business is such that Employee will be placed in a close business and
personal relationship with the customers of the Company and be privy to
confidential customer usage and rate information. Accordingly, at all times
during the term of this Agreement and for a period of one (1) year
immediately following the termination of Employee's employment hereunder
(the "Noncompetition and Nonsolicitation Period") for any reason
whatsoever, and for such additional periods as may otherwise be set forth
in this Agreement in reference to this Paragraph 14, so long as the Company
continues to carry on the same business, Employee shall not, for any reason
whatsoever, directly or indirectly, for himself or on behalf of, or in
conjunction with, any other person, persons, company, partnership,
corporation or business entity:
i. Call upon, divert, influence or solicit or attempt to call
upon, divert, influence or solicit any customer or customers of
the Company nationwide;
ii. Divulge the names and addresses or any information concerning
any customer of the Company;
iii. Disclose any information or knowledge relating to the
Company, including but not limited to, the Company's system or
method of conducting business to any person, persons, firms,
corporations or other entities unaffiliated with the Company, for
any reason or purpose whatsoever;
iv. Own, manage, operate, control, be employed by, participate in
or be connected in any manner with the ownership, management,
operation or control of the same, similar or
9
<PAGE>
related line of business as that carried on by the Company
("Competition") within a radius of fifty (50) miles from
Employee's principal office.
b. The time period covered by the covenants contained in this Paragraph
14 shall not include any period(s) of violation of any covenant or any period(s)
of time required for litigation to enforce any covenant.
c. The covenants set forth in this Paragraph 14 shall be construed as
an agreement independent of any other provision in this Agreement and existence
of any potential or alleged claim or cause of action of Employee against the
Company, whether predicted on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants contained herein.
An alleged or actual breach of the Agreement by the Company shall not be a
defense to enforcement of the provisions of this Paragraph 14.
d. Employee acknowledges that he has read the foregoing and agrees that
the nature of the geographical restrictions are reasonable given the
international nature of the Company's business. In the event that these
geographical or temporal restrictions are judicially determined to be
unreasonable, the parties agree that these restrictions shall be judicially
reformed to the maximum restrictions which are reasonable.
e. Notwithstanding anything to the contrary contained herein,
in the event that Employee engages in Competition, or any conduct expressly
prohibited by this Paragraph 14 at any time during the Noncompetition and
Nonsolicitation Period for any reason whatsoever, Employee shall not receive any
of the termination benefits he otherwise would be entitled to receive pursuant
to Paragraphs 7.b., 7.c., 8.a. and 10 hereof.
15. CONFIDENTIALITY.
a. NONDISCLOSURE. Employee acknowledges and agrees that the
Confidential Information (as defined below) is a valuable, special and
unique asset of the Company's business. Accordingly, except in connection
with the performance of his duties hereunder, Employee shall not at any
time during or subsequent to the term of his employment hereunder disclose,
directly or indirectly, to any person, firm, corporation, partnership,
association or other entity any proprietary or confidential information
relating to the Company or any information concerning the Company's
financial condition or prospects, the Company's customers, the design,
development, manufacture, marketing or sale of the Company's products or
the Company's methods of operating its business (collectively "Confidential
Information"). Confidential Information shall not include information
which, at the time of disclosure, is known or available to the general
public by publication or otherwise through no act or failure to act on the
part of Employee.
b. RETURN OF CONFIDENTIAL INFORMATION. Upon termination of Employee's
employment, for whatever reason and whether voluntary or involuntary, or at
any time at the request of the Company, Employee shall promptly return all
Confidential Information in the possession or under the control of Employee
to the Company and shall not retain any copies or other reproductions
10
<PAGE>
or extracts thereof. Employee shall at any time at the request of the
Company destroy or have destroyed all memoranda, notes, reports, and
documents, whether in "hard copy" form or as stored on magnetic or other
media, and all copies and other reproductions and extracts thereof,
prepared by Employee and shall provide the Company with a certificate that
the foregoing materials have in fact been returned or destroyed.
c. BOOKS AND RECORDS. All books, records and accounts whether prepared
by Employee or otherwise coming into Employee's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company upon termination of Employee's employment hereunder or upon the
Company's request at any time.
16. INJUNCTION/SPECIFIC PERFORMANCE SETOFF. Employee acknowledges that a
breach of any of the provisions of Paragraphs 14 or 15 hereof would result in
immediate and irreparable injury to the Company which cannot be adequately or
reasonably compensated at law. Therefore, Employee agrees that the Company shall
be entitled, if any such breach shall occur or be threatened or attempted, to a
decree of specific performance and to a temporary and permanent injunction,
without the posting of a bond, enjoining and restraining such breach by Employee
or his agents, either directly or indirectly, and that such right to injunction
shall be cumulative to whatever other remedies for actual damages to which the
Company is entitled. Employee further agrees that, except as otherwise provided
in Paragraph 13 hereof, the Company may set off against or recoup from any
amounts due under this Agreement to the extent of any losses incurred by the
Company as a result of any breach by Employee of the provisions of Paragraphs 14
or 15 hereof.
17. SEVERABILITY: Any provision in this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. SUCCESSORS: This Agreement shall be binding upon Employee and inure to
his and his estate's benefit, and shall be binding upon and inure to the benefit
of the Company and any permitted successor of the Company. Neither this
Agreement nor any rights arising hereunder may be assigned or pledged by:
Employee or anyone claiming through Employee; or by the Company, except to any
corporation which is the successor in interest to the Company by reason of a
merger, consolidation or sale of substantially all of the assets of the Company.
The foregoing sentence shall not be deemed to have any effect upon the rights of
Employee upon a Change of Control.
19. CONTROLLING LAW: This Agreement shall in all respects be governed by,
and construed in accordance with, the laws of the State of Florida.
20. NOTICES. Any notice required or permitted to be given hereunder shall
be written and sent by registered or certified mail, telecommunicated or hand
delivered at the address set forth herein or to any other address of which
notice is given:
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To the Company: OutSource International, Inc.
1144 East Newport Center Drive
Deerfield Beach, Florida 33442
Attention: General Counsel
To Employee: Benjamin Cueto
9753 Sibley Circle
Orlando, Florida 32836
21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto on the subject matter hereof and may not be modified
without the written agreement of both parties hereto.
22. WAIVER. A waiver by any party of any of the terms and conditions hereof
shall not be construed as a general waiver by such party.
23. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and both of which together shall constitute a
single agreement.
24. INTERPRETATION. In the event of a conflict between the provisions of
this Agreement and any other agreement or document defining rights and duties of
Employee or the Company upon Employee's termination, the rights and duties set
forth in this Agreement shall control.
25. CERTAIN LIMITATIONS ON REMEDIES. Paragraph 7.b provides that certain
payments and other benefits shall be received by Employee upon the termination
of Employee by the Company other than for Cause and states that these same
provisions shall apply if Employee terminates his employment for Good Reason. It
is the intention of this Agreement that if the Company terminates Employee other
than for Cause (and other than as a consequence of Employee's death, disability
or normal
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retirement) or if Employee terminates his employment with Good Reason, then the
payments and other benefits set forth in Paragraph 7.b shall constitute the sole
and exclusive remedies of Employee. This Paragraph 25 shall have no effect upon
the provisions of Paragraph 8 of this Agreement.
IN WITNESS WHEREOF, this Employment Agreement has been executed by the
parties as of the date first above written.
COMPANY:
OUTSOURCE INTERNATIONAL, INC.
By:_____________________________
Its:____________________________
EMPLOYEE:
_________________________________
Name: Benjamin Cueto
13
EXHIBIT 10.18
OUTSOURCE INTERNATIONAL, INC.
STOCK OPTION PLAN
AS AMENDED AND RESTATED EFFECTIVE SEPTEMBER 2, 1997
1. PURPOSE. The purpose of this Plan is to further the interests of OutSource
International, Inc., a Florida corporation, its subsidiaries and its
shareholders by providing incentives in the form of grants of stock options
to key Employees, Non-Employee Directors and other persons who contribute
materially to the success and profitability of the Company. The grants will
recognize and reward outstanding individual performances and contributions
and will give such persons a proprietary interest in the Company, thus
enhancing their personal interest in the Company's continued success and
progress. This program will also assist the Company and its subsidiaries in
attracting and retaining key persons. This Plan is a continuation, in the
form of an amendment and restatement, of an existing plan.
2. DEFINITIONS. The following definitions shall apply to this Plan:
a. "BOARD" means the board of directors of the Company.
b. "CHANGE OF CONTROL" occurs when (i) any person, including a
"group" as defined in section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, becomes the beneficial owner of thirty
percent or more of the total number of shares entitled to vote in
the election of directors of the Board, (ii) the Company is merged
into any other company or substantially all of its assets are
acquired by any other company, or (iii) three or more directors
nominated by the Board to serve as a director, each having agreed to
serve in such capacity, fail to be elected in a contested election
of directors; provided, however, that a Change of Control shall not
occur as a result of the financing provided by Triumph -Connecticut
Limited Partnership and Bachow Investment Partners III, L.P.
c. "CODE" means the Internal Revenue Code of 1986, as amended.
d. "COMMITTEE" means the Stock Option Committee consisting solely of
two or more Non-Employee Directors appointed by the Board. In the
event that the Board does not appoint a Stock Option Committee,
"Committee" means the Board.
e. "COMMON STOCK" means the common stock of the company, or such other
class of shares or securities as to which the Plan may be applicable
pursuant to section 15 herein.
f. "COMPANY" means Outsource International, Inc., and any wholly-owned
subsidiary of Outsource International, Inc.
g. "DATE OF GRANT" means the date specified in the resolution of the
Committee authorizing the grant of the Option.
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h. "ELIGIBLE PERSON" means any person who performs or has in the past
performed services for the company or any direct or indirect
partially or wholly owned subsidiary thereof, whether as a director,
officer, employee, consultant or other independent contractor, and
any person who performs services relating to the company in his or
her capacity as an employee or independent contractor of a
corporation or other entity that provides services for the company.
i. "EMPLOYEE" means any person employed as a core employee of the
company, excluding (i) any fee-for-service employee of the company
and (ii) any leased or temporary employee of the company who would
be cost of sales for financial reporting purposes.
j. "FAIR MARKET VALUE" means the fair market value of the common stock.
if the common stock is not publicly traded on the date as of which
fair market value is being determined, the board shall determine the
fair market value of the shares, using such factors as the board
considers relevant, such as the price at which recent sales have
been made, the book value of the common stock, and the company's
current and projected earnings. if the common stock is publicly
traded on the date as of which fair market value is being
determined, the fair market value is the mean between the high and
low sales prices of the common stock as reported by the nasdaq stock
market on that date or, if the common stock is listed on a stock
exchange, the mean between the high and low sales prices of the
stock on that date, as reported in THE WALL STREET JOURNAL. if
trading in the stock or a price quotation does not occur on the date
as of which fair market value is being determined, the next
preceding date on which the stock was traded or a price was quoted
will determine the fair market value.
k. "INCENTIVE STOCK OPTION" means a stock option granted pursuant to
either this plan or any other plan of the company that satisfies the
requirements of section 422 of the code and that entitles the
recipient to purchase stock of the company or in a corporation that
at the time of grant of the option was a parent or subsidiary of the
company or a predecessor corporation of any such corporation.
l. "NON-EMPLOYEE DIRECTOR" means a member of the board who is not
employed on an hourly or salaried full-time basis by the company or
any parent or subsidiary of the company that now exists or hereafter
is organized or acquires the company.
m. "NONQUALIFIED STOCK OPTION" means a stock option granted pursuant to
the plan that is not an incentive stock option and that entitles the
recipient to purchase stock of the company or in a corporation that
at the time of grant of the option was a parent or subsidiary of the
company or a predecessor corporation of any such corporation.
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n. "OPEN MARKET SHARE" shall mean (i) each share acquired on the open
market or through any method other than the exercise of an option,
and (ii) each warrant, issued in connection with the company's
issuance of senior subordinated promissory notes on february 21,
1997, to purchase shares. for purposes of sections 5.b., 5.c., and
5.d. of the plan, a non-employee director shall be deemed to own any
open market shares either acquired and held by such non-employee
director, or by any corporation which employs such non-employee
director, or by any partnership in which such non-employee director
is a partner, or by any investment fund managed by any corporation
that employs such non-employee director, or by any investment fund
managed by any partnership in which such non-employee director is a
partner.
o. "OPTION" means an incentive stock option or a nonqualified stock
option granted pursuant to the plan.
p. "OPTION AGREEMENT" means a written agreement entered into between
the company and a recipient which sets out the terms and
restrictions of an option granted to the recipient.
q. "OPTION SHAREHOLDER" shall mean an employee who has exercised his or
her option.
r. "OPTION SHARES" means shares issued upon exercise of an option.
s. "PLAN" means this outsource international, inc. stock incentive
plan, as amended and restated.
t. "RECIPIENT" means an individual who receives an option.
u. "SHARE" means a share of the common stock, as adjusted in accordance
with section 10 of the plan.
v. "SUBSIDIARY" means any corporation 50 percent or more of the voting
securities of which are owned directly or indirectly by the Company
at any time during the existence of this Plan.
3. ADMINISTRATION. This Plan will be administered by the Committee. The
Committee has the exclusive power to select the Recipients of Options
pursuant to this Plan, to establish the terms of the Options granted to
each Recipient, and to make all other determinations necessary or
advisable under the Plan. The Committee has the sole and absolute
discretion
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<PAGE>
to determine whether the performance of an Eligible Person warrants an
Option under this Plan, and to determine the size and type of the Option.
The Committee has full and exclusive power to construe and interpret this
Plan, to prescribe, amend, and rescind rul es and regulations relating to
this Plan, and to take all actions necessary or advisable for the Plan's
administration. The Committee, in the exercise of its powers, may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any Option Agreement, in the manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective. In
exercising this power, the Committee may retain counsel at the expense of
the Company. The Committee shall also have the power to determine the
duration and purposes of leaves of absence which may be granted to a
Recipient without constituting a termination of the Recipient's
employment for purposes of the Plan. Any determinations made by the
Committee will be final and binding on all persons. A member of the
Committee will not be liable for performing any act or making any
determination in good faith. Notwithstanding the foregoing, the Committee
shall have no discretion with respect to the Options granted to
Non-Employee Directors pursuant to Section 5 of the Plan.
4. SHARES SUBJECT TO PLAN. Subject to the provisions of Section 15 of the
Plan, the maximum aggregate number of Shares that may be subject to
Options under the Plan shall be 1,040,000. If an Option should expire or
become unexercisable for any reason without having been exercised, the
unpurchased Shares that were subject to such Option shall, unless the Plan
has then terminated, be available for other Options under the Plan.
5. NON-EMPLOYEE DIRECTORS' GRANTS. Each Non-Employee Director shall receive
Options as determined under this Section 5 without further action by the
Board.
a. INITIAL OPTIONS. Effective on the Date of Grant described below for
each category of Non-Employee Director, the Company shall grant to
each Non-Employee Director an Option to purchase 9,818 Shares
("Initial Option"):
i. for a Non-Employee Director serving on the Board on September
2, 1997, the Date of Grant of the Initial Option shall be
September 2, 1997.
ii. for a Non-Employee Director elected by the shareholders of
the Company subsequent to September 2, 1997, the Date of
Grant of the Initial Option shall be the earlier of the date
of such Non-Employee Director's election to the Board or the
date on which such Non-Employee Director executes a written
commitment to become a member of the Board;
iii. for a Non-Employee Director appointed by the Board subsequent
to September 2, 1997, the Date of Grant of the Initial Option
shall be the earlier of the date such Non-Employee Director's
appointment to the Board
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<PAGE>
becomes effective or the date on which such Non-Employee
Director executes a written commitment to become a member of
the Board.
The exercise price of each Initial Option shall be 100 percent of
the Fair Market Value of the Common Stock on the Date of Grant of
the Initial Option; provided, however, that if the Date of Grant of
an Initial Option occurs prior to the completion of an initial
public offering of the Common Stock, the exercise price of such
Initial Option shall be the Fair Market Value of the Common Stock on
the date the initial public offering begins.
b. FIRST ANNIVERSARY OPTIONS. Effective on the first anniversary of the
Date of Grant of the Initial Option received by a Non-Employee
Director, the Company shall automatically grant to such Non-Employee
Director an Option to purchase 3,273 Shares ("First Anniversary
Option") if such Non-Employee Director owns at least 3,273 Option
Shares or Open Market Shares on the first anniversary of the Date of
Grant of the Initial Option. The exercise price of each First
Anniversary Option shall be 100 percent of the Fair Market Value of
the Common Stock on the Date of Grant of the First Anniversary
Option.
c. SECOND ANNIVERSARY OPTIONS. Effective on the first anniversary of
the Date of Grant of the First Anniversary Option received by a
Non-Employee Director, the Company shall automatically grant to such
Non-Employee Director an Option to purchase 3,273 Shares ("Second
Anniversary Option") if such Non-Employee Director has owned at
least 3,273 Option Shares or Open Market Shares during the entire
12-month period ending on the first anniversary of the Date of Grant
of the First Anniversary Option. The exercise price of each Second
Anniversary Option shall be 100 percent of the Fair Market Value of
the Common Stock on the Date of Grant of the Second Anniversary
Option.
d. THIRD ANNIVERSARY OPTIONS. Effective on the first anniversary of the
Date of Grant of the Second Anniversary Option received by a
Non-Employee Director, the Company shall automatically grant to such
Non-Employee Director an Option to purchase 3,272 Shares ("Third
Anniversary Option") if such Non-Employee Director has owned at
least 3,272 Option Shares or Open Market Shares during the entire
12-month period ending on the first anniversary of the Date of Grant
of the Second Anniversary Option. The exercise price of each Third
Anniversary Option shall be 100 percent of the Fair Market Value of
the Common Stock on the Date of Grant of the Third Anniversary
Option.
e. OPTION REQUIREMENTS. Each Option granted to a Non-Employee Director
pursuant to this Section 5 will satisfy the following requirements:
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<PAGE>
i. WRITTEN AGREEMENT. Each Option will be evidenced by an Option
Agreement. The Option Agreement shall include a description of
the substance of each of the requirements in this Section 5
and shall state that the Option is a Nonqualified Stock
Option.
ii. DURATION OF OPTION. One-third of each Initial Option shall
expire on each of the first three anniversaries of the Date
of Grant of the Initial Option. Each First Anniversary
Option, Second Anniversary Option and Third Anniversary
Option shall expire on the third anniversary of its Date of
Grant. If the Recipient's services as a director of the
Company terminate before the third anniversary of the Date of
Grant of an Initial Option granted to such Recipient, the
unexpired and unexercised portion of the Initial Option
granted to such Recipient shall expire on the earlier of the
date stated in this Section 5.e.ii. or the date stated in the
applicable Section 5.e.iv, 5.e.v., or 5.e.vi of the Plan. If
the Recipient's services as a director of the Company
terminate for any reason before the third anniversary of the
Date of Grant of a First Anniversary Option, Second
Anniversary Option or Third Anniversary Option granted to
such Recipient, the unexercised portion of such First
Anniversary Option, Second Anniversary Option or Third
Anniversary Option granted to such Recipient shall expire on
the earlier of the date stated in this Section 5.e.ii. or the
date stated in the applicable Section 5.e.iv., 5.e.v., or
5.e.vi. of the Plan.
iii. VESTING OF OPTION. Each Option shall be 100 percent vested on
the Date of Grant of the Option.
iv. DEATH. In the case of the death of a Recipient prior to the
termination of the Recipient's services as a director of the
Company, the unexpired and unexercised portion of an Option
granted to the Recipient shall expire on the one-year
anniversary of the Recipient's death, or if earlier, the date
specified in Section 5.e.ii. above.
v. DISABILITY. In the case of the total and permanent disability
of a Recipient and a resulting termination of the Recipient's
services as a director of the Company, the unexpired and
unexercised portion of an Option granted to the Recipient
shall expire on the one-year anniversary of the Recipient's
last day of service as a director of the Company, or, if
earlier, the date specified in Section 5.e.ii. above.
vi. TERMINATION OF SERVICE AS A DIRECTOR. If a Recipient's
services as a director of the Company are terminated for any
reason other than death or disability, the unexpired and
unexercised portion of an Option granted to the
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<PAGE>
Recipient shall expire 90 days after termination of the
Recipient's services as a director of the Company, or, if
earlier, the date specified in Section 5.e.ii. above.
6. DISCRETIONARY GRANTS. Any Eligible Person that the Committee in its sole
discretion designates is eligible to receive an Option under this Plan.
The Committee's grant of an Option to a Recipient in any year does not
require the Committee to grant an Option such Recipient in any other
year. Furthermore, the Committee may grant different Options to different
Recipients and has full discretion to choose whether to grant Options to
any Eligible Person. The Committee may consider such factors as it deems
pertinent in selecting Recipients and in determining the types and sizes
of their Options. Recipients may include persons to whom stock, stock
options, stock appreciation rights, or other benefits previously were
granted under this or another plan of the Company or any Subsidiary,
whether or not the previously granted benefits have been fully exercised
or vested. Each Option granted to a Recipient under the Plan shall
contain such provisions as the Committee at the Date of Grant shall deem
appropriate. A Recipient's right, if any, to continue to serve the
Company and its Subsidiaries as an officer, Employee, or otherwise will
not be enlarged or otherwise affected by his designation as a Recipient
under this Plan, and such designation will not in any way restrict the
right of the Company or any Subsidiary, as the case may be, to terminate
at any time the employment of any Recipient. Each Option granted to a
Recipient pursuant to this Section 6 will satisfy the following
requirements:
a. WRITTEN AGREEMENT. Each Option will be evidenced by an Option
Agreement. The terms of the Option Agreement need not be identical
for different Recipients. The Option Agreement shall include a
description of the substance of each of the requirements in this
Section 6 with respect to that particular Option.
b. NUMBER OF SHARES. Each Option Agreement shall specify the number of
Shares that may be purchased by exercise of the Option.
c. EXERCISE PRICE. Except as provided in Section 6.j., the exercise
price of each Share subject to an Incentive Stock Option shall equal
the exercise price designated by the Committee on the Date of Grant,
but shall not be less than the Fair Market Value of the Share on the
Incentive Stock Option's Date of Grant. The exercise price of each
Share subject to a Nonqualified Stock Option shall equal the
exercise price designated by the Committee on the Date of Grant.
d. DURATION OF OPTION. Except as provided in Section 6.j., an Incentive
Stock Option granted to an Employee shall expire on the tenth
anniversary of its Date of Grant or, at such earlier date as is set
by the Committee in establishing the terms of the Incentive Stock
Option at grant. Except as provided in Section 6.j., a Nonqualified
Stock Option granted to an Employee shall expire on the tenth
anniversary of its
7
<PAGE>
Date of Grant or, at such earlier or later date as is set by the
Committee in establishing the terms of the Nonqualified Stock Option
at grant. If the Recipient's employment with the Company terminates
before the expiration date of an Option granted to the Recipient,
the Option shall expire on the earlier of the date stated in this
subsection or the date stated in following subsections of this
Section 6.
e. VESTING OF OPTION. Each Option Agreement shall specify the vesting
schedule applicable to the Option. The Committee, in its sole and
absolute discretion, may accelerate the vesting of any Option at any
time.
f. DEATH. In the case of the death of a Recipient, an Incentive Stock
Option granted to the Recipient shall expire on the one-year
anniversary of the Recipient's death, or if earlier, the date
specified in Section 6.d. above. During the one-year period
following the Recipient's death, the Incentive Stock Option may be
exercised to the extent it could have been exercised at the time the
Recipient died, subject to any adjustment under Section 15 herein.
In the case of the death of a Recipient, a Nonqualified Stock Option
granted to the Recipient shall expire on the one-year anniversary of
the Recipient's death, or if earlier, the date specified in Section
6.d. above, unless the Committee sets an earlier or later expiration
date in establishing the terms of the Nonqualified Stock Option at
grant or a later expiration date subsequent to the Date of Grant but
prior to the one-year anniversary of the Recipient's death. During
the period beginning on the date of the Recipient's death and ending
on the date the Nonqualified Stock Option expires, the Nonqualified
Stock Option may be exercised to the extent it could have been
exercised at the time the Recipient died, subject to any adjustment
under Section 15 herein.
g. DISABILITY. In the case of the total and permanent disability of a
Recipient and a resulting termination of employment or affiliation
with the Company, an Incentive Stock Option granted to the Recipient
shall expire on the one-year anniversary of the Recipient's last day
of employment, or, if earlier, the date specified in Section 6.d.
above. During the one-year period following the Recipient's
termination of employment or affiliation by reason of disability,
the Incentive Stock Option may be exercised as to the number of
Shares for which it could have been exercised at the time the
Recipient became disabled, subject to any adjustments under Section
15 herein.
In the case of the total and permanent disability of a Recipient and
a resulting termination of employment or affiliation with the
Company, a Nonqualified Stock Option granted to the Recipient shall
expire on the one-year anniversary of the Recipient's last day of
employment, or, if earlier, the date specified in Section 6.d.
above, unless the Committee sets an earlier or later expiration date
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<PAGE>
in establishing the terms of the Nonqualified Stock Option at grant
or a later expiration date subsequent to the Date of Grant but prior
to the one-year anniversary of the Recipient's last day of
employment or affiliation with the Company. During the period
beginning on the date of the Recipient's termination of employment
or affiliation by reason of disability and ending on the date the
Nonqualified Stock Option expires, the Nonqualified Stock Option may
be exercised as to the number of Shares for which it could have been
exercised at the time the Recipient became disabled, subject to any
adjustments under Section 15 herein.
h. RETIREMENT. If the Recipient's employment with the Company
terminates by reason of normal retirement under the Company's normal
retirement policies, an Incentive Stock Option granted to the
Recipient shall expire 90 days after the last day of employment, or,
if earlier, on the date specified in Section 6.d. above. During the
90-day period following the Recipient's normal retirement, the
Incentive Stock Option may be exercised as to the number of Shares
for which it could have been exercised on the retirement date,
subject to any adjustment under Section 15 herein.
If the Recipient's employment with the Company terminates by reason
of normal retirement under the Company's normal retirement policies,
a Nonqualified Stock Option granted to the Recipient shall expire 90
days after the last day of employment, or, if earlier, on the date
specified in Section 6.d. above, unless the Committee sets an
earlier or later expiration date in establishing the terms of the
Nonqualified Stock Option at grant or a later expiration date
subsequent to the Date of Grant but prior to the end of the 90-day
period following the Recipient's normal retirement. During the
period beginning on the date of the Recipient's normal retirement
and ending on the date the Nonqualified Stock Option expires, the
Nonqualified Stock Option may be exercised as to the number of
Shares for which it could have been exercised on the retirement
date, subject to any adjustment under Section 15 herein.
i. TERMINATION OF SERVICE. If the Recipient ceases employment or
affiliation with the Company for any reason other than death,
disability, or retirement (as described above), an Incentive Stock
Option granted to the Recipient shall expire 90 days after the
Recipient's last day of employment or affiliation with the Company,
or, if earlier, on the date specified in Section 6.d. above, unless
the Committee sets an earlier expiration date in establishing the
terms of the Incentive Stock Option at grant. During the 90-day
period following the termination of the Recipient's employment or
affiliation with the Company, the Incentive Stock Option may be
exercised as to the number of Shares for which it could have been
exercised on the date of termination, subject to any adjustment
under Section 15 herein.
