<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
STAFFMARK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE
(State or other jurisdiction 7363 71-0788538
of incorporation or (Primary Standard Industrial (I.R.S. employer
organization) Classification Code Number) identification no.)
</TABLE>
302 EAST MILLSAP ROAD, FAYETTEVILLE, ARKANSAS 72703
(501) 973-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
CLETE T. BREWER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
STAFFMARK, INC.
302 EAST MILLSAP ROAD
FAYETTEVILLE, ARKANSAS 72703
(501) 973-6000
(501) 973-6019 (FAX)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies of all correspondence to:
TERRY C. BELLORA
STAFFMARK, INC.
302 EAST MILLSAP ROAD
FAYETTEVILLE, ARKANSAS 72703
(501) 973-6000
C. DOUGLAS BUFORD, JR., ESQ.
FRED M. PERKINS III, ESQ.
WRIGHT, LINDSEY & JENNINGS
200 WEST CAPITOL, SUITE 2200
LITTLE ROCK, ARKANSAS 72201
(501) 371-0808
(501) 376-9442 (FAX)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value
per share....................... 4,000,000 $13.88 $55,520,000 $16,824.24
- --------------------------------------------------------------------------------------------------
==================================================================================================
</TABLE>
(1) Estimated solely for purpose of calculating the registration fee pursuant to
Rule 457(c).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2
STAFFMARK, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND CAPTION LOCATION IN PROSPECTUS
- -------------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page; Inside Front and
Outside Back Cover Pages; Cross
Reference Sheet
2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front and Outside Back Cover Pages
of Prospectus; Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds........................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........... Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution.................................. Dilution
7. Selling Security Holders.................. Not Applicable
8. Plan of Distribution...................... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered.............................. Description of Capital Stock; Dividend
Policy
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant.............................. Prospectus Summary; Risk Factors; The
Company; Price Range of Common Stock;
Dividend Policy; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Shares Eligible
for Future Sale; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
OCTOBER 29, 1996
PROSPECTUS
4,000,000 SHARES
[STAFFMARK LOGO]
COMMON STOCK
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SEE "RISK FACTORS BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------------
This Prospectus covers 4,000,000 shares of common stock, $0.01 par value
(the "Common Stock"), which may be offered and issued by StaffMark, Inc. (the
"Company") from time to time in connection with the merger with or acquisition
by the Company of other businesses or assets. Management anticipates that the
terms of acquisitions involving the issuance of securities covered by this
Prospectus will be determined by direct negotiations with the owners or
controlling persons of the businesses or assets to be merged with or acquired by
the Company, and that the shares of Common Stock issued will be valued at prices
reasonably related to market prices current either at the time a merger or
acquisition is agreed upon or about the time of delivery of shares. No
underwriting discounts or commissions will be paid, although finder's fees may
be paid from time to time with respect to specific mergers or acquisitions. Any
person receiving any such fees may be deemed to be an underwriter within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
The Company currently has 13,298,249 shares of its Common Stock listed on
the NASDAQ National Market, of which 6,325,000 are registered and available for
unrestricted trading in the public markets unless owned by affiliates of the
Company. Application will be made to list the shares of Common Stock offered
hereby on the NASDAQ National Market. On October 25, 1996, the closing price of
the Common Stock on the NASDAQ National Market was $14.50 per share as published
in the Wall Street Journal on October 28, 1996.
All expenses of this offering will be paid by the Company. The Company is a
Delaware corporation and all references herein to the Company refer to the
Company and its subsidiaries. All references herein to "StaffMark" mean
StaffMark, Inc. prior to the consummation of the Mergers (as defined herein).
The executive offices of the Company are located at 302 East Millsap Road,
Fayetteville, Arkansas 72203, and its telephone number is (501) 973-6000.
------------------------------
, 1996
<PAGE> 4
[INSIDE FRONT PAGE OF PROSPECTUS]
Following consummation of the Offering, the Company intends to furnish its
stockholders with annual reports containing financial statements audited by
independent accountants.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
THE COMPANY
StaffMark was founded in March 1996 to create a leading provider of
diversified staffing services to businesses, healthcare providers, professional
and service organizations and governmental agencies, primarily in growth markets
in the southeastern and southwestern United States. On October 2, 1996,
StaffMark acquired in separate transactions (the "Mergers"), simultaneously with
the closing of its initial public offering (the "Offering") six staffing service
businesses (the "Founding Companies"). The Founding Companies have been in
business an average of 13 years. The Company provides a wide variety of staffing
services through 91 branch offices located in Arkansas, Colorado, Georgia, North
Carolina, Oklahoma, South Carolina, Tennessee and Virginia. The Company's senior
management is comprised primarily of stockholders of the Founding Companies. The
Company provides more than 10,000 field employees to over 2,500 clients during a
typical week. Since 1993, the Founding Companies have expanded by acquiring six
staffing businesses with 19 offices and by opening an additional 32 branch
offices.
The Company's business is organized into three divisions: Commercial,
Specialty Medical, and Professional. The Commercial division provides clerical
and light industrial staffing services, and generated approximately 89.9% and
88.2% of the Company's revenues and 92.1% and 91.1% of the Company's cost of
services for the year ended December 31, 1995 and the six months ended June 30,
1996, respectively. The Specialty Medical division provides healthcare and
medical staffing services, such as physical and occupational therapists, speech
pathologists and clinical trials support services, and generated approximately
8.3% and 7.3% of the Company's revenues and 6.2% and 4.8% of the Company's cost
of services for the year ended December 31, 1995 and the six months ended June
30, 1996, respectively. The Professional division provides technical,
professional and information technology staffing services and generated
approximately 1.8% and 4.5% of the Company's revenues and 1.7% and 4.1% of the
Company's cost of services for the year ended December 31, 1995 and the six
months ended June 30, 1996, respectively. According to Staffing Industry Report,
an industry publication, technical, professional and healthcare staffing are
among the fastest growing sectors of the staffing industry. The Company believes
that these specialized services offer a greater opportunity for growth and
profitability than commercial staffing services alone.
The temporary staffing industry has grown rapidly in recent years as
competitive pressures have caused businesses to focus on reducing costs,
including converting fixed labor costs to variable costs. The use of temporary
employees also enables companies to improve flexibility in employee hiring and
scheduling and allows them to focus on their core business functions. According
to the National Association of Temporary and Staffing Services ("NATSS"), the
U.S. market for temporary staffing services has grown since 1991 at a compound
annual rate of approximately 17.7%, from approximately $20.4 billion in revenue
in 1991 to approximately $39.2 billion in 1995. The Company believes the
temporary staffing industry is highly fragmented but is experiencing increasing
consolidation largely in response to increased competition and the need to offer
a full range of services to regional and national accounts.
The Company seeks to combine a decentralized, entrepreneurial operating
structure, which promotes decision-making, accountability and local name
recognition at the branch level, with strong corporate management, information
systems and marketing support. The Company intends to centralize certain
administrative functions, reduce or eliminate redundant functions and facilities
and implement the best practices of the Founding Companies on a Company-wide
basis. The Company's objective is to become a
3
<PAGE> 6
premier provider of quality personnel staffing services to clients in selected
markets throughout the United States. The Company seeks to accomplish this
objective by undertaking the following growth strategy:
Pursuing Strategic Acquisitions. The Company seeks acquisitions of
profitable, well-managed staffing companies that will expand the
geographic scope of its operations, increase the revenues of its
Professional and Specialty Medical divisions, or offer services that may
be cross-sold to the Company's existing client base. The Company has
acquired six staffing businesses over the past three years.
Growing Internally. The Company intends to increase the productivity and
profitability of existing operations by expanding and enhancing services
and by increasing penetration in existing geographic markets through
"spinning-off" new branches from existing branches. During fiscal 1995
and the first six months of 1996, the Company opened 19 spin-off
branches. In addition, the Company may open new branch offices by
following existing clients into new geographic areas.
Increasing Vendor-On-Premises Relationships. As of June 30, 1996, the
Company had 16 vendor-on-premises ("VOP") partnering relationships, as
compared to 10 at December 31, 1995. VOP relationships represented 9.4%
and 14.6% of the Company's revenues for the year ended December 31, 1995
and the six months ended June 30, 1996, respectively. Under these
programs, the Company assumes administrative responsibility for
coordinating all temporary personnel services throughout a client's
location or organization, including skills testing and training. The VOP
program provides the Company with an opportunity to establish long-term
client relationships, which results in a more stable source of revenue.
Cross-Selling Professional Services. The Company currently provides
commercial staffing services in the majority of its offices and plans to
introduce its professional services to certain branches that currently
do not offer such services. The Company believes there are substantial
growth opportunities that may be realized from the introduction of its
broad range of existing services throughout its network of branch
offices.
Expanding Specialty Medical Services. The Company believes that revenue
and profitability can be enhanced by providing specialty medical
services in additional markets. The Specialty Medical division generally
enjoys higher gross margins than the Commercial division because it
offers specialized expertise. The Company intends to expand its
Specialty Medical division through acquisitions and internal
development.
FORWARD LOOKING STATEMENTS
This Registration Statement contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the results of operations and businesses of the Company. These
forward looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated,
projected, forecast, estimated or budgeted in such forward looking statements
include, among others, the following possibilities: (i) failure to successfully
integrate the Founding Companies businesses, achieve any cost savings as a
result of the Mergers or institute the necessary systems and procedures to
successfully manage the combined enterprise on a profitable basis; (ii)
heightened competition, including specifically the intensification of price
competition, the entry of new competitors, and the formation of new products by
new and existing competitors; (iii) failure to identify, acquire or profitably
manage additional business or successfully integrate acquired businesses, if
any, into the Company without substantial costs, delays or other operational or
financial problems; (iv) failure to obtain new customers or retain existing
customers; (v) inability to carry out marketing and sales plans; (vi) loss of
key executives; (vii) general economic and business conditions which are less
favorable than expected; and (viii) unanticipated changes in industry trends.
4
<PAGE> 7
SUMMARY FINANCIAL DATA
StaffMark acquired, simultaneously with the closing of the Offering, the
Founding Companies. Pursuant to the requirements of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 97 ("SAB 97"), which was issued and
became effective July 31, 1996, Brewer Personnel Services, Inc. ("Brewer") was
designated as the acquirer, for financial reporting purposes, of Prostaff,
Maxwell, HRA, First Choice and Blethen (each hereinafter defined) (the "Other
Founding Companies"). Accordingly, the primary financial information presented
below relates to Brewer. For a discussion of the pro forma combined operating
results, see the Unaudited Pro Forma Combined Financial Statements of the
Company and related notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
BREWER:
Revenues................................ $6,665 $11,159 $12,313 $27,894 $ 43,874 $15,928 $30,556
Cost of services........................ 5,465 9,609 10,063 22,906 35,115 12,969 24,028
------- ------- ------- -------- -------- ------- -------
Gross profit............................ 1,200 1,550 2,250 4,988 8,759 2,959 6,528
Operating expenses...................... 895 1,156 1,744 3,739 6,395 2,255 5,011
------- ------- ------- -------- -------- ------- -------
Operating income........................ 305 394 506 1,249 2,364 704 1,517
Interest expense........................ 27 26 54 92 801 32 880
Net income.............................. 279 381 478 1,177 1,587 691 634
PRO FORMA(1):
Revenues(2)................................................................... $171,463 $91,430
Operating income(3)........................................................... 7,603 4,286
Net income(3)(4).............................................................. 3,106 2,049
Net income per share.......................................................... 0.37 0.25
Weighted average shares outstanding(5)........................................ 8,300 8,300
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------------
PRO FORMA AS ADJUSTED
ACTUAL (1)(6) (1)(7)
------- --------- -----------
<S> <C> <C> <C>
BREWER BALANCE SHEET DATA:
Working capital....................................................... $ 98 $(18,600) $33,012
Total assets.......................................................... 27,141 48,538 68,829
Long-term debt, including current maturities.......................... 18,626 23,190 --
Stockholders' equity (deficit)........................................ 3,722 (11,334) 55,708
</TABLE>
- ---------------
(1) See the Unaudited Pro Forma Combined Financial Statements of the Company for
pro forma financial information relating to fiscal year 1995 and the six
months ended June 30, 1996.
(2) Adjusted to reflect the acquisition of the Other Founding Companies, and the
acquisitions of E.P. Enterprises Corporation d/b/a Caldwell Services, Inc.
("Caldwell"), On Call Employment Services, Inc. ("On Call") and Strategic
Sourcing, Inc. ("SSI").
(3) Adjusted to reflect the acquisition of the Other Founding Companies, the
acquisitions of Caldwell, On Call and SSI and reductions in salaries to
certain owners of the Founding Companies which have been agreed to in
connection with the Mergers (the "Compensation Differential").
(4) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies as S Corporations prior to the consummation of the
Mergers and the tax impact of the Compensation Differential in each period.
(5) Includes (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Mergers; and (iii) 1,326,459 shares issued in
connection with the Offering to pay the cash portion of the consideration
for the Founding Companies, but excludes 829,025 shares of Common Stock
subject to options issued under the Company's 1996 Stock Option Plan.
(6) Gives effect to: (i) the acquisition of the Other Founding Companies at
historical cost in accordance with SAB 97; (ii) the combination of the
Founding Companies with StaffMark as if such combination had occurred as of
June 30, 1996; (iii) a liability for the cash consideration of $15,917,510
paid to the stockholders of the Founding Companies in connection with the
Mergers; (iv) the transfer by the Founding Companies of certain assets to
their stockholders in connection with the Mergers; (v) the additional cash
borrowed to fund the distribution of certain Founding Companies' S
Corporation Accumulated Adjustment Accounts; and (vi) the acquisition of SSI
by First Choice on July 1, 1996.
(7) Adjusted to reflect the sale of 6,325,000 shares of Common Stock offered in
conjunction with the Offering and the application of the estimated net
proceeds therefrom.
5
<PAGE> 8
SUMMARY FINANCIAL DATA
The following table represents summary data for each of the Other Founding
Companies for the three most recent years as well as the most recent interim
period and comparative period of the prior year.
<TABLE>
<CAPTION>
PERIODS ENDED
YEARS ENDED DECEMBER 31,(1) JUNE 30,(2)
--------------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PROSTAFF:
Revenues........................................... $27,245 $30,608 $34,330 $16,063 $18,920
Cost of services................................... 22,858 25,456 28,234 13,239 15,384
------- ------- ------- ------- -------
Gross profit....................................... 4,387 5,152 6,096 2,824 3,536
Operating expenses................................. 3,756 4,359 5,559 2,534 2,895
------- ------- ------- ------- -------
Operating income................................... 631 793 537 290 641
Interest expense................................... 87 29 20 10 29
Net income......................................... 399 522 446 197 623
MAXWELL:
Revenues........................................... $16,324 $21,226 $23,093 $11,533 $13,232
Cost of services................................... 11,253 16,004 17,748 8,644 9,892
------- ------- ------- ------- -------
Gross profit....................................... 5,071 5,222 5,345 2,889 3,340
Operating expenses................................. 3,658 3,928 4,433 2,314 2,553
------- ------- ------- ------- -------
Operating income................................... 1,413 1,294 912 575 787
Interest expense................................... 28 34 -- -- 22
Net income......................................... 1,296 1,263 920 567 820
HRA:
Revenues........................................... $13,333 $16,453 $18,307 $13,174 $16,883
Cost of services................................... 10,985 13,367 14,940 10,745 13,551
------- ------- ------- ------- -------
Gross profit....................................... 2,348 3,086 3,367 2,429 3,332
Operating expenses................................. 2,141 2,427 3,504 2,418 3,053
------- ------- ------- ------- -------
Operating income (loss)............................ 207 659 (137) 11 279
Interest expense................................... 84 101 107 70 78
Net income (loss).................................. 85 353 (147) (35) 270
FIRST CHOICE:
Revenues........................................... $10,808 $13,007 $13,703 $ 6,640 $ 7,885
Cost of services................................... 8,825 10,573 11,149 5,404 6,386
------- ------- ------- ------- -------
Gross profit....................................... 1,983 2,434 2,554 1,236 1,499
Operating expenses................................. 1,397 2,519 2,291 1,044 1,185
------- ------- ------- ------- -------
Operating income (loss)............................ 586 (85) 263 192 314
Interest expense................................... -- 26 20 11 14
Net income......................................... 351 59 243 181 300
BLETHEN:
Revenues........................................... $11,198 $11,967 $13,380 $ 6,461 $ 7,721
Cost of services................................... 8,132 8,806 9,917 4,897 5,918
------- ------- ------- ------- -------
Gross profit....................................... 3,066 3,161 3,463 1,564 1,803
Operating expenses................................. 3,178 2,837 3,044 1,380 1,359
------- ------- ------- ------- -------
Operating income (loss)............................ (112) 324 419 184 444
Interest expense................................... 135 137 141 69 82
Net income (loss).................................. (91) 141 208 74 303
</TABLE>
- ---------------
(1) Amounts for HRA are reported for the fiscal years ended September 30.
(2) Amounts for HRA are reported for the nine months ended June 30, 1996.
6
<PAGE> 9
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA(1)(2):
Revenues.................................. $41,687 $70,663 $91,221 $121,156 $146,687 $65,557 $89,854
Cost of services.......................... 32,683 55,845 72,117 97,112 117,103 52,428 70,807
------- ------- ------- -------- -------- ------- -------
Gross profit.............................. 9,004 14,818 19,104 24,044 29,584 13,129 19,047
Operating expenses........................ 7,734 12,272 15,873 19,809 25,226 11,262 15,116
------- ------- ------- -------- -------- ------- -------
Operating profit.......................... $ 1,270 $ 2,546 $ 3,231 $ 4,235 $ 4,358 $ 1,867 $ 3,931
</TABLE>
- ---------------
(1) StaffMark acquired, simultaneously with the closing of the Offering, the
Founding Companies. Based on the provisions of SAB 97, which was issued and
became effective July 31, 1996, Brewer was designated as the acquirer, for
financial reporting purposes, of the Other Founding Companies. The
acquisitions of the Other Founding Companies were accounted for as
combinations using historical cost. The summary information presented above
represents the combination of the historical financial statements of each of
the Founding Companies for all periods presented at historical cost, as if
these companies had been members of the same operating group. However,
during the periods presented, the Founding Companies were not under common
control or management. Therefore, the data presented may not be comparable
to or indicative of post combination results to be achieved by the Company
subsequent to the Mergers. Additionally, the Founding Companies' results of
operations reflect two tax structures, S Corporations and C Corporations.
Accordingly, line items which are not meaningful on a combined basis due to
the combination of companies with differing tax structures, such as the
provision for income taxes and net income, have been omitted. For a
discussion of the combined operating results, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Amounts for HRA are reported for the fiscal years ended September 30.
7
<PAGE> 10
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the Company
and its business before purchasing shares of the Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY. StaffMark was founded in March 1996
but conducted no operations and generated no revenues prior to the Offering.
StaffMark acquired the Founding Companies simultaneously with the closing of the
Offering. Prior to the closing of the Offering, the Founding Companies operated
as separate independent entities, and there can be no assurance that the Company
will be able to successfully integrate the Founding Companies businesses,
achieve any cost savings as a result of the Mergers or institute the necessary
systems and procedures to successfully manage the combined enterprise on a
profitable basis. The Company may experience delays, complications and expenses
in implementing, integrating and operating such systems, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. The management group on a combined basis has been
assembled only recently and there can be no assurance that the management group
will be able to oversee the combined entity and effectively implement the
Company's operating, growth, acquisition or business strategies. The combined
historical financial results of the Founding Companies cover periods when the
Founding Companies were not under common control or management and, therefore,
may not be indicative of the Company's future financial or operating results.
The Mergers involved the assumption of legal liabilities and amortization of
certain acquired intangible assets, some or all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. The inability of the Company to successfully integrate or operate
the Founding Companies would have a material adverse effect on the Company's
business, financial condition and results of operations and would make it
unlikely that the Company's acquisition program will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Management" and "Certain Transactions -- Organization of the
Company."
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY. Demand for the Company's
staffing services is significantly affected by the general level of economic
activity and unemployment in the United States. When economic activity
increases, temporary employees are often added before full-time employees are
hired. However, as economic activity slows, many companies reduce their
utilization of temporary employees prior to undertaking layoffs of full-time
employees. In addition, the Company may experience more competitive pricing
pressure during periods of economic downturn. Therefore, any significant
economic downturn could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. One of the Company's
primary business strategies is to increase its revenues and expand the markets
it serves through the acquisition of additional staffing service businesses.
Competition for acquisitions in the staffing industry has increased
significantly in recent years and, as a result, there may be fewer acquisition
candidates available to the Company, and the price of acquisitions may be
higher. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses, if any, into the Company without substantial costs, delays
or other operational or financial problems. Further, acquisitions involve a
number of special risks, including possible adverse effects on the Company's
operating results, diversion of management's attention, dependence on retention,
hiring and training of key personnel, risks associated with unanticipated
problems or legal liabilities, and realization of acquired intangible assets,
some or all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that the Founding Companies or other staffing service businesses
acquired in the future will achieve anticipated revenues and earnings. To the
extent that the Company is unable to acquire additional staffing businesses or
integrate such businesses successfully, its ability to expand its operations and
increase its revenues to the degree desired would be reduced significantly. The
inability to acquire additional staffing businesses could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Operating Strategy" and "-- Growth Strategy."
8
<PAGE> 11
ABILITY TO CONTINUE GROWTH. Certain of the Founding Companies have
experienced significant growth in the past, principally through acquisitions,
growth of existing offices and the opening of new offices. There can be no
assurance that the Company will be able to expand its market presence in its
current locations, successfully enter other markets through acquisitions or the
opening of new offices or integrate future acquired businesses, if any, into the
Company without substantial costs, delays or other operational or financial
problems. There also can be no assurance that future acquisitions or recently
completed acquisitions will not have an adverse effect on the Company's
operating results, particularly in the fiscal quarters immediately following the
consummation of such transactions. The ability of the Company to continue its
growth will depend on a number of factors, including the availability of working
capital to support such growth, existing and emerging competition and the
Company's ability to maintain profitability while facing pricing pressures. The
Company must also manage costs in a changing regulatory environment, adapt its
infrastructure and systems to accommodate growth, and recruit and train
additional qualified personnel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Combined" and "Business -- Operating Strategy" and "-- Growth
Strategy."
RISKS RELATED TO ACQUISITION FINANCING. The Company currently intends to
finance future acquisitions by using cash and shares of the Company's Common
Stock for all or a substantial portion of the consideration to be paid. In the
event that the Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are unwilling to accept the Company's Common
Stock as part of the consideration for their businesses, the Company may be
required to utilize its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources to pursue acquisitions, its growth could be limited unless it is able
to obtain additional capital through debt or equity financing. Although the
Company has established a $50 million credit facility, there can be no assurance
that the Company will be able to obtain all the financing it will need in the
near future on terms the Company deems acceptable. The inability to acquire such
financing, if needed, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Combined" and "Business -- Growth Strategy."
COMPETITIVE MARKET. The temporary staffing industry is highly competitive,
with limited barriers to entry. The Company competes for employees and clients
in national, regional and local markets with full-service and specialized
temporary staffing service businesses. A significant number of competitors have
greater marketing, financial and other resources and more established operations
than the Company. The Company expects that the level of competition will remain
high in the future, which could limit the Company's ability to maintain or
increase its market share or maintain or increase gross margins, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- The Staffing Services
Industry" and "-- Competition."
DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL. The Company
depends on its ability to attract, train and retain personnel who possess the
skills and experience necessary to meet the staffing requirements of its
clients. Competition for individuals with proven skills in certain areas,
particularly medical and technical, is intense. The Company competes in several
markets in which unemployment is relatively low thereby increasing competition
for employees. The Company is also adversely affected by certain special events
such as the 1996 Summer Olympic Games in Atlanta, which have further reduced the
number of qualified temporary candidates available for the Company's Atlanta
branch offices. The Company must continually evaluate, train and upgrade its
base of available personnel to keep pace with clients' needs. There can be no
assurance that qualified personnel will continue to be available to the Company
in sufficient numbers and on terms of employment acceptable to the Company. The
inability to attract and retain qualified personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Operations -- Employees/Personnel."
INCREASED EMPLOYEE COSTS. The Company is required to pay unemployment
insurance premiums and workers' compensation for its temporary employees.
Unemployment insurance premiums may increase as a result of, among other things,
increased levels of unemployment and the lengthening periods for which
unemployment benefits are available. Workers' compensation costs may increase as
a result of changes in the
9
<PAGE> 12
Company's experience rating or applicable laws. Each Founding Company maintains
worker's compensation insurance which remained in effect after the Offering. The
worker's compensation limit is statutory for each Founding Company, except that
the limit is $1,000,000 for First Choice, the Professional Resources subsidiary
of Prostaff and Maxwell's Louisiana operations. The self-insured retention is
$50,000 for Brewer, $200,000 for Prostaff and $250,000 for Maxwell. The
employer's liability limit is $1,000,000 for Brewer and Maxwell's Louisiana and
Oklahoma operations, $500,000 for Prostaff and HRA and $100,000 for all other
Founding Companies. Although management believes its workers' compensation
coverage amounts are adequate, there can be no assurance that the Company's
actual future workers' compensation claims will not exceed the coverage amounts.
The Company is evaluating various forms of worker's compensation insurance and
will implement a new program at such time as, in management's judgment, a more
cost-effective program is identified. The Company's workers' compensation
insurance premiums are subject to retroactive increases based upon audits of the
Company's employee classification practices and other data provided to the
insurance carrier. The Company has retained the services of an independent
third-party administrator and an independent actuary to assist the Company in
establishing appropriate reserves for the uninsured portion of claims (up to the
deductible amount), but such reserves are only estimates of future payments
relating to claims and are based upon limited prior experience. Although
management believes its recorded reserve is adequate, there can be no assurance
that the Company's actual future workers' compensation obligations will not
exceed the amount of its workers' compensation reserve. The Company may incur
costs related to workers' compensation claims at a higher rate due to such
causes as higher than anticipated losses from known claims or an increase in the
number and severity of new claims. See "Business -- Operations -- Workers'
Compensation Program."
RISK OF GOVERNMENT REGULATIONS AND LEGISLATIVE PROPOSALS. The Company's
costs could increase if there are any material changes in government
regulations. Recent federal and certain state legislative proposals have
included provisions extending health insurance benefits to employees who do not
presently receive such benefits. Due to the wide variety of national and state
proposals currently under consideration, the impact of such proposals cannot be
predicted. There can be no assurance that the Company will be able to increase
the fees charged to its clients in a timely manner and sufficient amount to
cover increased costs related to any new benefits that may be extended to
temporary employees. It is not possible to predict whether other legislation or
regulations affecting the Company's operations will be proposed or enacted at
the federal or state level. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and
"Business -- Operations -- Employees/Personnel."
REGULATION OF INTERNATIONAL RECRUITING. The Company currently recruits
physical and occupational therapists internationally for domestic placement. The
entry of these employees into the United States is regulated by the U.S.
Department of Labor and U.S. Department of Justice -- Immigration and
Naturalization Services. The regulations governing the hiring of foreign
nationals are complex and change often. If either of these authorities or any
other regulatory or judicial body should determine that the Company is not in
compliance with the regulations, the Company could be subject to fines and/or
suspension of this part of the Company's business. Further, regulations could
change in a manner which would limit the Company's ability to employ foreign
nationals. Any of the foregoing could have a material adverse effect on the
Company's business, financial condition and results of operation.
INDUSTRY RISKS. Providers of temporary staffing services generally place
their employees in the workplace of other businesses. An attendant risk of such
activity includes possible claims of discrimination and harassment, employment
of illegal aliens and other similar claims. Management has adopted and
implemented policies and guidelines to reduce the Company's exposure to these
risks. However, a failure of any Company employee to follow these policies and
guidelines may result in negative publicity, injunctive relief and the
assessment against the Company of damages or fines. Moreover, in certain
circumstances, the Company may be held responsible for the actions at a
workplace of persons not under the direct control of the Company.
Temporary staffing providers are also affected by fluctuations in the
business of their clients. Interruptions in the business of its clients can
adversely affect the Company's business. For example, inclement weather or
10
<PAGE> 13
natural disasters, which may require clients to close or reduce their hours of
operation, could adversely affect the Company's business, financial condition
and results of operations.
RELIANCE ON KEY PERSONNEL. The Company is highly dependent on its
management. The Company believes that its success will depend to a significant
extent upon the efforts and abilities of the key executives of the Founding
Companies. Furthermore, the Company will likely be dependent on the senior
management of companies that may be acquired in the future. If any of these
individuals are unable to continue in their position with the Company, or if the
Company is unable to attract and retain other skilled employees, the Company's
business, financial condition and results of operation could be adversely
affected. See "Management."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. The Company's executive
officers and directors and entities affiliated with them, beneficially own
approximately 37.0% of the outstanding shares of Common Stock. These persons
acting together would likely be able to elect a sufficient number of directors
to control the Board of Directors of the Company and to approve or disapprove
any matter submitted to a vote of stockholders. See "Principal Stockholders."
POTENTIAL LIABILITY AND INSURANCE; LEGAL PROCEEDINGS. The provision of
professional services, specialty medical and clinical trials services entails an
inherent risk of professional malpractice and other similar claims. The Company
expects to maintain insurance coverage that it believes will be adequate both as
to risks and amounts. Each Founding Company maintained its existing insurance
coverage after the Mergers. The Company is evaluating various insurance options
and will implement a new program at such time as, in management's judgment, a
more cost-effective program is identified. The Company believes that such
insurance will extend to professional liability claims that may be asserted
against field employees of the Company. In the ordinary course of its business,
the Company is periodically threatened with or named as a defendant in various
lawsuits, including discrimination and harassment and other similar claims,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
POTENTIAL EFFECT OF SHARES FOR FUTURE SALE ON PRICE OF COMMON STOCK. The
market price of the Common Stock of the Company could be adversely affected by
the sale, or availability for sale, of substantial amounts of Common Stock of
the Company in the public market.
The Company issued 6,325,000 shares of its Common Stock in the Offering,
all of which are freely tradeable unless held by affiliates of the Company. In
addition, simultaneously with the closing of the Offering, the stockholders of
the Founding Companies received, in the aggregate, 5,618,249 shares of Common
Stock as a portion of the consideration for their businesses. These shares have
not been registered under the Securities Act, and, therefore, may not be sold
unless registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, the
stockholders who received these shares have agreed with the Company not to sell,
transfer or otherwise dispose of any of these shares for two years following
consummation of the Offering. However, the stockholders who received these
shares have certain demand registration rights with respect to these shares,
beginning 22 months after the closing of the Offering, as well as certain
piggyback registration rights with respect to these shares. In addition, the
original stockholders of StaffMark hold, in the aggregate 1,355,000 shares of
Common Stock. See "Certain Transactions -- Organization of the Company." None of
these shares have been registered under the Securities Act and, accordingly, may
not be sold unless registered under the Securities Act or sold pursuant to an
exemption from registration, such as the exemption provided by Rule 144. The
holders of these shares also have certain piggyback registration rights with
respect to these shares and have agreed with StaffMark to the same two-year
restriction on dispositions described above. Upon future registration, such
restricted shares will be eligible for resale in the public market.
The 4,000,000 shares of Common Stock offered hereby shall, upon
registration thereof, be freely tradeable unless the resale thereof is
contractually restricted. The piggyback registration rights described above will
not apply to these 4,000,000 shares. See "Shares Eligible for Future Sale."
The Company has issued options to purchase 829,025 shares of Common Stock
under its 1996 Stock Option Plan. Substantially all of these options will vest
over a period of five years. The Company intends to
11
<PAGE> 14
register the shares issuable upon exercise of options granted under its 1996
Stock Option Plan and, upon such registration, such shares will be eligible for
resale in the public market. See "Management -- 1996 Stock Option Plan."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT. The Company anticipates that for
the foreseeable future its earnings will be retained for the operation and
expansion of its business and that it will not pay cash dividends. In addition,
the Company anticipates that its proposed credit facility will limit the payment
of cash dividends without the lender's consent. See "Dividend Policy."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Board of Directors
of the Company is empowered to issue preferred stock in one or more series
without stockholder action. The existence of this "blank-check" preferred stock
provision could render more difficult or discourage an attempt to obtain control
of the Company by means of a tender offer, merger, proxy contest or otherwise.
Certain provisions of the Delaware General Corporation Law may also discourage
takeover attempts that have not been approved by the Board of Directors. See
"Description of Capital Stock."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the Nasdaq National Market since
September 27, 1996. On October 25, 1996, the last sale price of the Common Stock
was $14.50 per share, as published in The Wall Street Journal on October 28,
1996. At October 25, 1996, there were approximately 118 stockholders of record
of the Company's Common Stock. The following table sets forth the range of high
and low sales prices for the Common Stock for the period from September 26,
1996, the date of the Offering, through October 25, 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
September 27, 1996 through October 25, 1996.................. $16 3/4 $13 1/4
==== ====
</TABLE>
12
<PAGE> 15
THE COMPANY
StaffMark, a Delaware corporation, was founded in March 1996 to create a
leading provider of diversified staffing services to businesses, healthcare
providers, professional and service organizations and governmental agencies,
primarily in growth markets located in the southeastern and southwestern United
States. On October 2, 1996, StaffMark acquired, simultaneously with the closing
of the Offering, the following established staffing businesses and their
affiliates: (i) Brewer; (ii) Prostaff Personnel, Inc. and its related entities
("Prostaff"); (iii) Maxwell Staffing, Inc. and its related entities ("Maxwell");
(iv) HRA, Inc. ("HRA"); (v) First Choice Staffing, Inc. ("First Choice"); and
(vi) Blethen Temporaries, Inc. and its related entities ("Blethen"). The
Founding Companies have been in business an average of 13 years and provide a
wide variety of staffing services through 91 branch offices located in Arkansas,
Colorado, Georgia, North Carolina, Oklahoma, South Carolina, Tennessee and
Virginia. For a description of the Mergers pursuant to which these businesses
were acquired, see "Certain Transactions -- Organization of the Company."
The Company's business is organized into three divisions: Commercial,
Professional and Specialty Medical. The Commercial division provides clerical
and light industrial staffing services. The Professional division provides
technical, professional and information technology staffing services. The
Specialty Medical division provides healthcare and medical staffing services.
The Company's senior management is comprised primarily of stockholders of
the Founding Companies. Clete T. Brewer, President and Chief Executive Officer
of Brewer, serves as President, Chief Executive Officer and a director of the
Company. Ted Feldman, President and Chief Executive Officer of HRA, is Chief
Operating Officer of the Company. W. David Bartholomew, Secretary/Treasurer of
HRA, is Executive Vice President -- Southeastern Operations and a director of
the Company. Donald A. Marr, Jr., Vice President of Operations of Brewer, is
Executive Vice President -- Southwestern Operations of the Company. Together,
Messrs. Bartholomew and Marr directly manage the Company's Commercial and
Professional divisions. Steven E. Schulte, President and Chief Executive Officer
of Prostaff, is Executive Vice President -- Administration and a director of the
Company. The Specialty Medical division of the Company is managed directly by
John H. Maxwell, Jr. and Janice Blethen. Mr. Maxwell, President of Maxwell, is
the Executive Vice President -- Medical Services and a director of the Company.
Ms. Blethen, the President and Chief Executive Officer of Blethen, is the
Executive Vice President -- Clinical Trials Support Services and a director of
the Company. See "Management."
Certain information regarding the Founding Companies is set forth below:
<TABLE>
<CAPTION>
FISCAL 1995 BRANCHES
OPERATING AS OF
YEAR FISCAL 1995 INCOME JULY 31,
COMPANY FOUNDED REVENUE (LOSS)(1) 1996 STATES SERVICES PROVIDED
- -------------------------- ----------- ----------- -------- ------------ --------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Brewer............. 1988 $43,874 $ 2,364 27 AR, CO, GA, Commercial/Professional
TN, VA
Prostaff........... 1973 34,330 537 25 AR Commercial/Professional/
Specialty Medical
Maxwell............ 1979 23,093 912 9 OK Commercial/Professional/
Specialty Medical
HRA................ 1991 18,306 (137) 15 TN Commercial/Professional
First Choice....... 1986 13,703 263 8 SC, NC Commercial/Professional
Blethen............ 1981 13,380 419 7 NC Commercial/Professional/
Specialty Medical
</TABLE>
- ---------------
(1) Represents operating income before interest expense, other income or
expense, and income taxes.
13
<PAGE> 16
The aggregate consideration paid by StaffMark in the Mergers was
approximately $83.3 million, consisting of approximately $15.9 million in cash
and 5,618,249 shares of Common Stock.
The following table sets forth the consideration paid for each Founding
Company:
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------
COMPANY CASH SHARES VALUE OF SHARES(1) TOTAL
- ------------------------------------------------ ------- --------- ------------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Brewer.......................................... $ 2,950 1,935,000 $ 23,220 $26,170
Prostaff........................................ 4,500 1,050,000 12,600 17,100
Maxwell......................................... 2,280 912,000 10,944 13,224
HRA............................................. 2,348 615,175 7,382 9,730
First Choice.................................... 2,075 622,500 7,470 9,545
Blethen......................................... 1,764 483,574 5,803 7,567
------- --------- ------- -------
Total................................. $15,917 5,618,249 $ 67,419 $83,336
======= ========= ======= =======
</TABLE>
- ---------------
(1) Represents the aggregate cash value of the shares of Common Stock issued as
consideration in the Mergers, based upon a price per share of $12.00, the
initial public offering price.
In addition, in conjunction with the Mergers, certain of the Founding
Companies made distributions totaling approximately $5.3 million to their
stockholders, representing their estimated S Corporation Accumulated Adjustment
Accounts as of June 30, 1996. Additionally, in conjunction with the Mergers,
certain of the Founding Companies made distributions of certain assets with a
net book value of approximately $349,000 as of June 30, 1996.
The Company maintains its principal executive offices at 302 East Millsap
Road, Fayetteville, Arkansas, 72703. Its telephone number is (501) 973-6000.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes, including future acquisitions. Any payment of future dividends will be
at the discretion of the Board of Directors and will depend upon, among other
things, the Company's earnings, financial condition, capital requirements, level
of indebtedness, contractual restrictions with respect to the payment of
dividends and other factors that the Company's Board of Directors deems
relevant. In addition, the Company's credit facility includes, and any
additional credit facilities established in the future may include, restrictions
on the ability of the Company to pay dividends without the consent of the
lender.
14
<PAGE> 17
SELECTED FINANCIAL DATA
StaffMark acquired, simultaneously with the closing of the Offering, the
Founding Companies. Pursuant to the requirements of SAB 97, which was issued and
became effective July 31, 1996, Brewer was designated, for financial reporting
purposes, as the acquirer of the Other Founding Companies. Accordingly, the
primary financial information presented below relates to Brewer. For a
discussion of the pro forma combined operating results, see the Unaudited Pro
Forma Combined Financial Statements of the Company and related notes thereto.
The Selected Financial Data should be read in conjunction with the audited
financial statements of Brewer and related notes thereto, the Unaudited Pro
Forma Combined Financial Statements of the Company and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
BREWER:
Revenues................................ $6,665 $11,159 $12,313 $27,894 $43,874 $15,928 $30,556
Cost of services........................ 5,465 9,609 10,063 22,906 35,115 12,969 24,028
------- ------- ------- -------- -------- ------- -------
Gross profit............................ 1,200 1,550 2,250 4,988 8,759 2,959 6,528
Operating expenses:
Selling, general and administrative... 797 1,043 1,623 3,483 5,804 2,119 4,445
Depreciation and amortization......... 98 113 121 256 591 136 566
------- ------- ------- -------- -------- ------- -------
Operating income........................ 305 394 506 1,249 2,364 704 1,517
Interest expense........................ 27 26 54 92 801 32 880
Net Income.............................. 279 381 478 1,177 1,587 691 634
PRO FORMA(1):
Revenues(2)................................................................... $171,463 $91,430
Operating income(3)........................................................... 7,603 4,286
Net income(3)(4).............................................................. 3,106 2,049
Net income per share.......................................................... 0.37 0.25
Weighted average shares outstanding(5)........................................ 8,300 8,300
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
AS OF DECEMBER 31, -----------------------------------
----------------------------------------------- PRO FORMA AS ADJUSTED
1991 1992 1993 1994 1995 ACTUAL (1)(6) (1)(7)
------ ------ ------ ------ ------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BREWER BALANCE SHEET DATA:
Working capital............... $ 345 $ (324) $ 366 $1,157 $ 1,508 $ 98 $(18,600 ) $33,012
Total assets.................. 1,050 2,321 2,917 4,054 21,752 27,141 48,538 68,829
Long-term debt, incl. current
maturities.................. 209 -- 1,232 224 15,986 18,626 23,190 --
Stockholders' equity
(deficit)................... 494 846 1,110 2,110 2,786 3,722 (11,334 ) 55,708
</TABLE>
- ---------------
(1) See the Unaudited Pro Forma Combined Financial Statements of the Company for
pro forma financial information relating to fiscal year 1995 and the six
months ended June 30, 1996.
(2) Adjusted to reflect the acquisition of the Other Founding Companies as well
as the acquisitions of Caldwell, On Call and SSI.
(3) Adjusted to reflect the acquisition of the Other Founding Companies, the
acquisitions of Caldwell, On Call and SSI and the Compensation Differential.
(4) Gives effect to certain tax adjustments related to the taxation of certain
Founding Companies as S Corporations prior to the consummation of the
Mergers and the tax impact of the Compensation Differential in each period.
(5) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Mergers; and (iii) 1,326,459 shares issued in
connection with the Offering to pay the cash portion of the consideration
for the Founding Companies, but excludes 829,025 shares of Common Stock
subject to options issued under the Company's 1996 Stock Option Plan.
(6) Gives effect to: (i) the acquisition of the Other Founding Companies at
historical cost in accordance with SAB 97; (ii) the combination of the
Founding Companies with StaffMark as if such combination had occurred as of
June 30, 1996; (iii) a liability for the cash consideration of $15,917,510
paid to the stockholders of the Founding Companies in connection with the
Mergers; (iv) the transfer by the Founding Companies of certain assets to
their stockholders in connection with the Mergers; (v) the additional cash
borrowed to fund the distribution of certain Founding Companies' S
Corporation Accumulated Adjustment Accounts; and (vi) the acquisition of SSI
by First Choice on July 1, 1996.
(7) Adjusted to reflect the sale of 6,325,000 shares of Common Stock offered in
conjunction with the Offering and the application of the estimated net
proceeds therefrom.
15
<PAGE> 18
SELECTED FINANCIAL DATA
The following table represents selected data for each of the Other Founding
Companies for the three most recent years as well as the most recent interim
period and comparative period of the prior year.
<TABLE>
<CAPTION>
PERIODS ENDED
YEARS ENDED DECEMBER 31,(1) JUNE 30,(2)
--------------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
PROSTAFF:
Revenues........................................... $27,245 $30,608 $34,330 $16,063 $18,920
Cost of services................................... 22,858 25,456 28,234 13,239 15,384
------- ------- ------- ------- -------
Gross profit....................................... 4,387 5,152 6,096 2,824 3,536
Operating expenses................................. 3,756 4,359 5,559 2,534 2,895
------- ------- ------- ------- -------
Operating income................................... 631 793 537 290 641
Interest expense................................... 87 29 20 10 29
Net income......................................... 399 522 446 197 623
MAXWELL:
Revenues........................................... $16,324 $21,226 $23,093 $11,533 $13,232
Cost of services................................... 11,253 16,004 17,748 8,644 9,892
------- ------- ------- ------- -------
Gross profit....................................... 5,071 5,222 5,345 2,889 3,340
Operating expenses................................. 3,658 3,928 4,433 2,314 2,553
------- ------- ------- ------- -------
Operating income................................... 1,413 1,294 912 575 787
Interest expense................................... 28 34 -- -- 22
Net income......................................... 1,296 1,263 920 567 820
HRA:
Revenues........................................... $13,333 $16,453 $18,307 $13,174 $16,883
Cost of services................................... 10,985 13,367 14,940 10,745 13,551
------- ------- ------- ------- -------
Gross profit....................................... 2,348 3,086 3,367 2,429 3,332
Operating expenses................................. 2,141 2,427 3,504 2,418 3,053
------- ------- ------- ------- -------
Operating income (loss)............................ 207 659 (137) 11 279
Interest expense................................... 84 101 107 70 78
Net income (loss).................................. 85 353 (147) (35) 270
FIRST CHOICE:
Revenues........................................... $10,808 $13,007 $13,703 $ 6,640 $ 7,885
Cost of services................................... 8,825 10,573 11,149 5,404 6,386
------- ------- ------- ------- -------
Gross profit....................................... 1,983 2,434 2,554 1,236 1,499
Operating expenses................................. 1,397 2,519 2,291 1,044 1,185
------- ------- ------- ------- -------
Operating income (loss)............................ 586 (85) 263 192 314
Interest expense................................... -- 26 20 11 14
Net income......................................... 351 59 243 181 300
BLETHEN:
Revenues........................................... $11,198 $11,967 $13,380 $ 6,461 $ 7,721
Cost of services................................... 8,132 8,806 9,917 4,897 5,918
------- ------- ------- ------- -------
Gross profit....................................... 3,066 3,161 3,463 1,564 1,803
Operating expenses................................. 3,178 2,837 3,044 1,380 1,359
------- ------- ------- ------- -------
Operating income (loss)............................ (112) 324 419 184 444
Interest expense................................... 135 137 141 69 82
Net income (loss).................................. (91) 141 208 74 303
</TABLE>
- ---------------
(1) Amounts for HRA are reported for the fiscal years ended September 30.
(2) Amounts for HRA are reported for the nine months ended June 30, 1996.
16
<PAGE> 19
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF INCOME DATA(1)(2):
Revenues................................ $41,687 $70,663 $91,221 $121,156 $146,687 $65,557 $89,854
Cost of services........................ 32,683 55,845 72,117 97,112 117,103 52,428 70,807
------- ------- ------- -------- -------- ------- -------
Gross profit............................ 9,004 14,818 19,104 24,044 29,584 13,129 19,047
Operating expenses:
Selling, general and administrative... 7,514 11,940 15,358 19,067 24,069 10,857 14,197
Depreciation and amortization......... 220 332 515 742 1,157 405 919
------- ------- ------- -------- -------- ------- -------
Operating profit........................ $ 1,270 $ 2,546 $ 3,231 $ 4,235 $ 4,358 $ 1,867 $ 3,931
</TABLE>
- ---------------
(1) StaffMark acquired, simultaneously with the closing of the Offering, the
Founding Companies. Based on the provisions of SAB 97, which was issued and
became effective July 31, 1996, Brewer was designated as the acquirer, for
financial reporting purposes, of the Other Founding Companies. The
acquisitions of the Other Founding Companies were accounted for as
combinations using historical costs. The summary information presented above
represents the combination of the historical financial statements of each of
the Founding Companies for all periods presented at historical costs, as if
these companies had been members of the same operating group. However,
during the periods presented, the Founding Companies were not under common
control or management. Therefore, the data presented may not be comparable
to or indicative of post combination results to be achieved by the Company
subsequent to the Mergers. Additionally, the Founding Companies' results of
operations reflect two tax structures, S Corporations and C Corporations.
Accordingly, line items which are not meaningful on a combined basis due to
the combination of companies with differing tax structures, such as the
provision for income taxes and net income, have been omitted. For a
discussion of the combined operating results, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(2) Amounts for HRA are reported for the fiscal years ended September 30.
The selected financial information shown above as of December 31, 1994 and
1995 and June 30, 1996, and for each of the three years in the period ended
December 31, 1995, and for the six months ended June 30, 1996 has been derived
from financial statements audited by Arthur Andersen LLP which appear elsewhere
in this Prospectus. The selected financial data as of December 31, 1991, 1992
and 1993 and for the years ended December 31, 1991 and 1992, and for the six
months ended June 30, 1995 has been derived from unaudited financial statements
which have been prepared on the same basis as the audited financial statements
and, in the opinion of management of the Founding Companies, reflect all
adjustments, consisting only of normal, recurring adjustments, necessary for a
fair presentation of such data.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and related notes thereto, and each of the Founding Companies'
audited financial statements and related notes thereto appearing elsewhere in
this Prospectus.
INTRODUCTION
StaffMark acquired, simultaneously with the closing of the Offering, the
Founding Companies. Pursuant to the requirements of SAB 97, which was issued and
became effective July 31, 1996, Brewer was designated as the acquirer of the
other Founding Companies for financial reporting purposes. The information below
is intended to discuss the financial condition and results of operations of
Brewer, each of the Other Founding Companies and the combined Founding Companies
for the first six months of 1996 as compared to the first six months of 1995,
fiscal year 1995 as compared to fiscal year 1994, and fiscal year 1994 as
compared to fiscal year 1993.
The Company's revenues are derived from temporary staffing and permanent
placement services provided to its clients. Because the Company compensates its
temporary employees only for the hours actually worked, wages for the Company's
temporary personnel are a variable cost that increases or decreases in
proportion to revenues. Cost of services consists primarily of wages paid to
temporary employees, workers' compensation expenses and payroll taxes related to
temporary employees. Selling, general and administrative expenses consist
primarily of compensation and related benefits to the Founding Companies'
owners, administrative salaries and benefits, marketing and rent.
Certain of the Founding Companies have made acquisitions of other personnel
service businesses whose financial results are either completely excluded or
only partially included (i.e., presentation of financial results of a company
from the date of an acquisition accounted for as a purchase) in the Founding
Companies' individual financial statements included herein. The financial
results of these companies, had they been included in the historical financial
statements, would have had a significant impact on the Company's financial
results. Accordingly, pro forma financial information has been provided
elsewhere in this Prospectus for the year ended December 31, 1995 and the six
months ended June 30, 1996, reflecting the estimated financial results of the
Founding Companies and the companies which were acquired before the date of the
Mergers.
The Founding Companies have been managed throughout the periods presented
as independent private companies, and, as such, their results of operations
reflect two tax structures, S Corporations and C Corporations, which have
influenced, among other things, the historical levels of their owners'
compensation. Certain owners have agreed to reductions in their compensation and
benefits in connection with the Mergers. The Compensation Differential and the
related income tax effects have been reflected as pro forma adjustments in the
accompanying pro forma financial information provided elsewhere in this
Prospectus.
The Company has preliminarily analyzed the savings that it expects to
realize as a result of: (i) consolidating certain general and administrative
functions, including workers' compensation insurance programs; (ii) the
reduction in interest payments related to the prepayment of the Founding
Companies' debt; and (iii) its ability to borrow at lower interest rates than
the Founding Companies. It is anticipated that these savings will be partially
offset by the costs of being a public company and the incremental increase in
costs related to the Company's new corporate management. However, these costs
also cannot be accurately quantified. Accordingly, neither the anticipated
savings nor the anticipated costs have been included in the pro forma financial
information included herein. As a result, historical combined results may not be
comparable to, or indicative of, future performance.
The financial information provided below has been rounded in order to
simplify its presentation. However, the percentages provided below are
calculated using the detailed financial information contained in the financial
statements, the notes thereto and the other financial data included elsewhere in
this Prospectus.
18
<PAGE> 21
RESULTS OF OPERATIONS -- BREWER
BREWER RESULTS FOR THE FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX MONTHS
OF 1995
Revenues. Revenues increased $14.6 million, or 91.8%, to $30.6 million for
the first six months of 1996 compared to $15.9 million for the first six months
of 1995. This increase was primarily attributable to the acquisition of Caldwell
in July 1995 and the acquisition of On Call in February 1996. The acquisitions
of Caldwell and On Call accounted for $10.2 million and $6.1 million,
respectively, of the increase in revenues, which was partially offset by a
decrease in Brewer's revenues, exclusive of acquisitions, of approximately $1.7
million.
Cost of Services. Cost of services increased $11.1 million, or 85.3%, to
$24.0 million for the first six months of 1996 compared to $13.0 million for the
first six months of 1995. This increase was primarily attributable to the
Caldwell and On Call acquisitions, which accounted for $8.0 million and $5.0
million, respectively, of the increase, which was partially offset by a decrease
in Brewer's cost of services, exclusive of acquisitions, of approximately $2.0
million.
Gross Profit. Gross profit increased $3.6 million, or 120.6%, to $6.5
million for the first six months of 1996 compared to $3.0 million for the first
six months of 1995. This increase was primarily attributable to the acquisitions
of Caldwell and On Call. Gross margin increased to 21.4% during the first six
months of 1996 compared to 18.6% during the first six months of 1995. This
increase was primarily attributable to the acquisition of Caldwell, as well as
an increase in Brewer's gross margin resulting from a decrease in the Arkansas
state unemployment tax rate.
Operating Expenses. Selling, general and administrative expenses ("SG&A")
increased $2.3 million, or 109.8%, to $4.4 million for the first six months of
1996 compared to $2.1 million for the first six months of 1995. This increase
was primarily attributable to the acquisitions of Caldwell and On Call, which
accounted for $1.1 million and $665,000 of the increase, respectively. This
increase was also influenced by Brewer's decision to enhance its organizational
structure in order to achieve its growth strategy, which resulted in an increase
in personnel costs and costs associated with moving into its new corporate
headquarters. SG&A as a percentage of revenues increased to 14.5% for the first
six months of 1996 compared to 13.3% for the first six months of 1995.
Depreciation and amortization expense increased $430,000, or 314.8%, to $566,000
for the first six months of 1996 compared to $136,000 for the first six months
of 1995. This increase was primarily attributable to increased amortization of
intangibles resulting from the acquisitions of Caldwell and On Call, which were
accounted for using the purchase accounting method.
Operating Income. Operating income increased $813,000, or 115.5%, to $1.5
million for the first six months of 1996 compared to $704,000 for the first six
months of 1995. Operating income as a percentage of revenues increased to 5.0%
during the first six months of 1996 compared to 4.4% during the first six months
of 1995.
Interest Expense. Interest expense increased $848,000 to $880,000 for the
first six months of 1996 compared to $32,000 for the first six months of 1995.
This increase was primarily attributable to debt incurred to finance the
acquisitions of Caldwell and On Call.
Net Income. Net income decreased $57,000, or 8.3%, to $634,000 for the
first six months of 1996 compared to $691,000 for the first six months of 1995.
Net income as a percentage of revenues decreased to 2.1% during the first six
months of 1996 compared to 4.3% during the first six months of 1995.
BREWER RESULTS FOR 1995 COMPARED TO 1994
Revenues. Revenues increased $16.0 million, or 57.3%, to $43.9 million for
1995 compared to $27.9 million for 1994. This increase was primarily
attributable to the acquisition of Caldwell in July 1995, which accounted for
$11.7 million of the increase in revenues.
Cost of Services. Cost of services increased $12.2 million, or 53.3%, to
$35.1 million for 1995 compared to $22.9 million for 1994. This increase was
primarily related to the Caldwell acquisition, which accounted for $9.4 million
of the increase.
19
<PAGE> 22
Gross Profit. Gross profit increased $3.8 million, or 75.6%, to $8.8
million for 1995 compared to $5.0 million for 1994. Gross margin increased to
20.0% for 1995 compared to 17.9% for 1994. These increases were primarily
attributable to the impact of the acquisition of Caldwell and the improvement in
gross margins for the branches acquired from Aaron in November 1993.
Operating Expenses. SG&A increased $2.3 million, or 66.6%, to $5.8 million
for 1995 compared to $3.5 million for 1994. This increase was primarily
attributable to the acquisition of Caldwell. SG&A as a percentage of revenues
increased to 13.2% for 1995 compared to 12.5% for 1994. Depreciation and
amortization expense increased $334,000, or 130.5%, to $590,000 for 1995
compared to $256,000 for 1994. This increase was primarily attributable to
increased amortization of intangibles resulting from the acquisition of
Caldwell.
Operating Income. Operating income increased $1.1 million, or 89.3%, to
$2.4 million for 1995 compared to $1.2 million for 1994. Operating income as a
percentage of revenues increased to 5.4% for 1995 compared to 4.5% for 1994.
Interest Expense. Interest expense increased $709,000 to $801,000 for 1995
compared to $92,000 for 1994. This increase was primarily attributable to higher
interest costs on debt incurred to finance the acquisition of Caldwell.
Net Income. Net income increased $410,000, or 34.8%, to $1.6 million for
1995 compared to $1.2 million for 1994. Net income as a percentage of revenues
decreased to 3.6% for 1995 compared to 4.2% for 1994.
BREWER RESULTS FOR 1994 COMPARED TO 1993
Revenues. Revenues increased $15.6 million, or 126.5%, to $27.9 million for
1994 compared to $12.3 million for 1993. This increase was primarily
attributable to the acquisition of Aaron, which accounted for $13.0 million of
the increase.
Cost of Services. Cost of services increased $12.8 million, or 127.6%, to
$22.9 million for 1994 from $10.1 million for 1993. This increase was primarily
due to the acquisition of Aaron, which accounted for $11.2 million of the
increase.
Gross Profit. Gross profit increased $2.7 million, or 121.6%, to $5.0
million for 1994 compared to $2.3 million for 1993. This increase was primarily
attributable to the acquisition of Aaron. Gross margin decreased slightly to
17.9% for 1994 compared to 18.3% for 1993 because Aaron had historically lower
gross margins than Brewer.
Operating Expenses. SG&A increased $1.9 million, or 114.6%, to $3.5 million
for 1994 compared to $1.6 million for 1993, which was primarily attributable to
the acquisition of Aaron. SG&A as a percentage of revenues decreased to 12.5%
for 1994 compared to 13.2% for 1993. Depreciation and amortization expense
increased $135,000, or 110.8%, to $256,000 for 1994 compared to $121,000 for
1993. This increase was primarily attributable to increased amortization of
intangibles resulting from the acquisition of Aaron.
Operating Income. Operating income increased $743,000, or 146.6%, to $1.2
million for 1994 compared to $506,000 for 1993. Operating income as a percentage
of revenues increased to 4.5% for 1994 compared to 4.1% for 1993.
Interest Expense. Interest expense increased $38,000 to $92,000 for 1994
compared to $54,000 for 1993. This increase was primarily attributable to debt
incurred to finance the acquisition of Aaron.
Net Income. Net income increased $699,000, or 146.4%, to $1.2 million for
1994 compared to $478,000 for 1993. Net income as a percentage of revenues
increased to 4.2% for 1994 from 3.9% for 1993.
LIQUIDITY AND CAPITAL RESOURCES -- BREWER
Net cash provided by operating activities was $368,000, $894,000, $1.6
million and $77,000 in 1993, 1994, 1995 and the first six months of 1996,
respectively. The net cash provided by operating activities for the periods
presented was primarily attributable to net income and changes in operating
assets and liabilities.
20
<PAGE> 23
Cash used in investing activities was $308,000, $345,000, $12.0 million and
$3.4 million in 1993, 1994, 1995 and the first six months of 1996, respectively.
Cash used in investing activities in 1993 was primarily attributable to the
acquisition of Aaron and routine capital expenditures. Cash used in investing
activities in 1994 was primarily attributable to routine capital expenditures.
Cash used in investing activities in 1995 and the first six months of 1996 was
primarily attributable to the acquisitions of Caldwell and On Call,
respectively.
Cash provided by (used in) financing activities was ($179,000), ($512,000),
$10.6 million and $3.8 million in 1993, 1994, 1995 and the first six months of
1996, respectively. Cash used in financing activities in 1993 was primarily for
cash dividends paid to Brewer's stockholders. Cash used in financing activities
in 1994 was primarily attributable to debt repayments and was also influenced by
cash dividends paid to Brewer's stockholders. Cash provided by financing
activities in 1995 and the first six months of 1996 was primarily attributable
to the proceeds from debt issued in conjunction with the acquisitions of
Caldwell and On Call, respectively.
As a result of the foregoing, cash and cash equivalents decreased $119,000
in 1993 and increased $37,000, $211,000 and $459,000 in 1994, 1995 and the first
six months of 1996, respectively.
Brewer's primary sources of funds are from operations and the issuance of
debt under its term loan and line of credit arrangements. Brewer's principal
uses of cash are for acquisitions, working capital purposes and capital
expenditures.
As of June 30, 1996, Brewer had total debt outstanding of approximately
$20.2 million.
While there can be no assurance, management of Brewer believes that the
funds currently available on hand, funds to be provided by operations and funds
available through existing credit facilities will be sufficient to meet Brewer's
anticipated needs for working capital and capital expenditures through the date
of the merger with StaffMark.
RESULTS OF OPERATIONS -- PROSTAFF
PROSTAFF RESULTS FOR THE FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995
Revenues. Revenues increased $2.9 million, or 17.8%, to $18.9 million for
the first six months of 1996 compared to $16.1 million for the first six months
of 1995. The increase in Prostaff's revenues was primarily attributable to the
opening of several new branches during 1995 and during the first six months of
1996, a significant increase in business conducted with its largest client and
the addition of a new significant client in 1996.
Cost of Services. Cost of services increased $2.1 million, or 16.2%, to
$15.4 million for the first six months of 1996 compared to $13.2 million for the
first six months of 1995.
Gross Profit. Gross profit increased $711,000, or 25.2%, to $3.5 million
for the first six months of 1996 compared to $2.8 million for the first six
months of 1995. Gross margin increased to 18.7% for the first six months of 1996
compared to 17.6% for the first six months of 1995, primarily attributable to a
decrease in the Arkansas state unemployment tax rate.
Operating Expenses. Operating expenses increased $361,000, or 14.2%, to
$2.9 million for the first six months of 1996 compared to $2.5 million for the
first six months of 1995. This increase was primarily attributable to the
opening of several new branches in 1995 and the hiring of a significant number
of new employees, partially offset by a decrease in accrued bonuses to the
owners of Prostaff. Operating expenses as a percentage of revenues decreased to
15.3% for the first six months of 1996 compared to 15.8% for the first six
months of 1995. This decrease was influenced by a reduction in accrued bonuses
to the owners of Prostaff from $344,000 during the first six months of 1995 to
$0 for the first six months of 1996.
Operating Income. Operating income increased $350,000, or 120.6%, to
$641,000 for the first six months of 1996 compared to $291,000 for the first six
months of 1995. Operating income as a percentage of revenues increased to 3.4%
for the first six months of 1996 compared to 1.8% for the first six months of
1995.
21
<PAGE> 24
Net Income. Net income increased $426,000, or 215.6%, to $623,000 for the
first six months of 1996 compared to $197,000 for the first six months of 1995.
Net income as a percentage of revenues increased to 3.3% for the first six
months of 1996 compared to 1.2% for the first six months of 1995.
PROSTAFF RESULTS FOR 1995 COMPARED TO 1994
Revenues. Revenues increased $3.7 million, or 12.2%, to $34.3 million for
1995 compared to $30.6 million for 1994. The increase was primarily attributable
to the addition of new significant clients, as well as the opening of several
branches in 1995.
Cost of Services. Cost of services increased $2.8 million, or 10.9%, to
$28.2 million for 1995 compared to $25.5 million for 1994.
Gross Profit. Gross profit increased $944,000, or 18.3%, to $6.1 million
for 1995 compared to $5.2 million for 1994. Gross margin increased to 17.8% for
1995 compared to 16.8% for 1994. This increase in gross margin was attributable
to slightly improved rates charged to clients and a decrease in the Arkansas
state unemployment tax rate.
Operating Expenses. Operating expenses increased $1.2 million, or 27.5%, to
$5.6 million for 1995 compared to $4.4 million for 1994. This increase was
attributable to increased compensation relating to the opening of several new
branches and expansion of the corporate headquarters. Operating expenses as a
percentage of revenues increased to 16.2% for 1995 compared to 14.2% for 1994.
Operating Income. Operating income decreased $256,000, or 32.3%, to
$537,000 for 1995 compared to $793,000 for 1994. Operating income as a
percentage of revenues decreased to 1.6% for 1995 compared to 2.6% for 1994.
Net Income. Net income decreased $76,000, or 14.5%, to $446,000 for 1995
compared to $522,000 for 1994. Net income as a percentage of revenues decreased
to 1.3% for 1995 compared to 1.7% for 1994.
PROSTAFF RESULTS FOR 1994 COMPARED TO 1993
Revenues. Revenues increased $3.4 million, or 12.3%, to $30.6 million for
1994 compared to $27.2 million for 1993. The increase was primarily attributable
to the opening of several new branches during 1994.
Cost of Services. Cost of services increased $2.6 million, or 11.4%, to
$25.5 million for 1994 compared to $22.9 million for 1993.
Gross Profit. Gross profit increased $766,000, or 17.5%, to $5.2 million
for 1994 compared to $4.4 million for 1993. Gross margin increased slightly to
16.8% for 1994 compared to 16.1% for 1993. The overall increase in gross margin
was primarily the result of a slight increase in rates charged to clients and a
decrease in the Arkansas state unemployment tax rate.
Operating Expenses. Operating expenses increased $603,000, or 16.1%, to
$4.4 million for 1994 compared to $3.8 million for 1993. Operating expenses as a
percentage of revenues increased slightly to 14.2% for 1994 compared to 13.8%
for 1993.
Operating Income. Operating income increased $162,000, or 25.7%, to
$793,000 for 1994 compared to $631,000 for 1993. Operating income as a
percentage of revenues increased slightly to 2.6% for 1994 compared to 2.3% for
1993.
Net Income. Net income increased $123,000, or 30.8%, to $522,000 for 1994
compared to $399,000 for 1993. Net income as a percentage of revenues increased
to 1.7% for 1994 compared to 1.5% for 1993.
LIQUIDITY AND CAPITAL RESOURCES -- PROSTAFF
Net cash provided by operating activities was $781,000, $740,000, $986,000
and $134,000 in 1993, 1994, 1995 and the first six months of 1996, respectively.
The net cash provided by operating activities for each period presented resulted
primarily from changes in operating assets and liabilities and net income.
Cash used in investing activities was $405,000, $293,000, $514,000 and
$80,000 in 1993, 1994, 1995 and the first six months of 1996, respectively. Cash
used in investing activities in 1995 was primarily for capital
22
<PAGE> 25
expenditures associated with the opening of several new branches. Cash used in
investing activities for the first six months of 1996 was primarily for capital
expenditures, partially offset by cash provided by the sale of certificates of
deposit.
Cash used in financing activities was $390,000, $261,000, $512,000 and
$167,000 in 1993, 1994, 1995 and the first six months of 1996, respectively. The
cash used in financing activities in 1995 was the result of additional net
payments on the line of credit. The cash used in financing activities in the
first six months of 1996 was for distributions made to the owners of Prostaff
representing their estimated S Corporation Accumulated Adjustment Account at
June 30, 1996, which were funded by significant borrowings on the line of
credit.
As a result of the foregoing, cash and cash equivalents decreased $15,000
in 1993, increased $186,000 in 1994 and decreased $40,000 and $114,000 in 1995
and in the first six months of 1996, respectively.
As of June 30, 1996, Prostaff had total debt, including line of credit and
current maturities of long-term debt of $1.4 million. Prostaff currently has
three revolving credit facilities, with funds available under these facilities
totaling approximately $623,000 at June 30, 1996.
While there can be no assurance, management of Prostaff believes that the
funds currently available on hand, funds to be provided by operations and funds
available through existing credit facilities will be sufficient to meet
Prostaff's anticipated needs for working capital and capital expenditures
through the date of the merger with StaffMark.
RESULTS OF OPERATIONS -- MAXWELL
MAXWELL RESULTS FOR THE FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995
Revenues. Revenues increased $1.7 million, or 14.7%, to $13.2 million for
the first six months of 1996 compared to $11.5 million for the first six months
of 1995. This increase was primarily attributable to a significant client
contract, which began in July 1995, and the acquisition of Sumner-Ray Technical
Resources, Inc. ("Sumner-Ray") in February 1996. This increase was partially
offset by a decrease in the staffing needs of another significant client and the
result of government shutdowns in December 1995 and January 1996, which caused
delays in the issuance of H1-B Visas to foreign-trained therapists and delays in
the therapists' arrival in the U.S.
Cost of Services. Cost of services increased $1.2 million, or 14.4%, to
$9.9 million for the first six months of 1996 compared to $8.6 million for the
first six months of 1995. This increase was primarily the result of increased
revenues but was partially offset by a reduction in workers' compensation
expense of approximately $584,000 due to a reduction in the actuarially
determined reserves. This reduction resulted primarily from the use of Maxwell's
claims development experience rather than industry development factors which
have been used in previous actuarial valuations. The reduction was partially
offset by an increase of approximately $100,000 in compensation paid to the
Company's foreign-trained therapists resulting from a change in the Company's
orientation policy.
Gross Profit. Gross profit increased $451,000, or 15.6%, to $3.3 million
for the first six months of 1996 compared to $2.9 million for the first six
months of 1995. Gross margin increased slightly to 25.2% for the first six
months of 1996 compared to 25.0% for the first six months of 1995.
Operating Expenses. Operating expenses increased $239,000, or 10.3%, to
$2.6 million for the first six months of 1996 compared to $2.3 million for the
first six months of 1995. Operating expenses as a percentage of revenues
decreased to 19.3% for the first six months of 1996 compared to 20.1% for the
first six months of 1995.
Operating Income. Operating income increased $212,000, or 37.0%, to
$787,000 for the first six months of 1996 compared to $574,000 for the first six
months of 1995. Operating income as a percentage of revenues increased to 5.9%
for the first six months of 1996 compared to 5.0% for the first six months of
1995.
23
<PAGE> 26
Net Income. Net income increased $253,000, or 44.7%, to $820,000 for the
first six months of 1996 compared to $567,000 for the first six months of 1995.
Net income as a percentage of revenues increased to 6.2% for the first six
months of 1996 compared to 4.9% for the first six months of 1995.
MAXWELL RESULTS FOR 1995 COMPARED TO 1994
Revenues. Revenues increased $1.9 million, or 8.8%, to $23.1 million for
1995 compared to $21.2 million for 1994. This increase was primarily
attributable to a significant client contract, which started in July 1995, and
an increase in the average number of foreign-trained therapists working.
Cost of Services. Cost of services increased $1.7 million, or 10.9%, to
$17.7 million for 1995 compared to $16.0 million for 1994.
Gross Profit. Gross profit increased $122,000, or 2.3%, to $5.3 million for
1995 compared to $5.2 million for 1994. Gross margin decreased to 23.1% for 1995
compared to 24.6% for 1994. This decrease resulted primarily from increased
competition and a high volume, lower margin contract with one significant
client.
Operating Expenses. Operating expenses increased $505,000, or 12.9%, to
$4.4 million for 1995 compared to $3.9 million for 1994. This increase was
partially attributable to the write-off of $165,000 in accounts receivable
related to one client. Operating expenses as a percentage of revenues increased
to 19.2% for 1995 compared to 18.5% for 1994.
Operating Income. Operating income decreased $383,000, or 29.6%, to
$912,000 for 1995 compared to $1.3 million for 1994. Operating income as a
percentage of revenues decreased to 3.9% for 1995 compared to 6.1% for 1994.
Net Income. Net income decreased $344,000, or 27.2%, to $920,000 for 1995
compared to $1.3 million for 1994. Net income as a percentage of revenues
decreased to 4.0% for 1995 compared to 6.0% for 1994.
MAXWELL RESULTS FOR 1994 COMPARED TO 1993
Revenues. Revenues increased $4.9 million, or 30.0%, to $21.2 million for
1994 compared to $16.3 million for 1993. This increase was primarily
attributable to the addition of a significant client during 1994, which
accounted for increased revenues of $2.5 million, and an increase in business
conducted with certain other clients.
Cost of Services. Cost of services increased $4.8 million, or 42.2%, to
$16.0 million for 1994 compared to $11.3 million for 1993. This increase was
also primarily attributable to the addition of a significant client during 1994.
Gross Profit. Gross profit increased $152,000, or 3.0%, to $5.2 million for
1994 compared to $5.1 million for 1993. Gross margin decreased to 24.6% for 1994
compared to 31.1% for 1993. This decrease was a result of lower margin contracts
negotiated with two of the Company's significant clients as well as increased
workers' compensation costs and increased competition.
Operating Expenses. Operating expenses increased $270,000, or 7.4%, to $3.9
million for 1994 compared to $3.7 million for 1993. Operating expenses as a
percentage of revenues decreased to 18.5% for 1994 compared to 22.4% for 1993.
Operating Income. Operating income remained fairly constant at $1.3 million
for 1994 compared to $1.4 million for 1993. Operating income as a percentage of
revenues decreased to 6.1% for 1994 compared to 8.7% for 1993.
Net Income. Net income was $1.3 million for both 1994 and 1993. Net income
as a percentage of revenues decreased to 6.0% for 1994 compared to 7.9% for
1993.
24
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES -- MAXWELL
Net cash provided by operating activities was $1.4 million, $719,000, $1.9
million and $913,000 in 1993, 1994, 1995 and the first six months of 1996,
respectively. Net cash provided by operating activities for each period
presented resulted primarily from changes in operating assets and liabilities
and net income.
Cash used in investing activities was $264,000, $225,000, $174,000 and
$268,000 in 1993, 1994, 1995 and the first six months of 1996, respectively.
Cash used in investing activities in 1993, 1994 and 1995 was primarily for
additions of property and equipment and purchases of investments. Cash used in
investing activities in the first six months of 1996 was primarily for the
acquisition of Sumner-Ray and other capital expenditures.
Cash used in financing activities was $860,000, $1.0 million, $1.2 million
and $1.0 million in 1993, 1994, 1995 and the first six months of 1996,
respectively. Cash used in financing activities in 1993, 1994 and 1995 was
primarily for dividends paid to stockholders. Cash used in financing activities
in the first six months of 1996 was for a significant dividend, which
represented the Company's estimated S Corporation Accumulated Adjustment
Account. This dividend was partially funded by proceeds from a $1.75 million
term loan issued in May 1996.
As a result of the foregoing, cash and cash equivalents increased $241,000
in 1993, decreased $510,000 in 1994, increased $485,000 in 1995 and decreased
$376,000 in the first six months of 1996, respectively.
While there can be no assurance, management of Maxwell believes that the
funds currently available on hand, funds to be provided by operations and funds
available through existing credit facilities will be sufficient to meet
Maxwell's anticipated needs for working capital and capital expenditures through
the date of the merger with StaffMark.
RESULTS OF OPERATIONS -- HRA
HRA RESULTS FOR THE NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE NINE MONTHS
ENDED JUNE 30, 1995
Revenues. Revenues increased $3.7 million, or 28.2% to $16.9 million for
the nine months ended June 30, 1996 compared to $13.2 million for the nine
months ended June 30, 1995. This increase was primarily attributable to the
opening of new branches.
Cost of Services. Cost of services increased $2.8 million, or 26.1%, to
$13.6 million for the nine months ended June 30, 1996 compared to $10.7 million
for the nine months ended June 30, 1995. This increase was primarily
attributable to the opening of new branches.
Gross Profit. Gross profit increased $903,000, or 37.2%, to $3.3 million
for the nine months ended June 30, 1996 compared to $2.4 million for the nine
months ended June 30, 1995. Gross margin increased to 19.7% for the nine months
ended June 30, 1996 compared to 18.4% for the nine months ended June 30, 1995.
Operating Expenses. Operating expenses increased $635,000 or 26.3%, to $3.1
million for the nine months ended June 30, 1996 compared to $2.4 million for the
nine months ended June 30, 1995. This increase was primarily due to increased
overhead associated with the opening of new branches. In addition, HRA expensed
a severance arrangement of approximately $136,000 during the nine months ended
June 30, 1996. Operating expenses as a percentage of revenues decreased to 18.1%
for the nine months ended June 30, 1996 compared to 18.4% for the nine months
ended June 30, 1995.
Operating Income. Operating income increased $268,000, or 2,648.4%, to
$279,000 for the nine months ended June 30, 1996 compared to $11,000 for the
nine months ended June 30, 1995. Operating income as a percentage of revenues
increased to 1.7% for the nine months ended June 30, 1996 compared to 0.1% for
the nine months ended June 30, 1995.
Interest and Other, Net. Interest and other increased $238,000 to $244,000
of income for the nine months ended June 30, 1996 compared to $6,000 of income
for the nine months ended June 30, 1995. This increase was principally related
to a legal settlement HRA received from a professional firm that had previously
represented HRA in certain actions related to workers' compensation insurance.
25
<PAGE> 28
Net Income (Loss). Net income increased $305,000 from a $35,000 net loss
for the nine months ended June 30, 1995 to a net income of $270,000 for the nine
months ended June 30, 1996.
HRA RESULTS FOR 1995 COMPARED TO 1994
Revenues. Revenues increased $1.8 million, or 11.3%, to $18.3 million for
1995 compared to $16.5 million for 1994. This increase was attributable to the
opening of new branches.
Cost of Services. Cost of services increased $1.6 million, or 11.8%, to
$14.9 million for 1995 compared to $13.4 million for 1994. This increase was
primarily attributable to the opening of new branches and an increase in
workers' compensation costs.
Gross Profit. Gross profit increased $281,000, or 9.1%, to $3.4 million for
1995 compared to $3.1 million for 1994. Gross margin decreased to 18.4% for 1995
compared to 18.8% for 1994.
Operating Expenses. Operating expenses increased $1.1 million, or 44.4%, to
$3.5 million for 1995 compared to $2.4 million for 1994. This increase was
partially attributable to the overhead costs associated with the opening of new
branches. Operating expenses as a percentage of revenues increased to 19.1% for
1995 compared to 14.8% for 1994.