If the Recipient ceases employment or affiliation with the Company
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<PAGE>
for any reason other than death, disability, or retirement (as
described above), a Nonqualified Stock Option granted to the
Recipient shall expire 90 days after the Recipient's last day of
employment or affiliation with the Company, or, if earlier, on the
date specified in Section 6.d. above, unless the Committee sets an
earlier or later expiration date in establishing the terms of the
Nonqualified Stock Option at grant or a later expiration date
subsequent to the Date of Grant but prior to the end of the 90-day
period following the Recipient's last day of employment or
affiliation with the Company. During the period following the
termination of the Recipient's employment or affiliation with the
Company, the Nonqualified Stock Option may be exercised as to the
number of Shares for which it could have been exercised on the date
of termination, subject to any adjustment under Section 15 herein.
Notwithstanding any provisions set forth herein or in the Plan, if
the Recipient shall (i) commit any act of malfeasance or wrongdoing
affecting the Company or any parent or subsidiary, (ii) breach any
covenant not to compete or employment agreement with the Company or
any parent or Subsidiary, or (iii) engage in conduct that would
warrant the Recipient's discharge for cause, any unexercised part of
the Option shall lapse immediately upon the earlier of the
occurrence of such event or the last day the Recipient is employed
by the Company.
j. TEN PERCENT SHAREHOLDERS. An Incentive Stock Option granted to an
individual who, on the Date of Grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of
stock of either the Company or any parent or Subsidiary, shall be
granted at an exercise price of 110 percent of Fair Market Value on
the Date of Grant and shall be exercisable only during the five-year
period immediately following the Date of Grant. In calculating stock
ownership of any person, the attribution rules of Code Section
424(d) will apply. Furthermore, in calculating stock ownership, any
stock that the individual may purchase under outstanding options
will not be considered.
k. MAXIMUM OPTION GRANTS. The aggregate Fair Market Value, determined
on the Date of Grant, of stock in the Company with respect to which
any Incentive Stock Options under the Plan and all other plans of
the Company or its Subsidiaries (within the meaning of Section
422(b) of the Code) may become exercisable by any individual for the
first time in any calendar year shall not exceed $100,000.
7. [RESERVED]
8. CHANGE OF CONTROL. If a Change of Control occurs, the Board may vote to
immediately terminate all Options outstanding under the Plan as of the
date of the Change of Control or may vote to accelerate the expiration of
the Options to the tenth day after the effective date of the Change of
Control. If the Board votes to immediately terminate the Options, it shall
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make a cash payment to the Recipient equal to the difference between the
Exercise Price and the Fair Market Value of the Shares that would have been
subject to the terminated Option on the date of the Change of Control.
9. CONDITIONS REQUIRED FOR EXERCISE. Options granted to Recipients under the
Plan shall be exercisable only to the extent they are vested according to
the terms of the Option Agreement. Furthermore, Options granted to
Employees under the Plan shall be exercisable only if the issuance of
Shares pursuant to the exercise would be in compliance with applicable
securities laws, as contemplated by Section 14 of the Plan. Each Option
Agreement shall specify any additional conditions required for the
exercise of the Option.
10. METHOD OF EXERCISE. An Option granted under this Plan shall be deemed
exercised when the person entitled to exercise the Option (i) delivers
written notice to the President of the Company (or his delegate, in his
absence) of the decision to exercise, (ii) concurrently tenders to the
Company full payment for the Shares to be purchased pursuant to the
exercise, and (iii) complies with such other reasonable requirements as
the Committee establishes pursuant to Section 14 of the Plan. Payment for
Shares with respect to which an Option is exercised may be made in cash,
or by certified check, or wholly or partially in the form of Common Stock
having a Fair Market Value equal to the exercise price, or by delivery of
a notice instructing the Company to deliver the shares being purchased to
a broker subject to the broker's delivery of cash to the Company equal to
the purchase price. No person will have the rights of a shareholder with
respect to Shares subject to an Option granted under this Plan until a
certificate or certificates for the Shares have been delivered to him. A
partial exercise of an Option will not affect the holder's right to
exercise the Option from time to time in accordance with this Plan as to
the remaining Shares subject to the Option.
11. LOAN FROM COMPANY TO EXERCISE OPTION. The Committee may, in its discretion
and subject to the requirements of applicable law, recommend to the
Company that it lend the Recipient the funds needed by the Recipient to
exercise an Option. The Recipient shall make application to the Company
for the loan, completing the forms and providing the information required
by the Company. The loan shall be secured by such collateral and be
subject to such repayment terms and interest rate as the Company may
require, subject to its underwriting requirements and the requirements of
applicable law. The Recipient shall execute a Promissory Note and any
other documents deemed necessary by the Committee.
12. DESIGNATION OF BENEFICIARY. Each Recipient shall designate, in the Option
Agreement he executes, a beneficiary to receive Options awarded hereunder
in the event of his death prior to full exercise of such Options;
provided, that if no such beneficiary is designated or if the beneficiary
so designated does not survive the Recipient, the estate of such Recipient
shall be deemed to be his beneficiary. Recipients may, by written notice
to the Committee, change the beneficiary designated in any outstanding
Option Agreements.
11
<PAGE>
13. TRANSFERABILITY OF OPTION.
a. NONQUALIFIED STOCK OPTION. To the extent permitted by tax,
securities or other applicable laws to which the Company, the Plan,
Recipients or Eligible Persons are subject, a Recipient of a
Nonqualified Stock Option may transfer such Option to (i) the
Recipient's spouse, child, grandchild or parent, (ii) a trust for
the benefit of the Recipient's spouse, child, grandchild or parent,
or (iii) a partnership whose partners consist solely of the
Recipient's spouse, child, grandchild or parent, unless provided
otherwise by the Committee in establishing the terms of such Option
at the Date of Grant.
b. INCENTIVE STOCK OPTION. An Incentive Stock Option granted under this
Plan is not transferable except by will or the laws of descent and
distribution. During the lifetime of the Recipient, all rights of
the Incentive Stock Option are exercisable only by the Recipient.
This Section 13.b. shall apply to an Incentive Stock Option granted
under the Plan only so long as Code Section 422 (or a successor Code
provision) requires application of this restriction on
transferability. In the event that this Section 13.b. no longer
applies to an Incentive Stock Option granted under this Plan, such
Option shall be subject to Section 13.a. of the Plan.
14. TAXES; COMPLIANCE WITH LAW; APPROVAL OF REGULATORY BODIES; LEGENDS. The
Company shall have the right to withhold from payments otherwise due and
owing to the Recipient (or his beneficiary) or to require the Recipient
(or his beneficiary) to remit to the Company in cash upon demand an amount
sufficient to satisfy any federal (including FICA and FUTA amounts),
state, and/or local withholding tax requirements at the time the Recipient
(or his beneficiary) recognizes income for federal, state, and/or local
tax purposes with respect to any Option under this Plan.
Options can be granted, and Shares can be delivered under this Plan, only
in compliance with all applicable federal and state laws and regulations
and the rules of all stock exchanges on which the Company's stock is
listed at any time. An Option is exercisable only if either (i) a
registration statement pertaining to the Shares to be issued upon exercise
of the Option has been filed with and declared effective by the Securities
and Exchange Commission and remains effective on the date of exercise, or
(ii) an exemption from the registration requirements of applicable
securities laws is available. This Plan does not require the Company,
however, to file such a registration statement or to assure the
availability of such exemptions. Any certificate issued to evidence Shares
issued under the Plan may bear such legends and statements, and shall be
subject to such transfer restrictions, as the Committee deems advisable to
assure compliance with federal and state laws and regulations and with the
requirements of this Section. No Option may be exercised, and Shares may
not be issued under this Plan, until the Company has obtained the consent
or approval of every regulatory body, federal or state, having
jurisdiction over such matters as the Committee deems advisable.
Each person who acquires the right to exercise an Option may be required
by the Committee to furnish reasonable evidence of ownership of the Option
as a condition to his exercise of the Option. In addition, the Committee
may require such consents and releases of taxing authorities as the
Committee deems advisable.
12
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With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934 ("1934 Act"), transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the 1934 Act, as
such Rule may be amended from time to time, or its successor under the
1934 Act. To the extent any provision of the Plan or action by the Plan
administrators fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Plan
administrators.
15. ADJUSTMENT UPON CHANGE OF SHARES. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange
of shares, stock split, stock dividend, rights offering, or other
expansion or contraction of the Common Stock of the Company occurs, the
number and class of Shares for which Options are authorized to be granted
under this Plan, the number and class of Shares then subject to Options
previously granted to Employees under this Plan, and the price per Share
payable upon exercise of each Option outstanding under this Plan shall be
equitably adjusted by the Committee to reflect such changes. To the extent
deemed equitable and appropriate by the Board, subject to any required
action by shareholders, in any merger, consolidation, reorganization,
liquidation or dissolution, any Option granted under the Plan shall
pertain to the securities and other property to which a holder of the
number of Shares of stock covered by the Option would have been entitled
to receive in connection with such event.
16. LIABILITY OF THE COMPANY. The Company, its parent and any Subsidiary that
is in existence or hereafter comes into existence shall not be liable to
any person for any tax consequences incurred by a Recipient or other
person with respect to an Option.
17. AMENDMENT AND TERMINATION OF PLAN. The Board may alter, amend, or
terminate this Plan from time to time without approval of the shareholders
of the Company. The Board may, however, condition any amendment on the
approval of the shareholders of the Company if such approval is necessary
or advisable with respect to tax, securities or other applicable laws to
which the Company, the Plan, Recipients or Eligible Persons are subject.
Any amendment, whether with or without the approval of shareholders of the
Company, that alters the terms or provisions of an Option granted before
the amendment (unless the alteration is expressly permitted under this
Plan) will be effective only with the consent of the Recipient to whom the
Option was granted or the holder currently entitled to exercise it.
18. EXPENSES OF PLAN. The Company shall bear the expenses of administering the
Plan.
19. DURATION OF PLAN. Options may be granted under this Plan only during the
10-year period ending December 22, 2005.
13
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20. APPLICABLE LAW. The validity, interpretation, and enforcement of this Plan
are governed in all respects by the laws of Florida and the United States
of America.
21. EFFECTIVE DATE. Except as otherwise provided in this Section 21, the
effective date of this Plan, as amended and restated, shall be September
2, 1997. Section 7 of this Plan, as amended and restated, shall be
effective October 24, 1997, and the corresponding prior provision of the
Plan shall apply before October 24, 1997.
Adopted by the Board on January 23, 1998 (original Plan adopted by the Board on
December 22, 1995; amendment adopted by the Board on February 18, 1997).
Approved by the Shareholders on _______________________ (original Plan approved
by the Shareholders on December 22, 1995; amendment approved by the Shareholders
on April 15, 1997).
EXHIBIT 10.19
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SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
AMONG
OUTSOURCE INTERNATIONAL, INC.
THE BANKS
FROM TIME TO TIME PARTIES HERETO
AND
BANKBOSTON, N.A., SUCCESSOR BY MERGER
TO BANK OF BOSTON CONNECTICUT,
AS AGENT
REVOLVING CREDIT FACILITY
DATED AS OF NOVEMBER 26, 1997
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<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.....................................................1
1.1 Defined Terms....................................................1
1.2 Other Definitional Provisions...................................20
1.3 Change in Accounting Principles.................................20
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................20
2.1 Revolving Credit Commitments....................................20
2.1A. Swingline Loans.................................................21
2.2 Designation of Interest Rates; Eurodollar Interest Periods......23
2.3 Interest Rates and Payment Dates................................24
2.4 Procedure for Borrowing.........................................25
2.5 Conversion and Continuation Options.............................25
2.6 Minimum Amounts and Maximum Number of Tranches..................26
2.7 Revolving Credit Notes..........................................26
2.8 Fees............................................................26
2.9 Termination or Reduction of Revolving Credit Commitments........27
2.10 Optional Prepayments............................................27
2.11 Computation of Interest and Fees................................28
2.12 Inability to Determine Interest Rate............................28
2.13 Pro Rata Treatment and Payments.................................28
2.14 Illegality......................................................29
2.15 Requirements of Law.............................................30
2.16 Taxes...........................................................31
2.17 Indemnity.......................................................32
SECTION 3. LETTERS OF CREDIT..............................................33
3.1 L/C Commitment..................................................33
3.2 Procedure for Issuance of Letters of Credit.....................34
3.3 Fees, Commissions and Other Charges.............................34
3.4 Reimbursement Obligation of the Borrower........................35
3.5 L/C Draws and Reimbursements....................................35
3.6 Obligations Absolute............................................36
3.7 Letter of Credit Payments.......................................36
3.8 Application.....................................................37
SECTION 4. REPRESENTATIONS AND WARRANTIES.................................37
4.1 Financial Condition.............................................37
4.2 No Change.......................................................38
4.3 Corporate Existence; Compliance with Law........................38
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4.4 Corporate Power, Authorization; Enforceable Obligations.........39
4.5 No Legal Bar....................................................39
4.6 No Material Litigation..........................................39
4.7 No Default......................................................40
4.8 Ownership of Property; Liens....................................40
4.9 Intellectual Property...........................................40
4.10 No Burdensome Restrictions......................................40
4.11 Taxes...........................................................40
4.12 Federal Regulations.............................................41
4.13 ERISA...........................................................41
4.14 Investment Company Act; Other Regulations.......................41
4.15 Subsidiaries....................................................41
4.16 Purpose of Loans................................................42
4.17 Environmental Matters...........................................42
4.18 Security Documents..............................................43
4.19 [Intentionally Reserved]........................................43
4.20 Solvency........................................................44
4.21 Certain Stockholders............................................44
4.22 Year 2000 Compatability.........................................44
SECTION 5. CONDITIONS PRECEDENT...........................................44
5.1 Amendment Effective Date........................................44
5.2 Conditions to Each Extension of Credit..........................47
SECTION 6. AFFIRMATIVE COVENANTS..........................................48
6.1 Financial Statements............................................48
6.2 Certificates; Other Information.................................49
6.3 Payment of Obligations..........................................50
6.4 Conduct of Business and Maintenance of Existence................51
6.5 Maintenance of Property; Insurance..............................51
6.6 Inspection of Property; Books and Records; Discussions..........51
6.7 Notices.........................................................51
6.8 Environmental Laws..............................................52
6.9 Use of Proceeds.................................................53
6.10 Further Assurances..............................................53
6.11 Interest Rate Protection........................................53
6.12 Year 2000 Compatibility.........................................53
SECTION 7. NEGATIVE COVENANTS.............................................54
7.1 Financial Condition Covenants...................................54
7.2 Limitation on Indebtedness......................................55
7.3 Limitation on Liens.............................................55
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7.4 Limitation on Guarantee Obligations.............................57
7.5 Limitations on Fundamental Changes..............................57
7.6 Limitation on Sale of Assets....................................57
7.7 Limitation on Restricted Payments...............................58
7.8 Limitation on Investments, Loans and Advances...................58
7.9 Limitation on Optional Payments and Modifications of Debt
Instruments.....................................................59
7.10 Transactions with Affiliates....................................60
7.11 Sale and Leaseback..............................................60
7.12 Corporate Documents; Name/Location of Assets....................60
7.13 Fiscal Year.....................................................60
7.14 Limitation on Negative Pledge Clauses...........................60
7.15 No Limit on Upstream Payments by Subsidiaries...................61
7.16 AASI and Voting Trust Agreement.................................61
SECTION 8. EVENTS OF DEFAULT..............................................61
SECTION 9. THE AGENT......................................................65
9.1 Appointment.....................................................65
9.2 Delegation of Duties............................................65
9.3 Exculpatory Provisions..........................................65
9.4 Reliance by Agent...............................................66
9.5 Notice of Default...............................................66
9.6 Non-Reliance on Agent and Other Banks...........................66
9.7 Indemnification.................................................67
9.8 Agent in Its Individual Capacity................................67
9.9 Successor Agent.................................................67
SECTION 10. MISCELLANEOUS.................................................68
10.1 Amendments and Waivers..........................................68
10.2 Notices.........................................................68
10.3 No Waiver; Cumulative Remedies..................................69
10.4 Survival of Representations and Warranties......................70
10.5 Payment of Expenses and Taxes...................................70
10.6 Successors and Assigns; Participations; Purchasing Banks........71
10.7 Adjustments; Set-off............................................74
10.8 Counterparts....................................................74
10.9 Severability....................................................75
10.10 Integration.....................................................75
10.11 Governing Law...................................................75
10.12 Submission To Jurisdiction; Waivers.............................75
10.13 Acknowledgments.................................................76
10.14 WAIVERS OF JURY TRIAL; COMMERCIAL TRANSACTIONS..................76
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SCHEDULES
Schedule A Commitments; Addresses
Schedule 4.1(b) Long-Term Commitments
Schedule 4.1(c) Recent Dispositions
Schedule 4.2 Changes/Recent Distributions
Schedule 4.6 Litigation
Schedule 4.11 Tax Returns
Schedule 4.13 ERISA Matters
Schedule 4.15 Subsidiaries
Schedule 4.17 Environmental Matters
Schedule 4.18 UCC Filing Locations
Schedule 4.21 Relationships of Certain Stockholders to the Borrower
Schedule 7.2 Indebtedness Outstanding After the Execution Date
Schedule 7.3 Liens
Schedule 7.8 Management Loans and Advances
EXHIBITS
EXHIBIT A-1 Form of Borrowing Notice
EXHIBIT A-2 Form of Revolving Credit Note
EXHIBIT A-3 Form of Swingline Note
EXHIBIT B Form of Subsidiary Guarantee
EXHIBIT C Form of OI Pledge Agreement
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Opinion of Counsel to the Borrower and its Subsidiaries
EXHIBIT F Form of OI Security Agreement
EXHIBIT G Form of Subsidiary Security Agreement
EXHIBIT H Form of Trademark Security Agreement
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CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 26,
1997, by and among OUTSOURCE INTERNATIONAL, INC., a Florida corporation ("the
Borrower" or "OI"), the banks and other financial institutions listed on
SCHEDULE A to this Agreement (collectively, together with any banks or financial
institutions from time to time parties to this Agreement, the "Banks"), and
BANKBOSTON, N.A., A NATIONAL BANKING ASSOCIATION AND SUCCESSOR BY MERGER TO BANK
OF BOSTON CONNECTICUT, as agent for the Banks hereunder (in such capacity, the
"Agent").
BankBoston, N.A., Comerica Bank and LaSalle National Bank (the "Existing
Banks"), the Borrower and the Agent entered into the Credit Agreement dated as
of February 21, 1997, which Agreement was amended and restated as of March 18,
1997 and was further amended as of September 4, 1997 (as in effect immediately
prior to the Amendment Effective Date defined below, the "Existing Credit
Agreement").
The Borrower has requested that the Existing Banks and the Agent, and the
Banks and the Agent are willing to, amend and restate the Existing Credit
Agreement to provide, among other things, for the addition of three banks as
parties to this Agreement and to increase the aggregate Revolving Credit
Commitment to $85,000,000, on the terms and conditions hereof.
Accordingly, the parties hereto agree to amend and restate the Existing
Credit Agreement so that, as amended and restated, it provides in its entirety
as herein provided. In addition, the Banks agree that, upon effectiveness of
this Second Amended and Restated Credit Agreement, the Aggregate Outstanding
Extensions of Credit (as defined below) immediately prior to such effectiveness
shall be adjusted to reflect the Commitment Percentages (as defined below) of
the Banks party hereto.
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS: As used in this Agreement, the following terms shall
have the following meanings:
"AASI": the Agreement among Shareholders and Investors, dated as of
February 21, 1997, among the Borrower, certain shareholders of the Borrower,
Triumph/Bachow, the trustees of the Voting Trust Agreement (as defined herein)
and an escrow agent, as amended, supplemented or otherwise modified from time to
time with the prior written consent of the Banks.
"AFFILIATE": of a Person (the "Primary Person"), (a) any other Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, the Primary Person or (b) any
Person who is a director or officer (i) of the Primary Person, (ii) of any
Subsidiary of the Primary Person or (iii) of any Person described in clause (a)
above. For purposes of this definition, control of a Person shall mean the
power, directly or indirectly, (a) to vote 10% or more of the securities having
ordinary voting power for the election of directors of such Person or (b) to
<PAGE>
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"AGGREGATE OUTSTANDING EXTENSIONS OF CREDIT": as to any Bank at any time
and without duplication, an amount equal to the sum of (a) the aggregate
principal amount of all Revolving Credit Loans made by such Bank then
outstanding and (b) the product of such Bank's Commitment Percentage times the
undrawn and unexpired L/C Obligations then outstanding.
"AGREEMENT": this Credit Agreement, as amended, supplemented or otherwise
modified from time to time.
"ALL-TEMPS, INC.": a corporation organized and existing under the laws of
the State of Illinois.
"ALTERNATE BASE RATE": the higher of (a) the rate of interest per annum
publicly announced from time to time by the Agent as its "base rate" in effect
at its principal office (the Alternate Base Rate not being intended to be the
best or lowest rate of interest charged by the Agent in connection with
extensions of credit to debtors) or (b) the Federal Funds Effective Rate plus
1/2 of 1% per annum (rounded upwards, if necessary, to the next 1/100 of 1%).
Any change in the Alternate Base Rate shall be effective as of the opening of
business on the effective day of such change in the Alternate Base Rate.
"ALTERNATE BASE RATE LOANS": Loans for which the applicable rate of
interest is based upon the Alternate Base Rate.
"AMENDMENT EFFECTIVE DATE": the date on which all of the conditions set
forth in Section 5.1 shall have been satisfied or waived by the Banks and the
Agent.
"APPLICABLE MARGIN": at any time, for Alternate Base Rate Loans or
Eurodollar Loans, a rate per annum equal to the rate set forth opposite the
applicable Consolidated Indebtedness to Consolidated EBITDA Ratio in the Pricing
Grid.
"APPLICATION": an application in such form as the Issuing Bank may specify
from time to time, requesting the Issuing Bank to issue a Letter of Credit.
"ARRANGER": BancBoston Securities, Inc., in its capacity as arranger and
syndication agent.
"ASSIGNMENT AND ACCEPTANCE": an Assignment and Acceptance, substantially
in the form of Exhibit D.
"AVAILABLE REVOLVING CREDIT COMMITMENT": as to any Bank at any time, an
amount equal to the excess, if any, of (a) the amount of such Bank's Revolving
Credit Commitment over (b) such Bank's Aggregate Outstanding Extensions of
Credit.
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"BORROWING BASE": shall mean the sum of (a) except for those Eligible
Billed and Unbilled Receivables referred to in clause (b) below, 85% of the
Eligible Billed and Unbilled Receivables of the Borrower and its Subsidiaries
(other than CSF), (b) 75% of the Eligible Billed and Unbilled Receivables of CSF
and (c) the Acquisition Addback (as defined below). The Borrower may include in
the Borrowing Base the principal amount of each borrowing under this Agreement,
up to an aggregate amount of $8,000,000 for all such borrowings, which has been
used by the Borrower to finance a Permitted Acquisition that has occurred during
the one-year period following the Closing Date (the "Acquisition Addback"). The
amount of the Acquisition Addback includible in the Borrowing Base for a given
Permitted Acquisition shall be reduced at the end of each month, commencing on
the last day of the month immediately following the borrowing related to such
Permitted Acquisition, in an amount equal to one-twelfth of such borrowing.
"BORROWING DATE": any Business Day specified in a notice pursuant to
subsections 2.1A(b) or 2.4 as a date on which the Borrower requests the Banks to
make Loans hereunder.
"BUSINESS DAY": a day other than Saturday, Sunday or other day on which
commercial banks in Hartford, Connecticut are authorized or required by law to
close and, in the case of Eurodollar Loans, also a day on which commercial banks
are open for international business (including dealings in Dollar deposits) in
London or such other eurodollar interbank market as may be selected by the Agent
in its sole discretion acting in good faith.
"CAPITAL EXPENDITURES": any payment made directly or indirectly for the
purpose of acquiring, constructing or improving fixed assets, real property or
equipment which in accordance with GAAP would be added as a net debit (after
giving effect to any credits) to the fixed asset account of the Person making
such expenditure, including, without limitation, amounts paid or payable under
any conditional sale or other title retention agreement.
"CAPITAL LEASE": any lease which has been or should be capitalized on the
books of the lessee in accordance with GAAP.
"CAPITAL STOCK": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants or options to purchase any of the foregoing.
"CASH EQUIVALENTS": (a) securities issued or directly and fully guaranteed
or insured by the United States Government or any agency or instrumentality
thereof, (b) certificates of deposit and Eurodollar time deposits with
maturities of six (6) months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six (6) months and overnight bank
deposits, in each case, with any Bank or with any domestic commercial bank
having capital and surplus in excess of $100,000,000, (c) repurchase obligations
with a term of not more than seven (7) days for underlying securities of the
types described in clauses (a) and (b) entered into with any financial
institution meeting
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the qualifications specified in clause (b) above, and (d) commercial paper
issued by any Bank or the parent corporation of any Bank and commercial paper of
any other issuer rated at least A-1 or the equivalent thereof by Standard &
Poor's Corporation or at least P-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within six (6) months after
the date of acquisition.
"CASH COLLATERAL ACCOUNT": as defined in Section 8.
"CHANGE OF CONTROL": except as contemplated by the AASI or the Voting
Trust Agreement, the occurrence of any of the following events: (a) any "person"
or "group" (as such terms are used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, and the rules promulgated thereunder) is or
becomes the beneficial owner, directly or indirectly, of more than 50% of the
total voting power of the Voting Stock of the Borrower; (b) during any period of
two (2) consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Borrower was approved by the directors then
still in office who either were directors at the beginning of such period or
whose election or nomination for director was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Borrower
then in office; (c) the direct or indirect, sale, lease, exchange or other
transfer of all or substantially all of the assets of the Borrower to any
"person" or "group" (as such terms are used in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder); provided that the foregoing shall not include the granting of Liens
permitted by this Agreement; or (d) the Borrower consolidates with or merges
into another corporation or any Person consolidates with or merges into the
Borrower, in either event pursuant to a transaction in which either (i) the
outstanding Voting Stock of the Borrower is changed into or exchanged for cash,
securities or other property (other than any such transaction where the
outstanding Voting Stock of the Borrower is changed into or exchanged for Voting
Stock of the surviving corporation) or (ii) the holders of a majority of the
voting power of the Voting Stock of the Borrower immediately prior to such
transaction own, directly or indirectly, less than a majority of voting power of
the Voting Stock of the surviving corporation immediately after such
transaction.
"CLOSING DATE": November 26, 1997.
"CODE": the Internal Revenue Code of 1986, as amended from time to time.
"COLLATERAL": the collective reference to the Collateral, as such term is
defined in each of the OI Security Agreement, the OI Pledge Agreement, the
Subsidiary Security Agreement and the Trademark Security Agreement.
"COMMITMENT FEE": as defined in Section 2.8(a).
"COMMITMENT PERCENTAGE": as to any Bank (a) at any time at which the
Revolving Credit
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Commitments remain outstanding, the percentage equivalent (expressed as a
decimal, rounded to the ninth decimal place) at such time of such Bank's
Revolving Credit Commitment divided by the aggregate combined Revolving Credit
Commitments of all Banks, and (b) after the termination of the Revolving Credit
Commitments, the percentage equivalent (expressed as a decimal, rounded to the
ninth decimal place) at such time of the principal amount of such Bank's
outstanding Loans divided by the aggregate principal amount of the outstanding
Loans of all the Banks.
"COMMITMENT PERIOD": the period from and including the date hereof to but
not including the Termination Date or such earlier date on which the Commitments
shall terminate as provided herein.
"COMMITMENTS": the collective reference to the Revolving Credit
Commitments and the L/C Commitments.
"COMMONLY CONTROLLED ENTITY": an entity, whether incorporated or not,
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414 of the Code.
"CONSOLIDATED CURRENT ASSETS": the amount of the current assets of the
Borrower and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP.
"CONSOLIDATED CURRENT LIABILITIES": the amount of the current liabilities
of the Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP; PROVIDED, HOWEVER, there shall be excluded therefrom the
amount of any principal obligation due on Indebtedness of the Borrower or its
Subsidiaries after the Termination Date.
"CONSOLIDATED EBITDA": for any period, Consolidated Net Income for such
period plus the aggregate amounts deducted in determining such Consolidated Net
Income in respect of (a) income taxes, (b) Consolidated Interest Expense (to the
extent deducted in determining Consolidated Net Income), (c) depreciation
expense and (d) the expense associated with amortization of intangible and other
assets.
"CONSOLIDATED EBITDA TO CONSOLIDATED INTEREST EXPENSE RATIO": at the end
of any month, the ratio of (a) Consolidated EBITDA for the immediately preceding
twelve (12) months (ending on such date) to (b) Consolidated Interest Expense
for the immediately preceding twelve (12) months (ending on such date). For
purposes of (b) above, non-cash interest shall be excluded.
"CONSOLIDATED INDEBTEDNESS": at any particular date, with respect to the
Borrower and its Subsidiaries, all liabilities less trade accounts payable and
accrued liabilities, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED EBITDA RATIO": at the end of
any month, the
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ratio of (a) Consolidated Indebtedness on such date to (b) Consolidated EBITDA
for the immediately preceding twelve (12) months (ending on such date). NOTE:
For purposes of Section 7.1(a) only (i.e. not for pricing under the Pricing
Grid), the Borrower may add for such twelve (12) months (i) Consolidated EBITDA
of any entity acquired in a Permitted Acquisition or identified in Note 1 to the
Unaudited Pro Forma Consolidated Financial Information contained in the
Prospectus, plus any compensation paid by such entity to any shareholder of such
entity during such period to the extent such shareholder is not continuing to
receive compensation or consulting or similar fees from the Borrower or any of
its Subsidiaries subsequent to the acquisition and (ii) any verifiable
non-recurring expenses approved by the Required Banks.
"CONSOLIDATED INTEREST EXPENSE": for any period, the interest expense for
the Borrower and its Subsidiaries, including the interest portion of rental
payments under Capital Leases but excluding non-cash interest, determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME": for any period, the net income (or loss) of the
Borrower and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP; PROVIDED that there shall be excluded from the
calculation thereof (a) any non-operating gains or losses (including without
limitation, extraordinary or unusual gains or losses, gains or losses from
discontinuance of operations, gains or losses arising from the sale or
disposition by the Borrower or any Subsidiary of any asset, or the issuance of
any debt or equity securities, and other non-recurring gains or losses) and (b)
distributions and compensation not exceeding $1,000,000 in the aggregate paid by
the Borrower and its Subsidiaries to Larry Schubert, Alan Schubert and Louis
Morelli for the period from October 1, 1996 to February 21, 1997.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.
"CSF": Capital Staffing Fund, Inc., a Florida corporation.
"CURRENT RATIO": at the end of any month, the ratio of Consolidated
Current Assets to Consolidated Current Liabilities.
"DATE HEREOF": November 26, 1997.
"DEFAULT": any of the events specified in Section 8, regardless of whether
any requirement for the giving of notice, the lapse of time, or both, or any
other conditions, has been satisfied.
"DEFAULT RATE": as defined in subsection 2.3(d).
"DOLLARS" AND "$": dollars in lawful currency of the United States of
America.
-6-
<PAGE>
"ELIGIBLE BILLED AND UNBILLED RECEIVABLES": all of the Receivables of the
Borrower and its Subsidiaries, whether billed or unbilled, PROVIDED, HOWEVER,
that Eligible Billed and Unbilled Receivables shall in no event include (a) any
account of the Borrower or its Subsidiaries (other than OutSource Franchising,
Inc.) that has not been paid within ninety (90) days of its invoice date, (b)
any funding advance of OutSource Franchising, Inc. that has not been paid within
sixty (60) days of its invoice date, (c) any intercompany account, (d) any
unapplied cash or (e) any account which the Agent in good faith deems
ineligible. No Receivable shall be an Eligible Billed and Unbilled Receivable
unless it continually meets the following requirements: (a) it is due from an
account debtor who, at any time, has no more than 50% of its total accounts due
and unpaid more than ninety (90) days after any original invoice date; (b) the
account arose from the performance of services by the Borrower which, to the
best of the Borrower's knowledge, have been fully and satisfactorily performed;
(c) unless otherwise permitted by the Agent, the account is subject to the
perfected lien of the Agent (for the ratable benefit of the Banks) and is not
subject to any prior or subsequent assignment, claim, lien or security interest
other than that of the Agent; (d) to the best of the Borrower's knowledge, the
account is not subject to setoff, counterclaim, defense, allowance or adjustment
other than discounts for prompt payment shown on the invoice, or to dispute,
objection or complaint by the account debtor concerning its liability on the
account; (e) the account arose in the ordinary course of business; (f) to the
best of the Borrower's knowledge, no petition in bankruptcy or other application
for relief under the Bankruptcy Code or other insolvency law has been filed with
respect to the customer or account debtor, the customer or account debtor has
not made an assignment for the benefit of creditors, become insolvent, or
suspended or terminated business, and the account debtor is generally paying its
debts as they become due; (g) the Agent has not notified the Borrower that, in
the Agent's sole discretion, the account or account debtor is not acceptable to
the Bank; and (h) the account arose from a sale to an account debtor which is
located within the United States of America. Receivables arising out of accounts
with the United States of America or any department, agency or instrumentality
thereof, or any state, shall be Eligible Billed and Unbilled Receivables only if
the total aggregate Receivables with respect to such account debtors do not
exceed 4% of the Billed and Unbilled Receivables of the Borrower and its
Subsidiaries.
"ENVIRONMENTAL LAWS": any and all Federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees or requirements
of any Governmental Authority regulating, relating to or imposing liability or
standards of conduct concerning environmental protection matters, including
without limitation, Hazardous Materials, as now or may at any time hereafter be
in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"EURODOLLAR BASE RATE": with respect to each day during each Eurodollar
Interest Period, the rate per annum equal to the rate at which the Agent is
offered Dollar deposits at or about 10:00 A.M., Eastern time, two (2) Business
Days prior to the beginning of such Eurodollar Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in
-7-
<PAGE>
respect of its Eurodollar Loans are then being conducted for delivery on the
first day of such Eurodollar Interest Period for the number of days comprised
therein and in an amount comparable to the amount of its Eurodollar Loan to be
outstanding during such Eurodollar Interest Period.
"EURODOLLAR INTEREST PERIOD": any one (1), two (2), three (3) or six (6)
month period, subject to availability (which availability shall be determined in
good faith by the Agent), selected by the Borrower in respect to any Eurodollar
Loan pursuant to subsections 2.2, 2.4 or 2.5 of this Agreement.
"EURODOLLAR LOANS": Loans for which the applicable rate of interest is
based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Eurodollar
Interest Period, a rate per annum determined for such day in accordance with the
following formula (rounded upward to the nearest 1/100th of 1%):
EURODOLLAR BASE RATE
1.00 - Eurodollar Reserve Requirements
"EURODOLLAR RESERVE REQUIREMENTS": for any day as applied to a Eurodollar
Loan, the aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including, without
limitation, basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
Governmental Authority having jurisdiction with respect thereto) dealing with
reserve requirements prescribed for eurocurrency funding maintained by a member
bank of such System.
"EVENT OF DEFAULT": any of the events specified in Section 8, provided
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
"EXISTING BANKS": as defined in the recitals.
"EXISTING CREDIT AGREEMENT": as defined in the recitals.
"EXISTING LOANS": the loans outstanding under the Existing Credit
Agreement on the Amendment Effective Date.
"FEDERAL FUNDS EFFECTIVE RATE": at any time shall mean a fluctuating
interest rate per annum equal to the weighted average of the rates on overnight
Federal Funds transactions with members of the Federal Reserve System arranged
by Federal Funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent from three (3) Federal Funds brokers of recognized
standing selected by the Agent.
-8-
<PAGE>
"FIELD EXAMINATIONS": as defined in subsection 6.6.
"FQED": the end date of any fiscal quarter in any fiscal year of the
Borrower.
"GAAP": generally accepted accounting principles in the United States of
America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "guaranteeing person"), any
obligation of (a) the guaranteeing Person or (b) another Person (including,
without limitation, any bank under any letter of credit), to induce the creation
of which obligation the guaranteeing person has issued a reimbursement, counter
indemnity or similar obligation, in either case guaranteeing or in effect
guaranteeing any indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of the guaranteeing person, whether contingent or not, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (A) for the purchase
or payment of any such primary obligation or (B) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligations of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner of any
such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that
the term "Guarantee Obligation" shall not include endorsements of instruments
for deposit or collection in the ordinary course of business. The amount of any
Guarantee Obligation of any guaranteeing person shall be deemed to be the lower
of (x) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (y) the
maximum amount for which such guaranteeing person may be liable pursuant to the
terms of the instrument embodying such Guarantee obligation, unless such primary
obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such
Guarantee Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in good
faith.
"HAZARDOUS MATERIALS": any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances, petroleum products
(including crude oil or any fraction thereof), defined or regulated as such in
or under any Environmental Law.
"INDEBTEDNESS": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than
-9-
<PAGE>
current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (b) all obligations of such Person under
Capital Leases, (c) all obligations of such person in respect of acceptances
issued or created for the account of such Person, (d) all liabilities secured by
any Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof, (e) the face amount
of any outstanding letters of credit issued for the account of such Person, (f)
obligations in respect of interest rate hedge agreements entered into in the
ordinary course of business, and (g) all Guarantee Obligations of such Person in
respect of obligations referred to in clauses (a) through (f) above.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTEREST PAYMENT DATE": (a) as to any Alternate Base Rate Loan, the first
day of each month to occur while such Loan is outstanding, (b) as to any
Eurodollar Loan having a Eurodollar Interest Period of one (1) month, the last
day of such Eurodollar Interest Period, (c) as to any Eurodollar Loan having a
Eurodollar Interest Period longer than one (1) month, the first day of each
month to occur during such Eurodollar Interest Period and the last day of such
Eurodollar Interest Period and (d) as to any Swingline Loan, the Swingline Loan
Maturity Date.
"ISSUING BANK": BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, in its capacity as issuer of any Letter of Credit.
"LABOR WORLD": a trademark of OutSource Franchising, Inc. registered with
the United States Patent and Trademark Office and used by OutSource Franchising,
Inc. and its franchisees in marketing temporary industrial personnel.
"L/C COMMITMENT": the lesser of (a) $15,000,000, minus the sum of (i) the
aggregate then undrawn and unexpired amount of the then outstanding letters of
credit issued by The First National Bank of Boston or any affiliate for the
account of the Borrower or any Subsidiary and (ii) the aggregate amount of
unreimbursed drawings under such letters of credit and (b) the Revolving Credit
Commitment then in effect.
"L/C FEE": as defined in subsection 3.3(a).
"L/C OBLIGATIONS": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit which
have not then been reimbursed pursuant to subsection 3.5.
"L/C PARTICIPANTS": the collective reference to all the Banks other than
the Issuing Bank.
-10-
<PAGE>
"LETTER OF CREDIT RATE": for each Letter of Credit, at any time, a rate
per annum equal to the rate set forth opposite the applicable ratio of
Consolidated Indebtedness to Consolidated EBITDA in the Pricing Grid.
"LETTERS OF CREDIT": as defined in subsection 3.1(a).
"LIEN": any mortgage, pledge, hypothecation, assignment, security
interest, deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any Capital Lease having substantially
the same economic effect as any of the foregoing, and the filing of any
financing statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"LOAN": any loan made by any Bank pursuant to this Agreement.
"LOAN DOCUMENTS": this Agreement, the Notes, the Applications, the OI
Pledge Agreement, the OI Security Agreement, the Subsidiary Guarantee, the
Subsidiary Security Agreement, the Trademark Security Agreement and the
Subordination Agreements, together with any and all other instruments, documents
and agreements executed and delivered by the Borrower or the Subsidiaries from
time to time in connection with the indebtedness evidenced by this Agreement and
the Notes, as the same may hereafter be amended, supplemented, restated or
otherwise modified and in effect from time to time.
"MARKET CLEARING LETTER": the letter referred to in Section 5.1(r).
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business,
operations, property, condition (financial or otherwise) or prospects of the
Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower
or any Subsidiary to perform its obligations under the Loan Documents to which
it is a party or (c) the validity or enforceability of this Agreement, the Notes
or any of the other Loan Documents or the rights or remedies of the Agent or the
Banks hereunder or thereunder.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NOTES": the collective reference to the Revolving Credit Notes and the
Swingline Note, and any promissory note delivered as a replacement, in
substitution or in exchange therefor, as each may be amended, supplemented,
restated or otherwise modified and in effect from time to time.
"OBLIGATIONS": means all Indebtedness, obligations and liabilities of the
Borrower and its Subsidiaries, to the Agent and the Banks under this Agreement,
the Revolving Credit Notes, the Swingline Note or any other Loan Document, as
each of the foregoing may be amended,
-11-
<PAGE>
supplemented, restated or otherwise modified and in effect from time to time
(including amendments or supplements increasing such Indebtedness, obligations
and liabilities of the Borrower and its Subsidiaries).
"OFFICE OURS": a trademark of OutSource Franchising, Inc. registered with
the United States Patent and Trademark Office and used by OutSource Franchising,
Inc. and its franchisees in marketing temporary office and clerical personnel.
"OI PLEDGE AGREEMENT": the OI Pledge Agreement, substantially in the form
of Exhibit C, made by the Borrower in favor of the Agent for the benefit of the
Agent and the ratable benefit of the Banks, as the same may be amended,
supplemented, restated or otherwise modified and in effect from time to time.
"OI SECURITY AGREEMENT": the OI Security Agreement, substantially in the
form of Exhibit F, to be executed and delivered by the Borrower to the Agent for
the benefit of the Agent and the ratable benefit of the Banks, as the same may
be amended, supplemented, restated or otherwise modified and in effect from time
to time.
"OPERATING CASH FLOW": for any period, an amount equal to (a) Consolidated
EBITDA for such period, minus (b) income taxes paid in cash by the Borrower on a
consolidated basis during such period, minus (c) all dividends, distributions
and other payments by the Borrower to its shareholders during such period but
(excluding the following payments in respect of Indebtedness to such
shareholders: (i) distribution of up to $9,200,000 in shareholder's equity
pursuant to notes issued at the time of the February 21, 1997 reorganization;
(ii) payment of up to $7,600,000 to shareholders for Subsidiaries' stock at the
time of the February 21, 1997 reorganization; (iii) payment of up to $1,000,000
to shareholders with respect to the acquisition of the All-Temps, Inc.
franchise, recorded as a 1996 shareholder distribution; and (iv) payment of up
to $1,000,000 to shareholders with respect to the acquisition of the WAD, Inc.
franchise), minus (d) Capital Expenditures paid out of cash flow during such
period.
"OPERATING CASH FLOW RATIO": at the end of any month, the ratio of (a)
Operating Cash Flow for the immediately preceding twelve (12) months (ending on
such date) to (b) Total Debt Service for the immediately preceding twelve (12)
months (ending on such date).
"OUTSOURCE FRANCHISING, INC.": a Florida corporation and a wholly-owned
Subsidiary of the Borrower.
"PARTICIPANTS": as defined in subsection 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA.
-12-
<PAGE>
"PERMITTED ACQUISITION": (a) the acquisition by the Borrower or any
Subsidiary of the Capital Stock or assets of any Person PROVIDED that (i) such
Person conducts the same general type of business as currently conducted by the
Borrower and its Subsidiaries, (ii) such Person conducts all of its business in
the United States of America, (iii) none of the shareholders of the Borrower or
its Affiliates have or will have any direct or indirect beneficial ownership of
any stock or other interest in the acquired company, (iv) the net income of such
Person (excluding any non-operating gains or losses and adjusted for the factors
identified in the second sentence of the definition of Consolidated Indebtedness
to Consolidated EBITDA Ratio) is positive for the twelve (12) month period
ending as of the end of the month immediately preceding such acquisition, (v)
the total aggregate consideration in any single transaction or series of related
transactions, including any transactions with Affiliates of such Person, does
not exceed $750,000, (vi) the Borrower is in compliance with all provisions of
this Agreement both immediately before and after (pro-forma) giving effect to
the acquisition, (vii) there will be, in the Agent's sole discretion, adequate
Available Revolving Credit Commitments (in no event less than $7,500,000) to
fund the working capital requirements of the Borrower and its Subsidiaries,
including the acquired Person, for at least nine (9) months following the
acquisition, (viii) any Indebtedness incurred in connection with an acquisition
and owed to third parties must be (A) incurred payable to the seller in such
acquisition and must be Subordinated Indebtedness or (B) Indebtedness otherwise
permitted under Section 7.2 hereof, or (b) any other acquisition or series of
related acquisitions, including any transactions with Affiliates of such Person,
which the Agent and the Required Banks may approve in their sole discretion. If
the total aggregate consideration for a single transaction or a series of
related transactions exceeds $750,000, the prior written consent of the Agent
and the Required Banks shall be required, which consent may be given or withheld
in their sole discretion.
"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"PLAN": at a particular time, any employee benefit plan which is covered
by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PLEDGE AGREEMENT-DEPOSIT ACCOUNT": the Pledge and Security
Agreement-Deposit Account, dated as of March 18, 1997, made by the Borrower in
favor of the Agent for the benefit of the Agent and the ratable benefit of the
Banks, as the same may be amended, restated, supplemented or otherwise modified
from time to time.
"PRICING GRID": the Applicable Margin, the Commitment Fee and the Letter
of Credit Rate will be determined quarterly for the period of four (4)
consecutive fiscal quarters ending on each FQED and will be as set forth in the
following Pricing Grid:
------------------------------------------------------------------------------
Consolidated Applicable Applicable
-13-
<PAGE>
<TABLE>
<CAPTION>
INDEBTEDNESS MARGIN FOR MARGIN FOR COMMITMENT LETTER OF CREDIT
TO ALTERNATE BASE EURODOLLAR LOANS FEE RATE
CONSOLIDATED RATE LOANS
EBITDA RATIO
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LEVEL 1 /less than/ 3.00 to 1 0.25% 2.250% 0.375% 1.500%
------------------------------------------------------------------------------------------------
LEVEL 2 2.25-3.00 to 1 0.00% 1.875% 0.375% 1.125%
------------------------------------------------------------------------------------------------
LEVEL 3 1.50-2.24 to 1 0.00% 1.500% 0.250% 1.000%
- --------------------------------------------------------------------------------------------------
LEVEL 4 /more than/ 1.50 to 1 0.00% 1.250% 0.250% 0.750%
------------------------------------------------------------------------------------------------
</TABLE>
The pricing at the Closing Date shall be at Level 1. Subject to the next
paragraph, pricing will be adjusted thereafter based on the Borrower's
performance relative to the above grid, effective on the first day of the
immediately following fiscal quarter. The Borrower's Consolidated Indebtedness
to Consolidated EBITDA Ratio must have changed from a given Level for at least
two (2) consecutive quarters before pricing will be adjusted up or down (other
than an adjustment arising from the issuance by the Borrower of publicly traded
common stock). In the event that the Borrower's Consolidated Indebtedness to
Consolidated EBITDA Ratio changes Levels twice in two consecutive quarters
(e.g., from Level 2 to Level 3 in one quarter, and from Level 3 to Level 4 in
the next quarter), pricing shall adjust to the less beneficial (from the
Borrower's point of view) of the two Levels attained during such two consecutive
quarters.
The Applicable Margin, the Commitment Fee and the Letter of Credit Rate shall
remain at the Level in effect on the Closing Date until the Agent's receipt of
the Borrower's financial statements for the fiscal year ended December 31, 1997
pursuant to Section 6.1(c), at which time pricing shall adjust, effective as of
the date of receipt of such financial statements, based on the Borrower's
performance relative to the above grid. For the fiscal quarter ended March 31,
1998 and thereafter, pricing may adjust freely (subject to the immediately
preceding paragraph) among all Levels based on the Borrower's performance
relative to such grid, effective on the first day of the immediately following
fiscal quarter.
"PROPERTIES": as defined in subsection 4.17.
"PROSPECTUS": the Prospectus of the Borrower dated October 24, 1997
relating to the offering of 3,700,00 shares of common stock of the Borrower.
"PURCHASING BANKS": as defined in subsection 10.6(c).
"RECEIVABLES": means and includes accounts receivable and notes, drafts,
acceptances, and other instruments representing or evidencing a right to payment
for goods sold or leased or for services rendered, whether or not earned by
performance, of the Borrower and its Subsidiaries, whether secured or unsecured,
whether now existing or hereafter created or arising, and including all of the
receivables resulting from funding advances to franchisees of OutSource
Franchising,
-14-
<PAGE>
Inc..
"REGISTER": as defined in subsection 10.6(d).
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System.
"REIMBURSEMENT OBLIGATION": the obligation of the Borrower to reimburse
the Issuing Bank pursuant to subsection 3.4 for amounts drawn under Letters of
Credit.
"REIMBURSING BANK": as defined in subsection 2.13(a).
"REORGANIZATION": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived in accordance with subsections .13, .14, .16, .18, .19 or .20 of PBGC
Reg. ' 2615.
"REQUIRED BANKS": at any time, Banks having Commitment Percentages
representing at least 66 2/3% of the aggregate Revolving Credit Commitments, or
if the Revolving Credit Commitments are terminated, Banks representing at least
66 2/3% of the aggregate principal amount of all Loans outstanding (taking into
account each Bank's participation in any Swingline Loans and L/C Obligations).
"REQUIREMENT OF LAW": as to any Person, the Certificate of Incorporation
and By-Laws or other organization or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"RESPONSIBLE OFFICER": the chief executive officer or the president or
other executive officer of the Borrower or, with respect to financing matters,
the chief financial officer or other executive officer of the Borrower.
"RESTRICTED PAYMENT": as defined in subsection 7.7.
"REVOLVING CREDIT COMMITMENT": as to any Bank, the obligation of such Bank
to make Revolving Credit Loans to the Borrower hereunder in an aggregate
principal amount at any one time outstanding not to exceed the amount set forth
opposite such Bank's name on SCHEDULE A under the caption, "Commitment Amount".
"REVOLVING CREDIT LOANS": any loans, advances or other disbursements by
Agent, or any
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<PAGE>
or all of the Banks to or for the account of the Borrower under the Revolving
Credit Commitments (including without limitation, amounts paid in respect of any
draft under any Letter of Credit) or in respect of any amounts due and not paid
by the Borrower in accordance with subsection 10.5.
"REVOLVING CREDIT NOTE": as defined in subsection 2.7.
"SALE/LEASEBACK TRANSACTION": as defined in subsection 7.11.
"SECURITIES PURCHASE AGREEMENT": the Securities Purchase Agreement dated
as of February 21, 1997 between the Borrower and Triumph/Bachow, pursuant to
which the Borrower issued its Senior Subordinated Notes -- as such Securities
Purchase Agreement may, with the prior written consent of the Agent and the
Banks, be amended, supplemented or otherwise modified from time to time.
"SECURITY DOCUMENTS": the OI Security Agreement, OI Pledge Agreement,
Subsidiary Security Agreement, the Trademark Security Agreement and the Pledge
Agreement-Deposit Account.
"SENIOR SUBORDINATED NOTES": the $25,000,000 Senior Subordinated Notes due
February 20, 2002 issued pursuant to the Securities Purchase Agreement.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA,
but which is not a Multiemployer Plan.
"SOLVENT": when used with respect to any Person, means that, as of any
date of determination, (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (A) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (B)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
"SUBORDINATED INDEBTEDNESS": means Indebtedness of the Borrower or its
Subsidiaries
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<PAGE>
identified as subordinated on Schedule 7.2 and other unsecured Indebtedness
which contains in the instrument evidencing such Indebtedness or in the
agreement under which it is issued (which agreement shall be binding on all
holders of such Indebtedness) subordination provisions acceptable to the Agent
and the Required Banks in their sole discretion, which unsecured Indebtedness
must be approved in writing by the Agent and the Required Banks prior to
incurring such Indebtedness.
"SUBORDINATION AGREEMENTS": the subordination agreements and notes executed
and delivered to the Borrower or any Subsidiary prior to or on the Closing Date
by the holders of the Subordinated Indebtedness identified on Schedule 7.2.
"SUBSIDIARY": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership, limited liability company or other entity are at the
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person. Unless
otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in
this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.
"SUBSIDIARY GUARANTEE": the Guarantee, substantially in the form of Exhibit
B, made by each Subsidiary in favor of the Agent for the benefit of the Agent
and the ratable benefit of the Banks, as the same may be amended, supplemented,
restated or otherwise modified and in effect from time to time.
"SUBSIDIARY SECURITY AGREEMENT": a Subsidiary Security Agreement,
substantially in the form of Exhibit G, to be executed and delivered by each
Subsidiary to the Agent for the benefit of the Agent and the ratable benefit of
the Banks, as the same may be amended, supplemented, restated or otherwise
modified and in effect from time to time.
"SUCCESSOR AGENT": any Bank or any bank, depository or financial
institution, trust company, bank and trust company having capital and surplus in
excess of $100,000,000 and acceptable to the remaining Bank or Banks and to the
Borrower, the Borrower's consent not to be unreasonably withheld or delayed.
"SWINGLINE BANK": BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, acting in such capacity under subsection 2.1A, or any successor in
such capacity.
"SWINGLINE COMMITMENT": the obligation of the Swingline Bank to make
Swingline Loans in an aggregate amount not to exceed at any one time outstanding
the lesser of (a) $5,000,000 and (b) the aggregate amount of the Commitments
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"SWINGLINE LOAN MATURITY DATE": as defined in subsection 2.1A.
"SWINGLINE LOANS": the loans provided for by subsection 2.1A.
"SWINGLINE NOTE": the promissory note provided for by subsection 2.1A and
any promissory note delivered as a replacement, in substitution or in exchange
therefor, as the same shall be amended, supplemented, restated or otherwise
modified and in effect from time to time.
"SWINGLINE RATE": for any day, a rate per annum equal to the rate for
Alternate Base Rate Loans plus the Applicable Margin. A change in the Swingline
Rate shall take effect at the time of each change in the Alternate Base Rate or
the Applicable Margin, as the case may be.
"TANDEM": a trademark of OutSource Franchising, Inc. registered with the
United States Patent and Trademark Office and used by OutSource Franchising,
Inc. and its franchisees in marketing temporary flexible industrial staffing
personnel.
"TAX RETURN": as defined in subsection 4.11.
"TERMINATION DATE": February 10, 2003.