Operating Income (Loss). Operating income decreased $796,000 to an
operating loss of $137,000 for 1995 compared to operating income of $659,000 for
1994.
Net Income (Loss). Net income decreased $500,000 to a net loss of $147,000
for 1995 compared to net income of $353,000 for 1994. Net income as a percentage
of revenues decreased to (0.8)% for 1995 compared to 2.1% for 1994.
HRA RESULTS FOR 1994 COMPARED TO 1993
Revenues. Revenues increased $3.1 million, or 23.4%, to $16.5 million for
1994 compared to $13.3 million for 1993. This increase was primarily
attributable to an increase in business conducted with new and existing clients.
Cost of Services. Cost of services increased $2.4 million, or 21.7%, to
$13.4 million for 1994 compared to $11.0 million for 1993. This increase was
primarily attributable to the increase in revenues and rising workers'
compensation and temporary employee vacation costs.
Gross Profit. Gross profit increased $738,000, or 31.4%, to $3.1 million
for 1994 compared to $2.3 million for 1993. Gross margin increased to 18.8% for
1994 compared to 17.6% for 1993.
Operating Expenses. Operating expenses increased $286,000, or 13.3%, to
$2.4 million for 1994 compared to $2.1 million for 1993. Operating expenses as a
percentage of revenues decreased to 14.8% for 1994 compared to 16.1% for 1993.
Operating Income. Operating income increased $452,000, or 219.0%, to
$659,000 for 1994 compared to $207,000 for 1993. Operating income as a
percentage of revenues increased to 4.0% for 1994 compared to 1.5% for 1993.
Net Income. Net income increased $268,000 to $353,000 for 1994 compared to
$85,000 for 1993. Net income as a percentage of revenues increased to 2.1% for
1994 compared to 0.6% for 1993.
LIQUIDITY AND CAPITAL RESOURCES -- HRA
Net cash provided by (used in) operating activities was $101,000, $98,000,
$89,000 and ($14,000) in 1993, 1994, 1995 and the nine months ended June 30,
1996, respectively. The net cash provided by operating activities for each of
the periods presented was primarily due to changes in operating assets and
liabilities and net income (loss).
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<PAGE> 29
Net cash used in investing activities was $41,000, $40,000, $152,000 and
$135,000 in 1993, 1994, 1995 and the nine months ended June 30, 1996,
respectively. Cash used in investing activities in each of the periods presented
was primarily for additions and replacements of office and computer equipment
and software.
Net cash provided by (used in) financing activities was $328,000, $68,000,
($146,000) and $287,000 in 1993, 1994, 1995 and the nine months ended June 30,
1996, respectively. Cash used in financing activities during 1995 consisted
primarily of net payments on the receivable financing agreement and repayment of
borrowings from a stockholder. Cash provided by financing activities for the
nine months ended June 30, 1996 consisted primarily of net borrowings under the
line of credit.
As a result of the foregoing, cash and cash equivalents increased $388,000,
$126,000 and $138,000 in 1993, 1994, and the nine months ended June 30, 1996,
respectively, and decreased $209,000 in 1995.
HRA is obligated under certain compensation and non-compete agreements to
make payments to a former consultant, former stockholder and other third parties
over the next ten years. HRA anticipates that cash generated by operations and
borrowings available under its line of credit will be sufficient to meet these
requirements.
While there can be no assurance, management of HRA believes that the funds
currently available on hand, funds to be provided by operations and funds
available through existing credit facilities will be sufficient to meet HRA's
anticipated needs for working capital and capital expenditures through the date
of the merger with StaffMark.
RESULTS OF OPERATIONS -- FIRST CHOICE
FIRST CHOICE RESULTS FOR THE FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995
Revenues. Revenues increased $1.2 million, or 18.7%, to $7.9 million for
the first six months of 1996 compared to $6.6 million for the first six months
of 1995. This increase was primarily attributable to the opening of a new branch
location during the first quarter of 1996.
Cost of Services. Cost of services increased $982,000, or 18.2%, to $6.4
million for the first six months of 1996 compared to $5.4 million for the first
six months of 1995. This increase, which corresponds to the increase in
revenues, was primarily attributable to an increase in wages for temporary
personnel which was partially offset by a decrease in workers' compensation
expense.
Gross Profit. Gross profit increased $262,000, or 21.2%, to $1.5 million
for the first six months of 1996 compared to $1.2 million for the first six
months of 1995. Gross margin increased slightly to 19.0% for the first six
months of 1996 compared to 18.6% for the first six months of 1995.
Operating Expenses. Operating expenses increased $140,000, or 13.4%, to
$1.2 million for the first six months of 1996 compared to $1.0 million for the
first six months of 1995. This increase is primarily attributable to an increase
in recruiting and testing expenses, communication costs and occupancy costs.
These increases were partially offset by decreases in training costs. Operating
expenses as a percentage of revenues decreased slightly to 15.0% for the first
six months of 1996 compared to 15.7% for the first six months of 1995.
Operating Income. Operating income increased $122,000, or 63.3%, to
$314,000 for the first six months of 1996 compared to $192,000 for the first six
months of 1995. Operating income as percentage of revenues increased to 4.0% for
the first six months of 1996 compared to 2.9% for the first six months of 1995.
Net Income. Net income increased $119,000, or 65.8%, to $301,000 for the
first six months of 1996 compared to $181,000 for the first six months of 1995.
Net income as a percentage of revenues increased 3.8% for the first six months
of 1996 compared to 2.7% for the first six months of 1995.
FIRST CHOICE RESULTS FOR 1995 COMPARED TO 1994
Revenues. Revenues increased $696,000, or 5.4%, to $13.7 million for 1995
compared to $13.0 million for 1994. This increase was attributable to the
opening of a new branch location as well as an overall increase in demand for
temporary services. This growth was partially offset by the loss of three
significant customers.
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<PAGE> 30
Cost of Services. Cost of services increased $576,000, or 5.4%, to $11.1
million for 1995 compared to $10.6 million for 1994. This increase, which
corresponds to the increase in revenues, was primarily attributable to increases
in both wages for temporary personnel and workers' compensation expense.
Gross Profit. Gross profit increased $120,000, or 4.9%, to $2.6 million for
1995 compared to $2.4 million for 1994. Gross margin remained steady, however,
at 18.6% for 1995 compared to 18.7% for 1994.
Operating Expenses. Operating expenses decreased $228,000, or 9.0%, to $2.3
million for 1995 compared to $2.5 million for 1994. This decrease was primarily
attributable to a $680,000 decrease in compensation to First Choice's president
and majority stockholder. This decrease was partially offset by increases in
administrative salaries, recruiting, testing and rent expense in 1995. Operating
expenses as a percentage of revenues decreased to 16.7% for 1995 compared to
19.4% for 1994.
Operating Income (Loss). Operating income increased $348,000 to $263,000
for 1995 compared to an operating loss of $85,000 for 1994.
Net Income. Net income increased $184,000 to $243,000 for 1995 compared to
$59,000 for 1994. Net income as a percentage of revenues increased to 1.8% for
1995 compared to 0.5% for 1994.
FIRST CHOICE RESULTS FOR 1994 COMPARED TO 1993
Revenues. Revenues increased $2.2 million, or 20.3%, to $13.0 million for
1994 compared to $10.8 million for 1993. This increase was primarily
attributable to a significant increase in First Choice's customer base as a
result of an overall increase in demand for temporary services.
Cost of Services. Cost of services increased $1.7 million, or 19.8%, to
$10.6 million for 1994 compared to $8.8 million for 1993. This increase, which
corresponds to the increase in revenues, was primarily attributable to increases
in wages for temporary personnel and workers' compensation expense.
Gross Profit. Gross profit increased $451,000, or 22.7%, to $2.4 million
for 1994 compared to $2.0 million for 1993. Gross margin increased to 18.7% for
1994 compared to 18.3% for 1993.
Operating Expenses. Operating expenses increased $1.1 million, or 80.4%, to
$2.5 million for 1994 compared to $1.4 million for 1993. This increase was
primarily attributable to a $657,000 increase in compensation to First Choice's
president and majority stockholder. Operating expenses as a percentage of
revenues increased to 19.4% for 1994 compared to 12.9% for 1993.
Operating Income (Loss). First Choice generated an operating loss of
$85,000 for 1994 compared to operating income generated for 1993 of $586,000.
Net Income. Net income decreased $292,000 to $59,000 for 1994 compared to
$351,000 for 1993. Net income as a percentage of revenues decreased to 0.5% for
1994 compared to 3.2% for 1993.
LIQUIDITY AND CAPITAL RESOURCES -- FIRST CHOICE
Net cash provided by (used in) operating activities was $208,000, $46,000,
$108,000 and ($165,000) in 1993, 1994, 1995 and the first six months of 1996,
respectively. The net cash provided by (used in) operating activities for each
period presented resulted primarily from changes in operating assets and
liabilities and net income.
Net cash used in investing activities was $54,000, $120,000, $164,000 and
$101,000 in 1993, 1994, 1995 and the first six months of 1996, respectively.
Cash used in investing activities for each period presented was primarily for
additions to property and equipment.
Net cash provided by (used in) financing activities was ($182,000),
$241,000, $130,000 and $10,000 in 1993, 1994, 1995 and the first six months of
1996, respectively. Cash provided by (used in) financing activities consisted
primarily of proceeds from the issuance of short-term debt obligations and a
note payable to a stockholder and principal payments on such instruments.
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<PAGE> 31
As a result of the foregoing, cash and cash equivalents decreased $27,000
in 1993, increased $166,000 in 1994, increased $74,000 in 1995, and decreased
$256,000 in the first six months of 1996.
As of June 30, 1996, First Choice had total debt of $390,000.
While there can be no assurance, management of First Choice believes that
the funds currently available on hand, funds to be provided by operations and
funds available through existing credit facilities will be sufficient to meet
First Choice's anticipated needs for working capital and capital expenditures
through the date of the merger with StaffMark.
RESULTS OF OPERATIONS -- BLETHEN
BLETHEN RESULTS FOR THE FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995
Revenues. Revenues increased $1.3 million, or 19.5%, to $7.7 million for
the first six months of 1996 compared to $6.5 million for the first six months
of 1995, primarily due to increased demand for clinical trial support services.
Cost of Services. Cost of services increased $1.0 million, or 20.9%, to
$5.9 million for the first six months of 1996 compared to $4.9 million for the
first six months of 1995. This increase, which corresponds to the increase in
clinical trial support services revenues, was primarily attributable to
increases in wages for temporary personnel.
Gross Profit. Gross profit increased $239,000, or 15.3%, to $1.8 million
for the first six months of 1996 compared to $1.6 million for the first six
months of 1995. Gross margin decreased to 23.3% during the first six months of
1996 compared to 24.2% during the first six months of 1995.
Operating Expenses. Operating expenses decreased $22,000, or 1.6%, for the
first six months of 1996 compared to the first six months of 1995. Operating
expenses as a percentage of revenues decreased to 17.6% for the first six months
of 1996 compared to 21.4% for the first six months of 1995.
Operating Income. Operating income increased $261,000, or 142.1%, to
$444,000 for the first six months of 1996 compared to $184,000 for the first six
months of 1995. Operating income as a percentage of revenues increased to 5.8%
during the first six months of 1996 compared to 2.8% for the first six months of
1995.
Net Income. Net income increased $228,000, or 307.3%, to $303,000 for the
first six months of 1996 compared to $74,000 for the first six months of 1995.
Net income as a percentage of revenues increased to 3.9% for the first six
months of 1996 compared to 1.2% for the first six months of 1995.
BLETHEN RESULTS FOR 1995 COMPARED TO 1994
Revenues. Revenues increased $1.4 million, or 11.8%, to $13.4 million for
1995 compared to $12.0 million for 1994. This increase was primarily
attributable to the opening of a new branch location in 1995.
Cost of Services. Cost of services increased $1.1 million, or 12.6%, to
$9.9 million for 1995 compared to $8.8 million for 1994. This increase, which
corresponds to the increase in revenues, was primarily attributable to increases
in wages for temporary personnel.
Gross Profit. Gross profit increased $302,000, or 9.6%, to $3.5 million for
1995 compared to $3.2 million for 1994. Gross margin decreased to 25.9% for 1995
compared to 26.4% for 1994.
Operating Expenses. Operating expenses increased $207,000, or 7.3%, to $3.0
million for 1995 compared to $2.8 million for 1994. Operating expenses as a
percentage of revenues decreased to 22.7% for 1995 compared to 23.7% for 1994.
Operating Income. Operating income increased $95,000, or 29.3%, to $419,000
for 1995 compared to $324,000 for 1994. Operating income as a percentage of
revenues increased to 3.1% for 1995 compared to 2.7% for 1994.
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<PAGE> 32
Net Income. Net income increased 48.2% to $208,000, or 1.6% of revenues for
1995 compared to $141,000, or 1.2% of revenues for 1994.
BLETHEN RESULTS FOR 1994 COMPARED TO 1993
Revenues. Revenues increased $769,000, or 6.9%, to $12.0 million for 1994
compared to $11.2 million for 1993. This increase was primarily attributable to
the opening of a new branch location in 1994.
Cost of Services. Cost of services increased $674,000, or 8.3%, to $8.8
million for 1994 compared to $8.1 million for 1993. This increase, which
corresponds to the increase in revenues, was primarily attributable to increases
in wages for temporary personnel.
Gross Profit. Gross profit increased $95,000, or 3.1%, to $3.2 million for
1994 compared to $3.1 million for 1993. Gross margin decreased to 26.4% for 1994
compared to 27.4% for 1993.
Operating Expenses. Operating expenses decreased $341,000, or 10.7%, to
$2.8 million for 1994 compared to $3.2 million for 1993. Operating expenses as a
percentage of revenues decreased to 23.7% for 1994 compared to 28.4% for 1993.
The decrease was primarily attributable to higher levels of expenses in 1993
related to growth of the business coupled with 1993 being the final year of a
$50,000 payment required under a noncompete agreement.
Operating Income (Loss). Operating income increased $436,000 to $324,000
for 1994 compared to a loss of $112,000 for 1993.
Net Income (Loss). Net income increased $232,000 to $141,000 for 1994
compared to a loss of $91,000 for 1993.
LIQUIDITY AND CAPITAL RESOURCES -- BLETHEN
Net cash provided by operating activities was $67,000, $218,000, $100,000
and $207,000 in 1993, 1994, 1995 and the first six months of 1996, respectively.
Net cash provided by operating activities for all periods presented was
primarily due to changes in operating assets and liabilities and net income
(loss).
Net cash used in investing activities was $130,000, $72,000, $25,000 and
$58,000 in 1993, 1994, 1995 and the first six months of 1996, respectively. Cash
used in investing activities for all periods presented was primarily for capital
expenditures related to the opening of new branches.
Net cash used in financing activities was $129,000, $61,000 and $74,000 in
1994, 1995 and the first six months of 1996, respectively. Cash used in
financing activities during the first six months of 1996 was primarily for
payments on capital lease obligations and payments to stockholders.
As a result of the foregoing, cash and cash equivalents decreased $64,000
in 1993, increased $17,000 in 1994, and increased $13,000 and $75,000 in 1995
and in the first six months of 1996, respectively.
As of June 30, 1996, Blethen had total debt of $1.2 million.
While there can be no assurance, management of Blethen believes that the
funds currently available on hand, funds to be provided by operations and funds
available through existing credit facilities will be sufficient to meet
Blethen's anticipated needs for working capital and capital expenditures through
the date of the merger with StaffMark.
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<PAGE> 33
RESULTS OF OPERATIONS -- COMBINED
The combined results discussed below occurred when the Founding Companies
were not under common control or management and may not be comparable to, or
indicative of, future performance. See "Risk Factors -- Absence of Combined
Operating History."
The following table sets forth the percentage of revenues represented by
certain line items in the combined Founding Company financial statements for the
indicated periods:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services......................... 79.1 80.2 79.8 80.0 78.8
----- ----- ----- ----- -----
Gross profit margin...................... 20.9 19.8 20.2 20.0 21.2
Operating expenses:
Selling, general and administrative.... 16.8 15.7 16.4 16.6 15.8
Depreciation and amortization.......... 0.6 0.6 0.8 0.6 1.0
----- ----- ----- ----- -----
Operating profit......................... 3.5% 3.5% 3.0% 2.8% 4.4%
===== ===== ===== ===== =====
</TABLE>
COMBINED RESULTS FOR THE FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX
MONTHS OF 1995
Combined Revenues. Combined revenues increased $24.3 million, or 37.1%, to
$89.9 million for the first six months of 1996 compared to $65.6 million for the
first six months of 1995. This increase was largely attributable to: (i) an
increase in Brewer's revenues of $14.6 million, primarily attributable to the
acquisitions of Caldwell in July 1995 and On Call in February 1996; (ii) an
increase in Prostaff's revenues of $2.9 million, primarily due to the opening of
new branches and an increase in business conducted with a significant client;
and (iii) an increase in HRA's revenues of $2.6 million, primarily attributable
to the opening of several new branches. Also contributing to the increase in
combined revenues was an increase in Maxwell's, Blethen's and First Choice's
revenues of $1.7 million, $1.3 million and $1.2 million, respectively.
Combined Cost of Services. Combined cost of services increased $18.4
million, or 35.1%, to $70.8 million for the first six months of 1996 compared to
$52.4 million for the first six months of 1995. This increase was primarily
attributable to: (i) an increase in Brewer's cost of services of $11.1 million,
largely due to the acquisitions of Caldwell and On Call; (ii) an increase in
Prostaff's cost of services of $2.1 million, primarily due to the opening of new
branches and an increase in business conducted with a significant client; and
(iii) an increase in HRA's cost of services of $1.9 million, primarily
attributable to the opening of several new branches. Also contributing to the
increase in combined cost of services was an increase in Maxwell's, Blethen's
and First Choice's cost of services of $1.2 million, $1.0 million and $982,000,
respectively.
Combined Gross Profit. Combined gross profit increased $5.9 million, or
45.0%, to $19.0 million for the first six months of 1996 compared to $13.1
million for the first six months of 1995. Combined gross margin increased to
21.2% during the first six months of 1996 compared to 20.0% during the first six
months of 1995. This increase in combined gross margin was primarily due to the
acquisition of Caldwell, as well as an increase in Brewer's gross margin,
exclusive of acquisitions.
Combined Operating Expenses. Combined SG&A increased $3.3 million, or
30.8%, to $14.2 million for the first six months of 1996 compared to $10.9
million for the first six months of 1995. This increase was primarily
attributable to the opening of several new branches by many of the Founding
Companies, as well as an increase in Brewer's SG&A of $2.3 million, primarily
attributable to the acquisitions of Caldwell and On Call. Combined SG&A as a
percentage of combined revenues decreased to 15.8% for the first six months of
1996 compared to 16.6% for the first six months of 1995. Combined depreciation
and amortization expense increased $513,000, or 126.8%, to $918,000 for the
first six months of 1996 compared to $405,000 for the first six months of 1995.
This increase was primarily attributable to an increase in Brewer's depreciation
and
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<PAGE> 34
amortization of $430,000, largely due to increased amortization of intangibles,
which resulted from the acquisitions of Caldwell and On Call.
Combined Operating Profit. Combined operating profit increased $2.1
million, or 110.5%, to $3.9 million for the first six months of 1996 compared to
$1.9 million for the first six months of 1995. Combined operating profit as a
percentage of combined revenues increased to 4.4% for the first six months of
1996 compared to 2.8% for the first six months of 1995.
COMBINED RESULTS FOR 1995 COMPARED TO 1994
Combined Revenues. Combined revenues increased $25.5 million, or 21.1%, to
$146.7 million for 1995 compared to $121.2 million for 1994. This increase was
largely due to: (i) an increase in Brewer's revenues of $16.0 million, primarily
attributable to the acquisition of Caldwell in July 1995; (ii) an increase in
Prostaff's revenues of $3.7 million, primarily due to the addition of new
significant clients and the opening of several new branches; and (iii) an
increase in Maxwell's revenues of $1.9 million, primarily attributable to a
significant client contract. Also contributing to the increase in combined
revenues was an increase in HRA's, Blethen's and First Choice's revenues of $1.8
million, $1.4 million and $696,000, respectively.
Combined Cost of Services. Combined cost of services increased $20.0
million, or 20.6%, to $117.1 million for 1995 compared to $97.1 million for
1994. This increase was primarily attributable to: (i) an increase in Brewer's
cost of services of $12.2 million, largely due to the Caldwell acquisition; (ii)
an increase in Prostaff's cost of services of $2.8 million, primarily due to the
addition of significant clients and the opening of several new branches; and
(iii) an increase in Maxwell's cost of services of $1.7 million, primarily due
to a significant client contract. Also contributing to the increase in combined
cost of services was an increase in HRA's, Blethen's and First Choice's cost of
services of $1.6 million, $1.1 million and $576,000, respectively.
Combined Gross Profit. Combined gross profit increased $5.5 million, or
23.0%, to $29.6 million for 1995 compared to $24.0 million for 1994. Combined
gross margin increased to 20.2% for 1995 compared to 19.8% for 1994. This
increase in combined gross margin was largely the result of the acquisition of
Caldwell by Brewer.
Combined Operating Expenses. Combined SG&A increased $5.0 million, or
26.2%, to $24.1 million for 1995 compared to $19.0 million for 1994. This
increase was primarily attributable to: (i) an increase in Brewer's SG&A of $2.3
million, largely related to the acquisition of Caldwell; (ii) an increase in
Prostaff's SG&A of $1.2 million, primarily due to increased compensation
associated with the opening of several new branches; and (iii) an increase in
HRA's SG&A of $1.0 million, primarily attributable to costs associated with the
opening of several new branches. Combined SG&A as a percentage of combined
revenues increased to 16.4% for 1995 compared to 15.7% for 1994. Combined
depreciation and amortization expense increased $415,000, or 56.0%, to $1.2
million for 1995 compared to $742,000 for 1994. This increase was primarily
attributable to increased amortization of intangibles by Brewer, resulting from
the acquisition of Caldwell in 1995.
Combined Operating Profit. Combined operating profit increased $123,000, or
2.9%, to $4.4 million for 1995 compared to $4.2 million for 1994. Combined
operating profit as a percentage of combined revenues decreased to 3.0% for 1995
compared to 3.5% for 1994.
COMBINED RESULTS FOR 1994 COMPARED TO 1993
Combined Revenues. Combined revenues increased $29.9 million, or 32.8%, to
$121.2 million for 1994 compared to $91.2 million for 1993. The increase is
primarily attributable to: (i) an increase in Brewer's revenue of $15.6 million,
largely due to the acquisition of Aaron Temporary Services, Inc. ("Aaron") in
November 1993; (ii) an increase in Prostaff's revenues of $3.4 million,
primarily due to the opening of new branches; and (iii) an increase in Maxwell's
revenues of $4.9 million, primarily attributable to the addition of a
significant customer. Also contributing to the increase in combined revenues was
an increase in HRA's, First Choice's and Blethen's revenues of $3.1 million,
$2.2 million and $769,000, respectively.
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Combined Cost of Services. Combined cost of services increased $25.0
million, or 34.6%, to $97.1 million for 1994 compared to $72.1 million for 1993.
This increase was attributable to: (i) an increase in Brewer's cost of services
of $12.8 million, primarily due to the acquisition of Aaron; (ii) an increase in
Prostaff's cost of services of $2.6 million, primarily due to the opening of new
branches; and (iii) an increase in Maxwell's cost of services of $4.8 million,
primarily due to the addition of a significant client in 1994. Also contributing
to the increase in combined cost of services was an increase in HRA's, First
Choice's and Blethen's cost of services of $2.4 million, $1.7 million and
$674,000, respectively.
Combined Gross Profit. Combined gross profit increased $4.9 million, or
25.9%, to $24.0 million for 1994 compared to $19.1 million for 1993. Combined
gross margin decreased to 19.8% for 1994 compared to 20.9% for 1993 primarily
due to a decrease in Maxwell's gross margin, which resulted from lower margin
contracts negotiated with two significant customers and increased competition.
Combined Operating Expenses. Combined SG&A increased $3.7 million, or
24.2%, to $19.1 million for 1994 compared to $15.4 million for 1993. This
increase was primarily attributable to an increase in Brewer's SG&A of $1.9
million, related to the acquisition of Aaron during November 1993. Combined SG&A
as a percentage of revenues decreased to 15.7% for 1994 compared to 16.8% for
1993. Combined depreciation and amortization expense increased $227,000, or
44.0%, to $742,000 for 1994 compared to $515,000 for 1993. This increase was
primarily attributable to significant capital expenditures by many of the
Founding Companies during 1993 and 1994.
Combined Operating Profit. Combined operating profit increased $1.0
million, or 31.1%, to $4.2 million for 1994 compared to $3.2 million for 1993.
Combined operating profit as a percentage of combined revenues remained
unchanged at 3.5% for 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
Net cash provided by combined operating activities was $2.9 million, $2.7
million, $4.8 million and $1.4 million in 1993, 1994, 1995 and the first six
months of 1996, respectively. The net cash provided by combined operating
activities for the periods presented was primarily attributable to net income
and changes in operating assets and liabilities.
Net cash used in combined investing activities was $1.2 million, $985,000,
$13.0 million and $4.0 million in 1993, 1994, 1995 and the first six months of
1996, respectively. Cash used in combined investing activities in 1993 was
primarily attributable to the acquisition of Aaron by Brewer and significant
capital expenditures. Cash used in combined investing activities in 1994 was
primarily for significant capital expenditures by several of the Founding
Companies. Cash used in combined investing activities in 1995 was primarily
related to the acquisition of Caldwell by Brewer for cash totaling $11.5
million. Cash used in combined investing activities in the first six months of
1996 was largely for the acquisition of On Call by Brewer for cash totaling $3.0
million.
Net cash provided by (used in) combined financing activities was ($1.3)
million, ($1.6) million, $8.7 million and $2.9 million in 1993, 1994, 1995 and
the first six months of 1996, respectively. Cash used in combined financing
activities in 1993 and 1994 consisted of dividends paid to owners of the
individual Founding Companies, partially offset by proceeds from issuances of
long-term debt obligations, net of repayments. Cash provided by combined
financing activities in 1995 and the first six months of 1996 was primarily
attributable to the proceeds from debt issued by Brewer in conjunction with the
acquisitions of Caldwell and On Call, respectively, partially offset by
dividends paid to the owners of the individual Founding Companies.
As a result of the foregoing, combined cash and cash equivalents increased
$404,000, $22,000, $534,000 and $252,000 in 1993, 1994, 1995 and the first six
months of 1996, respectively.
As of June 30, 1996, the Company had total borrowings outstanding of $5.0
million on various lines of credit facilities. In addition, the Company had
total long-term debt outstanding, including current maturities, of approximately
$21.1 million as of June 30, 1996. The Company repaid all indebtedness with
proceeds from the Offering.
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In conjunction with the Mergers, certain of the Founding Companies made
cash distributions to their stockholders which represent the companies'
estimated S Corporation Accumulated Adjustment Accounts. Distributions
subsequent to June 30, 1996 approximated $1.4 million, as follows: (i) Brewer,
$300,000; (ii) Blethen, $270,000; and (iii) First Choice, $790,000. During the
first six months of 1996, certain of the Founding Companies distributed all or a
portion of their estimated S Corporation Accumulated Adjustment Account, as
follows: (i) Prostaff, $1.3 million; and (ii) Maxwell, $2.6 million. Certain of
these distributions were funded with additional debt, which the Company repaid
with proceeds from the Offering. See "Certain Transactions."
The net proceeds from the Offering, after deducting: (i) underwriting
discounts; (ii) offering expenses; (iii) the cash portion of the consideration
being paid for the Founding Companies; and (iv) the repayment of all debt
obligations, totaled approximately $21.8 million. The Company plans to use these
net proceeds for working capital and general corporate purposes, including
future acquisitions. Pending such uses, the Company plans to invest the net
proceeds in short-term, interest bearing, investment grade securities.
The Company has a credit facility with a major lending institution of $50.0
million to be used for working capital and other general corporate purposes,
including future acquisitions. The facility includes a $20.0 million revolving
credit facility and a $30.0 million acquisition facility. The maturity of the
facility is five years and interest is computed at the Company's option at
either LIBOR or the bank's prime rate and incrementally adjusted based on the
Company's operating leverage ratios. The credit facility is secured by all
assets of the Company and a pledge of 100% of the stock of all subsidiaries.
While there can be no assurance, management of the Founding Companies
believes that the funds currently available on hand, funds to be provided by
operations, and funds available through the existing credit facilities, coupled
with management's assessment of the Founding Companies' additional borrowing
capacity, will be sufficient to meet the Founding Companies' anticipated needs
for working capital, capital expenditures and future acquisitions. Management
plans to periodically reassess the adequacy of the Company's credit facilities,
taking into consideration current and anticipated operating cash flow,
anticipated capital expenditures and acquisition plans in order to ensure the
Company's negotiated credit facilities are adequate to meet the Company's
liquidity needs on a short-term and long-term basis.
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BUSINESS
StaffMark was founded in March 1996 to create a leading provider of
diversified staffing services to businesses, healthcare providers, professional
and service organizations and governmental agencies, primarily in growth markets
in the southeastern and southwestern United States. On October 2, 1996,
StaffMark acquired, simultaneously with the closing of the Offering, the six
Founding Companies. The Founding Companies have on average operated for over 13
years. The Company provides a wide variety of staffing services through 91
branch offices located in Arkansas, Colorado, Georgia, North Carolina, Oklahoma,
South Carolina, Tennessee and Virginia. The Company's senior management is
comprised primarily of stockholders of the Founding Companies. Currently, the
six Founding Companies provide more than 10,000 field employees to over 2,500
clients during a typical week. Since 1993, the Founding Companies have expanded
by acquiring six staffing businesses with 19 offices and by opening an
additional 32 branch offices.
The Company's business is organized into three divisions: Commercial,
Specialty Medical and Professional. The Commercial division provides clerical
and light industrial staffing services, and generated approximately 89.9% and
88.2% of the Company's revenues for the year ended December 31, 1995 and the six
months ended June 30, 1996, respectively. The Specialty Medical division
provides healthcare and medical staffing services, such as physical and
occupational therapists, speech pathologists and clinical trials support
services, and generated approximately 8.3% and 7.3% of the Company's revenues
for the year ended December 31, 1995 and the six months ended June 30, 1996,
respectively. The Professional division provides technical, professional and
information technology staffing services and generated approximately 1.8% and
4.5% of the Company's revenues for the year ended December 31, 1995 and the six
months ended June 30, 1996, respectively. According to Staffing Industry Report,
an industry publication, technical, professional and healthcare staffing are
among the fastest growing sectors of the staffing industry. The Company believes
that these specialized services offer a greater opportunity for growth and
profitability than commercial staffing services alone.
The Company's immediate goal is to expand throughout the regions it
currently serves, and ultimately to expand nationally to meet the broad
geographic needs of regional and national companies seeking to centralize
purchasing decisions for temporary staffing needs. The Company plans to achieve
these goals through acquisitions and internal growth.
OPERATING STRATEGY
Provide a Decentralized Entrepreneurial Environment. The Company believes
an entrepreneurial business environment that rewards performance tends to
attract and retain self-motivated, achievement-oriented individuals. Each of the
Company's branches operate as a separate profit center with local management
having primary profit and loss responsibility. Each branch office is given
latitude in many fundamental operational functions, including hiring, pricing,
training, sales, and marketing. This permits each branch manager to be flexible
and responsive to the specific needs of local clientele. In addition, the
Company intends to establish profit-based compensation at the regional and local
levels and has implemented a stock option program to further motivate employees
through ownership in the Company. See "Management -- 1996 Stock Option Plan."
Capitalize on Strong Reputation and Local Name Recognition. The Company
intends to continue to build on the Founding Companies' strong reputations and
client familiarity with their local names. The Company believes that its local
presence, accessible management and sophisticated support services position it
as a provider of choice of staffing services in the markets it serves. The
Company believes that it is one of the leading providers of staffing services in
most of its markets.
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Capitalize on New Corporate Structure. The Company intends to take
advantage of its new corporate structure by:
Increasing Operating Efficiencies. The Company believes that it can
achieve economies of scale by combining a number of general and
administrative functions at the corporate level and by reducing or
eliminating redundant functions and facilities of the Founding Companies.
The Founding Companies have made substantial investments in technology and
systems, which will facilitate the integration of the operational,
financial and administrative functions of their respective businesses.
Currently, four of the six Founding Companies employ versions of the
Caldwell-Spartin computer system, and the Company plans to add the other
two companies to the system within six months of the completion of the
Offering. The Company will benefit from further economies of scale through
common regional management and the spreading of recruiting, training,
advertising, administrative and branch office costs over a larger number of
temporary employees and clients.
Centralizing Control Functions. The Company plans to support its
branch office network by providing risk management, payroll, billing and
collection, purchasing, cash management, internal audit, human resources
and other administrative support services. This centralization will provide
senior management with a significant source of control and the ability to
monitor the key operating areas of the Company at the branch level.
Adopting the Best Practices of Founding Companies. Management of the
Company routinely evaluates the operating policies and procedures of each
of the Founding Companies and will implement Company-wide the practices
that best serve the needs of the Company. For example, three of the
Founding Companies employ an incentive compensation system for their branch
offices which encourages cost savings at the branch level by rewarding
branch office profitability. Management intends to implement this
compensation system throughout the Company.
Offer a Diversified Range of Services. The Company provides virtually all
commercial staffing services, including secretarial, clerical, word processing,
light industrial and electronic assembly. In addition to commercial staffing
services, the Company provides professional and specialty medical staffing
services in certain markets by providing personnel such as computer operators,
programmers, engineers, physical and occupational therapists, and clinical trial
support employees. The Professional and Specialty Medical divisions, which
management believes offer substantial growth opportunities, tend to generate
higher gross margins than the Commercial division. The Company also offers
permanent placement services in several of its branches and believes that the
relatively higher margins and cross-selling opportunities associated with
permanent placement make it a profitable complement to its other staffing
services.
Offer Customized Client Services. The Company seeks to satisfy the needs of
its clients by providing customized services such as on-site management and
permanent placement services. The flexibility of the Company's decentralized
organization will allow it to tailor its operations to meet local client
requirements. For example, clients may be provided with customized billings,
utilization reports, and safety awareness and training programs. The Company
believes that the quality of the Founding Companies' services has enabled them
to establish and maintain long-term relationships with clients by understanding
the clients' businesses, responding promptly to client requests, proactively
assessing clients' staffing needs, and continually monitoring job performance
and client satisfaction. Certain of the Founding Companies maintain quality
assurance programs that include such procedures as: (i) a 30 minute response
time on status of pending orders; (ii) customized reporting and invoicing for
clients; and (iii) customized Caldwell-Spartin call-back reports and other
personalized daily reports to ensure a timely response to the daily needs of its
clients and temporary employees.
Attract and Retain Qualified Management and Personnel. The Company believes
that experienced management and branch office personnel with strong ties to and
knowledge of the local community are integral to establishing long-term
relationships at the local level. The Company believes that its decentralized
structure, which grants regional and local management significant autonomy, will
result in the attraction and retention of experienced, entrepreneurial managers.
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GROWTH STRATEGY
Pursuing Strategic Acquisitions. The Company seeks acquisitions of
profitable, well-managed staffing companies that will expand the geographic
scope of its operations, increase the revenues of its Professional and Specialty
Medical divisions, or offer services that may be cross-sold to the Company's
existing client base. The Company has acquired six staffing businesses over the
past three years as outlined below:
<TABLE>
<CAPTION>
ACQUISITION ACQUIRED SERVICES ACQUIRED
ACQUIRING COMPANY DATE COMPANY LOCATION OFFERED BRANCHES
- --------------------------- ----------- ----------------- -------- ----------- -------- REVENUES(1)
--------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Brewer..................... 11/93 Aaron Temporaries AR Commercial 7 $ 10,000
Brewer..................... 7/95 Caldwell GA Commercial 5 17,000
Brewer..................... 2/96 On Call CO Commercial/ 4 12,000
Professional
Maxwell.................... 2/96 Sumner-Ray OK Professional 1 1,400
First Choice............... 7/96 SSI NC Professional 1 1,200
HRA........................ 7/96 Career TN Professional 1 1,000
Consultants
</TABLE>
- ---------------
(1) Represents approximate revenues for fiscal year prior to acquisition.
The Company intends to pursue a strategic acquisition program. The Company
will evaluate acquisitions using numerous criteria, including profitability of
operations, management strength, market location, market share, staffing
services offered, and the quality of service. Certain of the Company's executive
officers and directors hold leadership positions in national and regional
staffing trade associations, and as a result have developed personal
relationships with the owners of numerous independent staffing companies. The
Company believes that it will have a strategic advantage in completing
acquisitions based on (i) these personal relationships, (ii) the successful
assimilation of previous acquisitions, (iii) its decentralized entrepreneurial
environment and (iv) its greater visibility and resources as a public company.
As consideration for future acquisitions, the Company intends to use
various combinations of equity, debt or cash. The Company also has a credit
facility of $50.0 million, some of which could be used in connection with future
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Combined."
Growing Internally. A key element of the Company's growth strategy is to
increase the productivity and profitability of existing operations by expanding
and enhancing services and by increasing penetration in existing geographic
markets. Spinning-off new branch offices from existing branches is a primary
method of expansion in the Company's existing markets. Spin-offs usually occur
in metropolitan areas where a branch has grown too large to efficiently manage
the number of temporary staffing hours generated. The branch splits into two
offices which allows the new branch to open with an existing client base and
provides the Company with geographical expansion at low marginal cost. During
fiscal 1995 and the first six months of 1996, the Company opened 19 spin-off
branches. In addition, the Company may open new branch offices by following
existing clients into new geographic areas.
Increasing Vendor-on-Premises Relationships. As of June 30, 1996 the
Company had 16 VOP partnering relationships, as compared to 10 at December 31,
1995. VOP relationships represented 9.4% and 14.6% of the Company's revenues for
the year ended December 31, 1995 and the six months ended June 30, 1996,
respectively. Under these programs, the Company assumes administrative
responsibility for coordinating all temporary personnel services throughout a
client's location or organization, including skills testing and training. While
these partnering relationships tend to have lower gross margins than traditional
temporary staffing services, the higher volumes and comparatively lower
operating expenses associated with these relationships result in attractive
operating profits for the Company. The Company seeks to expand its VOP program
to comprehensive outsourcing arrangements, in which the Company staffs and
manages an entire department or function on a turn-key basis. The VOP program
provides the Company with an opportunity to establish long-term client
relationships, which result in a more stable source of revenue, while providing
clients
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with a dedicated on-site account manager who can more effectively meet the
client's changing staffing needs with high quality and consistent service.
Cross-Selling Professional Services. The Company currently provides
commercial staffing services in the majority of its offices and plans to
introduce its professional services to certain branches that currently do not
offer such services. The Company believes there are substantial growth
opportunities through the introduction of its broad range of existing services
throughout its network of branch offices.
Expanding Specialty Medical Services. The Company believes that revenue and
profitability can be enhanced by providing specialty medical services in
additional markets. The Company's specialty medical services personnel currently
include physical and occupational therapists, speech pathologists, and clinical
trials support services such as clinical monitoring, project management, data
management, programming, statistical analysis, regulatory affairs, medical
writing and training. The Specialty Medical division generally enjoys higher
gross margins than the Commercial division because it offers specialized
expertise. The Company intends to expand its Specialty Medical division through
acquisitions and internal development.
THE STAFFING SERVICES INDUSTRY
The temporary staffing industry has grown rapidly in recent years as
competitive pressures have caused businesses to focus on reducing costs,
including converting fixed labor costs to variable costs. The use of temporary
employees also enables companies to improve flexibility in employee hiring and
scheduling and allows them to focus on their core business functions. According
to NATSS, the U.S. market for temporary services grew at a compound average
annual growth rate of approximately 17.7%, from approximately $20.4 billion in
revenue in 1991 to approximately $39.2 billion in 1995. Studies show that more
than 90% of all U.S. businesses use temporary staffing services, and that
temporary staffing personnel now account for approximately 2% of the total U.S.
workforce. The use of temporary personnel has become widely accepted as a
valuable tool for managing personnel costs, supplementing permanent workforces
and meeting specialized or fluctuating employment requirements. Vacations,
illnesses, resignations, seasonal increases in work volume, marketing promotions
and month-end requirements have historically created demand for temporary
staffing. More recently, the growing cost and difficulty of hiring, laying off
and terminating full-time workers has also encouraged greater use of temporary
workers. In addition, entrants into the labor force increasingly look to
temporary assignments as a way to build experience, make contacts, and receive
training and valuable exposure to a variety of work settings, as well as a means
to gain full-time employment.
Organizations have also begun using flexible staffing to reduce
administrative overhead by strategically outsourcing operations that are not
part of their core business functions, such as recruiting, training and benefit
administration. By utilizing temporary employees, businesses are able to avoid
the management and administrative costs incurred if full-time personnel are
employed. An ancillary benefit, particularly for smaller businesses, is that use
of temporary employees shifts certain employment costs and risks (e.g., workers'
compensation and unemployment insurance) to the temporary personnel provider,
which can spread the costs and risks over a much larger pool of employees.
Businesses are also utilizing staffing services to selectively hire and add to
their full-time staff. This concept, typically referred to as "temp-to-perm,"
provides the client with an opportunity to evaluate skills and proficiency prior
to extending full-time employment offers. NATSS estimates that approximately 40%
of temporary employees are ultimately offered full-time employment by clients.
THE COMPANY'S STAFFING SERVICES
The Company's staffing services are provided through three divisions:
Commercial Division. The Company's Commercial division, which accounted for
approximately 89.9% and 88.2% of the Company's revenues for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively, provides
personnel to clients with traditional clerical and light industrial needs. The
Company's clerical services personnel include secretarial, clerical and word
processing personnel, receptionist/switchboard operators, typists, data entry
operators, cashiers, client service representatives, medical/legal
transcriptionists, file clerks, and other miscellaneous office personnel. Light
industrial services
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personnel include warehouse workers, maintenance workers, assemblers, quality
control clerks, order pullers, food service workers, production workers,
shipping/receiving clerks, janitors, packagers, inventory clerks, textile
manufacturers, and machinists.
Specialty Medical Division. The Company's Specialty Medical division
accounted for 8.3% and 7.3% of the Company's revenues for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively. The
Company offers specialty medical staffing services to meet the growing demand
for physical and occupational therapists in the U.S. healthcare market. The
Company recruits, both domestically and internationally, trained physical
therapists, occupational therapists and speech pathologists to work in a variety
of healthcare settings in more than 15 states. The Company also provides
complete physical therapy management and staffing services to out-patient
clinics as well as rural and suburban acute care hospitals. The Company targets
hospitals in the 80-250 bed range with at least one orthopedic surgeon on staff,
minimal competition in the area, and moderate to heavy surrounding industry.
Professional Division. The Company's Professional division provides
personnel for technical, information technology, legal and accounting services
and accounted for 1.8% and 4.5% of the Company's revenues for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively. The
Company provides technical services personnel such as drafters, designers and
engineers in the mechanical and electrical engineering and computer science
fields. Information technology services include systems planning and design,
project management, software applications development, systems and network
implementation, systems integration and higher-level contract programming
services, facilities management, systems maintenance, "help-desk" assistance and
education and training. The Company also provides accounting personnel,
paralegals and other legal assistants, and sales and marketing professionals.
The Company offers clinical trials support personnel to meet the demands of
the pharmaceutical, biotechnology, medical device and medical research data
industries. The Company provides contract personnel with a wide variety of
expertise in the clinical research field, including clinical monitoring, project
management, data management, programming, statistical analysis, regulatory
affairs, medical review and writing and training. The Company maintains a
national database of qualified contract professionals and is able to source
potential candidates for its clients on a nationwide basis.
OPERATIONS
Branch Offices. The Company offers its services through 91 branch offices
in Arkansas, Colorado, Georgia, North Carolina, Oklahoma, South Carolina,
Tennessee and Virginia. Branch managers operate their offices with a significant
degree of autonomy and accountability and will receive bonuses based on the
profitability of the branch. This compensation system is designed to motivate
the managers to maximize the growth and profitability of their offices. Other
branch personnel, including account coordinators, will also receive bonuses
directly related to the growth and profitability of their branch. Branch
managers will report to regional managers or subsidiary presidents. Operating
within the guidelines set by the Company, the branch managers will be
responsible for pursuing new business opportunities and focusing on sales and
marketing, account development, and employee recruitment and retention.
Sales and Marketing. StaffMark's services are marketed through its network
of offices whose branch managers, supported by the Company's marketing staff,
make regular personal sales visits to clients and prospects. The Company
emphasizes long-term personal relationships with clients which are developed
through regular assessment of client requirements and constant monitoring of
temporary staff performance. New clients are obtained through client referrals,
telemarketing and advertising in a variety of local and regional media,
including television, radio, direct mail, Yellow Pages, newspapers, magazines
and trade publications. The Company will continue to sponsor job fairs and other
community events. The Company's officers and senior management also participate
in national and regional trade associations, local chambers of commerce and
other civic associations.
Recruiting. One of the Company's most successful recruiting tools is
referrals by its field employees. The Company finds that referrals from its
existing labor force provide the highest quality and largest number of new
temporary employees and, in certain markets, the Company pays a referral fee to
employees for recruiting
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a new temporary employee. The Company employs full-time regional recruiters who
regularly monitor the skills and availability of their region's temporary
employees to ensure a base of qualified employees to meet client demands. These
recruiters also visit schools, clubs, and professional associations and present
career development programs to various organizations. In addition, the Company
obtains applicants from advertising on radio, television, in the Yellow Pages
and through other print media.
Employees/Personnel. Currently, the six Founding Companies provide over
10,000 field employees to more than 2,500 clients during a typical week. As of
June 30, 1996, the Company employed approximately 500 internal staff. None of
the Company's employees, including its field employees, are represented by a
collective bargaining agreement. The Company believes its employee relations are
good. Hourly wages for the Company's field employees are determined according to
market conditions. The Company pays mandated costs of employment, including the
employer's share of social security taxes (FICA), federal and state unemployment
taxes, unemployment compensation insurance, general payroll expenses and
workers' compensation insurance. The Company offers access to various insurance
programs and benefits to its field employees.
Assessment, Training and Quality Control. The Company uses a comprehensive
system to assess, select and train its field employees in order to provide
quality assurance for its temporary personnel operations. Applicants are given a
range of tests, applicable to the position(s) they seek. Clerical and
office-support applicants receive state-of-the-art tests in computer skills,
word processing, typing, data entry, accounting, and other business
applications. These sophisticated tests cover the latest software, and
thoroughly and objectively evaluate each individuals' skills and experience. The
Company feels it is imperative to customize testing and training to match the
specific office environment in which the individual will be placed. In the
technical arena, specific programming tests are also given to assess the
expertise of the candidate seeking placement. Such testing measures proficiency
in programming languages, electromechanical skills, autocad, schematics and
other technical applications. Industrial electronic assembly applicants are
tested to determine basic competency, industrial aptitude, hand and finger
dexterity, soldering, mathematics, ability to read a blue print, and measurement
calculations.
Management recognizes that certain clients have specialized staffing
requirements that can only be fulfilled with customized training. The Company
provides training programs for specific staffing requirements, such as
electronic or mechanical assembly or the use of specialized software
applications. Computerized tutorials are generally available for temporary
employees seeking to upgrade their typing, data entry, office automation or word
processing skills, and classes on topics such as spreadsheets and software
applications are conducted periodically in branch offices.
The Company stresses specialization, training and empowerment of employees
to ensure that clients receive the highest quality service for the most
cost-effective price. The Company currently operates a career training center
where temporary employees as well as the general public can enroll in career
advancement classes. This center helps to increase the number of trained and
qualified applicants eligible for placement with the Company's clients.
Management Information Systems. The operating system software utilized by
the Company is the Caldwell-Spartin system which management believes is
currently one of the leading applications software systems in the staffing
industry. This system permits access to a shared database at the branch level,
allowing the branch office to fill client orders, communicate with clients
regarding invoices and screen candidates for the most suitable job opportunity.
Four of the six Founding Companies currently utilize versions of the
Caldwell-Spartin system. The Company anticipates the other Founding Companies
will be brought on-line with this system within six months of the completion of
the Offering. The Company believes that the Caldwell-Spartin system, once
implemented throughout the Founding Companies and connected to all branch
offices, can readily be expanded to meet increased demands without significant
additional capital expenditures.
Workers' Compensation Program. The Company intends to maintain workers'
compensation insurance for all claims in excess of a retention level of $250,000
per occurrence. The Company's risk management team will take a proactive
approach to safety and risk control. The team will work diligently to train the
Company's full-time staff to better screen, test and orient the Company's
temporary employees to a more safety-conscious environment. The team will also
perform periodic safety inspections at client locations to help determine
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potential risk for employee injury and to assist clients in making the workplace
safer through customized safety program development, implementation and
evaluation. Company policies prohibit staffing of high risk activities such as
working on unprotected elevated platforms or the handling of hazardous
materials. The risk management team will evaluate new clients and will have the
authority to decline service if the work environment is perceived to be unsafe
or potentially hazardous.
An independent actuary provides advice on overall workers' compensation
costs and performs an actuarial valuation regarding the adequacy of the
accruals. The Company believes such accruals are reasonable. Currently, three of
the Founding Companies are self-insured in the states of Arkansas, Georgia and
Oklahoma. One Founding Company participates in a large retention program and
another participates in a group captive program. The remaining company
participates in the voluntary insurance market. The Founding Companies and any
acquired operations will be integrated into the Company's program at such time
as, in management's judgment, is most cost effective.
COMPETITION
The staffing industry is highly competitive and highly fragmented,
consisting of more than 7,000 firms. There are limited barriers to entry and new
competitors frequently enter the market. The Company also faces intense
competition from large international, national, regional and local companies.
Principal competitors in the Company's markets are generally national temporary
personnel companies with substantially greater financial and marketing resources
than those of the Company.
The Company competes for qualified temporary staffing employees and for
clients who require the services of such employees. The principal competitive
factors in attracting and retaining qualified temporary staffing employees are
competitive salaries and benefits, quality and frequency of assignments and
responsiveness to employee needs. The Company believes that many persons who
seek temporary employment are also seeking regular employment and that the
availability of assignments which may lead to regular employment is an important
factor in its ability to attract qualified temporary staffing employees.
The principal competitive factors in obtaining clients are a strong sales
and marketing program, the timely availability of qualified temporary staffing
employees, the ability to match client requirements with available temporary
staffing employees, competitive pricing of services and satisfying work
production requirements. The Company believes its long-term client relationships
and strong emphasis on providing service and value to its clients and temporary
staffing employees are important competitive advantages.
The Company also competes for acquisition candidates. The Company believes
that further industry consolidation will continue during the next few years.
However, there is likely to be significant competition which could lead to
higher prices being paid for such businesses. The Company believes that it will
have a strategic advantage in completing acquisitions as a result of: (i)
management's personal relationships with existing staffing companies; (ii) the
successful assimilation of previous acquisitions; (iii) its decentralized
entrepreneurial environment and (iv) its greater visibility and resources as a
public company. See "-- Growth Strategy." However, no assurance can be given
that the Company's acquisition program will be successful or that the Company
will be able to compete effectively in its markets.
FACILITIES
The Company owns no real property. It leases its corporate headquarters as
well as space for all of its branch offices. The Company believes that its
facilities are adequate for its needs and does not anticipate inordinate
difficulty in replacing such facilities or opening additional facilities, if
needed.
The Company's headquarters is located at 302 East Millsap Road,
Fayetteville, Arkansas 72703. The premises are leased from a related party for a
term ending on January 1, 2001, with three options to renew for five additional
years each. A substantial number of other facilities are also leased from
related parties. The Company believes that the lease terms are at least as
favorable as could be obtained from any unrelated third party. See "Certain
Transactions -- Lease of Facilities."
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<PAGE> 44
REGULATION
The Company's operations are not generally subject to state or local
licensing requirements or other regulations specifically governing the provision
of commercial and professional staffing services. There can be no assurance,
however, that states in which the Company operates or may in the future operate
will not adopt such licensing or other regulations affecting the Company.
State mandated workers' compensation and unemployment insurance premiums
have increased in recent years and have directly increased the Company's cost of
services. In addition, the extent and type of health insurance benefits that
employers are required to provide employees have been the subject of intense
scrutiny and debate in recent years at both the national and state level.
Proposals have been made to mandate that employers provide health insurance
benefits to staffing employees, and some states could impose sales taxes, or
raises sales tax rates, on staffing services. Further increases in such premiums
or rates, or the introduction of new regulatory provisions, could substantially
raise the costs associated with hiring and employing staffing employees. See
"Risk Factors -- Increased Employee Costs" and "-- Risk of Government
Regulations and Legislative Proposals."
The Company currently recruits physical and occupational therapists
internationally for domestic placement. The entry of these employees into the
United States is regulated by the U.S. Department of Labor and U.S. Department
of Justice -- Immigration and Naturalization Services. The regulations governing
the hiring of foreign nationals are complex and change often. If either of these
authorities or any other regulatory or judicial body should determine that the
Company is not in compliance with the regulations, the Company could be subject
to fines and/or suspension of this part of the Company's business. Further,
regulations could change in a manner which would limit the Company's ability to
employ foreign nationals. Any of the foregoing could have a material adverse
effect on the Company's business, financial condition, and results of operation.
INTELLECTUAL PROPERTY
The Company has applied for Federal Service Mark registration of
"StaffMark" and the associated Company logo with the U.S. Patent and Trademark
Office. No assurance can be given that any such registration will be granted or
that, if granted, such registration will be effective to prevent others from:
(i) using the mark concurrently; or (ii) challenging the Company's use of the
service mark in certain locations. The Company owns and licenses several other
state and federal trademarks used by the Founding Companies. The Company
believes that it has all rights to trademarks and trade names necessary for the
conduct of its business.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
On July 13, 1995, Liberty Mutual Insurance Company ("Liberty") filed a
complaint against HRA in the Chancery Court of Davidson County, Tennessee, Case
No. 95-2160 II (III) alleging that HRA failed to pay certain insurance premiums
due and owing to Liberty for its provision of worker's compensation insurance to
HRA in fiscal years 1993 and 1994, and a portion of fiscal year 1995. A judgment
was rendered against the Company for approximately $718,000, which was inclusive
of the disputed amounts plus accrued interest. The Company filed an appeal to
this judgment and is negotiating settlement. HRA reserved the full $718,000
related to these disputed amounts, including accrued interest, during the fiscal
years for which the claims were raised. Accordingly, management anticipates that
the ultimate resolution of this matter will not have a material adverse effect
on the financial position or results of operations of the Company.
In the ordinary course of its business, the Company is periodically
threatened with or named as a defendant in various lawsuits, including
discrimination and harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable.
42
<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of October 2, 1996
concerning the Company's directors, executive officers and certain key
employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------- --- -------------------------------------
<S> <C> <C>
Jerry T. Brewer(1)................... 55 Chairman of the Board
Clete T. Brewer(1)................... 31 Chief Executive Officer and
President; Director
Terry C. Bellora..................... 50 Chief Financial Officer
Ted Feldman.......................... 43 Chief Operating Officer
Robert H. Janes III.................. 30 Executive Vice President -- Mergers
and Acquisitions
W. David Bartholomew................. 39 Executive Vice
President -- Southeastern Operations;
Director
Donald A. Marr, Jr. ................. 32 Executive Vice
President -- Southwestern Operations
Steven E. Schulte.................... 33 Executive Vice President --
Administration; Director
John H. Maxwell, Jr.(2).............. 53 Executive Vice President -- Medical
Services; Director
Janice Blethen....................... 52 Executive Vice President -- Clinical
Trials Support Services; Director
William T. Gregory................... 54 General Manager -- Carolina Region;
Director
Mary Sue Maxwell(2).................. 53 General Manager -- Oklahoma Region
William J. Lynch..................... 53 Director
R. Clayton McWhorter................. 62 Director
Charles A. Sanders, M.D.............. 64 Director
</TABLE>
- ---------------
(1) Jerry T. Brewer is the father of Clete T. Brewer.
(2) John H. Maxwell, Jr. is the husband of Mary Sue Maxwell.
Jerry T. Brewer co-founded StaffMark in March 1996 and has served since
then as its Chairman of the Board. Mr. Brewer also co-founded Brewer in July
1988, and currently serves as its Chairman of the Board. From July 1988 to April
1995, Mr. Brewer served as President and Chief Executive Officer of Brewer.
Clete T. Brewer co-founded StaffMark in March 1996 and has served since
then as its President and Chief Executive Officer and a director. Mr. Brewer
also co-founded Brewer in July 1988, and has served since April 1995 as
President, Chief Executive Officer and a Director of Brewer. From July 1988 to
April 1995, Mr. Brewer served as Vice President and a Director of Brewer.
Terry C. Bellora became the Chief Financial Officer of StaffMark in August
1996. Prior to joining StaffMark, Mr. Bellora served as Chief Financial Officer
of Pace Industries, Inc. from 1986 to August 1996. Mr. Bellora served as a
director of Pace from 1988 to 1993 and as an advisory director of Pace from 1993
to 1996. Mr. Bellora is a Certified Public Accountant and was previously the
audit partner for Gaddy & Co., Certified Public Accountants.
Ted Feldman is the Chief Operating Officer of the Company. Mr. Feldman
founded HRA in 1991 and since its inception has served as its President and
Chief Executive Officer. From 1979 until 1992, Mr. Feldman served as President
of Nashville Trunk & Bag Co.
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<PAGE> 46
Robert H. Janes III co-founded StaffMark in March 1996 and has served since
then as its Executive Vice President -- Mergers and Acquisitions. Mr. Janes has
served as Vice President of Finance of Brewer since April 1995. From 1988 to
1990 and 1992 to 1995, he was employed in the corporate finance department of
Stephens Inc., an investment banking firm. In 1992, Mr. Janes obtained an MBA
from The Wharton School.
W. David Bartholomew is Executive Vice President -- Southeastern Operations
and a director of the Company, and he oversees the Company's Commercial and
Professional divisions in that region. Mr. Bartholomew has served as
Secretary/Treasurer of HRA since 1993. From 1991 through 1993, Mr. Bartholomew
was President of Cobble Personnel of Nashville.
Donald A. Marr, Jr. is Executive Vice President -- Southwestern Operations,
and he oversees the Company's Commercial and Professional divisions in that
region. He has been employed by Brewer since 1990 and has served as Brewer's
Vice President of Operations since 1994.
Steven E. Schulte is Executive Vice President -- Administration and a
director of the Company. He has been employed by Prostaff since August 1987, and
has served as Prostaff's President and Chief Executive Officer since June 1992.
John H. Maxwell, Jr. is Executive Vice President -- Medical Services and a
director of the Company. Mr. Maxwell has served as the Chief Executive Officer
of Maxwell since 1973. He is a Certified Personnel Consultant and a Certified
International Personnel Consultant.
Janice Blethen is Executive Vice President -- Clinical Trials Support
Services and a director of the Company. Ms. Blethen has served as Chief
Executive Officer of Blethen since its inception in 1975. Ms. Blethen is a
Certified Personnel Consultant.
William T. Gregory is General Manager -- Carolina Region and a director of
the Company. Mr. Gregory has served as President of First Choice since 1985. Mr.
Gregory is a Certified Personnel Consultant.
Mary Sue Maxwell is General Manager -- Oklahoma Region of the Company. Ms.
Maxwell has served as President of Maxwell Staffing, Inc. since 1983.
William J. Lynch is a director of the Company. Mr. Lynch is a Managing
Director of Capstone Partners, LLC, a special situations venture capital firm.
From October 1989 to March 1996, Mr. Lynch was a partner of the law firm of
Morgan, Lewis & Bockius LLP. Mr. Lynch also serves as a director of Sanifill,
Inc., a publicly traded environmental services company and Coach USA, Inc., a
publicly traded motorcoach services company.
R. Clayton McWhorter is a director of the Company. Mr. McWhorter is a
distinguished professor of entrepreneurship at the Jack C. Massey Graduate
School of Business at Belmont University. Mr. McWhorter is a member of the Board
of Directors of Columbia/HCA Healthcare and served as Chairman of the Board from
April 1995 to May 1996. Mr. McWhorter was Chairman and Chief Executive Officer
of Healthtrust, Inc. from 1987 to April 1995 and was President of Healthtrust
from 1991 to April 1995. Mr. McWhorter served as President and Chief Operating
Officer of Hospital Corporation of America (HCA's predecessor) from 1985 to
1987, and as a Director of Hospital Corporation of America from 1983 to 1987.
Mr. McWhorter is a director of SunTrust Bank in Nashville and Ingram Industries,
Inc. and is a member of the Board of the Foundation for State Legislatures.
Charles A. Sanders, M.D. is a director of the Company. Dr. Sanders is
retired from Glaxo, Inc. where he served as Chief Executive Officer from 1989
through 1994 and Chairman from 1992 through 1995. Dr. Sanders currently serves
as Chairman of The Commonwealth Fund and Project HOPE and serves on the Board of
Trustees of The University of North Carolina at Chapel Hill. Dr. Sanders is a
former director of Merrill Lynch & Co., Inc., Morton International, Inc. and
Reynolds Metals Company.
The number of directors on the Board of Directors is currently fixed at
ten. Directors of the Company are elected at the annual meeting of stockholders.
Officers of the Company are appointed at the first meeting of the Board of
Directors after each annual meeting of stockholders. Directors and executive
officers of the
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<PAGE> 47
Company are elected to serve until they resign or are removed or are otherwise
disqualified to serve, or until their successors are elected and qualified.
The Company expects that the Board of Directors will establish an Audit
Committee, a Compensation Committee, and an Executive Committee. The members of
each committee are expected to be determined at the first meeting of the Board
of Directors following the Offering, however, the members of the Audit and
Compensation Committees will consist solely of outside directors.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive a fee of $2,000 for attendance at each Board of
Directors meeting and $500 for each committee meeting (unless held on the same
day as a Board of Directors meeting). Under the Company's 1996 Stock Option
Plan, each non-employee Director will automatically receive nonqualified stock
options to purchase 10,000 shares of Common Stock upon such person's initial
election as a director. Non-employee directors will, beginning with the first
annual meeting of the Company's stockholders, receive annual grants of
non-qualified stock options to purchase 2,000 shares of Common Stock. See
"Management -- 1996 Stock Option Plan." All directors of the Company are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or committees thereof, or for other expenses incurred in
their capacity as Directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
StaffMark was incorporated in March 1996, and did not conduct any
operations or generate any revenue prior to the Offering. The Company
anticipates that during fiscal 1996 its Chief Executive Officer and the four
other most highly compensated officers, and their annualized base salaries for
1996, will be: Clete T. Brewer -- $150,000, Terry C. Bellora -- $150,000, Ted
Feldman -- $145,000, W. David Bartholomew -- $125,000 and Steven E. Schulte --
$125,000 (collectively, the "named executive officers").
Messrs. Brewer, Feldman, Bartholomew and Schulte have entered into
employment agreements with the Company or a subsidiary thereof, commencing on
the date of the closing of the Offering. Pursuant to such employment agreements,
each such officer is eligible for additional year-end bonus compensation to be
determined pursuant to an incentive bonus plan to be established by the Company.
Each employment agreement is for a term of five years, and unless terminated or
not renewed by the Company or not renewed by the employee, the term will
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal.
Each of the employment agreements for Messrs. Brewer, Feldman, Bartholomew
and Schulte provides that, in the event of a termination of employment by the
Company, except for specific instances of "cause" as defined in the employment
agreement, such employee shall be entitled to receive from the Company such
employee's then current salary for a period no longer than two years after the
Offering. Each employment agreement contains a covenant not to compete with the
Company for a period of two years immediately following the termination of his
employment.
Mr. Bellora has entered into an employment agreement with the Company
providing for an annual base salary, a bonus to be determined annually pursuant
to an incentive bonus plan to be established by the Company and options to
purchase 150,000 shares of Common Stock at the initial public offering price,
exercisable over a period of five years. The employment agreement is for a term
of five years. The agreement provides for the payment of two years' salary in
the event of termination without cause. In the event of a change in control of
the Company, he may elect to terminate his employment and receive the amount he
would receive pursuant to a termination without cause. Mr. Bellora's employment
agreement contains a covenant not to compete with the Company for a period
equivalent to the longer of two years immediately following termination of
employment or, in the case of a termination by the Company without cause in the
absence of a change in control, for a period of one year following termination
of employment. In the event of a change in control without 15 days notice, such
non-competition provisions would not apply.
45
<PAGE> 48
1996 STOCK OPTION PLAN
The Company was incorporated in March 1996 and did not conduct any
operations prior to that time. Accordingly, no stock options were granted to, or
exercised by or held by any executive officers in fiscal 1995. In June 1996, the
Board of Directors and the Company's stockholders approved the Company's 1996
Stock Option Plan (the "Plan"). The purpose of the Plan is to provide directors,
officers, key employees and consultants with additional incentives by increasing
their ownership interests in the Company. Directors, officers and other key
employees of the Company and its subsidiaries are eligible to participate in the
Plan. In addition, awards may be granted to consultants providing valuable
services to the Company. Awards under the Plan are granted by the Compensation
Committee of the Board of Directors and may include incentive stock options
("ISOs"), and/or non-qualified stock options ("NQSOs").
The Compensation Committee of the Board of Directors, which will administer
the Plan, is required to consist of two or more directors who qualify as
disinterested persons within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Compensation
Committee generally has discretion to determine the terms of an option grant,
including the number of option shares, option price, term, vesting schedule, the
post-termination exercise period, and whether the grant will be an ISO or NQSO.
Notwithstanding this discretion: (i) the number of shares subject to options
granted to any individual in any calendar year may not exceed 500,000 shares;
(ii) the option price per share of Common Stock may not be less than 100% of the
fair market value of such share at the time of grant or 110% of the fair market
value of such shares if the option is intended to be an ISO and is granted to a
stockholder owning more than 10% of the combined voting power of all class of
the Company stock or of its parent or subsidiary on the date of the grant of the
option; and (iii) the term of any option may not exceed 10 years or five years
if the option is intended to be an ISO and is granted to a stockholder owning
more than 10% of the total combined voting power of all classes of stock on the
date of the grant of the option. In addition, unless otherwise specified by the
Compensation Committee, all outstanding options vest upon a "change in control"
of the Company (as defined in the Plan), and all options will terminate three
months following any termination of employment.
The Plan also provides for automatic option grants to directors who are not
otherwise employed by the Company or its subsidiaries. Upon commencement of
service (or upon agreeing to serve in the case of the initial non-employee
directors), a non-employee director will receive an NQSO to purchase 10,000
shares of Common Stock, and continuing non-employee directors will receive
annual options to purchase 2,000 shares of Common Stock. Options granted to
non-employee directors become exercisable one-third on the date of grant and
one-third on each of the next two anniversaries of the date of grant.
Non-employee directors' options have a term of five years from the date of
grant.
The maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option, is
the greater of 1,500,000 or 12% of the aggregate number of shares of the
Company's Common Stock outstanding, provided, however, that options to purchase
no more than 1,500,000 shares of Common Stock may be granted as ISOs as of the
preceding January 1, less, in each case, the number of shares subject to
previously outstanding awards under the Plan. Shares of Common Stock which are
attributable to awards which have expired, terminated or been cancelled or
forfeited during any calendar year are available for issuance or use in
connection with future awards during such calendar year.
The Plan will remain in effect until terminated by the Board of Directors.
No ISO may be granted more than 10 years after the adoption of the Plan by the
Board or approval of the Plan by the stockholders, whichever is earlier. The
Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval within one year after approval by
the Board of Directors if required by any Federal or state law or regulation or
by the rules of any stock exchange or automated quotation system on which the
Common Stock may then be listed or quoted.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code of 1986, as amended, which generally disallows a public
company's tax deduction for compensation to the chief
46
<PAGE> 49
executive officer and the four other most highly compensated executive officers
in excess of $1 million in any tax year beginning on or after January 1, 1994.
Compensation that qualifies as "performance-based compensation" is excluded from
the $1 million deductibility cap, and therefore remains fully deductible by the
company that pays it. The Company intends that options granted with an exercise
price at least equal to 100% of fair market value of the underlying stock at the
date of grant will qualify as such "performance-based compensation," although
other awards under the Plan may not so qualify. Until final regulations are
adopted and other guidance made available by the Internal Revenue Service, there
can be no assurance that any awards under the Plan will qualify as
"performance-based compensation" that is fully deductible by the Company under
Section 162(m).
The Company issued options to purchase a total of 829,025 shares of Common
Stock upon completion of the Offering at the initial public offering price. In
addition and in accordance with the Mergers, options to purchase an aggregate of
one share of Brewer's common stock previously granted to employees of On Call
were converted into options to purchase 16,397 shares of StaffMark Common Stock
at $2.13 per share. Options to be issued, other than those granted to
non-employee directors and Mr. Bellora, will generally be exercisable as to 40%
of the underlying shares two years from the date of grant and as to an
additional 20% on each of the next three anniversaries of the date of option
grant. No options were granted during fiscal year 1995.
OFFICER AND DIRECTOR LIABILITY
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
dividend payments or stock repurchases illegal under Delaware law, or any
transaction in which a director has derived improper personal benefit.
As permitted by Delaware law, the Company will enter into an
indemnification agreement with its directors, pursuant to which the Company will
agree to pay certain expenses, including attorney's fees, judgments, fines and
amounts paid in settlement incurred by such directors in connection with certain
actions, suits or proceedings. These agreements require directors to repay the
amount of any expenses advanced if it shall be determined that they shall not
have been entitled to indemnification.
The Company maintains liability insurance for the benefit of its directors
and officers.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 2, 1996
regarding the beneficial ownership of the Common Stock of the Company by: (i)
each person known to the Company to be the beneficial owner of 5% or more of the
outstanding shares of Common Stock; (ii) each of the Company's directors; (iii)
each named executive officer; and (iv) all executive officers and directors as a
group. All persons listed have an address c/o the Company's principal executive
offices and have sole voting and investment power with respect to their shares
unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER THE
OFFERING
----------------------
NAME NUMBER PERCENT
- ----------------------------------------------------------------------- --------- -------
<S> <C> <C>
Jerry T. Brewer(1)..................................................... 722,944 5.4%
Clete T. Brewer........................................................ 1,067,954 8.0
Terry C. Bellora(2).................................................... 25,200 *
Chad J. Brewer(3)...................................................... 680,022 5.1
Ted Feldman............................................................ 302,611 2.3
W. David Bartholomew(4)................................................ 282,437 2.1
Steven E. Schulte(5)................................................... 455,925 3.4
John H. Maxwell, Jr.(6)................................................ 719,623 5.4
Mary Sue Maxwell(7).................................................... 719,623 5.4
Janice Blethen(8)...................................................... 476,478 3.6
William T. Gregory..................................................... 435,750 3.3
William J. Lynch(9).................................................... 139,375 1.1
R. Clayton McWhorter(10)............................................... 3,333 *
Charles A. Sanders, M.D.(10)........................................... 3,333 *
All directors and executive officers as a group (14 persons)........... 4,936,932 37.0
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 225,000 shares held by Mr. Brewer's spouse, as to which Mr. Brewer
disclaims beneficial ownership.
(2) Represents 25,000 shares subject to options which are exercisable within 60
days.
(3) Includes 66,044 shares held by the Clete Brewer Irrevocable Trust for the
benefit of Chad Brewer and for which Chad Brewer is the trustee. Chad J.
Brewer is the son of Jerry T. Brewer and the brother of Clete T. Brewer.
(4) These shares are held by Bartfund I Limited Partnership, of which Mr.
Bartholomew is the general partner.
(5) Includes 437,025 shares held by the Steven E. Schulte Revocable Trust for
which Mr. Schulte is a trustee.
(6) Includes 354,402 shares held by the John H. Maxwell, Jr. Revocable Living
Trust, of which Mr. Maxwell is the trustee, and includes 365,221 shares
held by a trust for the benefit of Mr. Maxwell's spouse, as to which Mr.
Maxwell disclaims beneficial ownership.
(7) Includes 365,221 shares held by the Mary Sue Maxwell Revocable Living
Trust, of which Ms. Maxwell is the trustee, and includes 354,402 shares
held by a trust for the benefit of Ms. Maxwell's spouse, as to which Ms.
Maxwell disclaims beneficial ownership.
(8) Includes 71,905 shares held by Blethen Family Investments Limited
Partnership, the general partner of which is a corporation controlled by
Ms. Blethen.
(9) Includes 136,042 shares held by Capstone Partners LLC, of which Mr. Lynch
is a manager and 3,333 shares subject to options which are exercisable
within 60 days.
(10) Represents 3,333 shares subject to options which are exercisable within 60
days.
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<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 26,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), and 1,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock").
Without giving effect to the issuance of shares as contemplated by this
Prospectus, the Company has outstanding 13,298,249 shares of Common Stock and no
shares of Preferred Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefore. See "Dividend Policy." Holders of Common Stock are entitled
to share ratably in the net assets of the Company upon liquidation after payment
or provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock of the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued pursuant to this Offering will be upon
payment therefor, fully paid and non-assessable.
The Common Stock trades on the Nasdaq National Market under the symbol
"STAF."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation and limitations prescribed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an
49
<PAGE> 52
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of 15%
or more of the outstanding voting stock of the corporation; or (ii) an affiliate
or associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, through
action of its stockholders, to exempt itself from coverage, provided that such
bylaw or certificate of incorporation amendment shall not become effective until
12 months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
dividend payments or stock repurchases illegal under Delaware law or any
transaction in which a director has derived an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boatmen's Trust
Company, St. Louis, Missouri.
50
<PAGE> 53
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of StaffMark, the Company issued 1,000
shares of Common Stock at $.01 per share and subsequently declared a stock
dividend of 1,355 shares of Common Stock for each share of Common Stock
outstanding. The shares were issued to various members of management including:
Jerry T. Brewer -- 179,944 shares; Clete T. Brewer -- 457,042 shares; Chad J.
Brewer -- 252,978 shares; Donald A. Marr, Jr. -- 34,010 shares; Robert H. Janes
III -- 184,957 shares; and Janice Blethen -- 25,068 shares. The Company also
issued 136,042 shares to Capstone Partners, LLC, a Delaware Limited Liability
Company, of which William J. Lynch is a member.
Simultaneously with the closing of the Offering, StaffMark acquired by
merger all of the issued and outstanding stock of the six Founding Companies, at
which time each Founding Company became a wholly-owned subsidiary of the
Company. The aggregate consideration paid by StaffMark in the Mergers was
approximately $83.3 million, consisting of approximately $15.9 million in cash
and 5,618,249 shares of Common Stock. In addition, in conjunction with the
Mergers certain of the Founding Companies made distributions totaling
approximately $5.3 million, representing S Corporation earnings previously taxed
to their respective stockholders. Also, prior to the Mergers, certain of the
Founding Companies made distributions of certain assets with a net book value
totaling approximately $349,000.
The following table sets forth the consideration paid for each Founding
Company:
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
COMPANY CASH SHARES VALUE OF SHARES TOTAL
- -------------------------------------------------- ------- --------- --------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Brewer............................................ $ 2,950 1,935,000 $23,220 $26,170
Prostaff.......................................... 4,500 1,050,000 12,600 17,100
Maxwell........................................... 2,280 912,000 10,944 13,224
HRA............................................... 2,348 615,175 7,382 9,730
First Choice...................................... 2,075 622,500 7,470 9,545
Blethen........................................... 1,764 483,574 5,803 7,567
------- --------- ------- -------
Total........................................ $15,917 5,618,249 $67,419 $83,336
======= ========= ======= =======
</TABLE>
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors, key employees and holders
of more than 5% of the outstanding shares of the Company, together with trusts
for which they act as trustees, received cash and shares of Common Stock of the
Company as follows:
<TABLE>
<CAPTION>
FOUNDING COMPANY
CONSIDERATION
-------------------------------
SHARES OF
NAME CASH COMMON STOCK
-------------------------------------------------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Jerry T. Brewer................................... $ 1,376 318,000
Clete T. Brewer................................... -- 610,912
Chad J. Brewer.................................... 600 361,000
Ted Feldman....................................... 1,009 302,611
W. David Bartholomew.............................. 1,210 282,437
Donald A. Marr, Jr. .............................. -- 83,000
Steven E. Schulte................................. 1,954 455,925
John H. Maxwell, Jr. ............................. 886 354,402
Mary Sue Maxwell.................................. 913 365,221
Janice Blethen.................................... 1,626 451,410
William T. Gregory................................ 1,453 435,750
-------- ---------
Total................................... $ 11,027 4,020,668
======== =========
</TABLE>
51
<PAGE> 54
Pursuant to the agreements entered into in connection with the Mergers, all
of the stockholders of the Founding Companies agreed not to compete with the
Company for five years, unless reduced by applicable state law, commencing on
the date of consummation of the Offering.
Prior to the Offering, certain of the Founding Companies incurred
indebtedness which was personally guaranteed by its stockholders or by entities
controlled by its stockholders. The Company repaid approximately $29.5 million
of indebtedness of the Founding Companies immediately following the consummation
of the Offering, of which approximately $14.5 million directly or indirectly
benefited persons who became officers, directors or greater than 5% stockholders
of the Company upon consummation of the Offering. In each case, such person was
either a direct obligor or a guarantor of such indebtedness. See "Use of
Proceeds." Further, approximately $4.1 million of such indebtedness was incurred
by the Founding Companies in connection with S Corporation distributions to the
stockholders of the Founding Companies prior to the Mergers.
LEASES OF FACILITIES
In connection with the acquisition of Brewer, the Company will assume a
lease by Brewer of property in Fayetteville, Arkansas that is owned by Brewer
Investments, an Arkansas limited partnership whose partners are Jerry T. Brewer
and Kay Brewer. Jerry T. Brewer is the father of Clete T. Brewer and Chad J.
Brewer and Kay Brewer is the mother of Clete T. Brewer and Chad J. Brewer and
each is an officer, director and principal stockholder of Brewer. Lease payments
to Brewer Investments were $60,000 in each of 1993, 1994 and 1995. In January
1996, Brewer Investments began leasing a new and larger building to Brewer which
will become the Company's headquarters. The total lease payments to Brewer
Investments for the six months ended June 30, 1996 were $105,000. The annual
rent for the building is $225,000 and the lease extends for five years. The
building leased during previous years is no longer being leased to Brewer.
Brewer is responsible for all real estate taxes, insurance and maintenance.
In connection with the acquisition of Prostaff, the Company assumed leases
by Prostaff of property in Little Rock, Arkansas used by Prostaff in its
operations that are owned by an Arkansas limited liability company, one of whose
members is Steven E. Schulte, an officer, director and principal stockholder of
Prostaff. The aggregate rental expenses for this property was approximately
$61,100, $73,761 and $114,180 for fiscal years 1993, 1994 and 1995,
respectively, and approximately $62,550 for the six months ended June 30, 1996.
The annual rent is $127,200 and Prostaff is responsible for all real estate
taxes, insurance and maintenance.
Prior to the Mergers, Maxwell distributed real estate owned by it to John
H. Maxwell, Jr. and Mary Sue Maxwell, with an aggregate carrying value of
approximately $221,000. Such real estate is leased to the Company at an annual
rent of $100,000. The lease has a three year term and a two year renewal option.
The Company believes that the rent payments to be made for leased
facilities with related parties will be on terms that are as favorable to the
Company as those that could be obtained from unaffiliated third parties.
CERTAIN LOANS
In October 1996, StaffMark advanced Donald A. Marr, Jr. and Donna Vassil
the principal amount of $80,000 due on October 2, 1999 pursuant to a promissory
note that accrues interest at six percent per annum.
Blethen has made advances to Janice Blethen which totaled $250,752 as of
June 30, 1996. Such amount was to be repaid prior to the consummation of the
Mergers.
First Choice has an unsecured demand note payable to William T. Gregory in
the principal amount of $140,000 as of June 30, 1996 with interest payable
semiannually at 8% per annum.
52
<PAGE> 55
OTHER TRANSACTIONS
In December 1995, a note receivable from Brewer Investments in the amount
of approximately $345,000 was distributed pro-rata to the individual
shareholders of Brewer, including $80,000 to Jerry T. Brewer, $132,000 to Clete
T. Brewer, $75,000 to Chad J. Brewer, and $58,000 to Kay Brewer.
In November 1995, Ted Feldman and Bartfund I Limited Partnership, an
affiliate of W. David Bartholomew, purchased the common stock of a former
stockholder of HRA for $150,000, each issuing to him a promissory note in the
amount of $75,000. HRA guaranteed payment of Mr. Feldman's and Bartfund I
Limited Partnership's promissory notes to the former stockholder. Such amounts
were repaid prior to the consummation of the Mergers. In addition, HRA agreed to
pay the former shareholder a $30,000 bonus for fiscal 1995; $150,000 as a
severance arrangement to be paid in monthly installments of $5,690 through
November 15, 1996; $5,647 through November 15, 1997, and $1,163 through November
15, 1998; and $236,518 as a non-compete agreement payable monthly through
November 15, 2003.
In November 1995, Mr. Feldman and Mr. Bartholomew purchased an option held
by certain parties to acquire 30% of the common stock of HRA for $250,000. In
conjunction with this transaction, HRA advanced to each of Mr. Feldman and Mr.
Bartholomew the sum of $125,000. Such amounts were repaid prior to the
consummation of the Mergers. In addition, HRA entered into a Settlement
Agreement and Release with the holders of the option which released all claims
against HRA for the sum of $90,000.
COMPANY POLICY
In the future, any transactions with the Company's stockholders, officers
and directors or their affiliates, if any, will be subject to the approval of a
majority of the independent and disinterested outside directors and will be
conducted on terms no less favorable than could be obtained from unaffiliated
third parties.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 13,298,249 shares of Common Stock. The
6,325,000 shares sold in the Offering are freely tradeable without restriction
unless acquired by affiliates of the Company. None of the remaining 6,973,249
outstanding shares of Common Stock (collectively, the "Restricted Shares") have
been registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares of
Common Stock from the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of the prospectus relating to the Offering, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of the Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission"). Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. If three years have elapsed since the later of
the date of acquisition of restricted shares of Common Stock from the Company or
from any affiliate of the Company and the acquiror or subsequent holder thereof
is deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person would be entitled to sell such shares under
Rule 144(k) without regard to the limitations described above.
The Company, all of the former stockholders of the Founding Companies and
the executive officers and directors of the Company have agreed that they will
not offer or sell any shares of Common Stock of the Company for a period of 180
days after the date of the Offering without the prior written consent of the
Representatives of the Underwriters, except that the Company may issue shares of
Common Stock in connection with acquisitions or upon the exercise of options
granted under the Company's 1996 Stock Option Plan. See "Underwriting." In
addition, the stockholders of the Founding Companies and StaffMark, who own in
the aggregate 6,973,249 shares of Common Stock, have agreed with the Company
that they will not sell any of their shares for a period of two years after
October 2, 1996. These stockholders, however, have the right, in the event the
Company proposes to register under the Securities Act any Common Stock for its
own account or for the account of others, subject to certain exceptions, to
require the Company to include their shares in the registration, subject to the
right of any managing underwriter of any such offering to exclude some or all of
the shares for marketing reasons. In addition, 22 months after the October 2,
1996 Offering and upon the affirmative vote of the holders of at least 876,450
shares of the Common Stock issued in connection with the Mergers, the
stockholders of the Founding Companies have certain limited demand registration
rights to require the Company to register shares held by them.
The Company issued under its 1996 Stock Option Plan options to purchase
829,025 shares of Common Stock. The sale of Common Stock underlying such options
will be subject to the expiration of the Lockup Period. Substantially all of the
options will vest over a period of five years (40% two years after the date of
grant and 20% each year thereafter). The Company intends to register the shares
issuable upon exercise of options granted under the Plan and, upon such
registration, such shares will be eligible for resale in the public market.
The 4,000,000 shares of its Common Stock being offered by this Prospectus
will, upon registration thereof, be freely tradeable in general. In some
instances, however, the Company may contractually restrict the sale of shares
issued in connection with future acquisitions. The piggyback registration rights
described above do not apply to the Registration Statement of which this
Prospectus is a part. Sales, or the availability for sale of, substantial
amounts of the Common Stock in the public market could adversely affect
prevailing market prices and the ability of the Company to raise equity capital
in the future.
54
<PAGE> 57
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
prospectus will be passed upon for the Company by Wright, Lindsey & Jennings,
Little Rock, Arkansas.
EXPERTS
The audited financial statements included elsewhere in this Prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving such reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement (and the
exhibits and schedules thereto), certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to such Registration Statement and the exhibits and schedules filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference to such exhibit.
As a result of this offering, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the Commission. A copy of the
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal offices, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and its public reference facilities in New York,
New York and Chicago, Illinois, upon payment of prescribed fees. Electronic
registration statements, reports, proxy and information statements and other
information regarding registrants filed through the Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's Web Site (http://www.sec.gov). This Registration Statement, as well
as all exhibits and amendments hereto, have been filed through EDGAR.
The Company's Common Stock is listed on the Nasdaq National Market. Proxy
statements and other information concerning the Company can also be inspected at
the offices of the Nasdaq National Market, 1735 K Street, Washington, D.C.
20006.
55
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
STAFFMARK, INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Combined Financial Statements.................. F-3
Unaudited Pro Forma Combined Balance Sheet......................................... F-4
Notes to Unaudited Pro Forma Combined Balance Sheet................................ F-8
Unaudited Pro Forma Combined Statement of Income for the Six Months Ended
June 30, 1996................................................................... F-9
Notes to Unaudited Pro Forma Combined Statement of Income for the Six Months Ended
June 30, 1996................................................................... F-11
Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31,
1995............................................................................ F-13
Notes to Unaudited Pro Forma Combined Statement of Income for the Year Ended
December 31, 1995............................................................... F-15
HISTORICAL FINANCIAL STATEMENTS OF FOUNDING COMPANIES:
STAFFMARK, INC.
Report of Independent Public Accountants........................................... F-17
Balance Sheet...................................................................... F-18
Notes to Balance Sheet............................................................. F-19
BREWER PERSONNEL SERVICES, INC.
Report of Independent Public Accountants........................................... F-21
Balance Sheets..................................................................... F-22
Statements of Income............................................................... F-23
Statements of Stockholders' Equity................................................. F-24
Statements of Cash Flows........................................................... F-25
Notes to Financial Statements...................................................... F-26
THE PROSTAFF COMPANIES
Report of Independent Public Accountants........................................... F-36
Combined Balance Sheets............................................................ F-37
Combined Statements of Income...................................................... F-38
Combined Statements of Stockholders' Equity........................................ F-39
Combined Statements of Cash Flows.................................................. F-40
Notes to Combined Financial Statements............................................. F-41
THE MAXWELL COMPANIES
Report of Independent Public Accountants........................................... F-48
Combined Balance Sheets............................................................ F-49
Combined Statements of Income...................................................... F-50
Combined Statements of Stockholders' Equity........................................ F-51
Combined Statements of Cash Flows.................................................. F-52
Notes to Combined Financial Statements............................................. F-53
HRA, INC.
Report of Independent Public Accountants........................................... F-60
Balance Sheets..................................................................... F-61
Statements of Income (Loss)........................................................ F-62
Statements of Stockholders' Equity................................................. F-63
Statements of Cash Flows........................................................... F-64
Notes to Financial Statements...................................................... F-65
</TABLE>
F-1
<PAGE> 59
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FIRST CHOICE STAFFING, INC.
Report of Independent Public Accountants........................................... F-74
Balance Sheets..................................................................... F-75
Statements of Income............................................................... F-76
Statements of Stockholders' Equity................................................. F-77
Statements of Cash Flows........................................................... F-78
Notes to Financial Statements...................................................... F-79
THE BLETHEN GROUP
Report of Independent Public Accountants........................................... F-85
Combined Balance Sheets............................................................ F-86
Combined Statements of Income (Loss)............................................... F-87
Combined Statements of Stockholders' Equity........................................ F-88
Combined Statements of Cash Flows.................................................. F-89
Notes to Combined Financial Statements............................................. F-90
HISTORICAL FINANCIAL STATEMENTS OF ACQUIRED COMPANIES:
E.P. ENTERPRISES CORPORATION
Report of Independent Public Accountants........................................... F-98
Balance Sheets..................................................................... F-99
Statements of Income............................................................... F-100
Statements of Stockholders' Equity (Deficit)....................................... F-101
Statements of Cash Flows........................................................... F-102
Notes to Financial Statements...................................................... F-103
ON CALL EMPLOYMENT SERVICES, INC.
Report of Independent Public Accountants........................................... F-107
Balance Sheets..................................................................... F-108
Statements of Income............................................................... F-109
Statements of Stockholders' Equity (Deficit)....................................... F-110
Statements of Cash Flows........................................................... F-111
Notes to Financial Statements...................................................... F-112
STRATEGIC SOURCING, INC.
Report of Independent Public Accountants........................................... F-115
Balance Sheets..................................................................... F-116
Statements of Income (Loss)........................................................ F-117
Statements of Stockholders' Equity (Deficit)....................................... F-118
Statements of Cash Flows........................................................... F-119
Notes to Financial Statements...................................................... F-120
</TABLE>
F-2
<PAGE> 60
STAFFMARK, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
StaffMark, through wholly-owned subsidiaries, merged, simultaneously with
the closing of the Offering, with Brewer, Prostaff, Maxwell, HRA, First Choice
and Blethen. Pursuant to the requirements of SAB 97, Brewer was designated as
the acquirer for financial reporting purposes, of the Other Founding Companies.
Based upon the provisions of SAB 97, these acquisitions were accounted for as
combinations at historical cost because: (i) the Founding Companies'
stockholders transferred assets to StaffMark in exchange for Common Stock
simultaneously with StaffMark's initial public offering; (ii) the nature of
future operations of the Company are substantially identical to the combined
operations of the Founding Companies; (iii) the stockholders of each of the
Founding Companies may be considered promoters; and (iv) no former stockholder
group of any of the Founding Companies obtained a majority of the outstanding
voting shares of the Company. Accordingly, historical financial statements of
the Founding Companies have been combined throughout all relevant periods as if
the Founding Companies had always been members of the same operating group.
However, since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance.
The following unaudited pro forma combined financial statements present
Brewer combined with StaffMark and give effect to the following pro forma
adjustments: (i) the acquisition of the Other Founding Companies at historical
cost in accordance with the applicable provisions of SAB 97; (ii) the effect of
the acquisitions of Caldwell, On Call and SSI; (iii) the adjustment to
compensation expense for the Compensation Differential; (iv) the incremental
provision for income taxes attributable to the income of S Corporations, net of
the income tax benefits related to the Compensation Differential; (v) the
liability for the cash consideration paid to the stockholders of the Founding
Companies; (vi) the transfer of selected assets to the stockholders of certain
of the Founding Companies; (vii) the additional cash borrowed from banks to pay
S Corporation Accumulated Adjustment Account balances; (viii) the issuance of
5,618,249 shares of Common Stock to stockholders of the Founding Companies in
connection with the Mergers; (ix) the issuance of 1,355,000 shares by StaffMark
prior to the Offering; and (x) the adjustment to record the net deferred income
tax liabilities attributable to the temporary differences between the financial
reporting and income tax basis of assets and liabilities currently held in S
Corporations. In addition, the "As Adjusted" combined balance sheet of StaffMark
includes post merger adjustments for the sale of 6,325,000 shares of Common
Stock and the application of the net proceeds. No pro forma statement of income
adjustment is necessary to give effect to the transfer of selected assets to the
Founding Companies' stockholders as the assets distributed had substantially no
effect on net income.
The Company has performed a preliminary analysis of the savings that it
expects to realize as a result of: (i) consolidating certain general and
administrative functions, including workers' compensation programs; (ii) the
reduction in interest payments related to the repayment of outstanding Founding
Company debt; (iii) its ability to borrow at lower interest rates than the
Founding Companies; (iv) the interest earned on the net proceeds of the Offering
remaining after payment of the expenses of the Offering, the cash portion of the
consideration paid for the Founding Companies and the repayment of outstanding
Founding Company debt; and (v) efficiencies in other general and administrative
areas. It is anticipated that these savings will be partially offset by the
costs of being a public company. However, these costs, like the savings that
they offset, cannot be quantified accurately. Accordingly, neither the
anticipated savings nor the anticipated costs have been included in the
accompanying pro forma financial information of StaffMark.
The pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been if such
transactions in fact had occurred on those dates or to project the Company's
financial position or results of operations for any future period. See "Risk
Factors" included elsewhere herein.
These pro forma combined financial statements should be read in conjunction
with other information contained elsewhere in this Prospectus under the heading
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements of
StaffMark, Brewer and the Other Founding Companies. See "Index to Financial
Statements."
F-3
<PAGE> 61
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
ACQUIRED FOUNDING
COMPANIES(A)
---------------------------
BREWER PROSTAFF MAXWELL HRA
------- -------- ------- ------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................................. $ 778 $ 75 $ 666 $ 506
Restricted cash and certificates of deposit............................................... -- -- 109 --
Accounts receivable, net of allowance for doubtful accounts............................... 6,260 3,952 2,676 2,784
Prepaid expenses and other................................................................ 275 150 137 775
Deferred income taxes..................................................................... -- -- -- 227
Advances to stockholders.................................................................. -- -- -- 340
------- -------- ------- ------
Total current assets................................................................ 7,313 4,177 3,588 4,632
PROPERTY AND EQUIPMENT, net................................................................. 994 830 295 196
INTANGIBLE ASSETS, net...................................................................... 18,606 -- 297 166
DEFERRED OFFERING COSTS..................................................................... -- -- -- --
OTHER ASSETS:
Advances to stockholders.................................................................. -- -- -- --
Deferred income taxes..................................................................... -- -- -- 57
Advances to StaffMark, Inc................................................................ 188 31 31 31
Cash surrender value of officers' life insurance.......................................... -- 41 -- --
Other..................................................................................... 40 15 -- 1
------- -------- ------- ------
Total other assets.................................................................. 228 87 31 89
------- -------- ------- ------
$27,141 $5,094 $4,211 $5,083
======= ======= ======== ======
<CAPTION>
COMBINED
ACQUIRED FOUNDING FOUNDING
COMPANIES(A) COMPANIES
--------------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................................. $ 12 $ 119 $ 2,156
Restricted cash and certificates of deposit............................................... -- -- 109
Accounts receivable, net of allowance for doubtful accounts............................... 1,672 1,683 19,027
Prepaid expenses and other................................................................ 39 16 1,392
Deferred income taxes..................................................................... -- 8 235
Advances to stockholders.................................................................. -- -- 340
------ ------ -------
Total current assets................................................................ 1,723 1,826 23,259
PROPERTY AND EQUIPMENT, net................................................................. 350 279 2,944
INTANGIBLE ASSETS, net...................................................................... -- -- 19,069
DEFERRED OFFERING COSTS..................................................................... -- -- --
OTHER ASSETS:
Advances to stockholders.................................................................. -- 251 251
Deferred income taxes..................................................................... -- -- 57
Advances to StaffMark, Inc................................................................ 32 31 344
Cash surrender value of officers' life insurance.......................................... -- -- 41
Other..................................................................................... 50 12 118
------ ------ -------
Total other assets.................................................................. 82 294 811
------ ------ -------
$2,155 $2,399 $46,083
======= ====== =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-4
<PAGE> 62
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
ASSETS -- Continued
<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
COMBINED ------------------------------------ PRO FORMA
FOUNDING STAFFMARK, PRO FORMA TOTAL MERGER
COMPANIES INC. SSI(B) ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
---------- --------------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........... $ 2,156 $ 236 $ 68 $ (68)(c) $ -- $ 1,360(f)
(1,360)(g)
Restricted cash and certificates of
deposit........................... 109 -- -- -- -- --
Accounts receivable, net of
allowance for doubtful accounts... 19,027 -- 138 (138)(c) -- --
Prepaid expenses and other.......... 1,392 -- 7 (7)(c) -- --
Deferred income taxes............... 235 -- -- -- -- (235)(j)
Advances to stockholders............ 340 -- -- -- -- --
------- ------ ---- ----- ---- -------
Total current assets.......... 23,259 236 213 (213) -- (235)
PROPERTY AND EQUIPMENT, net........... 2,944 -- 19 -- 19 (86)(h)
INTANGIBLE ASSETS, net................ 19,069 -- -- 731(d) 731 --
DEFERRED OFFERING COSTS............... -- 1,888 -- -- -- --
OTHER ASSETS:
Advances to stockholders............ 251 -- -- -- -- --
Deferred income taxes............... 57 -- -- -- -- (57)(j)
Advances to StaffMark, Inc.......... 344 -- -- -- -- --
Cash surrender value of officers'
life insurance.................... 41 -- -- -- -- (41)(h)
Other............................... 118 -- 2 (2)(c) -- --
------- ------ ---- ----- ---- -------
Total other assets............ 811 -- 2 (2) -- (98)
------- ------ ---- ----- ---- -------
$ 46,083 $ 2,124 $234 $ 516 $ 750 $ (419)
======= ====== ==== ===== ==== =======
<CAPTION>
POST MERGER
PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........... $ 2,392 $ 67,187(m) $25,153
(28,651)(n)
(15,917)(p)
142(s)
Restricted cash and certificates of
deposit........................... 109 109
Accounts receivable, net of
allowance for doubtful accounts... 19,027 -- 19,027
Prepaid expenses and other.......... 1,392 -- 1,392
Deferred income taxes............... -- -- --
Advances to stockholders............ 340 -- 340
------- -------- -------
Total current assets.......... 23,260 22,761 46,021
PROPERTY AND EQUIPMENT, net........... 2,877 -- 2,877
INTANGIBLE ASSETS, net................ 19,800 (238)(o) 19,562
DEFERRED OFFERING COSTS............... 1,888 (1,888)(s) --
OTHER ASSETS:
Advances to stockholders............ 251 -- 251
Deferred income taxes............... -- -- --
Advances to StaffMark, Inc.......... 344 (344)(r) --
Cash surrender value of officers'
life insurance.................... -- -- --
Other............................... 118 -- 118
------- -------- -------
Total other assets............ 713 (344) 369
------- -------- -------
$48,538 $ 20,291 $68,829
======= ======== =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-5
<PAGE> 63
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACQUIRED FOUNDING
COMPANIES(A)
---------------------------
BREWER PROSTAFF MAXWELL HRA
------- -------- ------- ------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities............................................ $ 587 $ 98 $ 242 $ 321
Outstanding checks........................................................................ 342 250 -- 261
Payroll and related liabilities........................................................... 1,569 1,233 886 710
Reserve for workers' compensation claims.................................................. 749 638 912 1,788
Short-term borrowings..................................................................... 1,546 1,177 -- 1,020
Current maturities of notes payable to stockholders....................................... -- 30 -- --
Current maturities of debt................................................................ 2,422 67 1,827 111
Income taxes payable...................................................................... -- -- -- 190
Deferred income taxes..................................................................... -- -- -- --
Pro forma distribution to Founding Companies' stockholders................................ -- -- -- --
------- -------- ------- ------
Total current liabilities........................................................... 7,215 3,493 3,867 4,401
LONG-TERM DEBT, less current maturities..................................................... 16,204 77 78 265
NOTES PAYABLE TO STOCKHOLDERS............................................................... -- -- -- 116
ADVANCES FROM FOUNDING COMPANIES............................................................ -- -- -- --
DEFERRED INCOME TAXES....................................................................... -- -- -- --
------- -------- ------- ------
Total liabilities................................................................... 23,419 3,570 3,945 4,782
STOCKHOLDERS' EQUITY:
Common stock.............................................................................. -- 11 5 13
Paid-in capital........................................................................... 497 -- -- --
Subscriptions receivable.................................................................. (80) -- -- --
Retained earnings......................................................................... 3,305 1,513 261 288
------- -------- ------- ------
Total stockholders' equity.......................................................... 3,722 1,524 266 301
------- -------- ------- ------
$27,141 $5,094 $4,211 $5,083
======= ======= ======== ======
<CAPTION>
ACQUIRED FOUNDING
COMPANIES(A) COMBINED
---------------------- FOUNDING
FIRST CHOICE BLETHEN COMPANIES
------------ ------- ---------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities............................................ $ 97 $ 107 $ 1,452
Outstanding checks........................................................................ -- -- 853
Payroll and related liabilities........................................................... 500 506 5,404
Reserve for workers' compensation claims.................................................. 50 -- 4,137
Short-term borrowings..................................................................... 250 1,053 5,046
Current maturities of notes payable to stockholders....................................... 140 82 252
Current maturities of debt................................................................ -- 10 4,437
Income taxes payable...................................................................... -- 78 268
Deferred income taxes..................................................................... -- -- --
Pro forma distribution to Founding Companies' stockholders................................ -- -- --
------ ------- -------
Total current liabilities........................................................... 1,037 1,836 21,849
LONG-TERM DEBT, less current maturities..................................................... -- 19 16,643
NOTES PAYABLE TO STOCKHOLDERS............................................................... -- 47 163
ADVANCES FROM FOUNDING COMPANIES............................................................ -- -- --
DEFERRED INCOME TAXES....................................................................... -- 10 10
------ ------- -------
Total liabilities................................................................... 1,037 1,912 38,665
STOCKHOLDERS' EQUITY:
Common stock.............................................................................. 10 8 47
Paid-in capital........................................................................... -- 9 506
Subscriptions receivable.................................................................. -- -- (80)
Retained earnings......................................................................... 1,108 470 6,945
------ ------ -------
Total stockholders' equity.......................................................... 1,118 487 7,418
------ ------- -------
$2,155 $2,399 $46,083
======= ====== =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-6
<PAGE> 64
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY -- Continued
<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
COMBINED ------------------------------------ PRO FORMA
FOUNDING STAFFMARK, PRO FORMA TOTAL MERGER
COMPANIES INC. SSI(B) ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- ---------- ------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued
liabilities........................... $ 1,452 $1,746 $ 9 $ (9)(c) $ -- $ -- $ 3,198
Outstanding checks...................... 853 -- -- -- -- -- 853
Payroll and related liabilities......... 5,404 -- 25 (25)(c) -- -- 5,404
Reserve for workers' compensation
claims................................ 4,137 -- -- -- -- -- 4,137
Short-term borrowings................... 5,046 -- 10 (10)(c) -- -- 5,046
Current maturities of notes payable to
stockholders.......................... 252 -- 48 (48)(c) -- -- 252
Current maturities of debt.............. 4,437 -- -- -- 1,360(f) 5,797
Income taxes payable.................... 268 -- -- -- -- -- 268
Deferred income taxes................... -- -- -- -- -- 988(j) 988
Pro forma distribution to Founding
Companies' stockholders............... -- -- -- -- -- 15,917(i) 15,917
------- ------ ---- ---- ---- -------- --------
Total current liabilities......... 21,849 1,746 92 (92) -- 18,265 41,860
LONG-TERM DEBT, less current maturities... 16,643 -- -- 750(e) 750 -- 17,393
NOTES PAYABLE TO
STOCKHOLDERS............................ 163 -- 60 (60)(c) -- -- 163
ADVANCES FROM FOUNDING COMPANIES.......... -- 344 -- -- -- -- 344
DEFERRED INCOME TAXES..................... 10 -- -- -- -- 102(j) 112
------- ------ ---- ---- ---- -------- --------
Total liabilities................. 38,665 2,090 152 598 750 18,367 59,872
STOCKHOLDERS' EQUITY:
Common stock............................ 47 14 3 (3)(c) -- (47)(k) 70
56(l)
Paid-in capital......................... 506 17 -- -- -- 47(k) 514
(56)(l)
Subscriptions receivable................ (80) -- -- -- -- -- (80)
Retained earnings....................... 6,945 3 79 (79)(c) -- (1,360)(g) (11,838)
(127)(h)
(15,917)(i)
(1,382)(j)
------- ------ ---- ---- ---- -------- --------
Total stockholders' equity........ 7,418 34 82 (82) -- (18,786) (11,334)
------- ------ ---- ---- ---- -------- --------
$46,083 $2,124 $234 $ 516 $ 750 $ (419) $ 48,538
======= ====== ==== ==== ==== ======== ========
<CAPTION>
POST MERGER
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other accrued
liabilities........................... $ (1,746)(s) $ 1,452
Outstanding checks...................... -- 853
Payroll and related liabilities......... -- 5,404
Reserve for workers' compensation
claims................................ -- 4,137
Short-term borrowings................... (5,046)(n) --
Current maturities of notes payable to
stockholders.......................... (252)(n) --
Current maturities of debt.............. (5,797)(n) --
Income taxes payable.................... (93)(o) 175
Deferred income taxes................... -- 988
Pro forma distribution to Founding
Companies' stockholders............... (15,917)(p) --
-------- -------
Total current liabilities......... (28,851) 13,009
LONG-TERM DEBT, less current maturities... (17,393)(n) --
NOTES PAYABLE TO
STOCKHOLDERS............................ (163)(n) --
ADVANCES FROM FOUNDING COMPANIES.......... (344)(r) --
DEFERRED INCOME TAXES..................... -- 112
-------- -------
Total liabilities................. (46,751) 13,121
STOCKHOLDERS' EQUITY:
Common stock............................ 63(m) 133
--
Paid-in capital......................... 67,124(m) 55,800
(11,838)(q)
Subscriptions receivable................ -- (80)
Retained earnings....................... 11,838(q) (145)
(145)(o)
-------- -------
Total stockholders' equity........ 67,042 55,708
-------- -------
$ 20,291 $68,829
======== =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-7
<PAGE> 65
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(a) Based on the provisions of SAB 97, which was issued and effective July 31,
1996, Brewer was designated as the acquirer, for financial reporting
purposes, of the Other Founding Companies. The acquisitions of the Other
Founding Companies have been accounted for as combinations using historical
cost. The summary information presented represents the combination of the
historical financial statements of each of the Founding Companies at
historical cost, as if these companies had been members of the same
operating group. However, the Founding Companies were not under common
control or management. Therefore, the data presented may not be comparable
to or indicative of post combination results to be achieved by the Company
subsequent to the Mergers. For a discussion of the combined operating
results, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Also, see "Selected Financial Data."
(b) Records the unaudited balance sheet of SSI, which was purchased by First
Choice on July 1, 1996.
(c) Records the adjustment to remove assets and liabilities not assumed by
First Choice in conjunction with their acquisition of SSI.
(d) Records an estimate of the intangible assets to be recorded by First Choice
in conjunction with the acquisition of SSI.
(e) Records the debt to be incurred by First Choice in conjunction with the
acquisition of SSI.
(f) Records cash borrowed from banks to fund the distribution of certain
Founding Companies' S Corporation Accumulated Adjustment Account balances.
(g) Records the distribution of certain Founding Companies' S Corporation
Accumulated Adjustment Account balances.
(h) Records the dividend of certain automobiles, cash surrender value of life
insurance policies, facilities and equipment to certain stockholders of the
Founding Companies.
(i) Records the liability for the cash consideration to be paid to the
stockholders of the Founding Companies in connection with the Mergers.
(j) Records the adjustment to the recorded deferred income tax balances
attributable to the temporary differences between the financial reporting
and income tax basis of assets and liabilities currently held in S
Corporations.
(k) Records the elimination of the Founding Companies' Common Stock as
additional paid-in capital.
(l) Records the issuance of 5,618,249 shares issued to the stockholders of the
Founding Companies in connection with the Mergers.
(m) Records the proceeds from the issuance of 6,325,000 shares of Common Stock
at an initial public offering price of $12.00 per share, net of estimated
offering costs. Offering costs primarily consist of underwriting discounts
and commissions, accounting fees, legal fees and printing expenses.
(n) Records the repayment of all debt obligations with proceeds from the
Offering.
(o) Records the elimination of capitalized deferred financing costs, net of the
applicable income tax benefit.
(p) Records the distribution of the cash portion of consideration due to the
Founding Companies' stockholders in connection with the Mergers.
(q) Records the elimination of the retained earnings of the Founding Companies.
(r) Records the elimination of the funds advanced from the Founding Companies
to StaffMark to fund organizational and other costs related to the planned
merger and initial public offering.
(s) Records the elimination of deferred offering costs and restores cash used
prior to June 30, 1996 to pay offering costs since the total estimated
offering costs are considered in the pro forma adjustment discussed in note
(m) above.
F-8
<PAGE> 66
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRED FOUNDING
COMPANIES(A)
----------------------------
BREWER PROSTAFF MAXWELL HRA
------- -------- ------- -------
<S> <C> <C> <C> <C>
SERVICE REVENUES........................................................................... $30,556 $18,920 $13,232 $11,540
COST OF SERVICES........................................................................... 24,028 15,384 9,892 9,199
------- ------- ------- -------
Gross profit....................................................................... 6,528 3,536 3,340 2,341
OPERATING EXPENSES:
Selling, general and administrative...................................................... 4,445 2,767 2,480 2,064
Depreciation and amortization............................................................ 566 128 73 49
------- ------- ------- -------
Operating income................................................................... 1,517 641 787 228
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense......................................................................... (880) (29) (22) (54)
Other, net............................................................................... (3) 11 55 334
------- ------- ------- -------
INCOME BEFORE INCOME TAXES................................................................. 634 623 820 508
INCOME TAX PROVISION....................................................................... -- -- -- 210
------- ------- ------- -------
Net income......................................................................... $ 634 $ 623 $ 820 $ 298
======= ======= ======= =======
<CAPTION>
ACQUIRED FOUNDING
COMPANIES(A) COMBINED
------------------------ FOUNDING
FIRST CHOICE BLETHEN COMPANIES
------------ ------- ---------
<S> <C> <C> <C>
SERVICE REVENUES........................................................................... $7,885 $7,721 $89,854
COST OF SERVICES........................................................................... 6,386 5,918 70,807
------ ------ -------
Gross profit....................................................................... 1,499 1,803 19,047
OPERATING EXPENSES:
Selling, general and administrative...................................................... 1,138 1,303 14,197
Depreciation and amortization............................................................ 47 56 919
------ ------ -------
Operating income................................................................... 314 444 3,931
------ ------ -------
OTHER INCOME (EXPENSE):
Interest expense......................................................................... (14) (82) (1,081)
Other, net............................................................................... -- 1 398
------ ------ -------
INCOME BEFORE INCOME TAXES................................................................. 300 363 3,248
INCOME TAX PROVISION....................................................................... -- 60 270
------ ------ -------
Net income......................................................................... $ 300 $ 303 $ 2,978
====== ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE> 67
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
-------------------------------------------------------------------
ON CALL FOR THE
COMBINED PERIOD FROM JANUARY
FOUNDING STAFFMARK, 1, 1996 TO FEBRUARY PRO FORMA TOTAL
COMPANIES INC. 2, 1996(B) SSI(C) ADJUSTMENTS ADJUSTMENTS
---------- ---------- ------------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES.................. $ 89,854 $ -- $ 1,127 $ 449 $ -- $ 1,576
COST OF SERVICES.................. 70,807 -- 945 240 -- 1,185
------- ------- ------ ---- ---- ------
Gross profit.............. 19,047 -- 182 209 -- 391
OPERATING EXPENSES:
Selling, general and
administrative................ 14,197 -- 116 143 -- 259
Depreciation and amortization... 919 -- 3 3 16(d) 40
18(e)
------- ------- ------ ---- ---- ------
Operating income.......... 3,931 -- 63 63 (34) 92
------- ------- ------ ---- ---- ------
OTHER INCOME (EXPENSE):
Interest expense................ (1,081) -- -- -- (27)(f) (55)
(28)(g)
Other, net...................... 398 3 5 -- -- 5
------- ------- ------ ---- ---- ------
INCOME BEFORE INCOME TAXES........ 3,248 3 68 63 (89) 42
INCOME TAX PROVISION.............. 270 -- -- -- -- --
------- ------- ------ ---- ---- ------
Net income (loss)......... $ 2,978 $ 3 $ 68 $ 63 $ (89) $ 42
======= ======= ====== ==== ==== ======
PRO FORMA NET INCOME PER COMMON
SHARE...........................
WEIGHTED AVERAGE SHARES
OUTSTANDING.....................
<CAPTION>
PRO FORMA
MERGER POST MERGER
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
SERVICE REVENUES.................. $ -- $91,430 $ -- $91,430
COST OF SERVICES.................. -- 71,992 -- 71,992
----- ------- ------ -------
Gross profit.............. -- 19,438 -- 19,438
OPERATING EXPENSES:
Selling, general and
administrative................ (263)(h) 14,193 -- 14,193
Depreciation and amortization... -- 959 -- 959
----- ------- ------ -------
Operating income.......... 263 4,286 -- 4,286
----- ------- ------ -------
OTHER INCOME (EXPENSE):
Interest expense................ -- (1,136) 1,136(k) --
Other, net...................... -- 406 -- 406
----- ------- ------ -------
INCOME BEFORE INCOME TAXES........ 263 3,556 1,138 4,692
INCOME TAX PROVISION.............. 1,237(i) 1,507 443(k) 1,950
----- ------- ------ -------
Net income (loss)......... $(974) $ 2,049 $ 693 $ 2,742
===== ======= ====== =======
PRO FORMA NET INCOME PER COMMON
SHARE........................... $ 0.25 $ 0.26
======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING..................... 8,300(j) 10,687(l)
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE> 68
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(a) Based on the provisions of SAB 97, which was issued and became effective
July 31, 1996, Brewer was designated as the acquirer, for financial
reporting purposes, of the Other Founding Companies. The acquisitions of
the Other Founding Companies have been accounted for as combinations using
historical costs. The summary information presented represents the
combination of the historical financial statements of each of the Founding
Companies at historical cost, as if these companies had been members of the
same operating group. However, the Founding Companies were not under common
control or management. Therefore, the data presented may not be comparable
to or indicative of post combination results to be achieved by the Company
subsequent to the Mergers. For a discussion of the combined operating
results, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Also, see "Selected Financial Data."
(b) Records the audited financial results of On Call, which was purchased by
Brewer on February 2, 1996, for the period from January 1, 1996 through the
date of acquisition.
(c) Records the unaudited financial results of SSI, which was purchased by
First Choice on July 1, 1996. Adjustment to reflect the amortization
expense relating to the intangible assets recorded in conjunction with
the acquisition of On Call for the period from January 1, 1996 through the
date of acquisition. Intangible assets recorded in conjunction with this
acquisition include goodwill of approximately $3.1 million which is being
amortized over thirty years, a noncompete agreement of approximately $360,
000 which is being amortized over five years and deferred financing fees
of approximately $56,000 which are being amortized over five years.
(e) Adjustment to reflect the amortization expense relating to the intangible
assets to be recorded in conjunction with the acquisition of SSI. This pro
forma calculation is based upon an allocation of approximately $73,000 of
the SSI purchase price to a noncompete agreement which will be amortized
over five years and an allocation of approximately $657,000 to goodwill
which will be amortized over thirty years.
(f) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisition of On Call for the period from
January 1, 1996 through the date of acquisition. This pro forma expense
calculation is based on the $3.0 million borrowed by Brewer under a term
note in conjunction with this acquisition. Pro forma interest is computed
based upon the applicable variable rate in effect on the term note which,
based upon the terms of the agreement, would have approximated 9.9% during
the pro forma period. A variance of .125% in the interest rate on this debt
would have resulted in a change in pro forma interest expense of
approximately $350 and a change in pro forma net income of approximately
$215.
(g) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisition of SSI. This pro forma expense
allocation is based on debt totaling $750,000 incurred in conjunction with
this acquisition. Of this amount, $375,000 was financed with a term note
maturing from July 1996 through June 1999 which bears interest at 8.25% and
$375,000 was financed with a note payable to the selling stockholder which
matures from July 1997 through July 1999 and bears interest at 7.00%.
F-11
<PAGE> 69
(h) Adjusts compensation to the level the owners have agreed to receive from
the Founding Companies subsequent to the Mergers as follows:
<TABLE>
<S> <C>
Brewer........................................... $ 595
Prostaff......................................... (57,961)
Maxwell.......................................... (73,860)
HRA.............................................. (7,972)
First Choice..................................... 922
Blethen.......................................... (124,745)
---------
Total.................................. $(263,021)
=========
</TABLE>
(i) Records the incremental provision to reflect federal and state income taxes
as if the Founding Companies had been C Corporations. This adjustment
records income tax expense at an effective combined tax rate of 39%,
adjusted for nondeductible goodwill amortization.
(j) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Mergers; and (iii) 1,326,459 shares issued at an
initial public offering price of $12.00 per share in connection with the
Offering to pay the cash portion of the consideration for the Founding
Companies but excludes 829,025 shares of Common Stock subject to options
issued under the 1996 Stock Option Plan.
(k) Adjustment to reflect the elimination of interest expense, net of
applicable income taxes, related to the repayment of all outstanding debt
which was repaid from the Offering proceeds.
(l) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Mergers; (iii) 1,326,459 shares issued at an initial
public offering price of $12.00 per share in connection with the Offering
to pay the cash portion of the consideration for the Founding Companies;
and (iv) 2,387,655 shares issued at an initial public offering price of
$12.00 per share in connection with the Offering to repay all debt
obligations of the Founding Companies but excludes up to 829,025 shares of
Common Stock subject to options issued under the 1996 Stock Option Plan.
F-12
<PAGE> 70
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRED FOUNDING COMPANIES(A)
--------------------------------
BREWER PROSTAFF MAXWELL HRA
------- -------- ------- -------
<S> <C> <C> <C> <C>
SERVICE REVENUES............................................................. $43,874 $34,330 $23,093 $18,307
COST OF SERVICES............................................................. 35,115 28,234 17,748 14,940
------- ------- ------- -------
Gross profit............................................................. 8,759 6,096 5,345 3,367
OPERATING EXPENSES:
Selling, general and administrative........................................ 5,804 5,339 4,297 3,438
Depreciation and amortization.............................................. 591 220 136 66
------- ------- ------- -------
Operating Income......................................................... 2,364 537 912 (137)
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense........................................................... (801) (20 ) -- (107)
Other, net................................................................. 24 26 8 13
------- ------- ------- -------
INCOME BEFORE INCOME TAXES................................................... 1,587 543 920 (231)
INCOME TAX PROVISION (BENEFIT)............................................... -- 97 -- (84)
------- ------- ------- -------
Net income............................................................... $ 1,587 $ 446 $ 920 $ (147)
======= ======= ======= =======
<CAPTION>
ACQUIRED FOUNDING
COMPANIES(A) COMBINED
------------------------ FOUNDING
FIRST CHOICE BLETHEN COMPANIES
------------ ------- ---------
<S> <C> <C> <C>
SERVICE REVENUES............................................................. $ 13,703 $13,380 $146,687
COST OF SERVICES............................................................. 11,149 9,917 117,103
------- ------- --------
Gross profit............................................................. 2,554 3,463 29,584
OPERATING EXPENSES:
Selling, general and administrative........................................ 2,258 2,933 24,069
Depreciation and amortization.............................................. 33 111 1,157
------- ------- --------
Operating Income......................................................... 263 419 4,358
------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense........................................................... (20) (141 ) (1,089 )
Other, net................................................................. -- 11 82
------- ------- --------
INCOME BEFORE INCOME TAXES................................................... 243 289 3,351
INCOME TAX PROVISION (BENEFIT)............................................... -- 81 94
------- ------- --------
Net income............................................................... $ 243 $ 208 $ 3,257
======= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-13
<PAGE> 71
STAFFMARK, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITION RELATED ADJUSTMENTS
-----------------------------------------------------------------
CALDWELL FOR
THE PERIOD FROM
COMBINED JANUARY 1, 1995
FOUNDING STAFFMARK, TO JULY 10, PRO FORMA TOTAL
COMPANIES INC. 1995(B) ON CALL(C) SSI(D) ADJUSTMENTS ADJUSTMENTS
--------- --------- --------------- ---------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES.................... $146,687 $ -- $11,035 $ 12,498 $1,243 $ -- $24,776
COST OF SERVICES.................... 117,103 -- 8,752 10,203 612 -- 19,567
-------- -------- ------- ------- ------ ------- -------
Gross profit................ 29,584 -- 2,283 2,295 631 -- 5,209
OPERATING EXPENSES:
Selling, general and
administrative.................. 24,069 -- 1,331 1,305 414 -- 3,050
Depreciation and amortization..... 1,157 -- 17 25 5 293(e) 563
186(f)
37(g)
-------- -------- ------- ------- ------ ------- -------
Operating income............ 4,358 -- 935 965 212 (516) 1,596
-------- -------- ------- ------- ------ ------- -------
OTHER INCOME (EXPENSE):
Interest expense.................. (1,089) -- (15) -- -- (816)(h) (1,189)
(302)(i)
(56)(j)
Other, net........................ 82 -- 34 43 1 -- 78
-------- -------- ------- ------- ------ ------- -------
INCOME BEFORE INCOME TAXES.......... 3,351 -- 954 1,008 213 (1,690) 485
INCOME TAX PROVISION................ 94 -- -- -- -- -- --
-------- -------- ------- ------- ------ ------- -------
Net income.................. $ 3,257 $ -- $ 954 $ 1,008 $ 213 $(1,690) $ 485
======== ======== ======= ======= ====== ======= =======
PRO FORMA NET INCOME PER COMMON
SHARE.............................
WEIGHTED AVERAGE SHARES
OUTSTANDING.......................
<CAPTION>
PRO FORMA
MERGER POST MERGER
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
SERVICE REVENUES.................... $ -- $171,463 $ -- $ 171,463
COST OF SERVICES.................... -- 136,670 -- 136,670
------- -------- ------ --------
Gross profit................ -- 34,793 -- 34,793
OPERATING EXPENSES:
Selling, general and
administrative.................. (1,649)(k) 25,470 -- 25,470
Depreciation and amortization..... -- 1,720 -- 1,720
------- -------- ------ --------
Operating income............ 1,649 7,603 -- 7,603
------- -------- ------ --------
OTHER INCOME (EXPENSE):
Interest expense.................. -- (2,278) 2,278(n) --
Other, net........................ -- 160 160
------- -------- ------ --------
INCOME BEFORE INCOME TAXES.......... 1,649 5,485 2,278 7,763
INCOME TAX PROVISION................ 2,285(l) 2,379 888(n) 3,267
------- -------- ------ --------
Net income.................. $ (636) $ 3,106 $ 1,390 $ 4,496
======= ======== ====== ========
PRO FORMA NET INCOME PER COMMON
SHARE............................. $ 0.37 $ 0.42
======== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING....................... 8,300 (m) 10,687(o)
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-14
<PAGE> 72
STAFFMARK, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(a) Based on the provisions of SAB 97, which was issued and became effective
July 31, 1996, Brewer was designated as the acquirer of the other Founding
Companies for financial reporting purposes. The acquisitions by Brewer of
the other Founding Companies have been accounted for as combinations using
historical costs. The summary information presented represents the
combination of the historical financial statements of each of the Founding
Companies for all periods presented at historical costs, as if these
companies had been members of the same operating group. However, during the
periods presented, the Founding Companies were not under common control or
management. Therefore, the data presented may not be comparable to or
indicative of post combination results to be achieved by the Company
subsequent to the Merger. For a discussion of the combined operating
results, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Also, see "Selected Financial Data."
(b) Records the audited financial results of Caldwell, which was purchased by
Brewer on July 10, 1995, for the period from January 1, 1995 through the
date of acquisition.
(c) Records the 1995 audited financial results of On Call, which was purchased
by Brewer on February 2, 1996.
(d) Records the 1995 audited financial results of SSI, which was purchased by
First Choice on July 1, 1996.
(e) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of Caldwell for the
period from January 1, 1995 through the date of acquisition. Intangible
assets recorded in conjunction with the acquisition of Caldwell include
goodwill of approximately $15.3 million which is being amortized over
thirty years and deferred financing fees of approximately $272,000 which
are being amortized over five years.
(f) Adjustment to reflect the amortization expense relating to the intangible
assets recorded in conjunction with the acquisition of On Call. Intangible
assets recorded in conjunction with the acquisition of On Call include
goodwill of approximately $3.1 million which is being amortized over thirty
years, a noncompete agreement of approximately $360,000 which is being
amortized over five years and deferred financing fees of approximately
$56,000 which are being amortized over five years.
(g) Adjustment to reflect the amortization expense relating to the intangible
assets to be recorded in conjunction with the acquisition of SSI. This pro
forma calculation is based upon an allocation of approximately $73,000 of
the SSI purchase price to a noncompete agreement which will be amortized
over five years and an allocation of approximately $657,000 to goodwill
which will be amortized over thirty years.
(h) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisition of Caldwell for the period
from January 1, 1995 through the date of acquisition. This pro forma
expense calculation is based on debt totaling $16.1 million incurred in
conjunction with this acquisition. Of this amount, $3.1 million bears
interest at a fixed rate of 8.0%. The remaining $13.0 million was borrowed
under Brewer's term loan agreement with Boatmen's which bears interest at a
variable rate which, based upon the terms of the agreement, would have
approximated 10.1% during the pro forma period. A variance of .125% in the
interest rate on this component of debt would have resulted in a change in
pro forma interest expense of approximately $8,500 and a change in pro
forma net income of approximately $5,200.
(i) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisition of On Call. This pro forma
expense calculation is based on the $3.0 million borrowed by Brewer under
a term note in conjunction with this acquisition. Pro forma interest is
computed based upon the applicable variable rate in effect on the term
loan which, based upon the terms of the agreement, would have approximated
9.9% during the pro forma period. A variance of .125% on the interest rate
on
F-15
<PAGE> 73
this debt would have resulted in a change in pro forma interest expense of
approximately $3,750 and a change in pro forma net income of approximately
$2,290.
(j) Adjustment to reflect the increase in interest expense relating to debt
incurred in conjunction with the acquisition of SSI. This pro forma
expense calculation is based on debt totaling $750,000 incurred in
conjunction with this acquisition. This amount includes $375,000 which was
financed with a term note maturing from July 1996 through June 1999
bearing interest at 8.25% and $375,000 which was financed with a note
payable to the selling stockholder maturing from July 1997 through July
1999 which bears interest at 7.00%.
(k) Adjusts compensation to the level the owners have agreed to receive from
the Founding Companies subsequent to the Mergers as follows:
<TABLE>
<S> <C>
Brewer.......................................... $ (250,016)
Prostaff........................................ (800,000)
Maxwell......................................... (165,000)
HRA............................................. (73,767)
First Choice.................................... (220,586)
Blethen......................................... (139,902)
-----------
Total................................. $(1,649,271)
===========
</TABLE>
(l) Records the incremental provision to reflect federal and state income taxes
as if the Founding Companies had been C Corporations. This adjustment
records income tax expense at an effective combined tax rate of 39%,
adjusted for nondeductible goodwill amortization.
(m) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Mergers; and (iii) 1,326,459 shares issued at an
initial public offering price of $12.00 per share in connection with the
Offering to pay the cash portion of the consideration for the Founding
Companies but excludes 829,025 shares of Common Stock subject to options
issued under the 1996 Stock Option Plan.
(n) Adjustment to reflect the elimination of interest expense, net of
applicable income taxes, related to the repayment of all outstanding debt
which was repaid from the Offering proceeds.
(o) Includes: (i) 1,355,000 shares issued by StaffMark prior to the Offering;
(ii) 5,618,249 shares issued to the stockholders of the Founding Companies
in connection with the Mergers; (iii) 1,326,459 shares issued at an initial
public offering price of $12.00 per share in connection with the Offering
to pay the cash portion of the consideration for the Founding Companies;
and (iv) 2,387,655 shares issued at an initial public offering price of
$12.00 per share in connection with the Offering to repay all debt
obligations of the Founding Companies but excludes 829,025 shares of Common
Stock subject to options issued under the 1996 Stock Option Plan.
F-16
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To StaffMark, Inc.:
We have audited the accompanying balance sheet of StaffMark, Inc. (a
Delaware corporation, originally One Source Staffing, Inc.) as of June 30, 1996.
This financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of StaffMark, Inc. as of June 30,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
July 26, 1996 (except with respect
to the matters discussed in Note 4, as to
which the date is October 2, 1996).
F-17
<PAGE> 75
STAFFMARK, INC.
BALANCE SHEET
JUNE 30, 1996
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents...................................................... $ 235,574
Deferred offering costs........................................................ 1,888,465
----------
$2,124,039
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable............................................................. $1,746,369
Advances from Founding Companies............................................. 343,750
----------
Total liabilities.................................................... 2,090,119
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized shares of 1,000,000;
no shares issued or outstanding........................................... --
Common stock, $.01 par value; authorized shares of 26,000,000;
shares issued and outstanding of 1,355,000................................ 13,550
Paid-in capital.............................................................. 17,710
Retained earnings............................................................ 2,660
----------
Total stockholders' equity........................................... 33,920
----------
$2,124,039
==========
</TABLE>
The accompanying notes are an integral
part of this balance sheet.
F-18
<PAGE> 76
STAFFMARK, INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION:
StaffMark, Inc. ("StaffMark" or the "Company," a Delaware corporation) was
originally founded as One Source Staffing, Inc. on March 12, 1996, to create a
nationwide provider of temporary staffing services. On June 14, 1996, the
Company changed its name to StaffMark, Inc. The Company intends to acquire six
local and regional temporary staffing companies (the "Founding Companies"),
complete an initial public offering ("IPO") of its common stock and, subsequent
to the IPO, continue to acquire, through merger or purchase, similar companies
to expand the Company's national and regional operations.
In June 1996, StaffMark signed definitive agreements to acquire by merger
the Founding Companies to be effective with the IPO. The companies to be
acquired are Brewer Personnel Services, Inc., The Maxwell Companies, The
Prostaff Companies, Human Resources, Inc., First Choice Staffing, Inc. and The
Blethen Group. Based upon an IPO price of $12 per share, the aggregate
consideration that will be paid by StaffMark to acquire the Founding Companies
is approximately $83.3 million (unaudited) consisting of a combination of cash
and common stock.
As of June 30, 1996, the Company had not conducted any operations, and
activities to date have related primarily to the planned acquisitions and the
IPO. Accordingly, statements of operations, changes in stockholders' equity and
cash flows would not provide meaningful information and have been omitted. There
is no assurance that the pending acquisitions discussed above will be completed
and that StaffMark will be able to generate future operating revenue. StaffMark
is dependent upon the IPO to fund the pending acquisitions and future
operations.
In April 1996, the Founding Companies advanced $375,000 to the Company to
help fund offering related costs. In conjunction with the withdrawal of one of
the original Founding Companies, non-refundable advances to the Company of
$31,250 were reflected as a component of paid-in capital in the accompanying
balance sheet.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents --
Cash and cash equivalents represent demand deposits with a financial
institution or highly liquid money market investments with original maturities
of three months or less.
Deferred offering costs --
Deferred offering costs primarily represent professional fees incurred
through June 30, 1996 in conjunction with the planned IPO and, for financial
reporting purposes, will be netted against the offering proceeds upon completion
of the public offering.
3. STOCKHOLDERS' EQUITY:
In conjunction with the organization and initial capitalization of
StaffMark, the Company issued 1,000 shares of common stock at a par value of
$.01 per share. In June 1996, the Company's Board of Directors declared a
1,355-for-one stock split. The effect of this stock split has been reflected as
a reduction of paid-in capital and an increase in common stock in the
accompanying balance sheet.
In June 1996, the Board of Directors approved the Company's 1996 Stock
Option Plan (the "Plan") which authorizes the issuance of options to purchase up
to 1,500,000 shares of the Company's common stock. As of June 30, 1996, the
Company has not granted options under the Plan. The terms of the options granted
under the Plan will be subject to the discretion of the Board of Directors, and
subject to certain limitations specified in the Plan which include, among other
requirements, that options must be granted at prices no less than market value
at the date of grant. The Company plans to account for stock options granted
pursuant to
F-19
<PAGE> 77
STAFFMARK, INC.
NOTES TO BALANCE SHEET -- (CONTINUED)
the Plan in accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Based on
the provisions of APB 25, management does not expect the options granted
pursuant to the Plan to have a material impact on the Company's results of
operations or financial position. However, pursuant to the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company will be required to include supplemental pro forma
disclosures with its subsequent financial statements which reflect the
recognition of compensation expense related to options granted, measured based
on the estimated fair value of the options on date of grant and recognized on a
straight-line basis over the vesting period of the options.
4. SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to June 30, 1996, the Company has incurred significant
additional costs, including professional fees and travel, associated with the
acquisition of the Founding Companies and the IPO which are not reflected in the
accompanying balance sheet. The Company anticipates that total offering costs
related to the IPO will approximate $3.4 million (unaudited).
In July 1996, StaffMark filed a Registration Statement on Form S-1 for the
sale of its common stock. See "Risk Factors" included elsewhere herein.
Effective October 2, 1996, the Company completed the initial public
offering discussed above.
F-20
<PAGE> 78
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brewer Personnel Services, Inc.:
We have audited the accompanying balance sheets of Brewer Personnel
Services, Inc. (the "Company"), as of January 1, 1995, December 31, 1995 and
June 30, 1996, and the related statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995 and
for the six months ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brewer Personnel Services,
Inc. as of January 1, 1995, December 31, 1995 and June 30, 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995 and for the six months ended June 30, 1996 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
July 26, 1996 (except with respect
to the matter discussed in Note 15, as to
which the date is October 2, 1996).
F-21
<PAGE> 79
BREWER PERSONNEL SERVICES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1996
JANUARY 1, DECEMBER 31, --------------------------
1995 1995 ACTUAL PRO FORMA
---------- ------------ ----------- -----------
(UNAUDITED)
(NOTE 14)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............... $ 108,066 $ 319,159 $ 778,209 $ 778,209
Accounts receivable, net of allowance
for doubtful accounts of $34,308,
$214,187 and $256,603,
respectively......................... 2,703,493 4,798,476 6,260,282 6,260,282
Prepaid expenses and other.............. 191,838 253,143 275,406 275,406
---------- ----------- ----------- -----------
Total current assets............ 3,003,397 5,370,778 7,313,897 7,313,897
PROPERTY AND EQUIPMENT, net............... 486,510 796,930 993,752 993,752
INTANGIBLE ASSETS, net.................... 282,215 15,555,459 18,605,545 18,605,545
OTHER ASSETS:
Related party notes receivable.......... 264,664 -- -- --
Advance to StaffMark, Inc............... -- -- 187,500 187,500
Other................................... 17,262 29,192 40,165 40,165
---------- ----------- ----------- -----------
Total other assets.............. 281,926 29,192 227,665 227,665
---------- ----------- ----------- -----------
$4,054,048 $ 21,752,359 $27,140,859 $27,140,859
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ 179,063 $ 272,329 $ 355,181 $ 355,181
Outstanding checks...................... 135,020 226,307 341,652 341,652
Payroll and related liabilities......... 538,468 1,020,973 1,569,072 1,569,072
Reserve for workers' compensation
claims............................... 130,991 775,801 749,397 749,397
Line of credit.......................... 725,000 309,068 1,545,862 1,545,862
Current maturities of long-term debt.... 126,584 882,487 2,421,713 2,421,713
Accrued interest and other.............. 11,565 375,777 231,692 231,692
---------- ----------- ----------- -----------
Total current liabilities....... 1,846,691 3,862,742 7,214,569 7,214,569
LONG-TERM DEBT, less current maturities... 97,154 15,103,831 16,204,401 16,504,401
COMMITMENTS AND CONTINGENCIES (Notes 9
through 13)
STOCKHOLDERS' EQUITY:
Common stock, no par value in 1994 and
$.01 par value in 1995 and 1996;
authorized shares of 1,000 in 1994,
and 10,000 in 1995 and 1996; shares
issued and outstanding of 117.5 in
1994 and 1995 and 132.5 in 1996...... 40,424 1 1 1
Paid-in capital......................... -- 98,059 497,208 497,208
Subscription receivable................. -- -- (80,000) (80,000)
Retained earnings....................... 2,069,779 2,687,726 3,304,680 3,004,680
---------- ----------- ----------- -----------
Total stockholders' equity...... 2,110,203 2,785,786 3,721,889 3,421,889
---------- ----------- ----------- -----------
$4,054,048 $ 21,752,359 $27,140,859 $27,140,859
========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-22
<PAGE> 80
BREWER PERSONNEL SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS --------------------------
----------------------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES............ $12,313,300 $27,894,455 $43,874,246 $15,928,068 $30,556,381
COST OF SERVICES............ 10,062,704 22,906,230 35,115,355 12,968,810 24,027,885
----------- ----------- ----------- ----------- -----------
Gross profit...... 2,250,596 4,988,225 8,758,891 2,959,258 6,528,496
OPERATING EXPENSES:
Selling, general and
administrative......... 1,622,737 3,483,070 5,804,348 2,118,893 4,445,462
Depreciation and
amortization........... 121,395 255,895 590,066 136,463 565,974
----------- ----------- ----------- ----------- -----------
Operating
income.......... 506,464 1,249,260 2,364,477 703,902 1,517,060
OTHER INCOME (EXPENSE):
Interest expense.......... (54,005) (92,132) (800,704) (32,072) (879,924)
Interest and other income
(expense).............. 25,150 19,653 22,765 19,204 (3,182)
----------- ----------- ----------- ----------- -----------
Net income........ $ 477,609 $ 1,176,781 $ 1,586,538 $ 691,034 $ 633,954
=========== =========== =========== =========== ===========
PRO FORMA DATA (Unaudited)
(Note 14):
Historical income before
income taxes........... $ 1,586,538 $ 633,954
Less pro forma provision
for income taxes....... 724,253 363,484
----------- -----------
PRO FORMA NET
INCOME.................... $ 862,285 $ 270,470
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-23
<PAGE> 81
BREWER PERSONNEL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN SUBSCRIPTION RETAINED
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS TOTAL
------ -------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 3, 1993.......... 117.5 $ 37,900 $ -- $ -- $ 807,985 $ 845,885
Net income...................... -- -- -- -- 477,609 477,609
Contribution.................... -- 2,524 -- -- -- 2,524
Dividends....................... -- -- -- -- (216,325) (216,325)
----- -------- -------- -------- ---------- ----------
BALANCE, January 2, 1994.......... 117.5 40,424 -- -- 1,069,269 1,109,693
Net income...................... -- -- -- -- 1,176,781 1,176,781
Dividends....................... -- -- -- -- (176,271) (176,271)
----- -------- -------- -------- ---------- ----------
BALANCE, January 1, 1995.......... 117.5 40,424 -- -- 2,069,779 2,110,203
Change in the par value of
shares of common stock from
no par to $.01 per share..... -- (40,423) 40,423 -- -- --
Net income...................... -- -- -- -- 1,586,538 1,586,538
Contribution.................... -- -- 57,636 -- -- 57,636
Dividends....................... -- -- -- -- (968,591) (968,591)
----- -------- -------- -------- ---------- ----------
BALANCE, December 31, 1995........ 117.5 1 98,059 -- 2,687,726 2,785,786
Net income...................... -- -- -- -- 633,954 633,954
Dividends....................... -- -- -- -- (17,000) (17,000)
Exercise of stock options....... 5.0 -- 80,000 (80,000) -- --
Shares issued in conjunction
with purchase of On Call..... 10.0 -- 319,149 -- -- 319,149
----- -------- -------- -------- ---------- ----------
BALANCE, June 30, 1996............ 132.5 $ 1 $497,208 $(80,000) $3,304,680 $3,721,889
===== ======== ======== ======== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-24
<PAGE> 82
BREWER PERSONNEL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS --------------------------
---------------------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
--------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 477,609 $ 1,176,781 $ 1,586,538 $ 691,034 $ 633,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 121,395 255,895 590,066 136,463 565,974
Provision for bad debts........................ 6,664 24,058 169,879 (111) 57,932
Net (gain) loss on sales of property and
equipment.................................... (672) (5,066) 4,095 4,968 --
Change in operating assets and liabilities, net
of effects of acquisitions:
Restricted certificates of deposit........... 750,000 -- -- -- --
Accounts receivable.......................... (870,585) (963,971) (334,940) (684,695) (1,246,671)
Prepaid expenses and other................... (86,090) (49,960) (44,025) 20,023 (22,263)
Other assets................................. -- (16,152) (6,101) (4,555) (2,095)
Accounts payable............................. (252,876) 88,208 21,210 (58,659) 8,644
Outstanding checks........................... 68,552 66,468 (508,117) 348,506 115,345
Payroll and related liabilities.............. 131,887 241,001 (270,377) 216,704 250,733
Reserve for workers' compensation claims..... 54,600 76,391 359,810 171,476 (26,404)
Accrued interest and other................... (32,727) (112) 37,185 23,597 (257,796)
--------- ---------- ------------ ----------- -----------
Net cash provided by operating
activities............................... 367,757 893,541 1,605,223 864,751 77,353
--------- ---------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Aaron............................. (200,000) -- -- -- --
Acquisition of Caldwell.......................... -- -- (11,500,000) -- --
Acquisition of On Call........................... -- -- -- -- (3,000,000)
Capital expenditures............................. (130,665) (253,373) (414,569) (95,917) (234,143)
Acquisition of training licenses and rights...... -- -- (65,262) (65,262) --
Proceeds from the sales of property and
equipment...................................... 10,000 19,067 16,652 -- --
Advance to StaffMark, Inc........................ -- -- -- -- (187,500)
Advances of notes receivable..................... (35,129) (220,445) (40,000) (73,145) --
Receipts on notes receivable..................... 48,116 110,000 -- -- --
--------- ---------- ------------ ----------- -----------
Net cash used in investing activities...... (307,678) (344,751) (12,003,179) (234,324) (3,421,643)
--------- ---------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt................... 85,524 1,584,500 13,366,512 19,272 4,736,794
Payments on debt................................. (103,805) (1,920,296) (1,919,865) (111,642) (860,204)
Cash dividends................................... (163,346) (176,271) (623,484) (572,484) (17,000)
Contributions from stockholder................... 2,524 -- 57,636 57,636 --
Deferred financing costs......................... -- -- (271,750) -- (56,250)
--------- ---------- ------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... (179,103) (512,067) 10,609,049 (607,218) 3,803,340
--------- ---------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (119,024) 36,723 211,093 23,209 459,050
CASH AND CASH EQUIVALENTS, beginning of period..... 190,367 71,343 108,066 108,066 319,159
--------- ---------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of period........... $ 71,343 $ 108,066 $ 319,159 $ 131,275 $ 778,209
========= ========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid...................................... $ 51,529 $ 107,222 $ 427,456 $ 29,183 $ 1,042,906
========= ========== ============ =========== ===========
Non-cash transactions:
Notes payable issued in conjunction with
acquisitions................................... $ 299,010 $ -- $ 3,100,000 $ -- $ --
========= ========== ============ =========== ===========
Distribution of notes receivable to
stockholders................................... $ -- $ -- $ 345,107 $ -- $ --
========= ========== ============ =========== ===========
Issuance of subscription receivable in
conjunction with the exercise of stock
options........................................ $ -- $ -- $ -- $ -- $ 80,000
========= ========== ============ =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-25
<PAGE> 83
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
Brewer Personnel Services, Inc. (the "Company") was incorporated in the
state of Arkansas on June 27, 1988. The Company's primary business purpose is to
provide temporary personnel services. The Company is headquartered in
Fayetteville, Arkansas and as of June 30, 1996, operated staffing offices in
Arkansas, Georgia, Colorado, Virginia and Tennessee.
In June 1995, the Company opened the Brewer Career Center, which provides
training services to temporary personnel. In conjunction with opening the
facility, the Company acquired certain training licenses and rights from Career
Blazers Training Services, Inc.
Fiscal Periods --
The Company's reporting periods end on the Sunday closest to month end. The
fiscal years 1993, 1994 and 1995 each included 52 weeks. The interim periods for
the six months ended July 2, 1995 (unaudited) and June 30, 1996 included in the
accompanying financial statements each included 26 weeks.
Interim Financial Statements --
The accompanying interim financial statements for the six months ended July
2, 1995 and related disclosures have not been audited by independent
accountants. However, they have been prepared in conformity with the accounting
principles stated in the audited financial statements for the three years in the
period ended December 31, 1995 and for the six months ended June 30, 1996, and
include all adjustments (which were of a normal, recurring nature) which, in the
opinion of management, are necessary to present fairly the financial position of
the Company and the results of operations and cash flows for each of the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of results for the full year.
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in preparing the accompanying financial statements are
based upon management's evaluation of the relevant facts and circumstances as of
the date of the financial statements. However, actual results may differ from
the estimates and assumptions used in preparing the accompanying financial
statements.
Revenue Recognition --
Service revenues are recognized as income at the time staffing services are
provided.
Cash and Cash Equivalents --
For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Accounts Receivable --
The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. Included in accounts
receivable in the accompanying balance sheets are unbilled amounts of $277,351,
$541,906 and $1,384,449 at January 1, 1995, December 31, 1995 and June 30, 1996,
respectively.
F-26
<PAGE> 84
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated economic lives or the terms of the lease. The estimated
useful lives of the Company's assets, by asset classification, were as follows:
<TABLE>
<S> <C>
Office equipment................................... 5 years
Computer equipment................................. 5 years
Vehicles........................................... 5 years
Computer software.................................. 3 years
Leasehold improvements............................. 3 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resultant gain or loss is recorded.
Intangible Assets --
Intangible assets primarily consist of goodwill, which is amortized using
the straight-line method over periods of 15 to 30 years. Deferred financing
costs are amortized over the life of the respective debt obligation using a
method which approximates the interest method. Intangibles associated with
noncompete agreements are amortized using the straight-line method over the life
of the respective agreements. The Company regularly evaluates whether events and
circumstances have occurred which may indicate the carrying amount of goodwill
or other intangible assets may warrant revision or may not be recoverable. When
factors indicate that certain intangible assets should be evaluated for possible
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related assets over their remaining life in measuring whether the
assets are recoverable. As of January 1, 1995, December 31, 1995 and June 30,
1996, management considered the Company's intangible assets to be fully
recoverable.
Workers' Compensation --
The Company self-insures certain risks related to workers' compensation
claims. The estimated costs of existing and future claims are accrued as
incidents occur based upon historical loss development trends and may be
subsequently revised based on developments relating to such claims. The Company
engages the services of a third party actuary to assist with the development of
these cost estimates.
Accounting for Stock Options --
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"), which encourages all companies to recognize
compensation expense based on the fair value, at grant date, of instruments
issued pursuant to stock based compensation plans. SFAS 123 requires the fair
value of the instruments granted, which is measured pursuant to the provisions
of the statement, be recognized as compensation expense on a straight-line basis
over the vesting period of the instrument. However, the statement also allows
companies to continue to measure compensation costs for these instruments using
the method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Companies electing to
account for stock based compensation plans pursuant to the provisions of APB 25
must make pro forma disclosures of net income as if the fair value method
defined in SFAS 123 had been applied. The Company has elected to account for its
stock options under the provisions of APB 25 and has included the disclosures
required by SFAS 123 in Note 8.
F-27
<PAGE> 85
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments --
The Company's financial instruments include cash and cash equivalents,
related party notes receivable and its debt obligations. Management believes
that these instruments bear interest at rates which approximate prevailing
market rates for instruments with similar characteristics and, accordingly, that
the carrying values for these instruments are reasonable estimates of fair
value.
2. BUSINESS COMBINATIONS:
Aaron Temporary Services, Inc. --
On November 22, 1993, the Company acquired certain assets of Aaron
Temporary Services, Inc. ("Aaron"). Aaron was engaged in providing temporary
personnel services in central and northeast Arkansas. The total purchase price
of $527,600 was comprised of a cash payment of $200,000 and the issuance of a
note with payments, including interest, totaling $327,600. The acquisition has
been accounted for as a purchase, and the results of Aaron have been included in
the accompanying financial statements since the date of acquisition. The cost of
the acquisition has been allocated on the basis of the estimated fair market
value of the assets acquired. The assets acquired have been recorded at
historical, depreciated cost, which approximated fair value as of the
acquisition date, with the remaining acquisition costs of $25,000 being recorded
as goodwill.
Caldwell Services, Inc. --
On July 10, 1995, the Company acquired the stock of E.P. Enterprises
Corporation, d.b.a. Caldwell Services, Inc. ("Caldwell"). Caldwell is engaged in
providing temporary personnel services through five staffing offices located in
Georgia. The acquisition has been accounted for as a purchase, and the results
of Caldwell have been included in the accompanying financial statements since
the date of acquisition. The cost of the acquisition has been allocated on the
basis of the estimated fair market value of the assets and liabilities acquired.
Total consideration paid for Caldwell was approximately $17.3 million. The
purchase price included cash of $11.5 million, a note to the seller of $3.1
million and the assumption of certain liabilities of Caldwell. The assets
acquired have been recorded at historical, depreciated cost, which approximated
fair value as of the acquisition date, with the remaining acquisition costs of
approximately $15.3 million being recorded as goodwill.
On Call Employment Services, Inc. --
On February 2, 1996, the Company acquired the stock of On Call Employment
Services, Inc. ("On Call"). On Call is engaged in providing temporary personnel
services through four staffing offices in Colorado. The acquisition has been
accounted for as a purchase, and the results of On Call have been included in
the accompanying financial statements since the date of acquisition. The cost of
the acquisition has been allocated on the basis of the estimated fair market
value of the assets and liabilities acquired.
Total consideration paid for On Call was approximately $3.8 million which
was comprised of cash totaling $3 million, including $360,000 associated with a
noncompete agreement, 10 shares of the Company's common stock valued at
approximately $320,000 and the assumption of liabilities totaling approximately
$480,000. The assets acquired have been recorded at historical, depreciated
cost, which approximated fair value as of the acquisition date, with the
remaining acquisition costs of approximately $3.1 million being recorded as
goodwill.
F-28
<PAGE> 86
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited consolidated revenues and net income on a pro forma basis as
though Aaron, Caldwell and On Call had been acquired as of the beginning of the
Company's 1993 fiscal year are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS ENDED
--------------------------------------- ------------------------------
1993 1994 1995 JULY 2, 1995 JUNE 30, 1996
----------- ----------- ----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........... $55,954,122 $55,546,403 $67,406,685 $ 33,211,694 $ 31,683,472
=========== =========== =========== =========== ===========
Net income......... $ 1,718,024 $ 939,446 $ 2,091,956 $ 833,362 $ 658,304
=========== =========== =========== =========== ===========
</TABLE>
Chad J. Brewer, Incorporated --
In June 1995, the Company entered into an agreement to merge its activities
with Chad J. Brewer, Incorporated (a Virginia corporation, "Chad Brewer"), which
was owned by a related party. The Company issued 17.5 shares of common stock in
exchange for all outstanding shares of Chad Brewer. This merger has been
accounted for as a pooling-of-interests. Accordingly, the accompanying financial
statements have been prepared as if the merger had occurred at the beginning of
fiscal year 1993.
Prior to the merger, the Company maintained a license agreement which
entitled Chad Brewer to do business in the state of Virginia as Brewer Personnel
Services and to use certain information of the Company. In addition, the Company
provided payroll administration, data processing and accounts receivable
financing services to Chad Brewer.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ------------ ----------
<S> <C> <C> <C>
Office equipment................................ $ 243,153 $ 419,606 $ 668,171
Computer equipment.............................. 382,068 687,097 756,122
Vehicles........................................ 167,678 133,722 133,722
Computer software............................... 44,880 62,653 82,478
Leasehold improvements.......................... -- 31,483 43,580
-------- ---------- ----------
837,779 1,334,561 1,684,073
Less accumulated depreciation and
amortization.................................. 351,269 537,631 690,321
-------- ---------- ----------
$ 486,510 $ 796,930 $ 993,752
======== ========== ==========
</TABLE>
Depreciation and amortization expense related to property and equipment for
fiscal years 1993, 1994 and 1995 totaled $68,159, $149,558 and $198,859,
respectively. Depreciation and amortization expense for the six months ended
July 2, 1995 and June 30, 1996 totaled $77,986 (unaudited) and $152,690,
respectively.
F-29
<PAGE> 87
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ------------ -----------
<S> <C> <C> <C>
Goodwill......................................... $ 25,000 $ 15,356,334 $18,407,351
Deferred financing costs......................... -- 271,750 328,000
Noncompete agreements............................ 299,010 299,010 659,010
Other............................................ 75,000 140,262 140,262
-------- ----------- -----------
399,010 16,067,356 19,534,623
Less accumulated amortization.................... 116,795 511,897 929,078
-------- ----------- -----------
$ 282,215 $ 15,555,459 $18,605,545
======== =========== ===========
</TABLE>
Amortization expense related to intangible assets totaled $53,236, $106,337
and $391,207 for fiscal years 1993, 1994 and 1995, respectively. Amortization
expense related to intangible assets totaled $58,477 (unaudited) and $413,284
for the six months ended July 2, 1995 and June 30, 1996, respectively.
5. DEBT:
Line of credit balances consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ------------ -----------
<S> <C> <C> <C>
Line of credit with Boatmen's National Bank of
St. Louis ("Boatmen's"). Maximum borrowings
equal the lesser of $6 million or 85% of the
Company's eligible accounts receivable balance
reduced by the letters of credit issued as
security for the Company's workers'
compensation obligations. Interest payable
monthly at a variable rate which ranged from
9.5% to 10.00% and averaged 9.79% during the
six months ended June 30, 1996 and 10.23%
during the year ended December 31, 1995.
Principal due on June 29, 1998. Secured by the
assets and common stock of the Company and
partially guaranteed by certain
stockholders................................... $ -- $ 309,068 $ 1,545,862
Line of credit, interest payable quarterly at
prime, 8.0% as of January 1, 1995 and averaging
6.8% for the year then ended. Secured by
accounts receivable and guaranteed by certain
stockholders................................... 725,000 -- --
-------- ----------- -----------
$ 725,000 $ 309,068 $ 1,545,862
======== =========== ===========
Long-term debt consisted of the following:
Term loan note with Boatmen's. Interest payable
monthly at a variable rate which ranged from
8.75% to 9.19% and averaged 8.86% during the
six months ended June 30, 1996 and 9.56% during
the year ended December 31, 1995. Principal due
in quarterly installments beginning October 1,
1995 through maturity on June 30, 2001. Secured
by the assets and common stock of the Company
and partially guaranteed by certain
stockholders................................... $ -- $ 12,750,000 $15,458,400
</TABLE>
F-30
<PAGE> 88
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
-------- ----------- -----------
<S> <C> <C> <C>
Note payable to the previous owner of Caldwell,
interest at 8%, payable quarterly. Principal to
be paid in equal annual installments beginning
June 30, 1998 through June 30, 2001 or in full
upon a change in control of the Company.