"TOTAL DEBT SERVICE": at any particular date, the sum of (a) Consolidated
Indebtedness, including the principal portion of Capital Leases, scheduled and
permitted to be paid during the applicable period (reduced by increases during
such period in Subordinated Indebtedness or shareholder's equity in an amount
not exceeding, and incurred to replace, such scheduled payments) and excluding
(i) a one time payment of $1,325,000 made by the Borrower in connection with the
Borrower's purchase of the Borrower's headquarters building, payments in respect
of Indebtedness to shareholders to the extent permitted hereunder (including the
items listed in (c) of the definition of Operating Cash Flow) and payments in
respect of previous term Indebtedness to Bank of Boston, LaSalle National Bank
and Comerica Bank paid from the proceeds of the original February 21, 1997 loan
and (ii) an amount not exceeding in any year $1,500,000 of regularly scheduled
principal payments due on Subordinated Indebtedness incurred by the Borrower or
any Subsidiary to finance Permitted Acquisitions or acquisitions identified in
Note 1 to the Unaudited Pro Forma Consolidated Financial Information contained
in the Prospectus, PROVIDED that such Subordinated Indebtedness matures at least
one (1) year after the date of its incurrence and bears interest not exceeding
ten percent (10%) per annum, plus (b) Consolidated Interest Expense, it being
understood that principal payments with respect to any Indebtedness that has
been refinanced shall be determined on and after the refinancing on the basis of
the payment schedule in such refinancing.
"TRADEMARK SECURITY AGREEMENT": the Trademark Security Agreement,
substantially in the form of Exhibit H, executed and delivered by the
Borrower and OutSource Franchising, Inc.
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in favor of the Agent for the benefit of the Agent and the ratable benefit of
the Banks, as the same may be amended, supplemented or otherwise modified from
time to time.
"TRANCHE": the collective reference to Eurodollar Loans having Eurodollar
Interest Periods which begin on the same date and end on the same later date
(whether such Loans shall originally have been made on the same day or not).
"TRANSFEREE": as defined in subsection 10.6(f).
"TRIUMPH/BACHOW": Triumph-Connecticut Limited Partnership and Bachow
Investment Partners III, L.P. or an entity controlled by them which is a party
to the Securities Purchase Agreement.
"TYPE": as to any Loan, its nature as an Alternate Base Rate Loan or a
Eurodollar Loan.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"VOTING STOCK": with respect to a corporation, all classes of Capital
Stock then outstanding of such corporation normally entitled to vote in
elections of directors.
"VOTING TRUST AGREEMENT": the Voting Trust Agreement, dated as of February
21, 1997, among the Borrower, Paul M. Burrell and Richard J. Williams, as
trustees, and certain shareholders of the Borrower, as the same may, with the
prior written consent of the Banks, be amended, supplemented or otherwise
modified from time to time.
"WAD, INC.": a corporation organized and existing under the laws of the
State of Delaware.
1.2 OTHER DEFINITIONAL PROVISIONS.
(a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the Notes or any
certificate or other document made or delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other document
made or delivered pursuant hereto, accounting terms relating to the Borrower and
its Subsidiaries not defined in subsection 1.1 and accounting terms partly
defined in subsection 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when
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used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section, subsection, SCHEDULE and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
1.3 CHANGE IN ACCOUNTING PRINCIPLES. Except as otherwise provided herein,
any changes in GAAP which are hereafter made and adopted by the Borrower with
the agreement of its independent certified public accountants shall not affect
the method of calculation of any of the financial covenants, standards or terms
found in subsection 1.1 or Section 7.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 REVOLVING CREDIT COMMITMENTS. Subject to the terms and conditions
hereof, and provided that no Default or Event of Default shall have occurred and
be continuing, each Bank severally agrees to make Revolving Credit Loans to the
Borrower from time to time on or after the Amendment Effective Date and
continuing throughout the Commitment Period in an aggregate principal amount at
any one time outstanding not to exceed the amount of such Bank's Available
Revolving Credit Commitment; PROVIDED, HOWEVER, that (i) the aggregate
borrowings hereunder at any one time (giving effect to all Revolving Credit
Loans, Swingline Loans and L/C Obligations at such time) to the Borrower shall
not exceed the lesser of (a) the Borrowing Base or (b) $85,000,000 and (ii) the
aggregate amount of all borrowings available to the Borrower to be advanced to
CSF shall not exceed $7,500,000 outstanding at one time. From and after the
Amendment Effective Date and continuing throughout the Commitment Period, the
Borrower may use the Revolving Credit Commitments by borrowing, prepaying the
Revolving Credit Loans or Swingline Loans, in whole or in part, and reborrowing
in accordance with the terms and conditions hereof. On the Termination Date, the
Borrower hereby unconditionally promises to pay to the Agent for the account of
each Bank the then unpaid principal amount of each Loan.
2.1A. SWINGLINE LOANS.
(a) Subject to the terms and conditions hereinafter set forth, upon notice
by the Borrower made to the Swingline Bank in accordance with paragraph (b) of
this subsection 2.1A , the Swingline Bank agrees to make Swingline Loans to the
Borrower on any Business Day during the Commitment Period in an aggregate
principal amount not to exceed the Swingline Commitment. Unless the Borrower has
entered into an arrangement with the Swingline Bank for automated borrowings as
described in subsection 2.1A(b) below, each Swingline Loan shall be in the
minimum amount of $250,000 or a multiple of $100,000 in excess thereof.
Notwithstanding any other provisions of this Agreement and in addition to the
limit set forth above, at no time shall the aggregate principal amount of all
outstanding Swingline Loans exceed the total Commitments of the Banks then in
effect MINUS the Aggregate Outstanding Extensions of Credit. Each
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Swingline Loan shall mature on the earlier of (i) the date on which a Default or
Event of Default has occurred or (ii) a date mutually agreed upon by the
Borrower and the Swingline Bank, which date may be up to seven days after the
Borrowing Date thereof (the "Swingline Loan Maturity Date"). Subject to the
terms of this Agreement, the Borrower may borrow, repay and reborrow up to the
amount of the Swingline Commitment, except that the Borrower shall not use the
proceeds of a Swingline Loan to repay any other Swingline Loan.
(b) When the Borrower desires the Swingline Bank to make a Swingline Loan
(except in the case of automated borrowings as described below), it shall send
to the Agent (which shall promptly notify the Swingline Bank) a notice in the
form of Exhibit A-1, which shall set forth the principal amount of the proposed
Swingline Loan and the proposed Borrowing Date. Each such Loan request must be
received by the Swingline Bank not later than 12:00 p.m. (Eastern time) on the
date of the proposed borrowing. Each such Loan request shall be irrevocable and
binding on the Borrower and shall obligate the Borrower to borrow the Swingline
Loan on the Borrowing Date thereof. Upon satisfaction of the applicable
conditions set forth in this Agreement, on the proposed Borrowing Date the
Swingline Bank shall make the Swingline Loan available to the Agent, at an
account designated by the Agent, in Dollars and immediately available funds, for
the account of the Borrower. The amount so received by the Agent, shall, subject
to the terms and conditions of this Agreement, be made available by the Agent to
the Borrower by depositing the same, in immediately available funds, in an
account of the Borrower designated by the Borrower by 5:00 p.m. (Eastern time)
on the proposed Borrowing Date by crediting the amount of the Swingline Loan to
the Borrower's account maintained with the Agent; PROVIDED that the Swingline
Bank shall not advance any Swingline Loans after it has received notice from the
Borrower, the Agent or any Bank that a Default or Event of Default has occurred
and is continuing. No new Swingline Loan shall be made until such Default or
Event of Default has been cured or waived in accordance with the provisions of
this Agreement.
It is understood that the Borrower and the Swingline Bank may administer
Swingline Loans on an automated basis pursuant to which Swingline Loans will be
made (up to the Swingline Commitment) or repaid automatically on a daily basis
in an amount equal to the net of the Borrower's receipts and disbursements at
the Swingline Bank. If such an automated system is used, the provisions dealing
with notice and minimum borrowing amount set forth in subsection 2.1A(b) above
shall not be applicable.
(c) The Borrower shall repay each outstanding Swingline Loan on or prior
to the Swingline Loan Maturity Date. Upon notice by 11:00 a.m. (Eastern time) on
any Business Day by the Swingline Bank to the Agent, which notice is hereby
authorized by the Borrower, the Borrower shall be deemed irrevocably to have
requested, and each of the Banks hereby agrees to make, a Revolving Credit Loan
to the Borrower by 2:00 p.m. (Eastern time) on such Business Day, in an amount
equal to such Bank's Commitment Percentage of the aggregate amount of the
outstanding Swingline Loans. Such Revolving Credit Loan shall bear interest at
the Alternate Base Rate plus the Applicable Margin. The proceeds thereof shall
be applied by the Agent
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directly to repay the Swingline Bank for such outstanding Swingline Loans. In
the event that it is impracticable for such Revolving Credit Loan to be made for
any reason on the date otherwise required above, then each Bank hereby agrees
that it shall forthwith purchase (as of the date such Revolving Credit Loan
would have been made, but adjusted for any payments received from the Borrower
on or after such date and prior to such purchase) from the Swingline Bank, and
the Swingline Bank shall sell to each Bank, such participations in the Swingline
Loans (including all accrued and unpaid interest thereon) outstanding as shall
be necessary to cause the Banks to share in such Swingline Loans PRO RATA based
on their respective Commitment Percentages by making available to the Swingline
Bank an amount equal to such Bank's participation in the Swingline Loans;
PROVIDED that all interest payable on the Swingline Loans shall be for the
account of the Swingline Bank as a funding and administrative fee until the date
as of which the respective participation is purchased. The obligation of each
Bank to make such Revolving Credit Loan, or as the case may be, to purchase such
participation in a Swingline Loan, upon notice as set forth above, is absolute,
unconditional and irrevocable under any and all circumstances whatsoever and
shall not be subject to set-off, counterclaim or defense to payment that such
Bank may have or may have had against the Borrower, the Agent, the Swingline
Bank or any other Bank and, without limiting any of the foregoing, shall be
unconditional notwithstanding (i) that the amount of such Loan may not comply
with the applicable minimum set forth in subsection 2.1 hereof, (ii) the failure
of the Borrower to meet the conditions set forth in Section 5 hereof, (iii) the
occurrence or continuance of a Default or an Event of Default hereunder, (iv)
the date of such Revolving Credit Loan or participation or (v) the financial
condition of the Borrower or any Subsidiary; PROVIDED, HOWEVER, a Bank shall not
be obligated to make any such Revolving Credit Loan (or to purchase such
participation) if before the making of such Swingline Loan, such Bank had
notified the Swingline Bank that a Default or Event of Default had occurred and
was continuing and that such Bank would not refinance such Swingline Loan.
(d) The obligation of the Borrower to repay the Swingline Loans made
pursuant to this Agreement and to pay interest thereon as set forth in this
Agreement shall be evidenced by a promissory note of the Borrower with
appropriate insertions substantially in the form of Exhibit A-3 (the "Swingline
Note"), and any promissory note delivered as a replacement, in substitution or
in exchange therefor, as the same may be amended, modified or otherwise
supplemented and in effect from time to time, payable to the order of the
Swingline Bank. The Borrower irrevocably authorizes the Swingline Bank to make
or cause to be made, at or about the time of the Borrowing Date of any Swingline
Loan or at the time of receipt of any payment of principal on the Swingline
Note, an appropriate notation on the books of the Swingline Bank reflecting the
making of such Swingline Loan or (as the case may be) the receipt of such
payment. The outstanding amount of the Swingline Loans set forth on such books
shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid
to the Swingline Bank, but the failure to record, or any error in so recording,
any such amount on such books shall not limit or otherwise affect the actual
amount of the obligations of the Borrower hereunder or under the Swingline Note
to make payments of principal of or interest on the Swingline Note when due.
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2.2 DESIGNATION OF INTEREST RATES; EURODOLLAR INTEREST PERIODS.
(a) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) Alternate Base Rate Loans or (iii) a combination thereof, as the
Borrower may determine and notify to the Agent in accordance with subsections
2.4 and 2.5. In the event the Borrower fails to designate the Type of all or any
portion of a Loan (whether initially or upon expiration of a Eurodollar Interest
Period), the per annum rate of interest applicable thereto shall be or become
the rate of interest applicable to Alternate Base Rate Loans.
(b) The Borrower may not select a Eurodollar Interest Period pursuant to
subsections 2.2(a), 2.5 or otherwise, if (i) an Event of Default has occurred
and is continuing, or (ii) such Eurodollar Interest Period would expire on a day
after the Termination Date. If any Eurodollar Interest Period would otherwise
end on a day that is not a Business Day, such Eurodollar Interest Period shall
be extended to the next succeeding Business Day unless the result of such
extension would be to carry such Eurodollar Interest Period into another
calendar month in which event such Eurodollar Interest Period shall end on the
immediately preceding Business Day. If any Eurodollar Interest Period begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Eurodollar Interest Period), such Eurodollar Interest Period shall end on the
last Business Day of a calendar month.
2.3 INTEREST RATES AND PAYMENT DATES.
(a) Each Eurodollar Loan shall bear interest, during the applicable
Eurodollar Interest Period, at a rate per annum equal to the applicable
Eurodollar Rate plus the Applicable Margin, and each Alternate Base Rate Loan
shall bear interest for so long as it is outstanding and unpaid at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin.
(b) The Applicable Margin for Eurodollar Loans and Alternate Base Rate
Loans shall be determined based upon the calculations submitted to the Banks
pursuant to subsection 6.2(b) and, except as otherwise provided in the
definition of Pricing Grid, shall be effective as of the first day of the fiscal
quarter next following the date such calculations are submitted to the Banks. In
the event the Applicable Margin cannot be determined at any time because the
Borrower's financial statements for the immediately preceding fiscal quarter are
not available at such time, the Applicable Margin shall be presumed to be the
same as the Applicable Margin as of the last FQED for which the Borrower's
financial statements were available.
(c) Each Swingline Loan shall bear interest for so long as it is
outstanding and unpaid at a rate per annum equal to the Swingline Rate.
(d) If all or a portion of the principal amount of any Loan or any
interest payable
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thereon shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum (the "Default Rate") which is equal to the rate that would otherwise
be applicable thereto pursuant to the foregoing provisions of this subsection
plus two percent (2%) from the date of such non-payment until such amount is
paid in full (after, as well as before, judgment).
(e) Interest shall be payable in arrears on each Interest Payment Date and
be identified for each Type of Loan; PROVIDED, THAT interest accruing at the
Default Rate pursuant to subsection 2.3(d) shall be payable on receipt of
written demand. In the event the rate of interest applicable to any Eurodollar
Loan increases or decreases as a consequence of an increase or decrease in the
Applicable Margin with respect thereto, the amount of interest due shall be
adjusted on the next Interest Payment Date to reflect such increase or decrease,
as the case may be.
(f) In the event the total amount of any payment of principal or interest
or amounts due in respect of any Reimbursement Obligation or of any fee required
to be paid under this Agreement is not received by the Agent or the Issuing
Bank, as the case may be, within ten (10) days following the due date of such
payment, the Borrower shall, in addition to and together with such payment, pay
to the Agent or the Issuing Bank, as the case may be, a late charge equal to
five percent (5%) of the total amount of such payment or amount due; PROVIDED,
such late charge shall not be payable in respect of any overdue payment in the
event the Borrower was entitled to an advance in the amount of such payment
under the provisions of subsection 2.1 at the time such payment became due, the
Borrower duly requested such advance in compliance with the requirements of this
Agreement, and the Banks failed to provide such advance without cause. The
Borrower authorizes the Agent to debit any of the accounts of the Borrower or
its Subsidiaries at or assigned to the Agent on or after the due date of any
such payment and a late charge shall not be payable to the extent the balances
in such accounts are sufficient on the due date to meet such payment.
2.4 PROCEDURE FOR BORROWING. The Borrower may borrow under the Revolving
Credit Commitments on or after the Amendment Effective Date during the
Commitment Period on any Business Day by giving the Agent irrevocable notice in
the form of Exhibit A-1 (which notice must be received by the Agent prior to (x)
12:00 p.m., Eastern time, at least three (3) Business Days prior to the
requested Borrowing Date, if all or any part of the requested Revolving Credit
Loans are to be initially Eurodollar Loans, or (y) 12:00 p.m., Eastern time, on
the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) the Type of the requested
borrowing, (iv) if the borrowing is to be entirely or partly of Eurodollar
Loans, the amounts and Eurodollar Interest Periods thereof and (v) the purpose
of such borrowing: e.g. whether the proceeds are to be used for working capital,
to make a Permitted Acquisition, to make advances or contributions to CSF, etc.
Each borrowing under the Revolving Credit Commitments shall be in an amount
equal to (A) in the case of Alternate Base Rate Loans, $250,000 or a whole
multiple of $100,000 in excess thereof (or, if the then Available Revolving
Credit Commitments are less than $250,000, such lesser amount) or (B) in
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the case of Eurodollar Loans, $250,000 or a whole multiple of $100,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Agent shall
promptly notify each Bank thereof. Each Bank will make the amount of its pro
rata share (based on its Commitment Percentage) of each borrowing available to
the Agent for the account of the Borrower at the office of the Agent specified
in subsection 10.2 prior to 2:00 p.m., Eastern time, on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent. Such
borrowing will then be made available to the Borrower by the Agent crediting the
account of the Borrower on the books of such office with the aggregate of the
amounts made available to the Agent by the Banks and in like funds as received
by the Agent.
2.5 CONVERSION AND CONTINUATION OPTIONS.
(a) The Borrower may elect from time to time to convert Eurodollar Loans
to Alternate Base Rate Loans by giving the Agent at least two (2) Business Days'
prior irrevocable notice of such election; PROVIDED that any such conversion of
Eurodollar Loans may only be made as of the last day of a Eurodollar Interest
Period with respect thereto. The Borrower may elect from time to time to convert
Alternate Base Rate Loans to Eurodollar Loans by giving the Agent at least three
(3) Business Days' prior irrevocable notice of such election, which notice shall
specify the length of the initial Eurodollar Interest Period or Eurodollar
Interest Periods therefor. Upon receipt of any such notice the Agent shall
promptly notify each Bank thereof. All or any part of outstanding Eurodollar
Loans and Alternate Base Rate Loans may be converted as provided herein,
provided that no Loan may be converted into a Eurodollar Loan when any Event of
Default has occurred and is continuing or the Agent has or the Required Banks
have determined pursuant to subsection 2.12 that such a conversion is not
appropriate.
(b) The Borrower may elect to continue all or any portion of any
Eurodollar Loan upon the expiration of the designated Eurodollar Interest Period
in respect of such Eurodollar Loan by giving the Agent at least three (3)
Business Days' prior irrevocable notice of such election; PROVIDED that no
Eurodollar Loan may be continued as such when any Event of Default has occurred
and is continuing or the Agent has or the Required Banks have determined
pursuant to subsection 2.12 that such a continuation as a Eurodollar Loan is not
appropriate. The Borrower shall specify in the aforesaid notice the amount to be
continued as a Eurodollar Loan and the Eurodollar Interest Period with respect
thereto in accordance with subsection 2.2.
2.6 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES. All borrowings,
conversions and continuations of Loans hereunder and all selections of
Eurodollar Interest Periods hereunder shall be in such amounts and be made
pursuant to such elections so that, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans comprising each Tranche shall be equal
to $250,000 or a whole multiple of $100,000 in excess thereof and so that there
shall not be more than seven (7) Tranches at any one time outstanding.
2.7 REVOLVING CREDIT NOTES. The Revolving Credit Loans made by each Bank
shall be
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evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit A-2 with appropriate insertions as to payee, date and principal amount
(a "Revolving Credit Note"), and any promissory note delivered as a replacement,
in substitution or in exchange therefor, as the same may be amended, modified or
otherwise supplemented and in effect from time to time,, payable to the order of
such Bank and in a principal amount equal to the amount of the initial Revolving
Credit Commitment of such Bank. Each Bank is hereby authorized to record the
date, Type and amount of each Revolving Credit Loan made by such Bank, each
continuation thereof, each conversion of all or a portion thereof to another
Type, the date and amount of each payment or prepayment of principal thereof
and, in the case of Eurodollar Loans, the length of each Eurodollar Interest
Period and Eurodollar Rate with respect thereof, on the SCHEDULE annexed to and
constituting a part of its Revolving Credit Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded.
Each Revolving Credit Note shall (x) be dated the Closing Date, (y) be stated to
mature on the Termination Date and (z) provide for the payment of interest in
accordance with subsection 2.3.
2.8 FEES.
(a) The Borrower agrees to pay to the Agent for the benefit of the Banks a
commitment fee (the "Commitment Fee") on the unborrowed portion of the aggregate
Available Revolving Credit Commitment, as in effect from time to time, for each
day from the Closing Date through the Termination Date, at the percentage rate
per annum set forth opposite the applicable Consolidated Indebtedness to
Consolidated EBITDA Ratio in the Pricing Grid.
Such Commitment Fee shall be computed on the basis of a 360-day year for
the actual number of days elapsed, shall be payable in arrears on the last day
of each quarter during the term of this Agreement and on the Termination Date,
and shall be fully earned when due and non-refundable when paid.
(b) On or about February 28, 1998, and annually thereafter, the Borrower
shall pay to the Agent agency fees in the amounts set forth in a letter
agreement between the Agent and the Borrower. These agency fees are fully earned
as of the date when due, are solely for the account of Agent and are
non-refundable.
(c) On the Closing Date, the Borrower shall pay to the Agent a
non-refundable closing fee in the amount set forth in a letter agreement between
the Agent and the Borrower.
2.9 TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. The Borrower
shall have the right, upon not less than three (3) Business Days' notice to the
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Revolving Credit Commitments PROVIDED that no such termination or
reduction shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
the aggregate principal amount of the Revolving Credit Loans and Swingline Loans
then outstanding,
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when added to such Bank's Commitment Percentage (as computed immediately prior
to said termination or reduction) of the L/C Obligations, would exceed the
Revolving Credit Commitments then in effect. Any such reduction shall be in an
amount not less than $250,000, and shall reduce permanently the Revolving Credit
Commitments then in effect.
2.10 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time to
time, prepay the Revolving Credit Loans, in whole or in part, upon at least
three (3) Business Days' irrevocable notice, in the case of prepayment of any
Revolving Credit Loans which are Eurodollar Loans, or upon irrevocable notice
(which notice must be received by 1:00 P.M., Eastern time, on or before the
proposed date of prepayment), in the case of prepayments of any Revolving Credit
Loans which are Alternate Base Rate Loans, to the Agent, specifying the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans,
Alternate Base Rate Loans or a combination thereof, and, in each case if a
combination thereof, the amount allocable to each; PROVIDED that, if a
Eurodollar Loan is prepaid other than at the end of the Eurodollar Interest
Period applicable thereto, the Borrower shall also pay any amounts required to
be paid pursuant to subsection 2.17. Upon receipt of any such notice the Agent
shall promptly give notice thereof to each Bank. If any such notice is given by
the Borrower, the amount specified in such notice shall be due and payable on
the date specified therein. Partial prepayments of the Revolving Credit Loans
shall be in an aggregate principal amount of $250,000 or a whole $100,000
multiple in excess thereof.
2.11 COMPUTATION OF INTEREST AND FEES. Interest on the Loans, Letter of
Credit commissions and Commitment Fees shall be calculated on the basis of a
360-day year for the actual days elapsed. The Agent shall as soon as practicable
notify the Borrower and the Banks of each determination of a Eurodollar Rate.
Any change in the interest rate on a Loan resulting from a change in the
Alternate Base Rate or the Eurodollar Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Agent shall as soon as practicable notify the Borrower and the
Banks of the effective date and the amount of each such change in interest rate.
Each determination of an interest rate by the Agent pursuant to any provision of
this Agreement shall be conclusive and binding on the Borrower and the Banks in
the absence of manifest error.
2.12 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day of
any Eurodollar Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Eurodollar Interest Period, or
(b) the Agent shall have received notice from the Required Banks that the
Eurodollar Rate determined or to be determined for such Eurodollar Interest
Period will not adequately and
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fairly reflect the cost to such Banks (as conclusively certified by such Banks)
of making or maintaining their affected Loans during such Eurodollar Interest
Period, the Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Banks as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Eurodollar Interest Period shall be made as Alternate Base Rate Loans, (y) any
Loans that were to have been converted on the first day of such Eurodollar
Interest Period to Eurodollar Loans shall be converted to or continued as
Alternate Base Rate Loans, and (z) any outstanding Eurodollar Loans shall be
converted, on the first day of such Eurodollar Interest Period, to Alternate
Base Rate Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Loans to Eurodollar Loans.
2.13 PRO RATA TREATMENT AND PAYMENTS.
(a) Unless the Agent shall have been notified in writing by any Bank prior
to 2:00 p.m., Eastern time, on the Borrowing Date that such Bank will not make
the amount that would constitute its Commitment Percentage of the borrowing on
such date available to the Agent, the Agent may assume that such Bank (a
"Reimbursing Bank") has made such amount available to the Agent on such
Borrowing Date, and the Agent or any Bank may (but shall not be obligated), in
reliance upon such assumption, make available to the Borrower a corresponding
amount. If such amount is made available to the Agent on a date after such
Borrowing Date, the Reimbursing Bank shall pay to the Agent on demand an amount
equal to the product of (i) the daily average Federal Funds Effective Rate
during such period as quoted by the Agent, times (ii) the amount of such
Reimbursing Bank's Commitment Percentage of such borrowing, times (iii) a
fraction the numerator of which is the number of days that elapse from and
including such Borrowing Date to the date on which such Reimbursing Bank's
Commitment Percentage of such borrowing shall have become immediately available
to the Agent and the denominator of which is 365. A certificate of the Agent
submitted to any Reimbursing Bank with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error. If a
Reimbursing Bank's Commitment Percentage of such borrowing is not in fact made
available to the Agent by such Reimbursing Bank within one (1) Business Day of
such Borrowing Date, the Agent shall be entitled to recover such amount, with
interest thereon at the rate per annum applicable to Alternate Base Rate Loans
hereunder, on demand, from such Reimbursing Bank or the Borrower in such order
and manner as Agent may determine in its discretion.
(b) Each borrowing of Revolving Credit Loans by the Borrower from the
Banks hereunder shall be made by the Banks pro rata in accordance with the
respective Commitment Percentage of such Banks. Each payment by the Borrower on
account of the principal of and interest on the Revolving Credit Loans, and any
reduction of the Commitments of the Banks shall be payable to the Banks pro rata
in accordance with the respective Commitment Percentages of the Banks; PROVIDED
that in the event the Agent or any Bank pursuant to subsection 2.13(a) makes
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available to the Borrower a Reimbursing Bank's Commitment Percentage of a
requested borrowing, the Agent or such Bank providing such funding shall be
entitled to receive all payments that would otherwise be payable to such
Reimbursing Bank until such time as the Agent or such Bank, as the case may be,
shall have received an amount equal to the amount so funded on behalf of such
Reimbursing Bank, together with interest thereon as provided in subsection
2.13(a). All payments (including prepayments) to be made by the Borrower
hereunder and under the Notes, whether on account of principal, interest, fees
or otherwise, shall be made without set off or counterclaim and shall be made
prior to 1:00 p.m., Eastern time, on the due date thereof to the Agent, for the
account of the Banks, at the Agent's office specified in subsection 10.2, in
Dollars and in immediately available funds. The Agent shall distribute such
payments to the Banks promptly upon receipt in like funds as received. If such
payment is not made available by the Agent to any Bank within one (1) Business
Day of the Agent's receipt of payment from the Borrower, such Bank shall be
entitled to recover such amount from the Agent with interest thereon at a rate
per annum equal to the Alternate Base Rate. If any payment hereunder becomes due
and payable on a day other than a Business Day, such payment shall be extended
to the next succeeding Business Day, and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
2.14 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Bank to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Bank hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert Alternate Base Rate Loans to Eurodollar Loans shall forthwith be
canceled and (b) such Bank's Loans then outstanding as Eurodollar Loans, if any,
shall be converted automatically to Alternate Base Rate Loans on the respective
last days of the then current Eurodollar Interest Periods with respect to such
Loans or within such earlier period as required by law. If any such conversion
of a Eurodollar Loan occurs on a day which is not the last day of the then
current Eurodollar Interest Period with respect thereto, the Borrower shall pay
to such Bank such amounts, if any, as may be required pursuant to subsection
2.17.