Secured by a lien on the assets of the Company
and guaranteed by certain stockholders......... $ -- $ 3,100,000 $ 3,100,000
Note payable to the previous owner of Aaron,
imputed interest of 6%, payable in monthly
installments of $9,100. Secured by the personal
assets of the stockholders..................... 197,235 97,332 44,977
Other notes payable, maturing through 1997 with
interest ranging from 6.00% to 6.99%. Secured
by certain assets of the Company............... 26,503 38,986 22,737
-------- ----------- -----------
223,738 15,986,318 18,626,114
Less current maturities.......................... 126,584 882,487 2,421,713
-------- ----------- -----------
$ 97,154 $ 15,103,831 $16,204,401
======== =========== ===========
</TABLE>
The term loan note and line of credit with Boatmen's were entered into in
conjunction with the purchase of Caldwell. Interest on these facilities is
computed, at the Company's option, at either the LIBOR rate plus incremental
increases related to the Company's operating leverage, as defined in the
agreement, or the prime lending rate plus incremental increases related to the
Company's operating leverage. In September 1995, the Company signed a rate cap
transaction agreement with Boatmen's to freeze the LIBOR rate component of the
interest rate on a portion of the term loan note at 8.50% effective September
30, 1995 through September 30, 1998. This rate cap agreement had no impact on
interest expense during fiscal 1995 or during the six months ended June 30,
1996.
In conjunction with the purchase of On Call, the Company amended its term
loan note and line of credit. Under the terms of the amendment, the term loan
note and the maximum borrowings under the line of credit were increased to $16
million and $6 million, respectively.
Under the terms of the credit agreement with Boatmen's, the Company is
required, among other restrictions, to maintain certain financial ratios which
are measured on a quarterly basis. As of June 30, 1996, the Company did not
comply with two of these ratios, however, Boatmen's has waived all events of
noncompliance and default with regard to these ratios as of that date.
Accordingly, these obligations have been classified according to their
originally scheduled maturity dates.
Total maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
----------------------------
DECEMBER 31, JUNE 30,
------------ -----------
<S> <C> <C>
1996.............................. $ 882,487 $ --
1997.............................. 1,444,763 2,421,613
1998.............................. 3,146,568 3,753,900
1999.............................. 3,212,500 3,838,100
2000.............................. 3,900,000 3,587,500
Thereafter........................ 3,400,000 5,025,001
----------- -----------
$ 15,986,318 $18,626,114
=========== ===========
</TABLE>
F-31
<PAGE> 89
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The Company operates as an S Corporation for federal and state income tax
reporting purposes. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements as such taxes are liabilities of the
individual stockholders.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.
7. WORKERS' COMPENSATION:
The Company is self-insured for certain workers' compensation claims and is
regulated by the Workers' Compensation Insurance Commissions in the states of
Arkansas and Georgia. The Company had purchased insurance during 1993 and 1994
for medical claims which exceed $25,000 and other claims which exceed $350,000.
During 1995, the Company purchased insurance to cover claims which exceeded
$50,000. The Company maintains letters of credit with a bank to cover any
potential unpaid claims. At June 30, 1996, these letters of credit were in the
amount of $600,000 and $500,000 for Arkansas and Georgia, respectively. Workers'
compensation expense totaled $405,927, $738,663 and $1,317,579 for fiscal years
1993, 1994 and 1995, respectively. Workers' compensation expense totaled
$546,008 (unaudited) and $589,459 for the six months ended July 2, 1995 and June
30, 1996, respectively.
8. COMMON STOCK AND STOCK OPTIONS:
On May 30, 1995, the Company amended and restated its Articles of
Incorporation to increase the number of authorized shares of common stock from
1,000 to 10,000 and to change the par value of the shares of common stock from
no par to $.01 per share.
The Company has granted stock options to certain key employees. These
options were granted at fair value as determined by management, are exercisable
in installments and expire from June 30, 1999 to February 26, 2001.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES UNDER PRICE PER
OPTION SHARE
------------ ---------
<S> <C> <C>
Outstanding, January 3, 1993................................. -- $ --
Outstanding, January 2, 1994................................. -- --
Granted.................................................... 5.0 16,000
---- --------
Outstanding, January 1, 1995................................. 5.0 16,000
Granted.................................................... 7.5 30,666
---- --------
Outstanding, December 31, 1995............................... 12.5 24,800
Granted.................................................... 1.0 35,000
Exercised.................................................. (5.0) (16,000)
---- --------
Outstanding, June 30, 1996................................... 8.5 $ 31,176
==== ========
Exercisable, December 31, 1995............................... 5.0 $ 16,000
==== ========
Exercisable, June 30, 1996................................... 1.67 $ 30,000
==== ========
</TABLE>
F-32
<PAGE> 90
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In March 1996, a key employee exercised his stock options and received five
shares of the Company's common stock. In payment for this exercise, the Company
executed a note receivable from this employee for $80,000, which represented the
entire exercise price of these options. This note has been reflected as a
subscription receivable and is classified as contra equity in the accompanying
financial statements.
As discussed in Note 1, the Company has elected to account for its stock
options under the provisions of APB 25. Accordingly, pursuant to the
requirements of SFAS 123, the following disclosures are presented to reflect the
Company's pro forma net income for the year ended December 31, 1995 and for the
six month period ended June 30, 1996 as if the fair value method of accounting
prescribed by SFAS 123 had been used. In preparing these disclosures, the
Company has determined the value of all options granted during 1995 and the six
month period ended June 30, 1996 using the minimum value method, as discussed in
SFAS 123, and based on the following weighted average assumptions used for
grants:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR JUNE 30,
1995 1996
----------- ----------
<S> <C> <C>
Risk-free interest rate....................................... 6.5% 5.6%
Expected dividend yield....................................... 0% 0%
Expected life................................................. 2.5 years 2.0 years
</TABLE>
Options were assumed to be exercised upon vesting for the purpose of this
valuation. Using these assumptions, the fair value of the stock options granted
in 1995 and the six months ended June 30, 1996 was approximately $36,000 and
$4,000, respectively. Had compensation expense been determined consistent with
SFAS 123, utilizing the assumptions above and the straight-line amortization
method over the vesting period, the Company's net income would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR JUNE 30,
1995 1996
----------- ----------
<S> <C> <C>
Net income, as reported...................................... $ 1,586,538 $633,954
=========== ========
Pro forma net income......................................... $ 1,578,367 $626,694
=========== ========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
The Company rents office space from Brewer Investments, a partnership owned
by certain stockholders. The rent expense related to these transactions was
$60,000 for fiscal years 1993, 1994 and 1995. In January 1996, the Company moved
its corporate offices into a new building, which is also owned by Brewer
Investments. Rent expense related to these leases was approximately $30,000
(unaudited) and $105,000 for the six months ended July 2, 1995 and June 30,
1996, respectively. Future minimum lease payments related to this lease as of
June 30, 1996 approximate $1,015,000 which have been included in the table in
Note 11.
In December 1995, a note receivable from Brewer Investments in the amount
of $345,107 was distributed to the individual stockholders of the Company.
10. COMMITMENTS:
In conjunction with the acquisition of Aaron, the Company entered into an
agreement to pay the former owner $12,000 per month for a five-year period
beginning November 29, 1993, in exchange for consulting services. The expense
associated with this agreement was $12,000 for fiscal year 1993, $144,000 for
fiscal years 1994 and 1995 and $72,000 for the six months ended July 2, 1995
(unaudited) and June 30, 1996.
F-33
<PAGE> 91
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has employment agreements with certain executive officers and
management personnel that provide for annual salaries, cost-of-living
adjustments, additional compensation in the form of performance based bonuses
and, for certain employees, options to purchase shares of the Company's common
stock. Certain agreements include a covenant against competition with the
Company, which extends for a period of time after termination. These agreements
generally continue until terminated by the employee or the Company.
The Company has historically paid dividends to its stockholders in amounts
sufficient to cover their estimated tax payments attributable to the respective
share of the Company's net income which will be included in their individual tax
returns. The Company plans to continue this practice in the future as long as it
maintains its S Corporation status.
11. NONCANCELABLE OPERATING LEASES:
The Company leases office space under noncancelable operating leases. As
discussed in Note 9, certain of these facilities are leased from a related
party. Future minimum annual payments required during each of the next five
years under operating leases that had an initial or remaining noncancelable
lease term in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
---------------------------
DECEMBER 31, JUNE 30,
------------ ----------
<S> <C> <C>
1996............................... $ 506,531 $ --
1997............................... 449,915 502,741
1998............................... 387,285 424,299
1999............................... 383,237 391,143
2000............................... 322,667 369,815
---------- ----------
$2,049,635 $1,687,998
========== ==========
</TABLE>
Rent expense totaled $100,646, $168,956 and $275,460 for fiscal years 1993,
1994 and 1995, respectively. Rent expense totaled $92,447 (unaudited) and
$311,005 for the six months ended July 2, 1995 and June 30, 1996, respectively.
12. CONTINGENCIES:
The Company is a party to certain lawsuits primarily involving workers'
compensation claims. Management believes, based in part on consultation from
legal counsel, that the ultimate outcome of these matters will not have a
materially adverse effect on the Company's financial position, liquidity or
results of operations.
13. PENDING BUSINESS COMBINATION:
In June 1996, the owners of the Company entered into a definitive agreement
to merge with StaffMark, Inc. ("StaffMark") in conjunction with StaffMark's
initial public offering. Prior to or coincident with this proposed merger, the
Company plans to dividend certain assets to the stockholders consisting of
several automobiles, which have an aggregate carrying value of approximately
$51,000 as of June 30, 1996. In addition, the Company plans to make cash
distributions equal to the Company's S Corporation Accumulated Adjustment
Account as of the merger date. As of June 30, 1996 the Company's Accumulated
Adjustment Account totaled approximately $300,000.
In conjunction with the proposed merger discussed above, certain of the
owners will enter into employment agreements which provide for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a covenant not to compete following termination of such person's employment.
F-34
<PAGE> 92
BREWER PERSONNEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has advanced $187,500 to StaffMark to fund organizational and
other costs related to the planned merger and StaffMark's initial public
offering.
14. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):
In conjunction with the planned merger with StaffMark as discussed in Note
13, the Company will change from an S Corporation to a C Corporation for federal
and state income tax reporting purposes, which will require the Company to
recognize the tax consequences of operations in its statements of income. The
supplemental pro forma information included in the accompanying statements of
income reflect the estimated impact of recognizing income tax expense as if the
Company had been a C Corporation for tax reporting purposes during the twelve
months and six months ended December 31, 1995 and June 30, 1996, respectively.
As discussed in Note 13, the Company intends to make distributions equal to
the Company's S Corporation Accumulated Adjustment Account as of the merger
date. The supplemental pro forma information included in the accompanying
balance sheet reflects the estimated impact of recording these distributions as
if such distributions had occurred as of June 30, 1996. The pro forma
adjustments are based on the assumption that the distributions will be funded
with additional borrowings.
15. SUBSEQUENT EVENT (UNAUDITED):
Effective October 2, 1996, StaffMark completed the initial public offering
discussed above.
F-35
<PAGE> 93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Prostaff Companies:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the financial statements ("The Prostaff Companies"), as
of December 31, 1994 and 1995 and June 30, 1996, and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995 and the six months ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Prostaff Companies as of
December 31, 1994 and 1995 and the six months ended June 30, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 and the six months ended June 30, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
July 26, 1996 (except with respect to
the matter discussed in Note 12, as to
which the date is October 2, 1996).
F-36
<PAGE> 94
THE PROSTAFF COMPANIES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 228,372 $ 188,145 $ 74,629
Certificates of deposit.............................. 152,028 155,154 --
Accounts receivable, net of allowance for doubtful
accounts of $10,000, $48,500 and $65,000,
respectively...................................... 2,634,108 3,020,622 3,951,580
Deferred tax asset................................... 154,601 -- --
Prepaid expenses and other........................... 86,337 135,673 150,933
---------- ---------- ----------
Total current assets......................... 3,255,446 3,499,594 4,177,142
PROPERTY AND EQUIPMENT, net............................ 640,552 756,983 829,919
OTHER ASSETS:
Cash surrender value of officer's life insurance..... 34,670 41,280 41,280
Advance to StaffMark, Inc............................ -- -- 31,250
Other................................................ 3,675 4,730 14,875
---------- ---------- ----------
Total other assets........................... 38,345 46,010 87,405
---------- ---------- ----------
$3,934,343 $4,302,587 $5,094,466
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit....................................... $ 417,000 $ 20,000 $1,177,300
Current maturities of long-term debt................. 61,742 64,872 66,648
Note payable to stockholder.......................... -- 30,000 30,000
Accounts payable and accrued liabilities............. 83,413 117,339 97,598
Outstanding checks................................... 109,084 -- 249,838
Payroll and related liabilities...................... 703,263 1,129,777 1,233,266
Reserve for workers' compensation claims............. 439,444 635,290 638,000
Income taxes payable................................. 54,883 -- --
---------- ---------- ----------
Total current liabilities.................... 1,868,829 1,997,278 3,492,650
LONG-TERM DEBT, less current maturities................ 170,064 111,459 77,665
DEFERRED INCOME TAXES.................................. 57,885 -- --
COMMITMENTS AND CONTINGENCIES
(Notes 6 through 10)
STOCKHOLDERS' EQUITY:
Common stock, (par values of $.20 to $1.00)
authorized shares of 200,000 in 1994 and 201,000
in 1995 and at June 30, 1996, shares issued and
outstanding of 55,000 in 1994, 55,100 in 1995 and
at June 30, 1996.................................. 11,000 11,100 11,100
Retained earnings.................................... 1,826,565 2,182,750 1,513,051
---------- ---------- ----------
Total stockholders' equity................... 1,837,565 2,193,850 1,524,151
---------- ---------- ----------
$3,934,343 $4,302,587 $5,094,466
========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-37
<PAGE> 95
THE PROSTAFF COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES............ $27,244,744 $30,607,744 $34,330,413 $16,063,019 $18,919,437
COST OF SERVICES............ 22,858,206 25,455,432 28,234,379 13,238,533 15,383,556
----------- ----------- ----------- ----------- -----------
Gross profit...... 4,386,538 5,152,312 6,096,034 2,824,486 3,535,881
OPERATING EXPENSES:
Selling, general and
administrative......... 3,640,825 4,184,021 5,338,844 2,430,961 2,766,915
Depreciation and
amortization........... 114,796 174,998 220,433 103,005 127,951
----------- ----------- ----------- ----------- -----------
Operating
income.......... 630,917 793,293 536,757 290,520 641,015
OTHER INCOME (EXPENSE):
Interest expense.......... (87,181) (28,689) (20,393) (10,056) (28,953)
Interest income and
other.................. 60,745 10,987 26,537 13,665 10,971
----------- ----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES.............. 604,481 775,591 542,901 294,129 623,033
PROVISION FOR INCOME
TAXES..................... 205,742 253,847 96,716 96,716 --
----------- ----------- ----------- ----------- -----------
Net income........ $ 398,739 $ 521,744 $ 446,185 $ 197,413 $ 623,033
=========== =========== =========== =========== ===========
PRO FORMA DATA (Unaudited)
(Note 11):
Historical income before
income taxes........... $ 542,901 $ 623,033
Less pro forma provision
for income taxes....... 211,731 242,983
----------- -----------
PRO FORMA NET INCOME........ $ 331,170 $ 380,050
=========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-38
<PAGE> 96
THE PROSTAFF COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992....................... 55,000 $11,000 $ 976,186 $ 987,186
Net income..................................... -- -- 398,739 398,739
Dividends...................................... -- -- (25,625) (25,625)
------ ------- ----------- -----------
BALANCE, December 31, 1993....................... 55,000 11,000 1,349,300 1,360,300
Net income..................................... -- -- 521,744 521,744
Dividends...................................... -- -- (44,479) (44,479)
------ ------- ----------- -----------
BALANCE, December 31, 1994....................... 55,000 11,000 1,826,565 1,837,565
Net income..................................... -- -- 446,185 446,185
Initial capitalization of Professional
Resources, Inc.............................. 100 100 -- 100
Dividends...................................... -- -- (90,000) (90,000)
------ ------- ----------- -----------
BALANCE, December 31, 1995....................... 55,100 11,100 2,182,750 2,193,850
Net income..................................... -- -- 623,033 623,033
Dividends...................................... -- -- (1,292,732) (1,292,732)
------ ------- ----------- -----------
BALANCE, June 30, 1996........................... 55,100 $11,100 $ 1,513,051 $ 1,524,151
====== ======= =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-39
<PAGE> 97
THE PROSTAFF COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 398,739 $ 521,744 $ 446,185 $ 197,413 $ 623,033
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 114,796 174,998 220,433 103,005 127,951
Provision for deferred income taxes...... (35,138) (20,021) -- -- --
Write-off of net deferred tax assets..... -- -- 96,716 96,716 --
Provision for bad debts.................. 27,561 10,000 38,500 12,100 16,500
Loss on sale of property and equipment... -- 20,854 -- -- 2,672
Change in operating assets and
liabilities, net of effects of
acquisition:
Restricted certificates of deposit..... 600,000 -- 152,028 -- --
Accounts receivable.................... (637,401) (143,183) (403,041) (585,986) (947,458)
Prepaid expenses and other............. (38,493) (2,052) (49,336) (14,985) (15,260)
Other assets........................... 2,357 (8,979) (7,665) (2,635) (10,145)
Accounts payable and accrued
liabilities......................... 21,229 (10,535) 33,926 (9,687) (19,741)
Outstanding checks..................... -- 109,084 (109,084) (109,084) 249,838
Payroll and related liabilities........ 193,651 5,365 426,514 871,132 103,489
Reserve for workers' compensation
claims.............................. 148,385 101,480 195,846 92,556 2,710
Income taxes payable................... (15,039) (19,130) (54,883) (54,883) --
--------- --------- --------- --------- -----------
Net cash provided by operating
activities........................ 780,647 739,625 986,139 595,662 133,589
--------- --------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advance to StaffMark, Inc.................. -- -- -- -- (31,250)
Acquisition of personnel service
business................................. -- -- (30,000) -- --
Capital expenditures....................... (405,265) (293,936) (328,837) (236,228) (203,559)
Purchase of certificates of deposit........ -- -- (155,154) -- --
Proceeds from the sale of property and
equipment................................ -- 1,400 -- -- --
Proceeds from the sale of certificates of
deposit.................................. -- -- -- -- 155,154
--------- --------- --------- --------- -----------
Net cash used in investing
activities........................ (405,265) (292,536) (513,991) (236,228) (79,655)
--------- --------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of
credit................................... $(125,000) $(158,000) $(397,000) $(417,000) $ 1,157,300
Proceeds from note payable to
stockholder.............................. -- -- 30,000 -- --
Payments on note payable to stockholder.... (530,000) -- -- -- --
Proceeds from issuance of long-term debt... 290,237 -- -- -- --
Payments on long-term debt................. -- (58,431) (55,475) (24,394) (32,018)
Proceeds from issuance of common stock..... -- -- 100 -- --
Dividends.................................. (25,625) (44,479) (90,000) -- (1,292,732)
--------- --------- --------- --------- -----------
Net cash used in financing
activities........................ (390,388) (260,910) (512,375) (441,394) (167,450)
--------- --------- --------- --------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS................................ (15,006) 186,179 (40,227) (81,960) (113,516)
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 57,199 42,193 228,372 228,372 188,145
--------- --------- --------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period..... $ 42,193 $ 228,372 $ 188,145 $ 146,412 $ 74,629
========= ========= ========= ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.............................. $ 84,708 $ 30,549 $ 21,006 $ 10,056 $ 28,953
========= ========= ========= ========= ===========
Income taxes paid.......................... $ 242,989 $ 284,847 $ 54,883 $ 54,883 $ --
========= ========= ========= ========= ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-40
<PAGE> 98
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
The combined financial statements of The Prostaff Companies (the "Company")
include the activities of Prostaff Personnel, Inc. ("Prostaff"), d.b.a. Prostaff
Staffing Services, Office Staffing and Medical Staffing, Excel Temporary
Staffing, Inc. ("Excel") and Professional Resources, Inc. ("Professional"),
d.b.a. Performance Staffing which have common ownership. All intercompany
transactions have been eliminated in the combined financial statements.
Prostaff was originally incorporated in the state of Arkansas in 1973 as
Dunhill Personnel Agency of Little Rock, Inc. ("Dunhill"). Dunhill changed its
name to Prostaff in 1988. Prostaff's primary business purpose is to provide
temporary personnel services. At June 30, 1996, Prostaff operated staffing
offices in 23 locations in Arkansas. Excel was incorporated in the state of
Arkansas on October 25, 1990 and is engaged in providing temporary personnel
services to one large cosmetics manufacturer in Little Rock, Arkansas which
represents 100% of the revenue and accounts receivable of Excel. Revenues from
this one customer represent 14%, 13%, 14% and 17% of combined service revenues
for 1993, 1994, 1995 and the six months ended June 30, 1996, respectively.
Professional was incorporated in the state of Arkansas on October 24, 1995
("inception date"). On October 31, 1995, Professional purchased the assets of an
existing temporary personnel service business in Little Rock, Arkansas for
$30,000. This acquisition was accounted for as a purchase. There was no goodwill
recorded in connection with this acquisition. The combined financial statements
of the Company include the results of operations of Professional from the
inception date.
Interim Financial Statements --
The accompanying interim financial statements and related disclosures for
the six months ended June 30, 1995 have not been audited by independent
accountants. However, they have been prepared in conformity with the accounting
principles stated in the audited financial statements for the three years in the
period ended December 31, 1995 and for the six months ended June 30, 1996, and
include all adjustments (which were of a normal, recurring nature) which, in the
opinion of management, are necessary to present fairly the financial position of
the Company and the results of operations and cash flows for each of the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of results for the full year.
Use of Estimates --
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statements.
Revenue Recognition --
Service revenues are recognized as income at the time staffing services are
provided.
Cash and Cash Equivalents --
For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-41
<PAGE> 99
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable --
The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. Included in accounts
receivable in the accompanying balance sheets are unbilled amounts of $343,681,
$441,642 and $869,867 at December 31, 1994, 1995 and June 30, 1996,
respectively.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated economic lives or the terms of the lease. The estimated
useful lives of the Company's assets, by asset classification, are as follows:
<TABLE>
<S> <C>
Office equipment................................................. 5 years
Computer equipment............................................... 5 years
Vehicles......................................................... 5 years
Computer software................................................ 5 years
Leasehold improvements........................................... 10 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resultant gain or loss is recorded.
Workers' Compensation and Employee Health Benefits --
The Company self-insures certain risks related to workers' compensation and
employee health benefit claims. The estimated costs of existing and future
claims are accrued as incidents occur based upon historical loss development
trends and may be subsequently revised based on developments relating to such
claims. The Company engages the services of a third party actuary to assist with
the development of the workers' compensation cost estimates.
Fair Value of Financial Instruments --
The Company's financial instruments include cash and cash equivalents,
certificates of deposit, note payable to stockholder and its other debt
obligations. Management believes that these instruments bear interest at rates
which approximate prevailing market rates for instruments with similar
characteristics and, accordingly, that the carrying values for those instruments
are reasonable estimates of fair value.
Income Taxes --
Prior to 1995, the Company operated as a C Corporation for federal and
state tax reporting purposes. Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). Under this new statement, deferred income taxes
are provided based on the estimated future tax effects of differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. The adoption of SFAS 109 did not have a material effect on the
Company's financial position or results of operations.
Effective January 1, 1995, the Company elected to be taxed as an S
Corporation for federal and state income tax reporting purposes. Accordingly, no
provision for income taxes has been recorded in the accompanying financial
statements for the period subsequent to January 1, 1995 as such taxes are
liabilities of the individual stockholders. Upon election of S Corporation
status, the Company wrote off net deferred tax
F-42
<PAGE> 100
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
assets totaling $96,716 related to years prior to 1995, which is reflected as
provision for income taxes in the accompanying combined statements of income.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Office equipment................................ $311,414 $ 412,661 $ 478,930
Computer equipment.............................. 382,903 477,744 518,003
Vehicles........................................ 107,900 136,859 107,510
Computer software............................... 113,884 165,635 214,587
Leasehold improvements.......................... 83,593 136,949 171,308
-------- ---------- ----------
999,694 1,329,848 1,490,338
Less accumulated depreciation and
amortization.................................. 359,142 572,865 660,419
-------- ---------- ----------
$640,552 $ 756,983 $ 829,919
======== ========== ==========
</TABLE>
3. DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Term note payable to Boatmen's National Bank in
the original amount of $290,237 due in monthly
installments of $6,079, including interest at
5.5% through August 31, 1998. Secured by
certain equipment of Prostaff and guaranteed
by stockholders............................... $231,806 $ 176,331 $ 144,313
Less current maturities......................... 61,742 64,872 66,648
-------- ---------- ----------
$170,064 $ 111,459 $ 77,665
======== ========== ==========
</TABLE>
Total maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
-------------------------
DECEMBER 31, JUNE 30,
------------ --------
<S> <C> <C>
1996................................. $ 64,872 $ --
1997................................. 68,531 66,648
1998................................. 42,928 70,439
1999................................. -- 7,226
-------- --------
$176,331 $144,313
======== ========
</TABLE>
F-43
<PAGE> 101
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Line of credit balances consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- ------- ----------
<S> <C> <C> <C>
Line of credit with Boatmen's Bank. Maximum
borrowings of $1.5 million. Accrues interest at a
variable rate, which ranged from 8.25% to 9.0% and
averaged 8.63% during the six months ended June 30,
1996. Due upon demand. Secured by the accounts
receivable of Prostaff and guaranteed by
stockholders....................................... $417,000 $ -- $1,078,000
Line of credit with First Commercial Bank. Maximum
borrowings of $50,000. Interest payable monthly at
9.5%. Due upon demand. Secured by the assets of
Professional and guaranteed by stockholder......... -- 20,000 21,300
Line of credit with Mercantile Bank. Maximum
borrowings of $250,000. Interest payable monthly at
a fixed rate of 9.25%, which changed to 10.0% in
May 1996 and averaged 9.5% during the six months
ended June 30, 1996. Secured by accounts receivable
of Excel and guaranteed by stockholders............ -- -- 78,000
-------- ------- ----------
$417,000 $20,000 $1,177,300
======== ======= ==========
</TABLE>
4. NOTE PAYABLE TO STOCKHOLDER:
In order to effect the acquisition made by Professional, as discussed in
Note 1, Professional borrowed $30,000 from the sole stockholder and signed a
promissory note dated October 30, 1995. Interest is paid monthly at the rate of
9.25%. The note is due on demand, or if no demand is made, on October 30, 1996.
Total interest paid to the stockholder in 1995 and for the six months ended June
30, 1996 was $246 and $1,156, respectively.
During 1993, the Company repaid a $530,000 note payable to stockholder.
Total interest paid to the stockholder in 1993 was $44,200.
5. INCOME TAXES:
Provision (benefit) for income taxes consisted of the following components
for the years ended December 31:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Current:
Federal.............................. $213,892 $243,184
State................................ 26,988 30,684
-------- --------
240,880 273,868
-------- --------
Deferred:
Federal.............................. (31,201) (17,778)
State................................ (3,937) (2,243)
-------- --------
(35,138) (20,021)
-------- --------
Total........................ $205,742 $253,847
======== ========
</TABLE>
F-44
<PAGE> 102
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Provision for income taxes differs from amounts computed by applying the
statutory tax rate to pretax income as a result of certain nondeductible
expenses and the utilization of general business credits as follows:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Income taxes on pretax income at the statutory rate of 34%....... $205,523 $263,701
Increase (reduction) in tax resulting from:
Nondeductible expenses......................................... 16,779 30,242
State income taxes, net of federal income tax benefit.......... 28,049 37,089
Federal general business tax credits........................... (44,609) (77,185)
-------- --------
$205,742 $253,847
======== ========
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
the financial and tax basis of assets and liabilities as measured by enacted tax
laws. The temporary differences which gave rise to deferred tax assets and
liabilities as of December 31, 1993 and 1994 were as follows:
<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................ $ 16,465 $ 3,829
Reserve for workers' compensation claims....................... 112,099 150,772
-------- --------
Total deferred tax assets........................................ $128,564 $154,601
-------- --------
Deferred tax liabilities:
Accelerated depreciation....................................... $ 51,869 $ 57,885
======== ========
</TABLE>
6. WORKERS' COMPENSATION:
Prostaff is self-insured for certain workers' compensation claims and is
regulated by the Arkansas Workers' Compensation Insurance Commission (the
"Commission"). As a condition to authorization of the self-insurance program in
1991, the Commission required Prostaff to maintain a $750,000 deposit in a
depository considered acceptable by the Commission. In 1993, the Commission
altered the depository requirement and allowed Prostaff to provide the
Commission a $750,000 letter of credit. The letter of credit is guaranteed by
stockholders of the Company. As a condition to providing the letter of credit,
the bank required Prostaff to maintain as security a $150,000 deposit with the
bank. These restricted funds were in certificates of deposit with one year
maturities and are reflected with accrued interest as certificates of deposit in
the accompanying combined balance sheet at December 31, 1994. In 1995, the bank
no longer required the security for the letter of credit. Accordingly, Prostaff
reinvested these funds in 1995, and they are reflected as certificates of
deposit at December 31, 1995. Prostaff has purchased insurance for individual
claims which exceed $200,000, up to a maximum of $2.0 million. Workers'
compensation expense totaled $820,569, $728,281, $765,893 and $263,287 for 1993,
1994, 1995 and the six months ended June 30, 1996, respectively. Unaudited
workers' compensation expense for the six months ended June 30, 1995 was
$368,055. Excel and Professional are fully insured for workers' compensation.
7. EMPLOYEE BENEFIT PLANS:
The Company adopted a defined contribution benefit plan for its eligible
permanent employees, as defined, effective June 1, 1995. This profit sharing
plan, which operates pursuant to an Internal Revenue Code section 401(k)
arrangement, allows eligible employees to contribute on a tax deferred basis up
to 15% of their annual wages, as defined. The Company makes a matching
contribution equal to 50% of the employees' contributions up to a maximum of 6%
of the respective employees' annual wages. Total matching contribu-
F-45
<PAGE> 103
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
tions made by the Company to the plan for 1995 and the six months ended June 30,
1996 were $12,448 and $8,802, respectively.
On September 1, 1995, the Company established a cafeteria plan to offer
health, dental, term life, accidental death and disability insurance to its
permanent full-time employees. Employees may also obtain coverage for family
members by making tax deferred contributions to the plan trust. The health
insurance coverage portion of the plan is self-insured by the Company. Pursuant
to this self-insurance program, the Company pays for the approved claims costs
of eligible participants subject to certain individual and family deductibles
and co-payments, as defined. The Company maintains insurance for annual claims
per employee in excess of $10,000 and aggregate monthly claims in excess of an
amount equal to $75.80 multiplied by the number of personnel enrolled in the
plan. Total claims expense for 1995 and the six months ended June 30, 1996 was
$35,550 and $40,995, respectively.
8. COMMITMENTS:
The Company has a consulting agreement with the former owner of a temporary
personnel service business the Company acquired in March 1995 which provides for
monthly minimum payments of $5,250 for 36 months through March 1998. These
payments are expensed on a monthly basis as paid. The consulting agreement also
includes a covenant against competition with the Company for a five-year period.
The Company also has a consulting agreement with an individual which
provides for monthly minimum payments of $750, in return for assisting the
Company in developing an affirmative action plan, monitoring unemployment
control and consulting on other human resource issues.
The Company has an employment agreement with one member of management that
provides for a monthly salary of $6,833 through March 1998. The employment
agreement also includes a covenant against competition with the Company, which
extends through March 2000, or for two years after termination.
9. NONCANCELABLE OPERATING LEASES:
The Company leases office space under noncancelable operating leases.
Annual future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING
-------------------------
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
1996................................. $323,397 $ --
1997................................. 264,480 314,022
1998................................. 216,665 250,926
1999................................. 106,499 183,121
2000................................. 63,424 93,392
-------- --------
$974,465 $841,461
======== ========
</TABLE>
Rent expense totaled $147,835, $197,243, $258,992 and $165,473 for fiscal
years 1993, 1994, 1995 and the six months ended June 30, 1996, respectively.
Unaudited rent expense for the six months ended June 30, 1995 was $121,942. The
Company leases the office facilities of its headquarters from a limited
liability corporation ("LLC") owned by the stockholders of the Company. For the
fiscal years 1993, 1994, 1995 and the six months ended June 30, 1996, rent paid
to the LLC totaled $61,100, $73,761, $114,180 and $62,550, respectively.
Unaudited rent paid to the LLC was $56,128 for the six months ended June 30,
1995.
F-46
<PAGE> 104
THE PROSTAFF COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. PENDING BUSINESS COMBINATION:
In June 1996, the stockholders of the Company entered into a definitive
agreement to merge with StaffMark, Inc. ("StaffMark") in conjunction with
StaffMark's anticipated initial public offering. Prior to or coincident with
this proposed merger, the Company plans to dividend certain assets to the
stockholders consisting of vehicles and the cash surrender value of an officer's
life insurance policy, which had an aggregate carrying value of $76,223 as of
June 30, 1996. In addition, the Company plans to make cash distributions equal
to the Company's S Corporation Accumulated Adjustment Account as of the merger
date. During 1996, the Company distributed $1,292,732, which represented the
Company's estimated S Corporation Accumulated Adjustment Account at June 30,
1996.
In conjunction with the proposed merger discussed above, certain of the
stockholders will enter into employment agreements which provide for a set base
salary, participation in future incentive bonus plans, certain other benefits
and a covenant not to compete following termination of such person's employment.
The Company has advanced $31,250 to StaffMark to fund organizational and
other costs related to the planned merger and StaffMark's initial public
offering.
11. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):
In conjunction with the planned merger with StaffMark as discussed in Note
10, the Company will change from an S Corporation to a C Corporation for federal
and state income tax reporting purposes, which will require the Company to
recognize the tax consequences of operations in its statements of income. The
supplemental pro forma information included in the accompanying statements of
income reflect the estimated impact of recognizing income tax expense as if the
Company had been a C Corporation for tax reporting purposes during the twelve
months and six months ended December 31, 1995 and June 30, 1996, respectively.
12. SUBSEQUENT EVENT (UNAUDITED):
Effective October 2, 1996, StaffMark completed the initial public offering
discussed above.
F-47
<PAGE> 105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Maxwell Companies:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the financial statements ("The Maxwell Companies"), as
of December 31, 1994 and 1995 and June 30, 1996, and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995 and for the six months ended June
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Maxwell Companies as of
December 31, 1994 and 1995 and June 30, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 and for the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
July 26, 1996 (except with respect to
the matter discussed in Note 16, as to which
the date is October 2, 1996).
F-48
<PAGE> 106
THE MAXWELL COMPANIES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 556,544 $1,041,373 $ 665,639
Restricted cash........................................ 138,453 253,171 109,181
Investments............................................ 209,505 273,354 --
Accounts receivable, net of allowance for doubtful
accounts of $75,711, $63,988 and $109,908,
respectively........................................ 2,810,176 2,536,603 2,676,251
Prepaid expenses and other............................. 96,669 24,628 136,684
---------- ---------- ----------
Total current assets........................... 3,811,347 4,129,129 3,587,755
PROPERTY AND EQUIPMENT, net.............................. 480,594 499,792 295,312
INTANGIBLE ASSETS, net................................... -- -- 297,146
ADVANCE TO STAFFMARK, INC................................ -- -- 31,250
---------- ---------- ----------
$4,291,941 $4,628,921 $4,211,463
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 167,991 $ 169,250 $ 238,036
Payroll and related liabilities........................ 653,772 570,444 885,804
Reserve for workers' compensation claims............... 476,000 1,153,000 912,000
Current maturities of long-term debt................... -- -- 1,827,361
Accrued dividends...................................... 197,500 151,000 --
Other accrued liabilities.............................. 20,728 25,462 4,127
---------- ---------- ----------
Total current liabilities...................... 1,515,991 2,069,156 3,867,328
LONG-TERM DEBT, less current maturities.................. -- -- 77,562
COMMITMENTS AND CONTINGENCIES (Notes 8 through 12)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value in 1994, 1995 and 1996;
authorized shares of 110,000 in 1994 and 1995 and
160,000 in 1996; shares issued and outstanding of
4,000 in 1994 and 1995 and 5,000 in 1996............ 4,000 4,000 5,000
Unrealized gain on investments......................... -- 43,296 --
Retained earnings...................................... 2,771,950 2,512,469 261,573
---------- ---------- ----------
Total stockholders' equity..................... 2,775,950 2,559,765 266,573
---------- ---------- ----------
$4,291,941 $4,628,921 $4,211,463
========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-49
<PAGE> 107
THE MAXWELL COMPANIES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES............... $16,324,216 $21,225,866 $23,092,606 $11,533,102 $13,232,174
COST OF SERVICES............... 11,253,565 16,003,387 17,748,020 8,644,339 9,892,232
----------- ----------- ----------- ----------- -----------
Gross profit......... 5,070,651 5,222,479 5,344,586 2,888,763 3,339,942
OPERATING EXPENSES:
Selling, general and
administrative............ 3,582,427 3,820,565 4,296,703 2,244,644 2,480,578
Depreciation and
amortization.............. 75,368 107,601 136,135 69,690 72,507
----------- ----------- ----------- ----------- -----------
Operating income..... 1,412,856 1,294,313 911,748 574,429 786,857
OTHER INCOME (EXPENSE):
Interest income.............. 14,767 21,645 43,213 25,235 33,681
Interest expense............. (27,678) (33,849) -- -- (22,174)
Other, net................... (104,397) (18,836) (35,396) (32,837) 21,954
----------- ----------- ----------- ----------- -----------
Net income........... $ 1,295,548 $ 1,263,273 $ 919,565 $ 566,827 $ 820,318
=========== =========== =========== =========== ===========
PRO FORMA DATA (Unaudited)
(Note 15):
Historical income before
income taxes.............. $ 919,565 $ 820,318
Less pro forma provision for
income taxes.............. 358,630 319,924
----------- -----------
PRO FORMA NET INCOME........... $ 560,935 $ 500,394
=========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-50
<PAGE> 108
THE MAXWELL COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
---------------- GAIN ON RETAINED
SHARES AMOUNT INVESTMENTS EARNINGS TOTAL
------ ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992.............. 3,500 $3,500 $ -- $ 1,890,892 $ 1,894,392
Net income............................ -- -- -- 1,295,548 1,295,548
Dividends declared.................... -- -- -- (979,383) (979,383)
----- ------ ------ ----------- -----------
BALANCE, December 31, 1993.............. 3,500 3,500 -- 2,207,057 2,210,557
Net income............................ -- -- -- 1,263,273 1,263,273
Issuance of stock..................... 500 500 -- -- 500
Dividends declared.................... -- -- -- (698,380) (698,380)
----- ------ ------ ----------- -----------
BALANCE, December 31, 1994.............. 4,000 4,000 -- 2,771,950 2,775,950
Net income............................ -- -- -- 919,565 919,565
Dividends declared.................... -- -- -- (1,179,046) (1,179,046)
Net unrealized holding gain on
investments available for sale..... -- -- 43,296 -- 43,296
----- ------ ------ ----------- -----------
BALANCE, December 31, 1995.............. 4,000 4,000 43,296 2,512,469 2,559,765
Net income............................ -- -- -- 820,318 820,318
Issuance of stock..................... 1,000 1,000 -- -- 1,000
Dividends declared:
Cash............................... -- -- -- (2,620,341) (2,620,341)
Investments........................ -- -- (43,296) (230,058) (273,354)
Property........................... -- -- -- (220,815) (220,815)
----- ------ ------ ----------- -----------
BALANCE, June 30, 1996.................. 5,000 $5,000 $ -- $ 261,573 $ 266,573
===== ====== ====== =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-51
<PAGE> 109
THE MAXWELL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- --------------------------
1993 1994 1995 1995 1996
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $1,295,548 $ 1,263,273 $ 919,565 $ 566,827 $ 820,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 75,368 107,601 136,135 69,690 72,507
Provision for bad debts...................... 77,690 100,615 223,216 196,737 45,920
Loss (gain) on investments................... 102,536 12,500 (2,146) -- --
Change in operating assets and liabilities,
net of effects of acquisition:
Restricted cash............................ (65,954) (72,499) (114,718) 28,805 143,990
Accounts receivable........................ (777,846) (1,073,300) 50,357 168,500 (185,568)
Prepaid expenses and other................. 26,124 (10,457) 72,041 61,474 (112,056)
Accounts payable........................... 40,808 (74,812) 1,259 54,496 68,786
Payroll and related liabilities............ 525,769 33,483 (83,328) 304,624 315,360
Reserve for workers' compensation claims... -- 476,000 677,000 444,500 (241,000)
Other accrued liabilities.................. 64,574 (43,846) 4,734 (61,202) (15,592)
---------- ----------- ---------- ---------- ---------
Net cash provided by operating
activities............................ 1,364,617 718,558 1,884,115 1,834,451 912,665
---------- ----------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Sumner-Ray Technical Resources,
Inc.......................................... -- -- -- -- (168,000)
Capital expenditures........................... (155,150) (211,595) (155,333) (51,492) (68,810)
Purchase of investments........................ (109,144) (13,750) (116,526) (11,476) --
Sales of investments........................... -- -- 98,119 -- --
Advance to StaffMark, Inc...................... -- -- -- -- (31,250)
---------- ----------- ---------- ---------- ---------
Net cash used in investing activities... (264,294) (225,345) (173,740) (62,968) (268,060)
---------- ----------- ---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends................................. $ (813,409) $ (666,854) $(1,225,546) $(1,057,559) $(2,771,339)
Proceeds from (payments on) long-term debt..... (46,297) (336,801) -- -- 1,750,000
Issuance of stock.............................. -- 500 -- -- 1,000
---------- ----------- ---------- ---------- ---------
Net cash used in financing activities... (859,706) (1,003,155) (1,225,546) (1,057,559) (1,020,339)
---------- ----------- ---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 240,617 (509,942) 484,829 713,924 (375,734)
CASH AND CASH EQUIVALENTS, beginning of period... 825,869 1,066,486 556,544 556,544 1,041,373
---------- ----------- ---------- ---------- ---------
CASH AND CASH EQUIVALENTS, end of period......... $1,066,486 $ 556,544 $ 1,041,373 $ 1,270,468 $ 665,639
========== =========== ========== ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................. $ 27,678 $ 23,950 $ -- $ -- $ 18,047
========== =========== ========== ========== =========
Non-cash transactions:
Notes payable issued in conjunction with the
purchase of Sumner-Ray Technical Resources,
Inc.......................................... $ -- $ -- $ -- $ -- $ 149,180
========== =========== ========== ========== =========
Transfer of investments to stockholders........ $ -- $ -- $ -- $ -- $ 273,354
========== =========== ========== ========== =========
Transfer of property to stockholders........... $ -- $ -- $ -- $ -- $ 220,815
========== =========== ========== ========== =========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-52
<PAGE> 110
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
The combined financial statements of The Maxwell Companies (the "Company")
include the activities of Maxwell Staffing, Inc. ("Staffing"), Maxwell Staffing
of Bristow, Inc. ("Bristow"), Maxwell/Healthcare, Inc. ("Healthcare"), Square
One Rehab, Inc. ("Square One") and Technical Staffing, Inc. ("Technical"), all
of which are incorporated in Oklahoma and have substantially common ownership.
All significant intercompany transactions have been eliminated in the
accompanying combined financial statements.
Staffing, which was incorporated in 1979, and Bristow, which was
incorporated in 1993, both provide temporary personnel services in the
northeastern Oklahoma area to the clerical, industrial and medical fields.
Healthcare, which was incorporated in 1989 to provide foreign-trained temporary
and permanent physical and occupational therapist services, is licensed to do
business in 22 states. Square One, which was incorporated in 1991, provides
contract management and physical and occupational therapist services to
companies located in the midwestern and southwestern United States. Technical,
which was incorporated in 1996, provides permanent and temporary technical
personnel services to companies located primarily in Oklahoma.
Interim Financial Statements --
The accompanying interim combined financial statements as of June 30, 1995
have not been audited by independent accountants. However, they have been
prepared in conformity with the accounting principles stated in the audited
combined financial statements for the three years in the period ended December
31, 1995 and for the six months ended June 30, 1996, and include all adjustments
(which were of a normal, recurring nature) which, in the opinion of management,
are necessary to present fairly the financial position of the Company and the
results of its operations and cash flows for each of the periods presented. The
operating results for the interim periods presented are not necessarily
indicative of results for the full year.
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in preparing the accompanying combined financial statements
are based upon management's evaluation of the relevant facts and circumstances
as of the date of the financial statements. However, actual results may differ
from the estimates and assumptions used in preparing the accompanying combined
financial statements.
Revenue Recognition --
Service revenues are recognized as income at the time services are
provided.
Cash and Cash Equivalents --
For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Restricted Cash --
Restricted cash represents funds deposited in an account maintained on
behalf of the Company's self-insured health benefits plan. The use of these
assets is restricted to the payment of health benefits of the participating
employees.
F-53
<PAGE> 111
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable --
The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. Included in accounts
receivable in the accompanying combined balance sheets are unbilled amounts of
$392,068, $379,163 and $623,219 at December 31, 1994, December 31, 1995 and June
30, 1996, respectively.
Investment Securities --
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with this pronouncement, investment
securities are to be classified as either trading, available-for-sale or held
for investment. Trading securities are recorded at market value, and any gains
or losses are recognized in the income statement. Securities available-for-sale
are also recorded at market value; however, any unrealized gains or losses are
recorded as an adjustment to stockholders' equity. Securities held for
investment are recorded at amortized cost, adjusted for necessary valuation
allowances.
Upon adoption of SFAS No. 115 on January 1, 1994, the Company classified
its investment securities as available-for-sale. The implementation of this
pronouncement did not have a material impact to the financial statements.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized using a method which approximates the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated economic lives or the
terms of the lease. The estimated useful lives of the Company's assets, by asset
classification, are as follows:
<TABLE>
<S> <C>
Office equipment................................................. 5-7 years
Computer equipment............................................... 5-7 years
Vehicles......................................................... 5 years
Building and improvements........................................ 7-32 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resultant gain or loss is recorded.
Intangible Assets --
Intangible assets consist primarily of goodwill recorded in conjunction
with the acquisition of Sumner-Ray Technical Resources, Inc. ("Sumner-Ray"), as
discussed in Note 2, which is being amortized using the straight-line method
over 30 years. In the event facts and circumstances indicate that the carrying
amount of this goodwill may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future undiscounted
net cash flows of the related assets over their remaining lives would be
compared to the assets' carrying amounts in measuring whether the assets are
recoverable. As of June 30, 1996, the Company's intangible assets were
considered to be fully recoverable.
Workers' Compensation and Health Benefits --
The Company self-insures certain risks related to workers' compensation and
employee health benefits claims. The estimated costs of existing and future
claims are accrued as incidents occur based upon historical
F-54
<PAGE> 112
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
loss development trends and may be subsequently revised based on developments
relating to such claims. The Company engages the services of a third party
actuary to assist with the development of these cost estimates.
Fair Value of Financial Instruments --
The Company's financial instruments include cash and cash equivalents,
restricted cash, investments and long-term debt. Excluding investments, which
are carried at fair market value as discussed in Note 4, management believes
that the Company's financial instruments bear interest at rates which
approximate prevailing market rates for instruments with similar characteristics
and, accordingly, that the carrying values for these instruments are reasonable
estimates of fair value.
2. BUSINESS COMBINATIONS:
On February 23, 1996, the Company acquired certain assets of Sumner-Ray,
which is engaged in providing temporary and permanent placement of professional
and technical personnel in the engineering, drafting and manufacturing fields.
The acquisition has been accounted for as a purchase and the results of
Sumner-Ray have been included in the accompanying financial statements since the
date of acquisition. The cost of the acquisition has been allocated on the basis
of the estimated fair value of the assets and liabilities acquired.
Total consideration paid for Sumner-Ray was $336,000. The purchase price
included cash of $168,000 and a note to the seller for $168,000, which included
an interest component at a stated rate of 8% per year. The note has been
discounted using the prescribed rate, and the resulting principal amount of
$149,180 is included in the accompanying combined balance sheets. The assets
acquired have been recorded at their estimated fair value as of the acquisition
date, with the remaining acquisition costs of approximately $300,000 being
recorded as goodwill.
The acquisition of Sumner-Ray did not have a significant impact on the
Company's operating results.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- --------
<S> <C> <C> <C>
Building and improvements....................... $ 483,136 $ 502,130 $ --
Office equipment................................ 346,530 386,411 411,253
Computer equipment.............................. 204,268 300,265 337,639
Vehicles........................................ 25,105 27,561 27,561
Leasehold improvements.......................... -- -- 17,274
Land............................................ 13,000 13,000 --
---------- ---------- --------
1,072,039 1,229,367 793,727
Less accumulated depreciation and
amortization.................................. 591,445 729,575 498,415
---------- ---------- --------
$ 480,594 $ 499,792 $295,312
========== ========== ========
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1993, 1994 and 1995 totaled $75,368, $107,601 and
$136,135, respectively. Depreciation and amortization expense for the six months
ended June 30, 1995 and 1996 totaled $69,690 (unaudited) and $67,474,
respectively.
F-55
<PAGE> 113
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS:
The Company has classified all investments as available-for-sale.
Accordingly, these investments have been recorded at market value.
The carrying value and market value of available-for-sale investment
securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1994:
Equity securities......................... $ 180,826 $ -- $ -- $180,826
United States government obligations...... 28,679 -- -- 28,679
-------- ------- ------- --------
$ 209,505 $ -- $ -- $209,505
======== ======= ======= ========
December 31, 1995:
Equity securities......................... $ 201,379 $ 38,551 $ -- $239,930
United States government obligations...... 28,679 4,745 -- 33,424
-------- ------- ------- --------
$ 230,058 $ 43,296 $ -- $273,354
======== ======= ======= ========
</TABLE>
The United States government obligations held as of December 31, 1994 and
1995 represent only one issue which matures in 2003.
Losses totaling $102,536 and $12,500 in 1993 and 1994, respectively, were
recognized related to one security whose impairment of value was deemed to be
other than temporary. There were no sales of securities during 1994. Proceeds
from the sale of available-for-sale securities totaled $98,119 for the year
ended December 1995, including realization of a gross gain of $2,146. The gain
and losses are reflected in other income (expense) in the accompanying combined
statements of income and were determined using each security's specifically
identified cost.
All investments were distributed to the stockholders in March 1996. The
related unrealized holding gain was removed in connection with this dividend.
5. INTANGIBLE ASSETS:
Intangible assets, net of amortization, at June 30, 1996 consisted
primarily of the goodwill related to the acquisition of Sumner-Ray, as discussed
in Note 2.
Amortization expense related to intangible assets totaled $5,034 for the
six months ended June 30, 1996. 6. LONG-TERM DEBT:
Long-term debt as of June 30, 1996 consisted of a promissory note payable
to the previous owner of Sumner-Ray which is due in annual installments of
$84,000, including interest at approximately 8%, payable on February 23, 1997
and 1998. The obligation is secured by a lien and security interest in certain
assets of the Company. Scheduled principal maturities of this obligation are
$71,618 in 1997 and $77,562 in 1998.
On May 17, 1996, the Company entered into a debt agreement with State Bank
& Trust, N.A. which provided for a $1.75 million term loan. The loan is secured
by the Company's accounts receivable and guaranteed by the Company's
stockholders. Accrued interest is due and payable monthly beginning June 1, 1996
at a rate of 8.25%. The outstanding principal balance plus unpaid accrued
interest is due November 1, 1996. The proceeds from this loan were used to
partially fund the cash dividend discussed in Note 14.
F-56
<PAGE> 114
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The Company operates as an S Corporation for federal and state income tax
reporting purposes. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements as such taxes are liabilities of the
individual stockholders.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.
8. WORKERS' COMPENSATION:
Effective July 1, 1994, the Company began self-insuring certain workers'
compensation claims in the state of Oklahoma and is regulated by the Oklahoma
Workers' Compensation Insurance Commission. The Company has purchased insurance
for workers' compensation claims which exceed $250,000. The Company maintains a
letter of credit with a bank to cover any potential unpaid claims. At June 30,
1996, this letter of credit was in the amount of $450,000. Workers' compensation
expense totaled $485,151, $918,961 and $1,089,901 for the years ended December
31, 1993, 1994 and 1995, respectively, and $532,462 (unaudited) for the six
months ended June 30, 1995. A credit to workers' compensation expense totaling
$51,682 was recorded for the six months ended June 30, 1996 due to a reduction
in the actuarially determined reserves required which was primarily the result
of using the Company's own claim development experience versus industry
development factors which had been used in previous actuarial valuations.
9. EMPLOYEE BENEFIT PLANS:
Prior to 1995, employees participated in a profit sharing plan to which the
Company made discretionary contributions. In 1993 and 1994, the Company made
contributions totaling $250,000 and $190,000, respectively. The Company elected
not to make a contribution in 1995. Effective January 1, 1996, the Company added
a defined contribution benefit plan to the existing profit sharing plan. This
new plan, which operates pursuant to an Internal Revenue Code Section 401(k)
arrangement, allows employees to contribute on a tax deferred basis up to 10% of
their annual wages. The Company makes a matching contribution equal to 50% of
the employees' contributions up to a maximum of 3% of the respective employees'
annual wages. The Company may also contribute additional amounts for profit
sharing at its discretion. Total matching contributions to be made by the
Company to the plan for the six months ended June 30, 1996 were $26,359. No
discretionary contributions were made during the six months ended June 30, 1996.
On January 1, 1993, the Company established a self-insured plan to offer
health and dental insurance benefits to certain of its employees. Employees may
also purchase coverage for family members. Pursuant to this plan, the Company
pays for the approved claims costs of eligible participants subject to certain
individual and family deductibles and co-payments, as defined. Both the Company
and the participants make contributions to the plan based upon premiums which
are established by a third party administrator and the Company's benefits
committee. The Company maintained insurance for annual claims for individuals
which exceeded $10,000, $15,000, $25,000 and $25,000 at December 31, 1993, 1994,
1995 and June 30, 1996, respectively. Expenses related to this plan for the
years ended December 31, 1993, 1994 and 1995 were $190,357, $184,605 and
$188,066, respectively. Expenses related to this plan for the six months ended
June 30, 1995 and 1996 were $146,501 (unaudited) and $129,406, respectively.
F-57
<PAGE> 115
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS:
The Company rents a duplex from certain stockholders which houses
foreign-trained physical and occupational therapists. Rent expense related to
the duplex amounted to $16,800 for each of the years ended December 31, 1993,
1994 and 1995. Rent expense totaled $8,400 (unaudited) and $8,500 for the six
months ended June 30, 1995 and 1996, respectively. These rent payments are not
subject to a formal agreement and, therefore, have not been considered in the
disclosure included in Note 12.
11. COMMITMENTS AND CONTINGENCIES:
The Company has employment agreements with certain executive officers and
management personnel that provide for annual salaries, cost-of-living
adjustments and additional compensation in the form of performance based
bonuses. Certain agreements include a covenant against competition with the
Company, which extends for a period of time after termination. These agreements
generally continue until terminated by the employee or the Company.
One employment agreement provides for the purchase of up to 398 shares of
Square One stock from the existing stockholders subject to the satisfaction of
certain performance measures of Square One. As of June 30, 1996, Square One's
performance had exceeded the threshold required for the employee to purchase 100
shares; however, this option had not been exercised.
The Company pays dividends to its stockholders in amounts sufficient to
cover their estimated tax payments attributable to the respective share of the
Company's net income which will be included in their individual tax returns. The
Company plans to continue this practice in the future as long as it maintains
its S Corporation status.
The Company is a party to certain lawsuits and claims primarily involving
workers' compensation claims and other employee related matters. Management
believes, based in part on consultation from legal counsel, that the ultimate
outcome of these matters will not have a materially adverse effect on the
Company's financial position, liquidity or results of operations.
12. NONCANCELABLE OPERATING LEASES:
The Company leases equipment, vehicles and office space as well as
apartments for certain foreign-trained therapists under noncancelable operating
leases. Annual future minimum payments during each of the next five years
required under such leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
---------------------------
DECEMBER 31, JUNE 30,
------------ --------
<S> <C> <C>
1996............................... $224,093 $ --
1997............................... 67,545 186,877
1998............................... 52,132 58,087
1999............................... 43,643 47,039
2000............................... 43,643 43,643
-------- --------
$431,056 $335,646
======== ========
</TABLE>
Rent expense totaled $75,472, $123,099 and $134,231 for the years ended
December 31, 1993, 1994 and 1995, respectively. Rent expense for the six months
ended June 30, 1995 and 1996 was $32,747 (unaudited) and $66,778, respectively.
F-58
<PAGE> 116
THE MAXWELL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. SIGNIFICANT CUSTOMERS:
The Company's sales to customers which individually account for 10% or more
of service revenues were as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- -------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer 1....................................... 21% 14% 10% -- --
Customer 2....................................... -- 14% 12% 16% 13%
Customer 3....................................... -- -- -- -- 11%
</TABLE>
14. PENDING BUSINESS COMBINATION:
In June 1996, the owners of the Company entered into a definitive agreement
to merge with StaffMark, Inc. ("StaffMark") in conjunction with StaffMark's
initial public offering. In conjunction with this proposed merger, the Company
transferred certain assets to the stockholders consisting of the building in
which the Company is headquartered, which had an aggregate carrying value of
$220,815 as of April 1996. StaffMark plans to lease the real property
distributed, as discussed above, from the owners at a market lease rate. In
addition, the Company plans to make cash distributions equal to the Company's S
Corporation Accumulated Adjustment Account as of the merger date. During 1996,
the Company distributed cash of approximately $2.6 million, which represented
the Company's estimated S Corporation Accumulated Adjustment Account at June 30,
1996.
In conjunction with the proposed merger discussed above, the owners will
enter into employment agreements which provide for a set base salary,
participation in future incentive bonus plans, certain other benefits and a
covenant not to compete following termination of such person's employment.
The Company has advanced $31,250 to StaffMark to fund organizational and
other costs related to the planned merger and StaffMark's initial public
offering.
15. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):
In conjunction with the planned merger with StaffMark as discussed in Note
14, the Company will change from an S Corporation to a C Corporation for federal
and state income tax reporting purposes, which will require the Company to
recognize the tax consequences of operations in its statements of income. The
supplemental pro forma information included in the accompanying statements of
income reflect the estimated impact of recognizing income tax expense as if the
Company had been a C Corporation for tax reporting purposes during the twelve
months and six months ended December 31, 1995 and June 30, 1996, respectively.
16. SUBSEQUENT EVENT (UNAUDITED):
Effective October 2, 1996, StaffMark completed the initial public offering
discussed above.
F-59
<PAGE> 117
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HRA, Inc.:
We have audited the accompanying balance sheets of HRA, Inc. (the
"Company"), a Tennessee corporation, as of September 30, 1994 and 1995 and June
30, 1996, and the related statements of income (loss), stockholders' equity and
cash flows for each of the three years ended September 30, 1995, and the nine
months ended June 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HRA, Inc. as of September
30, 1994 and 1995 and June 30, 1996, and the results of its operations and its
cash flows for each of the three years ended September 30, 1995 and the nine
months ended June 30, 1996, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
July 26, 1996 (except with respect to
the matters discussed in Note 15, as to
which the date is October 2, 1996).
F-60
<PAGE> 118
HRA, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 577,214 $ 367,978 $ 505,810
Restricted cash...................................... 60,083 50,251 --
Accounts receivable, net of allowance for doubtful
accounts of $26,000............................... 1,684,052 1,998,724 2,783,617
Advances to stockholders............................. -- -- 340,089
Prepaid expenses and other........................... 12,616 467,002 775,335
Income taxes receivable.............................. -- 25,125 --
Deferred income taxes................................ 33,100 160,000 226,800
---------- ---------- ----------
Total current assets......................... 2,367,065 3,069,080 4,631,651
PROPERTY AND EQUIPMENT, net............................ 70,261 144,179 195,952
INTANGIBLE ASSETS, net................................. -- 37,156 165,635
OTHER ASSETS:
Deferred income taxes................................ 79,700 65,000 56,600
Advance to StaffMark, Inc............................ -- -- 31,250
Other................................................ 400 21,071 1,423
---------- ---------- ----------
Total other assets........................... 80,100 86,071 89,273
---------- ---------- ----------
$2,517,426.. $3,336,486 $5,082,511
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under accounts receivable financing
agreement......................................... $ 600,830 $ 502,512 $ --
Line of credit....................................... -- -- 1,020,000
Current portion of deferred compensation
arrangements...................................... 97,898 43,699 110,709
Outstanding checks................................... -- 166,761 261,240
Accounts payable..................................... 118,906 193,096 196,024
Payroll and related liabilities...................... 493,033 621,317 710,282
Reserve for workers' compensation claims............. 475,712 1,390,351 1,787,641
Income taxes payable................................. 228,217 -- 189,648
Accrued expenses..................................... 72,084 138,416 125,149
Current portion of note payable to a stockholder..... 155,295 -- --
---------- ---------- ----------
Total current liabilities.................... 2,241,975 3,056,152 4,400,693
DEFERRED COMPENSATION ARRANGEMENTS, less current
portion.............................................. 97,824 127,332 264,937
NOTE PAYABLE TO A STOCKHOLDER.......................... -- 122,000 116,000
COMMITMENTS AND CONTINGENCIES
(Notes 10, 11 and 13)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares authorized,
790 shares issued and outstanding................. 12,600 12,600 12,600
Retained earnings.................................... 165,027 18,402 288,281
---------- ---------- ----------
Total stockholders' equity................... 177,627 31,002 300,881
---------- ---------- ----------
$2,517,426 $3,336,486 $5,082,511
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these balance sheets.
F-61
<PAGE> 119
HRA, INC.
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS ENDED JUNE 30,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES............ $13,333,022 $16,453,375 $18,306,542 $13,173,951 $16,882,905
COST OF SERVICES............ 10,985,142 13,367,561 14,939,279 10,745,155 13,550,821
----------- ----------- ----------- ----------- -----------
Gross profit...... 2,347,880 3,085,814 3,367,263 2,428,796 3,332,084
OPERATING EXPENSES:
Selling, general and
administrative......... 2,107,544 2,381,168 3,438,436 2,384,437 2,985,392
Depreciation and
amortization........... 33,773 45,783 65,691 33,832 67,900
----------- ----------- ----------- ----------- -----------
Operating income
(loss).......... 206,563 658,863 (136,864) 10,527 278,792
Interest expense.......... (84,448) (100,828) (107,364) (69,942) (78,401)
Interest and other, net... 6,192 16,466 13,443 6,241 243,861
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES.............. 128,307 574,501 (230,785) (53,174) 444,252
PROVISION (BENEFIT) FOR
INCOME TAXES.............. 43,250 221,100 (84,160) (17,907) 174,373
----------- ----------- ----------- ----------- -----------
Net income
(loss).......... $ 85,057 $ 353,401 $ (146,625) $ (35,267) $ 269,879
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-62
<PAGE> 120
HRA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------ EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, September 30, 1992....................... 500 $ 1,000 $(273,431) $(272,431)
Net income...................................... -- -- 85,057 85,057
--- ------- --------- ---------
BALANCE, September 30, 1993....................... 500 1,000 (188,374) (187,374)
Issuance of Common Stock........................ 290 11,600 -- 11,600
Net income...................................... -- -- 353,401 353,401
--- ------- --------- ---------
BALANCE, September 30, 1994....................... 790 12,600 165,027 177,627
Net loss........................................ -- -- (146,625) (146,625)
--- ------- --------- ---------
BALANCE, September 30, 1995....................... 790 12,600 18,402 31,002
Net income...................................... -- -- 269,879 269,879
--- ------- --------- ---------
BALANCE, June 30, 1996............................ 790 $12,600 $ 288,281 $ 300,881
=== ======= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-63
<PAGE> 121
HRA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS JUNE 30,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 85,057 $ 353,401 $(146,625) $ (35,267) $ 269,879
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 33,773 45,783 65,691 33,832 67,900
Provision for bad debts............................... 45,480 4,498 2,041 1,194 25,422
Change in deferred income taxes....................... (5,700) (10,200) (112,200) (84,150) (58,400)
Change in operating assets and liabilities:
Accounts receivable................................. (231,286) (421,143) (316,713) (202,085) (810,315)
Income taxes receivable............................. -- -- (25,125) -- 25,125
Prepaid expenses and other.......................... (15,147) 2,531 (454,386) (408,180) (308,333)
Other assets........................................ 9,583 17 (20,671) (1,023) 19,648
Outstanding checks.................................. -- -- 166,761 161,573 94,479
Accounts payable.................................... (50,994) 51,940 49,190 (30,036) (2,328)
Payroll and related liabilities..................... (117,269) (30,697) 128,284 11,762 88,965
Reserve for workers' compensation claims............ 285,837 (68,655) 914,639 751,652 397,290
Accrued expenses.................................... 30,053 (21,755) 66,332 27,666 (13,267)
Income taxes payable................................ 31,508 192,487 (228,217) (156,010) 189,648
--------- --------- --------- --------- ----------
Net cash provided by (used in) operating
activities..................................... 100,895 98,207 89,001 70,928 (14,287)
--------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (50,834) (40,096) (135,765) (132,600) (103,259)
Advance to StaffMark, Inc. ............................. -- -- -- -- (31,250)
Other................................................... 10,000 -- (16,000) -- --
--------- --------- --------- --------- ----------
Net cash used in investing activities............ (40,834) (40,096) (151,765) (132,600) (134,509)
--------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (increase) decrease in restricted cash.............. -- (60,083) 9,832 22,807 50,251
Increase in deferred compensation arrangements.......... -- 21,559 -- -- 135,596
Payments on deferred compensation arrangements.......... (24,996) -- (24,691) (19,659) (70,618)
Net borrowings (payments) under an accounts receivable
financing agreement................................... 500,000 100,830 (98,318) (228,075) (502,512)
Net borrowings under a revolving line of credit......... -- -- -- -- 1,020,000
Principal payments on note payable to a stockholder..... (140,154) -- (33,295) (27,000) (6,000)
Advances to stockholders................................ -- -- -- (25,988) (340,089)
Proceeds from issuance of common stock.................. -- 11,600 -- -- --
Other................................................... (7,299) (5,749) -- -- --
--------- --------- --------- --------- ----------
Net cash provided by (used in) financing
activities..................................... 327,551 68,157 (146,472) (277,915) 286,628
--------- --------- --------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 387,612 126,268 (209,236) (339,587) 137,832
CASH AND CASH EQUIVALENTS, beginning of period............ 63,334 450,946 577,214 577,214 367,978
--------- --------- --------- --------- ----------
CASH AND CASH EQUIVALENTS, end of period.................. $ 450,946 $ 577,214 $ 367,978 $ 237,627 $ 505,810
========= ========= ========= ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid........................................... $ 65,444 $ 77,737 $ 106,467 $ 60,768 $ 76,866
========= ========= ========= ========= ==========
Taxes paid.............................................. $ 20,742 $ 41,813 $ 267,622 $ 206,298 $ 18,000
========= ========= ========= ========= ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
</TABLE>
During fiscal year 1995, the Company incurred a liability totaling $41,000
for the purchase of a consulting and noncompete agreement.
During the nine month period ended June 30, 1996, the Company recorded a
deferred compensation arrangement liability for the purchase of a noncompete
agreement with a former stockholder totaling $139,637.
The accompanying notes are an integral
part of these financial statements.
F-64
<PAGE> 122
HRA, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
HRA, Inc. (the "Company") was incorporated on November 20, 1991, in the
state of Tennessee and provides temporary personnel services throughout central
Tennessee. Headquartered in Nashville, Tennessee, the Company does business
under the name of Human Resources and operates staffing offices in the following
Tennessee locations: Clarksville, Columbia, Franklin, Gallatin, Lebanon,
Lewisburg, Murfreesboro, Nashville, Pulaski, Portland, Smyrna, Springfield and
Tullahoma.
The majority of the Company's sales are derived from customers within a
100-mile radius of Nashville, Tennessee. The Company extends trade credit to its
customers which are represented by various industries. There are no individual
customers that account for more than 10% of service revenues in any of the
fiscal years or nine month interim periods presented.
Fiscal Periods --
The Company's fiscal year ends on September 30. The fiscal years 1993, 1994
and 1995 each included 52 weeks. The nine month interim periods included in the
accompanying financial statements each included 39 weeks.
Interim Financial Statements --
The accompanying interim financial statements for the nine months ended
June 30, 1995 have not been audited by independent accountants. However, they
have been prepared in conformity with the accounting principles stated in the
audited financial statements for the three years in the period ended September
30, 1995 and for the nine months ended June 30, 1996, and include all
adjustments (which were of a normal, recurring nature) which, in the opinion of
management, are necessary to present fairly the financial position of the
Company and the results of operations and cash flows for each of the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of results for the full year.
Use of Estimates --
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statements.
Revenue Recognition --
Service revenues are recognized as income at the time staffing services are
provided.
Cash and Cash Equivalents --
For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
At September 30, 1994 and 1995, the Company had set aside cash reserves of
$60,083 and $50,251 as collateral on accounts receivable financed with recourse
(Note 4).
F-65
<PAGE> 123
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accounts Receivable --
The Company maintains allowances for potential losses which management
believes are adequate to absorb losses related to the realization of the amounts
recorded in the accompanying balance sheets.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated on
accelerated methods over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
economic lives or the terms of the lease. Estimates of useful lives by asset
classification are as follows:
<TABLE>
<S> <C>
Office equipment................................................. 5-7 years
Computer equipment............................................... 5 years
Computer software................................................ 5 years
Leasehold improvements........................................... 5 years
</TABLE>
Expenditures for renewals and betterments are capitalized, while repairs
and maintenance costs are expensed as incurred.
Intangible Assets --
The Company amortizes its intangible assets over the lives of the
respective arrangements (Note 3). The Company regularly evaluates whether events
and circumstances have occurred which may indicate the carrying amount of
intangible assets may warrant revision or may not be recoverable. When factors
indicate that certain intangible assets should be evaluated for possible
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related assets over their remaining lives in measuring whether the
assets are recoverable. As of June 30, 1996, the Company's intangible assets
were considered fully recoverable.
Self-Insurance Reserves --
During fiscal year 1995, the Company began self-insuring certain risks
related to workers' compensation claims. Additionally, during each of the fiscal
years ended September 30, and for the nine months ended June 30, 1996, the
Company was substantially self-insured for employee health care costs. The
estimated costs of existing and future claims related to workers' compensation
claims and employee health care are accrued as incidents occur based upon
historical loss development trends and may be subsequently revised based on
developments relating to such claims. The Company engaged the services of a
third party actuary to assist with the development of cost estimates for
workers' compensation claims.
Income Taxes --
Deferred income taxes are provided for the effect of temporary differences
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. The Company uses the liability method to account for
income taxes, which requires deferred taxes to be recorded at the statutory rate
expected to be in effect when the taxes are paid.
Fair Value of Financial Instruments --
The Company's financial instruments principally represent cash and cash
equivalents, a note payable to a stockholder and bank borrowing arrangements
secured by accounts receivable. The carrying value of cash and cash equivalents
approximates fair value due to its short-term nature. The carrying value of the
note payable to stockholder and the Company's borrowing arrangements secured by
accounts receivable, including the
F-66
<PAGE> 124
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's line of credit, approximate fair value based upon management's
assessment of interest rates currently available to the Company.
2. PROPERTY AND EQUIPMENT:
Components of property and equipment are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Office equipment.................................. $ 38,689 $ 65,237 $108,564
Computer equipment................................ 80,222 141,200 163,957
Computer software................................. 34,959 76,715 88,984
Leasehold improvements............................ 11,993 17,569 42,475
-------- -------- --------
165,863 300,721 403,980
Less accumulated depreciation and amortization.... 95,602 156,542 208,028
-------- -------- --------
$ 70,261 $144,179 $195,952
======== ======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $33,773, $45,783 and $61,847 for the years ended September 30, 1993,
1994 and 1995, respectively. Depreciation and amortization expense related to
property and equipment totaled $33,832 (unaudited) and $51,486 for the nine
months ended June 30, 1995 and 1996, respectively.
3. INTANGIBLE ASSETS:
During fiscal year 1995, the Company entered into a Consulting and
Noncompetition Agreement with an individual operating a temporary personnel
agency in Lebanon, Tennessee. The agreement, as amended, called for an initial
payment of $41,000 and contingent consideration up to $67,000, based upon
certain performance events. Contingent consideration payments during fiscal year
1995 and the nine months ended June 30, 1996 totaled approximately $1,700 and
$5,300, respectively. The Company is amortizing this arrangement over the
48-month term of the agreement.
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- --------
<S> <C> <C>
Consulting and noncompetition agreement................... $41,000 $ 41,000
Noncompete agreement with a former stockholder (Note
10)..................................................... -- 139,637
Other..................................................... -- 5,256
------- --------
41,000 185,893
Less accumulated amortization............................. 3,844 20,258
------- --------
$37,156 $165,635
======= ========
</TABLE>
Amortization expense totaled $3,844 in fiscal year 1995 and $16,414 for the
nine months ended June 30, 1996.
4. BORROWINGS UNDER ACCOUNTS RECEIVABLE FINANCING ARRANGEMENT:
During fiscal year 1994, the Company entered into a "Purchase of Accounts"
agreement with SouthTrust Bank (the "Bank") whereby the Bank agreed to purchase
up to $750,000 of the Company's trade accounts receivable on a revolving basis.
The agreement gave the Company the option to repurchase these receivables from
the Bank at any time and gave the Bank full recourse to the Company for any
accounts receivable which
F-67
<PAGE> 125
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
were not collected. Accordingly, this arrangement has been reflected as a
financing transaction in the accompanying financial statements.
As of September 30, 1994 and 1995, the receivables financed pursuant to
this agreement totaled $600,830 and $502,512, respectively. The agreement
required the Company to pay a service charge equal to 1.50% of the face amount
of each account financed by the Bank. Service charges were $9,132 and $7,538 for
the fiscal years ended 1994 and 1995 and have been reflected in interest expense
in the accompanying statements of income. In addition, the Company was required
to maintain a cash reserve account at the Bank in an amount equal to at least
10% of the receivables financed and meet certain other restrictive covenants.
5. LINE OF CREDIT:
In November 1995, the Company replaced its "Purchase of Accounts" bank
agreement (Note 4) with a revolving line of credit with the Bank. Under the
revolving line of credit, the Company may borrow an amount equal to 80% of its
outstanding Eligible Accounts Receivable, as defined, not to exceed an aggregate
borrowing of $1,500,000.
Borrowings are collateralized by the Company's accounts receivable and are
guaranteed by the Company's stockholders. Interest is payable monthly on
outstanding borrowings at the Bank's base rate plus 1.25% (weighted average rate
of 9.31% during the nine months ended June 30, 1996). Under the terms of the
line of credit agreement, the Company has certain dividend restrictions and is
required, among other things, to maintain certain financial ratios. As of June
30, 1996, the Company was not in compliance with the tangible net worth ratio
requirement. However, the lender has agreed to forbear from enforcing such
events of noncompliance and default through maturity.
As of June 30, 1996, the Company had borrowed $1,020,000 under this line of
credit and principally used the proceeds to repurchase previously sold accounts
receivable.
As discussed in Note 15, the line of credit was amended on July 11, 1996.
The amendment allows the Company to borrow an amount equal to 85% of its
outstanding Eligible Accounts Receivable, as defined, not to exceed an aggregate
borrowing of $2,000,000, and also extends the maturity date from November 20,
1996 to January 20, 1997. An additional provision requires that $160,000 of the
amount available under the line be held in reserve until certain indebtedness of
the Company is paid in full or is subordinated to the security interest of the
Bank.
6. NOTE PAYABLE TO A STOCKHOLDER:
As of September 30, 1994 and 1995, the Company had a note payable to a
former stockholder for $155,295 and $122,000, respectively. The note was due on
demand and bore interest at 8.75%. The note was secured by the Company's
accounts receivable not previously pledged. For the years ended September 30,
1993, 1994 and 1995, interest expense on this note totaled $22,860, $18,636 and
$12,100, respectively. For the nine months ended June 30, 1995 and 1996,
interest expense on this note totaled $9,075 (unaudited) and $7,069,
respectively.
In connection with the purchase of this stockholder's common stock in the
Company by two of the remaining stockholders (Note 10), this note was amended
whereby, beginning in December 1995, interest payments will be made monthly at a
rate of 9.75%. The note is unsecured and requires principal payments beginning
in December 1997.
F-68
<PAGE> 126
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of June 30, 1996, the Company owed $116,000 pursuant to this amended
note agreement. Annual maturities pursuant to this note are as follows:
<TABLE>
<CAPTION>
YEARS ENDING YEARS ENDING
SEPTEMBER 30, JUNE 30,
------------- ------------
<S> <C> <C>
1996............................... $ -- $ --
1997............................... -- --
1998............................... 35,753 25,027
1999............................... 57,917 53,413
2000............................... 20,301 32,486
Thereafter......................... 2,029 5,074
-------- --------
$ 116,000 $116,000
======== ========
</TABLE>
7. INCOME TAXES:
Components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS JUNE 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal........................ $39,550 $194,600 $ 10,180 $ 55,644 $195,973
State.......................... 9,400 36,700 4,100 10,599 36,800
Deferred......................... (5,700) (10,200) (98,440) (84,150) (58,400)
------- -------- -------- -------- --------
$43,250 $221,100 $(84,160) $ (17,907) $174,373
======= ======== ======== ======== ========
</TABLE>
A reconciliation of taxes at the statutory federal income tax rate to the
Company's effective income tax rate for the years ended September 30 follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS JUNE 30,
-------------------------------- -----------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Taxes at statutory U.S. income
tax rate...................... $ 43,624 $201,075 $(80,775) $ (18,611) $155,488
Increase (decrease) resulting
from:
Tax penalties................. 4,281 846 -- -- --
State income taxes, net of
federal benefit............ 6,204 23,855 2,666 1,840 23,920
Effect of graduated federal
income tax rate............ (13,112) (7,672) (9,933) (3,236) --
Meals and entertainment and
other...................... 2,253 2,996 3,882 2,100 (5,035)
------- -------- -------- -------- --------
$ 43,250 $221,100 $(84,160) $ (17,907) $174,373
======= ======== ======== ======== ========
</TABLE>
F-69
<PAGE> 127
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from differences in the timing of recognition
of revenues and expenses for financial reporting and income tax purposes. The
components of the Company's net deferred income tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Compensation agreements............................. $ 76,600 $ 65,000 $ 89,800
Vacation and workers' compensation reserves......... 36,200 160,000 193,600
-------- -------- --------
$112,800 $225,000 $283,400
======== ======== ========
</TABLE>
The deferred income tax assets recorded in the accompanying balance sheets
represent potential future income tax benefits. These future income tax benefits
are expected to be realized through the reduction of income taxes otherwise
payable when reversals of temporary differences occur between the financial
reporting and income tax basis of the Company's assets and liabilities.
8. WORKERS' COMPENSATION:
During fiscal year 1995, the Company began self-insuring certain risks
related to workers' compensation claims and is regulated by the Workers'
Compensation Insurance Commission in the state of Tennessee. The Company has
purchased insurance for claims which exceed $250,000 per employee. To satisfy
unpaid claims, the Company deposits amounts with a third party administrator. At
the Company's option, it may withdraw its deposits upon notification to its
third party administrator. Included in prepaid expenses and other in the
accompanying balance sheets are deposits to fund workers' compensation claims
totaling $451,617 and $684,615 as of September 30, 1995 and June 30, 1996,
respectively. Workers' compensation expense totaled $527,077, $664,468 and
$1,270,271 for the fiscal years ended September 30, 1993, 1994 and 1995,
respectively. For the nine months ended June 30, 1995 and 1996, workers'
compensation expense totaled $950,334 (unaudited) and $937,126, respectively.
9. RELATED PARTY TRANSACTIONS:
Stockholder Transaction --
During November 1995, two of the Company's stockholders purchased the
entire common stock interest in the Company (approximately 32%) from another
stockholder. In conjunction with this transaction, the Company acted as
guarantor on the notes payable issued by the acquiring stockholders for the
stock in the amount of $150,000. Separately, the Company entered into a
severance arrangement and noncompete agreement through November 2003 with this
former stockholder (Note 10).
Advances to Stockholders --
In conjunction with the stockholder transaction described above and other
matters, the Company advanced $250,000 to two of its stockholders during
November 1995. An additional $42,800 was advanced to the two stockholders
subsequent to November 1995.
The Company has paid $47,289 for consulting and other professional services
related to the Company's participation in the merger transaction discussed in
Note 14. These costs are to be repaid by the stockholders of the Company and
have been reflected as advances to stockholders in the accompanying balance
sheet as of June 30, 1996.
F-70
<PAGE> 128
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Other --
In November 1995, the Company settled a controversy concerning an option
held by certain parties to acquire 30% of the common stock of the Company.
Pursuant to the Settlement Agreement and Release, the rights under the option
were transferred to two of the Company's existing stockholders for $90,000,
which was paid by the Company. This payment was expensed in the nine months
ended June 30, 1996.
Included in selling, general and administrative expenses are advisor and/or
director fees paid or payable to the stockholders of the Company totaling
$120,000, $69,000 and $94,000 for the years ended September 30, 1993, 1994 and
1995, respectively. No such fees were accruable for the nine months ended June
30, 1995 and 1996.
10. COMMITMENTS AND CONTINGENCIES:
The Company has deferred compensation arrangements with various consultants
and/or employees of the Company, some of which are no longer providing services
to the Company.
In November 1991, the Company entered into an arrangement with a consultant
for services rendered in connection with the formation of the Company. The
arrangements called for weekly payments of $1,000 for 312 weeks. The Company
expensed the discounted value of the obligation in fiscal year 1992 and
reflected a deferred compensation liability at that time. In fiscal year 1994,
the Company discontinued payments under this arrangement. In December 1994, the
consultant and the Company entered into an arbitration agreement and the Company
has resumed its payments under this agreement.
On November 28, 1995, the Company entered into severance and noncompete
agreements with a former stockholder in connection with the purchase of such
stockholder's common stock in the Company by two of the remaining stockholders
(Note 9). Pursuant to these agreements, the Company was to pay the former
stockholder, beginning on December 15, 1995, as follows:
- $30,000 as bonus for fiscal year 1995 to be paid in $2,500 monthly
installments.
- $150,000 as a severance arrangement to be paid in monthly installments of
$5,690 through November 15, 1996, $5,647 through November 15, 1997 and
$1,163 through November 15, 1998.
- $236,518 as a noncompete agreement to be paid in graduating monthly
payments through November 15, 2003.
With respect to these arrangements, the Company expensed the bonus payment
in fiscal year 1995. The discounted value of the severance agreement (8.75%
discount rate) was expensed in the nine months ended June 30, 1996, with a
related liability established in the accompanying balance sheet. The discounted
value of the noncompete agreement (8.75% discount rate) was recorded as an
intangible asset (Note 3) and a related liability was established in the
accompanying balance sheet.
The following summarizes the Company's obligations under these deferred
compensation arrangements:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Consulting arrangement............................. $195,722 $171,031 $134,436
Severance agreement with a former stockholder...... -- -- 101,961
Noncompete agreement with a former stockholder..... -- -- 139,249
-------- -------- --------
195,722 171,031 375,646
Less current portion............................... 97,898 43,699 110,709
-------- -------- --------
$ 97,824 $127,332 $264,937
======== ======== ========
</TABLE>
F-71
<PAGE> 129
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities pursuant to the consulting arrangement are as follows:
<TABLE>
<CAPTION>
YEARS ENDING YEARS ENDING
SEPTEMBER 30, JUNE 30,
------------- ------------
<S> <C> <C>
1996............................... $ 22,050 $ --
1997............................... 111,955 110,709
1998............................... 61,079 73,310
1999............................... 35,402 37,818
2000............................... 5,911 14,560
Thereafter......................... 139,249 139,249
-------- --------
$ 375,646 $375,646
======== ========
</TABLE>
11. NONCANCELABLE OPERATING LEASES:
The Company leases office locations and certain equipment under
noncancelable operating lease agreements expiring at various times through April
30, 2003. Future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year at June 30,
1996, are as follows:
<TABLE>
<CAPTION>
YEARS
YEARS ENDING ENDING
SEPTEMBER 30, JUNE 30,
------------- -----------
<S> <C> <C>
1996............................... $ 49,603 $ -
1997............................... 148,377 173,977
1998............................... 55,153 67,622
1999............................... 38,056 37,810
2000............................... 38,805 38,551
Thereafter......................... 65,072 76,811
-------- --------
$ 395,066 $ 394,771
======== ========
</TABLE>
Rent expense totaled $156,224, $143,430 and $194,096 for fiscal years 1993,
1994 and 1995, respectively. For the nine months ended June 30, 1995 and 1996,
rent expense totaled $151,386 (unaudited) and $194,424, respectively.
12. SAVINGS AND RETIREMENT PLAN:
During fiscal year 1995, the Company made available to all permanent
employees with one year of service a savings and retirement plan. The plan, at
the Company's option, may be terminated at any time and allows participants to
defer a portion of their after tax salary and receive a matching employer
contribution of up to 2% of the participants' annual salary based on years of
service. Matching contributions are made in January of the following fiscal year
for participants who remain employed by the Company. Matching contributions of
approximately $8,000 were made during fiscal year 1995. The plan also allows the
Company to contribute additional amounts at the discretion of management. Any
such amounts contributed are to be allocated equally among all eligible
participants. Management authorized discretionary contributions of $24,000 and
$7,700 for fiscal year 1995 and the nine months ended June 30, 1996,
respectively. Contributions deposited into the plan are held by an unrelated
third party and are registered in the name of the participants.
F-72
<PAGE> 130
HRA, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. LITIGATION:
The Company is involved in a lawsuit with its former workers' compensation
insurance carrier, in which the Company is disputing the amount of insurance
premiums owed in fiscal years 1993 and 1994 and a portion of fiscal year 1995.
Subsequent to September 30, 1995, a judgment was rendered against the Company
for approximately $718,000, which is inclusive of the disputed payments plus
accrued interest. The Company has filed an appeal of this judgment and is
negotiating a settlement. The Company reserved for these disputed amounts in the
fiscal years in which they arose. Accordingly, management anticipates that the
ultimate resolution of this matter will not have a materially adverse affect on
the financial position or results of operations of the Company.
In April 1996, the Company settled a dispute with a professional firm that
had previously represented them in certain actions related to workers'
compensation insurance and received cash of approximately $245,000, which is
included in other income for the nine months ended June 30, 1996.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the aggregate
liability, if any, with respect to these proceedings will not materially
adversely affect the financial position or results of operations of the Company.
14. PENDING BUSINESS COMBINATION:
In June 1996, the owners of the Company entered into a definitive agreement
to merge with StaffMark, Inc. ("StaffMark") in conjunction with StaffMark's
anticipated initial public offering. Prior to or coincident with this proposed
merger, the Company's leased automobiles will be transferred to the respective
stockholders.
In conjunction with the proposed merger discussed above, the owners will
enter into employment agreements which provide for a set base salary,
participation in future incentive bonus plans, certain other benefits and a
covenant not to compete following termination of such person's employment.
The Company has advanced $31,250 to StaffMark to fund organizational and
other costs related to the planned merger and StaffMark's initial public
offering.
15. SUBSEQUENT EVENTS (UNAUDITED):
On July 11, 1996, the Company completed the purchase of the assets and
intellectual property of Dorothy Johnson's Career Consultants, Inc. ("Career
Consultants"). Career Consultants provides permanent placement services on a fee
basis to companies primarily in the Nashville, Tennessee area. The purchase
price was $850,000 and included a payment for assets and a non-compete agreement
with the principal stockholder of Career Consultants. The purchase was financed
with borrowings under the Company's line of credit (Note 5), which was extended
in contemplation of this transaction. The acquisition will be accounted for as a
purchase business combination. A preliminary allocation of the related purchase
price has not been made at this time. The operations of Career Consultants were
not significant to the Company's historical operating results.
Effective October 2, 1996, StaffMark completed the initial public offering
discussed above.
F-73
<PAGE> 131
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Choice Staffing, Inc.:
We have audited the accompanying balance sheets of First Choice Staffing,
Inc. (a South Carolina corporation) as of December 31, 1994 and 1995, and June
30, 1996, and the related statements of income, stockholders' equity and cash
flows for each of the three fiscal years in the period ended December 31, 1995,
and the six months ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures to the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Choice Staffing, Inc.
as of December 31, 1994 and 1995, and June 30, 1996, and the results of its
operations and its cash flows for each of the three fiscal years in the period
ended December 31, 1995, and the six month period ended June 30, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
July 26, 1996 (except with respect to
the matter discussed in Note 11, as to
which the date is October 2, 1996).
F-74
<PAGE> 132
FIRST CHOICE STAFFING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FISCAL YEARS JUNE 30, 1996
------------------------ -------------------------
1994 1995 ACTUAL PRO FORMA
---------- ---------- ---------- -----------
(UNAUDITED)
(NOTE 10)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................. $ 194,111 $ 268,440 $ 12,028 $ 12,028
Accounts receivable, net................... 1,078,340 1,145,532 1,671,794 1,671,794
Prepaid expenses and other................. 71,100 72,171 38,972 38,972
---------- ---------- ---------- ----------
Total current assets............... 1,343,551 1,486,143 1,722,794 1,722,794
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT, net.................. 196,110 327,240 350,838 350,838
---------- ---------- ---------- ----------
OTHER ASSETS:
Investment in captive insurance pool....... 36,000 36,000 36,000 36,000
Advance to StaffMark, Inc. ................ -- -- 31,250 31,250
Other...................................... -- -- 14,351 14,351
---------- ---------- ---------- ----------
Total other assets................. 36,000 36,000 81,601 81,601
---------- ---------- ---------- ----------
$1,575,661 $1,849,383 $2,155,233 $ 2,155,233
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................. $ -- $ 200,000 $ 250,000 $ 250,000
Accounts payable........................... 21,326 65,608 96,540 96,540
Accrued workers' compensation.............. 92,347 46,359 49,963 49,963
Payroll and related benefits............... 630,555 534,047 500,475 500,475
Other accrued expenses..................... 7,000 5,735 -- --
Note payable to stockholder................ 250,000 180,000 140,000 140,000
---------- ---------- ---------- ----------
Total current liabilities.......... 1,001,228 1,031,749 1,036,978 1,036,978
---------- ---------- ---------- ----------
LONG-TERM DEBT, less current maturities...... -- -- -- 790,000
---------- ---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 8 and
9)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 100,000 shares
authorized, 10,000 shares issued and
outstanding............................. 10,000 10,000 10,000 10,000
Retained earnings.......................... 564,433 807,634 1,108,255 318,255
---------- ---------- ---------- ----------
Total stockholders' equity......... 574,433 817,634 1,118,255 328,255
---------- ---------- ---------- ----------
$1,575,661 $1,849,383 $2,155,233 $ 2,155,233
========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-75
<PAGE> 133
FIRST CHOICE STAFFING, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS -------------------------
----------------------------------------- JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES.............. $10,807,801 $13,007,484 $13,703,404 $ 6,640,485 $7,884,470
COST OF SERVICES.............. 8,825,086 10,573,111 11,149,085 5,403,659 6,385,847
----------- ----------- ----------- ---------- ----------
Gross profit........ 1,982,715 2,434,373 2,554,319 1,236,826 1,498,623
OPERATING EXPENSES:
Selling, general and
administrative........... 1,361,834 2,485,029 2,258,780 1,027,890 1,137,700
Depreciation................ 34,570 34,357 32,923 16,452 46,535
----------- ----------- ----------- ---------- ----------
Operating income
(loss)............ 586,311 (85,013) 262,616 192,484 314,388
OTHER INCOME (EXPENSE):
Interest expense............ (71) (26,109) (19,415) (11,227) (13,767)
Other, net.................. (2,427) 2,256 -- -- --
----------- ----------- ----------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME
TAXES....................... 583,813 (108,866) 243,201 181,257 300,621
PROVISION (BENEFIT) FOR INCOME
TAXES....................... 232,787 (168,251) -- -- --
----------- ----------- ----------- ---------- ----------
Net income.......... $ 351,026 $ 59,385 $ 243,201 $ 181,257 $ 300,621
=========== =========== =========== ========== ==========
PRO FORMA DATA (Unaudited)
(Note 10):
Historical income before
income taxes............. $ 243,201 $ 300,621
Less pro forma provision for
income taxes........... 94,848 117,242
----------- ----------
PRO FORMA NET INCOME $ 148,353 $ 183,379
=========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-76
<PAGE> 134
FIRST CHOICE STAFFING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992......................... 10,000 $10,000 $ 154,022 $ 164,022
Net income....................................... -- -- 351,026 351,026
------ ------- ---------- ----------
BALANCE, December 31, 1993......................... 10,000 10,000 505,048 515,048
Net income....................................... -- -- 59,385 59,385
------ ------- ---------- ----------
BALANCE, December 31, 1994......................... 10,000 10,000 564,433 574,433
Net income....................................... -- -- 243,201 243,201
------ ------- ---------- ----------
BALANCE, December 31, 1995......................... 10,000 10,000 807,634 817,634
Net income....................................... -- -- 300,621 300,621
------ ------- ---------- ----------
BALANCE, June 30, 1996............................. 10,000 $10,000 $1,108,255 $1,118,255
====== ======= ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-77
<PAGE> 135
FIRST CHOICE STAFFING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ------------------------
----------------------------------- JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 351,026 $ 59,385 $ 243,201 $ 181,257 $ 300,621
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation................................. 34,570 34,357 32,923 16,452 46,535
Deferred income taxes........................ (3,908) 11,256 --
Change in operating assets and liabilities:
Accounts receivable, net................... (311,121) (149,482) (67,192) 89,585 (526,262)
Prepaid expenses and other................. (32,022) (15,485) (1,071) 39,345 33,199
Other assets............................... (158,104) -- -- -- (14,351)
Accounts payable........................... 12,587 (2,923) 44,282 8,736 30,932
Accrued workers' compensation.............. 68,247 10,867 (45,988) (42,160) 3,604
Payroll and related liabilities............ 189,670 259,929 (96,508) (54,964) (33,572)
Accrued income taxes....................... 54,275 (153,072) -- -- --
Other accrued expenses..................... 3,158 (9,256) (1,265) (7,000) (5,735)
--------- --------- --------- -------- ---------
Net cash provided by (used in) operating
activities............................ 208,378 45,576 108,382 231,251 (165,029)
--------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (53,582) (120,441) (164,053) (69,622) (70,133)
Advance to StaffMark, Inc....................... -- -- -- -- (31,250)
--------- --------- --------- -------- ---------
Net cash used in investing activities... (53,582) (120,441) (164,053) (69,622) (101,383)
--------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit...... (191,038) -- 200,000 -- 50,000
Proceeds from note payable to stockholder....... 9,349 250,000 -- -- --
Payments on note payable to stockholder......... -- (9,349) (70,000) -- (40,000)
--------- --------- --------- -------- ---------
Net cash provided by (used in) financing
activities............................ (181,689) 240,651 130,000 -- 10,000
--------- --------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (26,893) 165,786 74,329 161,629 (256,412)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 55,218 28,325 194,111 194,111 268,440
--------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 28,325 $ 194,111 $ 268,440 $ 355,740 $ 12,028
========= ========= ========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid................................... $ 71 $ 26,109 $ 19,415 $ 6,285 $ 13,991
========= ========= ========= ======== =========
Taxes paid (refunded)........................... $ 189,769 $ (26,393) $ -- $ -- $ --
========= ========= ========= ======== =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-78
<PAGE> 136
FIRST CHOICE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
First Choice Staffing, Inc. (the "Company"), a South Carolina corporation,
provides temporary personnel services primarily for industrial and clerical
needs in the greater Charlotte, North Carolina, metropolitan region. The
business was initially founded and incorporated in 1986 as a Dunhill Temporary
Systems franchise. In 1989, the founders bought out the Dunhill franchise
contract and formed First Choice Temporary Staffing, Inc. In 1993, the Company
changed its name to First Choice Staffing, Inc.
Reorganization --
Prior to reorganization on April 1, 1994, the Company was a wholly owned
subsidiary of Gregory Personnel, Inc. ("Gregory Personnel"). Gregory Personnel
was formed as a holding company in connection with the acquisition by one 50%
stockholder of the other 50% stockholder's interest in the Company in 1990.
Gregory Personnel had no operations and had assets consisting primarily of a
noncompete agreement arising from the acquisition of the former 50%
stockholder's interest in the Company. The noncompete agreement was amortized
over three years. On April 1, 1994, Gregory Personnel was merged downstream with
the Company, leaving the Company as the surviving entity.
Basis of Presentation --
The accompanying financial statements include the accounts of Gregory
Personnel for the period prior to the merger effective April 1, 1994. Due to the
change in control of the Company occurring upon the acquisition of the former
50% stockholder's interest in 1990, this acquisition was accounted for as a
purchase resulting in the recording of certain intangible assets. See above for
further discussion.
Fiscal Periods --
For presentation purposes, the accompanying financial statements have been
prepared by the Company on a calendar year basis. However, the Company's fiscal
year actually ends on the last Sunday in December. The interim financial
information as of June 30, 1996, and for the six month periods ended June 25,
1995 (unaudited), and June 30, 1996, correspond to the Company's fiscal quarters
which ended on the last Sunday in June.
Interim Financial Statements --
The accompanying interim financial statements and related disclosures for
the six month period ended June 25, 1995 have not been audited by independent
accountants. However, the interim financial statements have been prepared in
conformity with the accounting principles stated in the audited financial
statements of the three years in the period ended December 31, 1995 and for the
six months ended June 30, 1996, and include all adjustments (which were of a
normal, recurring nature) which, in the opinion of management, are necessary to
present fairly the financial position of the Company and the results of
operations and cash flows for the interim periods. The operating results for all
interim periods presented are not necessarily indicative of results for the full
year.
Revenue Recognition --
Service revenues are recognized as income at the time staffing services are
provided to the customer.
F-79
<PAGE> 137
FIRST CHOICE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosures of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statements.
Cash and Cash Equivalents --
For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Accounts Receivable --
The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. The Company has recorded an
allowance for doubtful accounts of $25,000 at December 31, 1994, December 31,
1995 and June 30, 1996. Included in accounts receivable in the accompanying
balance sheets are unbilled amounts of $188,778, $172,834 and $371,360 at
December 31, 1994, December 31, 1995 and June 30, 1996, respectively.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
estimated economic lives or the terms of the lease. The estimated useful lives
of the Company's assets, by asset classification, are as follows:
<TABLE>
<S> <C>
Office equipment.................................................... 7 years
Computer equipment.................................................. 5 years
Vehicles............................................................ 5 years
Computer software................................................... 3 years
Leasehold improvements.............................................. 7 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment is
retired, the cost of the property and equipment and the related accumulated
depreciation is removed from the balance sheet and any resultant gain or loss is
recorded.
Other Assets --
Other assets contain an investment in a captive workers' compensation
insurance pool of which the Company is a member, an advance to StaffMark, Inc.
(as described in Note 8) and certain expenses and payments made relating to the
acquisition of Strategic Sourcing, Inc. (SSI). The investment is accounted for
by the Company under the cost method.
Fair Value of Financial Instruments --
The Company's financial instruments include cash and cash equivalents, note
payable to stockholder and its other debt obligations. Management believes that
these instruments bear interest at rates which approximate prevailing market
rates for instruments with similar characteristics and, accordingly, that the
carrying values for those instruments are reasonable estimates of fair value.
F-80
<PAGE> 138
FIRST CHOICE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk --
Credit risk with respect to accounts receivable is dispensed due to the
nature of the business, the large number of customers and the diversity of
industries serviced. The Company performs credit evaluations of all its
customers.
Income Taxes --
Prior to April 1, 1994, the Company was a C Corporation and, accordingly,
was subject to federal and state income taxes. The Company accounted for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which recognizes deferred tax assets and
liabilities for future tax consequences attributed to differences between the
financial statement and income tax basis of assets and liabilities and operating
loss carryforwards.
In connection with the reorganization in April 1994, the Company elected S
Corporation status for federal and state income tax reporting purposes.
Accordingly, no provision for income taxes has been recorded for periods
subsequent to this change in tax status as such tax liabilities arising from the
date of election as an S Corporation are liabilities of the stockholders of the
Company. Also in connection with the April 1994 reorganization, the Company
changed its tax year-end from March 31 to December 31.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change in the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Office equipment..................................... $117,938 $171,842 $190,774
Computer equipment................................... 123,966 153,405 192,906
Vehicles............................................. 16,301 26,501 26,501
Computer software.................................... 33,531 45,775 52,620
Leasehold improvements............................... 56,009 83,248 88,103
-------- -------- --------
347,745 480,771 550,904
Less accumulated depreciation........................ 151,635 153,531 200,066
-------- -------- --------
$196,110 $327,240 $350,838
======== ======== ========
</TABLE>
3. LINE OF CREDIT:
The Company has a revolving line of credit with a bank. Maximum borrowings
under the line are equal to the lesser of $500,000 or 80% of the Company's
eligible accounts receivable, as defined within the line of credit agreement.
The line is secured by the Company's accounts receivable and interest is payable
monthly at prime (8.25% at June 30, 1996), with principal due June 17, 1997. The
weighted average interest rate was approximately 8.29% for the six months ended
June 30, 1996. Amounts outstanding under the line were $0, $200,000 and $250,000
as of December 31, 1994, December 31, 1995 and June 30, 1996, respectively.
The line of credit is secured by a personal guaranty of the majority
stockholder. In addition, the line of credit is subject to certain financial
ratios and restrictions on incurring additional debt. The Company was in
compliance with these covenants as of June 30, 1996. The Company intends to
renew this line of credit upon
F-81
<PAGE> 139
FIRST CHOICE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
its annual maturity date. The Company had approximately $250,000 available under
its line of credit at June 30, 1996.
4. NOTE PAYABLE TO STOCKHOLDER:
The Company has an unsecured note payable to the majority stockholder with
interest payable semiannually in June and December at 8% and principal due on
demand.
5. INCOME TAXES:
Components of the tax provision (benefit) for the periods prior to the S
Corporation election, effective April 1, 1994, are shown below:
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------
1993 1994
-------- ---------
<S> <C> <C>
Provision for (benefit from) income taxes --
Federal:
Current.................................................. $188,194 $(127,554)
Deferred................................................. (3,607) (8,197)
-------- ---------
Total federal....................................... 184,587 (135,751)
-------- ---------
State:
Current..................................................... 48,500 (32,800)
Deferred.................................................... (300) 300
-------- ---------
Total state......................................... 48,200 (32,500)
-------- ---------
$232,787 $(168,251)
======== =========
</TABLE>
The income tax provision (benefit) for the periods prior to the S
Corporation election, effective April 1, 1994, differs from the amount computed
by applying the federal statutory rate of 34% to income before taxes due to the
following:
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------
1993 1994
-------- ---------
<S> <C> <C>
Income tax provision computed at the federal statutory rate... $199,321 $ (37,781)
State taxes, net of federal tax benefit....................... 30,953 (586)
Effect of permanent differences............................... 3,621 4,143
Elimination of net deferred tax liabilities upon S Corporation
election.................................................... -- 3,827
Taxable income earned after S Corporation election, not
subject to taxation......................................... -- (137,854)
Other......................................................... (1,108) --
-------- ---------
Provision (benefit) for income taxes........................ $232,787 $(168,251)
======== =========
</TABLE>
F-82
<PAGE> 140
FIRST CHOICE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
Noncancelable Operating Leases --
The Company leases office space under noncancelable operating leases.
Approximate future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year at December
31, 1995 and June 30, 1996, including noncancelable operating leases assumed in
connection with the subsequent acquisition of SSI (Note 9), are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
-------------------------
DECEMBER 31, JUNE 30,
------------ --------
<S> <C> <C>
1996................................. $111,000 $ --
1997................................. 101,000 109,000
1998................................. 86,000 93,000
1999................................. 68,000 86,000
2000................................. 43,000 52,000
Thereafter........................... 78,000 95,000
-------- --------
$487,000 $435,000
======== ========
</TABLE>
Rental expense totaled $61,000, $82,000 and $103,000 for fiscal years 1993,
1994 and 1995, respectively, and $40,000 (unaudited) and $53,000 for the six
month periods ended June 25, 1995 and June 30, 1996, respectively.
401(k) Plan --
In 1995, the Company adopted a 401(k) Savings Plan for its employees in
which the Company matches 50% of the employee's contributions up to 3% of the
employee's salary. The Company's contribution expense was $18,000 for 1995 and
$4,000 (unaudited) and $10,000 for the six month periods ended June 25, 1995 and
June 30, 1996, respectively.
7. SIGNIFICANT CUSTOMERS:
The Company had one customer which represented 12%, 13%, 12%, 13% and 12%
of service revenues for the years ended December 31, 1993, 1994 and 1995, and
the six month periods ended June 25, 1995 (unaudited) and June 30, 1996,
respectively. Another customer represented 11% of service revenues for the year
ended December 31, 1993. No other customer accounted for more than 10% of
service revenues for those periods.
8. PENDING BUSINESS COMBINATION:
In June 1996, the stockholders of the Company entered into a definitive
agreement to merge the Company with StaffMark, Inc. ("StaffMark") in conjunction
with StaffMark's anticipated initial public offering. In April 1996, the Company
advanced $31,250 to StaffMark to fund organizational and other costs related to
the planned merger and StaffMark's initial public offering.
In conjunction with this merger, the Company plans to make a cash
distribution to the majority stockholder representing the Company's S
Corporation Accumulated Adjustment Account as of the merger date. The balance of
the Company's S Corporation Accumulated Adjustment Account at June 30, 1996, was
approximately $790,000. In addition, prior to or coincident with the merger, the
Company intends to repay the note payable to stockholder. The Company expects to
incur additional debt as a primary means of funding the repayment of the note
payable to stockholder and distribution of the balance of the S Corporation
Accumulated Adjustment Account.
F-83
<PAGE> 141
FIRST CHOICE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with the merger discussed above, the majority stockholder
will enter into an employment agreement which provides for a set base salary,
participation in future incentive bonus plans, certain other benefits and a
covenant not to compete if and when the stockholder's employment is terminated.
9. SUBSEQUENT ACQUISITION:
On July 1, 1996, the Company acquired certain of the operating assets of
SSI, a provider of permanent and temporary placement services to companies in
the market for information technology professionals. SSI was incorporated in May
1993 and is located in Charlotte, North Carolina. The total purchase price of
$700,000 and noncompete agreement with the seller of $50,000 were financed
through borrowings from a bank and execution of a promissory note payable to the
seller. All financing related to this acquisition is secured by the personal
guaranty of the majority stockholder. The acquisition will be accounted for
using the purchase method of accounting. Based on the preliminary purchase price
allocation, fixed assets acquired will be recorded at historical, depreciated
cost, which approximated fair value as of the acquisition date, and the
remaining purchase price of approximately $680,000 will be recorded as goodwill
and amortized on a straight-line basis over its estimated economic life of 30
years.
10. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):
In conjunction with the planned merger with StaffMark as discussed in Note
8, the Company will change from an S Corporation to a C Corporation for federal
and state income tax reporting purposes, which will require the Company to
recognize the tax consequences of operations in its statements of income. The
supplemental pro forma information included in the accompanying statements of
income reflect the estimated impact of recognizing income tax expense as if the
Company had been a C Corporation for tax reporting purposes during the twelve
months and six months ended December 31, 1995 and June 30, 1996, respectively.
As discussed in Note 8, the Company intends to make distributions equal to
the Company's S Corporation Accumulated Adjustment Account as of the merger
date. The supplemental pro forma information included in the accompanying
balance sheet reflects the estimated impact of recording these distributions as
if such distributions had occurred as of June 30, 1996. The pro forma
adjustments are based on the assumption that the distributions will be funded
with additional borrowings.
11. SUBSEQUENT EVENT (UNAUDITED):
Effective October 2, 1996, StaffMark completed the initial public offering
discussed above.
F-84
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Blethen Group:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 to the financial statements ("The Blethen Group"), as of
January 1, 1995, December 31, 1995 and June 30, 1996, and the related combined
statements of income (loss), stockholders' equity and cash flows for each of the
three fiscal years in the period ended December 31, 1995 and for the six months
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Blethen Group as of
January 1, 1995, December 31, 1995 and June 30, 1996, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended December 31, 1995, and for the six months ended June 30, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
July 26, 1996 (except with respect to
the matter discussed in Note 10, as to
which the date is October 2, 1996).
F-85
<PAGE> 143
THE BLETHEN GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1996
JANUARY 1, DECEMBER 31, -------------------------
1995 1995 ACTUAL PRO FORMA
---------- ------------ ---------- -----------
(UNAUDITED)
(NOTE 9)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................. $ 31,921 $ 44,644 $ 119,312 $ 119,312
Accounts receivable....................... 1,136,081 1,377,799 1,683,071 1,683,071
Deferred tax asset........................ 5,500 11,000 8,000 8,000
Prepaid expenses and other................ 16,809 14,510 15,551 15,551
---------- ---------- ---------- ----------
Total current assets.............. 1,190,311 1,447,953 1,825,934 1,825,934
PROPERTY AND EQUIPMENT, net................. 393,330 307,286 278,481 278,481
OTHER ASSETS:
Due from stockholders..................... 185,236 194,163 250,752 250,752
Deferred tax asset........................ 24,100 20,760 -- --
Advance to StaffMark, Inc................. -- -- 31,250 31,250
Other..................................... 11,750 12,232 12,184 12,184
---------- ---------- ---------- ----------
Total other assets................ 221,086 227,155 294,186 294,186
---------- ---------- ---------- ----------
$1,804,727 $1,982,394 $2,398,601 $ 2,398,601
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit........................... $ 764,645 $ 971,436 $1,052,767 $ 1,052,767
Accounts payable.......................... 220,801 105,648 64,444 64,444
Outstanding checks........................ -- 25,329 -- --
Payroll and related liabilities........... 295,472 301,258 504,570 504,570
Current maturities of long-term debt...... 25,341 10,151 10,494 10,494
Current maturities of capital lease
obligations............................ 82,708 47,148 -- --
Current maturities of notes payable to
related parties........................ 83,308 62,813 82,467 82,467
Income taxes payable...................... 15,783 82,583 78,811 78,811
Accrued interest and other................ 16,001 55,043 42,898 42,898
---------- ---------- ---------- ----------
Total current liabilities......... 1,504,059 1,661,409 1,836,451 1,836,451
LONG-TERM DEBT, less current maturities..... 35,604 24,922 19,092 289,092
CAPITAL LEASE OBLIGATIONS, less current
maturities................................ 67,452 22,475 -- --
NOTES PAYABLE TO RELATED PARTIES, less
current maturities........................ 49,037 45,271 46,882 46,882
DEFERRED TAX LIABILITY...................... -- -- 10,000 10,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7
and 8)
STOCKHOLDERS' EQUITY:
Common stock.............................. 8,399 8,399 8,399 8,399
Additional paid-in capital................ 8,940 8,940 8,940 8,940
Retained earnings......................... 131,236 210,978 468,837 198,837
---------- ---------- ---------- ----------
Total stockholders' equity........ 148,575 228,317 486,176 216,176
---------- ---------- ---------- ----------
$1,804,727 $1,982,394 $2,398,601 $ 2,398,601
========== ========== ========== ==========
</TABLE>
The accompanying notes to combined financial
statements are an integral part of these balance sheets.
F-86
<PAGE> 144
THE BLETHEN GROUP
COMBINED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ------------------------
--------------------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SERVICE REVENUES................ $11,197,726 $11,966,633 $13,380,157 $ 6,460,825 $7,721,134
COST OF SERVICES................ 8,131,773 8,806,124 9,917,548 4,897,262 5,918,388
------------ ------------ ------------ ----------- -----------
Gross profit.......... 3,065,953 3,160,509 3,462,609 1,563,563 1,802,746
OPERATING EXPENSES:
Selling, general and
administrative............. 3,042,816 2,713,376 2,931,881 1,325,851 1,302,768
Depreciation and
amortization............... 134,968 122,963 111,437 54,192 55,626
------------ ------------ ------------ ----------- -----------
Operating income
(loss).............. (111,831) 324,170 419,291 183,520 444,352
OTHER INCOME (EXPENSE):
Interest expense.............. (134,815) (137,448) (140,800) (68,723) (82,628)
Other, net.................... 19,467 2,917 10,884 (3,471) 1,161
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES.... (227,179) 189,639 289,375 111,326 362,885
PROVISION (BENEFIT) FOR INCOME
TAXES......................... (136,263) 49,000 81,000 37,000 60,159
------------ ------------ ------------ ----------- -----------
Net income (loss)..... $ (90,916) $ 140,639 $ 208,375 $ 74,326 $ 302,726
============ ============ ============ =========== ===========
PRO FORMA DATA
(Unaudited) (Note 9):
Historical income before
income taxes............... $ 289,375 $ 362,885
Less pro forma provision for
income taxes............... 112,856 141,525
------------ -----------
PRO FORMA NET INCOME............ $ 176,519 $ 221,360
============ ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-87
<PAGE> 145
THE BLETHEN GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, January 4, 1993.......................... $8,543 $ 32,265 $ 239,861 $ 280,669
Net loss........................................ -- -- (90,916) (90,916)
Dividends....................................... -- -- (57,343) (57,343)
------ -------- --------- ---------
BALANCE, January 2, 1994.......................... 8,543 32,265 91,602 132,410
Net income...................................... -- -- 140,639 140,639
Dividends....................................... -- -- (99,474) (99,474)
Repurchase and retirement of common stock....... (144) (23,325) (1,531) (25,000)
------ -------- --------- ---------
BALANCE, January 1, 1995.......................... 8,399 8,940 131,236 148,575
Net income...................................... -- -- 208,375 208,375
Dividends....................................... -- -- (128,633) (128,633)
------ -------- --------- ---------
BALANCE, December 31, 1995........................ 8,399 8,940 210,978 228,317
Net income...................................... -- -- 302,726 302,726
Dividends....................................... -- -- (44,867) (44,867)
------ -------- --------- ---------
BALANCE, June 30, 1996............................ $8,399 $ 8,940 $ 468,837 $ 486,176
====== ======== ========= =========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-88
<PAGE> 146
THE BLETHEN GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ------------------------
----------------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $ (90,916) $ 140,639 $ 208,375 $ 74,326 $ 302,726
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 134,968 122,963 111,437 54,192 55,626
Provision for (benefit from) deferred income
taxes..................................... (136,263) 29,898 (2,160) (900) 33,760
Change in operating assets and liabilities:
Accounts receivable....................... (17,767) (54,870) (241,718) (318,847) (305,272)
Prepaid expenses and other................ (14,096) 30,971 2,299 (8,669) (1,041)
Other assets.............................. 21,491 5,769 (482) -- 48
Accounts payable.......................... 180,570 (97,532) (115,153) 244,187 (41,204)
Outstanding checks........................ -- -- 25,329 -- (25,329)
Payroll and related liabilities........... (75,190) 65,663 5,786 (6,123) 203,312
Income taxes payable (receivable)......... (13,711) 29,494 66,800 38,657 (3,772)
Accrued interest and other................ 77,477 (55,306) 39,042 15,497 (12,145)
--------- --------- --------- --------- ---------
Net cash provided by operating
activities........................... 66,563 217,689 99,555 92,320 206,709
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................... (130,178) (72,119) (25,393) -- (26,821)
Advance to StaffMark, Inc...................... -- -- -- -- (31,250)
--------- --------- --------- --------- ---------
Net cash used in investing
activities........................... (130,178) (72,119) (25,393) -- (58,071)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from lines of credit.............. 53,773 10,681 206,791 225,613 81,331
Proceeds from issuance of long-term debt....... 12,851 54,172 -- -- --
Payments on long-term debt..................... (28,243) (10,282) (25,872) (2,907) (5,487)
Payments on capital lease obligations.......... (16,213) (113,042) (80,537) (41,943) (69,623)
Change in notes payable to related parties..... 34,314 73,031 (24,261) (87,074) 21,265
Cash distributions to stockholders............. (57,343) (99,474) (128,633) (62,890) (44,867)
Change in due from stockholders................ 837 (44,099) (8,927) 32,791 (56,589)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities................. (24) (129,013) (61,439) 63,590 (73,970)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (63,639) 16,557 12,723 155,910 74,668
CASH AND CASH EQUIVALENTS, beginning of period... 79,003 15,364 31,921 31,921 44,644
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period......... $ 15,364 $ 31,921 $ 44,644 $ 187,831 $ 119,312
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................. $ 97,062 $ 169,227 $ 141,324 $ 68,723 $ 80,541
========= ========= ========= ========= =========
Taxes paid..................................... $ -- $ 66 $ 41,476 $ -- $ 33,009
========= ========= ========= ========= =========
Noncash transactions:
Repurchase of common stock through a note
payable................................... $ -- $ 25,000 $ -- $ -- $ --
========= ========= ========= ========= =========
Purchase of property and equipment through
capital leases............................ $ 45,975 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-89
<PAGE> 147
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
The Blethen Group's (the "Company") primary business purpose is to provide
temporary personnel services. The Company's administrative headquarters are in
Burlington, North Carolina, and as of June 30, 1996, the Company operated
staffing offices in Burlington, Henderson, Durham, West End, Research Triangle
Park and Winston-Salem, North Carolina.
The accompanying combined financial statements include the accounts of the
following separate entities which comprise The Blethen Group:
<TABLE>
<CAPTION>
FORM OF
DATE OF CORPORATION
INCORPORATION FOR INCOME
ENTITY IN NORTH CAROLINA TAX PURPOSES SERVICE TYPE
- -------------------------------- ------------------ -------------- ------------------------------
<S> <C> <C> <C>
Blethen Temporaries, Inc. ...... October 6, 1981 S Corporation Clerical and light industrial
Dixon Enterprises of Burlington, February 7, 1992 C Corporation
Inc. ......................... Clerical and light industrial
DP Pros of Burlington, Inc. .... June 6, 1985 C Corporation Information technology and
clinical
Personnel Placement, Inc. ...... October 6, 1981 C Corporation Permanent placement
TRASEC Corp. ................... February 7, 1992 C Corporation Clerical and light industrial
Jaeger Personnel Services, December 20, 1985 S Corporation
Ltd. ......................... Clerical and light industrial
</TABLE>
Basis of Presentation --
The accompanying financial statements are presented on a combined basis as
the entities comprising the Company are under common ownership and/or common
management. Furthermore, Blethen Temporaries, Inc. has an option to purchase all
outstanding shares of common stock of Dixon Enterprises of Burlington, Inc. and
TRASEC Corp. for an amount not to exceed $5,000. All significant intercompany
transactions have been eliminated.
Fiscal Periods --
The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
year 1993 refers to the year ended January 2, 1994, fiscal year 1994 refers to
the year ended January 1, 1995, and fiscal year 1995 refers to the year ended
December 31, 1995. The fiscal years 1993, 1994 and 1995 each included 52 weeks.
The unaudited 1995 and audited 1996 interim periods end on the Sunday closest to
the end of the interim period. Each of the interim periods included in the
accompanying combined financial statements includes 26 weeks.
Interim Financial Statements --
The accompanying interim combined financial statements and related
disclosures for the six months ended July 2, 1995, have not been audited by
independent accountants. However, the combined financial statements for all
interim periods have been prepared in conformity with the accounting principles
stated in the audited combined financial statements for the three years in the
period ended December 31, 1995 and for the six months ended June 30, 1996, and
include all adjustments (which were of a normal, recurring nature) which, in the
opinion of management, are necessary to present fairly the financial position of
the Company and the combined results of operations and cash flows for each of
the periods presented. The operating results for the interim periods presented
are not necessarily indicative of results for the full year.
F-90
<PAGE> 148
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition --
Service revenues and permanent placement fee revenues are recognized as
income at the time staffing services are provided or the permanent employee is
placed with the customer.
In addition to the services described above, the Company, through a
licensing agreement (Note 6), employs and pays individuals to perform services
for the licensees' customers, invoice customers, maintain professional liability
insurance and support the training, office administration, systems and marketing
needs of the licensee. All revenues generated by the licensee, therefore, belong
to the Company and are included in the Company's revenues and expenses. The
Company is primarily liable for operating expenses.
Use of Estimates --
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying combined financial statements are based
upon management's evaluation of the relevant facts and circumstances as of the
date of the combined financial statements. Actual results may differ from the
estimates and assumptions used in preparing the accompanying combined financial
statements.
Cash and Cash Equivalents --
For statement of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Accounts Receivable --
The Company provides, if necessary, allowances which management believes
are adequate to absorb losses to be incurred in realizing the amounts recorded
in the accompanying combined financial statements. Management believes all
accounts are collectible, and accordingly, has not recorded an allowance as of
January 1, 1995, December 31, 1995 and June 30, 1996. Included in accounts
receivable in the accompanying combined balance sheets are unbilled amounts of
$143,515, $149,665 and $394,098 at January 1, 1995, December 31, 1995 and June
30, 1996, respectively. All unbilled amounts are normally billed in the
following month.
Credit risk with respect to accounts receivable is dispersed due to the
nature of the business, the large number of customers and the diversity of
industries serviced.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated economic lives or the terms of the lease. The estimated
useful lives of the Company's assets, by asset classification, are as follows:
<TABLE>
<S> <C>
Office equipment............................................. 5 to 7 years
Computer equipment and software.............................. 5 years
Vehicles..................................................... 5 years
Leasehold improvements....................................... 5 to 15 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and
F-91
<PAGE> 149
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the related accumulated depreciation or amortization are removed from the
balance sheet and any resultant gain or loss is recorded.
Fair Value of Financial Instruments --
The Company's financial instruments include cash, related party notes
payable, due from stockholders and debt obligations. Management believes that
these instruments bear interest at rates which approximate prevailing market
rates for instruments with similar characteristics, and accordingly, the
carrying values for these instruments are reasonable estimates of fair value.
Income Taxes --
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under this new statement, deferred income taxes are provided based on the
estimated future tax effects of differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
adoption of SFAS 109 did not have a material effect on the Company's financial
position or results of operations.
Blethen Temporaries, Inc. and Jaeger Personnel Services, Ltd. have elected
to be taxed as S Corporations for federal and state income tax reporting
purposes. Accordingly, no income tax expense (benefit) has been recorded in the
accompanying combined financial statements related to these entities as such
taxes are liabilities of the respective stockholders. These entities' tax
returns are subject to examination by federal and state taxing authorities. If
such examinations result in a change to their reported income or loss, the
taxable income or loss reported by the respective stockholders could also
change.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ------------ --------
<S> <C> <C> <C>
Office equipment................................... $ 421,890 $428,610 $440,613
Computer equipment and software.................... 336,166 352,528 367,346
Vehicles........................................... 65,118 65,118 65,118
Leasehold improvements............................. 109,926 109,926 109,926
-------- -------- --------
933,100 956,182 983,003
Less accumulated depreciation and amortization..... 539,770 648,896 704,522
-------- -------- --------
$ 393,330 $307,286 $278,481
======== ======== ========
</TABLE>
F-92
<PAGE> 150
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ------------ --------
<S> <C> <C> <C>
Note payable to Chase Auto Financial. Principal and
interest payable monthly. Interest payable at a
fixed rate of 7.75%. Secured by a vehicle........ $ 35,172 $ 28,514 $ 25,261
Unsecured note payable to NationsBank of North
Carolina, N.A. Interest payable monthly at a
variable rate which ranged from 9.25% to 10.00%
and averaged 9.83% during 1995. Principal was
repaid in 1995................................... 15,900 -- --
Unsecured note payable to NationsBank of North
Carolina, N.A. Principal and interest are payable
in monthly installments of $320. Interest rate is
variable and ranged from 9.25% to 9.5% and
averaged 9.29% during the first six months of
1996............................................. 9,873 6,559 4,325
------- ------- -------
60,945 35,073 29,586
Less current maturities.......................... 25,341 10,151 10,494
------- ------- -------
$ 35,604 $ 24,922 $ 19,092
======= ======= =======
</TABLE>
The Company has two revolving lines of credit with Lighthouse Financial
Corp. that allow for maximum borrowings equal to the lesser of $800,000 and
$750,000 or 85% of the applicable Company's eligible accounts receivable, as
defined. Interest is payable monthly at a variable rate which ranged from 10.75%
to 11.00% and averaged 10.79% during the six months ended June 30, 1996. The
lines of credit are renewed annually and are currently due April 6, 1997. They
are secured by the assets of the Company and guaranteed by the majority
stockholder. Principal and interest on the lines of credit are repaid by
collection of accounts receivable under a lockbox arrangement. Accordingly, such
lines are classified as current liabilities. At June 30, 1996, approximately
$27,914 of cash held by the Company was subject to this arrangement. Under the
terms of both lines of credit, the Company is required to maintain certain
financial ratios, including working capital in excess of $125,000 and monthly
positive cash flow, among other things. As of June 30, 1996, the Company did not
comply with certain of these ratios, as well as certain other negative
covenants. However, Lighthouse Financial Corp. has agreed to forbear from
enforcing such events of noncompliance and default. Balances outstanding under
these lines were $764,645, $971,436 and $1,052,767 as of January 1, 1995,
December 31, 1995 and June 30, 1996, respectively.
Annual maturities of debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
---------------------------
DECEMBER 31, JUNE 30,
------------ ----------
<S> <C> <C>
1996............................... $ 981,587 $ --
1997............................... 10,262 1,063,261
1998............................... 7,773 8,140
1999............................... 6,887 8,027
2000............................... -- 2,925
2001............................... -- --
---------- ----------
$1,006,509 $1,082,353
========== ==========
</TABLE>
F-93
<PAGE> 151
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES:
Provision (benefit) for income taxes consisted of the following components:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS -----------------------
------------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
--------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal......................... $ -- $19,102 $69,160 $32,000 $ 23,240
State........................... -- -- 14,000 5,900 3,159
--------- ------- ------- ------- -------
-- 19,102 83,160 37,900 26,399
--------- ------- ------- ------- -------
Deferred:
Federal......................... (109,263) 23,898 (1,660) (900) 29,260
State........................... (27,000) 6,000 (500) -- 4,500
--------- ------- ------- ------- -------
(136,263) 29,898 (2,160) (900) 33,760
--------- ------- ------- ------- -------
Total................... $(136,263) $49,000 $81,000 $37,000 $ 60,159
========= ======= ======= ======= =======
</TABLE>
Provision (benefit) for income taxes differs from the amount computed by
applying the federal statutory tax rate to pretax income due to the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS -----------------------
--------------------------------- JULY 2, JUNE 30,
1993 1994 1995 1995 1996
--------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision (benefit) for income
taxes computed at the federal
statutory rate................. $ (77,000) $ 64,000 $ 98,000 $38,000 $123,000
State taxes, net of federal tax
benefit........................ (12,000) 10,000 15,000 6,000 19,000
Effect of permanent
differences.................... 1,000 2,000 3,000 1,000 1,000
Income of S Corporations not
subject to taxation............ (43,000) (19,000) (32,000) (7,000) (82,000)
Other............................ (5,263) (8,000) (3,000) (1,000) (841)
--------- -------- -------- ------- --------
Provision (benefit) for income
taxes.......................... $(136,263) $ 49,000 $ 81,000 $37,000 $ 60,159
========= ======== ======== ======= ========
</TABLE>
F-94
<PAGE> 152
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the impact of "temporary differences" between
the financial and tax bases of assets and liabilities. The temporary differences
which gave rise to deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, JUNE 30,
1995 1995 1996
---------- ------------ --------
<S> <C> <C> <C>
Current --
Employee advances treated as compensation...... $ (1,000) $ -- $ --
Workers' compensation accrual.................. 4,000 4,000 4,000
Vacation accrual............................... 2,000 3,000 3,000
Other.......................................... 500 4,000 1,000
------- ------- -------
5,500 11,000 8,000
Long-term --
Net operating losses ("NOLs").................. 78,000 42,000 9,000
Accelerated depreciation for tax purposes...... (30,000) (26,000) (24,000)
Alternative minimum tax and other credits...... 13,000 4,000 5,000
Change in income tax accounting method......... (37,000) -- --
Other.......................................... 100 760 --
------- ------- -------
24,100 20,760 (10,000)
------- ------- -------
Net deferred tax assets (liabilities)............ $ 29,600 $ 31,760 $ (2,000)
======= ======= =======
</TABLE>
The NOL carryforward at June 30, 1996 was approximately $23,000.
Utilization of this carryforward may be limited as a result of the potential
change in ownership that would result in the event of the intended merger
subsequent to year-end (Note 8). However, management believes that the deferred
tax asset related to the NOL carryforward is fully realizable, and therefore no
valuation allowance has been recorded.
5. RELATED PARTY TRANSACTIONS:
Notes Payable to Related Parties --
The Company has an informal note payable to a member of the Boards of
Directors and relative of the majority stockholder. The note is payable in
monthly installments of $711. The note bears interest at an annually adjustable
rate equal to the six month average rate of two year U.S. Treasury notes (5.69%
at June 30, 1996). The outstanding balances as of January 1, 1995, December 31,
1995 and June 30, 1996 were $68,694, $49,038 and $46,882, respectively. Interest
expense related to these notes amounted to approximately $6,000, $5,000 and
$3,000 during fiscal years 1993, 1994 and 1995, respectively, and $1,500 during
the unaudited six month period ended July 2, 1995 and $2,000 during the six
month period ended June 30, 1996.
The Company had a note payable to a former stockholder which originated
through the Company's purchase of the former stockholder's equity interest in DP
Pros of Burlington, Inc. The note did not bear interest and was due in equal
quarterly installments of $4,000. The note was fully repaid in 1995. The
outstanding balance as of January 1, 1995, was $8,000.
The Company has two unsecured notes payable to stockholders, which bear
interest at variable rates ranging between 9.25% and 9.50%. Both notes are due
on demand and aggregate outstanding balances as of January 1, 1995, December 31,
1995 and June 30, 1996, were $52,337, $59,046 and $82,467, respectively.
Interest expense related to these notes amounted to $5,000 and $6,000 during
fiscal years 1994 and 1995, respectively, and $3,000 and $4,000 during the
unaudited six month period ended July 2, 1995 and the six month period ended
June 30, 1996, respectively.
F-95
<PAGE> 153
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Stockholder Transactions --
The Company leases office space and a vehicle from the majority stockholder
through informal agreements at a monthly cost of $600 each. In March 1996, the
office lease payments were increased to $1,200 per month. Market rental rates
may differ from these rental payments. Rental expense under the above agreements
totaled $14,400 for each of the fiscal years 1993, 1994 and 1995 and $7,200
(unaudited) and $9,600 for the six month period ended July 2, 1995 and for the
six month period ended June 30, 1996, respectively. Due from stockholders
primarily represents advances to the majority stockholder.
The Company rents its Henderson office facilities from a stockholder under
a month-to-month agreement. Rent expense related to these facilities was
$17,500, $19,000 and $24,000 during the fiscal years 1993, 1994 and 1995,
respectively, and $12,000 during the unaudited six month period ended July 2,
1995 and $13,700 during the six month period ended June 30, 1996.
During 1991 the Company entered into a three year noncompete agreement with
a related party. Pursuant thereto, the individual agreed not to compete, as
defined, with the Company for the term of the agreement, expiring in January
1994, in exchange for $150,000 payable in weekly installments of $962.
6. COMMITMENTS AND CONTINGENCIES:
Distributions to Stockholders --
Blethen Temporaries, Inc. and Jaeger Personnel Services, Ltd. pay dividends
to their stockholders in amounts sufficient to cover, among other things, their
estimated tax payments attributable to each entity's net income which will be
included in their individual tax returns.
Licensing Agreement --
During 1995, the Company entered into an agreement whereby it granted a
license to a third party to open and maintain a branch in West End, North
Carolina, for the purpose of providing temporary personnel services in that
market for an indefinite term. The Company also thereby granted the
non-exclusive right to utilize the Company's trade secrets, methods and
know-how. The Company receives 40% of gross margin, as defined, as payment for
management services. The balance of such gross margin is paid to the licensee.
Amounts expensed under the agreement amounted to $36,515 during fiscal year 1995
and $48,290 during the six month period ended June 30, 1996. Such expense is
included in selling, general and administrative expenses in the accompanying
combined statements of income (loss).
Capital Lease Obligations --
The Company previously leased certain assets (primarily office equipment)
under capital leases. All capital lease obligations were paid in full during the
six month period ended June 30, 1996.
F-96
<PAGE> 154
THE BLETHEN GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. NONCANCELABLE OPERATING LEASES:
The Company leases office space and a vehicle (Note 5) under noncancelable
operating leases. As discussed in Note 5, certain of these facilities are leased
from related parties. Future minimum payments required under operating leases
that have an initial or remaining noncancelable lease term in excess of one year
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
-------------------------
DECEMBER 31, JUNE 30,
------------ --------
<S> <C> <C>
1996................................. $ 93,395 $ --
1997................................. 86,317 101,883
1998................................. 88,140 103,677
1999................................. 33,932 80,958
2000................................. -- 13,572
-------- --------
$301,784 $300,090
======== ========
</TABLE>
Rental expense totaled $95,208, $155,230 and $157,121 for fiscal years
1993, 1994 and 1995, respectively, and $75,391 and $77,535 for the unaudited six
month period ended July 2, 1995, and the six month period ended June 30, 1996,
respectively.
8. PENDING BUSINESS COMBINATION:
In June 1996, certain of the stockholders of the Company entered into a
definitive agreement to merge the Company with StaffMark, Inc. ("StaffMark") in
conjunction with StaffMark's anticipated initial public offering. In April 1996,
the Company advanced $31,250 to StaffMark to fund organizational and other costs
related to the planned merger and StaffMark's initial public offering.
In conjunction with this merger, the Company plans to make a cash
distribution to the majority stockholder representing the Company's S
Corporation Accumulated Adjustment Account as of the merger date. The estimated
balance of the Company's S Corporation Accumulated Adjustment Account at June
30, 1996, was approximately $270,000.
In conjunction with the merger discussed above, the majority stockholder
will enter into an employment agreement which provides for a set base salary,
participation in future incentive bonus plans, certain other benefits and a
covenant not to compete if and when the stockholder's employment is terminated.
9. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION
(UNAUDITED):
In conjunction with the planned merger with StaffMark as discussed in Note
8, the Company will change from an S Corporation to a C Corporation for federal
and state income tax reporting purposes, which will require the Company to
recognize the tax consequences of operations in its statements of income. The
supplemental pro forma information included in the accompanying statements of
income reflect the estimated impact of recognizing income tax expense as if the
Company had been a C Corporation for tax reporting purposes during the twelve
months and six months ended December 31, 1995 and June 30, 1996, respectively.
As discussed in Note 8, the Company intends to make distributions equal to
the Company's S Corporation Accumulated Adjustment Account as of the merger
date. The supplemental pro forma information included in the accompanying
balance sheet reflects the estimated impact of recording these distributions as
if such distributions had occurred as of June 30, 1996. The pro forma
adjustments are based on the assumption that the distributions will be funded
with additional borrowings.
10. SUBSEQUENT EVENT (UNAUDITED):
Effective October 2, 1996, StaffMark completed the initial public offering
discussed above.
F-97
<PAGE> 155
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To E.P. Enterprises Corporation:
We have audited the accompanying balance sheets of E.P. Enterprises
Corporation (the "Company"), as of December 31, 1994 and July 10, 1995, and the
related statements of income, shareholders' equity (deficit) and cash flows for
the years ended December 31, 1993 and 1994 and for the period from January 1,
1995 through July 10, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of E.P. Enterprises Corporation
as of December 31, 1994 and July 10, 1995, and the results of its operations and
its cash flows for the years ended December 31, 1993 and 1994 and for the period
from January 1, 1995 through July 10, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia,
May 17, 1996.
F-98
<PAGE> 156
E.P. ENTERPRISES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JULY 10,
1994 1995
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ -- $ 2,331
Accounts receivable, net of allowance for doubtful accounts of
$10,000....................................................... 1,420,510 1,929,922
Prepaid expenses and other....................................... 58,591 57,723
---------- ----------
Total current assets..................................... 1,479,101 1,989,976
PROPERTY AND EQUIPMENT, net........................................ 124,523 111,561
OTHER ASSETS....................................................... 6,458 5,830
---------- ----------
$1,610,082 $2,107,367
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................. $ 6,476 $ 72,050
Outstanding checks, net.......................................... 145,340 397,142
Payroll and related liabilities.................................. 405,296 660,807
Reserve for workers' compensation claims......................... 81,797 285,000
Current maturities of long-term debt and leases.................. 41,414 1,005,144
Accrued interest and other....................................... 27,759 7,690
---------- ----------
Total current liabilities................................ 708,082 2,427,833
LONG-TERM DEBT AND LEASES, less current maturities................. 10,282 8,769
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 9)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $100 par value in 1995 and 1994; authorized and
issued shares of 150 in 1995 and 1994, outstanding shares of
10 in 1995 and 1994........................................... 15,000 15,000
Paid-in capital.................................................. 22,500 22,500
Retained earnings................................................ 1,323,718 102,765
Treasury stock, 140 shares....................................... (469,500) (469,500)
---------- ----------
Total shareholders' equity (deficit)..................... 891,718 (329,235)
---------- ----------
$1,610,082 $2,107,367
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-99
<PAGE> 157
E.P. ENTERPRISES CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
YEARS ENDED DECEMBER 31, FROM
--------------------------- JANUARY 1, 1995
1993 1994 TO JULY 10, 1995
----------- ----------- ----------------
<S> <C> <C> <C>
SERVICE REVENUES................................... $14,211,743 $17,553,687 $ 11,034,812
COST OF SERVICES................................... 10,833,922 13,583,176 8,751,870
----------- ----------- -----------
Gross profit............................. 3,377,821 3,970,511 2,282,942
OPERATING EXPENSES:
Selling, general and administrative.............. 2,308,467 2,338,574 1,330,700
Depreciation and amortization.................... 16,418 23,849 17,331
----------- ----------- -----------
Operating income......................... 1,052,936 1,608,088 934,911
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense................................. (2,025) (2,564) (14,685)
Interest and other income (expense).............. 36,271 (4,230) 33,821
----------- ----------- -----------
Net income............................... $ 1,087,182 $ 1,601,294 $ 954,047
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-100
<PAGE> 158
E.P. ENTERPRISES CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
----------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992... 150 $15,000 $22,500 $ 1,165,242 $(469,500) $ 733,242
Net income................. -- -- -- 1,087,182 -- 1,087,182
Dividends.................. -- -- -- (230,000) -- (230,000)
--- ------- ------- ----------- -------- -----------
BALANCE, December 31, 1993... 150 15,000 22,500 2,022,424 (469,500) 1,590,424
Net income................. -- -- -- 1,601,294 -- 1,601,294
Dividends.................. -- -- -- (2,300,000) -- (2,300,000)
--- ------- ------- ----------- -------- -----------
BALANCE, December 31, 1994... 150 15,000 22,500 1,323,718 (469,500) 891,718
Net income................. -- -- -- 954,047 -- 954,047
Dividends.................. -- -- -- (2,175,000) -- (2,175,000)
--- ------- ------- ----------- -------- -----------
BALANCE, July 10, 1995....... 150 $15,000 $22,500 $ 102,765 $(469,500) $ (329,235)
=== ======= ======= =========== ======== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-101
<PAGE> 159
E.P. ENTERPRISES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
YEARS ENDED DECEMBER 31, FROM
-------------------------- JANUARY 1, 1995
1993 1994 TO JULY 10, 1995
---------- ----------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $1,087,182 $ 1,601,294 $ 954,047
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 16,418 23,849 17,331
Provision for bad debts........................ 2,420 12,557 --
Net (gain) loss on sale of equipment........... 5,351 230 (31,032)
Change in operating assets and liabilities:
Accounts receivable.......................... (766,117) 196,457 (509,412)
Prepaid expenses and other................... 54,414 23,460 868
Other assets................................. (838) (3,037) 628
Accounts payable............................. (8,750) (5,973) 65,574
Outstanding checks, net...................... -- 145,340 251,802
Payroll and related liabilities.............. 121,995 14,695 255,511
Reserve for workers' compensation claims..... 41,406 31,891 203,203
Accrued interest and other................... (170,597) (29,517) (20,069)
---------- ----------- -----------
Net cash provided by operating
activities.............................. 382,884 2,011,246 1,188,451
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (61,867) (67,893) (13,612)
Proceeds from the sales of property and
equipment...................................... 12,529 -- 40,275
---------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. (49,338) (67,893) 26,663
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt......... -- -- 800,000
Net borrowings on revolving line of credit........ -- 38,207 164,055
Payments on capital leases........................ -- 13,489 (1,838)
Cash distributions to shareholders................ (230,000) (2,300,000) (2,175,000)
---------- ----------- -----------
Net cash used in financing activities..... (230,000) (2,248,304) (1,212,783)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH..................... 103,546 (304,951) 2,331
CASH, beginning of period........................... 201,405 304,951 --
---------- ----------- -----------
CASH, end of period................................. $ 304,951 $ -- $ 2,331
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid..................................... $ 2,025 $ 2,564 $ 14,685
========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-102
<PAGE> 160
E.P. ENTERPRISES CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
E.P. Enterprises Corporation (the "Company"), doing business as Caldwell
Services, Inc., was incorporated in the state of Georgia on December 27, 1973.
The Company's primary business purpose is to provide temporary personnel
services. The Company is headquartered in Atlanta, Georgia, and as of July 10,
1995 operated five staffing offices in the Atlanta area.
On July 10, 1995, Brewer Personnel Services, Inc. ("Brewer") acquired the
stock of the Company. Total consideration paid by Brewer for the Company was
approximately $17.3 million. The purchase price included cash of $11.5 million,
a note for $3.1 million and the assumption of certain liabilities of the
Company. The accompanying balance sheet as of July 10, 1995 has been prepared as
of the date of acquisition and does not reflect the purchase accounting
adjustments which were recorded by Brewer in conjunction with this acquisition.
Revenue Recognition --
Service revenues are recognized as income at the time staffing services are
provided.
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. However, actual results may differ from the
estimates and assumptions used in preparing the accompanying financial
statements.
Accounts Receivable --
The Company maintains allowances for potential losses which management
believes are adequate to absorb losses to be incurred in realizing the amounts
recorded in the accompanying financial statements. Included in accounts
receivable in the accompanying balance sheets are unbilled amounts of $254,016
and $324,783 at December 31, 1994 and July 10, 1995, respectively.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated economic lives or the terms of the lease. The estimated
useful lives of the Company's assets, by asset classification, are as follows:
<TABLE>
<S> <C>
Office equipment.................................................. 5-7 years
Computer equipment................................................ 5 years
Computer software................................................. 3 years
Leasehold improvements............................................ 39 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resultant gain or loss is recorded.
F-103
<PAGE> 161
E.P. ENTERPRISES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Workers' Compensation --
The Company self-insures certain risks related to workers' compensation
claims. The estimated costs of existing and future claims are accrued as
incidents occur based upon historical loss development trends and may be
subsequently revised based on developments relating to such claims. The Company
engages the services of a third-party actuary to assist with the development of
these cost estimates.
2. PROPERTY AND EQUIPMENT:
Components of property and equipment at December 31, 1994 and July 10, 1995
are as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Office equipment............................................... $225,051 $118,787
Computer equipment............................................. 130,685 123,103
Computer software.............................................. 6,891 9,450
Leasehold improvements......................................... 81,194 7,231
-------- --------
443,821 258,571
Less accumulated depreciation and amortization............ 319,298 147,010
-------- --------
$124,523 $111,561
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $16,418, $23,849 and $17,331 for the years ended 1993 and 1994 and the
period ended July 10, 1995, respectively.
3. LONG-TERM DEBT AND LEASES:
At December 31, 1994 and July 10, 1995, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
-------- -----------
<S> <C> <C>
Term loan with Bank South; interest payable monthly at
6.85%; principal due September 23, 1995; secured by the
assets and common stock of the Company. .................. $ -- $ 600,000
Term loan with Bank South; interest payable monthly at
prime; principal due September 23, 1995; secured by the
assets and common stock of the Company. .................. -- 200,000
Line of Credit with Bank South; maximum borrowings equal the
lesser of $800,000 or 85% of the Company's eligible
accounts receivable balance; interest payable monthly at
prime; principal due on demand or by April 30, 1996;
secured by the assets and common stock of the Company. ... 38,207 202,262
Capital lease obligations................................... 13,489 11,651
-------- -----------
51,696 1,013,913
Less current maturities................................ 41,414 1,005,144
-------- -----------
Total long-term debt and leases............................. $ 10,282 $ 8,769
======== ===========
</TABLE>
F-104
<PAGE> 162
E.P. ENTERPRISES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of long-term debt subsequent to July 10, 1995 are as
follows:
<TABLE>
<S> <C>
1996............................................. $1,005,144
1997............................................. 3,799
1998............................................. 4,970
----------
$1,013,913
==========
</TABLE>
Long-term debt of the Company was repaid concurrent with the sale of the
Company (Note 9).
4. INCOME TAXES:
The Company operates as an S Corporation for federal and state income tax
reporting purposes. Accordingly, no provision for income taxes has been recorded
in the accompanying financial statements as such taxes are liabilities of the
individual shareholders.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
shareholders could also change.
5. WORKERS' COMPENSATION:
The Company is self-insured for certain workers' compensation claims and is
regulated by the Workers' Compensation Insurance Commission in the state of
Georgia. Workers' compensation expense totaled $101,411, $240,908 and $349,934
for the years ended December 31, 1993 and 1994 and for the period ended July 10,
1995, respectively.
6. RELATED PARTY TRANSACTIONS:
Through July 1995, the Company occupied a building owned by an affiliated
partnership comprised of the Company's shareholders. Expenses related to this
building were $33,000 for both years ended December 31, 1993 and 1994 and
$17,325 for the period ended July 10, 1995.
The Company has hardware and software maintenance support agreements with
related companies. Amounts paid on these contracts were $10,327 and $16,141 for
the years ended December 31, 1993 and 1994, respectively, and $8,160 for the
period ended July 10, 1995.
The Company supplies some of its services to affiliated companies. Service
revenues from these companies were $32,944 and $52,941 for the years ended
December 31, 1993 and 1994, respectively, and $34,396 for the period ended July
10, 1995.
7. COMMITMENTS AND CONTINGENCIES:
The Company has historically paid bonuses to its shareholders in amounts
sufficient to cover their estimated tax payments attributable to the respective
share of the Company's net income included in their individual tax returns.
F-105
<PAGE> 163
E.P. ENTERPRISES CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. NONCANCELABLE OPERATING LEASES:
The Company leases branch office space under noncancelable operating
leases. Future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year at July 10,
1995, are as follows:
<TABLE>
<S> <C>
1996.............................................. $110,290
1997.............................................. 93,067
1998.............................................. 48,165
1999.............................................. 36,840
2000.............................................. 36,840
--------
$325,202
========
</TABLE>
Rental expense totaled $105,125, $115,945 and $83,399 for the years ended
December 31, 1993 and 1994 and for the period ended July 10, 1995, respectively.
9. LITIGATION:
The Company is a party to certain lawsuits primarily involving workers'
compensation claims. Management believes, based in part on consultation from
legal counsel, that the ultimate outcome of these matters will not have a
materially adverse effect on the Company's financial position, liquidity or
results of operations.
F-106
<PAGE> 164
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To On Call Employment Services, Inc.:
We have audited the accompanying balance sheets of On Call Employment
Services, Inc. (the "Company"), a Colorado corporation, as of December 31, 1994
and 1995 and February 2, 1996 and the related statements of income,
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995 and for the period from January 1, 1996 to
February 2, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of On Call Employment Services,
Inc. as of December 31, 1994 and 1995 and February 2, 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995 and for the period from January 1, 1996 to February 2,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
May 24, 1996.
F-107
<PAGE> 165
ON CALL EMPLOYMENT SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ FEBRUARY 2,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 95,313 $ 340,594 $ 4,849
Accounts receivable.................................... 1,678,682 2,068,461 273,067
Prepaid expenses and other............................. 1,071 1,671 8,878
---------- ---------- ---------
Total current assets........................... 1,775,066 2,410,726 286,794
PROPERTY AND EQUIPMENT, net.............................. 65,103 114,537 115,369
---------- ---------- ---------
$1,840,169 $2,525,263 $ 402,163
========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable....................................... $ 68,302 $ 123,653 $ 129,970
Payroll and related liabilities........................ 140,195 183,410 253,601
Reserve for workers' compensation claims............... 30,360 40,815 43,305
Other.................................................. 10,000 11,275 12,000
---------- ---------- ---------
Total current liabilities...................... 248,857 359,153 438,876
COMMITMENTS AND CONTINGENCIES
(Notes 6, 7 and 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, 1,000,000 shares authorized, issued and
outstanding......................................... 60,000 60,000 60,000
Paid-in capital........................................ 185,000 185,000 185,000
Retained earnings (deficit)............................ 1,346,312 1,921,110 (281,713)
---------- ---------- ---------
Total shareholders' equity (deficit)........... 1,591,312 2,166,110 (36,713)
---------- ---------- ---------
$1,840,169 $2,525,263 $ 402,163
========== ========== =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-108
<PAGE> 166
ON CALL EMPLOYMENT SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
YEARS ENDED DECEMBER 31, 1996 TO
----------------------------------------- FEBRUARY 2,
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SERVICE REVENUES.......................... $22,130,961 $10,098,261 $12,497,627 $ 1,127,091
COST OF SERVICES.......................... 18,364,966 8,176,489 10,203,428 945,388
----------- ----------- ----------- ----------
Gross profit.................... 3,765,995 1,921,772 2,294,199 181,703
OPERATING EXPENSES:
Selling, general and administrative..... 1,459,203 1,293,619 1,304,762 116,092
Depreciation and amortization........... 6,372 13,242 24,473 2,525
----------- ----------- ----------- ----------
Operating income................ 2,300,420 614,911 964,964 63,086
OTHER INCOME:
Interest income......................... 19,610 25,605 43,334 4,847
----------- ----------- ----------- ----------
Net income...................... $ 2,320,030 $ 640,516 $ 1,008,298 $ 67,933
=========== =========== =========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-109
<PAGE> 167
ON CALL EMPLOYMENT SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992.......... 1,000,000 $60,000 $ -- $ 1,458,724 $ 1,518,724
Net income........................ -- -- -- 2,320,030 2,320,030
Dividends......................... -- -- -- (230,000) (230,000)
--------- ------- -------- ----------- -----------
BALANCE, December 31, 1993.......... 1,000,000 60,000 -- 3,548,754 3,608,754
Net income........................ -- -- -- 640,516 640,516
Contribution from shareholder..... -- -- 185,000 -- 185,000
Dividends......................... -- -- -- (2,842,958) (2,842,958)
--------- ------- -------- ----------- -----------
BALANCE, December 31, 1994.......... 1,000,000 60,000 185,000 1,346,312 1,591,312
Net income........................ -- -- -- 1,008,298 1,008,298
Dividends......................... -- -- -- (433,500) (433,500)
--------- ------- -------- ----------- -----------
BALANCE, December 31, 1995.......... 1,000,000 60,000 185,000 1,921,110 2,166,110
Net income for the period from
January 1, 1996 to
February 2, 1996............... -- -- -- 67,933 67,933
Dividends......................... -- -- -- (2,270,756) (2,270,756)
--------- ------- -------- ----------- -----------
BALANCE, February 2, 1996........... 1,000,000 $60,000 $185,000 $ (281,713) $ (36,713)
========= ======= ======== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-110
<PAGE> 168
ON CALL EMPLOYMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JANUARY 1,
YEARS ENDED DECEMBER 31, 1996 TO
---------------------------------------- FEBRUARY 2,
1993 1994 1995 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 2,320,030 $ 640,516 $1,008,298 $ 67,933
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 6,372 13,242 24,473 2,525
Change in operating assets and liabilities:
Accounts receivable............................... (2,532,313) 2,634,981 (389,779) 581,883
Prepaid expenses and other........................ 465 -- (600) (10,564)
Accounts payable.................................. 52,716 (78,044) 55,351 6,317
Outstanding checks................................ 110,098 (110,098) -- --
Payroll and related liabilities................... 236,744 (302,925) 43,215 70,191
Reserve for workers' compensation claims.......... 7,520 (888) 10,455 2,490
Other............................................. -- -- 1,275 725
----------- ----------- --------- -----------
Net cash provided by operating activities...... 201,632 2,796,784 752,688 721,500
----------- ----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (26,130) (43,513) (73,907) --
----------- ----------- --------- -----------
Net cash used in investing activities.......... (26,130) (43,513) (73,907) --
----------- ----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends.............................................. (230,000) (2,842,958) (433,500) (1,057,245)
Contribution by shareholders........................... -- 185,000 -- --
----------- ----------- --------- -----------
Net cash used in financing activities.......... (230,000) (2,657,958) (433,500) (1,057,245)
----------- ----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (54,498) 95,313 245,281 (335,745)
CASH AND CASH EQUIVALENTS, beginning of period........... 54,498 -- 95,313 340,594
----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS, end of period................. $ -- $ 95,313 $ 340,594 $ 4,849
=========== =========== ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash transactions:
Distribution of accounts receivable to shareholders
(Note 1).......................................... $ -- $ -- $ -- $ 1,213,511
=========== =========== ========= ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-111
<PAGE> 169
ON CALL EMPLOYMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
On Call Employment Services, Inc. ("On Call" or the "Company") was
incorporated in the state of Colorado. The Company's primary business purpose
was to provide temporary personnel services to companies in northern Colorado,
mainly those which specialize in high tech manufacturing. The Company is
headquartered in Loveland, Colorado and as of February 2, 1996, operated
staffing offices in Loveland, Longmont, Boulder and Greeley, Colorado.
On January 19, 1996, the two shareholders of On Call who aggregately owned
100 percent of the Company entered into an Agreement and Plan of Reorganization
(the "Agreement") with Brewer Personnel Services, Inc. ("Brewer"), an Arkansas
corporation. The Agreement was effective February 2, 1996. Under the terms of
the Agreement, the outstanding shares of the Company prior to the merger
(1,000,000 shares) were converted into i) ten shares of Brewer's common stock at
an exchange rate of one share of Brewer for every 100,000 shares of the Company
and ii) $2.64 million in cash. Brewer was the surviving company of the merger.
The Agreement also specified that cash and certain accounts receivable would be
distributed to the two shareholders prior to the merger. The accompanying
balance sheet as of February 2, 1996 reflects such distributions of cash and
accounts receivable but does not reflect the purchase accounting adjustments
which were recorded by Brewer in conjunction with this acquisition.