2.15 REQUIREMENTS OF LAW.
(a) If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof or compliance by any Bank with any request
or directive (whether having the force of law or not) from any central bank or
other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Bank to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Bank in respect thereof
(except for Non-Excluded Taxes covered by subsection 2.16 and changes in
the rate of tax on the overall net income of such Bank);
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(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Bank which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Bank, upon its demand, any additional amounts necessary to
compensate such Bank for such increased cost or reduced amount receivable. If
any Bank becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify the Borrower through the Agent, of the
event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection submitted by such Bank,
through the Agent, to the Borrower shall be conclusive in the absence of
manifest error. This covenant shall survive the termination of this Agreement
and the payment of the Notes and all other amounts payable hereunder.
(b) If any Bank shall have determined that the adoption of or any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Bank or any corporation controlling
such Bank with any request or directive regarding capital adequacy (whether
having the force of law or not) from any Governmental Authority made subsequent
to the date hereof does or shall have the effect or reducing the rate of return
on such Bank's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which such Bank or such corporation could have
achieved but for such change or compliance (taking into consideration such
Bank's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, after
submission by such Bank to the Borrower (with a copy to the Agent) of a written
request therefore, the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank for such reduction.
2.16 TAXES.
(a) All payments made by the Borrower under this Agreement and the Notes
shall be made free and clear of, and without deduction or withholding for or on
account of any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
net income taxes and franchise taxes (imposed in lieu of net income taxes)
imposed on the Agent or any Bank as a result of a present or former connection
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between the Agent or such Bank and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the Agent
or such Bank having executed, delivered or performed its obligations or received
a payment under, or enforced, this Agreement or the Notes). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Agent or any Bank hereunder or under the Notes, the amounts so
payable to the Agent or such Bank shall be increased to the extent necessary to
yield to the Agent or such Bank (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement and the Notes, PROVIDED, HOWEVER, that the
Borrower shall not be required to increase any such amounts payable to any Bank
that is not organized under the laws of the United States of America or a state
thereof if such Bank fails to comply with the requirements of paragraph (b) of
this subsection. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to the Agent for its own
account or for the account of such Bank, as the case may be, a certified copy of
an original official receipt received by the Borrower showing payment thereof.
If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate
taxing authority or fails to remit to the Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Agent and the
Banks for any incremental taxes, interest or penalties that may become payable
by the Agent or any Bank as a result of any such failure. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
(b) Each Bank that is not incorporated under the laws of the United States
of America or a state thereof shall:
(i) deliver to the Borrower and the Agent (A) two (2) duly completed
copies of United States Internal Revenue Service Form 1001 or 4224, or
successor applicable form, as the case may be, and (B) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form, as the case may be;
(ii) deliver to the Borrower and the Agent two (2) further copies of
any such form or certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by
it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Agent.
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly
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completing and delivering any such form with respect to it and such Bank so
advises the Borrower and the Agent. Such Bank shall certify (i) in the case of a
Form 1001 or 4224, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes and
(ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from
United States backup withholding tax. Each Person that shall become a Bank or a
Participant pursuant to subsection 10.6 shall, upon the effectiveness of the
related transfer, be required to provide all of the forms and statements
required pursuant to this subsection, provided that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Bank from which the related participation shall have been purchased.
2.17 INDEMNITY. The Borrower agrees to indemnify each Bank and to hold
each Bank harmless from any loss or expense which such Bank may sustain or incur
as a consequence of (a) failure by the Borrower to borrow, convert into or
continue Eurodollar Loans after the Borrower has given a notice requesting the
same in accordance with the provisions of this Agreement, (b) failure by the
Borrower to make any prepayment after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the last day of an
Eurodollar Interest Period with respect thereto. Such indemnification may
include, without limitation, any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds obtained to fund or
maintain a Eurodollar Loan during any Eurodollar Interest Period, which any Bank
may incur as a consequence of such failure to borrow, convert or continue, as
the case may be. A certificate by Agent as to the amount of such loss, expense
or increased costs shall, when submitted to the Borrower, be conclusive, in the
absence of manifest error, unless the Borrower shall have provided the Agent
with written notice of the Borrower's objection to all or any portion of such
certificate not later than ten (10) days after the date on which such
certificate is submitted to the Borrower. Any such Eurodollar Loan shall not be
deemed paid or satisfied until all such additional amounts are paid. Agent
agrees to provide the Borrower with such information as the Borrower may
reasonably request with respect to the calculation of any such losses or
expenses. The covenant contained in this subsection 2.17 shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
SECTION 3. LETTERS OF CREDIT
3.1 L/C COMMITMENT.
(a) Subject to the terms and conditions hereof, the Issuing Bank, in
reliance on the agreements of the other Banks set forth in subsection 3.5(a),
agrees to issue irrevocable standby letters of credit for the account of the
Borrower on any Business Day on or after the Amendment Effective Date until the
date which is thirty-five (35) Business Days prior to the end of the Commitment
Period in such form as may be approved from time to time by the Issuing Bank
(all such letters of credit outstanding on the date hereof and all letters of
credit to be issued
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hereunder, together with all extensions, renewals and replacements thereof, are
herein collectively referred to as the "Letters of Credit"); PROVIDED that the
Issuing Bank shall have no obligation to issue any Letter of Credit if at the
time of such issuance a Default exists or an Event of Default has occurred and
is continuing or if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the aggregate Available
Revolving Credit Commitments would be less than zero. Each Letter of Credit
shall (i) be denominated in Dollars, (ii) expire no later than thirty (30) days
prior to the Termination Date and (iii) expire no later than a date one (1) year
after its issuance, PROVIDED that any Letter of Credit with a one-year term may
provide for the renewal thereof for additional one-year periods (which shall in
no event extend beyond the date referred to in clause (ii) above).
(b) Each Letter of Credit shall be subject to the Uniform Customs and, to
the extent not inconsistent therewith, the laws of the State of the Issuing
Bank's principal place of business.
(c) The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
(d) The Issuing Bank shall not be liable to any L/C Participant for any
action taken or omitted by the Issuing Bank except for acts or omissions caused
by the Issuing Bank's gross negligence or willful misconduct.
3.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. The Borrower may from
time to time request that the Issuing Bank issue a Letter of Credit by
delivering to the Issuing Bank at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Bank, and
such other certificates, documents and other papers and information as the
Issuing Bank may request. Upon receipt of any Application, the Issuing Bank will
process such Application and the certificates, documents and other papers and
information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Bank be required to issue any Letter
of Credit earlier than three (3) Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereof) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing
Bank and the Borrower. The Issuing Bank shall furnish a copy of such Letter of
Credit to the Borrower and the other Banks promptly following the issuance
thereof.
3.3 FEES, COMMISSIONS AND OTHER CHARGES.
(a) After issuance of a Letter of Credit, the Borrower shall pay to the
Agent a letter of credit facility fee (the "L/C Fee") at the end of each
quarter, in arrears, in an amount equal to the product of (i) the face amount of
such Letter of Credit times (ii) the Letter of Credit Rate set forth opposite
the applicable Consolidated Indebtedness to Consolidated EBITDA Ratio in the
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Pricing Grid, times (iii) the term of such Letter of Credit, expressed as a
fraction equal to the number of days of such term divided by three hundred sixty
(360). In addition, as long as any letter of credit issued by The First National
Bank of Boston or any affiliate (the "FNBB Letters of Credit") for the account
of the Borrower or any Subsidiary is outstanding, the Borrower shall pay to the
Issuing Bank an additional fee, based on the face amount of all such letters of
credit, equal to the difference between the Letter of Credit Rate that would
have applied had such letters of credit been issued hereunder and the letter of
credit fee payable on the FNBB Letters of Credit. The applicable Letter of
Credit Rate shall be determined based upon the calculations submitted to the
Banks pursuant to subsection 6.2(b). In the event that the Letter of Credit Rate
cannot be determined at any time because the Borrower's financial statements for
the immediately preceding fiscal quarter are not available at such time, the L/C
Fee shall be presumed to be the same as the L/C Fee as of the last FQED for
which the Borrower's financial statements were available. Any change in the L/C
Fee as a consequence of a change in the Letter of Credit Rate shall be effective
as of the date of such change in the Letter of Credit Rate. Each L/C Fee payable
under this subsection 3.3 shall be shared ratably among the Banks in accordance
with their respective Commitment Percentages.
(b) The Agent shall, promptly following its receipt thereof, distribute to
the Issuing Bank and the L/C Participants all fees and commissions received by
the Agent for their respective accounts pursuant to this subsection.
3.4 REIMBURSEMENT OBLIGATION OF THE BORROWER. The Borrower agrees to
reimburse the Issuing Bank on each date on which the Issuing Bank notifies the
Borrower in writing of the date and amount of a draft presented under any Letter
of Credit and paid by the Issuing Bank for the amount of (a) such draft so paid
and (b) any taxes (other than income taxes), fees, charges or other costs or
expenses incurred by the Issuing Bank in connection with such payment. Each such
payment shall be made to the Issuing Bank at its address for notices specified
herein in Dollars and in immediately available funds. Interest shall be payable
on any and all amounts remaining unpaid by the Borrower under this subsection
from the date such amounts become outstanding until payment in full at the rate
which would be payable on any outstanding Loans which were then overdue under
subsection 2.3. Each drawing under any Letter of Credit shall constitute a
request by the Borrower to the Agent for the borrowing pursuant to subsection
2.1 of Revolving Credit Loans in the amount of such drawing and any
reimbursement made by an L/C Participant pursuant to subsection 3.5 shall
constitute a Revolving Credit Loan pursuant to subsection 2.3.
3.5 L/C DRAWS AND REIMBURSEMENTS.
(a) Each L/C Participant unconditionally and irrevocably agrees with the
Issuing Bank that, if a draft is paid under any Letter of Credit for which the
Issuing Bank is not reimbursed in full by the Borrower in accordance with the
terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon
demand at the Issuing Bank's address for notices specified herein an amount
equal to such L/C Participant's Commitment Percentage of the amount of such
draft, or
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any part thereof, which is not so reimbursed through participation or otherwise.
In furtherance of the foregoing, the Issuing Bank irrevocably agrees to grant
and hereby grants to each L/C Participant, and, to induce the Issuing Bank to
issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from the Issuing Bank, on
the terms and conditions hereinafter stated, for such L/C Participant's own
account and risk an undivided interest equal to such L/C Participant's
Commitment Percentage in the Issuing Bank's obligations and rights under each
Letter of Credit issued hereunder and the amount of each draft paid by the
Issuing Bank thereunder.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to subsection 3.5(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Letter of Credit is
paid to the Issuing Bank within three (3) Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Bank on demand an
amount equal to the product of (1) such amount, times (2) the daily average
Federal Funds Effective Rate, as quoted by the Issuing Bank, during the period
from and including the date such payment is required to the date on which such
payment is immediately available to the Issuing Bank, times (3) a fraction the
numerator of which is the number of days that elapse during such period and the
denominator of which is 365. If any such amount required to be paid by any L/C
Participant pursuant to subsection 3.5(a) is not in fact made available to the
Issuing Bank by such L/C Participant within three (3) Business Days after the
date such payment is due, the Issuing Bank shall be entitled to recover from
such L/C Participant, on demand, such amount with interest thereon calculated
from such due date at the rate per annum equal to the Alternate Base Rate. A
certificate of the Issuing Bank submitted to any L/C Participant with respect to
any amounts owing under this subsection shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after the Issuing Bank has made payment under
any Letter of Credit and has received from any L/C Participant its share of such
payment in accordance with subsection 3.5(a), the Issuing Bank receives any
payment related to such Letter of Credit (whether directly from the Borrower or
otherwise, including proceeds of collateral applied thereto by the Issuing
Bank), or any payment of interest on account thereof, the Issuing Bank will
distribute to such L/C Participant its share thereof; PROVIDED, HOWEVER, that in
the event that any such payment received by the Issuing Bank shall be required
to be returned by the Issuing Bank, such L/C Participant shall return to the
Issuing Bank the portion thereof previously distributed by the Issuing Bank to
it.
3.6 OBLIGATIONS ABSOLUTE. The Borrower's obligations under this Section 3
shall be absolute and unconditional under any and all circumstances and
irrespective of any set-off, counterclaim or defense to payment which the
Borrower may have or have had against the Issuing Bank or any beneficiary of a
Letter of Credit. The Borrower also agrees with the Issuing Bank that, subject
to its responsibilities under the Uniform Customs, the Issuing Bank shall not be
responsible for, and the Borrower's Reimbursement Obligations under Subsection
3.4 shall not be affected by, among other things, the validity or genuineness of
documents or of any endorsements
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thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Bank
shall not be liable to the Borrower or any Bank for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Bank's gross negligence or willful
misconduct. The Borrower agrees that any action taken or omitted by the Issuing
Bank under or in connection with any Letter of Credit or the related drafts or
documents, if done in the absence of gross negligence or willful misconduct and
in accordance with the standards of care specified in the Uniform Commercial
Code of the State of Connecticut, shall be binding on the Borrower and shall not
result in any liability of the Issuing Bank to the Borrower.
3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for payment
under any Letter of Credit, the Issuing Bank shall promptly notify the Borrower
and the Banks of the date and amount thereof. The responsibility of the Issuing
Bank to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are in conformity with such Letter of Credit.
3.8 APPLICATION. To the extent that any provision of any Application
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement and to make the Loans and
issue or participate in the Letters of Credit the Borrower hereby represents and
warrants to the Agent and each Bank that:
4.1 FINANCIAL CONDITION.
(a) The combined balance sheet of the Borrower and its Affiliates as at
December 31, 1996 and December 31, 1995 and the related combined statements of
income and retained earnings and of cash flows for the fiscal years ended on
such dates, reported on by Deloitte & Touche LLP, copies of which have
heretoforebeen furnished to each Bank, are complete and correct and present
fairly the consolidated financial condition of The Borrower and its Affiliates
as at such dates, and the results of their operations and their cash flows for
the fiscal years then ended. The unaudited combined balance sheet of the
Borrower and its Affiliates as at September 30, 1997 and the related unaudited
statement of income and retained earnings for the nine-month period ended on
such date, certified by a Responsible Officer, copies of which have heretofore
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been furnished to each Bank, are complete and correct and present fairly the
financial condition of the Borrower and its Affiliates as at such date, and the
results of their operations for the nine-month period then ended (subject to
normal year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein).
(b) Except as set forth on SCHEDULE 4.1(b), neither the Borrower nor any
of its combined Affiliates had, at the date of the most recent balance sheet
referred to in subsection 4.1(a), any material Guarantee Obligation, contingent
liability or liability for taxes, or any long-term lease or unusual forward or
long-term commitment, including, without limitation, any interest rate or
foreign currency swap or exchange transaction, which is not reflected in the
financial statements referred to in subsection 4.1(a) or in the notes thereto.
(c) Except as set forth on SCHEDULE 4.1(c), during the period from
December 31, 1996 to and including the date hereof there has been no sale,
transfer or other disposition by the Borrower or any of its combined Affiliates
of any material part of its business or property and no purchase or other
acquisition of any business or property (including any capital stock of any
other Person) material in relation to the financial condition of the Borrower
and its combined Affiliates at December 31, 1996.
(d) The unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at September 30, 1997 and the related consolidated
statements of income and retained earnings for the nine-month period ended on
such date (the "FINANCIAL STATEMENTS"), copies of which have heretofore been
furnished to the Banks, have been prepared with a pro forma balance sheet
contained in Note 9 thereof giving effect to (i) the public offering by the
Borrower of 3,000,000 shares of common stock of the Borrower on October 24,
1997, (ii) the retirement of certain Subordinated Indebtedness, and (iii) the
payment of fees and expenses in connection with the foregoing. Note 9 contained
in the Financial Statements has been prepared based on the best information
available to the Borrower as of the date of delivery thereof and presents fairly
on a pro forma basis the estimated financial position of the Borrower and its
consolidated Subsidiaries as at the Closing Date.
(e) Substantially all of the books and records of the Borrower and its
Subsidiaries are located at the Borrower's headquarters at 1144 East Newport
Center Drive, Deerfield Beach, Florida.
4.2 NO CHANGE. Since December 31, 1996, (a) except as set forth on
SCHEDULE 4.2, there has been no development or event nor, to the best of our
knowledge, any prospective development or event which has had or could have a
Material Adverse Effect and (b) except as set forth on SCHEDULE 4.2 or as
permitted by this Agreement, no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Borrower or any of
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its combined Affiliates nor has any of the Capital Stock of the Borrower been
redeemed, retired, purchased or otherwise acquired for value by the Borrower or
any of its combined Affiliates.
4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower and each
Subsidiary (a) is duly organized as a "C corporation", as defined in Section
1361(a)(2) of the Code, validly existing and in good standing under the laws of
the jurisdiction of its organization, (b) has the power and authority, and the
legal right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged in each
jurisdiction where the failure to have such power, authority or right would have
a Material Adverse Effect, (c) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
except where the failure so to qualify could not have a Material Adverse Effect
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, have a Material
Adverse Effect.
4.4 CORPORATE POWER, AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The Borrower
and each Subsidiary has the corporate power and authority, and the legal right,
to make, deliver and perform this Agreement, the Notes, each Application and the
other Loan Documents to which it is a party, to borrow hereunder and to grant
the Liens pursuant to the Security Documents to which it is a party and has
taken all necessary corporate action to authorize the borrowings on the terms
and conditions of this Agreement and the Notes, the grant of the Liens pursuant
to the Security Documents to which it is a party and the execution, delivery and
performance of this Agreement, the Notes, each Application and each other Loan
Document to which it is a party. No consent or authorization of, filing with or
other action by or in respect of, any Governmental Authority or any other Person
is required in connection with the borrowings hereunder, the grant of the Liens
pursuant to the Security Documents or the execution, delivery, performance,
validity or enforceability of this Agreement, the Notes, each Application or any
other Loan Document. This Agreement and each other Loan Document to which the
Borrower or a Subsidiary is a party (except the Notes) has been, and each Note
will be, duly executed and delivered on behalf of the Borrower. This Agreement
and each other Loan Document to which the Borrower or a Subsidiary is a party
(except the Notes) constitutes, and each Note when executed and delivered will
constitute, a legal, valid and binding obligation of the Borrower or such
Subsidiary, as the case may be, enforceable against such Borrower or such
Subsidiary in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
4.5 NO LEGAL BAR. The execution, delivery and performance of this
Agreement, the Notes, each Application and each other Loan Document, the grant
of the Liens pursuant to the Security Documents, the borrowings hereunder and
the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower or of any Subsidiary and will not result
in, or require, the creation or imposition of any Lien on any of its or their
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respective properties or revenues pursuant to any such Requirement of Law or
Contractual Obligation.
4.6 NO MATERIAL LITIGATION. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary or against any of its or their respective properties or revenues (a)
with respect to this Agreement, the Notes, any Application or any other Loan
Document or any of the transactions contemplated hereby or thereby or (b) which
could have a Material Adverse Effect. SCHEDULE 4.6 sets forth certain litigation
and proceedings presently pending against the Borrower or its Subsidiaries.
4.7 NO DEFAULT. Neither the Borrower nor any Subsidiary is in default
under or with respect to any of its Contractual Obligations or Capital Stock in
any respect which could have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing.
4.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and each Subsidiary
has good record and marketable title in fee simple to, or a valid leasehold
interest in, all its real property, and good title to all its other property
except for any defect in title thereto or leasehold interest therein which could
not in the aggregate have a Material Adverse Effect, and none of the property
owned or leased by the Borrower or any Subsidiary is subject to any Lien except
as permitted by subsection 7.3 or which could not in the aggregate have a
Material Adverse Effect.
4.9 INTELLECTUAL PROPERTY. The Borrower and each Subsidiary owns, or is
licensed to use, all trademarks, trade names, copyrights, technology, know-how
and processes necessary for the conduct of its business as currently conducted
except for those the failure to own or license which could not have a Material
Adverse Effect (the "Intellectual Property"). Except as provided in SCHEDULE
4.6, no claim has been asserted and is pending by any Person challenging or
questioning the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property; nor does the Borrower know of
any valid basis for any such claim which could or might have a Material Adverse
Effect. To the best of the Borrower's knowledge, the use of such Intellectual
Property by the Borrower and each Subsidiary does not infringe on the rights of
any Person, except for such claims and infringements that, in the aggregate,
could not have a Material Adverse Effect.
4.10 NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any Subsidiary
is a party to any Contractual Obligation or Requirement of Law, compliance with
the terms of which could have a Material Adverse Effect.
4.11 TAXES. Each of the Borrower and its Subsidiaries has filed or caused
to be filed all tax returns which, to the knowledge of the Borrower, are
required to be filed (the "Tax Returns") and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of
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its property by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP have been
provided on the books of the Borrower or its Subsidiaries, as the case may be)
where the failure to so file such Tax Returns or to pay such taxes could or
might have a Material Adverse Effect; no tax Lien has been filed, and, to the
knowledge of the Borrower, no claim is being asserted, with respect to any such
tax, fee or other charge. SCHEDULE 4.11 sets forth a complete and correct list
of all audits concerning any Tax Return that are being conducted by any
Governmental Authority or are otherwise in progress on the Closing Date.
4.12 FEDERAL REGULATIONS. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any purpose which violates the provisions of the Regulations of
such Board of Governors. If requested by any Bank or the Agent, the Borrower
will furnish to the Agent and each Bank a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said Regulation
U.
4.13 ERISA. Neither the Borrower nor any Commonly Controlled Entity
participates currently or has during the five-year period prior to the date on
which this representation is made participated in or is required currently or
has during the five-year period ending on the date on which this representation
is made been required to contribute to or otherwise participate in any plan,
program or arrangement subject to Title IV of ERISA. Except as set forth in
SCHEDULE 4.13, each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code. The present value of all accrued
benefits under each Single Employer Plan maintained by the Borrower or any
Commonly Controlled Entity (based on those assumptions used to fund the Plans)
did not, as of the last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the value of the assets of such
Plan allocable to such accrued benefits. Neither the Borrower nor any Commonly
Controlled Entity participates currently or has during the five-year period
prior to the date on which this representation is made participated in or is
required currently or has during the five-year period ending on the date on
which this representation is made been required to contribute to or otherwise
participate in any Multiemployer Plan. Neither the Borrower nor any Commonly
Controlled Entity participates currently or has during the five-year period
prior to the date on which this representation is made participated in or is
required currently or has during the five-year period ending on the date on
which this representation is made been required to contribute to or otherwise
participate in any welfare benefit plans (as defined in Section 3(1) of ERISA)
that provide post-retirement benefits to their current or former employees.
4.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. Neither the Borrower nor
any Subsidiary is an "investment company", or, to the best of the Borrower's
knowledge, a company "controlled" by an "investment company", within the meaning
of the Investment Company Act of
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1940, as amended (the "1940 Act"). Neither the Borrower nor any Subsidiary is
subject to regulation under the 1940 Act or any Federal or State statute or
regulation which limits its ability to incur Indebtedness.
4.15 SUBSIDIARIES. All the Subsidiaries of the Borrower are listed on
SCHEDULE 4.15. Neither Labor World, Inc. nor Labor World USA, Inc., which are
not Subsidiaries but are corporations whose shares are owned by certain
shareholders of the Borrower, has assets exceeding $10,000 or has or will have
any business activity of any kind.
4.16 PURPOSE OF LOANS. The Borrower shall use the Loans in the following
manner: (i) for the working capital needs and for the general corporate purposes
of itself and its Subsidiaries (other than CSF), including for Capital
Expenditures; (ii) to make Permitted Acquisitions; (iii) to make advances to
CSF, not exceeding an aggregate amount of $7,500,000 outstanding at any one
time, to fund the working capital needs of Labor World, Tandem and Office Ours
franchisees and (iv) with regard to the proceeds of Swingline Loans, to fund the
working capital needs of the Borrower and its Subsidiaries (other than CSF).
4.17 ENVIRONMENTAL MATTERS. To the best knowledge of any Responsible
Officer of the Borrower, each of the representations and warranties set forth in
paragraphs (a) through (e) of this subsection is true and correct with respect
to each parcel of real property heretofore or now owned or operated by the
Borrower or any Subsidiary (the "Properties"), except as set forth on SCHEDULE
4.17 and except to the extent that the facts and circumstances giving rise to
any such failure to be so true and correct could not have a Material Adverse
Effect:
(a) The Properties do not contain, and have not previously contained, in,
on, or under, including, without limitation, the soil and groundwater
thereunder, any Hazardous Materials.
(b) The Properties and all operations and facilities at the Properties are
in compliance with all Environmental Laws, and there is no Hazardous Materials
contamination or violation of any Environmental Law which could interfere with
the continued operation of any of the Properties or impair the fair saleable
value of any thereof.
(c) Neither the Borrower nor any of its Subsidiaries has received any
complaint, notice of violation, alleged violation, investigation or advisory
action or of potential liability or of potential responsibility regarding
environmental protection matters or permit compliance with regard to the
Properties, nor is the Borrower aware that any Governmental Authority is
contemplating delivering to the Borrower or any of its Subsidiaries any such
notice.
(d) Hazardous Materials have not been generated, treated, stored, disposed
of, at, on or under any of the Properties, nor have any Hazardous Materials been
transferred from the Properties to any other location.
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(e) There are no governmental, administrative or judicial proceedings
pending or contemplated under any Environmental Laws to which the Borrower or
any of its Subsidiaries is or will be named as a party with respect to the
Properties, nor are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to any of the
Properties.
4.18 SECURITY DOCUMENTS.
(a) The provisions of the OI Pledge Agreement are effective to create in
favor of the Agent for the ratable benefit of the Banks a legal, valid and
enforceable security interest in all right, title and interest of the pledgor in
the Collateral as described therein. The OI Pledge Agreement constitutes a fully
perfected first lien on, and security interest in, all right, title and interest
of the pledgor in the Collateral described therein.
(b) The provisions of the OI Security Agreement are effective to create in
favor of the Agent for the ratable benefit of the Banks a legal, valid and
enforceable security interest in all right, title and interest of the Borrower
in the Collateral as described therein. Except where failure to file would not
have a material effect on Agent's ability to realize effectively on the
Collateral, as a whole, OI Security Agreement constitutes a fully perfected
first lien on, and security interest in, all right, title and interest of the
Borrower in the Collateral described therein, and no Uniform Commercial Code
financing statements have been filed by any other Person with respect to such
Collateral other than as may be filed in connection with this Agreement and
except as described on SCHEDULE 4.18 hereto.