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements were based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from the estimates and
assumptions used in preparing the accompanying financial statements.
Revenue Recognition --
Service revenues are recognized as income at the time staffing services are
provided.
Cash and Cash Equivalents --
For statements of cash flow purposes, the Company considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Accounts Receivable --
Included in accounts receivable in the accompanying balance sheets are
unbilled amounts of $159,733, $173,238 and $273,067 at December 31, 1994 and
1995 and February 2, 1996, respectively.
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the assets
which are as follows:
<TABLE>
<S> <C>
Office equipment................................................ 5 to 7 years
Computer equipment.............................................. 3 to 5 years
Computer software............................................... 3 to 5 years
</TABLE>
F-112
<PAGE> 170
ON CALL EMPLOYMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resultant gain or loss is recorded.
Concentration of Credit Risk --
The Company had no significant off-balance sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintained its cash balances with financial
institutions, in the form of demand deposits. The Company performed ongoing
credit evaluations of its customers' financial condition and generally did not
require collateral. Its accounts receivable balances were domestic and were due
from companies located in northern Colorado which were primarily engaged in
businesses related to the high technology manufacturing industry.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- FEBRUARY 2,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Office equipment................................ $ 6,412 $ 24,037 $ 24,037
Computer equipment.............................. 75,585 119,867 119,867
Computer software............................... 10,000 22,000 22,000
-------- -------- ---------
91,997 165,904 165,904
Less accumulated depreciation and
amortization............................. 26,894 51,367 50,535
-------- -------- ---------
$ 65,103 $114,537 $ 115,369
======== ======== =========
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $6,372, $13,242, $24,473 and $2,525 for the years ended December 31,
1993, 1994 and 1995 and the period from January 1, 1996 to February 2, 1996,
respectively.
3. INCOME TAXES:
Prior to February 2, 1996, the Company operated as an S Corporation for
federal and state income tax reporting purposes. Accordingly, no provision for
income taxes has been recorded in the accompanying financial statements as such
taxes were liabilities of the individual shareholders. The Company had
historically made distributions to its shareholders which were used, in part, to
satisfy the income tax liability reported by the shareholders related to the
Company's operations.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
shareholders could also change.
4. WORKERS' COMPENSATION:
The Company was insured by certain insurance companies for workers'
compensation claims and was regulated by the Workers' Compensation Insurance
Commission in the state of Colorado. Workers' compensation expense totaled
approximately $218,500, $171,100, $131,800 and $9,300 for the years ended
December 31, 1993, 1994 and 1995, and the period from January 1, 1996 to
February 2, 1996, respectively.
F-113
<PAGE> 171
ON CALL EMPLOYMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMON STOCK:
As of December 31, 1993, 1994 and 1995 and February 2, 1996, the Company
had an authorized capitalization consisting of 1,000,000 shares of common stock,
of which 1,000,000 shares were issued and outstanding and no shares were held as
treasury stock.
6. NONCANCELABLE OPERATING LEASES:
The Company leased office space for its four branch locations in northern
Colorado through noncancelable operating leases. Future minimum annual payments
required during each of the next five years under operating leases that had
initial or remaining noncancelable lease terms of one year or more at February
2, 1996, are as follows:
<TABLE>
<S> <C>
1996.............................................. $ 70,640
1997.............................................. 29,052
1998.............................................. 23,464
1999.............................................. 17,344
2000.............................................. 8,680
Thereafter........................................ 2,920
--------
$152,100
========
</TABLE>
Rent expense totaled approximately $66,900, $78,500, $82,200 and $7,200 for
the years ended December 31, 1993, 1994 and 1995 and the period from January 1,
1996 to February 2, 1996, respectively.
The shareholders committed to the construction of a commercial office
building in Loveland, Colorado which should be completed by October 1996. The
Company plans on moving its Loveland office to this new building once completed.
Brewer has agreed to sublease this office space from the shareholders for a
five-year period.
7. EMPLOYEE BENEFIT PLAN:
The Company had a 401(k) plan under which eligible employees may defer up
to 12% of their compensation. The Company's plan does not allow for matching
employer contributions.
8. CONTINGENCIES:
The Company is subject to various claims and business disputes in the
ordinary course of business. Management does not anticipate that the ultimate
outcome of these issues will have a material impact on the Company's financial
position or results of operations.
9. SIGNIFICANT CUSTOMERS:
The Company's sales to customers which individually account for 10% or more
of service revenues for the years ended December 31, 1993, 1994 and 1995 and the
period from January 1, 1996 to February 2, 1996, were as follows:
<TABLE>
<CAPTION>
JANUARY 1 TO
1993 1994 1995 FEBRUARY 2, 1996
--------------------------- --------------------------- --------------------------- ---------------------------
AMOUNTS PERCENTAGES AMOUNTS PERCENTAGES AMOUNTS PERCENTAGES AMOUNTS PERCENTAGES
------------- ----------- ------------- ----------- ------------- ----------- ------------ -----------
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer
1......... $13.3 60% $ 1.6 16% $ 1.5 12% $ 0.2 18%
Customer
2......... 3.1 14 2.2 22 3.2 26 0.3 23
Customer
3......... -- -- -- -- 1.6 13 0.2 17
</TABLE>
F-114
<PAGE> 172
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Strategic Sourcing, Inc.:
We have audited the accompanying balance sheets of Strategic Sourcing, Inc.
(the "Company") as of December 31, 1994 and 1995, and the related statements of
income (loss), stockholders' equity (deficit) and cash flows for the period from
the date of incorporation (May 25, 1993) to December 31, 1993, and each of the
two years in the period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures to the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Strategic Sourcing, Inc. as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the period from the date of incorporation (May 25, 1993) to December
31, 1993, and each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
July 26, 1996.
F-115
<PAGE> 173
STRATEGIC SOURCING, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 26,159 $ 13,281 $ 67,691
Accounts receivable....................................... 92,041 121,217 138,024
Prepaid expenses and other................................ -- 1,675 7,065
-------- -------- --------
Total current assets.............................. 118,200 136,173 212,780
PROPERTY AND EQUIPMENT, net................................. 13,406 21,667 18,945
OTHER ASSETS................................................ 2,435 2,347 1,845
-------- -------- --------
$134,041 $160,187 $ 233,570
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.......................................... $ 4,038 $ 9,118 $ 9,118
Payroll and related liabilities........................... 26,869 6,325 24,465
Current portion of notes payable to stockholders.......... 55,000 6,145 47,626
Line of credit............................................ -- -- 10,000
-------- -------- --------
Total current liabilities......................... 85,907 21,588 91,209
NOTE PAYABLE TO STOCKHOLDER................................. 69,166 63,021 59,866
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 1,000 shares authorized, 600
shares issued and outstanding in 1994, 1995 and 1996... 3,000 3,000 3,000
Retained earnings (deficit)............................... (24,032) 72,578 79,495
-------- -------- --------
Total stockholders' equity (deficit).............. (21,032) 75,578 82,495
-------- -------- --------
$134,041 $160,187 $ 233,570
======== ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-116
<PAGE> 174
STRATEGIC SOURCING, INC.
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 25, YEAR ENDED SIX MONTHS ENDED
1993 TO DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- --------------------------
1993 1994 1995 1995 1996
------------ -------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenues................ $ 23,932 $608,030 $1,013,332 $ 627,338 $ 384,897
Permanent placement fee
revenues..................... 26,407 85,068 230,166 109,763 64,209
-------- -------- ---------- -------- --------
50,339 693,098 1,243,498 737,101 449,106
COST OF SERVICES.................. 10,236 358,228 612,197 406,632 240,040
-------- -------- ---------- -------- --------
Gross profit............ 40,103 334,870 631,301 330,469 209,066
OPERATING EXPENSES:
Selling, general and
administrative............... 101,920 278,603 414,254 206,675 142,529
Depreciation and amortization... 1,769 3,258 5,015 2,212 2,722
-------- -------- ---------- -------- --------
Operating income
(loss)................ (63,586) 53,009 212,032 121,582 63,815
OTHER INCOME (EXPENSE), net....... (1,356) (12,099) 735 1,691 (433)
-------- -------- ---------- -------- --------
Net income (loss)....... $(64,942) $ 40,910 $ 212,767 $ 123,273 $ 63,382
======== ======== ========== ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-117
<PAGE> 175
STRATEGIC SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
RETAINED STOCKHOLDERS'
COMMON EARNINGS EQUITY
STOCK (DEFICIT) (DEFICIT)
------ --------- ------------
<S> <C> <C> <C>
Initial capital contribution on May 25, 1993
(date of incorporation)................................. $3,000 $ -- $ 3,000
Net loss................................................ -- (64,942) (64,942)
------ --------- ---------
BALANCE, December 31, 1993................................ 3,000 (64,942) (61,942)
Net income.............................................. -- 40,910 40,910
------ --------- ---------
BALANCE, December 31, 1994................................ 3,000 (24,032) (21,032)
Net income.............................................. -- 212,767 212,767
Dividends............................................... -- (116,157) (116,157)
------ --------- ---------
BALANCE, December 31, 1995................................ 3,000 72,578 75,578
Net income (Unaudited).................................. -- 63,382 63,382
Dividends (Unaudited)................................... -- (56,465) (56,465)
------ --------- ---------
BALANCE, June 30, 1996 (Unaudited)........................ $3,000 $ 79,495 $ 82,495
====== ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-118
<PAGE> 176
STRATEGIC SOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 25, YEAR ENDED SIX MONTHS ENDED
1993, TO DECEMBER 31, JUNE 31,
DECEMBER 31, ------------------- -------------------------
1993 1994 1995 1995 1996
------------ -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................... $(64,942) $ 40,910 $212,767 $ 123,273 $ 63,382
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization...... 1,769 3,258 5,015 2,212 2,722
Change in operating assets and
liabilities:
Accounts receivable.............. (32,230) (59,811) (29,176) 2,815 (16,807)
Prepaid expenses and other....... -- -- (1,675) -- (5,390)
Other assets..................... (1,072) (1,363) 88 -- 502
Accounts payable................. 5,911 (1,873) 5,080 3,380 --
Payroll and related
liabilities................... 2,099 24,770 (20,544) 12,425 18,140
--------- --------- ---------- --------- ---------
Net cash provided by (used in)
operating activities........ (88,465) 5,891 171,555 144,105 62,549
--------- --------- ---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (17,691) (742) (13,276) (7,370) --
--------- --------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock.............................. 3,000 -- -- -- --
Proceeds from (payments on) line of
credit............................. 50,000 (50,000) -- -- 10,000
Proceeds from note payable to
stockholder........................ 68,379 55,787 -- -- 38,326
Payments on note payable to
stockholder........................ -- -- (55,000) (29,727) --
Dividends............................. -- -- (116,157) (54,158) (56,465)
--------- --------- ---------- --------- ---------
Net cash provided by (used in)
financing activities........ 121,379 5,787 (171,157) (83,885) (8,139)
--------- --------- ---------- --------- ---------
NET INCREASE (DECREASE) IN CASH......... 15,223 10,936 (12,878) 52,850 54,410
CASH, beginning of period............... -- 15,223 26,159 26,159 13,281
--------- --------- ---------- --------- ---------
CASH, end of period..................... $ 15,223 $ 26,159 $ 13,281 $ 79,009 $ 67,691
========= ========= ========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid......................... $ 1,356 $ 2,901 $ -- $ -- $ 1,138
========= ========= ========== ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-119
<PAGE> 177
STRATEGIC SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization --
Strategic Sourcing, Inc. (the "Company"), a North Carolina corporation,
provides services related to the placement of information technology
professionals in both permanent and contract positions for companies located
primarily in North Carolina and South Carolina. The business was initially
founded in May 1993 as Strategic Staffing, Inc. and changed its name to
Strategic Sourcing, Inc. in February 1995. Accordingly, the 1993 results of
operations and cash flows included in the accompanying financial statements and
notes thereto reflect activity for the period from May 25, 1993 to December 31,
1993.
Interim Periods --
The accompanying interim financial statements and related disclosures have
not been audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the accompanying audited
financial statements and include all adjustments (which were of a normal,
recurring nature) which, in the opinion of management, are necessary to present
fairly the financial position of the Company and the results of operations and
cash flows for each of the periods presented. The operating results for the
interim periods presented are not necessarily indicative of results for the full
year.
Revenue Recognition --
Service revenues and permanent placement fee revenues are recognized as
income at the time staffing services are provided or the permanent employee is
placed with the customer.
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. However, actual results may differ from the
estimates and assumptions used in preparing the accompanying financial
statements.
Accounts Receivable --
The Company performs credit evaluations of potential customers prior to
entering into contracts. The Company provides, if necessary, allowances for
potential losses which management believes are adequate to absorb losses to be
incurred in realizing the amounts recorded in the accompanying financial
statements. Management believes all accounts are collectible and accordingly,
has not recorded an allowance as of December 31, 1994 and 1995, and as of June
30, 1996.
Significant Customers --
Revenues from two customers accounted for 52% and 34% of total revenues in
1993. Revenues from four customers accounted for 20%, 18%, 15% and 10% of total
revenues in 1994. Revenues from one customer accounted for 60% of total revenues
in 1995. Revenues from two customers accounted for 70% and 15% of total revenues
for the unaudited six month period ended June 30, 1995. Revenues from four
customers accounted for 48%, 17%, 14% and 11% of total revenues for the
unaudited six month period ended June 30, 1996.
F-120
<PAGE> 178
STRATEGIC SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment --
Property and equipment are recorded at cost and are depreciated or
amortized on a straight-line basis over the estimated useful lives of the
assets, which are as follows:
<TABLE>
<S> <C>
Office equipment.................................... 5 years
Computer software and equipment..................... 5 years
</TABLE>
Additions that extend the lives of the assets are capitalized while repairs
and maintenance costs are expensed as incurred. When property and equipment are
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet, and any
resultant gain or loss is recorded.
2. PROPERTY AND EQUIPMENT:
Components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment..................................... $12,691 $ 16,797 $ 16,797
Computer software and equipment...................... 5,742 14,912 14,912
------- -------- --------
18,433 31,709 31,709
Less accumulated depreciation and amortization..... (5,027) (10,042) (12,764)
------- -------- --------
$13,406 $ 21,667 $ 18,945
======= ======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment
totaled $1,769, $3,258 and $5,015 for 1993, 1994 and 1995, respectively, and
$2,212 and $2,722 for the unaudited six month periods ended June 30, 1995 and
1996, respectively.
3. LINE OF CREDIT:
In April 1996, the Company entered into a line of credit arrangement with a
bank. Funds available for advance under the line of credit are limited to 80% of
accounts receivable less than 90 days old, up to a maximum borrowing of $50,000.
Advances under the line bear interest at the bank's base rate plus 1%. Advances
under the line of credit are collateralized by a security agreement, providing
the bank a first lien security interest on all assets of the Company, as well as
a personal guaranty from the remaining stockholder. At June 30, 1996, the amount
outstanding under the line was $10,000. In July 1996, the amount outstanding was
repaid and the line was dissolved.
F-121
<PAGE> 179
STRATEGIC SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE TO STOCKHOLDERS:
The Company had borrowings from a stockholder under an informal arrangement
of $124,166 and $69,166 as of December 31, 1994 and 1995, respectively. The
borrowings did not accrue interest during 1993 or 1995. During 1994, the Company
agreed to accrue interest of $9,198 on these borrowings, which was added to the
principal balance. In April 1996, in connection with the change in ownership
described in Note 7, the Company signed a promissory note for $65,229,
representing the net amount due to the former stockholder. The terms of the note
specify an interest rate of 7% and minimum monthly payments of $700,
representing principal and interest, commencing April 15, 1996, until paid in
full, with a final maturity of March 15, 2001. Based on the terms of this note,
the aggregate principal maturities subsequent to December 31, 1995, were as
follows:
<TABLE>
<S> <C>
1996............................................. $ 6,145
1997............................................. 3,214
1998............................................. 3,629
1999............................................. 4,079
2000............................................. 4,567
Thereafter....................................... 47,532
-------
$69,166
=======
</TABLE>
In April 1996, the Company borrowed $45,000 from the remaining stockholder
under an informal arrangement. The borrowing accrued interest at prime plus
1.75% and was repaid in July 1996.
5. INCOME TAXES:
The Company has elected S Corporation status for federal and state income
tax reporting purposes. Accordingly, no provision for income taxes has been
recorded since such tax liabilities are liabilities of the stockholders of the
Company.
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.
6. NONCANCELABLE OPERATING LEASE:
The Company leases office space under a noncancelable operating lease.
Future minimum payments required under this operating lease which has an initial
or remaining noncancelable lease term in excess of one year at December 31,
1995, are as follows:
<TABLE>
<S> <C>
1996............................................. $21,069
1997............................................. 17,982
------
$39,051
======
</TABLE>
Rental expense totaled $7,623, $13,062 and $18,075 for 1993, 1994 and 1995,
respectively, and $10,150 and $8,375 for the unaudited six month periods ended
June 30, 1995 and 1996, respectively.
F-122
<PAGE> 180
STRATEGIC SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDER TRANSACTION:
In April 1996, one of the Company's 50% stockholders (the "former
stockholder") transferred 300 shares of common stock of the Company,
representing the former stockholder's entire interest, to the other 50%
stockholder, with both parties entering into a security agreement whereby the
transferred shares are held in escrow until the repayment of the borrowings from
the former stockholder, as discussed in Note 4.
8. SUBSEQUENT EVENT:
On July 1, 1996, the remaining stockholder sold certain of the operating
assets of the Company for $700,000 to First Choice Staffing, Inc. In addition,
the remaining stockholder received $50,000 in conjunction with the execution of
a noncompete agreement.
F-123
<PAGE> 181
The back inside cover of the prospectus includes on the top half of the
page, the StaffMark logo at the top and the logos of each Founding Company their
subsidiaries below the main StaffMark logo and the bottom half of the page shows
the proposed StaffMark home page for the internet, noting that the site is
currently under construction and is coming in November, 1996 to
http://www.staffmark.com. The icons within the home page include Investor
Relations, Regional Opportunities, Training, Professional/Technical Staffing
services, Commercial/Industrial Staffing Services and Medical Technical Staffing
Services.
<PAGE> 182
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Price Range of Common Stock........... 12
The Company........................... 13
Dividend Policy....................... 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 35
Management............................ 43
Principal Stockholders................ 48
Description of Capital Stock.......... 49
Certain Transactions.................. 51
Shares Eligible for Future Sale....... 54
Legal Matters......................... 55
Experts............................... 55
Additional Information................ 55
Index to Financial Statements......... F-1
</TABLE>
================================================================================
================================================================================
4,000,000 SHARES
[STAFF MARK LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
OCTOBER , 1996
================================================================================
<PAGE> 183
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses of this Offering to be incurred
by the Company in connection with this registration statement. All the amounts
shown are estimates except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market Application Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 16,824
Blue Sky Fees and Expenses..................................... 1,000
Accounting Fees and Expenses................................... 20,000
Legal Fees and Expenses........................................ 20,000
Printing and Engraving Costs................................... 10,000
Miscellaneous.................................................. 5,000
-------------
Total........................................................ $ 72,824
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employee or agents acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reason to believe their
conduct was unlawful. In a derivative action, i.e., one by or in the right of
the corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Seven of the Company's Certificates of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, which makes
directors liable for unlawful dividends or unlawful stock repurchases or
redemptions or (d) for transactions from which directors derive improper
personal benefit.
In accordance with Delaware law, the Company intends to enter into
indemnification agreements with its directors, pursuant to which it will agree
to pay certain expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement incurred by such directors in connection with certain
actions, suits or proceedings. These agreements require directors to repay the
amount of any expenses advanced if it shall be determined that they are not
entitled to indemnification.
II-1
<PAGE> 184
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold within the past three years which were not registered under the Securities
Act:
(i) In March 1996, the Company issued 1,000 shares of Common Stock to
the founding stockholders of the Company for $.01 per share and
subsequently declared a 1,355-for-1 stock dividend in June 1996; and
(ii) Simultaneously with the completion of the Offering, the Company
issued 5,618,249 shares of its Common Stock in connection with the Mergers
of the six Founding Companies. See "The Company" and "Business."
Each of these transactions was completed without registration of the
relevant security under the Securities Act in reliance upon the exemptions
provided by Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder on the basis that such transactions did not involve a
public offering, the purchasers were sophisticated with access to the kind of
information registration would provide and that such purchasers acquired such
securities without a view toward the distribution thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ----------------------------------------------------------------------
<C> <S> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., Brewer Personnel Services Acquisition
Corp., Brewer Personnel Services, Inc. and the Stockholders named
therein (Incorporated by reference from Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
2.2 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., Prostaff Personnel Acquisition Corp., Excel
Temporary Staffing Acquisition Corp., Professional Resources
Acquisition Corp., Prostaff Personnel, Inc., Excel Temporary Staffing,
Inc., Professional Resources, Inc., and the Stockholders named therein
(Incorporated by reference from Exhibit 2.2 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
2.3 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., Maxwell/Healthcare Acquisition Corp.,
Square One Rehab Acquisition Corp., Maxwell Staffing of Bristow
Acquisition Corp., Maxwell Staffing Acquisition Corp., Technical
Staffing Acquisition Corp., Maxwell/Healthcare, Inc., Square One
Rehab, Inc., Maxwell Staffing of Bristow, Inc., Maxwell Staffing,
Inc., Technical Staffing, Inc. and the Stockholders named therein
(Incorporated by reference from Exhibit 2.3 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
2.4 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., HRA Acquisition Corp., HRA, Inc., and the
Stockholders named therein (Incorporated by reference from Exhibit 2.4
to the Company's Registration Statement on Form S-1 (File No.
333-7513)).
2.5 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., First Choice Staffing Acquisition Corp.,
First Choice Staffing, Inc., and the Stockholders named therein
(Incorporated by reference from Exhibit 2.5 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
</TABLE>
II-2
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ----------------------------------------------------------------------
<S> <C> <C>
2.6 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., DP Pros of Burlington Acquisition Corp.,
Blethen Temporaries Acquisition Corp., Personnel Placement Acquisition
Corp., Jaeger Personnel Services Acquisition Corp., Dixon Enterprises
of Burlington Acquisition Corp., Trasec Acquisition Corp., DP Pros of
Burlington, Inc., Blethen Temporaries, Inc., Personnel Placement,
Inc., Jaeger Personnel Services, Ltd., Dixon Enterprises of
Burlington, Inc., Trasec Corp., and the Stockholders named therein
(Incorporated by reference from Exhibit 2.6 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
3.1 -- Certificate of Incorporation of the Company (Incorporated by reference
from Exhibit 3.1 to the Company's Registration Statement on Form S-1
(File No. 333-7513)).
3.2 -- Certificate of amendment of Certificate of Incorporation (Incorporated
by reference from Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (File No. 333-7513)).
3.3 -- Amended and Restated By-Laws of the Company, as amended to date
(Incorporated by reference from Exhibit 3.3 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
4.1 -- Form of certificate evidencing ownership of Common Stock of the
Company (Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
5.1 -- Opinion of Wright, Lindsey & Jennings regarding legality.
10.1 -- StaffMark, Inc. 1996 Stock Option Plan (Incorporated by reference from
Exhibit 10.1 to the Company's Registration Statement on Form S-1 (File
No. 333-7513)).
10.2 -- Form of Director Indemnification Agreement (Incorporated by reference
from Exhibit 10.3 to the Company's Registration Statement on Form S-1
(File No. 333-7513)).
10.3 -- Employment Agreement between StaffMark, Inc. and Terry C. Bellora
(Incorporated by reference from Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
10.4 -- Employment Agreement among StaffMark, Brewer and Clete T. Brewer.
10.5 -- Employment Agreement among StaffMark, Brewer and Jerry T. Brewer.
10.6 -- Employment Agreement among StaffMark, Prostaff and Steven E. Schulte.
10.7 -- Employment Agreement among StaffMark, Maxwell and John H. Maxwell, Jr.
10.8 -- Employment Agreement among StaffMark, Maxwell and Mary Sue Maxwell.
10.9 -- Employment Agreement among StaffMark, HRA and W. David Bartholomew.
10.10 -- Employment Agreement among StaffMark, HRA and Ted Feldman.
10.11 -- Employment Agreement among StaffMark, First Choice and William T.
Gregory.
10.12 -- Employment Agreement among StaffMark, DP Pros of Burlington, Inc. and
Janice Blethen.
10.13 -- Credit Agreement dated October 4, 1996 in the amount of $50,000,000 by
and between StaffMark, the Lenders named therein ("Lenders") and
Mercantile Bank of St. Louis National Association, as Agent on behalf
of the Lenders.
21.1 -- List of subsidiaries of StaffMark, Inc. (Incorporated by reference
from Exhibit 21.1 to the Company's Registration Statement on Form S-1
(File No. 333-7513)).
23.1 -- Consent of Wright, Lindsey & Jennings (contained in Exhibit 5.1
hereto).
</TABLE>
II-3
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------------- ----------------------------------------------------------------------
<C> <S> <C>
23.2 -- Consents of Arthur Andersen LLP, Independent Public Accountants.
24.1 -- Power of Attorney (included with the signature page hereof).
27.1 -- Financial Data Schedule (Incorporated by reference from Exhibit 27.1
to the Company's Registration Statement on Form S-1 (File No.
333-7513)).
</TABLE>
(b) Financial Statement Schedules
All schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the financial statements and notes hereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-4
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Fayetteville, State of Arkansas, on October 28, 1996.
StaffMark, Inc.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer
President and Chief Executive
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Clete T.
Brewer and Terry C. Bellora, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his or
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ------------------------------- -----------------
<S> <C> <C>
/s/ CLETE T. BREWER President, Chief Executive October 28, 1996
- --------------------------------------------- Officer and Director
Clete T. Brewer (Principal Executive Officer)
/s/ TERRY C. BELLORA Chief Financial Officer October 28, 1996
- --------------------------------------------- (Principal Financial
Terry C. Bellora and Accounting Officer)
/s/ JERRY T. BREWER Chairman of the Board October 28, 1996
- ---------------------------------------------
Jerry T. Brewer
/s/ W. DAVID BARTHOLOMEW Executive Vice President -- October 28, 1996
- --------------------------------------------- Southeastern Operations
W. David Bartholomew and Director
/s/ STEVEN E. SCHULTE Executive Vice President -- October 28, 1996
- --------------------------------------------- Administration and
Steven E. Schulte Director
/s/ JOHN H. MAXWELL, JR. Executive Vice President -- October 28, 1996
- --------------------------------------------- Medical Services
John H. Maxwell, Jr. and Director
</TABLE>
II-5
<PAGE> 188
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ------------------------------- -----------------
<S> <C> <C>
/s/ JANICE BLETHEN Executive Vice President -- October 28, 1996
- --------------------------------------------- Clinical Trials Support
Janice Blethen Services and Director
/s/ WILLIAM T. GREGORY General Manager -- October 28, 1996
- --------------------------------------------- Carolina Region
William T. Gregory
/s/ WILLIAM J. LYNCH Director October 28, 1996
- ---------------------------------------------
William J. Lynch
/s/ R. CLAYTON McWHORTER Director October 28, 1996
- ---------------------------------------------
R. Clayton McWhorter
/s/ CHARLES A. SANDERS Director October 28, 1996
- ---------------------------------------------
Charles A. Sanders, M.D.
</TABLE>
II-6
<PAGE> 189
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., Brewer Personnel Services Acquisition
Corp., Brewer Personnel Services, Inc. and the Stockholders named
therein (Incorporated by reference from Exhibit 2.1 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
2.2 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., Prostaff Personnel Acquisition Corp.,
Excel Temporary Staffing Acquisition Corp., Professional Resources
Acquisition Corp., Prostaff Personnel, Inc., Excel Temporary
Staffing, Inc., Professional Resources, Inc., and the Stockholders
named therein (Incorporated by reference from Exhibit 2.2 to the
Company's Registration Statement on Form S-1 (File No. 333-7513)).
2.3 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., Maxwell/Healthcare Acquisition Corp.,
Square One Rehab Acquisition Corp., Maxwell Staffing of Bristow
Acquisition Corp., Maxwell Staffing Acquisition Corp., Technical
Staffing Acquisition Corp., Maxwell/ Healthcare, Inc., Square One
Rehab, Inc., Maxwell Staffing of Bristow, Inc., Maxwell Staffing,
Inc., Technical Staffing, Inc. and the Stockholders named therein
(Incorporated by reference from Exhibit 2.3 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
2.4 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., HRA Acquisition Corp., HRA, Inc., and the
Stockholders named therein (Incorporated by reference from Exhibit
2.4 to the Company's Registration Statement on Form S-1 (File No.
333-7513)).
2.5 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., First Choice Staffing Acquisition Corp.,
First Choice Staffing, Inc., and the Stockholders named therein
(Incorporated by reference from Exhibit 2.5 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
2.6 -- Agreement and Plan of Reorganization, dated as of June 17, 1996, by
and among StaffMark, Inc., DP Pros of Burlington Acquisition Corp.,
Blethen Temporaries Acquisition Corp., Personnel Placement
Acquisition Corp., Jaeger Personnel Services Acquisition Corp., Dixon
Enterprises of Burlington Acquisition Corp., Trasec Acquisition
Corp., DP Pros of Burlington, Inc., Blethen Temporaries, Inc.,
Personnel Placement, Inc., Jaeger Personnel Services, Ltd., Dixon
Enterprises of Burlington, Inc., Trasec Corp., and the Stockholders
named therein (Incorporated by reference from Exhibit 2.6 to the
Company's Registration Statement on Form S-1 (File No. 333-7513)).
3.1 -- Certificate of Incorporation of the Company (Incorporated by
reference from Exhibit 3.1 to the Company's Registration Statement on
Form S-1 (File No. 333-7513)).
3.2 -- Certificate of amendment of Certificate of Incorporation
(Incorporated by reference from Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
3.3 -- Amended and Restated By-Laws of the Company, as amended to date
(Incorporated by reference from Exhibit 3.3 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
4.1 -- Form of certificate evidencing ownership of Common Stock of the
Company (Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
5.1 -- Opinion of Wright, Lindsey & Jennings regarding legality.
10.1 -- StaffMark, Inc. 1996 Stock Option Plan (Incorporated by reference
from Exhibit 10.1 to the Company's Registration Statement on Form S-1
(File No. 333-7513)).
</TABLE>
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------
<S> <C>
10.2 -- Form of Director Indemnification Agreement (Incorporated by reference
from Exhibit 10.3 to the Company's Registration Statement on Form S-1
(File No. 333-7513)).
10.3 -- Employment Agreement between StaffMark, Inc. and Terry C. Bellora
(Incorporated by reference from Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (File No. 333-7513)).
10.4 -- Employment Agreement among StaffMark, Brewer and Clete T. Brewer.
10.5 -- Employment Agreement among StaffMark, Brewer and Jerry T. Brewer.
10.6 -- Employment Agreement among StaffMark, Prostaff and Steven E. Schulte.
10.7 -- Employment Agreement among StaffMark, Maxwell and John H. Maxwell,
Jr.
10.8 -- Employment Agreement among StaffMark, Maxwell and Mary Sue Maxwell.
10.9 -- Employment Agreement among StaffMark, HRA and W. David Bartholomew.
10.10 -- Employment Agreement among StaffMark, HRA and Ted Feldman.
10.11 -- Employment Agreement among StaffMark, First Choice and William T.
Gregory.
10.12 -- Employment Agreement among StaffMark, DP Pros of Burlington, Inc. and
Janice Blethen.
10.13 -- Credit Agreement dated October 4, 1996 in the amount of $50,000,000
by and between StaffMark, the Lenders named therein ("Lenders") and
Mercantile Bank of St. Louis National Association, as Agent on behalf
of the Lenders.
21.1 -- List of subsidiaries of StaffMark, Inc. (Incorporated by reference
from Exhibit 21.1 to the Company's Registration Statement on Form S-1
(File No. 333-7513)).
23.1 -- Consent of Wright, Lindsey & Jennings (contained in Exhibit 5.1
hereto).
23.2 -- Consents of Arthur Andersen LLP, Independent Public Accountants.
24.1 -- Power of Attorney (included with the signature page hereof).
27.1 -- Financial Data Schedule (Incorporated by reference from Exhibit 27.1
to the Company's Registration Statement on Form S-1 (File No.
333-7513)).
</TABLE>
<PAGE> 1
EXHIBIT 5.1
[WRIGHT, LINDSEY & JENNINGS LETTERHEAD]
October 28, 1996
StaffMark, Inc.
302 East Millsap Road
Fayetteville, Arkansas 72703
RE: Issuance of Shares Pursuant to
Registration Statement on Form S-1
- --------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to StaffMark, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, of a
Registration Statement on Form S-1 (the "Registration Statement") relating to
the public offering by the Company of an aggregate of 4,000,000 shares (the
"Shares") of the Company's common stock, $0.01 par value per share.
In so acting we have examined originals, or copies certified or otherwise
identified to our satisfaction, of (a) the Amended and Restated Certificate of
Incorporation of the Company, (b) the By-Laws of the Company, and (c) such other
documents, records, certificates and other instruments as in our judgment are
necessary or appropriate for purposes of this opinion. We have assumed that (i)
the Shares will be issued against receipt of the consideration approved by the
Board of Directors of the Company or a committee thereof, which will be no less
than the par value thereof, and (ii) the Shares will be issued in compliance
with applicable federal and state securities laws.
Based on the foregoing, we are of the following opinion:
<PAGE> 2
October 28, 1996
Page 2
(1) The Company is a corporation duly incorporated and validly
existing under the laws of the State of Delaware.
(2) The Shares, when issued as contemplated by the Registration
Statement, will be duly authorized, validly issued, fully paid and
non-assessable.
We are expressing the opinions as members of the Bar of the State of Arkansas
and express no opinion as to any law other than the General Corporation Law of
the State of Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement.
Very truly yours,
WRIGHT, LINDSEY & JENNINGS
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), Brewer Personnel Services, Inc., an Arkansas
corporation (hereinafter referred to as the "Company"), and Clete T. Brewer
(hereinafter referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Board of Directors of the
Company or any other member of senior management designated by the Board
of Directors; provided, however, that without the approval of the Board
of Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Fayetteville area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $150,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance. Employee shall provide the
Company with a copy of such insurance policy, which policy shall name
the Company as an additional insured party.
2
<PAGE> 3
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for
3
<PAGE> 4
a consecutive period of sixty (60) days or a non-consecutive
period of one hundred twenty (120) days during any twelve month
period, or such other period as may be required by applicable
employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of Arkansas and, outside the State of Arkansas, within
a radius of fifty (50) miles from any office operated during the
Noncompetition Period by the Company, StaffMark, Inc. or any of
their affiliates (collectively, the "Territory") or in any
StaffMark, Inc. Services Business directly competitive with that
of the Company, StaffMark, Inc. or any of their affiliates, or
itself engage in such business; provided, however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
Clete Brewer
203 East Millsap Road
Fayetteville, Arkansas 72703
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ CLETE T. BREWER
---------------------------------
Clete T. Brewer
/s/ MALINDA KIRCHNER
- ----------------------------------
Witness
STAFFMARK, INC.
By: /s/ JERRY T. BREWER
---------------------------------
Jerry T. Brewer, Chairman
BREWER PERSONNEL SERVICES, INC.
/s/ JERRY T. BREWER
By:---------------------------------
Jerry T. Brewer, Chairman
9
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), Brewer Personnel Services, Inc., an Arkansas
corporation (hereinafter referred to as the "Company"), and Jerry T. Brewer
(hereinafter referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Board of Directors of the
Company or any other member of senior management designated by the Board
of Directors; provided, however, that without the approval of the Board
of Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Fayetteville area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $75,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance. Employee shall provide the
Company with a copy of such insurance policy, which policy shall name
the Company as an additional insured party.
2
<PAGE> 3
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for
3
<PAGE> 4
a consecutive period of sixty (60) days or a non-consecutive
period of one hundred twenty (120) days during any twelve month
period, or such other period as may be required by applicable
employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of Arkansas and, outside the State of Arkansas, within
a radius of fifty (50) miles from any office operated during the
Noncompetition Period by the Company, StaffMark, Inc. or any of
their affiliates (collectively, the "Territory") or in any
StaffMark, Inc. Services Business directly competitive with that
of the Company, StaffMark, Inc. or any of their affiliates, or
itself engage in such business; provided, however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
Jerry Brewer
203 East Millsap Road
Fayetteville, Arkansas 72703
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ JERRY T. BREWER
----------------------------------
Jerry T. Brewer
/s/ MALINDA KIRCHNER
- ------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
------------------------------
Clete T. Brewer, President
BREWER PERSONNEL SERVICES, INC.
By: /s/ CLETE T. BREWER
------------------------------
Clete T. Brewer, President
9
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), Prostaff Personnel, Inc., an Arkansas corporation
(hereinafter referred to as the "Company"), and Steven E. Schulte (hereinafter
referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Little Rock area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $125,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance.
2
<PAGE> 3
Employee shall provide the Company with a copy of such insurance policy,
which policy shall name the Company as an additional insured party.
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
3
<PAGE> 4
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for a consecutive period of sixty (60)
days or a non- consecutive period of one hundred twenty (120)
days during any twelve month period, or such other period as may
be required by applicable employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of Arkansas and, outside the State of Arkansas, within
a radius of fifty (50) miles from any office operated during the
Noncompetition Period by the Company, StaffMark, Inc. or any of
their affiliates (collectively, the "Territory") or in any
StaffMark, Inc. Services Business directly competitive with that
of the Company, StaffMark, Inc. or any of their affiliates, or
itself engage in such business; provided, however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
Steven E. Schulte
2024 Arkansas Valley Drive, Suite 704
Little Rock, Arkansas 72212
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ STEVE SCHULTE
--------------------------------------
Steven E. Schulte
/s/ EDWARD E. SCHULTE
- --------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, President
PROSTAFF PERSONNEL, INC.
By: /s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, Vice President
9
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), Maxwell Staffing, Inc., an Oklahoma corporation
(hereinafter referred to as the "Company"), and John H. Maxwell, Jr.
(hereinafter referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Tulsa area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $75,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance.
2
<PAGE> 3
Employee shall provide the Company with a copy of such insurance policy,
which policy shall name the Company as an additional insured party.
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
3
<PAGE> 4
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for a consecutive period of sixty (60)
days or a non-consecutive period of one hundred twenty (120) days
during any twelve month period, or such other period as may be
required by applicable employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of Oklahoma and, outside the State of Oklahoma, within
a radius of fifty (50) miles from any office operated during the
Noncompetition Period by the Company, StaffMark, Inc. or any of
their affiliates (collectively, the "Territory") or in any
StaffMark, Inc. Services Business directly competitive with that
of the Company, StaffMark, Inc. or any of their affiliates, or
itself engage in such business; provided, however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
John H. Maxwell, Jr.
8221 East 63rd Place
Tulsa, Oklahoma 74133
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ JOHN H. MAXWELL, JR.
--------------------------------------
John H. Maxwell, Jr.
/s/ [ILLEGIBLE]
- ------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, President
MAXWELL STAFFING, INC.
By: /s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, Vice President
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), Maxwell Staffing, Inc., an Oklahoma corporation
(hereinafter referred to as the "Company"), and Mary Sue Maxwell (hereinafter
referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as
an executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an
Agreement and Plan of Reorganization dated as of June 17, 1996 (the
"Reorganization Agreement") with StaffMark, Inc., a Delaware corporation,
whereby the Company has agreed to merge with a subsidiary of StaffMark, Inc.;
and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence
on the date hereof and terminate on September 30, 2001. During the term of
this Agreement, each twelve month period commencing on October 1 and ending on
the following September 30 shall be referred to herein as a "Compensation
Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the
date hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D)
adopt or maintain any employee policy or program materially different
from those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time
and attentions to his duties hereunder; provided, however, that
Employee shall not be required to locate outside the Tulsa area
without Employee's consent.
(b) Employee shall be entitled to be reimbursed in
accordance with the policies of the Company, as adopted and amended
from time to time, for all reasonable and necessary expenses incurred
by him in connection with the performance of his duties of employment
hereunder; provided Employee shall, as a condition of such
reimbursement, submit verification of the nature and amount of such
expenses in accordance with the reimbursement policies from time to
time adopted by the Company.
3. BASE SALARY. The Company shall pay to Employee a base salary
at the rate of $75,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards,
Employee shall be entitled to participate in any employee benefit plan
maintained by the Company for its full time employees and shall be
entitled to four (4) weeks vacation per annum and such holidays as the
Company may establish as company policy.
(b) The Company shall pay to Employee on or about the
first (1st) day of each month an automobile allowance in the amount of
$500 per month which shall be used to pay all automobile related
expenses. The Company may, at its discretion, provide equivalent
automobile arrangements as it deems appropriate with sixty (60) days'
written notice to Employee. Employee shall maintain with respect to
any automobile used for business purposes such insurance coverage as
may be reasonably required by the Company, the cost of which shall be
paid by Employee from such monthly allowance.
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Employee shall provide the Company with a copy of such insurance
policy, which policy shall name the Company as an additional insured
party.
(c) The Company shall reimburse Employee up to $250 per
month for club dues actually incurred by Employee, provided that such
club is used at least 50 percent of the time for business purposes and
such usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the
incentive compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the
Board of Directors of StaffMark, shall be entitled to terminate
Employee's services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of
any of the following: (A) Employee's conviction of, or plea
of nolo contendere to, any felony or to any crime or offense
causing substantial harm to StaffMark, Inc., the Company or
any of their affiliates (whether or not for personal gain) or
involving acts of theft, fraud, embezzlement, moral turpitude
or similar conduct, (B) Employee 's violation of the Company's
substance abuse policy, (C) malfeasance in the conduct of
Employee's duties, including but not limited to (i) willful
and intentional misuse or diversion of StaffMark, Inc., the
Company, or any of their affiliates' funds, (ii) embezzlement,
and/or (iii) fraudulent, willful or material
misrepresentations or concealments on any written reports
submitted to StaffMark, Inc., the Company or their affiliates,
(D) material failure to perform the duties of such person's
employment, (E) material failure to follow or comply with the
reasonable and lawful directives of the Chief Executive
Officer, any member of senior management designated by the
Board of Directors of StaffMark, Inc., or the Board of
Directors of StaffMark, Inc. or the Company, (F) a material
breach by Employee of the provisions of the Reorganization
Agreement or this Agreement (including without limitation any
breach of Section 6 of this Agreement), or (G) the occurrence
of an event or series of events which lead the Chief Executive
Officer of the Company to the reasonable conclusion that
Employee has materially breached or damaged their trust in his
character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that
in the case of the foregoing clauses (D) and (E), Employee
shall have been informed, in writing, of such material failure
referred to in the foregoing clauses (D) and (E),
respectively;
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(ii) If, for any reason, Employee is unable to
perform the essential functions of such person's duties, with
or without reasonable accommodation, for a consecutive period
of sixty (60) days or a non-consecutive period of one hundred
twenty (120) days during any twelve month period, or such
other period as may be required by applicable employment laws;
or
(iii) The death of Employee.
(b) In the event of the termination of Employee's
employment:
(i) For cause, except as provided in Section
5(b)(ii), or in the event of the resignation of Employee, then
as of the date of such termination all of the Company's
obligations hereunder, including, without limitation, the
Company's obligations to pay Employee's base salary accruing
after the date of such termination, and any benefits (except
as otherwise required by applicable law), other than those
obligations which have accrued but remain unpaid as of the
date of such termination (such as accrued but unpaid salary,
expense reimbursements, health insurance premiums, retirement
plan contributions, if any, vacation pay, sick pay, etc.),
shall cease and Employee shall not be entitled to receive any
incentive compensation for the Compensation Year of such
termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause
only as provided in Section 5(a)(i)(D) and (E), then the
Company shall continue to pay Employee's base salary and to
provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such
termination, until the first to occur of (A) September 30,
1998 or (B) Employee shall have sold shares of StaffMark, Inc.
in a public offering in which Employee received cash in excess
of $500,000 for such shares sold;
(iii) By the Company for any other reason other
than for the reasons set forth in clauses (i) and (ii) above,
then in such event the Company shall continue to pay
Employee's base salary (without offset for any compensation
received by Employee from any subsequent employment by any
person other than by an affiliate of the Company or in
violation of Section 6 hereof) and to provide for the
continuation of any Company health insurance benefits for
which he would be eligible but for such termination, for a
period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
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6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his
employment by the Company he has and will become privy to various
economic and trade secrets and relationships of the Company,
StaffMark, Inc. and its affiliates. Therefore, in consideration of
this Agreement and of the merger by the Company and a subsidiary of
StaffMark, Inc., Employee hereby agrees that neither he nor his spouse
nor any member of his immediate family that resides with him will,
directly or indirectly, except for the benefit of the Company or its
affiliates or subsidiaries, or with the prior written consent of the
Board of Directors of the Company, which consent may be granted or
withheld at the sole discretion of the Company's Board of Directors:
(i) During the Noncompetition Period (as
hereinafter defined), become an officer, director,
stockholder, partner, member, manager, associate, employee,
owner, agent, creditor, independent contractor, co-venturer,
consultant or otherwise, or be interested in or associated
with any other person, corporation, firm or business engaged
in providing temporary or permanent staffing services,
outsourcing or medical or clinical staffing or recruiting (a
"StaffMark, Inc. Services Business") in the State of Oklahoma
and, outside the State of Oklahoma, within a radius of fifty
(50) miles from any office operated during the Noncompetition
Period by the Company, StaffMark, Inc. or any of their
affiliates (collectively, the "Territory") or in any
StaffMark, Inc. Services Business directly competitive with
that of the Company, StaffMark, Inc. or any of their
affiliates, or itself engage in such business; provided,
however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five
percent (5%) of any class of securities issued by an
entity which is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended,
or which is traded over the counter;
(B) The foregoing shall not restrict
Employee with respect to businesses, other than
StaffMark, Inc. Services Businesses, engaged in by
the Company or its affiliates during the
Noncompetition Period unless Employee either is or
was substantially involved in such other businesses
of the Company or such affiliates or had access to
Confidential Information (as hereinafter defined)
with respect to such other businesses; or
(ii) During the Noncompetition Period, in the
Territory, solicit, cause or authorize, directly or
indirectly, to be solicited for or on behalf of himself or
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third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services
Business transacted by or with such customer by the Company or
its affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or
indirectly, to be accepted for or on behalf of himself or for
third parties, any such StaffMark, Inc. Services Business from
any such customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use,
publish, disseminate or otherwise disclose, directly or
indirectly, any information heretofore or hereafter acquired,
developed or used by the Company or its or StaffMark, Inc.'s
affiliates relating to their business or the operations,
employees or customers of the Company or its or StaffMark,
Inc.'s affiliates which constitutes proprietary or
confidential information of the Company or its or StaffMark,
Inc.'s affiliates ("Confidential Information"), including
without limitation any Confidential Information contained in
any customer lists, mailing lists and sources thereof,
statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other
documents; and (B) from and after the date hereof, use,
publish, disseminate or otherwise disclose, directly or
indirectly, any information heretofore or hereafter acquired,
developed or used by the Company or its affiliates which
constitutes Confidential Information, but excluding any
Confidential Information which has become part of common
knowledge or understanding in the StaffMark, Inc. Services
Business industry or otherwise in the public domain (other
than from disclosure by Employee in violation of this
Agreement); provided, however, this subparagraph (iv) shall
not be applicable to the extent Employee is required to
testify in a judicial or regulatory proceeding pursuant to the
order of a judge or administrative law judge after Employee
requests that such Confidential Information be preserved; or
(v) During the Noncompetition Period, in the
Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who
within the preceding ninety (90) days was an
employee) of the Company or its or StaffMark, Inc.'s
affiliates or any other person who is under contract
with or rendering services to the Company or its or
StaffMark, Inc.'s affiliates, to terminate his or her
employment by, or contractual relationship with, such
person or to refrain from extending or renewing the
same (upon the same or new terms) or to refrain from
rendering services to or for such person or to become
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employed by or to enter into contractual relations
with any persons other than such person or to enter
into a relationship with a competitor of the Company
or its affiliates;
(B) Approach any such employee for any
of the foregoing purposes; or
(C) Authorize or knowingly approve or
assist in the taking of any such actions by any
person other than the Company or its affiliates.
(b) For purposes of this Agreement, the term
"Noncompetition Period" shall mean the period commencing on the date
hereof and ending twenty-four (24) months after the date Employee
ceases to be an officer or employee of, or consultant to, StaffMark,
Inc., the Company, or any of their affiliates; provided, however, that
the Noncompetition Period shall end immediately upon a termination of
the employment of Employee by the Company under this Agreement which
is not for cause.
(c) The invalidity or non-enforceability of this Section
6 in any respect shall not affect the validity or enforceability of
this Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof,
such invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the
fullest extent permitted by law, this Agreement shall be construed as
if the geographic or business scope or the duration of such provision
had been more narrowly drafted so as not to be invalid or
unenforceable and further, to the extent permitted by law, such
geographic or business scope or the duration thereof may be re-written
by a court of competent jurisdiction to make such sufficiently limited
to be enforceable.
(d) Employee acknowledges that the Company's remedy at
law for any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive
termination of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such
Section 13 of the Reorganization Agreement shall govern;
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provided, however, that the invalidity or unenforceability of all or
any part of such section shall not have any effect upon the validity
or enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term,
condition or provision of this Agreement is for any reason rendered void, all
remaining terms, conditions and provisions shall remain and continue as valid
and enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
Mary Sue Maxwell
8221 East 63rd Place
Tulsa, Oklahoma 74133
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
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11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be
construed according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ MARY SUE MAXWELL
--------------------------------------
Mary Sue Maxwell
/s/ [ILLEGIBLE]
- -----------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, President
MAXWELL STAFFING, INC.
By: /s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, Vice President
9
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), HRA, Inc., a Tennessee corporation (hereinafter
referred to as the "Company"), and W. David Bartholomew (hereinafter referred
to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Nashville area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $125,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance.
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Employee shall provide the Company with a copy of such insurance policy,
which policy shall name the Company as an additional insured party.
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
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(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for a consecutive period of sixty (60)
days or a non- consecutive period of one hundred twenty (120)
days during any twelve month period, or such other period as may
be required by applicable employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
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6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of Tennessee and, outside the State of Tennessee,
within a radius of fifty (50) miles from any office operated
during the Noncompetition Period by the Company, StaffMark, Inc.
or any of their affiliates (collectively, the "Territory") or in
any StaffMark, Inc. Services Business directly competitive with
that of the Company, StaffMark, Inc. or any of their affiliates,
or itself engage in such business; provided, however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
W. David Bartholomew
3319 West End Avenue
Nashville, Tennessee 37203
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ WILLIAM DAVID BARTHOLOMEW
-----------------------------------
W. David Bartholomew
/s/ [ILLEGIBLE]
- --------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer, President
HRA, INC.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer, Vice President
9
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), HRA, Inc., a Tennessee corporation (hereinafter
referred to as the "Company"), and Ted Feldman (hereinafter referred to as
"Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Nashville area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $145,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance.
2
<PAGE> 3
Employee shall provide the Company with a copy of such insurance policy,
which policy shall name the Company as an additional insured party.
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
3
<PAGE> 4
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for a consecutive period of sixty (60)
days or a non- consecutive period of one hundred twenty (120)
days during any twelve month period, or such other period as may
be required by applicable employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of Tennessee and, outside the State of Tennessee,
within a radius of fifty (50) miles from any office operated
during the Noncompetition Period by the Company, StaffMark, Inc.
or any of their affiliates (collectively, the "Territory") or in
any StaffMark, Inc. Services Business directly competitive with
that of the Company, StaffMark, Inc. or any of their affiliates,
or itself engage in such business; provided, however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
Ted Feldman
3319 West End Avenue
Nashville, Tennessee 37203
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ TED FELDMAN
-----------------------------------
Ted Feldman
/s/ [ILLEGIBLE]
- ------------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer, President
HRA, INC.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer, Vice President
9
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), First Choice Staffing, Inc., a South Carolina
corporation (hereinafter referred to as the "Company"), and William T. Gregory
(hereinafter referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Rock Hill area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $100,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance.
2
<PAGE> 3
Employee shall provide the Company with a copy of such insurance policy,
which policy shall name the Company as an additional insured party.
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
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<PAGE> 4
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for a consecutive period of sixty (60)
days or a non- consecutive period of one hundred twenty (120)
days during any twelve month period, or such other period as may
be required by applicable employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of South Carolina and, outside the State of South
Carolina, within a radius of fifty (50) miles from any office
operated during the Noncompetition Period by the Company,
StaffMark, Inc. or any of their affiliates (collectively, the
"Territory") or in any StaffMark, Inc. Services Business directly
competitive with that of the Company, StaffMark, Inc. or any of
their affiliates, or itself engage in such business; provided,
however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
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<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
William T. Gregory
2948 Harlingsdale Drive
Rock Hill, South Carolina 29732
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ WILLIAM T. GREGORY
-----------------------------------
William T. Gregory
/s/ [ILLEGIBLE]
- -----------------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer, President
FIRST CHOICE STAFFING, INC.
By: /s/ CLETE T. BREWER
--------------------------------
Clete T. Brewer, Vice President
9
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
October 1, 1996, among StaffMark, Inc., a Delaware corporation (hereinafter
referred to as "StaffMark"), DP Pros of Burlington, Inc., a North Carolina
corporation, (hereinafter referred to as the "Company"), and Janice Blethen
(hereinafter referred to as "Employee").
W I T N E S S E T H
WHEREAS, Employee has been a shareholder of, and has been employed as an
executive officer by, the Company; and
WHEREAS, the Company and its shareholders have entered into an Agreement
and Plan of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreement") with StaffMark, Inc., a Delaware corporation, whereby the Company
has agreed to merge with a subsidiary of StaffMark, Inc.; and
WHEREAS, the Company is desirous of the continuation of Employee's
employment with the Company; and
WHEREAS, in the course of building the business of the Company, and in
his capacity as an executive officer thereof, Employee has gained knowledge of
the business, affairs, customers and methods of the Company, and Employee will
gain similar knowledge with respect to StaffMark, Inc. and each of StaffMark,
Inc.'s direct and indirect subsidiaries during his employment with the Company,
has had and will have access to lists of the Company, StaffMark, Inc. and their
affiliates' customers and their needs, and had and will become personally known
to and acquainted with the Company, StaffMark, Inc. and their affiliates'
customers thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on
the date hereof and terminate on September 30, 2001. During the term of this
Agreement, each twelve month period commencing on October 1 and ending on the
following September 30 shall be referred to herein as a "Compensation Year."
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Employee and shall
have such authority and shall
<PAGE> 2
perform such duties consistent with his position as may be reasonably
assigned to him by, and shall report to, the Chief Executive Officer,
the Board of Directors of the Company or any other member of senior
management designated by the Board of Directors or the Chief Executive
Officer; provided, however, that without the approval of the Board of
Directors of the Company and StaffMark, Inc., Employee may not, on
behalf of the Company (A) enter into term employment arrangements for
the Company's employees of terms longer than those in place on the date
hereof, (B) borrow funds or make material capital expenditures or
commitments, (C) alter or adopt any employee benefit plans, or (D) adopt
or maintain any employee policy or program materially different from
those utilized by StaffMark, Inc. and its operating subsidiaries.
Employee shall use all reasonable efforts to further the interests of
the Company and shall devote substantially all of his business time and
attentions to his duties hereunder; provided, however, that Employee
shall not be required to locate outside the Burlington area without
Employee's consent.
(b) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY. The Company shall pay to Employee a base salary at
the rate of $100,000 per annum through the expiration of the term of the
Agreement, payable bi-weekly as per normal pay practices of the Company.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, Employee
shall be entitled to participate in any employee benefit plan maintained
by the Company for its full time employees and shall be entitled to four
(4) weeks vacation per annum and such holidays as the Company may
establish as company policy.
(b) The Company shall pay to Employee on or about the first
(1st) day of each month an automobile allowance in the amount of $500
per month which shall be used to pay all automobile related expenses.
The Company may, at its discretion, provide equivalent automobile
arrangements as it deems appropriate with sixty (60) days' written
notice to Employee. Employee shall maintain with respect to any
automobile used for business purposes such insurance coverage as may be
reasonably required by the Company, the cost of which shall be paid by
Employee from such monthly allowance.
2
<PAGE> 3
Employee shall provide the Company with a copy of such insurance policy,
which policy shall name the Company as an additional insured party.
(c) The Company shall reimburse Employee up to $250 per month
for club dues actually incurred by Employee, provided that such club is
used at least 50 percent of the time for business purposes and such
usage is subject to audit by the Company or StaffMark, Inc..
(d) Employee shall be eligible to participate in the incentive
compensation plans of StaffMark, Inc. and its affiliates.
5. TERMINATION OF AGREEMENT.
(a) The Company, with the approval of a 75% vote of the Board
of Directors of StaffMark, shall be entitled to terminate Employee's
services, in any of the following circumstances:
(i) For "cause," which shall mean by reason of any of
the following: (A) Employee's conviction of, or plea of nolo
contendere to, any felony or to any crime or offense causing
substantial harm to StaffMark, Inc., the Company or any of their
affiliates (whether or not for personal gain) or involving acts
of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee 's violation of the Company's substance
abuse policy, (C) malfeasance in the conduct of Employee's
duties, including but not limited to (i) willful and intentional
misuse or diversion of StaffMark, Inc., the Company, or any of
their affiliates' funds, (ii) embezzlement, and/or (iii)
fraudulent, willful or material misrepresentations or
concealments on any written reports submitted to StaffMark, Inc.,
the Company or their affiliates, (D) material failure to perform
the duties of such person's employment, (E) material failure to
follow or comply with the reasonable and lawful directives of the
Chief Executive Officer, any member of senior management
designated by the Board of Directors of StaffMark, Inc., or the
Board of Directors of StaffMark, Inc. or the Company, (F) a
material breach by Employee of the provisions of the
Reorganization Agreement or this Agreement (including without
limitation any breach of Section 6 of this Agreement), or (G) the
occurrence of an event or series of events which lead the Chief
Executive Officer of the Company to the reasonable conclusion
that Employee has materially breached or damaged their trust in
his character and integrity sufficiently to impair his standing
with StaffMark, Inc. and the Company; provided, however, that in
the case of the foregoing clauses (D) and (E), Employee shall
have been informed, in writing, of such material failure referred
to in the foregoing clauses (D) and (E), respectively;
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<PAGE> 4
(ii) If, for any reason, Employee is unable to perform
the essential functions of such person's duties, with or without
reasonable accommodation, for a consecutive period of sixty (60)
days or a non- consecutive period of one hundred twenty (120)
days during any twelve month period, or such other period as may
be required by applicable employment laws; or
(iii) The death of Employee.
(b) In the event of the termination of Employee's employment:
(i) For cause, except as provided in Section 5(b)(ii),
or in the event of the resignation of Employee, then as of the
date of such termination all of the Company's obligations
hereunder, including, without limitation, the Company's
obligations to pay Employee's base salary accruing after the date
of such termination, and any benefits (except as otherwise
required by applicable law), other than those obligations which
have accrued but remain unpaid as of the date of such termination
(such as accrued but unpaid salary, expense reimbursements,
health insurance premiums, retirement plan contributions, if any,
vacation pay, sick pay, etc.), shall cease and Employee shall not
be entitled to receive any incentive compensation for the
Compensation Year of such termination;
(ii) By reason of Employee's death or inability to
perform the essential functions of such person's position as
provided in Section 5(a)(ii) and (iii) hereof or for cause only
as provided in Section 5(a)(i)(D) and (E), then the Company shall
continue to pay Employee's base salary and to provide for the
continuation of any Company health insurance benefits for which
he would be eligible but for such termination, until the first to
occur of (A) September 30, 1998 or (B) Employee shall have sold
shares of StaffMark, Inc. in a public offering in which Employee
received cash in excess of $500,000 for such shares sold;
(iii) By the Company for any other reason other than for
the reasons set forth in clauses (i) and (ii) above, then in such
event the Company shall continue to pay Employee's base salary
(without offset for any compensation received by Employee from
any subsequent employment by any person other than by an
affiliate of the Company or in violation of Section 6 hereof) and
to provide for the continuation of any Company health insurance
benefits for which he would be eligible but for such termination,
for a period which is the greater of (A) sixty (60) days from the
date of such termination, or (B) the remaining term of this
Agreement.
4
<PAGE> 5
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company, StaffMark, Inc. and its
affiliates. Therefore, in consideration of this Agreement and of the
merger by the Company and a subsidiary of StaffMark, Inc., Employee
hereby agrees that neither he nor his spouse nor any member of his
immediate family that resides with him will, directly or indirectly,
except for the benefit of the Company or its affiliates or subsidiaries,
or with the prior written consent of the Board of Directors of the
Company, which consent may be granted or withheld at the sole discretion
of the Company's Board of Directors:
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise, or
be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, outsourcing or medical or clinical
staffing or recruiting (a "StaffMark, Inc. Services Business") in
the State of North Carolina and, outside the State of North
Carolina, within a radius of fifty (50) miles from any office
operated during the Noncompetition Period by the Company,
StaffMark, Inc. or any of their affiliates (collectively, the
"Territory") or in any StaffMark, Inc. Services Business directly
competitive with that of the Company, StaffMark, Inc. or any of
their affiliates, or itself engage in such business; provided,
however, that
(A) Nothing herein shall be construed to
prohibit Employee from owning not more than five percent
(5%) of any class of securities issued by an entity which
is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded over
the counter;
(B) The foregoing shall not restrict Employee
with respect to businesses, other than StaffMark, Inc.
Services Businesses, engaged in by the Company or its
affiliates during the Noncompetition Period unless
Employee either is or was substantially involved in such
other businesses of the Company or such affiliates or had
access to Confidential Information (as hereinafter
defined) with respect to such other businesses; or
(ii) During the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be
solicited for or on behalf of himself or
5
<PAGE> 6
third parties, from parties who are or were customers of the
Company or its affiliates, any StaffMark, Inc. Services Business
transacted by or with such customer by the Company or its
affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or indirectly,
to be accepted for or on behalf of himself or for third parties,
any such StaffMark, Inc. Services Business from any such
customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its or StaffMark, Inc.'s affiliates relating to
their business or the operations, employees or customers of the
Company or its or StaffMark, Inc.'s affiliates which constitutes
proprietary or confidential information of the Company or its or
StaffMark, Inc.'s affiliates ("Confidential Information"),
including without limitation any Confidential Information
contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods,
processes, agreements, contracts, manuals or any other documents;
and (B) from and after the date hereof, use, publish, disseminate
or otherwise disclose, directly or indirectly, any information
heretofore or hereafter acquired, developed or used by the
Company or its affiliates which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the
StaffMark, Inc. Services Business industry or otherwise in the
public domain (other than from disclosure by Employee in
violation of this Agreement); provided, however, this
subparagraph (iv) shall not be applicable to the extent Employee
is required to testify in a judicial or regulatory proceeding
pursuant to the order of a judge or administrative law judge
after Employee requests that such Confidential Information be
preserved; or
(v) During the Noncompetition Period, in the Territory,
(A) Solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who within
the preceding ninety (90) days was an employee) of the
Company or its or StaffMark, Inc.'s affiliates or any
other person who is under contract with or rendering
services to the Company or its or StaffMark, Inc.'s
affiliates, to terminate his or her employment by, or
contractual relationship with, such person or to refrain
from extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or for
such person or to become
6
<PAGE> 7
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
twenty-four (24) months after the date Employee ceases to be an officer
or employee of, or consultant to, StaffMark, Inc., the Company, or any
of their affiliates; provided, however, that the Noncompetition Period
shall end immediately upon a termination of the employment of Employee
by the Company under this Agreement which is not for cause.
(c) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof, such
invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the fullest
extent permitted by law, this Agreement shall be construed as if the
geographic or business scope or the duration of such provision had been
more narrowly drafted so as not to be invalid or unenforceable and
further, to the extent permitted by law, such geographic or business
scope or the duration thereof may be re-written by a court of competent
jurisdiction to make such sufficiently limited to be enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this Section 6 shall survive termination
of this Agreement.
(f) In the event of any conflict between the terms and
provisions of this Section 6 and the provisions of Section 13 of the
Reorganization Agreement, then the terms and provisions of such Section
13 of the Reorganization Agreement shall govern;
7
<PAGE> 8
provided, however, that the invalidity or unenforceability of all or any
part of such section shall not have any effect upon the validity or
enforceability of this Section 6.
7. DIVISIBILITY OF AGREEMENT. In the event that any term, condition
or provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
8. NOTICES. Any notices or other communications required or
permitted to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage prepaid by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service,
delivery confirmed, as follows:
(a) If to Employee:
Janice Blethen
2639 Ramada Road
Burlington, North Carolina 27215
(b) If to the Company:
Clete T. Brewer
c/o StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Chief Executive Officer
Either party may change his or its address for the sending of notice to such
party by written notice to the other party sent in accordance with the
provisions hereof.
9. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
10. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall
lease or sell all or substantially all of its assets and may be assigned by the
Company to any affiliate of the Company or to any corporation or entity with
which such affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such affiliate.
8
<PAGE> 9
11. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one and the same instrument.
12. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE
/s/ JANICE BLETHEN
---------------------------------------
Janice Blethen
/s/ [ILLEGIBLE]
- -------------------------
Witness
STAFFMARK, INC.
By: /s/ CLETE T. BREWER
------------------------------------
Clete T. Brewer, President
DP PROS OF BURLINGTON, INC.
By: /s/ CLETE T. BREWER
------------------------------------
Clete T. Brewer, Vice President
9
<PAGE> 1
EXHIBIT 10.13
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and entered into as
of this 4th day of October, 1996, by and between STAFFMARK, INC., a Delaware
corporation (the "Borrower"), the undersigned lenders and any other lenders
hereafter becoming a party to this Agreement (the "Lenders"), and MERCANTILE
BANK OF ST. LOUIS NATIONAL ASSOCIATION, a national banking association, as
agent on behalf of Lenders (in such capacity, the "Agent").
WITNESSETH:
WHEREAS, the Borrower has applied for revolving credit loans from
Lenders in aggregate principal amounts of up to Twenty Million Dollars
($20,000,000.00); and
WHEREAS, the Borrower has further applied for a reducing revolving
credit loan facility from Lenders in the original principal amount of Thirty
Million Dollars ($30,000,000.00); and
WHEREAS, Lenders are willing to make said revolving credit loans and
to provide said reducing revolving loan facility to the Borrower upon, and
subject to, the terms, provisions and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby mutually promise and agree as follows:
SECTION 1. TERM.
The "Term" of this Agreement shall commence on the date hereof and
shall end on October 4, 2001, unless earlier terminated pursuant to Section
3.12 or by acceleration or otherwise upon the occurrence of an Event of Default
under this Agreement, in which case the Term hereof shall end on such earlier
date.
SECTION 2. DEFINITIONS.
In addition to the terms defined elsewhere in this Agreement or in any
Exhibit or Schedule hereto, when used in this Agreement, the following terms
shall have the following meanings (such meanings shall be equally applicable to
the singular and plural forms of the terms used, as the context requires):
Acceptable Acquisition shall mean any Acquisition of an ongoing
business similar to or consistent with the Borrower's current line of business
which: (a) has been: (i) in the event a corporation or its assets is the
subject of such Acquisition, either (x) approved by the Board of Directors of
the corporation which is the subject of such Acquisition or (y) recommended by
such Board of Directors to the shareholders of such corporation, (ii) in the
event a partnership is the subject of such Acquisition, approved by a majority
(by percentage of voting power) of the partners of the partnership which is the
subject of such Acquisition, (iii) in
<PAGE> 2
the event an organization or entity other than a corporation or partnership is
the subject of such Acquisition, approved by a majority (by percentage of
voting power) of the governing body, if any, or by a majority (by percentage of
ownership interest) of the owners of the organization or entity which is the
subject of such Acquisition or (iv) in the event the corporation, partnership
or other organization or entity which is the subject of such Acquisition is in
bankruptcy, approved by the bankruptcy court or another court of competent
jurisdiction; (b) Borrower has given Agent and Lenders at least fifteen (15)
Business Days prior written notice of such Acquisition and (c) if the sum of:
(1) the principal amount of any requested Reducing Revolver Loan requested in
connection with such Acquisition, plus (2) the then outstanding principal
balance of all prior Reducing Revolver Loans, exceeds $20,000,000.00, and if
the portion of the purchase price for such Acquisition payable by Borrower in
cash exceeds $5,000,000.00, then Borrower must obtain the prior written consent
of the Required Lenders and the Agent; provided, however, that no Acquisition
shall be an Acceptable Acquisition unless both as of the date of any such
Acquisition and immediately following such Acquisition the Borrower is, and on
a pro forma basis projects that it will continue to be, in compliance with the
terms, covenants and conditions contained in this Agreement and the other
Transaction Documents.
Account Debtor shall mean any Person who is and/or may become
obligated to the Borrower or any Guarantor under or on account of Accounts.
Accounts shall mean all trade accounts receivable of the Borrower or
any Guarantor which have been invoiced by the Borrower or such Guarantor.
Acquisition shall mean any transaction or series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (a) acquires any going business or all or
substantially all of the assets of any corporation, partnership or other
organization or entity, whether through purchase of assets, merger or otherwise
or (b) directly or indirectly acquires (in one transaction or as of the most
recent transaction in a series of transactions) at least (i) a majority (in
number of votes) of the stock and/or other securities of a corporation having
ordinary voting power for the election of directors (other than stock
and/or other securities having such power only by reason of the happening
of a contingency), (ii) a majority (by percentage of voting power) of the
outstanding partnership interests of a partnership or (iii) a majority of the
ownership interests in any organization or entity other than a corporation or
partnership.
Agent shall mean Mercantile Bank of St. Louis National Association.
Applicable Margin shall mean, with respect to each type of Loan, the
rate of interest shown in the applicable column below for the type of Loan
specified for each such column:
- 2 -
<PAGE> 3
<TABLE>
<CAPTION>
Level I Level II Level III Level IV Level V
------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
IF RATIO OF CONSOLIDATED ADJUSTED TOTAL ) 3.50 ( 3.50 ( 3.00 ( 2.00 ( 1.50
FUNDED DEBT TO CONSOLIDATED PROFORMA - ) 3.00 ) 2.00 ) 1.50
OPERATING CASH FLOW IS - - -
LIBOR Loans 2.25% 1.75% 1.50% 1.25% 1.00%
Prime Loans 1.25% 0.75% 0.50% 0.25% 0.00%
Commitment Fee 0.375% 0.25% 0.25% 0.25% 0.25%
</TABLE>
Notwithstanding the above, the Applicable Margins applicable to each Loan
during the period through March 31, 1997 shall be One Percent (1.0%) per annum
for LIBOR Loans with Interest Periods commencing on or before such date and
Zero Percent (0.0%) per annum for all Prime Loans outstanding on or before such
date, and the Commitment Fee shall be calculated at the rate of One-Fourth of
One Percent (0.25%) for all fiscal quarters or portions thereof ending on or
before such date. Commencing on April 1, 1997 and on each January 1, April 1,
July 1 and October 1 thereafter during the Term hereof, the ratio of
Consolidated Adjusted Total Funded Debt to Consolidated Proforma Operating Cash
Flow for the fiscal quarter preceding the fiscal quarter then ended shall be
computed by Agent following delivery to Agent of the Borrower's consolidated
financial statements for such fiscal quarter-end pursuant to Section 7.1(a)(ii)
herein (i.e., for the fiscal quarter beginning April 1, 1997 using the ratio
for the fiscal quarter ended December 31, 1996), and the Applicable Margins
adjusted as of such subsequent January 1, April 1, July 1 and October 1 date in
accordance with the levels set forth above. Such new Applicable Margins shall
continue in effect until the next such adjustment, if any, on the following
January 1, April 1, July 1 and October 1 in accordance with the preceding
sentence. Each determination by Agent of the Applicable Margins shall be
deemed prima facie correct. All such adjustments shall become effective as to
LIBOR Loans outstanding on the first day of any quarter upon the expiration of
the then current applicable Interest Periods for such Loans.
Attorneys' Fees shall mean the reasonable value of the services (and
costs, charges and expenses related thereto) of the attorneys (and all
paralegals, secretaries, accountants and other staff employed by such
attorneys) employed by Agent or any of the Lenders (including, without
limitation, attorneys and paralegals who are employees of Agent or any of the
Lenders or any affiliate of Agent or any of the Lenders) from time to time (i)
in connection with the documentation, negotiation, execution, delivery,
administration and enforcement of this Agreement and/or any of the other
Transaction Documents, (ii) to represent Agent or any of the Lenders in any
litigation, contest, dispute, suit or proceeding, or to commence, defend or
intervene in any litigation, contest, dispute, suit or proceeding, or to file
any petition, complaint, answer, motion or other pleading or to take any other
action in or with respect to any litigation, contest, dispute, suit or
proceeding (whether instituted by Agent, any of the Lenders, the Borrower or
any other Person and whether in bankruptcy or otherwise) in any way or respect
relating to any of the Collateral, any Third Party Collateral, this Agreement
or any of the other Transaction Documents, the Borrower, any Subsidiary of the
Borrower or any other Obligor, (iii) to protect, collect, lease, sell, take
possession of or liquidate any of the Collateral or any Third Party Collateral,
(iv) to attempt to enforce any security interest in or other Lien upon any
- 3 -
<PAGE> 4
of the Collateral or any Third Party Collateral or to give any advice with
respect to such enforcement and (v) to enforce any of Agent's or any Lender's
rights to collect any of the Borrower's Obligations.
Borrower's Obligations shall mean any and all indebtedness (principal,
interest, fees and other amounts), liabilities and obligations of the Borrower
to Agent or any of the Lenders evidenced by or arising under the Notes, this
Agreement, the Security Agreement, the Pledge Agreement, the Trademark
Assignment, any of the other Transaction Documents or any other agreement,
document or instrument heretofore, now or hereafter executed and delivered by
the Borrower to Agent or any of the Lenders, in each case whether now existing
or hereafter arising, absolute or contingent, joint and/or several, secured or
unsecured, direct or indirect, expressed or implied in law, contractual or
tortious, liquidated or unliquidated, at law or in equity, or otherwise, and
whether created directly or acquired by Agent or any of the Lenders by
assignment or otherwise, and any and all costs of collection and/or Attorneys'
Fees incurred or to be incurred in connection therewith.
Borrowing Base shall have the meaning ascribed thereto in Section
3.1(b).
Borrowing Base Certificate shall have the meaning ascribed thereto in
Section 3.1(c).
Borrowing Notice shall have the meaning ascribed thereto in Section
3.3.
Business Day shall mean any day except a Saturday, Sunday or legal
holiday observed by any of the Lenders or by commercial banks in St. Louis,
Missouri.
Capital Expenditure shall mean any expenditure which, in accordance
with generally accepted accounting principles consistently applied, is or
should be capitalized on the balance sheet of the Person making the same.
Capitalized Lease shall mean any lease which, in accordance with
generally accepted accounting principles consistently applied, is or should be
capitalized on the balance sheet of the lessee.
Code shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, together with the regulations thereunder,
in each case as in effect from time to time. References to sections of the
Code shall be construed to also refer to any successor sections.
Collateral shall mean any Property or assets of the Borrower which now
or at any time hereafter secure the payment or performance of any of the
Borrower's Obligations.
Commitment Fee shall have the meaning ascribed thereto in Section 3.14.
Consolidated Adjusted Total Funded Debt shall mean as of any fiscal
quarter-end the sum of (a) the outstanding principal amount of all Revolving
Credit Loans on any such fiscal
- 4 -
<PAGE> 5
quarter-end date, plus (b) the outstanding principal amount of all Reducing
Revolver Loans on any such fiscal quarter- end date, plus (c) the undrawn face
amount of all issued and outstanding Letters of Credit or any other letters of
credit issued for the account of Borrower or its Consolidated Subsidiaries as
of any such fiscal quarter-end date, plus (d) all of the Borrower's and its
Consolidated Subsidiaries' other borrowed money Indebtedness outstanding on any
such fiscal quarter-end date, including, without limitation, amounts due under
any Capitalized Leases.
Consolidated Fixed Charges shall mean the sum of all of the Borrower's
and its Consolidated Subsidiaries' expenses under any operating leases within
the specified period of any such calculation, plus interest paid during such
specified period, including, without limitation, interest charges during such
period under any Capitalized Leases, plus all income taxes paid during the
specified period of such calculation, plus all payments of principal made on
any Subordinated Debt as permitted to be paid pursuant to the terms of the
subordination and standby agreement or intercreditor agreement made between
Agent and the holder of any such Subordinated Debt, plus Capital Expenditures
made during the specified period of any such calculation, excluding any
expenditures for capital assets acquired by Borrower and its Consolidated
Subsidiaries in an Acceptable Acquisition.
Consolidated Proforma Operating Cash Flow shall mean on any date the
Borrower's and its Consolidated Subsidiaries' net income (exclusive of any
extraordinary gains or losses) plus interest expense, plus expenses for income
taxes, plus depreciation, plus amortization, plus all expenses incurred by
Borrower or any of its Consolidated Subsidiaries under any operating leases,
all for the twelve month period included in any such calculation and ending on
the date of any such calculation, all as determined on a consolidated basis in
accordance with generally accepted accounting principles, consistently applied.