(c) The provisions of the Subsidiary Security Agreement are effective to
create in favor of the Agent for the ratable benefit of the Banks a legal, valid
and enforceable security interest in all right, title and interest of such
Subsidiary in the Collateral as described therein. Except where failure to file
would not have a material effect on the Agent's ability to effectively realize
on the Collateral, as a whole, the Subsidiary Security Agreement constitutes a
fully perfected first lien on, and security interest in, all right, title and
interest of such Subsidiary in the Collateral described therein, and no Uniform
Commercial Code financing statements have been filed by any other Person with
respect to such Collateral other than as may be filed in connection with this
Agreement and except as described on SCHEDULE 4.18 hereto.
(d) The provisions of the Trademark Security Agreement are effective to
create in favor of the Agent for the ratable benefit of the Banks a legal, valid
and enforceable security interest in all right, title and interest of the
Borrower and its Subsidiaries in the Collateral as described therein. Except
where failure to file would not have a material effect on the Agent's ability to
effectively realize on the Collateral, as a whole, the Trademark Security
Agreement constitutes a fully perfected first lien on, and security interest in,
all right, title and interest of such
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Subsidiary in the Collateral described therein, and no Uniform Commercial Code
financing statements or filings with the United States Patent and Trademark
Office have been filed by any other Person with respect to such Collateral other
than as may be filed in connection with this Agreement and except as described
on SCHEDULE 4.18 hereto.
4.19 [Intentionally Reserved].
4.20 SOLVENCY. The Borrower and each Subsidiary is, and after giving
effect to the incurrence of all Indebtedness, including Subordinated
Indebtedness, and obligations being incurred in connection herewith will be and
will continue to be, Solvent.
4.21 CERTAIN STOCKHOLDERS. To the best of the Borrower's knowledge, none
of Lawrence H. Schubert, Alan E. Schubert or Louis A. Morelli is a beneficial
owner, directly or indirectly, including without limitation through a family
member or trust, of any Voting Stock of the Borrower or its Subsidiaries except
such Voting Stock as is subject to the provisions of the Voting Trust Agreement.
As of the Closing Date, none of said individuals or any of his family members
has any direct or indirect affiliation with or business relationship with the
Borrower or its Subsidiaries except as is described in detail on SCHEDULE 4.21.
4.22 YEAR 2000 COMPATABILITY. All of the Borrower's and each Subsidiary's
computer-based systems are able to operate and effectively process data
including dates on or after January 1, 2000, except for the Master Pack System,
as to which the Borrower is currently taking action to ensure compliance with
the coverage contained in Section 6.12 hereof.
SECTION 5. CONDITIONS PRECEDENT
5.1 AMENDMENT EFFECTIVE DATE. The effectiveness of the amendment and
restatement of the Existing Credit Agreement provided for hereby is subject to
the receipt by the Agent of the following documents, each of which shall be
satisfactory to the Agent and each Bank in form and substance:
(a) AGREEMENT. The Agent shall have received, with a counterpart for each
Bank, this Agreement, executed and delivered by a duly authorized officer of the
Borrower.
(b) REVOLVING CREDIT NOTES. The Revolving Credit Notes, duly completed and
executed and, in the case of the Existing Banks, in exchange for the promissory
notes issued under the Existing Credit Agreement.
(c) SWINGLINE NOTE. The Swingline Note, duly completed and executed in
exchange (in the case of the Swingline Bank) for the promissory note issued
under the Existing Credit Agreement.
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(d) REAFFIRMATION AND AMENDMENT OF LOAN DOCUMENTS. The Agent shall have
received, with a counterpart for each Bank and in each case executed and
delivered by a duly authorized officer of the Borrower or its Subsidiaries, as
the case may be, a reaffirmation and, to the extent required by the Agent,
amendment, of the Security Documents.
(e) LEGAL OPINION. The Agent and each Bank shall have received the
executed legal opinion of Holland & Knight LLP, counsel to the Borrower and its
Subsidiaries, satisfactory to the Agent and special counsel to the Agent and
substantially in the form of Exhibit E hereto.
(f) CORPORATE PROCEEDINGS. The Agent shall have received, with a copy for
each Bank, a copy of the resolutions, in form and substance satisfactory to the
Agent, of the Board of Directors of the Borrower and each Subsidiary authorizing
(i) in the case of the Borrower, the execution, delivery and performance of this
Agreement and the Notes and (ii) with respect to the Borrower and each
Subsidiary, the reaffirmation and, to the extent applicable, amendment of the
Security Documents to which each is a party.
(g) INCUMBENCY CERTIFICATES. The Agent shall have received, with a copy
for each Bank, a certificate, dated the Closing Date, of the Secretary or an
Assistant Secretary of the Borrower and each Subsidiary as to the incumbency and
signature of the officer or officers signing this Agreement and the
reaffirmations of each Security Document, together with evidence of the
incumbency of such Secretary or Assistant Secretary.
(h) CORPORATE DOCUMENTS. The Agent shall have received, with a counterpart
for each Bank, true and complete copies of the certificate of incorporation and
by-laws of the Borrower and each Subsidiary, certified at the Closing Date as
complete and correct copies thereof, by the Secretary or Assistant Secretary of
the Borrower or such Subsidiary.
(i) GOOD STANDING CERTIFICATES. The Agent shall have received, with a copy
for each Bank, certificates dated as of a recent date from the Secretary of
State or other appropriate authority of such jurisdiction, evidencing the good
standing of the Borrower and each Subsidiary in its state of incorporation and
in each state where failure to obtain authority to do business as a foreign
corporation would have a Material Adverse Effect.
(j) FINANCIAL STATEMENTS. The Agent shall have received, with copies for
each Bank, copies of the financial statements referred to in subsection 4.1,
specifically including the most recent management prepared financial statements
for the fiscal quarter ending September 30, 1997, and all other documents
requested by the Agent in connection with its completion of a testing and review
of the assets and liabilities of the Borrower and its Subsidiaries.
(k) LIEN SEARCHES. The Agent shall have received the results of a recent
search by a Person satisfactory to the Agent, of Uniform Commercial Code and
other filings which may have been filed with respect to the personal property of
the Borrower or any Subsidiaries in those
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locations of which the Agent notifies the Borrower prior to the Closing Date.
(l) LITIGATION. No suit, action, investigation, inquiry or other
proceeding (including, without limitation, the enactment or promulgation of a
statute or rule) by or before any arbitrator or any Governmental Authority shall
be formally instituted or threatened and no preliminary or permanent injunction
or restraining order by a state or federal court shall have been entered or
threatened (i) in connection with any Loan Document or any of the transactions
contemplated hereby or thereby or (ii) which, in the reasonable opinion of the
Banks, could have a Material Adverse Effect.
(m) NO VIOLATION. The consummation of the transactions contemplated by
this Agreement, the Notes, each Application and the other Loan Documents shall
not contravene, violate or conflict with, nor involve the Agent or any Bank in
any violation of, any Requirement of Law.
(n) FEES. The Agent and each Bank shall have received the fees to be
received by it on the Closing Date referred to in subsection 2.8 and the fees
and disbursements of Day, Berry & Howard, special counsel for the Agent, shall
have been paid in full on the Closing Date.
(o) CONSENTS, LICENSES AND APPROVALS. The Agent shall have received, with
a counterpart for each Bank, a certificate, dated the Closing Date, executed by
a duly authorized officer of the Borrower stating that all consents,
authorizations, notices and filings necessary or advisable in connection with
the financings contemplated by this Agreement and the continuing operations of
the Borrower have been obtained and are in full force and effect, except where
the failure to obtain such consents, authorizations, notices or filings could
not have a Material Adverse Effect.
(p) REPRESENTATIONS AND WARRANTIES, ETC. The Agent shall have received,
with a counterpart for each Bank, a certificate of a Responsible Officer of the
Borrower, dated the Closing Date, certifying on behalf of the Borrower that (i)
the representations and warranties in Section 4 are true, complete and correct
in all material respects on such date as though made on and as of such date,
(ii) no event has occurred and is continuing which constitutes a Default or
Event of Default, (iii) the Borrower has performed and complied with all
agreements and conditions contained in this Agreement which are required to be
performed or complied with by the Borrower at or before the Closing Date, and
(iv) there has been no material adverse change in the financial condition,
operations, properties, business or prospects of the Borrower and its
Subsidiaries, taken as a whole, since December 31, 1996.
(q) INSURANCE. The Agent shall have received evidence satisfactory to it
that the Borrower and its Subsidiaries have in place insurance satisfying the
requirements of subsection 6.5.
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(r) MARKET CLEARING LETTER. The Agent shall have received, dated on or
before the Closing Date, a market clearing letter executed by the Borrower, in
substantially the same form as attached to the commitment letter dated October
6, 1997 between the Agent, the Arranger and the Borrower, with respect to
syndication of the Loan.
(s) MANAGEMENT LETTER. The Agent shall have received, and be satisfied
with the content of, the management letter of Deloitte & Touche with respect to
the financial statements of the Borrower and its Affiliates for the year ended
December 31, 1996 and any such management letter covering a more recent period.
(t) RETIREMENT OF SUBORDINATED INDEBTEDNESS. Evidence satisfactory to the
Agent that the Borrower shall have issued publicly traded common stock with
minimum net proceeds to it of at least $40,000,000, which amount shall have been
applied by the Borrower to permanently retire all Subordinated Indebtedness of
the Borrower and to pay down bank debt of the Borrower, PROVIDED, HOWEVER, that
up to $4,000,000 of Subordinated Indebtedness of the Borrower relating to
acquisitions done in the first quarter of 1997 may remain in effect.
(u) SUBORDINATION OF OBLIGATIONS. Without affecting Indebtedness permitted
under the Existing Credit Agreement, subordination of all obligations of the
Borrower and its Subsidiaries in respect of Indebtedness, on terms acceptable to
the Agent and the Lenders.
(v) BORROWING BASE CERTIFICATE. the Agent shall have received, with a copy
for each Bank, a certificate, dated the Closing Date, of a Responsible Officer
(which certificate shall set forth, in detail, all calculations) attesting to
the Borrowing Base as of October 26, 1997.
(w) OTHER DOCUMENTS. Such other documents as the Agent or any Bank or
special counsel to the Agent may reasonably request.
5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each Bank to
make any extension of credit requested to be made by it on any date (including,
without limitation, its initial extension of credit) is subject to the
satisfaction on such borrowing date of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower and each Subsidiary in or pursuant to the Loan
Documents shall be true and correct in all material respects on and as of such
date as if made on and as of such date; PROVIDED that, with respect to
extensions of credit made after the Closing Date, Guarantee Obligations incurred
after the Closing Date and in accordance with the terms of this Agreement shall
not be deemed a breach of the representation and warranty set forth in
subsection 4.1(b) to the extent that such Guarantee Obligations are not
described in the financial statements described in subsection 4.1(a).
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(b) NO DEFAULT. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extension of credit
requested to be made on such date.
(c) ADDITIONAL DOCUMENTS. The Agent shall have received each additional
document, instrument, legal opinion or item of information reasonably requested
by it, including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which the Borrower or any Subsidiary may
be a party.
(d) ADDITIONAL MATTERS. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory in form and substance to the Agent, and the Agent shall have
received such other documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
Each borrowing by and Letter of Credit issued on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such Loan or Letter of Credit that the conditions contained in this
subsection 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Bank or the Agent hereunder, the Borrower shall and
(except in the case of delivery of financial information, reports and notices)
shall cause each of its Subsidiaries to:
6.1 FINANCIAL STATEMENTS. Furnish to each Bank:
(a) as soon as available, but in any event within ninety (90) days after
the end of each fiscal year of the Borrower, a copy of the consolidated and
consolidating balance sheets of the Borrower and its consolidated Subsidiaries
as at the end of such year and the related consolidated and consolidating
statements of income and retained earnings and of cash flows for such year,
setting forth in each case in comparative form the figures for the previous
year, and, with respect to the consolidated financial statements, reported on
without a "going concern" or like qualification or exception, or qualification
arising out of the scope of the audit by Deloitte & Touche LLP or other
independent certified public accountants of nationally recognized standing not
unacceptable to the Required Banks;
(b) as soon as available, but in any event not later than forty-five (45)
days after the end of each of the first three (3) fiscal quarters of each fiscal
year of the Borrower, the unaudited consolidated and consolidating balance
sheets of the Borrower and its consolidated Subsidiaries as at the end of such
quarter, (i) the related unaudited consolidated and consolidating statements
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of income and retained earnings of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through the end
of such quarter, and the related unaudited consolidated and consolidating
statements of cash flows of the Borrower and its consolidated Subsidiaries for
the portion of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects when
considered in relation to the consolidated and consolidating financial
statements of the Borrower and its consolidated Subsidiaries(subject to normal
year-end audit adjustments) and (ii) a statement setting forth the aggregate
amount of Capital Expenditures made by the Borrower and its consolidated
Subsidiaries during such fiscal period (which aggregate amount shall separately
specify the total amount of Capital Expenditures consisting of cash and the
total amount of Capital Expenditures consisting of Capital Leases and other
non-cash financings), in each case, certified by a Responsible Officer as being
fairly stated in all material respects when, in the case of the financial
statements delivered pursuant to clause (i) above, considered in relation to the
consolidated and consolidating financial statements of the Borrower and its
consolidated Subsidiaries(subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than thirty (30) days
after the last day of each month of each fiscal year of the Borrower, the
unaudited consolidated and consolidating balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such fiscal period and the related
unaudited consolidated and consolidating statements of income and retained
earnings of the Borrower and its consolidated Subsidiaries for such fiscal
period and the portion of the fiscal year of the Borrower through the end of
such fiscal period, setting forth in each case in comparative form the figures
for the previous year;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2. CERTIFICATES; OTHER INFORMATION. Furnish to each Bank:
(a) concurrently with the delivery of the financial statements referred to
in subsection 6.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of any Default or Event
of Default, except as specified in such certificate;
(b) concurrently with the delivery of each of the financial statements
referred to in subsections 6.1(a) and 6.1(b), a certificate of a Responsible
Officer (which certificate shall set forth, in detail, all interim and
preparatory figures and calculations used in determining the Borrower's
satisfaction of its covenants and agreements contained in subsection 7.1)
stating that, to the best of such Officer's knowledge, each of the Borrower and
its Subsidiaries during such
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period has observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Agreement, the Notes and the other
Loan Documents to which it is a party to be observed, performed or satisfied by
it, and that such Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate;
(c) concurrently with the delivery of each of the financial statements
referred to in subsection 6.1(c), a certificate of a Responsible Officer (which
certificate shall set forth, in detail, all calculations) attesting to the
Borrowing Base for such month;
(d) if delivered, as soon thereafter as practicable but in no event later
than fifteen (15) days after receipt, a copy of the letter, if any, addressed to
the Borrower, of the certified public accountants who prepared the financial
statements referred to in subsection 6.1(a) for such fiscal year and otherwise
referred to as a "management letter";
(e) as soon as available, but in any event within thirty (30) days after
the end of each fiscal year of the Borrower a copy of (i) the projections by the
Borrower of the operating budget and cash flow budget of the Borrower and its
Subsidiaries for the succeeding three (3) fiscal years and (ii) the projected
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the last day of each of such three (3) succeeding fiscal years. Such
projections and projected balance sheet to be accompanied by a certificate of a
Responsible Officer to the effect that such projections and projected balance
sheet have been prepared on the basis of sound financial planning practice and
that such Officer has no reason to believe they are incorrect or misleading in
any material respect;
(f) within five (5) days after the same are sent, copies of all financial
statements and reports which the Borrower sends to its stockholders and within
five (5) days after the same are filed, copies of all applications, financial
statements and reports which the Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous Governmental
Authority;
(g) promptly following the release by the Borrower or any of its
Subsidiaries to the press of any material statement or other written
communication, a copy thereof; and
(h) promptly, such additional financial and other information as any Bank
may from time to time reasonably request.
6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, including without limitation all payroll and
other tax obligations, except where the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Borrower or its Subsidiaries, as the case may be or except where the failure to
pay, discharge or otherwise
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satisfy could not have a Material Adverse Effect.
6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to engage
in business of the same general type as now conducted by it and preserve, renew
and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business except as otherwise permitted
pursuant to subsection 7.5 and comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY; INSURANCE.
(a) Keep all property useful and necessary in its business in good working
order and condition except where the failure to do so could not have a Material
Adverse Effect; and
(b) maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks (but including in any event public liability and business interruption) as
are usually insured against in the same general area by companies engaged in the
same or a similar business and furnish to each Bank upon written request, full
information as to the insurance carried.
6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper
books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Bank, upon reasonable notice to the Borrower, to visit
and inspect any of its properties and examine and make abstracts from any of its
books and records at any reasonable time and as often as may be reasonably
desired ("Field Examinations") and to discuss the business, operations,
properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants. Up to two (2) Field
Examinations each year shall be at the Borrower's expense, which expense shall
not exceed $20,000 in the aggregate.
6.7 NOTICES. Promptly give notice to the Agent and each Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual Obligation
of the Borrower or any of its Subsidiaries, or (ii) litigation, investigation or
proceeding which may exist at any time between the Borrower or any of its
Subsidiaries and any Governmental Authority; which in either case, if not cured
or if adversely determined, as the case may be, would have a Material Adverse
Effect;
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(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $250,000 or more and not covered by
insurance or in which injunctive or similar relief is sought which individually
or in the aggregate could or might have a Material Adverse Effect; PROVIDED that
the Borrower shall not be required to give notice of any such litigation or
proceeding if the Borrower has reasonably determined, after consultation with
counsel, that the possibility is remote that such litigation or proceeding will
result in a judgment of $250,000 or more or in injunctive or similar relief
against the Borrower or its Subsidiaries;
(d) the following events, as soon as possible and in any event within
thirty (30) days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan, or any withdrawal from, or the termination, Reorganization or Insolvency
of any Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC or the Borrower or any Commonly Controlled
Entity or any Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan;
(e) as soon as the Borrower knows or has reason to know that it or any
Subsidiary has become liable for remediation and/or environmental compliance
expenses and/or fines, penalties or other charges which, in the aggregate, are
in excess of $250,000 at any one time outstanding (net of all reimbursements in
respect of such amounts from any state trust funds which have been or are
reasonably expected to be made to the Borrower or its Subsidiaries and have been
recognized as a receivable or may properly be set off as a credit against such
liabilities in accordance with GAAP); and
(f) a material adverse change in the business, operations, property,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
6.8 ENVIRONMENTAL LAWS.
(a) Comply with, and insure compliance by all tenants and subtenants, if
any, with, all Environmental Laws and obtain and comply with and maintain, and
ensure that all tenants and subtenants obtain and comply with and maintain, any
and all licenses, approvals, registrations or permits required by Environmental
Laws, except to the extent that failure to do so could not have a Material
Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply
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with all lawful orders and directives of all Governmental Authorities respecting
Environmental Laws, except to the extent that the same are being contested in
good faith by appropriate proceedings and the pendency of such proceedings could
not have a Material Adverse Effect;
(c) Defend, indemnify and hold harmless the Agent and the Banks, and their
respective employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of or noncompliance with
any Environmental Laws by the Borrower or any of its Subsidiaries, or any
orders, requirements or demands of Governmental Authorities related thereto,
including, without limitation, reasonable attorneys' and consultants' fees,
investigation and laboratory fees, court costs and litigation expenses, except
to the extent that any of the foregoing arise out of the gross negligence or
willful misconduct of the party seeking indemnification therefor.
(d) Prepare and deliver to the Agent and to each other Bank, at least as
frequently as once each fiscal quarter after any accrual (as described below)
exists, a report setting forth a summary, as of the end of such fiscal quarter,
of (i) the gross amount of all sums accrued in respect of any remediation
required by applicable Environmental Laws, (ii) all reimbursements in respect of
such amounts from any state trust funds which have been or are reasonably
expected to be made to the Borrower or its Subsidiaries and have been recognized
as a receivable or may properly be set off as a credit against the cost of such
remediation under GAAP and (iii) the net amount of all sums accrued in respect
of such remediation costs.
6.9 USE OF PROCEEDS. Use the proceeds of the Loans only for the purposes
described in Section 4.16.
6.10 FURTHER ASSURANCES. Execute and deliver such additional financing
statements, continuations of financing statements and other documents as Agent
shall reasonably request to perfect and maintain perfected the Agent's security
interest in the Collateral.
6.11 INTEREST RATE PROTECTION. On or before the date which is ninety (90)
days following the Closing Date, the Borrower shall, at its reasonable expense,
enter into certain interest rate protection arrangements covering no less than
$42,500,000 in notional principal amount of the Facility, on terms and
conditions satisfactory to the Agent.
6.12 YEAR 2000 COMPATIBILITY. On or before December 31, 1998, take all
action necessary to ensure that the Borrower's and each Subsidiary's
computer-based systems are able to operate and effectively process data
including dates on or after January 1, 2000. At the request of the Agent, the
Borrower and its Subsidiaries shall provide the Agent reasonable assurance of
such "Year 2000 Compatibility."
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SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Bank or the Agent hereunder, the Borrower shall
not, and (except with respect to subsection 7.1) shall not permit any of its
Subsidiaries to, directly or indirectly:
7.1 FINANCIAL CONDITION COVENANTS.
(a) MAXIMUM CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED EBITDA RATIO.
Permit, as of the end of any month during each of the periods set forth below,
the Consolidated Indebtedness to Consolidated EBITDA Ratio to be greater than
the amount set forth below opposite such period:
--------------------------------------------------------------
PERIOD CONSOLIDATED INDEBTEDNESS TO
CONSOLIDATED EBITDA RATIO
--------------------------------------------------------------
For the period ending on 5.00 to 1
September 30, 1997
--------------------------------------------------------------
During the period beginning on
October 1, 1997 and ending on 3.50 to 1
December 31, 1998
--------------------------------------------------------------
During the period beginning on 3.25 to 1
January 1, 1999 and thereafter
--------------------------------------------------------------
(b) MINIMUM CONSOLIDATED EBITDA TO CONSOLIDATED INTEREST EXPENSE Ratio.
Permit, as of the end of any month during each of the periods set forth below,
the Consolidated EBITDA to Consolidated Interest Expense Ratio to be less than
the amount set forth below opposite such period:
---------------------------------------------------------------
CONSOLIDATED EBITDA TO
PERIOD CONSOLIDATED INTEREST EXPENSE RATIO
---------------------------------------------------------------
For the period ending on 2.25 to 1
March 31, 1998
---------------------------------------------------------------
During the period beginning on April 1, 2.5 to 1
1998 and ending on
June 30, 1998
---------------------------------------------------------------
During the period beginning on July 1,
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1998 and ending on September 30, 3.5 to 1
1998
---------------------------------------------------------------
During the period beginning on 4.0 to 1
October 1, 1998 and thereafter
---------------------------------------------------------------
(c) MINIMUM OPERATING CASH FLOW RATIO. Permit the Operating Cash Flow
Ratio of Borrower to be less than 1.35 to 1.00 as of the month ended September
30, 1997 or 1.50 to 1.00 as of the end of all other months thereafter.
(d) MINIMUM CURRENT RATIO. As of the end of any month, permit the Current
Ratio to be less than 1.50 to 1.00.
7.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness in respect of the Loans, the Notes and the Letters of
Credit and other obligations of the Borrower and its Subsidiaries under the Loan
Documents;
(b) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary
to the Borrower or any other Subsidiary;
(c) Indebtedness outstanding on the Closing Date and listed on Schedule
7.2 and any refinancings, refundings, renewals or extensions thereof (without
any increase in principal amount thereof);
(d) Subordinated Indebtedness of the Borrower and its Subsidiaries;
(e) Indebtedness secured by Liens permitted by Section 7.3(h) and under
Capital Leases incurred in an aggregate principal amount not exceeding (i)
$6,000,000 incurred in each of 1997 and 1998, $8,500,000 incurred in 1999,
$11,000,000 incurred in 2000 and $15,000,000 incurred in 2001 and each year
thereafter or (ii) $46,000,000 incurred during the term of this Agreement; and
(f) Other unsecured (except as described in Section 7.3(h)) Indebtedness
of the Borrower and its Subsidiaries not exceeding $250,000 in the aggregate
outstanding at any time.
7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good faith
by appropriate proceedings; PROVIDED that adequate reserves with respect thereto
are maintained on
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the books of the Borrower or its Subsidiaries, as the case may be, in conformity
with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which are not
overdue for a period of more than sixty (60) days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or such Subsidiary; and
(f) Liens in existence on the Closing Date listed on SCHEDULE 7.2,
securing Indebtedness permitted by subsection 7.2(c); PROVIDED that no such Lien
is expanded to cover any additional property after the Closing Date and that the
amount of Indebtedness secured thereby is not increased;
(g) Liens created under the Security Documents;
(h) Liens securing Indebtedness of the Borrower or any Subsidiary
permitted by subsection 7.2(e); PROVIDED that (i) such Liens shall be created
promptly upon the acquisition, improvement or completion of the construction of
such fixed or capital asset (and in any event no later than the earlier of (A)
twelve (12) months from the date of which the construction of such fixed or
capital asset is completed, and (B) twenty-four (24) months from the date on
which the real estate on which such fixed or capital asset is located, was
purchased by the Borrower), (ii) such Liens do not at any time encumber any
property other than the property financed by the such Indebtedness, (iii) the
amount of Indebtedness secured by thereby is not increased, and (iv) the
principal amount of Indebtedness secured by any such Lien shall at no time
exceed 100% of the purchase price of such property;
(i) a first mortgage Lien on the headquarters of the Borrower at 1144 East
Newport Center Drive, Deerfield Beach, Florida securing Indebtedness of the
Borrower incurred to purchase such headquarters pursuant to the exercise of its
option under the lease of such headquarters, and
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(j) any interest or title of a lessor under any lease entered into by the
Borrower or any Subsidiary in the ordinary course of its business and covering
only the assets so leased.
7.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer
to exist any Guarantee Obligation except:
(a) the Subsidiary Guarantee;
(b) Guarantee Obligations not exceeding $2,000,000 in the aggregate with
respect to the mortgage of the Borrower's old headquarters at 8000 North Federal
Highway, Boca Raton, Florida; and
(c) Guarantee Obligations arising as a result of guarantees by the
Borrower of any Indebtedness of a consolidated Subsidiary that would appear as a
liability on a consolidated balance sheet of the Borrower and its consolidated
Subsidiaries.
7.5 LIMITATIONS ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, enter into a new line of business or make any material change in its
present method of conducting business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated with or
into the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or with or into any one or more wholly owned Subsidiaries
of the Borrower (provided that the wholly-owned Subsidiary or Subsidiaries shall
be the continuing or surviving corporation and shall be a member of the
Borrower's consolidated group for financial reporting and tax purposes); and
(b) any wholly owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise) to
the Borrower or any other wholly-owned Subsidiary of the Borrower.
7.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer or
otherwise dispose of any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, except as permitted by subsection 7.5.
7.7 LIMITATION ON RESTRICTED PAYMENTS. Purchase, redeem or otherwise
acquire or retire for value, or set apart assets for a sinking or other
analogous fund for the benefit of, any Capital Stock of the Borrower or any
Subsidiary, either directly or indirectly, whether in cash or
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property or in obligations of the Borrower or any Subsidiary (collectively, a
"Restricted Payment") except that as long as no Default exists or would result
therefrom, the Borrower may repurchase warrants issued pursuant to the
Securities Purchase Agreement in accordance with the terms thereof but only if
such repurchase is paid for with Put Notes (as defined in said Agreement) which
Notes are subordinated pursuant to the Securities Purchase Agreement.