The calculation of Consolidated Proforma Operating Cash Flow of Borrower and
its Consolidated Subsidiaries shall include all net income and other such
amounts for the full twelve month period preceding the date of such calculation
earned by or incurred or accrued by any Subsidiary acquired by Borrower or its
Consolidated Subsidiaries during the preceding twelve months (and of any such
Subsidiary contemplated for acquisition by Borrower or its Consolidated
Subsidiaries with proceeds of a Reducing Revolver Loan for purposes of
determining compliance with the requirements of Section 3.2(a)), but shall
exclude from such calculation any officer compensation expenses or other
expenses which Agent determines are non-recurring expenses paid or incurred by
Borrower or a Consolidated Subsidiary in connection with any such Acquisition.
Consolidated Subsidiary shall mean with respect to any Person at any
date, any Subsidiary or other entity the assets and liabilities of which are or
should be consolidated with those of such Person in its consolidated financial
statements as of such date in accordance with generally accepted accounting
principles consistently applied.
Conversion Notice shall have the meaning ascribed thereto in Section
3.3(c).
Default shall mean any event or condition the occurrence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default as defined in Section 8 hereof.
- 5 -
<PAGE> 6
Distribution in respect of any corporation shall mean (i) dividends or
other distributions on capital stock of the corporation; and (ii) the
redemption, repurchase or other acquisition of such stock or of warrants,
rights or other options to purchase such stock (except when solely in exchange
for such stock).
Eligible Accounts shall mean all Accounts, except: (a) Accounts which
remain unpaid for more than ninety (90) days after their invoice dates and
Accounts which are not due and payable within ninety (90) days after their
invoice dates; (b) Accounts owing by a single Account Debtor, including a
currently scheduled Account, if ten percent (10%) or more of the balance owing
by said Account Debtor upon said Accounts is ineligible pursuant to clause (a)
above; (c) Accounts with respect to which the Account Debtor is a partner of
the Borrower or any Guarantor or a Related Party of the Borrower or any
Guarantor; (d) Accounts with respect to which payment by the Account Debtor is
or may be conditional and Accounts commonly known as bill and hold Accounts or
Accounts of a similar or like arrangement; (e) Accounts with respect to which
the Account Debtor is not a resident or citizen of or otherwise located in the
United States of America, unless the Account is backed by a commercial letter
of credit in form and substance acceptable to Agent and issued or confirmed by
a domestic bank acceptable to Agent; (f) Accounts with respect to which the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof unless such Accounts are duly assigned to Agent for the
benefit of each of the Lenders in accordance with all applicable governmental
and regulatory rules and regulations (including, without limitation, the
Federal Assignment of Claims Act of 1940, as amended, if applicable) so that
Agent is recognized by the Account Debtor to have all of the rights of an
assignee of such Accounts; (g) Accounts with respect to which the Borrower or
any Guarantor is or may become liable to the Account Debtor for goods sold or
services rendered by such Account Debtor to the Borrower or such Guarantor; (h)
Accounts with respect to which the goods giving rise thereto have not been
shipped and delivered to and accepted as satisfactory by the Account Debtor
thereof or with respect to which the services performed giving rise thereto
have not been completed and accepted as satisfactory by the Account Debtor
thereof; (i) Accounts (other than specialty medical Accounts) which are not
invoiced (and dated as of such date) and sent to the Account Debtor thereof
concurrently with or not later than ten (10) days after the shipment and
delivery to and acceptance by said Account Debtor of the goods giving rise
thereto or the performance of the services giving rise thereto; (j) Accounts
which constitute specialty medical Accounts and which are not invoiced (and
dated as of such date) and sent to the Account Debtor thereof concurrently with
or not later than thirty (30) days after the shipment and delivery to and
acceptance by said Account Debtor of the goods giving rise thereto or the
performance of the services giving rise thereto; (k) Accounts with respect to
which possession and/or control of the goods sold giving rise thereto is held,
maintained or retained by the Borrower or any Guarantor (or by any agent or
custodian of the Borrower or any Guarantor) for the account of or subject to
further and/or future direction from the Account Debtor thereof; (l) Accounts
arising from a "sale on approval" or a "sale or return;" (m) Accounts as to
which Agent or the Required Lenders, at any time or times hereafter,
determines, in good faith, by written notice to Borrower, that the prospects of
payment or performance by the Account Debtor is or will be impaired; (n)
Accounts of an Account Debtor to the extent, but only to the extent, that the
same exceed a credit limit determined by Agent or Required Lenders in their
discretion, by written notice to Borrower, at any time or times hereafter; (o)
Accounts with respect to which the Account Debtor is located
- 6 -
<PAGE> 7
in the State of New Jersey, State of West Virginia or the State of Minnesota;
provided, however, that such restriction shall not apply if the Borrower or
Guarantor having such Account (i) has filed and has effective (A) in respect of
Account Debtors located in the State of New Jersey, a Notice of Business
Activities Report with the New Jersey Division of Taxation for the then current
year, (B) in respect of Account Debtors located in the State of West Virginia,
a Notice of Business Activities Report with the West Virginia Division of
Taxation for the then current year, or (C) in respect of Account Debtors
located in the State of Minnesota, a Minnesota Business Activity Report with
the Minnesota Department of Revenue for the then current year, as applicable,
or (ii) is otherwise exempt from such reporting requirements under the laws of
such State(s); (p) Accounts which constitute accruals for rebates to customers;
and (q) Accounts which are not subject to a first priority perfected security
interest in favor of Agent for the benefit of each of the Lenders.
Environmental Laws shall mean the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Materials
or any other hazardous, toxic or dangerous waste, substance or constituent or
other substance, whether solid, liquid or gas, as now or at any time hereafter
in effect.
Environmental Lien shall have the meaning ascribed thereto in Section
7.1(k)(vi).
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
ERISA Affiliate shall mean any corporation, trade or business that is,
along with the Borrower, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Sections 414(b) and
414(c), respectively, of the Code.
Event of Default shall have the meaning ascribed thereto in Section 8.
Facility Fee shall have the meaning ascribed thereto in Section 3.13.
Guarantee by any Person shall mean any obligation, contingent or
otherwise, of such Person guaranteeing any Indebtedness of any other Person or
in any manner providing for the payment of any Indebtedness of any other Person
or otherwise protecting the holder of such Indebtedness against loss (whether
by agreement to keep-well, to purchase assets, goods, securities or services,
or to take-or-pay or otherwise); provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb shall have a correlative
meaning.
- 7 -
<PAGE> 8
Guarantor shall mean each Subsidiary of Borrower now or hereafter
executing a Subsidiary Guaranty of all of Borrower's Obligations, and
Guarantors shall mean any or all of them.
Hazardous Materials shall mean any hazardous substance or pollutant or
contaminant defined as such in (or for the purposes of) any Environmental Law
and shall include, without limitation, petroleum, including crude oil or any
fraction thereof which is liquid at standard conditions of temperature or
pressure (60 degrees fahrenheit and 14.7 pounds per square inch absolute), any
radioactive material, including, without limitation, any source, special
nuclear or byproduct material as defined in 42 U.S.C. Section 2011 et seq., as
amended or hereafter amended, and asbestos in any form or condition.
Indebtedness of any Person shall mean and include, without duplication,
any and all indebtedness (principal, interest, fees and other amounts),
liabilities and obligations of such Person which in accordance with generally
accepted accounting principles, consistently applied are or should be
classified upon a balance sheet of such Person as liabilities of such Person,
and in any event shall include all (i) obligations of such Person for borrowed
money or which have been incurred in connection with the acquisition of
Property, (ii) obligations secured by any Lien or other charge upon any
Property owned by such Person, provided that if such Person has not assumed or
become liable for the payment of such obligations, such obligations shall still
be included in Indebtedness but the determination of the amount of Indebtedness
evidenced by such obligations shall be limited to the book value of such
Property, (iii) obligations created or arising under any conditional sale or
other title retention agreement with respect to any Property acquired by such
Person, provided that if the rights and remedies of the seller, lender or
lessor in the event of default under such agreement are limited solely to
repossession or sale of such Property, such obligations shall still be included
in Indebtedness but the determination of the amount of Indebtedness evidenced
by such obligations shall be limited to the book value of such Property, (iv)
all Guarantees and other contingent indebtedness, liabilities and obligations
of such Person whether or not reflected on the balance sheet of such Person and
(v) all obligations of such Person as lessee under any Capitalized Lease.
Interest Period shall mean with respect to each LIBOR Loan:
(i) Initially, the period commencing on the date of such
Loan and ending 1, 2, 3 or 6 months thereafter (or such other period
agreed upon in writing by the Borrower and all of the Lenders), as the
Borrower may elect in the applicable Notice of Borrowing for a
Revolving Credit Loan or pursuant to Section 3.3(b) for a Reducing
Revolver Loan; and
(ii) Thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Loan and ending
1, 2, 3 or 6 months thereafter (or such other period agreed upon in
writing by the Borrower and all of the Lenders), as the Borrower may
elect pursuant to Section 3.3(c);
provided that:
- 8 -
<PAGE> 9
(iii) For purposes of determining an Interest Period, a
month means a period starting on one day in a calendar month and
ending on a numerically corresponding day in the next calendar month,
provided, however, if an Interest Period begins on the last day of a
month and if there is no numerically corresponding day in the month in
which an Interest Period is to end, then such Interest Period shall
end on the last Business Day of such month;
(iv) Subject to clauses (v), (vi) and (vii) below, if any
Interest Period would otherwise end on a day which is not a Business
Day, such Interest Period shall end on the immediately following
Business Day, except that if such immediately following Business Day
is in a different month, such Interest Period shall end on the
immediately preceding Business Day;
(v) No Interest Period with respect to any LIBOR Loan
shall extend beyond the last day of the Term hereof; and
(vii) Any Interest Period which includes a date on which a
payment of principal is required to be made on the applicable Loan(s)
shall end on such date.
Inventory shall mean all inventory of the Borrower and the
Guarantors.
Letter of Credit and Letters of Credit shall have the meanings
ascribed thereto in Section 3.4(a).
Letter of Credit Application shall mean an application and
agreement for irrevocable standby letter of credit in the form of Exhibit F
attached hereto and incorporated herein by reference or an application and
agreement for irrevocable commercial letter of credit in the form of Exhibit G
attached hereto and incorporated herein by reference, and in either case
executed by Borrower, as account party, and delivered to Agent pursuant to
Section 3.4(a) as the same may from time to time be amended, modified, extended
or renewed.
Letter of Credit Commitment Fee shall have the meaning ascribed
thereto in Section 3.4(d)(ii).
Letter of Credit Issuance Fee shall have the meaning ascribed
thereto in Section 3.4(d)(i).
Lien shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on common law, statute or contract, including, without
limitation, any security interest, mortgage, deed of trust, pledge,
hypothecation, judgment lien or other lien or encumbrance of any kind or nature
whatsoever, any conditional sale or trust receipt and any lease, consignment or
bailment for security purposes. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
Property.
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LIBOR Base Rate means, for an Interest Period, (a) the LIBOR Index
Rate for such Interest Period, if such rate is available, and (b) if the LIBOR
Index Rate cannot be determined, the arithmetic average of the rates of
interest per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
at which deposits in U.S. dollars in immediately available funds are offered to
Agent at 11:00 a.m. (St. Louis time) two (2) Business Days before the beginning
of such Interest Period by two (2) or more major banks in the interbank
eurodollar market selected by Agent for a period equal to such Interest Period
and in an amount equal or comparable to the principal amount of the LIBOR Loan
scheduled to be made available by Lenders. As used herein, "LIBOR Index Rate"
means, for any Interest Period, the rate per annum (rounded upwards, if
necessary, to the next higher one hundred-thousandth of a percentage point) for
deposits in U.S. Dollars for a period equal to such Interest Period, which
appears on the Telerate Page 3750 as of 9:00 a.m. (St. Louis time) on the day
two Business Days before the commencement of such Interest Period.
LIBOR Loan shall mean any Loan bearing interest at the LIBOR Rate.
LIBOR Rate shall mean (a) the quotient of (i) the LIBOR Base Rate
divided by (ii) one minus the LIBOR Reserve Percentage, plus (b) the Applicable
Margin.
LIBOR Reserve Percentage shall mean for any day the reserve percentage
(including any supplemental percentage applied on a marginal basis or any other
reserve requirement having a similar effect), expressed as a decimal, which is
in effect on the first day of the applicable Interest Period, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) under
Regulation D (or any other applicable regulation of the Board of Governors (or
any successor)) with respect to "Eurocurrency Liabilities." The LIBOR Rate
shall be adjusted automatically on and as of the effective date of any change
in the LIBOR Reserve Percentage.
Loan shall mean each Revolving Credit Loan and the Reducing Revolver
Loan, each whether made as a Prime Loan or a LIBOR Loan, and Loans shall mean
any or all of the foregoing.
Loan Commitments shall mean the total of the Revolving Credit
Commitments and the Reducing Revolver Commitments of each of the Lenders.
Multiemployer Plan shall mean a "multi-employer plan" as defined in
Section 4001(a) (3) of ERISA which is maintained for employees of the Borrower,
any ERISA Affiliate or any Subsidiary of the Borrower.
Notes shall mean the Revolving Credit Notes and the Reducing Revolver
Notes.
Obligor shall mean the Borrower and each other Person who is or shall
at any time hereafter become primarily or secondarily liable on any of the
Borrower's Obligations or who grants Agent or any of the Lenders a Lien upon
any of the Property or assets of such Person as security for any of the
Borrower's Obligations.
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Occupational Safety and Health Laws shall mean the Occupational Safety
and Health Act of 1970, as amended, and any other federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability or standards of conduct concerning employee
health and/or safety, as now or at any time hereafter in effect.
PBGC shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
Pension Plan shall mean a "pension plan," as such term is defined in
Section 3(2) of ERISA, which is established or maintained by the Borrower, any
ERISA Affiliate or any Subsidiary of the Borrower, other than a Multiemployer
Plan.
Permitted Investments shall mean any investment by Borrower or any
Subsidiary in any of the following:
(a) Direct obligations of the United States of America or
any instrumentality or agency thereof, the payment of which is unconditionally
guaranteed by the United States of America or any instrumentality or agency
thereof (all of which Investments must mature within twelve (12) months from
the time of acquisition thereof);
(b) Investments in readily marketable commercial paper
which, at the time of acquisition thereof by Borrower or any Subsidiary, is
rated A-1 or better by Standard & Poor's or P-1 or better by Moody's Investment
Service and which matures within 270 days from the date of acquisition thereof,
provided that the issuer of such commercial paper shall, at the time of
acquisition of such commercial paper, have a senior long-term debt rating of at
least A by Standard & Poor's and Moody's Investment Service;
(c) Negotiable certificates of deposit or negotiable
bankers acceptances issued by any of the Lenders or any other bank or trust
company organized under the laws of the United States of America or any state
thereof, which bank or trust company (other than the Lenders to which such
restrictions shall not apply) is a member of both the Federal Deposit Insurance
Corporation and the Federal Reserve System and is rated B or better by
Thompson Bank Watch Service (all of which Permitted Investments must mature
within twelve (12) months from the time of acquisition thereof);
(d) Repurchase agreements, which shall be collateralized
for at least 100% of face value, issued by any of the Lenders or any other bank
or trust company organized under the laws of the United States or any state
thereof, which bank or trust company (other than the Lenders to which such
restrictions shall not apply) is a member of both the Federal Deposit Insurance
Corporation and the Federal Reserve System and is rated B or better by Thompson
Bank Watch Service (all of which Permitted Investments must mature within
twelve (12) months from the time of acquisition thereof);
(e) Investments in mutual funds the investments of which
are limited to domestic securities; and
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<PAGE> 12
(f) Investments in Acceptable Acquisitions.
Person shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, entity or government (whether national, federal, state, county,
city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
Pledge Agreement shall mean that certain General Pledge and Security
Agreement to be executed by Borrower and delivered to Agent for the benefit of
each of the Lenders, pledging all of the issued and outstanding capital stock
of each of Borrower's Subsidiaries, together with all collateral schedules,
stock powers, original stock certificates and other agreements to be delivered
in connection therewith pursuant to Section 5.3, all as the same may be from
time to time amended.
Prime Loan shall mean a Loan bearing interest at the Prime Rate plus
the Applicable Margin.
Prime Rate shall mean the interest rate announced from time to time by
Agent as its "prime rate" on commercial loans (which rate shall fluctuate as
and when said prime rate shall change).
Pro Rata Share shall mean, with respect to each Lender, such Lender's
percentage of the aggregate amount of Loans then outstanding, determined by
dividing the aggregate principal amount of all Loans of such Lender then
outstanding by the aggregate amount of all Loans of all Lenders then
outstanding, or, if no Loans are then outstanding, such Lender's percentage of
the total Loan Commitments of all of the Lenders, determined by dividing the
sum of such Lenders' Revolving Credit Commitment and Reducing Revolver
Commitment by the aggregate sum of all Loan Commitments of all of the Lenders.
Property shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible. Properties shall
mean the plural of Property. For purposes of this Agreement, the Borrower and
each Subsidiary of the Borrower shall be deemed to be the owner of any Property
which it has acquired or holds subject to a conditional sale agreement,
financing lease or other arrangement pursuant to which title to the Property
has been retained by or vested in some other Person for security purposes.
Reducing Revolver Commitment shall mean, subject to termination or
reduction as set forth in Section 3.12 and subject to quarterly reductions
required by Section 3.2(a), for each Lender the amount set forth as the
Reducing Revolver Commitment of such Lender next to its name on the signature
pages hereof or on the signature pages of any subsequent Assignment Agreement
to which such Lender is a party.
Reducing Revolver Loan shall have the meaning ascribed thereto in
Section 3.2.
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<PAGE> 13
Reducing Revolver Notes shall mean each of the Reducing Revolver Notes
of the Borrower to be executed and delivered to each of the Lenders pursuant to
Section 3.2, as the same may from time to time be amended, modified, extended
or renewed.
Related Party shall mean any Person (i) which directly or indirectly
through one or more intermediaries controls, or is controlled by or is under
common control with, the Borrower or any Subsidiary of the Borrower, (ii) which
beneficially owns or holds ten percent (10%) or more of the equity interest of
the Borrower, (iii) ten percent (10%) or more of the equity interest of which
is beneficially owned or held by the Borrower or a Subsidiary of the Borrower,
or (iv) who is a director, officer or employee of the Borrower or any
Subsidiary of the Borrower. The term "control" shall mean the possession,
directly or indirectly, of the power to vote ten percent (10%) or more of the
capital stock of any Person or the power to direct or cause the direction of
the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
Reportable Event shall have the meaning given to such term in ERISA.
Required Lenders shall mean at any time Lenders having 67% of the
aggregate amount of Loans then outstanding or, if no Loans are then
outstanding, 67% of the total Loan Commitments of all of the Lenders.
Revolving Credit Commitment shall mean, subject to termination or
reduction as set forth in Section 3.12, for each Lender the amount set forth as
the Revolving Credit Commitment of such Lender next to its name on the
signature pages hereof or on the signature pages of any subsequent Assignment
Agreement to which such Lender is a party.
Revolving Credit Loan and Revolving Credit Loans shall have the
meanings ascribed thereto in Section 3.1(a).
Revolving Credit Notes shall mean each of the Revolving Credit Notes
of the Borrower to be executed and delivered to each of the Lenders pursuant to
Section 3.1(a), as the same may from time to time be amended, modified,
extended or renewed.
Security Agreement shall mean the Security Agreement to be executed by
Borrower and delivered to Agent for the benefit of each of the Lenders pursuant
to Section 5.1, as the same may from time to time be amended.
Shareholders Equity shall mean on any date the total assets minus
total liabilities of Borrower and its Subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting principles,
consistently applied.
Subordinated Debt shall mean any borrowed money Indebtedness of
Borrower which has been duly subordinated by the holder thereof to all of
Borrower's Obligations to the Lenders and Agent pursuant to a subordination and
standby agreement or intercreditor agreement in form and substance satisfactory
to the Agent and the Required Lenders.
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<PAGE> 14
Subsidiary shall mean, with respect to any Person, any corporation of
which fifty percent (50%) or more of the issued and outstanding capital stock
entitled to vote for the election of directors (other than by reason of default
in the payment of dividends) is at the time owned directly or indirectly by
such Person.
Subsidiary Guaranties shall mean those certain guaranties of
Borrower's Obligations dated as of the date hereof executed respectively by
Borrower's Subsidiaries in existence as of the date hereof and the guaranties
of any subsequently created or acquired Subsidiary of Borrower executed and
delivered to Agent hereafter pursuant to Section 4.3 or Section 7.2(e), all as
the same may from time to time be amended.
Subsidiary Security Agreements shall mean those certain security
agreements dated as of the date hereof executed respectively by Borrower's
Subsidiaries in existence as of the date hereof and delivered to Agent for the
benefit of each of the Lenders and the Subsidiary Security Agreements executed
by any Subsidiary of Borrower created or acquired subsequent to the date of
this Agreement, which Subsidiary Security Agreement shall be delivered pursuant
to Section 4.3 or Section 7.2(e), all as the same may from time to time be
amended.
Term shall have the meaning ascribed thereto in Section 1.
Third Party Collateral shall mean any Property or assets of any
Obligor other than the Borrower which now or at any time hereafter secure the
payment or performance of any of the Borrower's Obligations.
Total Revolving Credit Commitment shall have the meaning ascribed
thereto in Section 3.1.
Trademark Assignment shall mean the Trademark Collateral Assignment
and Security Agreement to be executed by Borrower and delivered to Agent for
the benefit of each of the Lenders pursuant to Section 5.2, as the same may
from time to time be amended.
Transaction Documents shall mean this Agreement, the Notes, the
Security Agreement, the Trademark Assignment, the Pledge Agreement, any Letter
of Credit Application, the Subsidiary Guaranties, the Subsidiary Security
Agreements and all other agreements, documents and instruments heretofore, now
or hereafter delivered to Agent or any of the Lenders with respect to or in
connection with or pursuant to this Agreement, any Loans made or Letters of
Credit issued hereunder or any other of the Borrower's Obligations, and
executed by or on behalf of the Borrower or any of its Subsidiaries, all as the
same may from time to time be amended, modified, extended or renewed.
SECTION 3. THE REVOLVING CREDIT LOANS.
3.1 Revolving Credit Commitment of Lenders.
(a) Subject to the terms and conditions hereof, during
the Term of this Agreement, each Lender hereby severally agrees to make such
loans (individually, a "Revolving
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<PAGE> 15
Credit Loan" and collectively, the "Revolving Credit Loans"), to the Borrower
as the Borrower may from time to time request pursuant to Section 3.3(a). The
aggregate principal amount of Revolving Credit Loans which Lenders,
cumulatively, shall be required to have outstanding hereunder at any one time,
plus the face amount of Letters of Credit issued by Agent and then outstanding
under Section 3.4, shall not exceed the lesser of (i) the Borrowing Base (as
hereinafter defined); or (ii) Twenty Million Dollars ($20,000,000.00) (the
"Total Revolving Credit Commitment"), and the amount each Lender shall be
required to have outstanding hereunder as Revolving Credit Loans plus their
undivided Pro Rata Share participation interest in each Letter of Credit issued
by Agent under Section 3.4 shall not exceed, in the aggregate at any one time
outstanding, the lesser of (x) the amount of such Lender's Revolving Credit
Commitment or (y) such Lender's Pro Rata Share of the then current Borrowing
Base. Each Revolving Credit Loan under this Section 3.1(a) shall be made from
the several Lenders ratably in proportion to their respective Revolving Credit
Commitments. The Revolving Credit Loans from Lenders to the Borrower shall be
evidenced by Revolving Credit Notes of the Borrower dated the date hereof and
payable to the order of each of the Lenders in the respective original
principal amounts of each such Lender's Revolving Credit Commitment and in the
form attached hereto as Exhibit B and incorporated herein by reference (as the
same may from time to time be amended, modified, extended or renewed, the
"Revolving Credit Notes"). Subject to the terms and conditions hereof, the
Borrower may borrow, repay and reborrow such sums from Lenders.
(b) For purposes of computing the amount of Revolving
Credit Loans and Letters of Credit available under the Total Revolving Credit
Commitment, the "Borrowing Base" shall mean Eighty-Five Percent (85%) of the
face amount of Eligible Accounts of the Borrower and the Guarantors.
(c) Borrower shall deliver to Agent on the date of
execution hereof (with respect to the month ended August 31, 1996) and
thereafter within twenty (20) days after the end of each month or more often if
requested by the Required Lenders, a borrowing base certificate in the form of
Exhibit A attached hereto and incorporated herein by reference (a "Borrowing
Base Certificate") setting forth:
(i) the Borrowing Base and its components as of the end
of the immediately preceding month;
(ii) the aggregate principal amount of all outstanding
Revolving Credit Loans and the face amount of all Letters of Credit
then outstanding;
(iii) the difference, if any, between the Borrowing Base
and the aggregate principal amount of all outstanding Revolving Credit
Loans and the face amount of all outstanding Letters of Credit.
The Borrowing Base shown in such Borrowing Base Certificate shall be and remain
the Borrowing Base hereunder until the next Borrowing Base Certificate is
delivered to Agent and each of the Lenders, at which time the Borrowing Base
shall be the amount shown in such subsequent Borrowing Base Certificate. Each
Borrowing Base Certificate shall be certified
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<PAGE> 16
(subject to normal year-end adjustments) as to truth and accuracy by the
President or principal financial officer of the Borrower.
(d) If at any time the aggregate principal amount of all
outstanding Revolving Credit Loans plus the face amount of all outstanding
Letters of Credit should exceed the lesser of the then current Borrowing Base
or the Total Revolving Credit Commitment of Lenders, whether by reduction of
the maximum Total Revolving Credit Commitment amount available under Section
3.1(a) pursuant to Section 3.12, reduction of the Borrowing Base or otherwise,
the Borrower shall be automatically required (without demand or notice of any
kind by Agent or any of the Lenders, all of which are hereby expressly waived
by the Borrower) to immediately repay the Revolving Credit Loans in an amount
sufficient to reduce such aggregate principal amount of outstanding Revolving
Credit Loans to an amount equal to the lesser of the Borrowing Base or the
aggregate Revolving Credit Commitments of Lenders. If the undrawn face amount
of all Letters of Credit still exceeds the lesser of the then current Borrowing
Base or the Total Revolving Credit Commitment after repayment in full of all
Revolving Credit Loans under the preceding sentence, Borrower agrees to provide
cash collateral in form and substance acceptable to Agent in an amount
sufficient to reduce the face amount of outstanding Letters of Credit to the
lesser of the then current Borrowing Base or the Total Revolving Credit
Commitment in the manner required under Section 3.4(f).
(e) Each Lender shall record in its books and records,
and prior to any transfer of its Revolving Credit Note shall endorse on the
schedules forming a part thereof, appropriate notations to evidence the date
and amount of each Revolving Credit Loan made by it during the Term hereof,
whether such Revolving Credit Loan is then a Prime Loan or a LIBOR Loan, and
the date and amount of each payment of principal made by Borrower with respect
thereto. Each Lender is hereby irrevocably authorized by Borrower so to
endorse its Revolving Credit Note and to attach to and make a part of any such
Revolving Credit Note a continuation of any such schedule as and when required;
provided, however that the obligation of Borrower to repay each Revolving
Credit Loan made hereunder shall be absolute and unconditional, notwithstanding
any failure of any Lender to endorse or any mistake by any Lender in connection
with endorsement on the schedules attached to their respective Revolving Credit
Notes. The books and records of each Lender (including, without limitation,
the schedules attached to the Revolving Credit Notes) showing the account
between such Lender and Borrower shall be admissible in evidence in any action
or proceeding and shall constitute prima facie proof of the items therein set
forth.
3.2 Reducing Revolver Commitment of Lenders.
(a) Subject to the terms and conditions hereof, during
the Term of this Agreement, each Lender hereby severally agrees to make such
loans (individually, a "Reducing Revolver Loan," and collectively, the
"Reducing Revolver Loans"), to the Borrower as the Borrower may from time to
time request pursuant to Section 3.3(b). The aggregate principal amount of
Reducing Revolver Loans which Lenders, cumulatively, shall be required to have
outstanding hereunder at any one time shall not exceed the lesser of (i) Thirty
Million Dollars ($30,000,000.00), or (ii) three hundred fifty percent (350%) of
the amount of Borrower's Consolidated Proforma Operating Cash Flow determined
as of the most recent fiscal quarter-end,
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<PAGE> 17
and the amount each Lender shall be required to have outstanding hereunder as
Reducing Revolver Loans shall not exceed the lesser of (x) amount of such
Lender's Reducing Revolver Commitment, or (y) such Lender's Pro Rata Share
multiplied times an amount equal to three hundred fifty percent (350%) of
Borrower's Consolidated Proforma Operating Cash Flow determined as of the most
recent fiscal quarter-end. Each Reducing Revolver Loan under this Section 3.2
shall be made by the Lenders ratably in proportion to their respective Reducing
Revolver Commitments. The Reducing Revolver Loan shall be evidenced by the
Reducing Revolver Notes of the Borrower, each dated the date hereof and payable
by the Borrower to the respective orders of each of the Lenders in the
aggregate original principal amount of Thirty Million Dollars ($30,000,000.00)
and otherwise in the form attached hereto as Exhibit C and incorporated herein
by reference (as the same may from time to time be amended, modified, extended
or renewed, the "Reducing Revolver Notes"). The Reducing Revolver Notes shall
mature on October 4, 2001, unless earlier terminated by acceleration or
otherwise upon the occurrence of an Event of Default under this Agreement.
Subject to any such earlier maturity by reason of acceleration or otherwise and
in addition to any voluntary reduction requested by Borrower pursuant to
Section 3.12, the aggregate Reducing Revolver Commitments of the Lenders shall
be reduced by the amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00) on the first day of each fiscal quarter commencing with the
first such reduction on January 1, 1999 and continuing on the first day of each
fiscal quarter thereafter during the Term hereof, with such reductions being
applied to the respective Reducing Revolver Commitments of the Lenders in
accordance with their Pro Rata Shares thereof. In the event any such quarterly
reduction in the aggregate Reducing Revolver Commitments shall cause the amount
of the Reducing Revolver Commitments of all of the Lenders to be decreased
below the then outstanding principal amount of all Reducing Revolver Loans to
Borrower, or in the event any reduction in Borrower's most recent quarter-end
Consolidated Proforma Operating Cash Flow shall cause the aggregate principal
amount of the Reducing Revolver Loans to exceed three hundred fifty percent
(350%) of such most recent quarter-end Consolidated Proforma Operating Cash
Flow, Borrower agrees to pay to Agent for distribution to the Lenders in
accordance with their respective Pro Rata Shares of the Reducing Revolver
Commitments, the amount by which the aggregate outstanding Reducing Revolver
Loans then exceeds the lesser of the then available aggregate Reducing Revolver
Commitments or three hundred fifty percent (350%) of Borrower's most recent
quarter-end Consolidated Proforma Operating Cash Flow. To the extent such sums
have not been previously repaid pursuant to the preceding sentence, the entire
outstanding and unpaid principal balance of the Reducing Revolver Loans shall
be due and payable on October 4, 2001. Subject to the terms and conditions of
this Agreement, the Borrower may borrow, repay and reborrow the amounts
available under this Section 3.2.
(b) Each Lender shall record in its books and records,
and prior to any transfer of its Reducing Revolver Note shall endorse on the
schedules forming a part thereof, appropriate notations to evidence the date
and amount of each Reducing Revolver Loan made by it during the Term hereof,
whether such Reducing Revolver Loan is then a Prime Loan or a LIBOR Loan, and
the date and amount of each payment of principal made by Borrower with respect
thereto. Each Lender is hereby irrevocably authorized by Borrower so to
endorse its Reducing Revolver Note and to attach to and make a part of any such
Reducing Revolver Note a continuation of any such schedule as and when
required; provided, however that the obligation of Borrower to repay each
Reducing Revolver Loan made hereunder shall be absolute and
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<PAGE> 18
unconditional, notwithstanding any failure of any Lender to endorse or any
mistake by any Lender in connection with endorsement on the schedules attached
to their respective Reducing Revolver Notes. The books and records of each
Lender (including, without limitation, the schedules attached to the Reducing
Revolver Notes) showing the account between such Lender and Borrower shall be
admissible in evidence in any action or proceeding and shall constitute prima
facie proof of the items therein set forth.
3.3 Procedure for Borrowing.
(a) Revolving Credit Loan Advances. Subject to the terms
and conditions hereof, Lenders shall cause the Revolving Credit Loans to be
made to the Borrower at any time and from time to time during the Term hereof
upon timely notice ("Borrowing Notice") to Agent, in writing signed by the
authorized representative of the Borrower (including any such notice by
facsimile transmission) or, if a Prime Loan is being requested, such Borrowing
Notice may be oral provided it is promptly confirmed in writing signed by the
authorized representative of the Borrower to Agent, specifying: (1) the desired
amount of the new Revolving Credit Loan, (2) the applicable interest rate
option being selected, (3) if a LIBOR Loan is requested, the Interest Period,
which in no event shall extend beyond the last day of the Term hereof, and (4)
the date on which the Loan proceeds are to be made available to the Borrower,
which shall be a Business Day. Each Borrowing Notice must be received by Agent
not later than 11:00 a.m. (St. Louis time) on the Business Day on which a
Revolving Credit Loan being borrowed as a Prime Loan is to be made, and not
later than 11:00 a.m. (St. Louis time) on the second Business Day prior to the
Business Day on which a Revolving Credit Loan being borrowed as a LIBOR Loan is
to be made. Upon receipt of a Borrowing Notice given to it, the Agent shall
notify each Lender by 12:00 noon (St. Louis time) on the date of receipt of
such Borrowing Notice by the Agent of the contents thereof and of such Lender's
Pro Rata Share of such new Revolving Credit Loan. A Borrowing Notice, once
issued, shall not be revocable by the Borrower. Not later than 2:00 p.m. (St.
Louis time) on the date of each new Revolving Credit Loan, each Lender shall
make available its Pro Rata Share of such Revolving Credit Loan, in federal or
other funds immediately available in St. Louis, Missouri, to the Agent at its
address specified in or pursuant to Section 10.7. Agent shall not be required
to make any amount available to Borrower hereunder except to the extent it
shall have received such amounts from the Lenders as set forth herein,
provided, however, that unless the Agent shall have been notified by a Lender
prior to the date a Revolving Credit Loan is to be made hereunder that such
Lender does not intend to make its Pro Rata Share of such Revolving Credit Loan
available to the Agent, the Agent may assume that such Lender has made such Pro
Rata Share available to the Agent on such date, and the Agent may in reliance
upon such assumption make available to the Borrower a corresponding amount. If
such corresponding amount is not in fact made available to the Agent by such
Lender and the Agent has made such amount available to the Borrower, the Agent
shall be entitled to receive such amount from such Lender forthwith upon its
demand, together with interest thereon in respect of each day during the period
commencing on the date such amount was made available to the Borrower and
ending on but excluding the date the Agent recovers such amount from the Lender
at a rate per annum equal to the effective rate charged to the Agent for
overnight federal funds transactions with member banks of the Federal Reserve
System for each day as determined by the Agent (or in the case of a day which
is not a Business Day, then for the preceding day). Subject to the terms and
conditions hereof,
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<PAGE> 19
provided that Agent has received a timely Borrowing Notice, Agent shall (unless
Agent determines that any applicable condition specified in Section 4 has not
been satisfied) make the funds so received from the Lenders available to
Borrower by wiring or otherwise transferring the proceeds of such Loan not
later than 2:30 p.m. (St. Louis time) on the Business Day specified in said
Borrowing Notice in accordance with any instructions for such disbursement
received from the Borrower. The Borrower hereby authorizes Agent and Lenders
to rely on telephonic, telegraphic, telecopy, telex or written instructions of
any Person identifying himself or herself as a Person authorized to request a
Revolving Credit Loan or to make a repayment hereunder, and on any signature
which Agent or any of the Lenders believes to be genuine, and the Borrower
shall be bound thereby in the same manner as if such Person were actually
authorized or such signature were genuine. Borrower also hereby agrees to
indemnify Agent and Lenders and hold Agent and Lenders harmless from and
against any and all claims, demands, damages, liabilities, losses, costs and
expenses (including, without limitation, attorneys' fees and expenses) relating
to or arising out of or in connection with the acceptance of instructions for
making Revolving Credit Loans or making repayments hereunder unless such
acceptance results from the gross negligence or willful misconduct of the Agent
or a Lender, as determined by a court of competent jurisdiction. A Borrowing
Notice shall not be required in connection with a Prime Loan pursuant to
Section 3.4(c).
(b) Reducing Revolver Loan Advances. Subject to the
terms and conditions hereof, Lenders shall cause the Reducing Revolver Loans to
be made to the Borrower at any time and from time to time during the Term
hereof upon Borrower's application to Agent in writing signed by the authorized
representative of the Borrower and received by Agent not later than 11:00 a.m.
(St. Louis time) fifteen (15) Business Days prior to the date on which such
Reducing Revolver Loan is being borrowed, specifying: (1) the target business
to be acquired by Borrower in an Acceptable Acquisition with the proceeds of
such Reducing Revolver Loan (which business must be in a similar line of
business to Borrower and its Subsidiaries), (2) the affidavit of the President
of Borrower attesting that the Acceptable Acquisition contemplated will not
cause Borrower or any of its Subsidiaries to violate any provision of the
Transaction Documents and including Borrower's financial projections showing
that post-acquisition Borrower and its Subsidiaries will be in proforma
compliance with the financial covenants set forth in Section 7.1(i) of this
Agreement, (3) the desired amount of the new Reducing Revolver Loan, which
shall not exceed the cash purchase price for the target business, and (4) the
date on which the Loan proceeds are to be made available to the Borrower, which
shall be a Business Day, and not later than two (2) Business Days prior to the
date funding of any such requested Reducing Revolver Loan, Borrower shall
further notify Agent in writing of: (A) the applicable interest rate option
being selected, and (B) if a LIBOR Loan is requested, the Interest Period,
which in no event shall extend beyond the last day of the Term hereof. Each
application for a Reducing Revolver Loan hereunder shall include a copy of the
letter of interest, purchase agreement or other documents signed by and between
Borrower and the target business disclosing the terms of the Acceptable
Acquisition. Reducing Revolver Loans made hereunder to fund Acceptable
Acquisitions shall not require the prior written consent of the Agent or the
Required Lenders except as required in subpart (c) of the definition of
Acceptable Acquisition. A Reducing Revolver Loan requested to fund any
Acceptable Acquisition shall be funded in a single advance. Upon receipt of an
application for a Reducing Revolver Loan, the Agent shall deliver a copy of
such information to each Lender on the date of receipt and shall notify each
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Lender of such Lender's Pro Rata Share of such new Reducing Revolver Loan. An
application for a Reducing Revolver Loan, once issued, shall not be revocable
by the Borrower. Not later than 2:00 p.m. (St. Louis time) on the date of each
new Reducing Revolver Loan, each Lender shall make available its Pro Rata Share
of such Reducing Revolver Loan, in federal or other funds immediately available
in St. Louis, Missouri, to the Agent at its address specified in or pursuant to
Section 10.7. Agent shall not be required to make any amount available to
Borrower hereunder except to the extent it shall have received such amounts
from the Lenders as set forth herein, provided, however, that unless the Agent
shall have been notified by a Lender prior to the date a Reducing Revolver Loan
is to be made hereunder that such Lender does not intend to make its Pro Rata
Share of such Reducing Revolver Loan available to the Agent, the Agent may
assume that such Lender has made such Pro Rata Share available to the Agent on
such date, and the Agent may in reliance upon such assumption make available to
the Borrower a corresponding amount. If such corresponding amount is not in
fact made available to the Agent by such Lender and the Agent has made such
amount available to the Borrower, the Agent shall be entitled to receive such
amount from such Lender forthwith upon its demand, together with interest
thereon in respect of each day during the period commencing on the date such
amount was made available to the Borrower and ending on but excluding the date
the Agent recovers such amount from the Lender at a rate per annum equal to the
effective rate charged to the Agent for overnight federal funds transactions
with member banks of the Federal Reserve System for each day as determined by
the Agent (or in the case of a day which is not a Business Day, then for the
preceding day). Subject to the terms and conditions hereof, provided that
Agent has received a timely application from Borrower as required in this
Section 3.3(b), Agent shall (unless Agent determines that any applicable
condition specified in Sections 4.1 or 4.3 has not been satisfied) make the
funds so received from the Lenders available to Borrower by wiring or otherwise
transferring the proceeds of such Loan not later than 2:30 p.m. (St. Louis
time) on the Business Day specified by Borrower in its application in
accordance with any instructions for such disbursement received from the
Borrower. The Borrower hereby authorizes Agent and Lenders to rely on
telephonic, telegraphic, telecopy, telex or written instructions of any Person
identifying himself or herself as a Person authorized to request a Loan or to
make a repayment hereunder, and on any signature which Agent or any of the
Lenders believes to be genuine, and the Borrower shall be bound thereby in the
same manner as if such Person were actually authorized or such signature were
genuine. Borrower also hereby agrees to indemnify Agent and Lenders and hold
Agent and Lenders harmless from and against any and all claims, demands,
damages, liabilities, losses, costs and expenses (including, without
limitation, attorneys' fees and expenses) relating to or arising out of or in
connection with the acceptance of instructions for making Reducing Revolver
Loans or making repayments hereunder unless such acceptance results from the
gross negligence or willful misconduct of the Agent or a Lender as determined
by a court of competent jurisdiction.
(c) Interest Rate Conversions. Subject to the terms and
conditions hereof, Lenders shall permit the Borrower to convert outstanding
Revolving Credit Loans or outstanding Reducing Revolver Loans from a Prime Loan
to a LIBOR Loan or from a LIBOR Loan to a Prime Loan, and Lenders shall permit
the Borrower to request a new Interest Period for any existing LIBOR Loan at
the end of its then current Interest Period, upon timely notice ("Conversion
Notice") to Agent, in writing signed by the authorized representative of the
Borrower (including any such notice by facsimile transmission) specifying: (1)
the amount of
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<PAGE> 21
the outstanding Revolving Credit Loan or Reducing Revolver Loan being converted
to a new interest rate basis, or the amount of the LIBOR Loan being continued
as a LIBOR Loan for a new Interest Period, (2) the applicable interest rate
option being selected, (3) if a LIBOR Loan is requested, the Interest Period,
which in no event shall extend beyond the last day of the Term hereof, and (4)
the effective date, which shall be a Business Day, and if pertaining to an
existing LIBOR Loan, shall also be the last day of the then current Interest
Period. Each Conversion Notice must be received by Agent not later than 11:00
a.m. (St. Louis time) on the Business Day on which a conversion to a Prime Loan
is to be made, and not later than 11:00 a.m. (St. Louis time) on the second
Business Day prior to the Business Day on which a conversion to a LIBOR Loan is
to be made. Each Conversion Notice for extension of an existing LIBOR Loan for
a new Interest Period must be received by Agent not later than 11:00 a.m. (St.
Louis time) on the second Business Day prior to the last day of the then
current Interest Period. Upon receipt of a Conversion Notice given to it, the
Agent shall notify each Lender by 12:00 noon (St. Louis time) on the date of
receipt of such Conversion Notice by the Agent of the contents thereof. Unless
the Borrower shall have otherwise requested Agent to notify the Lenders to
continue an existing LIBOR Loan for a new Interest Period in a timely
Conversion Notice, upon the expiration of the current Interest Period any LIBOR
Loan made in relation to such Interest Period and then outstanding shall bear
interest at the Prime Rate plus Applicable Margin from and after the expiration
of such Interest Period unless and until subsequently converted in accordance
with the terms of this Section 3.3(c). A Conversion Notice shall not be
revocable by the Borrower. Subject to the terms and conditions hereof,
provided that Agent has received the timely Conversion Notice, Lenders shall
(unless Agent determines that any applicable condition specified in Section 4
has not been satisfied) convert the interest rate on the portion of the
outstanding Revolving Credit Loans or Reducing Revolver Loan, as the case may
be, as directed by the Borrower in the Conversion Notice, or Lenders shall
extend any LIBOR Loan for a new Interest Period as directed by the Borrower in
the Conversion Notice, at 2:30 p.m. (St. Louis time) on the Business Day
specified in said Conversion Notice; provided, however, that notwithstanding
the foregoing, in addition to and without limiting the rights and remedies of
the Agent and the Lenders under Section 8 hereof, so long as any Default or
Event of Default under this Agreement has occurred and is continuing, Borrower
shall not be permitted to renew any LIBOR Loan as a LIBOR Loan or to convert
any Prime Loan into a LIBOR Loan. The Borrower hereby authorizes Agent and the
Lenders to rely on telephonic, telegraphic, telecopy, telex or written
instructions of any person identifying himself or herself as a Person
authorized to request a conversion of a Revolving Credit Loan or Reducing
Revolver Loan, as the case may be, or to continue a LIBOR Loan hereunder, and
on any signature which Agent or any of the Lenders believe to be genuine, and
the Borrower shall be bound thereby in the same manner as if such Person were
actually authorized or such signature were genuine. The Borrower also hereby
agrees to indemnify Agent and the Lenders and hold Agent and the Lenders
harmless from and against any and all claims, demands, damages, liabilities,
losses, costs and expenses (including, without limitation, attorneys' fees and
expenses) relating to or arising out of or in connection with the acceptance of
instructions for converting Revolving Credit Loans or Reducing Revolver Loans
to a new interest rate basis or continuing LIBOR Loans hereunder unless such
acceptance results from the gross negligence or willful misconduct of the Agent
or a Lender as determined by a court of competent jurisdiction. A Conversion
Notice shall not be required in connection with a Prime Loan pursuant to
Section 3.7, 3.8 or 3.9.
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<PAGE> 22
3.4 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, during the Term of this Agreement, and so long as no Default or
Event of Default under this Agreement has occurred and is continuing (provided,
however, that Agent shall have no liability to any of the Lenders for issuing a
Letter of Credit after the occurrence of any Default or Event of Default under
this Agreement unless Agent has previously received notice in writing to Agent
by Borrower or any of the other Lenders of the occurrence of such Default or
Event of Default), Agent hereby agrees to issue irrevocable standby and
commercial letters of credit for the account of Borrower (individually, a
"Letter of Credit" and collectively, the "Letters of Credit") in an amount and
for the term specifically requested by Borrower by application in writing to
Agent in the form of Exhibit F in the case of a standby Letter of Credit or in
the form of Exhibit G in the case of a commercial Letter of Credit, each as
attached hereto and incorporated herein by reference (a "Letter of Credit
Application") at least three (3) Business Days prior to the requested issuance
thereof; provided, however, that:
(i) Borrower shall have executed and delivered to Agent a
Letter of Credit Application with respect to such Letter of Credit;
(ii) the term of any such Letter of Credit shall not
extend beyond the earlier of (A) the last day of the Term hereof, or
(B) three hundred sixty-five (365) days from the issuance thereof,
provided, however, that any such Letter of Credit may be renewable on
terms satisfactory to the Agent; and
(iii) the aggregate undrawn face amount of all outstanding
Letters of Credit shall not at any one time exceed Seven Million Five
Hundred Thousand Dollars ($7,500,000.00) and the aggregate undrawn
face amount of all outstanding Letters of Credit plus the outstanding
principal amount of all Revolving Credit Loans shall not at any one
time exceed the lesser of (a) the Borrowing Base or (b) Twenty Million
Dollars ($20,000,000.00); and
(iv) the text of any such Letter of Credit is provided to
Agent no less than three (3) Business Days prior to the requested
issuance date, which text must be acceptable to Agent in its sole and
absolute discretion.
(b) The payment of drafts under each Letter of Credit
shall be made in accordance with the terms thereof and, in that connection,
Agent shall be entitled to honor any drafts and accept any documents presented
to it by the beneficiary of such Letter of Credit in accordance with the terms
of such Letter of Credit and believed by Agent to be genuine. Agent shall not
have any duty to inquire as to the accuracy or authenticity of any draft or
other drawing document that may be presented to it other than the duties
contemplated by the applicable Letter of Credit Application. If Agent shall
have received documents that in its judgment constitute all of the documents
that are required to be presented before payment or acceptance of a draft under
a Letter of Credit, it shall be entitled to pay such draft provided such
documents conform on their face to the requirements of such Letter of Credit.
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<PAGE> 23
(c) In the event of any payment by Agent of a draft
presented or accepted under a Letter of Credit, Borrower agrees to pay to Agent
in immediately available funds at the time of such drawing an amount equal to
the sum of such drawing plus Agent's negotiation, processing and other fees
related thereto. Borrower hereby authorizes Agent to charge or cause to be
charged Borrower's bank accounts at Agent to the extent there are balances of
immediately available funds therein, in an amount equal to the sum of such
drawing plus Agent's negotiation, processing and other fees related thereto,
and Borrower agrees to pay the amount of any such drawing (and/or Agent's
negotiation, processing and other fees related thereto) not so charged prior to
the close of business of Agent on the day of such drawing. In the event any
payment under a Letter of Credit is made by Agent prior to receipt of payment
from Borrower, such payment by Agent shall constitute a request by Borrower for
a Revolving Credit Loan as a Prime Loan under Section 3.1(a) above.
(d)(i) Borrower shall also pay to Agent, for its own
account, with respect to each a Letter of Credit, a nonrefundable
issuance fee in the amount of One Hundred Twenty-Five Dollars
($125.00) (the "Letter of Credit Issuance Fee"), which Letter of
Credit Issuance Fee shall be due and payable on the date of issuance
of each Letter of Credit, and such other fees as Agent may from time
to time customarily charge in accordance with Agent's published
schedule of fees in effect from time to time, which fees shall be due
and payable on demand by Agent; and
(ii) Borrower shall pay to Agent for the ratable account
of the Lenders with respect to each Letter of Credit for the period
during which such Letter of Credit is outstanding, a nonrefundable
Letter of Credit Commitment Fee in an amount per annum equal to the
LIBOR Margin in effect for each such fiscal quarter (calculated on an
actual day, 360-day year basis) times the face amount (taking into
account any scheduled increases or decreases therein during the fiscal
quarter in question) of each Letter of Credit issued hereunder
("Letter of Credit Commitment Fee"), which Letter of Credit Commitment
Fee shall be due and payable initially within ten (10) days of the
date hereof for all Letters of Credit outstanding on the date hereof
and on the date of issuance for each Letter of Credit issued by Agent
hereafter, in each case prorated for the remainder of the then current
quarter, and such Letter of Credit Commitment Fee shall also be
payable thereafter for all outstanding Letters of Credit quarterly in
advance on each July 1, October 1, January 1 and April 1 during the
Term hereof.
(e) Upon the issuance of a Letter of Credit by Agent, an
undivided participation interest therein (including, without limitation, an
undivided participation interest in the reimbursement risk relating to such
Letter of Credit and in all payments and Revolving Credit Loans made in
connection with such Letter of Credit) shall automatically be granted by Agent
to and accepted by each of the other Lenders in an amount based on each such
other Lender's Pro Rata Share of the face amount of such Letter of Credit,
which participation shall be evidenced by a single Letter of Credit
Participation Certificate executed by Agent in favor of such Lender in the form
attached hereto as Exhibit H and incorporated herein by reference. Agent
agrees to provide each Lender with a copy of each Letter of Credit issued
hereunder. If
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<PAGE> 24
Agent shall make payment on any draft presented or accepted under a Letter of
Credit, Agent shall give notice of such payment to the other Lenders, and each
of the other Lenders hereby authorizes and requests Agent to advance for their
respective accounts, pursuant to the terms hereof, their respective shares of
any such payment based upon their respective Pro Rata Shares. If a Default has
occurred hereunder and if such drawing is not paid by Borrower in immediately
available funds prior to the close of business of Agent on the date of such
drawing, Agent shall promptly so notify the other Lenders and each of the other
Lenders agrees to immediately reimburse Agent in immediately available funds
for its Pro Rata Share of the amount of such drawing, plus interest calculated
on its Pro Rata Share of such amount at a rate per annum equal to the effective
rate charged to the Agent for overnight federal funds transactions with member
banks of the Federal Reserve System calculated from the date of such payment by
Agent to but excluding the date of reimbursement by such other Lender and on an
actual-day, 360-day year basis. Each of the other Lenders will be entitled to
its Pro Rata Share of any Letter of Credit Commitment Fees paid by Borrower,
but such other Lenders shall have no right to share in any Letter of Credit
Issuance Fees or any other fees paid by Borrower to Agent in connection with
any of the Letters of Credit.
(f) Notwithstanding any provision contained in this
Agreement or any of the Letter of Credit Applications to the contrary, upon the
occurrence of any Event of Default under this Agreement, at Agent's option and
without demand or further notice to Borrower, an amount equal to the aggregate
undrawn face amount of all Letter(s) of Credit then outstanding shall be deemed
(as between Agent and Borrower) to have been paid or disbursed by Agent
(notwithstanding that such amounts may not in fact have been so paid or
disbursed by Agent), and which amount shall be immediately due and payable. In
lieu of the foregoing, at the election of the Required Lenders upon the
occurrence of any Event of Default under this Agreement, Borrower shall, upon
the Required Lenders' demand, deliver to Agent cash, or other collateral
acceptable to the Required Lenders in their sole and absolute discretion,
having a value, as determined by the Required Lenders, at least equal to
aggregate undrawn face amount of all outstanding Letters of Credit. Any such
collateral and/or any amounts received by Agent for such Letters of Credit
shall be held by Agent in a separate account at Agent appropriately designated
as a cash collateral account in relation to this Agreement and the Letters of
Credit and retained by Agent as collateral security for the payment of
Borrower's Obligations hereunder. Cash amounts delivered to Agent pursuant to
the foregoing requirements of this Section shall be invested, at the request
and for the account of Borrower, in investments of a type and nature and with a
term acceptable to the Required Lenders. Such amounts, including in the case
of cash amounts invested in the manner set forth above, any interest realized
thereon, may be applied to reimburse Agent and/or any of the Lenders for
drawings or payments under or pursuant to the Letters of Credit which Agent has
paid, or if no such reimbursement is required to the payment of such other of
Borrower's Obligations as the Required Lenders shall determine. Any amounts
remaining in any cash collateral account established pursuant to this Section
after the payment in full of all of Borrower's Obligations and the expiration
or cancellation of all of the Letters of Credit shall be returned to Borrower
(after deduction of Agent's expenses, if any).
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<PAGE> 25
3.5 Interest Rates and Payments.
(a) Each Revolving Credit Loan and Reducing Revolver Loan
shall bear interest prior to maturity at a rate per annum equal to such of the
following as the Borrower, at its option, shall select in accordance with
Section 3.3: (i) the Prime Rate plus Applicable Margin, which rate shall
fluctuate as and when said Prime Rate or said Applicable Margin shall change,
or (ii) the LIBOR Rate plus Applicable Margin, determined in the case of LIBOR
Loans as of the date of the commencement of the applicable Interest Period.
Accrued interest on all Prime Loans shall be payable quarterly in arrears on
the first day of each calendar quarter, commencing on the first such date after
such Loan is made. Accrued interest on all LIBOR Loans shall be payable in
arrears on the last day of the Interest Period applicable to each such LIBOR
Loan, and if any such Interest Period exceeds three months, all accrued and
unpaid interest shall be due and payable on the date three months following the
commencement of such Interest Period as well. In addition, all accrued
interest on all Loans shall be payable on the last day of the Term hereof,
whether by reason of acceleration or otherwise.
(b) After the occurrence of an Event of Default, the
principal balance of and, to the extent permitted by law, any overdue interest
on any Prime Loan shall bear interest, payable on demand, for each day until
paid, at a rate per annum equal to Three and One-Fourth Percent (3.25%) over
and above the Prime Rate, fluctuating as and when said Prime Rate shall change.
After the occurrence of an Event of Default, the principal balance of and, to
the extent permitted by law, any overdue interest on any LIBOR Loan shall bear
interest, payable on demand, for each day during the applicable Interest Period
until paid, at a rate per annum equal to the sum of Two Percent (2.00%) plus
the LIBOR Rate plus Applicable Margin for such LIBOR Loan, and after the
expiration of such Interest Period, such Loan shall thereafter bear interest at
the default rate applicable to Prime Loans under the preceding sentence. From
and after the maturity of the Notes, whether by reason of acceleration or
otherwise, the unpaid principal balance of each Loan shall bear interest until
paid, payable on demand, at a rate per annum equal to Three and One-Fourth
Percent (3.25%) over and above the Prime Rate, fluctuating as aforesaid.
(c) Interest shall be computed with respect to all Loans
on an actual day, 360-day year basis. Each LIBOR Loan shall be for a principal
amount of Five Hundred Thousand Dollars ($500,000.00) or any larger multiple of
Two Hundred Fifty Thousand Dollars ($250,000.00), the Borrower shall be
permitted to have no more than eight (8) LIBOR Loans outstanding at any one
time, whether such LIBOR Loans shall constitute Revolving Credit Loans or
Reducing Revolver Loans.
(d) The Agent shall determine each interest rate
applicable to the Loans hereunder as selected by Borrower pursuant to Section
3.3. The Agent shall give prompt notice to Borrower and the Lenders by
telephone, telecopy, telex or cable of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of manifest error.
3.6 Prepayment; Funding Losses. The Borrower shall be privileged
to prepay all at any time or any portion from time to time of the unpaid
principal balance of any Loan, provided, however, that any LIBOR Loan may be
prepaid only at the expiration of the applicable
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<PAGE> 26
Interest Period. If the Borrower makes any payment with respect to any LIBOR
Loan on any day other than the last day of the Interest Period applicable
thereto (whether by reason of acceleration, a required prepayment under this
Agreement or otherwise), or if the Borrower converts any LIBOR Loan or portion
thereof to a Prime Loan on any day other than the last day of the Interest
Period applicable thereto (whether by reason of Section 3.8, 3.9 or otherwise),
or if the Borrower fails to borrow any LIBOR Loan after a request for such a
Loan has been given to Agent pursuant hereto, the Borrower shall reimburse any
of the Lenders on demand for any resulting losses and expenses incurred by any
such Lender, including, without limitation, any losses incurred in obtaining,
liquidating or employing deposits from third parties, including loss of margin
for the period after such payment or conversion, provided that such Lender
shall have delivered to the Borrower a certificate, with supporting
calculations, as to the amount of such losses and expenses, which certificate
shall be conclusive in the absence of manifest error. All prepayments shall be
applied solely to the payment of principal.
3.7 Basis for Determining Interest Rate Inadequate or Unfair. If
with respect to any Interest Period:
(a) Deposits in dollars (in the applicable amounts) are
not being offered to any Lender in the relevant market for such Interest
Period, or
(b) Any Lender determines that the LIBOR Rate as
determined pursuant to the definition thereof will not adequately and fairly
reflect the cost to such Lender of maintaining or funding the LIBOR Loans for
such Interest Period,
such Lender shall forthwith give notice thereof to the Borrower, which notice
shall set forth in detail the basis for such notice, whereupon until such
Lender notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, (a) the obligations of the such Lender to make
LIBOR Loans shall be suspended, and (b) the Borrower shall convert all of its
then outstanding LIBOR Loans from such Lender on the last day of the then
current Interest Period applicable to each such LIBOR Loan, to a Prime Loan of
the same type (i.e., as a Reducing Revolver Loan or a Revolving Credit Loan) in
an equal principal amount. Interest accrued on such LIBOR Loan prior to such
conversion shall be due and payable on the date of such conversion.
3.8 Illegality. If, after the date of this Agreement, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
or regulatory authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender with any
request or directive (whether or not having the force of law) of any such
governmental or regulatory authority, central bank or comparable agency shall
make it unlawful or impossible for such Lender to make, maintain or fund its
LIBOR Loans to the Borrower, such Lender shall forthwith give notice thereof to
the Borrower. Upon receipt of such notice, the Borrower shall convert all of
their then outstanding LIBOR Loans from such Lender on either (a) the last day
of the then current Interest Period applicable to such LIBOR Loan if such
Lender may lawfully continue to maintain and fund such LIBOR Loan to such day
or (b) immediately if such Lender may not lawfully continue to fund and
maintain such LIBOR Loan to such day, to a Prime Loan
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<PAGE> 27
of the same type (i.e., as a Reducing Revolver Loan or a Revolving Credit Loan)
in an equal principal amount. Interest accrued on such LIBOR Loan prior to
such conversion shall be due and payable on the date of such conversion
together with any funding losses and other amounts due under Section 3.6.
3.9 Increased Cost.
(a) If (i) Regulation D of the Board of Governors of the
Federal Reserve System, as amended, or (ii) after the date hereof, the adoption
of any applicable law, rule or regulation, or any change therein, or any change
in the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender with any
request or directive (whether or not having the force of law) of any such
governmental or regulatory authority, central bank or comparable agency (a
"Regulatory Change"):
(i) shall subject any such Lender to any tax, duty or
other charge with respect to its LIBOR Loans, the Notes or the
obligation to make LIBOR Loans, or shall change the basis of taxation
of payments to any such Lender of the principal of or interest on its
LIBOR Loans or any other amounts due under this Agreement in respect
of its LIBOR Loans or its obligation to make LIBOR Loans (except for
taxes on or changes in the rate of tax on the overall net income of
such Lender); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Board of
Governors of the Federal Reserve System), special deposit, capital or
similar requirement against assets of, deposits with or for the
account of, or credit extended or committed to be extended by, any
such Lender or shall, with respect to such Lender impose, modify or
deem applicable any other condition affecting such Lender's LIBOR
Loans, the Notes or such Lender's obligation to make LIBOR Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D, to impose a cost on or increase the cost to) such Lender
of making or maintaining any LIBOR Loan, or to reduce the amount of any sum
received or receivable by such Lender under this Agreement or under any of the
Notes with respect thereto, by an amount deemed by such Lender to be material,
and if such Lender is not otherwise fully compensated for such increase in cost
or reduction in amount received or receivable by virtue of the inclusion of the
reference to "LIBOR Reserve Percentage" in the calculation of the LIBOR Rate,
then upon notice by such Lender to the Borrower, which notice shall set forth
such Lender's supporting calculations and the details of the Regulatory Change,
the Borrower shall pay such Lender, as additional interest, such additional
amount or amounts as will compensate Lenders for such increased cost or
reduction. The determination by any Lender under this Section of the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. In determining such amount or amounts, the
Lenders may use any reasonable averaging and attribution methods.
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<PAGE> 28
(b) If any Lender demands compensation under this
Section, the Borrower may at any time, upon at least one (1) Business Day's
prior notice to such Lender, convert their then outstanding LIBOR Loans to
Prime Loans of the same type (i.e., as a Reducing Revolver Loan or a Revolving
Credit Loan) in an equal principal amount. Interest accrued on such LIBOR Loan
prior to such conversion shall be due and payable on the date of such
conversion together with any funding losses and other amounts due under Section
3.6.
3.10 Prime Loans Substituted for Affected LIBOR Loans. If notice
has been given by any Lender pursuant to Section 3.7 or 3.8 or by the Borrower
pursuant to Section 3.9 requiring LIBOR Loans to be repaid or converted, then,
unless and until such Lender notifies the Borrower that the circumstances
giving rise to such repayment or conversion no longer apply, all Loans which
would otherwise be made by such Lender to the Borrower as LIBOR Loans shall be
made instead as Prime Loans. Any such Lender shall notify the Borrower if and
when the circumstances giving rise to such repayment no longer apply. All
indemnities and all provisions relating to reimbursement to any Lender of
amounts sufficient to protect the yield to such Lender with respect to the
Loans, including, without limitation, Sections 3.6, 3.7, 3.8 and 3.9 hereof,
shall survive the payment of the Notes and the termination of this Agreement.
3.11 Place and Manner of Payment. Both principal and interest on
the Loans and all fees due hereunder and under any of the other Transaction
Documents payable to any Lender shall be paid in lawful currency of the United
States, in federal or other immediately available funds, at Agent's banking
office at 721 Locust Street, St. Louis, Missouri 63101. The Agent will
promptly distribute to each Lender in immediately available funds its ratable
share of each such payment received by the Agent pursuant to the terms of this
Agreement for the account of such Lenders. Whenever any payment of principal
of, or interest on, the Loans or of fees shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day, except as required by clauses (iii) or (iv) of the
definition of Interest Period. If the date for any payment of principal is
extended by operation of law or otherwise, interest thereon, at the then
applicable rate, shall be payable for such extended time.
3.12 Termination or Reduction of Revolving Credit Commitments and
Reducing Revolver Commitments. The Borrower may, upon one (1) Business Day's
prior written notice to Agent, terminate entirely at any time, or
proportionately reduce from time to time on a pro rata basis among the Lenders
based on their respective Revolving Credit Commitments or Reducing Revolver
Commitments, as the case may be, by an aggregate amount of $500,000.00 or any
larger multiple of $100,000.00, the unused portions of the Revolving Credit
Commitments and/or the Reducing Revolver Commitments as specified by Borrower
in such notice to Agent; provided, however, that (i) at no time shall the
Revolving Credit Commitments be reduced to a figure less than the total of the
outstanding principal amount of all Revolving Credit Loans plus the face amount
of all outstanding Letters of Credit, (ii) at no time shall the Revolving
Credit Commitments be reduced to a figure greater than zero but less than
$500,000.00, (iii) at no time shall the Reducing Revolver Commitments be
reduced to a figure less than the total of the outstanding principal amount of
all Reducing Revolver Loans, (iv) at no time shall the Reducing Revolver
Commitments be reduced to a figure greater than zero but less than $500,000.00,
and (v) any such termination or reduction shall be permanent and the
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Borrower shall have no right to thereafter reinstate or increase, as the case
may be, the Revolving Credit Commitment or the Reducing Revolver Commitment, as
the case may be, of any Lender.
3.13 Facility Fee. The Borrower shall pay to Agent on the date
hereof a nonrefundable Facility Fee (the "Facility Fee") in the amount agreed
to in that certain commitment letter from Agent to Borrower dated August 19,
1996.
3.14 Commitment Fee. From the date hereof to but excluding the
last day of the Term hereof, the Borrower shall pay to the Agent, for
distribution to the Lenders in accordance with their Pro Rata Shares, a
quarterly nonrefundable commitment fee equal to (a) One-Fourth of One Percent
(.25%) per annum for all fiscal quarters ending on or before March 31, 1997, or
(b) the percentage per annum equal to the then current Applicable Margin for
all times after March 31, 1997, multiplied by the average daily unused portion
of the Total Revolving Credit Commitment, plus (y) the average daily unused
portion of the aggregate Reducing Revolver Commitments. The unused Total
Revolving Credit Commitment shall be calculated as (i) the sum of the amounts
each day during any such fiscal quarter equal to the Total Revolving Credit
Commitment minus (x) the outstanding principal balance of all Revolving Credit
Loans, and (y) the face amount of all issued and outstanding Letters of Credit
on each such day, divided by (ii) 90, or by such lesser number of days in any
partial fiscal quarter for which such Revolving Credit Commitment was
available. The unused portion of the aggregate Reducing Revolver Commitments
shall be calculated as (i) the sum of the amounts each day during any such
fiscal quarter equal to the aggregate Reducing Revolver Commitments minus the
outstanding principal balance of all Reducing Revolver Loans on each such day,
divided by (ii) 90, or by such lesser number of days in any partial fiscal
quarter for which such Reducing Revolver Commitment was available. Such
commitment fee shall be payable quarterly in arrears on each April 1, July 1,
October 1 and January 1 during the Term hereof and on the last day of the Term
hereof, and shall be calculated on an actual day, 360-day year basis.
3.15 Maturity. All principal, interest and other amounts
outstanding with respect to the Revolving Credit Loans and the Reducing
Revolver Loans which are not paid prior thereto shall be due and payable on the
last day of the Term hereof, whether by reason of the expiration thereof,
acceleration or otherwise.
3.16 Voluntary Prepayments.
(a) Borrower may, upon notice to Agent specifying that it
is paying its Prime Loans and specifying whether it is paying a portion of its
Reducing Revolver Loans and/or its Revolving Credit Loans, pay its Prime Loans
in whole at any time, or from time to time in part in amounts aggregating
$10,000.00 or any larger multiple of $10,000.00, by paying the principal amount
to be paid together with all accrued and unpaid interest thereon to and
including the date of payment; provided, however, that in no event may the
Borrower make a partial payment of Prime Loans which results in the total
outstanding Revolving Credit Loans which are Prime Loans being greater than
zero but less than $10,000.00.
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<PAGE> 30
(b) Borrower may, upon at least two (2) Business Day's
notice to Agent specifying that it is paying LIBOR Loans and specifying whether
it is paying a portion of the Reducing Revolver Loans and/or its Revolving
Credit Loans, pay on the last day of any Interest Period its LIBOR Loans to
which such Interest Period applies, in whole, or in part in amounts aggregating
$100,000.00 or any larger multiple of $50,000.00, by paying the principal
amount to be paid together with all accrued and unpaid interest thereon to and
including the date of payment; provided, however, that in no event may the
Borrower make a partial payment of LIBOR Loans which results in the total
outstanding LIBOR Loans which constitute a portion of the Reducing Revolver
Loans with respect to which a given Interest Period applies or the total
outstanding LIBOR Loans which are Revolving Credit Loans with respect to which
a given Interest Period applies being greater than zero but less than
$500,000.00.
(c) Upon receipt of a notice of payment pursuant to this
Section, the Agent shall promptly notify each Lender of the contents thereof
and of such Lender's Pro Rata Share of such payment and such notice shall not
thereafter be revocable by Borrower.
3.17 Discretion of Lender as to Manner of Funding. Notwithstanding
any provision contained in this Agreement to the contrary, each of the Lenders
shall be entitled to fund and maintain its funding of all or any part of its
LIBOR Loans in any manner it elects, it being understood, however, that for
purposes of this Agreement all determinations hereunder (including, without
limitation, the determination of each Lender's funding losses and expenses
under Section 3.6) shall be made as if such Lender had actually funded and
maintained each LIBOR Loan through the purchase of deposits having a maturity
corresponding to the maturity of the applicable Interest Period relating to the
applicable LIBOR Loan and bearing an interest rate equal to the applicable
LIBOR Rate. Each Lender may, at its option, elect to make, fund or maintain
its Loans hereunder at the branches or offices specified on the signature pages
hereof or on any Assignment Agreement executed and delivered pursuant to
Section 10.12 hereof or at such other of its branches or offices as such Lender
may from time to time elect, provided that the Borrower shall not be required
to reimburse any Lender under any of the provisions of Section 3.6 for any cost
which such Lender would not have incurred but for changing its lending or
funding branch unless Borrower consents to such change.
SECTION 4. PRECONDITIONS TO LOANS.
4.1 Initial Reducing Revolver Loan and Initial Revolving Credit
Loan or Letter of Credit. Notwithstanding any provision contained herein to
the contrary, Lenders shall have no obligation to make any Loan hereunder, and
Agent shall have no obligation to issue any Letter of Credit, unless Agent and
Lenders shall have received no later than December 31, 1996 the following:
(a) This Agreement and the Notes, each executed by a duly
authorized officer of the Borrower;
(b) The Security Agreement, financing statements, motor
vehicle title lien applications and such other documents as Agent may
reasonably require under Section 5.1, each executed by a duly authorized
officer of the Borrower;
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<PAGE> 31
(c) The Subsidiary Guaranties executed and delivered by a
duly authorized officer of each of the respective Subsidiaries of Borrower in
existence on the date hereof;
(d) The Subsidiary Security Agreements, financing
statements, motor vehicle title lien applications and such other documents as
Agent may reasonably require under Section 5.4, each executed by a duly
authorized officer of each of the respective Subsidiaries of Borrower;
(e) The Trademark Assignment and such other documents as
Agent may reasonably require under Section 5.2, each executed by a duly
authorized officer of the Borrower required to execute such agreement;
(f) The Pledge Agreement, together with such collateral
schedules, Reg. U-1 affidavits, stock powers (signed in blank) and other
documents as Agent may reasonably require under Section 5.3, each executed by a
duly authorized officer of the Borrower;
(g) The policies or certificates of insurance required by
Section 7.1(d) herein;
(h) A copy of resolutions of the Board of Directors of
Borrower, duly adopted, which authorize the execution, delivery and performance
of this Agreement, the Notes, the Security Agreement, the Pledge Agreement, the
Trademark Assignment and the other Transaction Document to be executed by
Borrower, certified by the President and Secretary of Borrower;
(i) A copy of resolutions of the Boards of Directors of
each of the Subsidiaries, each duly adopted, authorizing the execution,
delivery and performance by each such Subsidiary of its Subsidiary Guaranty,
its Subsidiary Security Agreement and any other Transaction Documents to be
executed by such Subsidiary, certified by the Vice President and Assistant
Secretary, respectively, of such Subsidiary;
(j) Copies of the Articles of Incorporation of Borrower
and each of its Subsidiaries, including any amendments thereto, certified by
the Secretary of State of each of their respective states of incorporation;
(k) A copy of Borrower's Bylaws and copies of the Bylaws
of each of Borrower's Subsidiaries, including amendments thereto, certified
respectively by the corporate Secretary of Borrower and each such Subsidiary;
(l) Incumbency certificates, executed respectively by the
Secretaries of the Borrower and of each Subsidiary of the Borrower, which shall
identify by name and title and bear the signatures of all of the officers of
the Borrower or each such Subsidiary executing any of the Transaction
Documents;
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<PAGE> 32
(m) A certificate of corporate good standing of Borrower
and each of its Subsidiaries issued by the Secretary of State of their
respective states of incorporation;
(n) An opinion of counsel of Wright, Lindsey & Jennings,
independent counsel to the Borrower and its Subsidiaries, in the form of
Exhibit D attached hereto and incorporated herein by reference;
(o) Evidence satisfactory to Agent and each of the
Lenders that Borrower has acquired and presently holds all of the outstanding
voting capital stock of each of the Founding Companies as that term is defined
in Borrower's Form S-1 filed with the Securities and Exchange Commission on
July 3, 1996;
(p) Evidence satisfactory to Agent and each of the
Lenders that Borrower has completed its initial public offering of its common
stock and has received net proceeds from such initial public offering of not
less than $35,000,000.00, a portion of which shall have been used to repay in
full all of the outstanding borrowed money indebtedness of each of the Founding
Companies;
(q) The initial Borrowing Base Certificate required by
Section 3.1(c);
(r) The Borrowing Notice required by Section 3.3(a)
and/or the initial application for Reducing Revolver Loan required by Section
3.3(b);
(s) Such other agreements, documents, instruments and
certificates as Agent or Lenders may reasonably request.
4.2 Subsequent Revolving Credit Loans. Notwithstanding any
provision contained herein to the contrary, Lenders shall have no obligation to
make any subsequent Revolving Credit Loan hereunder, and Agent shall have no
obligation to issue any subsequent Letter of Credit under any Letter of Credit
Application, unless:
(a) Agent and each of the Lenders shall have received a
current Borrowing Base Certificate as required by Section 3.1(c);
(b) Agent shall have received a Borrowing Notice or
Conversion Notice for such Loan as required by Section 3.3, or the Letter of
Credit Application as required by Section 3.4;
(c) On the date of and immediately after such Loan, Loan
conversion or Letter of Credit issuance, no Default or Event of Default under
this Agreement shall have occurred and be continuing; and
(d) On the date of and immediately after such Loan, Loan
conversion or Letter of Credit issuance, no material adverse change in the
business, financial position or results of operations of the Borrower or any of
its Subsidiaries shall have occurred since the date of this Agreement and be
continuing; and
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<PAGE> 33
(e) All of the representations and warranties of the
Borrower contained in this Agreement shall be true and correct on and as of the
date of such Loan, Loan conversion or Letter of Credit issuance as if made on
the date of such Loan, the date of such Loan conversion or the issuance date of
such Letter of Credit, as the case may be.
Each request for a Loan, for conversion of a Loan or application for a
Letter of Credit by the Borrower hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such Loan, Loan
conversion or Letter of Credit issuance as to the facts specified in clauses
(c), (d) and (e) of this Section 4.2.
4.3 Subsequent Reducing Revolver Loans. Notwithstanding any
provision contained herein to the contrary, Lenders shall have no obligation to
make any subsequent Reducing Revolver Loan hereunder unless:
(a) Agent and each of the Lenders shall have received the
current quarter-end financial statements and compliance certificate as required
by Sections 7.1(a)(ii) and (iii);
(b) Agent shall have received a complete application for
such Reducing Revolver Loan as required by Section 3.3(b);
(c) Any Subsidiary created or acquired by Borrower in
connection with the Acceptable Acquisition which is to be funded with the
proceeds of such Reducing Revolver Loan shall have executed and delivered:
(i) A Subsidiary Guaranty executed and delivered by a
duly authorized officer of such new Subsidiary of Borrower;
(ii) A Subsidiary Security Agreement, financing
statements, motor vehicle title lien applications and such other
documents as Agent may reasonably require, each executed by a duly
authorized officer of such new Subsidiary;
(iii) A copy of resolutions of the Board of Directors of
such new Subsidiary, duly adopted, authorizing the execution, delivery
and performance by such Subsidiary of its Subsidiary Guaranty, its
Subsidiary Security Agreement and any other Transaction Documents to
be executed by such Subsidiary, certified by the President and
Secretary of such Subsidiary;
(iv) A copy of the Articles of Incorporation of such new
Subsidiary, certified by the Secretary of State of its state of
incorporation;
(v) A copy of the Bylaws of such new Subsidiary,
certified by the corporate Secretary of such Subsidiary;
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<PAGE> 34
(vi) An incumbency certificate, executed by the Secretary
of such new Subsidiary, which shall identify by name and title and
bear the signatures of all of the officers of such Subsidiary
executing any of the Transaction Documents;
(vii) A certificate of corporate good standing of such
Subsidiary, issued by the Secretary of State of its state of
incorporation; and
(viii) An opinion of counsel of Wright, Lindsey & Jennings,
independent counsel to the Borrower and such Subsidiary in form and
substance satisfactory to Agent and the Lenders.
(d) Borrower shall have delivered to Agent for the
benefit of each of the Lenders, the original stock certificate of such newly
created or acquired Subsidiary, together with such collateral schedules, stock
powers, Regulation U-1 affidavits and other documents Agent may reasonably
require;
(e) On the date of and immediately after such Reducing
Revolver Loan, no Default or Event of Default under this Agreement shall have
occurred and be continuing;
(f) On the date of and immediately after such Reducing
Revolver Loan, no material adverse change in the business, financial position
or results of operations of the Borrower or any of its Subsidiaries shall have
occurred since the date of this Agreement and be continuing;
(g) All of the representations and warranties of the
Borrower contained in this Agreement, including any pertaining to the new
Subsidiary created or acquired as a result of the Acceptable Acquisition, shall
be true and correct on and as of the date of such Reducing Revolver Loan, as if
made on the date of such Reducing Revolver Loan.
Each request for a Reducing Revolver Loan by the Borrower hereunder
shall be deemed to be a representation and warranty by the Borrower on the date
of such Reducing Revolver Loan as to the facts specified in clauses (e), (f)
and (g) of this Section 4.3.
SECTION 5. COLLATERAL.
5.1 Security Agreement. In order to secure the payment when due
of the Borrower's Obligations, the Borrower shall convey to Agent for the
benefit of each of the Lenders a security interest in, among other things, all
of the Property of the Borrower described on Schedule 5 attached hereto and
incorporated herein by reference, which security interest shall be a first and
prior interest in all such items except for those Uniform Commercial Code
security interests described on Schedule 6.11 attached hereto. Said security
interest shall be evidenced by a Security Agreement dated the date hereof and
executed by the Borrower in favor of Agent for the benefit of each of the
Lenders in form and substance acceptable to Agent (as the same may from time to
time be amended, the "Security Agreement"). The Borrower further covenants and
agrees to execute and deliver to Agent for the benefit of each of the Lenders
any
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<PAGE> 35
and all financing statements, continuation statements and such other
documentation as may be requested by Agent from time to time in order to
create, perfect and continue said security interests. Upon demand, the
Borrower shall pay all legal and filing fees and expenses incurred by Agent in
the preparation of the foregoing documents and perfection of the security
interests contemplated thereby. Lenders shall have no obligation to make any
Loan or convert the interest rate on any Loan hereunder unless and until the
Borrower has fully satisfied these requirements.
5.2 Trademark Assignment. In order to further secure the payment
when due of the Borrower's Obligations, the Borrower shall convey to Agent for
the benefit of each of the Lenders a security interest in and collateral
assignment of, among other things, all of the existing and future trademarks
and trademark applications of Borrower, which security interest and collateral
assignment shall be a first and prior interest in all such items except for
those security interests described on Schedule 6.11 attached hereto. Said
security interest and collateral assignment shall be evidenced by Trademark
Collateral Assignment and Security Agreement dated the date hereof and executed
by the Borrower in favor of Agent for the benefit of each of the Lenders in
form and substance acceptable to Agent (as the same may from time to time be
amended, the "Trademark Assignment"). The Borrower further covenants and
agrees to execute and deliver to Agent for the benefit of each of the Lenders
any and all amendments and exhibits thereto for any future trademarks and
trademark applications filed by Borrower and such other documentation as may be
requested by Agent from time to time in order to create, perfect and continue
said security interests. Upon demand, the Borrower shall pay all legal and
filing fees and expenses incurred by Agent in the preparation of the foregoing
documents and perfection of the security interests contemplated thereby.
Lenders shall have no obligation to make any Loan or convert the interest rate
on any Loan hereunder unless and until the Borrower has fully satisfied these
requirements.
5.3 Pledge Agreement. In order to further secure the payment when
due of the Borrower's Obligations, the Borrower shall pledge to Agent for the
benefit of each of the Lenders all of the issued and outstanding capital stock
of each present Subsidiary of the Borrower, and if any such Subsidiary is
created or acquired subsequent to the date hereof, on the date of any such
acquisition or formation, Borrower shall pledge and deliver to Agent for the
benefit of each of the Lenders all of the issued and outstanding stock of any
such future Subsidiary. Said pledge is more fully described and evidenced by
that certain General Pledge and Security Agreement dated of even date herewith
and executed by the Borrower in favor of Agent for the benefit of each of the
Lenders (as the same may from time to time be amended, modified, extended or
renewed, the "Pledge Agreement"). The Borrower covenants and agrees to execute
any and all collateral schedules, stock powers, Reg. U-1 affidavits and such
other documents as may from time to time be requested by Agent or any Lender in
order to create, perfect and maintain the pledge created by the Pledge
Agreement and to deliver all original stock certificates for any such present
or future Subsidiaries. Upon demand, the Borrower shall pay to Agent or to any
other party designated by Agent, all filing fees or transfer fees incurred by
Agent in the perfection and administration of the pledge contemplated hereby.
Lenders shall have no obligation to make any Loan hereunder or to convert any
Loan hereunder to a new interest rate basis unless and until the Borrower has
fully satisfied these requirements.
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<PAGE> 36
5.4 Subsidiary Security Agreement. In order to secure the payment
when due of the Borrower's Obligations as guaranteed under each of the
respective Subsidiary Guaranties, the Borrower shall cause each Subsidiary to
convey to Agent for the benefit of each of the Lenders a security interest in,
among other things, all of the Property of each such Subsidiary similar to that
described on Schedule 5 attached hereto and incorporated herein by reference,
which security interest shall be a first and prior interest in all such items
except for those Uniform Commercial Code security interests consented to by
Agent and the Required Lenders. Said security interest shall be evidenced by a
Subsidiary Security Agreement dated the date hereof and executed, respectively,
by each such Subsidiary in favor of Agent for the benefit of each of the
Lenders in form and substance acceptable to Agent (as the same may from time to
time be amended, the "Subsidiary Security Agreements"). The Borrower further
covenants and agrees to cause each of its Subsidiaries to execute and deliver
to Agent for the benefit of each of the Lenders any and all financing
statements, continuation statements and such other documentation as may be
requested by Agent from time to time in order to create, perfect and continue
said security interests. Upon demand, the Borrower shall pay all legal and
filing fees and expenses incurred by Agent in the preparation of the foregoing
documents and perfection of the security interests contemplated thereby.
Lenders shall have no obligation to make any Loan hereunder or convert the
interest rate on any Loan hereunder unless and until the Borrower and each of
its Subsidiaries have fully satisfied these requirements.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Agent and Lenders that:
6.1 Corporate Existence and Power. Borrower: (a) is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware; (b) has all requisite corporate powers and all governmental and
regulatory licenses, authorizations, consents and approvals required to carry
on its business as now conducted; and (c) is duly qualified to do business in
all jurisdictions in which the nature of the business conducted by it makes
such qualification necessary and where failure to so qualify would have a
material adverse effect on its business, financial condition or operations.
6.2 Authorization. The execution, delivery and performance by the
Borrower of this Agreement, the Notes, the Security Agreement, the Pledge
Agreement, the Trademark Assignment and the other Transaction Documents are
within the corporate powers of Borrower, and have been duly authorized by all
necessary action of the board of directors of said corporation.
6.3 Binding Effect. This Agreement, the Notes, the Security
Agreement, the Pledge Agreement, the Trademark Assignment and the other
Transaction Documents have been duly executed and delivered by the Borrower and
constitute the legal, valid and binding obligations of the Borrower enforceable
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights in general.
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<PAGE> 37
6.4 Financial Statements. The Borrower has furnished Agent and
the Lenders with the following financial statements, identified by the
principal financial officer of the Borrower: (1) the balance sheets and
corresponding statements of income, retained earnings and cash flows of each of
the Founding Companies dated as of December 31, 1995, all audited by the
respective independent certified public accountants for each such Founding
Company, which financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied, and a Borrower
prepared consolidated balance sheet and consolidated statements of income,
retained earnings and cash flows of all such Founding Companies as of December
31, 1995, which consolidated financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied;
and (2) an unaudited consolidated balance sheet and consolidated statements of
income, retained earnings and cash flows of the Founding Companies as of June
30, 1996, certified by the principal financial officer of the Borrower as being
true and correct to the best of his knowledge and as being prepared in
accordance with the Borrower's normal accounting procedures. The Borrower
further represents and warrants to Agent and each of the Lenders that: (1) said
balance sheets and their accompanying notes fairly present the condition of the
Founding Companies as of the dates thereof; (2) there has been no material
adverse change in the condition or operation, financial or otherwise, of any of
the Founding Companies since June 30, 1996; and (3) neither the Borrower nor
any Founding Company has any direct or contingent liabilities which are not
disclosed on said financial statements.
6.5 Litigation. Except as disclosed on Schedule 6.5 attached
hereto, there is no action or proceeding pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any Subsidiary of the
Borrower before any court, arbitrator or any governmental, regulatory or
administrative body, agency or official which could result in any material
adverse change in the condition or operation, financial or otherwise, of the
Borrower or any Subsidiary of the Borrower, and neither the Borrower nor any
Subsidiary of the Borrower is in default with respect to any order, writ,
injunction, decision or decree of any court, arbitrator or any governmental,
regulatory or administrative body, agency or official, a default under which
could have a material adverse effect on the condition or operation, financial
or otherwise, of the Borrower or any Subsidiary of the Borrower.
6.6 Pension and Welfare Plans. Each Pension Plan complies with
all applicable statutes and governmental rules and regulations; no Reportable
Event has occurred and is continuing with respect to any Pension Plan; neither
the Borrower nor any ERISA Affiliate nor any Subsidiary of the Borrower has
withdrawn from any Multiemployer Plan in a "complete withdrawal" or a "partial
withdrawal" as defined in Sections 4203 or 4205 of ERISA, respectively; no
steps have been instituted by the Borrower, any ERISA Affiliate or any
Subsidiary of the Borrower to terminate any Pension Plan; no condition exists
or event or transaction has occurred in connection with any Pension Plan or
Multiemployer Plan which could result in the incurrence by the Borrower, any
ERISA Affiliate or any Subsidiary of the Borrower of any material liability,
fine or penalty; and neither the Borrower nor any ERISA Affiliate nor any
Subsidiary of the Borrower is a "contributing sponsor" as defined in Section
4001(a)(13) of ERISA of a "single-employer plan" as defined in Section
4001(a)(15) of ERISA which has two or more contributing sponsors at least two
of whom are not under common control. Except as disclosed on Schedule 6.6
attached hereto, neither the Borrower nor any Subsidiary of the
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<PAGE> 38
Borrower has any contingent liability with respect to any "employee welfare
benefit plan", as such term is defined in Section 3(a) of ERISA, which covers
retired employees and their beneficiaries.
6.7 Tax Returns and Payment. The Borrower and each Subsidiary of
the Borrower has filed all federal, state and local income tax returns and all
other tax returns which are required to be filed and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Borrower
or any Subsidiary of the Borrower, except for the filing of such returns, if
any, in respect of which an extension of time for filing is in effect and
except for such taxes, if any, as are being contested in good faith by
appropriate proceedings being diligently conducted and as to which adequate
reserves in accordance with generally accepted accounting principles
consistently applied have been provided. The charges, accruals and reserves on
the books of the Borrower and each Subsidiary of the Borrower in respect of any
taxes or other governmental charges are, in the opinion of the Borrower,
adequate.
6.8 Subsidiaries. The Borrower's Subsidiaries are as listed in
Schedule 6.8 attached hereto, which schedule sets forth each such Subsidiary's
past and present names, their current principal places of business and all
locations of any inventory or equipment owned by such Subsidiaries.
6.9 Compliance With Other Instruments; None Burdensome. Neither
the Borrower nor any Subsidiary of the Borrower is a party to any contract or
agreement or subject to any charter or other corporate restriction which
materially and adversely affects its business, Property or financial condition
and which is not disclosed on the Borrower's financial statements heretofore
submitted to Agent and the Lenders; none of the execution and delivery by the
Borrower of the Transaction Documents, the consummation of the transactions
therein contemplated or the compliance with the provisions thereof will violate
any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on the Borrower, or any of the provisions of Borrower's Articles of
Incorporation or Bylaws or any of the provisions of any indenture, agreement,
document, instrument or undertaking to which the Borrower is a party or
subject, or by which it or its Property is bound, or conflict with or
constitute a default thereunder or result in the creation or imposition of any
Lien pursuant to the terms of any such indenture, agreement, document,
instrument or undertaking (other than in favor of Agent for the benefit of
Lenders pursuant to the Transaction Documents). No order, consent, approval,
license, authorization or validation of, or filing, recording or registration
with, or exemption by, any governmental, regulatory, administrative or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with, the execution, delivery or performance of, or the
legality, validity, binding effect or enforceability of, any of the Transaction
Documents.
6.10 Other Loans and Guarantees. Except as disclosed on Schedule
6.10 attached hereto, neither the Borrower nor any Subsidiary of the Borrower
is a party to any loan transaction or Guarantee.
6.11 Title to Property. The Borrower, and each Subsidiary of the
Borrower, is the sole and absolute owner of, or has the legal right to use and
occupy, all Property it claims
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<PAGE> 39
to own or which is necessary for the Borrower or such Subsidiary of the
Borrower to conduct its business. Neither the Borrower nor any Subsidiary of
the Borrower has signed any financing statements, security agreements or
chattel mortgages with respect to any of its Property, has granted or permitted
any Liens with respect to any of its Property or has any knowledge of any Liens
with respect to any of its Property, except in favor of Agent for the benefit
of Lenders or as otherwise disclosed on Schedule 6.11 attached hereto.
6.12 Multi-Employer Pension Plan Amendments Act of 1980. Neither
the Borrower nor any Subsidiary of the Borrower is a party to any Multiemployer
Plan.
6.13 Patents, Licenses, Trademarks, Etc. The Borrower, and each
Subsidiary of the Borrower, possesses all necessary patents, licenses,
trademarks, trademark rights, trade names, trade name rights and copyrights to
conduct its business without conflict with any patent, license, trademark,
trade name or copyright of any other Person.
6.14 Environmental and Safety and Health Matters. Except as
disclosed on Schedule 6.14 attached hereto: (i) the operations of the Borrower
and each Subsidiary of the Borrower comply with (A) all applicable
Environmental Laws and (B) all applicable Occupational Safety and Health Laws;
(ii) none of the operations of the Borrower or any Subsidiary of the Borrower
is subject to any judicial, governmental, regulatory or administrative
proceeding alleging the violation of any Environmental Law or Occupational
Safety and Health Law; (iii) none of the operations of the Borrower or any
Subsidiary of the Borrower is the subject of any federal or state investigation
evaluating whether any remedial action is needed to respond to (A) any
spillage, disposal or release into the environment of any Hazardous Material or
any other hazardous, toxic or dangerous waste, substance or constituent or
other substance, or (B) any unsafe or unhealthful condition at any premises of
the Borrower or such Subsidiary of the Borrower; (iv) neither the Borrower nor
any Subsidiary of the Borrower has filed any notice under any Environmental Law
or Occupational Safety and Health Law indicating or reporting (A) any past or
present spillage, disposal or release into the environment of, or treatment,
storage or disposal of, any Hazardous Material or any other hazardous, toxic or
dangerous waste, substance or constituent or other substance or (B) any unsafe
or unhealthful condition at any premises of the Borrower or such Subsidiary of
the Borrower; and (v) neither the Borrower nor any Subsidiary of the Borrower
has any known contingent liability in connection with (A) any spillage,
disposal or release into the environment of, or otherwise with respect to, any
Hazardous Material or any other hazardous, toxic or dangerous waste, substance
or constituent or other substance or (B) any unsafe or unhealthful condition at
any premises of the Borrower or such Subsidiary of the Borrower.
6.15 Other Corporate or Fictitious Names. The Borrower has not,
during the preceding five (5) years, been known by or used any corporate or
fictitious name other than "StaffMark, Inc." or "One Source Staffing, Inc.,"
and no Subsidiary of Borrower has used any such other corporate or fictitious
name during the preceding five (5) years other than those listed in Schedule
6.15 attached hereto.
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SECTION 7. COVENANTS.
7.1 Affirmative Covenants of the Borrower. The Borrower covenants
and agrees that, so long as Lenders have any obligation to make any Loan
hereunder or any of the Borrower's Obligations remain unpaid or any Letter of
Credit remains outstanding:
(a) Information. The Borrower will deliver to Agent and
each of the Lenders:
(i) As soon as available and in any event within one
hundred twenty (120) days after the end of each fiscal year of
Borrower, the consolidated and consolidating balance sheets of
Borrower and its Consolidated Subsidiaries as of the end of such
fiscal year and the related consolidated and consolidating statements
of income, retained earnings and cash flows for such fiscal year,
setting forth in each case, in comparative form, the figures for the
previous fiscal year, all such financial statements to be prepared in
accordance with generally accepted accounting principles consistently
applied and audited by independent certified public accountants
selected by the Borrower and acceptable to Agent, together with (1)
the unqualified opinion of such accountants (except with respect to
consistency qualifications arising from new accounting principles),
and (2) a letter from such accountants authorizing Agent and Lenders
to receive and rely on such audited financial statements of Borrower
as if in privity of contract with such accountants or such other
agreement of normal acceptance in the accounting profession as may be
used in the future to permit lenders to rely on financial statements
of a borrower in making credit decisions;
(ii) As soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter,
consolidated and consolidating balance sheets of Borrower and its
Consolidated Subsidiaries as of the end of such quarter and the
related consolidated and consolidating statements of income for such
quarter and for the portion of the Borrower's fiscal year ended at the
end of such quarter, setting forth in each case in comparative form,
the figures for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year and the figures for
such quarter and such portion of Borrower's current fiscal year from
Borrower's budget for such year, all certified (subject to normal
year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency by the principal
financial officer of Borrower;
(iii) Simultaneously with the delivery of each set of
quarter-end and fiscal year-end financial statements referred to in
clauses (i) and (ii) above, a certificate of the principal financial
officer of Borrower in the form attached hereto as Exhibit E and
incorporated herein by reference;
(iv) Promptly upon receipt thereof, any reports submitted
to the Borrower or any Consolidated Subsidiary of the Borrower (other
than reports
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<PAGE> 41
previously delivered pursuant to Sections 7.1(a)(i) and (ii) above) by
independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower or any
Consolidated Subsidiary of the Borrower;
(v) On the last day of each February, April, June,
August, October and December during the Term hereof, a report of any
and all openings, closings or other changes of any places of business
of the Borrower or any Subsidiary of the Borrower or any location of
any of the Collateral which have been made since the last such report
made by Borrower to Agent under this Section 7.1(a)(v);
(vi) Promptly upon any filing thereof, and in any event
within ten (10) days after the filing thereof, copies of all
registration statements (other than the exhibits thereto and any
registration statements on form S-8 or its equivalent) and annual,
quarterly or monthly reports which Borrower shall file with the
Securities and Exchange Commission;
(vii) Promptly upon the mailing thereof to the shareholders
of Borrower generally, and in any event within ten (10) days after
such mailing, copies of all financial statements, reports, proxy
statements and other material and information so mailed;
(viii) Within ninety (90) days of the beginning of each
fiscal year of the Borrower, the Borrower's annual budget and
quarterly projections for such fiscal year; and
(ix) With reasonable promptness, such further information
regarding the business, affairs and/or financial condition of Borrower
or any Subsidiary of Borrower as Agent or any of the Lenders may from
time to time reasonably request.
Agent and each of the Lenders are hereby authorized to deliver a copy
of any financial statement or other information made available by the Borrower
to any regulatory authority having jurisdiction over Agent or any such Lender,
pursuant to any request therefor.
(b) Payment of Indebtedness. The Borrower and each
Subsidiary of the Borrower will (i) pay any and all Indebtedness payable or
Guaranteed by the Borrower or such Subsidiary of the Borrower, as the case may
be, and any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) in accordance
with the agreement, document or instrument relating to such Indebtedness or
Guarantee and (ii) faithfully perform, observe and discharge all covenants,
conditions and obligations which are imposed upon the Borrower or such
Subsidiary of the Borrower, as the case may be, by any and all agreements,
documents and instruments evidencing, securing or otherwise relating to such
Indebtedness or Guarantee.
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<PAGE> 42
(c) Consultations and Inspections. The Borrower will
permit, and will cause each Subsidiary of the Borrower to permit, Agent and
Lenders (and any Person appointed by Agent or any of the Lenders to whom the
Borrower does not reasonably object) to discuss the affairs, finances and
accounts of the Borrower and each Subsidiary of the Borrower with the officers
of the Borrower and each Subsidiary of the Borrower, all at such reasonable
times and as often as Agent or any of the Lenders may reasonably request. The
Borrower will also permit, and will cause each Subsidiary of the Borrower to
permit, inspection of its Properties, books and records and the Collateral by
Agent and Lenders, upon reasonable advance notice, during normal business hours
or at other reasonable times. The Borrower will also permit, and will cause
each Subsidiary of the Borrower to permit, Agent and Lenders to conduct
Accounts field inspections at such times during reasonable business hours as
Agent or any of the Lenders elects, and without the necessity of advance
warning to the Borrower or any such Subsidiary. Prior to the occurrence of an
Event of Default, Borrower shall pay all reasonable costs and expenses incurred
by Agent and the Lenders for one such inspection in each fiscal year (not to
exceed $15,000.00 in any fiscal year for inspections conducted prior to an
Event of Default), provided, that after the occurrence of an Event of Default,
Borrower shall pay all reasonable costs and expenses incurred by Agent or any
such Lender in connection with any such inspections. The Borrower further
agrees to reimburse to Agent and the Lenders the actual costs and expenses
incurred by Agent or any of the Lenders in connection with its up front
collateral inspection conducted prior to closing by Agent or any of the
Lenders, whether Agent or any such Lender shall have used its own auditors or
shall contract for such audit services through a third party.
(d) Payment of Taxes; Corporate Existence; Maintenance of
Properties; Maintenance of Collateral; Insurance. The Borrower and each
Subsidiary of the Borrower will:
(i) Duly file all federal, state and local income tax
returns and all other tax returns and reports of the Borrower and each
Subsidiary of the Borrower which are required to be filed and duly pay
and discharge promptly all taxes, assessments and other governmental
charges imposed upon it or any of its income, Property or assets;
provided, however, that neither the Borrower nor any Subsidiary of the
Borrower shall be required to pay any such tax, assessment or other
governmental charge the payment of which is being contested in good
faith and by appropriate proceedings diligently conducted and for
which adequate reserves in form and amount satisfactory to Agent in
its reasonable discretion have been provided, except that the Borrower
and each Subsidiary of the Borrower shall pay or cause to be paid all
such taxes, assessments and governmental charges forthwith upon the
commencement of proceedings to foreclose any Lien which is attached as
security therefor, unless such foreclosure is stayed by the filing of
an appropriate bond in a manner satisfactory to Agent;
(ii) Do all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchise and to
be duly qualified to do business in all jurisdictions where the nature
of its business requires such qualification;
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<PAGE> 43
(iii) Maintain and keep its Properties as a whole in good
repair, working order and condition; provided, however, that nothing
in this subsection (iii) shall prevent any abandonment of any Property
which is not disadvantageous in any material respect to Lenders and
which, in the good faith opinion of the management of the Borrower, is
in the best interests of the Borrower or such Subsidiary of the
Borrower, as the case may be;
(iv) Keep all of the Collateral in good and merchantable
condition, and will, as applicable, shelter, store, secure,
refrigerate, process and otherwise deal with the Collateral in
accordance with the standards and practices adhered to generally by
owners, bailees or processors, as applicable, of like properties; and
(v) Insure with financially sound and reputable insurers
acceptable to Lenders, all Property of the Borrower and each
Subsidiary of the Borrower of the character usually insured by
corporations engaged in the same or similar businesses similarly
situated, against loss or damage of the kind customarily insured
against by such corporations or partnerships, unless higher limits or
coverage are reasonably required in writing by Agent, and carry
adequate liability insurance and other insurance of a kind and in an
amount generally carried by corporations engaged in the same or
similar businesses similarly situated, unless higher limits or
coverage are reasonably required in writing by Agent, and in each case
naming Agent as loss payee, as mortgagee or as an additional insured,
as appropriate, in such policies for the benefit of each of the
Lenders. All such insurance may be subject to reasonable deductible
amounts. Promptly upon any Lender's request therefor, the Borrower
shall provide such Lender with evidence that the Borrower maintains,
and that each Subsidiary of the Borrower maintains, the insurance
required under this Section 7.1(d)(v), and evidence of the payment of
all premiums therefor.
(e) Accountants. The Borrower shall give Agent and each
of the Lenders prompt notice of any change of the Borrower's independent
certified public accountants and a statement of the reasons for such change.
The Borrower shall at all times utilize independent certified public
accountants reasonably acceptable to Agent and Lenders.
(f) ERISA Compliance. If the Borrower or any Subsidiary
of the Borrower shall have any Pension Plan, the Borrower and such Subsidiary
or Subsidiaries of the Borrower shall comply with all requirements of ERISA
relating to such plan. Without limiting the generality of the foregoing,
neither the Borrower nor any Subsidiary of the Borrower shall:
(i) permit any Pension Plan maintained by it to engage in
any nonexempt "prohibited transaction, " as such term is defined in
Section 4975 of the Code;
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<PAGE> 44
(ii) permit any Pension Plan maintained by it to incur any
"accumulated funding deficiency", as such term is defined in Section
302 of ERISA, 29 U.S.C. Section 1082, whether or not waived;
(iii) terminate any such Pension Plan in a manner which
could result in the imposition of a Lien on any Property of the
Borrower or any Subsidiary of the Borrower pursuant to Section 4068 of
ERISA, 29 U.S.C. Section 1368; or
(iv) take any action which would constitute a complete or
partial withdrawal from a Multiemployer Plan within the meaning of
Sections 4203 and 4205 of Title IV of ERISA.
Notwithstanding any provision contained in this Section 7.1(f) to
the contrary, an act by the Borrower or any Subsidiary of the Borrower shall
not be deemed to constitute a violation of subparagraphs (i) through (iv)
hereof unless Agent determines in good faith that said action, individually or
cumulatively with other acts of the Borrower and the Subsidiaries of the
Borrower, does have or is likely to cause a significant adverse financial
effect upon the Borrower or any such Subsidiary of the Borrower.
Borrower shall have the affirmative obligation hereunder to report
to Agent any of those acts identified in subparagraphs (i) through (iv) hereof,
regardless of whether said act does or is likely to cause a significant adverse
financial effect upon the Borrower or any Subsidiary of the Borrower, and
failure by the Borrower to report such act promptly upon the Borrower's
becoming aware of the existence thereof shall constitute an Event of Default
hereunder.
(g) Maintenance of Books and Records. The Borrower and
each Subsidiary of the Borrower will maintain its books and records in
accordance with generally accepted accounting principles consistently applied
and in which true, correct and complete entries will be made of all of its
dealings and transactions.
(h) Further Assurances. The Borrower will execute any
and all further agreements, documents and instruments, and take any and all
further actions which may be required under applicable law, or which Agent or
any of the Lenders may from time to time reasonably request, in order to
effectuate the transactions contemplated by this Agreement, the Notes, the
Security Agreement, the Pledge Agreement, the Trademark Assignment the Letter
of Credit Applications and the other Transaction Documents.
(i) Financial Covenants. The Borrower will:
(i) Fixed Charges Coverage Ratio. Maintain on a
consolidated basis as of each fiscal quarter-end during the Term
hereof a ratio of Consolidated Proforma Operating Cash Flow to
Consolidated Fixed Charges determined for the 12-month period ending
as of each such fiscal quarter-end of not less than (a)
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<PAGE> 45
1.25 to 1.0 for each fiscal quarter ending on or before September 30,
1997, and (b) 1.50 to 1.0 for each fiscal quarter end thereafter
during the Term hereof.
(ii) Consolidated Adjusted Total Funded Debt to
Consolidated Proforma Operating Cash Flow. Maintain on a consolidated
basis at each fiscal quarter-end during the Term hereof, a ratio of
Consolidated Adjusted Total Funded Debt to Consolidated Proforma
Operating Cash Flow (determined for the twelve-month period ending on
the date of any such calculation) of not more than: (a) 4.00 to 1.0
for each quarter-end occurring on or before September 30, 1997, (b)
3.50 to 1.0 for quarters ending after October 1, 1997 but on or before
September 30, 1998, and (c) 3.00 to 1.0 for quarters ending after
September 30, 1998 through the remainder of the Term hereof.
(iii) Consolidated Shareholders' Equity. Maintain on a
consolidated basis determined as of each fiscal quarter-end during the
Term hereof, Consolidated Shareholders' Equity of at least the sum of
(x) $45,000,000.00, plus (y) fifty percent (50%) of the after tax net
income for each fiscal quarter of Borrower in which net income is
earned (but zero percent (0%) of any after tax net loss for any fiscal
quarter of Borrower in which a net loss is incurred) as shown on
Borrower's financial statements delivered pursuant to Section
7.1(a)(i) and (ii), commencing with the addition of any net income for
the fiscal quarter ending December 31, 1996, with such required
increases to be cumulative for each fiscal quarter thereafter during
the Term hereof, plus (z) one hundred percent (100%) of the net
proceeds received by Borrower or any of its consolidated Subsidiaries
from capital stock issued by Borrower or such Subsidiary subsequent to
the date of this Agreement.
(iv) Deliver a certificate of the principal financial
officer of the Borrower containing the financial ratio calculations
required in clauses (i), (ii) and (iii) above simultaneously with the
financial statements referred to in Sections 7.1(a)(i) and (ii).
(j) Compliance with Law. The Borrower will, and will
cause each Subsidiary of the Borrower to, comply with any and all laws,
ordinances and governmental and regulatory rules and regulations to which it is
subject and obtain any and all licenses, permits, franchises and other
governmental and regulatory authorizations necessary to the ownership of its
Properties or to the conduct of its business, which violation or failure to
obtain might materially adversely affect the condition or operation, financial
or otherwise, of the Borrower or any Subsidiary of the Borrower.
(k) Notices. The Borrower will notify Agent and the
Lenders in writing of any of the following immediately upon learning of the
occurrence thereof, describing the same and, if applicable, the steps being
taken by the Person(s) affected with respect thereto:
(i) Default. The occurrence of any Default or Event of
Default under this Agreement or any default or event of default by the
Borrower, any
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<PAGE> 46
other Obligor or any Subsidiary of the Borrower under any note,
indenture, loan agreement, mortgage, deed of trust, security
agreement, lease or other similar agreement, document or instrument to
which the Borrower, any other Obligor or any Subsidiary of the
Borrower, as the case may be, is a party or by which it is bound or to
which it is subject;
(ii) Litigation. The institution of any litigation,
arbitration proceeding or governmental or regulatory proceeding
affecting the Borrower, any other Obligor, any Subsidiary of the
Borrower, any Collateral or any Third Party Collateral, whether or not
considered to be covered by insurance, provided that if such action is
an action for money damages, that the damages sought are in excess of
$100,000.00;
(iii) Judgment. The entry of any judgment or decree
against the Borrower, any other Obligor or any Subsidiary of the
Borrower in excess of $100,000.00;
(iv) Pension Plans. The occurrence of a Reportable Event
with respect to any Pension Plan; the filing of a notice of intent to
terminate a Pension Plan by the Borrower, any ERISA Affiliate or any
Subsidiary of the Borrower; the institution of proceedings to
terminate a Pension Plan by the PBGC or any other Person; the
withdrawal in a "complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 and 4205, respectively, of ERISA by the
Borrower, any ERISA Affiliate or any Subsidiary of the Borrower from
any Multiemployer Plan; or the incurrence of any material increase in
the contingent liability of the Borrower or any Subsidiary of the
Borrower with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA which covers retired employees and
their beneficiaries;
(v) Change of Name. Any change in the name of the
Borrower, any other Obligor or any Subsidiary of the Borrower;
(vi) Environmental Matters. Receipt of any notice that
the operations of the Borrower, any other Obligor or any Subsidiary of
the Borrower are not in full compliance with any of the requirements
of any applicable Environmental Law or Occupational Safety and Health
Law; receipt of notice that the Borrower, any other Obligor or any
Subsidiary of the Borrower is subject to any federal, state or local
investigation evaluating whether any remedial action is needed to
respond to the release of any Hazardous Materials or any other
hazardous or toxic waste, substance or constituent or other substance
into the environment; or receipt of notice that any of the Properties
or assets of the Borrower, any other Obligor or any Subsidiary of the
Borrower are subject to an Environmental Lien. For purposes of this
Section 7.1(k)(vi), "Environmental Lien" shall mean a Lien in favor of
any governmental or regulatory agency, entity, authority or official
for (1) any liability under Environmental Laws or (2) damages arising
from or costs incurred by any such governmental or regulatory
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<PAGE> 47
agency, entity, authority or official in response to a release of any
Hazardous Materials or any other hazardous or toxic waste, substance
or constituent or other substance into the environment;
(vii) Material Adverse Change. The occurrence of any
material adverse change in the business, operations or condition,
financial or otherwise, of the Borrower, any other Obligor or any
Subsidiary of the Borrower;
(viii) Change in Management or Line(s) of Business. Any
material change in the directors and executive officers of the
Borrower or any Subsidiary of the Borrower as listed in Schedule
7.1(k)(viii) attached hereto, or any change in the Borrower's or any
Subsidiary of the Borrower's line(s) of business; and
(ix) Other Notices. Any notices required to be provided
pursuant to other provisions of this Agreement and notice of the
occurrence of such other events as Agent may from time to time
reasonably specify.
(l) Protection of Collateral. During the term of this
Agreement, the Borrower will (a) do all things necessary to keep unimpaired the
Borrower's rights in the Collateral; (b) cause all operating equipment included
in the Collateral to be maintained properly in good and effective operating
condition with all repairs, renewals, replacements, additions and improvements
being promptly made in accordance with generally accepted practices and
applicable federal, state and local laws, rules and regulations; (c) pay, or
cause to be paid, promptly as and when due and payable, all expenses incurred
in or arising from the maintenance, storage and care of the Collateral; and (d)
cause the Inventory and other Collateral to be properly maintained and
protected in accordance with prudent operating practice, giving consideration
to and complying with applicable federal, state and local laws, rules and
regulations.
7.2 Negative Covenants of the Borrower. The Borrower covenants
and agrees that, so long as Lenders have any obligation to make any Loan
hereunder or any of the Borrower's Obligations remain unpaid or any Letter of
Credit remains outstanding, unless the prior written consent of the Required
Lenders is obtained:
(a) Limitation on Indebtedness. Neither the Borrower nor
any Subsidiary of the Borrower will incur or be obligated on any Indebtedness,
either directly or indirectly, by way of Guarantee, suretyship or otherwise,
other than:
(i) Indebtedness evidenced by the Notes;
(ii) Unsecured trade accounts payable and normal accruals
incurred in the ordinary course of business which are not yet due and
payable;
(iii) Indebtedness incurred in the ordinary course of
business in connection with the acquisition of Property by Borrower
(excluding Indebtedness
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<PAGE> 48
assumed on any capital assets acquired pursuant to an Acceptable
Acquisition), provided that such Indebtedness shall not exceed the
value of the Property so acquired, and in any event, such purchase
money Indebtedness shall not exceed Four Million Dollars
($4,000,000.00) in the aggregate;
(iv) Secured or unsecured Indebtedness assumed by Borrower
or a Subsidiary in connection with an Acceptable Acquisition or any
other unsecured Indebtedness incurred in the ordinary course of
business, all of which, in the aggregate, shall not exceed One Million
Dollars ($1,000,000.00); and
(v) Subordinated Debt incurred in connection with an
Acceptable Acquisition not to exceed Five Million Dollars
($5,000,000.00) in the aggregate, provided that such Subordinated Debt
is unsecured, and the holder of such Subordinated Debt has executed a
Subordination and Standby Agreement in favor of Agent and the Lenders
substantially in the form of Exhibit J. attached hereto, which
Subordination and Standby Agreement shall, among other things: (A)
allow for permitted payments of accrued interest and scheduled
principal (but no prepayments or accelerated payments) on such
Subordinated Debt prior to notice from Agent of the occurrence of an
Event of Default on a schedule no faster than a three year, straight
line amortization of principal of the Subordinated Debt, and (B) after
notice from Agent of the occurrence of an Event of Default, terminate
all payments of principal and interest on the Subordinated Debt until
Borrower's Obligations are paid in full and shall otherwise prohibit
the holder of such Subordinated Debt from taking any action to enforce
the Subordinated Debt obligations against Borrower or any other
Obligor for a one year period following such notice.
(b) Limitations on Liens. The Borrower will not create,
incur, assume or suffer to exist, and will not cause or permit any Subsidiary
of the Borrower to create, incur, assume or suffer to exist, any Lien on any of
its Property, assets or revenues other than:
(i) Liens presently in existence which are described on
Schedule 6.11 attached hereto;
(ii) Pledges or deposits in connection with or to secure
workmen's compensation, unemployment insurance, pension or other
employee benefits;
(iii) Purchase money Liens incurred to secure Indebtedness
permitted under Section 7.2(a)(iii), provided that such Lien shall
attach only to the Property acquired in connection with such
Indebtedness;
(iv) Any Lien renewing, extending or refunding any Lien
permitted hereunder, provided that the principal amount of
Indebtedness secured by such Lien is not increased and such Lien is
not extended to cover any other Property or assets of the Borrower or
any Subsidiary of the Borrower;
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<PAGE> 49
(v) Subject to Section 7.1(d)(i), Liens for taxes,
assessments or governmental charges or levies on the income, Property
or assets of the Borrower or any Subsidiary of the Borrower if the
same are not yet due and payable or are being contested in good faith
and by appropriate proceedings diligently conducted and for which
adequate reserves in form and amount satisfactory to Agent and the
Lenders are provided; and
(vi) Statutory liens for amounts not yet due and payable
or which are being contested in good faith and by appropriate
proceedings diligently conducted and for which adequate reserves in
form and amount satisfactory to Agent and the Lenders are provided.
(c) Sale of Property. Neither the Borrower nor any
Subsidiary of the Borrower will sell, lease, transfer or otherwise dispose of
any Property or assets of the Borrower or such Subsidiary of the Borrower, as
the case may be, except in the ordinary course of business.
(d) Mergers and Consolidations. Neither the Borrower nor
any Subsidiary of the Borrower will merge or consolidate with any other Person
or sell, transfer or convey all or a substantial part of its Property or assets
to any Person, except for Acquisitions permitted under Section 7.2(e).
(e) Acquisitions; Subsidiaries. The Borrower will not,
and will not cause or permit any Subsidiary to, make or suffer to exist any
Acquisition of any Person, except Acceptable Acquisitions. If at any time
after the date hereof Borrower shall create any new Subsidiary, whether in
connection with an Acceptable Acquisition or otherwise, Borrower shall give
Lender fifteen (15) Business Days' prior written notice thereof, and Borrower
shall (x) cause such Subsidiary to execute and deliver to Agent for the benefit
of each of the Lenders a Subsidiary Guaranty of all of Borrower's Obligations,
(y) cause such Subsidiary to grant a security interest pursuant to a Subsidiary
Security Agreement in all of its assets of a type listed in Schedule 5 hereto,
and (z) pledge all of the issued and outstanding stock of such Subsidiary to
Agent for the benefit of each of the Lenders pursuant to a Pledge Agreement,
collateral schedules, stock powers and other pledge documents in form and
substance satisfactory to Agent and the Required Lenders. Borrower further
agrees to execute or cause any such Subsidiary to execute such amendments to
this Agreement and to the other Transaction Documents or such additional
agreements as may be required by Agent and the Lenders to satisfy such
obligations.
(f) Fiscal Year. Neither Borrower nor any Subsidiary of
the Borrower will change its fiscal year.
(g) Stock Redemptions and Distributions. The Borrower
will not make or declare or incur any liability to make any Distribution in
respect of the capital stock of the Borrower.
(h) Transactions with Related Parties. Except as
disclosed in Schedule 7.2(h) attached hereto, neither Borrower nor any
Subsidiary of the Borrower will, directly or
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indirectly, engage in any material transaction, in the ordinary course of
business or otherwise, with any Related Party unless such transaction is upon
fair market terms, is not disadvantageous in any material respect to the
Lenders and has been approved by a majority of the disinterested directors of
the Borrower or such Subsidiary of the Borrower, as the case may be (or, if
none of such directors are disinterested, by a majority of the directors), as
being in the best interests of the Borrower or such Subsidiary of the Borrower,
as the case may be. In addition, neither the Borrower nor any Subsidiary of
the Borrower shall (i) transfer any Property or assets to any Related Party for
other than its fair market value or (ii) purchase or sign any agreement to
purchase any stock or other securities of any Related Party (whether debt,
equity or otherwise), underwrite or Guarantee the same, or otherwise become
obligated with respect thereto.
(i) Capital Expenditures. Neither Borrower nor any
Subsidiary of the Borrower will make any capital expenditures or enter into any
Capitalized Leases which in the aggregate (for the Borrower and all
Subsidiaries of the Borrower) exceeds $3,500,000.00 during any fiscal year
without the prior written consent of the Required Lenders.
(j) Advancing or Guaranteeing Credit. Neither Borrower
nor any Subsidiary of the Borrower will become or be a guarantor or surety of,
or otherwise become or be responsible in any manner with respect to, any
undertaking of another except for the Subsidiary Guaranties of Borrower's
Obligations.
(k) Loans and Investments. Neither Borrower nor any
Subsidiary of the Borrower will make any loans or advances or extensions of
credit to purchase any stocks, bonds, notes, debentures or other securities of,
make any expenditures on behalf of, or in any manner assume liability (direct,
contingent or otherwise) for the Indebtedness of any Person, except for
Permitted Investments, and except for loans to employees of Borrower and its
Subsidiaries not to exceed $200,000.00 in the aggregate to enable such
employees to make investments in Borrower's stock option plan.
(l) Dissolution or Liquidation. Borrower will not seek
or permit the dissolution or liquidation of the Borrower in whole or in part.
(m) Operating Leases. Neither Borrower nor any
Subsidiary of the Borrower will enter into or permit to remain in effect any
agreements to rent or lease (as lessee) any real or personal property (other
than Capitalized Leases) for initial terms (including options to renew or
extend any term, whether or not exercised) of more than one (1) year which in
the aggregate (for the Borrower and all Subsidiaries of the Borrower) provide
for payments in excess of $3,500,000.00 during any consecutive twelve-month
(12-month) period.
(n) Change in Nature of Business. Neither Borrower nor
any Subsidiary of the Borrower will make any material change in the nature of
its business.
(o) Pension Plans. Neither Borrower nor any Subsidiary
of Borrower shall (a) permit any condition to exist in connection with any
Pension Plan which might constitute grounds for the PBGC to institute
proceedings to have such Pension Plan terminated or a trustee appointed to
administer such Pension Plan or (b) engage in, or permit to exist or
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occur, any other condition, event or transaction with respect to any Pension
Plan which could result in the incurrence by Borrower or any Subsidiary of the
Borrower of any material liability, fine or penalty. Neither Borrower nor any
Subsidiary of the Borrower shall become obligated to contribute to any Pension
Plan or Multiemployer Plan other than any such plan or plans in existence on
the date hereof.
(p) Management Fees. Neither Borrower nor any Subsidiary
of Borrower will pay any management fees, consulting fees or similar fees to
any Related Parties without the prior written consent of the Required Lenders,
except that Borrower or its Subsidiaries may pay consulting fees or other
similar fees incurred in connection with Acceptable Acquisitions provided no
Default or Event of Default is then existing or would occur on a pro forma
basis as the result of Borrower's or any such Subsidiary's payment or agreement
to pay such amounts and further provided that such fees shall not exceed the
lesser of $250,000.00 in the aggregate for any single Acceptable Acquisition or
$750,000.00 in the aggregate for all Acceptable Acquisitions in any fiscal
year.
7.3 Use of Proceeds.
(a) The Borrower agrees that the proceeds of the
Revolving Credit Loans hereunder will be used solely for the Borrower's working
capital and general corporate purposes and the proceeds of the Reducing
Revolver Loans hereunder will be used solely for financing Acceptable
Acquisitions;
(b) None of such proceeds will be used in violation of
any applicable law or regulation; and
(c) The Borrower will not engage principally, or as one
of its important activities, in the business of extending credit for the
purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U of The Board of Governors of the Federal Reserve System, as
amended.
SECTION 8. EVENTS OF DEFAULT.
If any of the following (each of the following herein sometimes called
an "Event of Default") shall occur and be continuing:
8.1 Borrower shall fail to pay any of the Borrower's Obligations
when the same shall become due and payable, whether by reason of demand,
acceleration, mandatory prepayment or otherwise;
8.2 Any representation or warranty of the Borrower made in this
Agreement, in any other Transaction Document or in any certificate, agreement,
instrument or statement furnished or made or delivered pursuant hereto or
thereto or in connection herewith or therewith, shall prove to have been untrue
or incorrect in any material respect when made or effected;
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<PAGE> 52
8.3 Borrower shall fail to perform or observe any term, covenant
or provision contained in Section 7.1(a), Section 7.1(c), Section 7.1(i),
Section 7.2 or Section 7.3;
8.4 Borrower shall fail to perform or observe any term or
provision contained in Section 7.1(l) and such failure shall remain unremedied
for five (5) days after written notice thereof shall have been given to the
Borrower by Agent or any of the Lenders;
8.5 Borrower shall fail to perform or observe any other term,
covenant or provision contained in this Agreement and any such failure shall
remain unremedied for thirty (30) days after written notice thereof shall have
been given to the Borrower by Agent or any of the Lenders;
8.6 This Agreement or any of the other Transaction Documents shall
at any time for any reason cease to be in full force and effect or shall be
declared to be null and void by a court of competent jurisdiction, or if the
validity or enforceability thereof shall be contested or denied by the
Borrower, or if the transactions completed hereunder or thereunder shall be
contested by the Borrower or if the Borrower shall deny that it has any or
further liability or obligation hereunder or thereunder;
8.7 Borrower, any Subsidiary of the Borrower or any other Obligor
shall (i) voluntarily commence any proceeding or file any petition seeking
relief under Title 11 of the United States Code or any other federal, state or
foreign bankruptcy, insolvency, receivership, liquidation or similar law, (ii)
consent to the institution of, or fail to contravene in a timely and
appropriate manner, any such proceeding or the filing of any such petition,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official of itself, himself or herself or of
a substantial part of its, his or her Property or assets, (iv) file an answer
admitting the material allegations of a petition filed against itself, himself
or herself in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) become unable, admit in writing its, his or her
inability or fail generally to pay its, his or her debts as they become due or
(vii) take any corporate or other action for the purpose of effecting any of
the foregoing;
8.8 An involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of the Borrower, any Subsidiary of the Borrower or any other
Obligor, or of a substantial part of the Property or assets of the Borrower,
any Subsidiary of the Borrower or any other Obligor, under Title 11 of the
United States Code or any other federal, state or foreign bankruptcy,
insolvency, receivership, liquidation or similar law, (ii) the appointment of a
receiver, trustee, custodian, sequestrator or similar official of the Borrower,
any Subsidiary of the Borrower or any other Obligor or of a substantial part of
the Property or assets of the Borrower, any Subsidiary of the Borrower or any
other Obligor or (iii) the winding-up or liquidation of the Borrower, any
Subsidiary of the Borrower or any other Obligor; and such proceeding or
petition shall continue undismissed for sixty (60) consecutive days or an order
or decree approving or ordering any of the foregoing shall continue unstayed
and in effect for sixty (60) consecutive days;
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<PAGE> 53
8.9 Any "Event of Default" (as defined therein) shall occur under
or within the meaning of the Security Agreement;
8.10 Any "Event of Default" (as defined therein) shall occur under
or within the meaning of the Pledge Agreement;
8.11 Any event of default shall occur under the terms of any Letter
of Credit Application;
8.12 Any event of default shall occur under the terms of the
Trademark Assignment;
8.13 Any of the Subsidiary Guaranties shall at any time for any
reason cease to be in full force and effect or shall be declared to be null and
void by a court of competent jurisdiction, or if the validity or enforceability
thereof shall be contested by or denied by the Subsidiary executing any such
Subsidiary Guaranty, or if any such Subsidiary shall deny that it has any
further liability or obligation thereunder;
8.14 Any "Event of Default" (as defined therein) shall occur under
or within the meaning of any of the Subsidiary Security Agreements;
8.15 Borrower, any Subsidiary of the Borrower or any other Obligor
shall be declared by Agent or any of the Lenders to be in default (beyond any
applicable cure or grace period, if any) on, or pursuant to the terms of, (1)
any other present or future obligation to Agent or any of the Lenders,
including, without limitation, any other loan, line of credit, revolving
credit, guaranty or letter of credit reimbursement obligation, or (2) any other
present or future agreement purporting to convey to any such Lender or to Agent
a Lien upon any Property or assets of the Borrower, such Subsidiary of the
Borrower or such other Obligor, as the case may be;
8.16 Borrower, any Subsidiary of the Borrower or any other Obligor
shall fail (and such failure shall not have been cured or waived) to perform or
observe any term, provision or condition of, or any other default or event of
default shall occur under, any agreement, document or instrument evidencing,
securing or otherwise relating to any outstanding Indebtedness of the Borrower,
such Subsidiary of the Borrower or such other Obligor, as the case may be, for
borrowed money (other than the Borrower's Obligations) in a principal amount in
excess of One Hundred Thousand Dollars ($100,000.00), if the effect of such
failure or default is to cause or permit such Indebtedness to be declared to be
due and payable or otherwise accelerated, or to be required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof;
8.17 A default or event of default shall occur and be continuing
under any of the terms of any agreement, whether executed now or hereafter, to
provide the Borrower with any interest rate swap, interest rate cap or other
interest hedge, including, but not limited to, any such agreements to finance
any such arrangement;
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<PAGE> 54
8.18 Borrower, any Subsidiary of the Borrower or any other Obligor
shall have a judgment entered against it, him or her by a court having
jurisdiction in the premises in an amount of One Hundred Thousand Dollars
($100,000.00) or more and such judgment shall not be appealed in good faith or
satisfied by the Borrower, such Subsidiary of the Borrower or such other
Obligor, as the case may be, within thirty (30) days after the entry of such
judgment;
THEN, and in each such event (other than an event described in
Sections 8.7 or 8.8), Agent may, or if requested in writing by the Required
Lenders shall, declare that the obligations of the Lenders to make Loans and of
the Agent to issue Letters of Credit under this Agreement have terminated,
whereupon such obligations of Agent and Lenders shall be immediately and
forthwith terminated, and Agent may further, or if requested in writing by the
Required Lenders shall further, declare on behalf of each of the Lenders that
the entire outstanding principal balance of and all accrued and unpaid interest
on the Notes and all of the other Borrower's Obligations are forthwith due and
payable, whereupon all of the unpaid principal balance of and all accrued and
unpaid interest on the Notes and all such other Borrower's Obligations shall
become and be immediately due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by the
Borrower, and Agent and the Lenders may exercise any and all other rights and
remedies which any of them may have under any of the other Transaction
Documents or under applicable law; provided, however, that upon the occurrence
of any event described in Sections 8.7 or 8.8, Lenders' obligations to make
Loans and Agent's obligation to issue Letters of Credit under this Agreement
shall automatically terminate and the entire outstanding principal balance of
and all accrued and unpaid interest on the Notes issued under this Agreement
and all other Borrower's Obligations shall automatically become immediately due
and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Borrower, and Agent and
the Lenders may exercise any and all other rights and remedies which any of
them may have under any of the other Transaction Documents or under applicable
law. Following acceleration of Borrower's Obligations hereunder as set forth
above, Agent may, or if requested in writing by the Required Lenders and
provided with the indemnity required under Section 9.6 shall, proceed to
enforce any remedy then available to Agent or any of the Lenders under any
applicable law, including, without limitation, all rights granted to Agent
hereunder, under the Subsidiary Guaranties, the Security Agreement, the
Trademark Assignment, the Pledge Agreement, any of the Subsidiary Security
Agreements, or any Letter of Credit Application, and the rights and remedies
available to a secured party under the Uniform Commercial Code as in effect in
the State of Missouri.
Upon the occurrence of any Event of Default, Agent will have the
right, in addition to all other rights and remedies available to Agent and the
Lenders under this Agreement or under the other Loan Documents, after oral or
written notice is sent to the Borrower, to take possession of, preserve and
care for the Collateral, to execute and/or endorse as the Borrower's agent any
bills of sale or documents, instruments or chattel paper in or pertaining to
the Collateral, to notify Account Debtors and obligors on documents, Accounts
and instruments included in the Collateral to make payment directly to Agent,
to take control of all of the Borrower's cash, to collect and receive funds
generated by the Collateral, including proceeds or refunds from insurance, or
as a result of claims for the damage, loss, or destruction of the Collateral,
and use the same to reduce any part of the obligations.
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The Agent shall give notice of a Default to Borrower promptly upon
being requested to do so by any Lender and shall thereupon notify all of the
Lenders thereof.
Following any Default or Event of Default, all payments and other
amounts received by Agent and/or any of the Lenders, whether voluntary or
involuntary, including but not limited to any proceeds of any collateral, any
right of offset or otherwise, shall be shared among the Lenders in accordance
with their Pro Rata Shares of the outstanding principal indebtedness under all
of the Reducing Revolver Loans, Revolving Credit Loans and Letter of Credit
obligations then outstanding of Borrower. Such application shall be made
first, to any costs or expenses of Agent or any of the Lenders incurred in
connection with the collection of such proceeds, second, to any accrued and
unpaid fees due hereunder or under any of the other Transaction Documents,
third, to any and all accrued and unpaid interest on any of the Loans, fourth,
to collateralize any outstanding Letters of Credit pursuant to Section 3.4(f)
herein, and fifth, to the unpaid principal amounts of any of the Loans
outstanding hereunder and under the other Transaction Documents.
SECTION 9. THE AGENT
9.1 Appointment and Authorization. Each Lender irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement, the Notes and the other
Transaction Documents as are delegated to the Agent by the terms hereof or
thereof, together with all such powers as may be reasonably incidental thereto.
9.2 Agent and Affiliates. The Agent shall have the same rights
and powers under this Agreement as any other Lender and may exercise or refrain
from exercising the same as though it were not the Agent, and the Agent and its
affiliates may accept deposits from, lend money to and generally engage in any
kind of business with Borrower or any of its Subsidiaries or Affiliates as if
it were not the Agent hereunder.
9.3 Action by Agent. The obligations of the Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Agent shall not be required to take any action with respect to
any Default or Event of Default, except as expressly provided in Section 8.
9.4 Consultation with Experts. The Agent may consult with legal
counsel, independent certified public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or other
experts.
9.5 Liability of Agent. Neither the Agent nor any of its
directors, officers, employees, agents or advisors shall be liable for any
action taken or not taken by it in connection herewith (i) with the consent or
at the request of the requisite percentage in interest of the Lenders set forth
herein or (ii) in the absence of its own gross negligence or willful misconduct
as determined by a court of competent jurisdiction. Neither the Agent nor any
of its directors, officers, employees, agents or advisors shall be responsible
for or have any duty to ascertain,
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inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any Loan hereunder; (ii) the performance or
observance of any of the covenants or agreements of Borrower; (iii) the
satisfaction of any condition specified in Section 4, except receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any of the other Transaction
Documents. The Agent shall not incur any liability by acting in reliance upon
any notice, consent, certificate, statement or other writing (which may be a
bank wire, telex, telecopy or similar writing) believed by it to be genuine or
to be signed by the proper party or parties.
9.6 Indemnification. Notwithstanding any other provision
contained in this Agreement to the contrary, to the extent Borrower fails to
reimburse the Agent pursuant to Section 10.3, Section 10.4 or Section 10.5, or
if any Default or Event of Default shall occur under this Agreement, the
Lenders shall ratably in accordance with their respective Pro Rata Shares,
indemnify the Agent and hold it harmless from and against any and all
liabilities, losses, costs and/or expenses, including, without limitation, any
liabilities, losses, costs and/or expenses arising from the failure of any
Lender to perform its obligations hereunder or in respect of this Agreement,
and also including, without limitation, reasonable attorneys' fees and
expenses, which the Agent may incur, directly or indirectly, in connection with
this Agreement, the Notes or any of the other Transaction Documents, or any
action or transaction related hereto or thereto; provided only that the Agent
shall not be entitled to such indemnification for any losses, liabilities,
costs and/or expenses directly and solely resulting from its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction. This indemnity shall be a continuing indemnity, contemplates all
liabilities, losses, costs and expenses related to the execution, delivery and
performance of this Agreement, the Notes and the other Transaction Documents,
and shall survive the satisfaction and payment of the Loans and the termination
of this Agreement.
9.7 Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking any action under this Agreement.
9.8 Resignation of Agent. The Agent may resign at any time by
giving written notice thereof to the Lenders and Borrower. Upon any such
resignation, Lenders shall have the right to appoint a successor Agent with the
prior consent of Borrower, which consent shall not be unreasonably withheld,
and which successor Agent shall be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $100,000,000.00. If no successor Agent shall
have been so appointed by Lenders, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then the Agent shall, on behalf of all of the Lenders, appoint a
successor Agent with the prior consent of Borrower, which consent shall not be
unreasonably withheld, and which successor Agent shall be a commercial bank
organized under the laws of the United States of America or of any State
thereof and having a combined
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capital and surplus of at least $100,000,000.00. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all of the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from all of its duties and obligations under this Agreement. After
any retiring Agent's resignation as Agent, the provisions of this Section 9
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
9.9 Removal of Agent. The Agent may be removed at any time, for
or without cause, by an instrument or instruments in writing executed by the
Required Lenders and delivered to the Agent with a copy to Borrower, specifying
the removal and the date when it shall take effect. Upon any such removal,
Lenders shall have the right to appoint a successor Agent with the prior
consent of Borrower, which consent shall not be unreasonably withheld, and
which successor Agent shall be a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of at least $100,000,000.00. If no successor Agent shall
have been so appointed by Lenders, and shall have accepted such appointment,
within thirty (30) days after the date of removal of the Agent, then the
Required Lenders shall, on behalf of all of the Lenders, appoint a successor
Agent with the prior consent of Borrower, which consent shall not be
unreasonably withheld, and which successor Agent shall be a commercial bank
organized under the laws of the United States of America or of any state
thereof and having a combined capital and surplus of at least $100,000,000.00.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the removed Agent, and the removed
Agent shall be discharged from all of its duties and obligations under this
Agreement. After any such removal, the provisions of this Section 9 shall
inure to such former Agent's benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
9.10 Agent's Fee. Borrower will pay to Agent for its own account
on the date hereof and on each anniversary of the date hereof during the Term,
an Agent's Fee in the amount agreed to between Borrower and Agent.
SECTION 10. GENERAL.
10.1 No Waiver. No failure or delay by Agent or any of the Lenders
in exercising any right, remedy, power or privilege hereunder or under any
other Transaction Document shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
remedies provided herein and in the other Transaction Documents are cumulative
and not exclusive of any remedies provided by law. Nothing herein contained
shall in any way affect the right of Agent or any of the Lenders to exercise
any statutory or common law right of banker's lien or setoff.
10.2 Right of Setoff. Upon the occurrence and during the
continuance of any Event of Default, each of the Lenders is hereby authorized
at any time and from time to time, without notice to the Borrower (any such
notice being expressly waived by the Borrower) and
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to the fullest extent permitted by law, to setoff and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by any such Lender and any and all other indebtedness at any time owing by
any such Lender to or for the credit or account of the Borrower against any and
all of the Borrower's Obligations irrespective of whether or not Agent or any
such Lender shall have made any demand hereunder or under any of the other
Transaction Documents and although such obligations may be contingent or
unmatured. Such Lender agrees to promptly notify Borrower after any such
setoff and application made by such Lender, provided, however, that the failure
to give such notice shall not affect the validity of such setoff and
application. The rights of Lenders under this Section 10.2 are in addition to
any other rights and remedies (including, without limitation, other rights of
setoff) which Lenders may have. Nothing contained in this Agreement or any
other Transaction Document shall impair the right of each of the Lenders to
exercise any right of setoff or counterclaim they may have against the Borrower
and to apply the amount subject to such exercise to the payment of indebtedness
of the Borrower unrelated to this Agreement or the other Transaction Documents.
10.3 Cost and Expenses. Borrower agrees, whether or not any Loan
is made hereunder, to pay Agent upon demand (i) all reasonable out-of-pocket
costs and expenses and all Attorneys' Fees of Agent in connection with the
preparation, documentation, negotiation, execution and administration of this
Agreement, the Notes and the other Transaction Documents, (ii) all reasonable
recording, filing and search fees incurred in connection with this Agreement
and the other Transaction Documents, (iii) all reasonable out-of-pocket costs
and expenses and all Attorneys' Fees of Agent and each of the Lenders in
connection with the preparation of any waiver or consent hereunder or any
amendment hereof or any Event of Default or alleged Event of Default hereunder,
(iv) if an Event of Default occurs, all out-of-pocket costs and expenses and
all Attorneys' Fees incurred by Agent and each of the Lenders in connection
with such Event of Default and collection and other enforcement proceedings
resulting therefrom and (v) all other Attorneys' Fees incurred by Agent and
each of the Lenders relating to or arising out of or in connection with this
Agreement or any of the other Transaction Documents subsequent to the date
hereof. The Borrower further agrees to pay or reimburse Agent and each of the
Lenders for any stamp or other taxes which may be payable with respect to the
execution, delivery, recording and/or filing of this Agreement, the Notes, the
Security Agreement, the Pledge Agreement, the Trademark Assignment, the
Subsidiary Guaranties, the Subsidiary Security Agreements, or any of the other
Transaction Documents. All of the obligations of the Borrower under this
Section 10.3 shall survive the satisfaction and payment of the Borrower's
Obligations and the termination of this Agreement. In the event Agent or any
Lender claims any amounts pursuant to this Section 10.3, Agent or such Lender,
as the case may be, shall provide to Borrower an itemized statement of amounts
claimed.
10.4 Environmental Indemnity. The Borrower hereby agrees to
indemnify Agent and each of the Lenders and hold Agent and each of the Lenders
harmless from and against any and all losses, liabilities, damages, injuries,
costs, expenses and claims of any and every kind whatsoever (including, without
limitation, court costs and attorneys' fees and expenses) which at any time or
from time to time may be paid, incurred or suffered by, or asserted against,
Agent or any of the Lenders for, with respect to or as a direct or indirect
result of the violation by the Borrower or any Subsidiary of the Borrower of
any Environmental Laws; or with respect to, or as a direct or indirect result
of the presence on or under, or the escape,
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seepage, leakage, spillage, discharge, emission or release from, properties
utilized by the Borrower and/or any Subsidiary of the Borrower in the conduct
of its businesses into or upon any land, the atmosphere or any watercourse,
body of water or wetland, of any Hazardous Materials or any other hazardous or
toxic waste, substance or constituent or other substance (including, without
limitation, any losses, liabilities, damages, injuries, costs, expenses or
claims asserted or arising under the Environmental Laws); and the provisions of
and undertakings and indemnification set out in this Section 10.4 shall survive
the satisfaction and payment of the Borrower's Obligations and the termination
of this Agreement.
10.5 General Indemnity. In addition to the payment of expenses
pursuant to Section 10.3, whether or not the transactions contemplated hereby
shall be consummated, the Borrower hereby agrees to indemnify, pay and hold
Agent, each of the Lenders and any other holder(s) of the Notes, and the
officers, directors, employees, agents and affiliates of any of them
(collectively, the "Indemnitees") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitees shall be designated a party thereto), that may
be imposed on, incurred by or asserted against the Indemnitees, in any manner
relating to or arising out of this Agreement, any of the other Transaction
Documents or any other agreement, document or instrument executed and delivered
by the Borrower or any other Obligor in connection herewith or therewith, the
statements contained in any commitment letters delivered by Agent or any of the
Lenders, the Lenders' agreements to make the Loans hereunder or the use or
intended use of the proceeds of any Loan hereunder (collectively, the
"indemnified liabilities"); provided that the Borrower shall have no obligation
to an Indemnitee hereunder with respect to indemnified liabilities arising from
the gross negligence or willful misconduct of that Indemnitee as determined by
a court of competent jurisdiction. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all indemnified
liabilities incurred by the Indemnitees or any of them. The provisions of the
undertakings and indemnification set out in this Section 10.5 shall survive
satisfaction and payment of the Borrower's Obligations and the termination of
this Agreement.
10.6 Authority to Act. Agent and the Lenders shall be entitled to
act on any notices and instructions (telephonic or written) believed by Agent
or any such Lender to have been delivered by any Person authorized to act on
behalf of the Borrower pursuant hereto, regardless of whether such notice or
instruction was in fact delivered by a Person authorized to act on behalf of
the Borrower, and the Borrower hereby agrees to indemnify Agent and each of the
Lenders and hold Agent and each of the Lenders harmless from and against any
and all losses and expenses, if any, ensuing from any such action, other than
for such losses or expenses directly caused by the gross negligence or willful
misconduct of the Agent or such Lender, as determined by a court of competent
jurisdiction.
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<PAGE> 60
10.7 Notices. Any notice, request, demand, consent, confirmation or
other communication hereunder shall be in writing and delivered in person or
sent by telegram, telex, telecopy or registered or certified mail, return
receipt requested and postage prepaid, if to the Borrower, in care of
StaffMark, Inc. at 302 East Millsap Road, Fayetteville, Arkansas 72702,
Attention: Terry C. Bellora, Chief Financial Officer, if to Agent, at 721
Locust Street, St. Louis, Missouri 63101, Attention: John C. Billings, Vice
President, or if to Lenders, at their respective addresses or telecopy numbers
set forth on the signature pages of this Agreement, or at such other address as
any party may designate as its address for communications hereunder by notice
so given. Such notices shall be deemed effective on the day on which delivered
or sent if delivered in person or sent by telegram, telex or telecopy, or on
the third (3rd) Business Day after the day on which mailed, if sent by
registered or certified mail.
10.8 CONSENT TO JURISDICTION. BORROWER IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF ANY MISSOURI STATE COURT OR ANY UNITED STATES OF
AMERICA COURT SITTING IN THE EASTERN DISTRICT OF MISSOURI, AS AGENT MAY ELECT,
IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT TO THE EXTENT SUBJECT MATTER JURISDICTION
EXISTS. THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT TO
SUCH SUIT, ACTION OR PROCEEDING MAY BE HELD AND DETERMINED IN ANY OF SUCH
COURTS. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH THE BORROWER MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND
THE BORROWER FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE BORROWER HEREBY EXPRESSLY WAIVES ALL RIGHTS OF ANY OTHER JURISDICTION WHICH
THE BORROWER MAY NOW OR HEREAFTER HAVE BY REASON OF ITS PRESENT OR SUBSEQUENT
DOMICILE. THE BORROWER AUTHORIZES THE SERVICE OF PROCESS UPON THE BORROWER BY
REGISTERED MAIL SENT TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 10.7.
10.9 Agent's and Lenders' Books and Records. Agent's and Lenders'
books and records showing the account between the Borrower and Agent or any of
the Lenders shall be admissible in evidence in any action or proceeding and
shall constitute prima facie proof thereof.
10.10 Governing Law; Amendments and Waivers. This Agreement, the
Notes, the Security Agreement, the Pledge Agreement, the Trademark Assignment,
the Subsidiary Guaranties, the Subsidiary Security Agreements, and all of the
other Transaction Documents shall be governed by and construed in accordance
with the internal laws of the State of Missouri. Any provision of this
Agreement, the Notes, the Security Agreement, the Pledge Agreement, the
Trademark Assignment, the Subsidiary Guaranties, the Subsidiary Security
Agreements, or any of the other Transaction Documents may be amended or waived
if, but only if, such
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<PAGE> 61
amendment or waiver is in writing and is signed by Borrower and the Required
Lenders (and, if the rights or duties of the Agent in its capacity as Agent are
affected thereby, by the Agent); provided that no such amendment or waiver
shall, unless signed by all of the Lenders, (i) increase the Reducing Revolver
Commitment or Revolving Credit Commitment of any Lender, (ii) reduce the
principal amount of or rate of interest on any Loan or any fees hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on
any Loan or any fees hereunder or any scheduled reduction in the Reducing
Revolver Commitment of the several Lenders as set forth in Section 3.2(a), (iv)
release any collateral security or any guaranty for any Loan hereunder, (v)
increase any of the percentage advance rates against Eligible Accounts set
forth in Section 3.1(b) or increase the multiple against Borrower's
Consolidated Proforma Operating Cash Flow above three hundred fifty percent
(350%) as set forth in Section 3.2(a) herein, (vi) amend or waive any Event of
Default, or (vii) change the percentage in the definition of Required Lenders,
or (v) amend this Section 10.10.
10.11 Successors and Assigns; Participations.
(a) The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not assign or otherwise
transfer any of its rights or delegate any of its obligations under this
Agreement. Any of the Lenders may sell participations in its Notes and its
rights under this Agreement, the other Transaction Documents and in the
Collateral in whole or in part to any commercial bank organized under the laws
of the United States or any state thereof without the prior consent of Borrower
so long as each agreement pursuant to which any such participation is granted
provides that no such participant shall have any rights under this Agreement or
any other Transaction Document (the participants' rights against the Lender
granting its participation to be those set forth in the Participation Agreement
between the participant and such Lender), and such selling Lender shall retain
the sole right to approve or disapprove any amendment, modification or waiver
of any provision of this Agreement or any of the other Transaction Documents.
Each such participant shall be entitled to the benefits of the yield protection
provisions hereof to the extent any Lender would have been so entitled had not
such participation been sold or assignment made.
(b) Any Lender which, in accordance with Section
10.11(a), grants a participation in any of its rights under this Agreement or
its Notes shall give prompt notice describing the details thereof to the Agent
and Borrower.
(c) Unless otherwise agreed to by Borrower in writing, no
Lender shall, as between Borrower and that Lender, be relieved of any of its
obligations under this Agreement as a result of such Lender's granting of a
participation in all or any part of such Lender's Notes or all or any part of
such Lender's rights under this Agreement.
10.12 Assignment Agreements. Each Lender may, upon prior notice to
and consent of Borrower and Agent, which consent shall not be unreasonably
withheld, from time to time sell or assign to other banking institutions rated
"B" or better by Thompson Agent Watch Service a pro rata part of all of the
indebtedness evidenced by the Notes then owed by it together
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<PAGE> 62
with an equivalent proportion of its obligation to make Loans hereunder and the
credit risk incidental to the Letters of Credit pursuant to an Assignment
Agreement substantially in the form of Exhibit I attached hereto, executed by
the assignor, the assignee and the Borrower, which agreements shall specify in
each instance the portion of the indebtedness evidenced by the Notes which is
to be assigned to each such assignor and the portion of the Loan Commitments of
the assignor and the credit risk incidental to the Letters of Credit (which
portions shall be equivalent) to be assumed by it (the "Assignment
Agreements"), provided that nothing herein contained shall restrict, or be
deemed to require any consent as a condition to, or require payment of any fee
in connection with, any sale, discount or pledge by any Lender of any Note or
other obligation hereunder to a federal reserve bank. Any such portion of the
indebtedness assigned by any Lender pursuant to this Section 10.12 shall not be
less than $5,000,000.00. Upon the execution of each Assignment Agreement by
the assignor, the assignee and the Borrower and consent thereto by the Agent
(i) such assignee shall thereupon become a "Lender" for all purposes of this
Agreement with Loan Commitments in the amount set forth in such Assignment
Agreement and with all the rights, powers and obligations afforded a Lender
hereunder, (ii) the assignor shall have no further liability for funding the
portion of its Loan Commitments assumed by such other Lender and (iii) the
address for notices to such Lender shall be as specified in the Assignment
Agreement, and the Borrower shall, in exchange for the cancellation of the
Notes held by the assignor Lender, execute and deliver Notes to the assignee
Lender in the amount of its Loan Commitments and new Notes to the assignor
Lender in the amount of its Loan Commitments after giving effect to the
reduction occasioned by such assignment, all such Notes to constitute "Notes"
for all purposes of this Agreement, and there shall be paid to the Agent, as a
condition to such assignment, an administration fee of $2,000.00 plus any
out-of-pocket costs and expenses incurred by it in effecting such assignment,
such fee to be paid by the assignor or the assignee as they may mutually agree,
but under no circumstances shall any portion of such fee be payable by or
charged to the Borrower.
10.13 References; Headings for Convenience. Unless otherwise
specified herein, all references herein to Section numbers refer to Section
numbers of this Agreement, all references herein to Exhibits A, B, C, D, E, F,
G, H, I and J refer to annexed Exhibits A, B, C, D, E, F, G, H, I and J which
are hereby incorporated herein by reference and all references herein to
Schedules 5, 6.5, 6.6, 6.8, 6.10, 6.11, 6.14, 6.15, 7.1(k)(viii) and 7.2(h)
refer to annexed Schedules 5, 6.5, 6.6, 6.8, 6.10, 6.11, 6.14, 6.15,
7.1(k)(viii) and 7.2(h) which are hereby incorporated herein by reference. The
Section headings are furnished for the convenience of the parties and are not
to be considered in the construction or interpretation of this Agreement.
10.14 Subsidiary Reference. Any reference herein to a Subsidiary or
Consolidated Subsidiary of the Borrower, and any financial definition, ratio,
restriction or other provision of this Agreement which is stated to be
applicable to the Borrower and its Subsidiaries or Consolidated Subsidiaries or
which is to be determined on a "consolidated" or "consolidating" basis, shall
apply only to the extent the Borrower has any Subsidiaries or Consolidated
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with the Borrower for financial reporting purposes.
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<PAGE> 63
10.15 Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of the Borrower and its successors and Agent and each of
the Lenders and their respective successors and assigns. The Borrower may not
assign or delegate any of its rights or obligations under this Agreement.
10.16 NO ORAL AGREEMENTS; ENTIRE AGREEMENT. ORAL AGREEMENTS OR
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT
ENFORCEABLE. TO PROTECT THE BORROWER, AGENT AND LENDERS FROM MISUNDERSTANDING
OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY THE BORROWER, AGENT AND LENDERS
COVERING SUCH MATTERS ARE CONTAINED IN THIS AGREEMENT AND THE OTHER TRANSACTION
DOCUMENTS, WHICH AGREEMENT AND OTHER TRANSACTION DOCUMENTS ARE A COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN THE BORROWER, AGENT AND LENDERS,
EXCEPT AS THE BORROWER, AGENT AND LENDERS MAY LATER AGREE IN WRITING TO MODIFY
THEM. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN
THE PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL
OR WRITTEN) RELATING TO THE SUBJECT MATTER HEREOF.
10.17 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein that may be given effect without the invalid, illegal or
unenforceable provision shall not in any way be affected or impaired thereby.
10.18 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.19 Resurrection of the Borrower's Obligations. To the extent
that Agent or any of the Lenders receives any payment on account of any of the
Borrower's Obligations, and any such payment(s) or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
subordinated and/or required to be repaid to a trustee, receiver or any other
Person under any bankruptcy act, state or federal law, common law or equitable
cause, then, to the extent of such payment(s) received, the Borrower's
Obligations or part thereof intended to be satisfied and any and all Liens upon
or pertaining to any Property or assets of the Borrower and theretofore created
and/or existing in favor of Agent for the benefit of the Lenders as security
for the payment of the Borrower's Obligations shall be revived and continue in
full force and effect, as if such payment(s) had not been received by Agent or
any such Lender and applied on account of the Borrower's Obligations.
10.20 U. S. Dollars. All currency references set forth herein, in
any other Transaction Documents and in any transactions referenced herein or
therein shall be denominated in Dollars of the United States of America.
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<PAGE> 64
IN WITNESS WHEREOF, the parties have executed this Credit Agreement
this 4th day of October, 1996.
STAFFMARK, INC.
By: /s/ JERRY T. BREWER
-----------------------------------
Name: Jerry T. Brewer
---------------------------------
Title: Chairman
--------------------------------
Revolving Credit Commitment: MERCANTILE BANK OF ST. LOUIS
$20,000,000.00 NATIONAL ASSOCIATION
Reducing Revolver Commitment:
$30,000,000.00
By: /s/ JOHN C. BILLINGS
-----------------------------------
Name: John C. Billings
-----------------------------------
Title: Vice President
--------------------------------
Address: 721 Locust Street
St. Louis, Missouri 63101
Attention: Mid America Group
Telecopy No: 314-425-3859
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION, as Agent
By: /s/ JOHN C. BILLINGS
-----------------------------------
Name: John C. Billings
---------------------------------
Title: Vice President
--------------------------------
Address: 721 Locust Street
St. Louis, Missouri 63101
Attention: Mid America Group
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<PAGE> 1
EXHIBIT 23.2.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
October 22, 1996.
<PAGE> 2
EXHIBIT 23.2.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
October 22, 1996.
<PAGE> 3
EXHIBIT 23.2.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 22, 1996.
<PAGE> 4
EXHIBIT 23.2.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia,
October 22, 1996.
<PAGE> 5
EXHIBIT 23.2.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado,
October 22, 1996.