7.8 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of, or make any other investment in (each, an "Investment"), any Person,
except:
(a) extensions of trade credit in the ordinary course of business;
(b) Investments in Cash Equivalents;
(c) loans and advances to employees of the Borrower or its Subsidiaries in
the ordinary course of business in an aggregate amount for the Borrower and its
Subsidiaries not to exceed $250,000 in the aggregate or $100,000 for any one
employee, at any one time outstanding (including the principal amount of the
loans listed on SCHEDULE 7.8);
(d) Investments by the Borrower in its Subsidiaries and investments by a
Subsidiary in the Borrower and in other Subsidiaries; PROVIDED that any
Subsidiary making an investment or receiving the proceeds thereof is a member of
the Borrower consolidated group for financial reporting and tax purposes;
(e) Investments of amounts held in depositary accounts (other than
accounts assigned to the Agent) in financial institutions geographically
proximate to the location of the Borrower's or a Subsidiary's operations;
PROVIDED, that such amounts do not exceed $20,000 at any single institution or
$150,000 in the aggregate;
(f) Loans by CSF to Labor World, Office Ours and Tandem franchisees;
PROVIDED that with respect to all such loans after the Closing Date such
franchisees shall have issued a negotiable promissory note to CSF evidencing
each loan which note has been endorsed and delivered to the Agent for the
ratable benefit of the Banks;
(g) Investments by the Borrower or any Subsidiary in any Person not a
Subsidiary on the Closing Date arising out of a Permitted Acquisition; PROVIDED
that (i) the Borrower has completed due diligence on the Person whose stock or
assets are being acquired, (ii) the Agent has received (A) the financial
statements of the Person whose stock or assets are being acquired covering the
most recent three (3) fiscal years of said Person, (B) the unaudited financial
statements for such Person covering the most recent available interim period and
(C) a certificate of a Responsible Officer of the Borrower certifying as to the
identity of the shareholders or
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owners of the selling Person and certifying that none of Lawrence H. Schubert,
Alan E. Schubert or Louis A. Morelli is or has been a beneficial owner, directly
or indirectly, including without limitation through a family member or trust, of
the selling Person, (iii) to the extent that an investment in a Person is a
purchase of Capital Stock of an acquired Person, (A) any such acquired Person
executes and delivers to the Agent, with a counterpart for each Bank, a
supplement to the Subsidiary Guarantee, satisfactory in form and substance to
the Agent, whereby such acquired Person guarantees the Obligations (as defined
in the Subsidiary Guarantee) and agrees to be bound by the terms and conditions
of the Subsidiary Guarantee, (B) the Capital Stock of any such acquired Person
is pledged and delivered by the holder thereof pursuant to a supplement to the
OI Pledge Agreement to which such holder is a party, duly authorized, executed
and delivered by such holder and otherwise in form and substance satisfactory to
the Agent, (C) any such acquired Person executes a Subsidiary Security
Agreement, in form and substance satisfactory to the Agent, (D) in connection
with the matters contemplated by the foregoing clauses (v)(A), (v)(B) and (v)(C)
the Person executing such supplement contemporaneously therewith causes to be
delivered an opinion of counsel to such Person so executing such supplement and
such pledgor, addressed to the Agent and the Banks and covering such matters as
the Agent may request. Notwithstanding the foregoing, the Borrower or any
Subsidiary shall not make any Investment in any Person which exceeds one percent
(1%) of the voting power represented by the Capital Stock then outstanding of
such Person if the Board of Directors or other governing body of such Person has
disapproved or recommended against any such Investment or refused to negotiate
or terminated negotiations with the Borrower or such Subsidiary.
7.9 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS.
(a) Make any optional payment or prepayment on or redemption of any Indebtedness
other than Indebtedness under this Agreement, including without limitation
Subordinated Indebtedness (it being understood that regularly scheduled payments
of certain Indebtedness set forth on SCHEDULE 7.2 may be made so long as no
Default or Event of Default exists); (b) amend, modify or change, or consent or
agree to any amendment, modification or change to any of the terms of the
Securities Purchase Agreement, the Subordinated Indebtedness or the
Subordination Agreements, including, without limitation, any amendment to the
subordination provisions thereof; or (c) amend, modify or change, or consent or
agree to any amendment, modification or change to, any of the terms relating to
the payment or prepayment of principal of or interest on any Indebtedness (other
than Indebtedness pursuant to this Agreement), other than, with respect to the
Indebtedness described in the foregoing clauses (b) and (c), any such amendment,
modification or change the primary effect of which would extend the maturity or
reduce the amount of any payment of principal thereof or the primary effect of
which would reduce the rate or extend the date for payment of interest thereon.
7.10 TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with any Affiliate unless such transaction is not
otherwise prohibited under this Agreement, is in the
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ordinary course of the Borrower's or such Subsidiary's business (including in
connection with the Borrower's on-going franchise program) and is upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's length transaction with
a Person not an Affiliate.
7.11 SALE AND LEASEBACK. Enter into any arrangement with any Person
providing for the leasing by the Borrower or any Subsidiary of real or personal
property which has been or is to be sold or transferred by the Borrower or such
Subsidiary to such Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security of such property or rental
obligations of the Borrower or such Subsidiary (a "Sale/Leaseback Transaction")
unless the proceeds received therefrom are applied to reduce the Commitment.
7.12 CORPORATE DOCUMENTS; NAME/LOCATION OF ASSETS. (a) Amend its
Certificate of Incorporation (except to increase the number of authorized shares
of common stock) or (b) do any of the following, unless, in each case, it shall
provide the Agent with at least thirty (30) days prior written notice of such
action: (i) change its corporate name; (ii) change the location of its
equipment; (iii) change the location of the office where it maintains its
records pertaining to its accounts; (iv) change the location of its existing
places of business or open any new places of business; or (v) change the
location of its chief executive office; PROVIDED, HOWEVER, that anything herein
to the contrary notwithstanding no notice need be provided pursuant to this
subsection so long as either (i) the Borrower or a Subsidiary, as the case may
be, executes and delivers to the Agent a Uniform Commercial Code financing
statement appropriate for filing to perfect the Agent's security interest in the
Collateral in its new location, or (ii) the Agent has previously filed a Uniform
Commercial Code financing statement which perfects the Agent's security interest
in the Collateral in its new location. As used herein, "equipment" and
"accounts" have the respective meanings ascribed to them in Title 42a of the
Connecticut General Statutes.
7.13 FISCAL YEAR. Permit the fiscal year of the Borrower to end on a day
other than on December 31 of each calendar year.
7.14 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into any agreement,
other than (i) as permitted by this Agreement and (ii) any purchase money or
other mortgages, the Securities Purchase Agreement or Capital Leases (in which
cases, any prohibition or limitation shall only be effective against the assets
financed thereby), with any Person other than the Banks pursuant hereto which
prohibits or limits the ability of the Borrower or any of its Subsidiaries to
create, incur, assume or suffer to exist any Lien upon any of its property,
assets or revenues, whether now owned or hereafter acquired.
7.15 NO LIMIT ON UPSTREAM PAYMENTS BY SUBSIDIARIES. Permit any of its
Subsidiaries to enter into or agree, or otherwise become subject, to any
agreement, contract or other arrangements with any Person pursuant to the terms
of which (a) such Subsidiary is or would be prohibited from declaring or paying
any cash dividends, or distributions or making any other
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payment to the Borrower, or (b) such dividends, distributions or other payments
are, or would be limited or restricted on an annual or cumulative basis or
otherwise. The Borrower shall cause its Subsidiaries, to the extent permitted by
applicable law, to make such distributions of funds, including dividends, as may
be necessary to meet in a timely manner all of the Borrower's obligations under
this Agreement.
7.16 AASI AND VOTING TRUST AGREEMENT. Terminate, modify, amend,
supplement, or deviate from the terms of, or agree to terminate, modify, amend,
or deviate from the terms of, the AASI or the Voting Trust Agreement. The
Borrower shall use its best efforts to ensure compliance by Lawrence H.
Schubert, Alan E. Schubert and Louis A. Morelli with the terms of the AASI,
including without limitation requiring that said individuals deposit in the
voting trust created by the Voting Trust Agreement all Voting Stock of the
Borrower owned by any of them, by any of their family members or by any trust
created for their benefit.
7.17 PREPARATION OF MONTHLY FINANCIAL REPORTS. Fail to close its books for
any one-month period within thirty (30) days of the end of such calendar month.
7.18 DEPOSIT ACCOUNT. Fail to maintain a deposit account of the Borrower
with the Agent, through which deposit account not less than ninety percent (90%)
of all credit receipts of the Borrower and its Subsidiaries flow.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Note or any
Reimbursement Obligation when due in accordance with the terms thereof or
hereof; or the Borrower shall fail to pay any interest on any Note or any
Reimbursement Obligation, or any other amount payable hereunder, within five (5)
days after any such interest or other amount becomes due in accordance with the
terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower or
any Subsidiary in any Loan Document to which the Borrower or such Subsidiary is
a party or which is contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
any other Loan Document shall prove to have been incorrect in any material
respect on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or performance of any
agreement contained in subsections 6.3, 6.4, 6.5, 6.6, 6.7, 6.9 or 6.11 or
Section 7 of this Agreement or in the Market Clearing Letter; or
(d) The Borrower shall default in the observance or performance of any
other
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agreement contained in this Agreement (other than as provided in paragraphs (a)
through (c) of this subsection), and such default shall continue unremedied for
a period of thirty (30) days after the earlier of (i) a Responsible Officer of
the Borrower becomes aware of such default or (ii) notice of such default to the
Borrower by Agent or any Bank; or
(e) Any Subsidiary shall default in the observance or performance of any
agreement contained in any Loan Document to which it is a party, and such
default shall continue unremedied for a period of thirty (30) days after the
earlier of (i) a Responsible Officer of any such Subsidiary becomes aware of
such default or (ii) notice of such default to such Subsidiary by Agent or any
Bank; or
(f) The Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest of any Indebtedness (other than the Notes)
which has an aggregate principal amount in excess of $100,000, individually or
in the aggregate, or in the payment of any Guarantee Obligation under which the
maximum liability of the Borrower or such Subsidiary exceeds $500,000,
individually or in the aggregate, beyond the period of grace (not to exceed
thirty (30) days), if any, provided in the instrument or agreement under which
such Indebtedness or Guarantee Obligation was created; or (ii) default in the
observance or performance of any other agreement or condition relating to any
such Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries) to
cause, with the giving of notice if required, such Indebtedness to become due
prior to its stated maturity or such Guarantee Obligation to become payable; or
(g) (i) The Borrower or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief' of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60) days
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from the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i),(ii), or (iii) above,
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether waived or not, shall exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of the
Required Banks, likely to result in the termination of such Plan for purposes of
Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or
in the reasonable opinion of the Required Banks is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, a Multiemployer Plan or (vi) any other event or condition
shall occur or exist, with respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together with all other such events
or conditions, if any, could subject the Borrower or any of its Subsidiaries to
any tax, penalty or other liabilities in the aggregate material in relation to
the business, operations, property or financial or other condition of the
Borrower and its Subsidiaries taken as a whole; or
(i) One or more judgments or decrees shall be entered against the Borrower
any of its Subsidiaries involving in the aggregate a liability (to the extent
not paid or covered by insurance) of $250,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within sixty (60) days from the entry thereof; or
(j) If at any time the Borrower or all or any of its Subsidiaries shall
become liable for remediation and/or environmental compliance expenses and/or
fines, penalties or other charges which, in the aggregate, are in excess of
$250,000 at any one time outstanding (net of all reimbursements in respect of
such amounts from any state trust funds which have been or are reasonably
expected to be made to the Borrower or its Subsidiaries and have been recognized
as a receivable or may properly be set off as a credit against such liabilities
under GAAP); or
(k) A Change of Control shall have occurred; or
(l) The Subsidiary Guarantee or any other Guarantee Obligation in respect
of the Borrower's Indebtedness hereunder shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect, or any Person having a Guarantee Obligation in respect of
the Borrower's Indebtedness hereunder, including without limitation each
Subsidiary (or any Person acting on behalf of any such Person) shall deny or
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disaffirm such Guarantee Obligation; or
(m) Lawrence H. Schubert, Alan E. Schubert or Louis A. Morelli becomes the
beneficial owner, directly or indirectly, including through a family member or
trust, of any Voting Stock of the Borrower or its Subsidiaries, except in
connection with purchases of Voting Stock which, in accordance with the terms of
the AASI, are required to be placed in the voting trust created by the Voting
Trust Agreement.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement (including, without limitation, all amounts of L/C Obligations,
regardless of whether the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) and the Notes
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken: (i) with
the consent of the Required Banks, the Agent may, or upon the request of the
Required Banks, the Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the consent of the Required Banks, the
Agent may, or upon the request of the Required Banks, the Agent shall, by notice
of default to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement (including, without
limitation, all amounts of L/C Obligations, regardless of whether the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) and the Notes to be due and payable forthwith,
whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which presentment
for honor shall not have occurred at the time of an acceleration pursuant to the
preceding paragraph, the Borrower shall at such time deposit in a cash
collateral account to be opened by the Agent (the "Cash Collateral Account") an
amount equal to the aggregate then undrawn and unexpired amount of such Letters
of Credit. The Borrower hereby grants to the Agent, for the benefit of the
Issuing Bank and the L/C Participants, a security interest in the Cash
Collateral Account and all amounts from time to time on deposit therein to
secure all obligations of the Borrower in respect of such Letters of Credit
under this Agreement and the other Loan Documents. The Borrower shall execute
and deliver to the Agent, for the account of the Issuing Bank and the L/C
Participants, such further documents and instruments as the Agent may request to
evidence the creation and perfection of such security interest in the Cash
Collateral Account. Amounts held in the Cash Collateral Account shall be applied
by the Agent to the payment of drafts drawn under such Letters of Credit, and
the unused portion thereof after all such Letters of Credit shall have expired
or been fully drawn upon, if any, shall be applied to repay other obligations of
the Borrower hereunder and under the Notes. After all such Letters of Credit
shall have expired or been fully drawn upon, all Reimbursement Obligations shall
have been satisfied and all other obligations of
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the Borrower hereunder and under the Notes shall have been paid in full, the
balance, if any, in the Cash Collateral Account shall be returned to the
Borrower.
Except as expressly provided above in this Section, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENT
9.1 APPOINTMENT. Each Bank hereby irrevocably designates and appoints
BankBoston, N.A. as the Agent of such Bank under this Agreement and the other
Loan Documents, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto.
9.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under
this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
9.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrower or any officer thereof
contained in this Agreement or any other Loan Document or any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or any other Loan
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or the Notes or any other Loan Document or for
any failure of the Borrower to perform its obligations hereunder or thereunder.
The Agent shall not be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Borrower.
9.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other
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experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Banks as it deems appropriate
or it shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
Notes and the other Loan Documents in accordance with a request of the Required
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Banks and all future holders of the Notes.
9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has received notice from a Bank or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Banks. The Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Banks; PROVIDED that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Banks.
9.6 NON-RELIANCE ON AGENT AND OTHER BANKS. Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and credit worthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself, and keep itself informed,
as to the business, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
the Borrower which may
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come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
9.7 INDEMNIFICATION. The Banks agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to the
respective amounts of their original Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; PROVIDED that no Bank shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. The
agreements in this subsection shall survive the payment of the Notes and all
other amounts payable hereunder.
9.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with the Borrower as though the Agent were not the Agent hereunder and under the
other Loan Documents. With respect to its Loans made or renewed by it and any
Note issued to it and with respect to any Letter of Credit issued or
participated in by it, the Agent shall have the same rights and powers under
this Agreement and the other Loan Documents as any Bank and may exercise the
same as though it were not the Agent, and the terms "Bank" and "Banks" shall
include the Agent in its individual capacity.
9.9 SUCCESSOR AGENT. The Agent may resign as Agent upon ten (10) days'
notice to the Banks. If the Agent shall resign as Agent under this Agreement and
the other Loan Documents, then the Required Banks shall appoint a Successor
Agent, whereupon such Successor Agent shall succeed to the rights, powers and
duties of the Agent, and the term "Agent" shall mean such Successor Agent
effective upon its appointment, and the former Agent's rights, powers and duties
as Agent shall be terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this Agreement or any holders
of the Notes. After any retiring Agent's resignation as Agent, the provisions of
this subsection shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement and the other Loan
Documents.
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SECTION 10. MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any Note, any other
Loan Document nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. With the
written consent of the Agent and the Required Banks, the Agent, the Required
Banks and the Borrower may, from time to time, enter into written amendments,
supplements or modifications hereto and to the Notes and the other Loan
Documents for the purpose of adding any provisions to this Agreement, the Notes
or the other Loan Documents or changing in any manner the rights of the Banks or
of the Borrower hereunder or thereunder or waiving, on such terms and conditions
as are specified in such instrument, any of the requirements of this Agreement,
the Notes or the other Loan Documents or any Default or Event of Default and its
consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment,
supplement or modification shall (a) reduce the amount or extend the maturity of
any Note or any installment thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any fee payable to any Bank hereunder, or
change the amount or extend the expiry date of any Bank's Revolving Credit
Commitment or change any Bank's Commitment Percentage, in each case without the
consent of the Bank affected thereby, or (b) amend, modify or waive any
provision of this subsection or reduce the percentage specified in the
definition of Required Banks, or consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents or release any Guarantee or any of the Collateral, in each case
without the written consent of the Agent and all the Banks, or (c) amend, modify
or waive any provision of Section 9 without the written consent of the then
Agent. Any such waiver and any such amendment, supplement or modification shall
apply equally to each of the Banks and shall be binding upon the Borrower, the
Banks, the Agent and all future holders of the Notes. In the case of any waiver,
the Borrower, the Banks and the Agent shall be restored to their former position
and rights hereunder and under the outstanding Notes and any other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
10.2 NOTICES. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy,
telegraph or telex), and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or three (3) days
after being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when confirmed received, or, in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of telex notice, when sent,
answer back received, addressed as follows in the case of the Borrower and the
Agent, and as set forth in SCHEDULE A in the case of the other parties hereto,
or to such other address as may be hereafter notified by the respective parties
hereto and any future holders of the Notes:
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The Borrower: OutSource International, Inc.
1144 East Newport Center Drive
Deerfield Beach, Florida 33442
Attn: Paul M. Burrell
President and Chief Executive Officer
Telephone: (954) 418-6428
Telecopy: (954) 418-3365
With a copy to: Holland & Knight LLP
One East Broward Boulevard
Suite 1300
Fort Lauderdale, Florida 33301
Attn: Donn Beloff, Esq.
Telephone: (954) 468-7823
Telecopy: (954) 468-7875
The Agent: BankBoston, N. A.
100 Pearl Street
Hartford, Connecticut 06103
Attn: Scott S. Barnett
Telephone: (860) 727-6557
Telecopy: (860) 727-6575
With a copy to: Day, Berry & Howard
CityPlace I
Hartford, Connecticut 06103-3499
Attn: Richard C. MacKenzie, Esq.
Telephone: (860) 275-0100
Telecopy: (860) 275-0343
provided that any notice, request or demand to or upon the Agent or the Banks
pursuant to subsections 2.1A, 2.4, 2.5, 2.9 or 2.13 shall not be effective until
received.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
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10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Notes.
10.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees, on demand, (a) to
pay or reimburse the Agent for all its out-of-pocket costs and expenses incurred
in connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement, the Notes and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the fees and disbursements of counsel to
the Agent, (b) to pay or reimburse each Bank and the Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes, the other Loan Documents and any such
other documents, including, without limitation, fees and disbursements of
counsel to the Agent and to the several Banks, which fees are currently
estimated not to exceed $25,000, (c) to pay, indemnify, and hold each Bank and
the Agent harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the Notes, the
other Loan Documents and any such other documents, (d) to pay, indemnify and
hold each Bank harmless from any and all fees, costs and expenses incurred by
any such Bank after the occurrence and throughout the continuance of an Event of
Default in connection with any inspection or examination pursuant to subsection
6.6, and (e) to pay, indemnify, and hold each Bank and the Agent (and their
respective directors, officers, employees and agents) harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the Notes, the other Loan Documents and any
such other documents (all the foregoing, collectively, the "indemnified
liabilities"); PROVIDED that the Borrower shall have no obligation hereunder to
the Agent or any Bank with respect to indemnified liabilities arising from (i)
the gross negligence or willful misconduct of the Agent or any such Bank (or any
of their respective directors, officers, employees or agents), (ii) legal
proceedings commenced against the Agent or any such Bank by any security holder
or creditor thereof arising out of and based upon rights afforded any such
security holder or creditor solely in its capacity as such, or (iii) legal
proceedings commenced against the Agent or any such Bank by any other Bank or by
any Transferee. As long as no Default or Event of Default exists, the Agent
agrees to give the Borrower periodic reports of the costs and expenses subject
to payment or reimbursement under this subsection. The agreement in this
subsection shall survive repayment of the Notes and all other amounts payable
hereunder.
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10.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; PURCHASING BANKS.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Banks, the Agent, all future holders of the Notes and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Bank.
(b) Without the consent of the Borrower, any Bank may, in the ordinary
course of its commercial banking business and in accordance with applicable law,
at any time sell to one or more banks or other entities (other than any entity
which, to the knowledge of such Bank, is a competitor of the Borrower or an
Affiliate of such a competitor ("Participants")) participating interests in any
Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank
or any other interest of such Bank hereunder and under the other Loan Documents.
In the event of any such sale by a Bank of participating interests to a
Participant, such Bank's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the holder of
any such Note for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement and the other Loan Documents. The Borrower agrees that if
amounts outstanding under this Agreement and the Notes are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement
or any Note; PROVIDED that such Participant shall only be entitled to such right
of set-off if it shall have agreed in the agreement pursuant to which it shall
have acquired its participating interest to share with the Banks the proceeds
thereof as provided in subsection 10.7. The Borrower also agrees that each
Participant shall be entitled to the benefits of subsections 2.14, 2.15, 2.16
and 10.5 with respect to its participation in the Commitments and the Loans
outstanding from time to time; PROVIDED, THAT no Participant shall be entitled
to receive any greater amount pursuant to such subsections than the transferor
Bank would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Bank to such Participant had no
such transfer occurred.
(c) Any Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time sell to any Bank or
any affiliate thereof and, with the consent of the Agent and (so long as no
Event of Default has occurred and is continuing) the Borrower if a Purchasing
Bank (as hereinafter defined) is not then a Bank party to this Agreement (which
shall not be unreasonably withheld), to one (1) or more additional banks or
financial institutions ("Purchasing Banks") all or any part of its rights and
obligations under this Agreement and the Notes in the minimum principal amount
of $5,000,000 and integral multiples of $1,000,000 in excess thereof, pursuant
to an Assignment and Acceptance executed by such
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<PAGE>
Purchasing Bank, such transferor Bank (and, in the case of a Purchasing Bank
that is not then a Bank or an affiliate thereof, by the Borrower and the Agent)
and delivered to the Agent for its acceptance and recording in the Register.
Upon such execution, delivery, acceptance and recording, from and after the
effective date of such Assignment and Acceptance, (x) the Purchasing Bank
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder
with a Commitment as set forth therein, and (y) the transferor Bank thereunder
shall, to the extent provided in such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of a transferor Bank's rights
and obligations under this Agreement, such transferor Bank shall cease to be a
party hereto). Such Assignment and Acceptance shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Bank and the resulting adjustment of the appropriate
Commitment Percentages arising from the purchase by such Purchasing Bank of all
or a portion of the rights and obligations of such transferor Bank under this
Agreement and the Notes. On or prior to the effective date of such Assignment
and Acceptance, the Borrower shall execute and deliver to the Agent in exchange
for the Revolving Credit Note a new Revolving Credit Note to the order of such
Purchasing Bank in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the transferor Bank has retained a
Commitment hereunder, new Notes to the order of the transferor Bank in an amount
equal to the Commitment retained by it hereunder. Such new Notes shall be dated
the Closing Date, and shall otherwise be in the form of the Notes replaced
thereby. The Notes surrendered by the transferor Bank shall be returned by the
Agent to the Borrower marked "canceled".
(d) The Agent shall maintain at its address referred to in subsection 10.2
a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Banks and the
Commitment of, and principal amount of the Loans owing to, each Bank from time
to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Agent and the Banks may treat each Person
whose name is recorded in the Register as the owner of the Loan recorded therein
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Bank at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by a
transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank that
is not then a Bank or an affiliate thereof, by the Borrower and the Agent)
together with, if such Purchasing Bank is not then a Bank hereunder, payment by
the transferor Bank and/or the Purchasing Bank (and not the Borrower) of a
registration and processing fee of $3,000, the Agent shall (i) promptly accept
such Assignment and Acceptance, and (ii) on the effective date of such
Assignment and Acceptance, record the information contained therein in the
Register and give notice of such acceptance and recordation to the Banks and the
Borrower.
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<PAGE>
(f) The Borrower authorizes each Bank to disclose to any Participant or
Purchasing Bank (each, a "Transferee") and any prospective Transferee any and
all financial information in such Bank's possession concerning the Borrower and
its Affiliates which has been delivered to such Bank by or on behalf of the
Borrower pursuant to this Agreement or which has been delivered to such Bank by
or on behalf of the Borrower in connection with such Bank's credit evaluation of
the Borrower and its affiliates prior to becoming a party to this Agreement;
PROVIDED that prior to receiving such information, such Transferee shall agree
to hold in confidence all confidential material or proprietary information
obtained by such Transferee with respect to the Borrower's business operations
that is plainly marked by the provider of such material or information as
confidential or proprietary except (a) to the extent that the production of such
information is required pursuant to any statute, ordinance, regulation, rule or
order or any subpoena or any governmental authority or by reason of any bank
regulation in connection with any bank examination, (b) to the extent already
publicly disclosed and (c) that any Bank shall not be prohibited from disclosing
any such information to any of their agents, attorneys, accountants,
consultants, participants, assignees, or prospective participants, who are aware
of such Bank's covenant in this subsection and who have agreed with such Bank,
for the benefit of the Borrower, to comply with such covenant.
(g) If, pursuant to this subsection, any interest in this Agreement or any
Note is transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any state thereof, the transferor
Bank shall cause such Transferee, concurrently with the effectiveness of such
transfer, (i) to represent to the transferor Bank (for the benefit of the
transferor Bank, the Agent and the Borrower) that under applicable law and
treaties no taxes will be required to be withheld by the Agent, the Borrower or
the transferor Bank with respect to any payments to be made to such Transferee
in respect of the Loans, (ii) to furnish to the transferor Bank (and, in the
case of any Purchasing Bank registered in the Register, the Agent and the
Borrower) either (A) United States Internal Revenue Service Form 4224 or United
States Internal Revenue Service Form 1001 or (B) United States Internal Revenue
Service Form W-8 or W-9, as applicable (wherein such Transferee claims
entitlement to complete exemption from United States federal withholding tax on
all interest payments hereunder), and (iii) to agree (for the benefit of the
transferor Bank, the Agent and the Borrower) to provide the transferor Bank
(and, in the case of any Purchasing Bank registered in the Register, the Agent
and the Borrower) a new Form 4224 or Form 1001 or Form W-8 or W-9, as
applicable, upon the expiration or obsolescence of any previously delivered form
and comparable statements in accordance with applicable United States laws and
regulations and amendments duly executed and completed by such Transferee, and
to comply from time to time with all applicable United States laws and
regulations with regard to such withholding tax exemption.
(h) Nothing herein shall prohibit any Bank from pledging or assigning any
Note to any Federal Reserve Bank in accordance with applicable law.
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<PAGE>
10.7 ADJUSTMENTS; SET-OFF.
(a) Subject to the provisions of subsection 2.13(b), if any Bank (a
"benefitted Bank") shall at any time receive any payment of all or part of its
Loans or the Reimbursement Obligations owing to it, or interest thereon, or
receive any collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred to in
subsection 8(g), or otherwise), in a greater proportion than any such payment to
or collateral received by any other Bank, if any, in respect of Loans or
Reimbursement Obligations owing to it, or interest thereon, then such benefitted
Bank shall purchase for cash from the other Bank such portion of such other
Bank's Loans or the Reimbursement Obligations owing to it, or shall provide such
other Bank with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Bank to share the excess payment or
benefits of such collateral or proceeds ratably with each of the other Banks;
PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Bank, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrower agrees that each Bank so purchasing
a portion of another Bank's Loan or the Reimbursement Obligations owing to it
may exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Bank were the direct
holder of such portion.
(b) In addition to any rights and remedies of the Banks provided by law,
each Bank shall have the right, without prior notice to the Borrower, any such
notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder or under the Notes (whether at the stated maturity, by acceleration or
otherwise) to set-off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Bank to or for the credit or the
account of the Borrower. Each Bank agrees promptly to notify the Borrower and
the Agent after any such set-off and application made by such Bank; provided
that the failure to give such notice shall not affect the validity of such
set-off and application.
10.8 COUNTERPARTS. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Agent.
10.9 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-73-
<PAGE>
10.10 INTEGRATION. This Agreement represents the agreement of the
Borrower, the Agent and the Banks with respect to the subject matter hereof,
and, other than the fee letter and commitment letter, each dated October 6,
1997, between the Borrower and the Agent, there are no promises, undertakings,
representations or warranties by the Agent or any Bank relative to subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
10.11 GOVERNING LAW. This Agreement and the Notes and the rights and
obligations of the parties under this Agreement and the Notes shall be governed
by, and construed and interpreted in accordance with, the laws of the State of
Connecticut.
10.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of Connecticut,
the courts of the United States of America for the District of Connecticut, and
appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Borrower at its
address set forth in subsection 10.2 or at such other address of which the Agent
shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
subsection any special, exemplary, punitive or consequential damages.
10.13 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, the Notes and the other Loan Documents;
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<PAGE>
(b) neither the Agent nor any Bank has any fiduciary relationship to the
Borrower, and the relationship between Agent and Banks, on one hand, and the
Borrower, on the other hand, is solely that of debtor and creditor;
(c) no joint venture exists among the Banks or among the Borrower and the
Banks; and
(d) each reference in the other Loan Documents to the Credit Agreement
shall mean the Existing Credit Agreement as amended and restated hereby, and as
the same shall be further amended, modified, supplemented or restated from time
to time, and each reference therein to "Bank" shall include the Swingline Bank
and to "Loan" shall include the Swingline Loans.
10.14 WAIVERS OF JURY TRIAL; COMMERCIAL TRANSACTIONS. (A) THE
BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM
THEREIN.
(B) THE BORROWER ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE
COMMERCIAL TRANSACTIONS WITHIN THE MEANING OF CHAPTER 903A OF THE CONNECTICUT
GENERAL STATUTES.
[SIGNATURE PAGES FOLLOW THIS PAGE]
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
OUTSOURCE INTERNATIONAL, INC.
By: /s/ PAUL M. BURRELL
-------------------------
Name: Paul M. Burrell
Title: President
BANKBOSTON, N.A., SUCCESSOR BY MERGER TO BANK
OF BOSTON CONNECTICUT,
As a Bank and as the Agent
By: /s/ SCOTT S. BARNETT
-------------------------
Name: Scott Barnett
Title: Vice President
COMERICA BANK
By: /s/ GINA M. ZAMARELLI
-------------------------
Name:Gina M. Zamarelli
Title: Vice President
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<PAGE>
LASALLE NATIONAL BANK
By: /s/ JOHN J. MCGUIRE
-------------------------
Name: John J. McGuire
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ THOMAS D. PIZZO
-------------------------
Name: Thomas D. Pizzo
Title: Vice President
SUNTRUST BANK, SOUTH FLORIDA, NATIONAL
ASSOCIATION
By: /s/ JULIO C. VARONA
-------------------------
Name: Julio C. Varona
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ ANA C. BOLDUC
-------------------------
Name: Ana C. Bolduc
Title: Vice President & Manager
and
By: /s/ BRIAN M. SMITH
-------------------------
Name: Brian M. Smith
Title: Senior Vice President
& Regional Manager
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<PAGE>
SCHEDULE A
COMMITMENTS; ADDRESSES
COMMITMENT
BANK AMOUNT
- ------------------------------------------------------------------------------
BankBoston, N.A. $21,000,000
100 Pearl Street, 5th Floor
Hartford Corporate Banking
Hartford, Connecticut 06103
Attention: Scott S. Barnett, Vice President
Phone: 860-727-6557
Telecopy No.: 860-727-6575
Comerica Bank $18,500,000
100 NE Third Avenue
Ft. Lauderdale, Florida 33301
Attention: Gina Zamarelli, Vice President
Phone: 954-468-0645
Telecopy No.: 954-468-0641
LaSalle National Bank $18,500,000
135 S. LaSalle, Suite 218
Chicago, Illinois 60603
Attention: John J. McGuire, Vice President
Phone: 312-904-4657
Telecopy No.: 312-904-4660
State Street Bank and Trust Company $9,000,000
Goodwin Square Building
225 Asylum Street
Hartford, Connecticut 06103
Attention: Karen F. Booth, Vice President
Phone: 860-244-1809
<PAGE>
Telecopy No.: 860-244-1810
<PAGE>
SunTrust Bank, South Florida, National Association $9,000,000
501 East Las Olas Boulevard
7th Floor
Fort Lauderdale, Florida 33301
Attention: Pat Cloniger, Vice President
Phone: 954-765-7331
Telecopy No.: 954-765-7240
The Sumitomo Bank, Limited $9,000,000
1 Biscayne Tower
2 South Biscayne Boulevard
Suite 3300
Miami, Florida 33130
Attention: Ana C. Bolduc, Vice President and Manager
Phone: 305-530-2242
Telecopy No.: 305-530-2260
Lending Office:
The Sumitomo Bank, Limited
233 South Wacker Drive
Suite 5400
Chicago, Illinois 60606
-----------
TOTAL: $85,000,000
<PAGE>
SCHEDULE 4.1(b)
LONG-TERM COMMITMENTS
<PAGE>
SCHEDULE 4.1(c)
RECENT DISPOSITIONS
<PAGE>
SCHEDULE 4.2
CHANGES/RECENT DISTRIBUTIONS
<PAGE>
SCHEDULE 4.6
LITIGATION
<PAGE>
SCHEDULE 4.11
TAX RETURNS
<PAGE>
SCHEDULE 4.13
ERISA MATTERS
PART A
PART B
<PAGE>
SCHEDULE 4.15
SUBSIDIARIES
NAME PLACE OF PRINCIPAL NO. OF SHARES OWNER % OWNERSHIP
INCORPORATION PLACE OF OWNED
BUSINESS
<PAGE>
SCHEDULE 4.17
ENVIRONMENTAL MATTERS
SITE EXPENDITURES RESERVES
<PAGE>
SCHEDULE 4.18
UCC FILING LOCATIONS
County/State
Filing Office Debtor Name
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 4.21
RELATIONSHIPS OF CERTAIN STOCKHOLDERS TO THE BORROWER
<PAGE>
SCHEDULE 7.2
INDEBTEDNESS OUTSTANDING AFTER THE EXECUTION DATE
I. SUBORDINATED
II. OTHER
<PAGE>
SCHEDULE 7.3
LIENS
<PAGE>
SCHEDULE 7.8
MANAGEMENT LOANS AND ADVANCES
NAME OF EMPLOYEE
SUBTOTAL
LOANS AND ADVANCES UNDER $1,000
Total Loans and Advances as of [ ]
<PAGE>
EXHIBIT A-1
NOTICE OF BORROWING
[Date] (1)
BankBoston, N.A., as Agent
for the Banks Party to the Credit
Agreement referred to below,
100 Pearl Street
Hartford, Connecticut 06103
Attention: Scott S. Barnett
Ladies and Gentlemen:
OutSource International, Inc. (the "Borrower") refers to the Second
Amended and Restated Credit Agreement, dated as of November [__], 1997 (the
"Credit Agreement"), among OutSource International, Inc., the Banks parties
thereto and BankBoston, N.A., successor by merger to Bank of Boston Connecticut,
as Agent. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement. The
undersigned hereby gives you notice pursuant to Section 2.1A(b) or 2.4 of the
Credit Agreement that it requests a borrowing under the Credit Agreement, and in
that connection sets forth below the terms on which such borrowing is requested
to be made:
(A) Date of proposed borrowing __________________________________
(which is a Business Day)
(B) Principal amount of borrowing (2) $_________________________________
(C) Type of Loan (3) __________________________________
- ----------------------------
(1) Except in the case of a Swingline Loan, the Notice of Borrowing must be
received by the Agent (i) in the case of a proposed Eurodollar Loan, by
telecopier or telex not later than 12:00 p.m. (Eastern time), three Business
Days prior to a proposed borrowing and (ii) in the case of a proposed Alternate
Base Rate Loan, by telecopier or telex not later than 12:00 p.m. (Eastern time),
on the day of a proposed borrowing. The Notice of Borrowing for a Swingline Loan
must be received not later than 12:00 p.m. (Eastern time) on the date of the
proposed Borrowing.
(2) Not less than $250,000 and in whole multiples of $100,000.
(3) Swingline Loan, Eurodollar Loan or Alternate Base Rate Loan.
<PAGE>
-2-
(D-1) Interest Period (4) ____________________________________
(D-2) Pricing Level
(1, 2, 3 or 4): ___________________________________
(E) Purpose of Loan (check applicable boxes):
1. PERMITTED ACQUISITION (5) []
If checked, name of selling
Person: _________________________________
2. WORKING CAPITAL AND GENERAL
CORPORATE PURPOSES of Borrower
and its Subsidiaries (OTHER THAN
CSF) []
If checked, state purpose: _________________________________
_________________________________
_________________________________
3. ADVANCES TO CSF (6) []
---------------
4. LETTER OF CREDIT (7) []
----------------
(F) Aggregate amount of Loans and Letters
- ----------------------------
(4) If a Eurodollar Loan, 1, 2, 3 or 6 months but which shall end not later
than the Termination Date.
(5) Attach to Notice of Borrowing financial statements required by Section
7.8(g) of the Credit Agreement.
(6) If funds being advanced to Labor World, Office Ours or Tandem franchisee,
note must be issued by franchisee and endorsed to Agent.
(7) Application for Letter of Credit must accompany Notice of Borrowing.
<PAGE>
-3-
of Credit outstanding:
OUTSTANDING
AFTER LOAN
OUTSTANDING REQUESTED BY
ON THE DATE THIS NOTICE
PURPOSE MAXIMUM AUTHORIZED of this NOTICE is MADE
1. Permitted The lesser of $ ____________ $
Acquisition $85,000,000 less
amounts in first column
of F(1), F(2), F(3), F(4)
and F(5) or the
Borrowing Base (8) less
amounts of F(1), F(2),
F(3), F(4) and F(5)
2. Working Capital The lesser of $_____________ $
and General $85,000,000 less
Corporate amounts of F(1),
Purposes of F(2), F(3), F(4) and
Borrower and F(5) or the Borrowing
Subsidiaries Base8 less amounts of
(other than CSF) F(1), F(2), F(3),
F(4) and F(5)
3. Advances to CSF $ 7,500,000 $ $
------------- ------------
4. Swingline Loans $5,000,000 $ $
------------- ------------
5. Letters of Credit $15,000,000 $ $
============= ============
Sum of (1) through (5) $ $
------------ ------------
If the box in (E)1 above has been checked, the undersigned hereby
certifies that none of Lawrence H. Schubert, Alan E. Schubert or Louis A.
Morelli is or has been a beneficial owner, directly or indirectly, including
without limitation through a family member or trust, of the selling Person
identified in (E)1, and that, with respect to the Permitted Acquisition
identified in (E)1, all of the requirements of a Permitted Acquisition set forth
in the definition thereof in the Credit Agreement and in Section 7.8(g) of the
Credit Agreement have been met.
(8) As defined in the Credit Agreement
<PAGE>
-4-
As required by Section 5 of the Credit Agreement, the undersigned officer
on behalf of the Borrower hereby further certifies that:
(a) the representations and warranties contained in Section 4 of the
Credit Agreement are true and correct in all material respects on and as of the
date hereof (or if such representation or warranty is expressly stated to have
been made as of a specific date, as of the such specific date);
(b) the Borrower has performed and complied with and is in compliance with
all of the terms, covenants and conditions of the Credit Agreement;
(c) there does not exist any Default or Event of Default under the Credit
Agreement; and
(d) each of the other conditions precedent set forth in Section 5 of the
Credit Agreement have been satisfied and complied with.
Very truly yours,
OUTSOURCE INTERNATIONAL, INC.
BY___________________________
Title:
<PAGE>
EXHIBIT A-2
REVOLVING CREDIT NOTE
$____________ Hartford, Connecticut
________ ____, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of _____________________(the "Bank"),
at the office of BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, located at 100 Pearl Street, Hartford, Connecticut 06103, the
principal sum of
____________MILLION AND NO/100 DOLLARS (_____________)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November [__], 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the
<PAGE>
Security Documents and is entitled to the benefits thereof. Reference is made to
the Credit Agreement for a description of the right of the undersigned to
anticipate payments hereof, the right of the holder hereof to declare this Note
due prior to its stated maturity, and other terms and conditions upon which this
Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
Title:
-2-
<PAGE>
EXHIBIT A-3
SWINGLINE NOTE
$____________ Hartford, Connecticut
________ ____, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of ____________________(the "Bank"), at
the office of BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, located at 100 Pearl Street, Hartford, Connecticut 06103, the
principal sum of
___________MILLION AND NO/100 DOLLARS (____________)
or the aggregate unpaid principal amount of all Swingline Loans made by the Bank
to the undersigned pursuant to the Credit Agreement, as hereinafter defined,
whichever is less, in lawful money of the United States of America. As used
herein, "Credit Agreement" means the Second Amended and Restated Credit
Agreement, dated as of November [__], 1997, as the same may hereafter be
amended, modified, supplemented or restated from time to time, among the
Company, the Banks from time to time parties thereto and BankBoston, N.A., as
Agent. Capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Swingline Loan from time to time outstanding, from the date of
such Swingline Loan until the payment in full thereof, at the rates per annum
which shall be determined in accordance with the provisions of the Credit
Agreement.
The Bank is authorized to record the date and amount of each Swingline
Loan made by the Bank pursuant to the Credit Agreement and the date and amount
of each payment or prepayment of principal hereof on the reverse side hereof, or
reflect such information on the records of the Bank by such other methods as the
Bank may generally employ; PROVIDED, HOWEVER, that the failure to make any such
entry shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
This Note is the Swingline Note referred to in the Credit Agreement, is
secured by the Security Documents and is entitled to the benefits thereof.
Reference is made to the Credit Agreement for a description of the right of the
undersigned to anticipate payments hereof, the right of the holder hereof to
declare this Note due prior to its stated maturity, and other terms and
conditions upon which this
<PAGE>
Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
Title:
-2-
<PAGE>
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Second Amended and Restated Credit Agreement,
dated as of November [__], 1997 (as the same may be amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement"), among
OUTSOURCE INTERNATIONAL, INC., a Florida corporation (the "Company"), the Banks
named therein and BANKBOSTON, N.A., successor by merger to Bank of Boston
Connecticut, as agent for the Banks (in such capacity, the "Agent"). Unless
otherwise defined herein, terms defined in the Credit Agreement and used herein
shall have the meaning given to them in the Credit Agreement.
______________________ (the "Assignor") and _____________________ (the
"Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), a ____% interest (the "Assigned Interest") in
and to the Assignor's rights and obligations under the Credit Agreement with
respect to the Assignor's Commitment thereunder in a principal amount as set
forth on Annex 1 hereto.
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Loan Document or
in connection with the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any other Loan
Document or any other instrument or document furnished pursuant thereto, or any
collateral security granted in connection therewith, if any, other than that it
has not created any adverse claim upon the interest being assigned by it
hereunder and that such interest is free and clear of any such adverse claim;
(b) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Company, any of its Subsidiaries or
any other obligor or the performance or the observance by the Company, any of
its Subsidiaries or any other obligor of any of their respective obligations
under the Credit Agreement or any other Loan Document or any other instrument or
document furnished pursuant hereto or thereto; and (c) attaches the Note held by
it evidencing the Assignor's Commitment and requests that the Agent exchange
such Note for new Notes payable to the Assignee and the Assignor in amounts
which reflect the assignment being made hereby (and after giving effect to any
other assignments which have become effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received a copy of the Credit Agreement and any amendments thereto, together
with copies of the financial statements delivered pursuant to subsection 6.1
thereof and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into this Assignment and
Acceptance; (c) agrees that it will, independently and without reliance upon the
Assignor, the Agent or any other Bank, based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
<PAGE>
decisions in taking or not taking action under the Credit Agreement, the other
Loan Documents or any other instrument or document furnished pursuant hereto or
thereto; (d) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit
Agreement, the other Loan Documents or other instrument or document furnished
pursuant hereto or thereto as are delegated to the Agent by the terms thereof,
together with such powers as are incidental thereto; and (e) agrees that it will
be bound by the provisions of the Credit Agreement and will perform all the
obligations required, by the terms of the Credit Agreement, to be performed by
it as a Bank, including, if it is organized under the laws of a jurisdiction
outside the United States, its obligations pursuant to paragraph 2.16(b) of the
Credit Agreement.
-2-
<PAGE>
4. The effective date of this Assignment and Acceptance shall be
_____________, _____ (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for acceptance and
recording by the Agent pursuant to subsection 10.6 of the Credit Agreement,
effective as of the Effective Date.
5. From and after the date of receipt of this Assignment and
Acceptance, the Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee, whether such amounts have accrued prior to the Effective Date or
accrue subsequent to the Effective Date. The Assignor and the Assignee shall
make all appropriate adjustments in payments by the Agent for periods prior to
the Effective Date or with respect to the making of this assignment directly
between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Bank thereunder and under the
other Loan Documents and shall be bound by the provisions thereof, and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
7. The Assignee advises the Agent that the address listed on Annex 1
is its address for notices under the Credit Agreement.
8. This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the state of Connecticut.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the _____ day of ________, 199_, by their
respective duly authorized officers on Annex 1 hereto.
-1-
<PAGE>
Annex 1 to the
ASSIGNMENT AND ACCEPTANCE
NAME OF ASSIGNOR:
NAME OF ASSIGNEE:
EFFECTIVE DATE OF ASSIGNMENT:
Commitment Commitment
Percentage After Assignment Dollar Amount After Assignment
- ------------------------------------------------------------------------------
ASSIGNEE
ASSIGNOR
ASSIGNEE: ASSIGNOR:
By:_________________________________ By:____________________________________
Title: Title:
Accepted: Consented To:
BANKBOSTON, N.A., successor by OUTSOURCE INTERNATIONAL, INC.
merger to BANK OF BOSTON
CONNECTICUT, as Agent
-2-
<PAGE>
By:_________________________________ By:_______________________________
Title: Title:
-3-
<PAGE>
REVOLVING CREDIT NOTE
$21,000,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of BANKBOSTON, N.A. (the "Bank"),
at the office of BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, located at 100 Pearl Street, Hartford, Connecticut 06103, the
principal sum of
TWENTY-ONE MILLION AND NO/100 DOLLARS ($21,000,000)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November 25, 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
-4-
<PAGE>
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the Security Documents and is entitled to the benefits
thereof. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
Title:
-1-
<PAGE>
REVOLVING CREDIT NOTE
$18,500,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of COMERICA BANK (the "Bank"), at the
office of BankBoston, N.A., successor by merger to Bank of Boston Connecticut,
located at 100 Pearl Street, Hartford, Connecticut 06103, the principal sum of
EIGHTEEN MILLION FIVE HUNDRED THOUSAND
AND NO/100 DOLLARS ($18,500,000)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November 25, 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
-2-
<PAGE>
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the Security Documents and is entitled to the benefits
thereof. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
-1-
<PAGE>
REVOLVING CREDIT NOTE
$18,500,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of LASALLE NATIONAL BANK (the "Bank"),
at the office of BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, located at 100 Pearl Street, Hartford, Connecticut 06103, the
principal sum of
EIGHTEEN MILLION FIVE HUNDRED THOUSAND
AND NO/100 DOLLARS ($18,500,000)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November 25, 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
-2-
<PAGE>
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the Security Documents and is entitled to the benefits
thereof. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
-1-
<PAGE>
REVOLVING CREDIT NOTE
$9,000,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of STATE STREET BANK AND TRUST COMPANY
(the "Bank"), at the office of BankBoston, N.A., successor by merger to Bank of
Boston Connecticut, located at 100 Pearl Street, Hartford, Connecticut 06103,
the principal sum of
NINE MILLION AND NO/100 DOLLARS ($9,000,000)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November 25, 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
-2-
<PAGE>
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the Security Documents and is entitled to the benefits
thereof. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
-1-
<PAGE>
REVOLVING CREDIT NOTE
$9,000,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of SUNTRUST BANK, SOUTH FLORIDA,
NATIONAL ASSOCIATION (the "Bank"), at the office of BankBoston, N.A., successor
by merger to Bank of Boston Connecticut, located at 100 Pearl Street, Hartford,
Connecticut 06103, the principal sum of
NINE MILLION AND NO/100 DOLLARS ($9,000,000)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November 25, 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
-2-
<PAGE>
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the Security Documents and is entitled to the benefits
thereof. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
-1-
<PAGE>
REVOLVING CREDIT NOTE
$9,000,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of THE SUMITOMO BANK, LIMITED (the
"Bank"), at the office of BankBoston, N.A., successor by merger to Bank of
Boston Connecticut, located at 100 Pearl Street, Hartford, Connecticut
06103, the principal sum of
NINE MILLION AND NO/100 DOLLARS ($9,000,000)
or the aggregate unpaid principal amount of all Loans made by the Bank to the
undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever
is less, in lawful money of the United States of America. As used herein,
"Credit Agreement" means the Second Amended and Restated Credit Agreement, dated
as of November 25, 1997, as the same may hereafter be amended, modified,
supplemented or restated from time to time, among the Company, the Banks from
time to time parties thereto and BankBoston, N.A., as Agent. Capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Loan from time to time outstanding, from the date of such Loan
until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of the Credit Agreement.
The Bank is authorized to record the date and amount of each Loan made by
the Bank pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal hereof on the reverse side hereof, or reflect
such information on the records of the Bank by such other methods as the Bank
may generally employ; PROVIDED, HOWEVER, that the failure to make any such entry
shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
-2-
<PAGE>
This Note is the Revolving Credit Note referred to in the Credit
Agreement, is secured by the Security Documents and is entitled to the benefits
thereof. Reference is made to the Credit Agreement for a description of the
right of the undersigned to anticipate payments hereof, the right of the holder
hereof to declare this Note due prior to its stated maturity, and other terms
and conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
-1-
<PAGE>
SWINGLINE NOTE
$5,000,000 Hartford, Connecticut
November 26, 1997
FOR VALUE RECEIVED, the undersigned, OUTSOURCE INTERNATIONAL, INC. (the
"Company"), promises to pay to the order of BANKBOSTON, N.A. (the "Bank"), at
the office of BankBoston, N.A., successor by merger to Bank of Boston
Connecticut, located at 100 Pearl Street, Hartford, Connecticut 06103, the
principal sum of
FIVE MILLION AND NO/100 DOLLARS ($5,000,000)
or the aggregate unpaid principal amount of all Swingline Loans made by the Bank
to the undersigned pursuant to the Credit Agreement, as hereinafter defined,
whichever is less, in lawful money of the United States of America. As used
herein, "Credit Agreement" means the Second Amended and Restated Credit
Agreement, dated as of November 25, 1997, as the same may hereafter be amended,
modified, supplemented or restated from time to time, among the Company, the
Banks from time to time parties thereto and BankBoston, N.A., as Agent.
Capitalized terms used herein but not defined herein shall have the meanings
ascribed to them in the Credit Agreement.
The undersigned also promises to pay interest on the unpaid principal
amount of each Swingline Loan from time to time outstanding, from the date of
such Swingline Loan until the payment in full thereof, at the rates per annum
which shall be determined in accordance with the provisions of the Credit
Agreement.
The Bank is authorized to record the date and amount of each Swingline
Loan made by the Bank pursuant to the Credit Agreement and the date and amount
of each payment or prepayment of principal hereof on the reverse side hereof, or
reflect such information on the records of the Bank by such other methods as the
Bank may generally employ; PROVIDED, HOWEVER, that the failure to make any such
entry shall in no way detract from the Company's obligations under this Note.
This Note is due and payable in full no later than on the Termination
Date. If this Note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration of
maturity contained in the Credit Agreement, the principal hereof and the unpaid
interest thereon shall bear interest, from the date due until paid, at a rate
per annum which shall be two percent (2%) in excess of the rate of interest
which would otherwise be applicable thereto. All payments of principal of and
interest on this Note shall be made in immediately available funds. In the event
that the total amount of any payment required to be paid under this Note is not
paid within ten (10) days of the date when the same becomes due, the Bank may
collect and the undersigned agrees to pay a late charge equal to five percent
(5%) of the total amount then due.
This Note is the Swingline Note referred to in the Credit Agreement, is
secured by the Security Documents and is entitled to the benefits thereof.
Reference is made to the Credit Agreement for a description of the right of the
undersigned to anticipate payments hereof, the right of the holder hereof to
declare this Note due prior to its stated maturity, and other terms and
-2-
<PAGE>
conditions upon which this Note is issued.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CONNECTICUT.
Witness: OUTSOURCE INTERNATIONAL, INC.
_________________________ By:_______________________________________
Name: Name:
Title:
-3-
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
OutSource International of America, Inc., a Florida corporation
OutSource Franchising Inc., a Florida corporation
Capital Staffing Fund, Inc., a Florida corporation
Employees Insurance Services, Inc., a Florida corporation
Synadyne I, Inc., a Florida corporation
Synadyne II, Inc., a Florida corporation
Synadyne III, Inc., a Florida corporation
Synadyne IV, Inc., a Florida corporation
Synadyne V, Inc., a Florida corporation
OutSource of Nevada, Inc., a Nevada corporation
Staff All, Inc., a Florida corporation
Mass Staff, Inc., a Florida corporation
Employment Consultants, Inc., a Wisconsin corporation
X-tra Help, Inc., a California corporation
Co-Staff, Inc., a California corporation
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<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 1,685,474 44,790 0
<SECURITIES> 0 0 0
<RECEIVABLES> 48,937,375 27,327,898 0
<ALLOWANCES> 1,639,767 978,250 0
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<CURRENT-ASSETS> 57,079,192 34,933,902 0
<PP&E> 19,740,370 16,142,967 0
<DEPRECIATION> 4,787,252 3,015,860 0
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