35
26
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
or
Commission file number: 0-20971
StaffMark, Inc.
(Exact name of registrant as specified in its charter)
Delaware 71-0788538
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 East Millsap Road
Fayetteville, AR 72703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 973-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant as
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $132,745,800 as of March 13, 1997.
As of March 13, 1997, the number of shares outstanding of the registrant's
Common Stock was 13,417,012.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of stockholders to be
held on May 2, 1997 are incorporated by reference into Part III of this Report
on Form 10-K.
<PAGE>
PART I
ITEM I . BUSINESS
The Mergers
StaffMark, Inc. (the "Company" or "StaffMark"), a Delaware corporation,
was formed 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. Simultaneously with the closing of
the initial public stock offering of its Common Stock (the "Offering"),
StaffMark acquired, in separate merger transactions (the "Mergers"), Brewer
Personnel Services, Inc. ("Brewer"), Prostaff Personnel, Inc. and its related
entities ("Prostaff"), Maxwell Staffing, Inc. and its related entities
("Maxwell"), HRA, Inc. ("HRA"), First Choice Staffing, Inc. ("First Choice") and
Blethen Temporaries, Inc. and its related entities ("Blethen") (collectively
referred to as the "Founding Companies"). The Founding Companies had on average
operated for over 13 years in eight states through over 90 branch offices.
General
StaffMark is a leading provider of diversified staffing services to
business, medical niches, professional and service organizations and
governmental agencies, primarily in growth markets in the southeastern and
southwestern United States. The Company operates 94 branches located in
Arkansas, Colorado, Georgia, Missouri, North Carolina, Oklahoma, South Carolina,
Tennessee, Virginia and Vancouver, British Columbia, Canada. Currently, the
Company provides more than 11,000 field employees to over 2,600 clients during a
typical week. The Company's business is organized into three divisions:
Commercial, Specialty Medical and Professional/IT ("Information Technology").
The Commercial division provides clerical and light industrial staffing
services, and generated approximately 89.9% and 88.1% of the Company's combined
revenues for the years ended December 31, 1995 and December 31, 1996,
respectively. For the fourth quarter ended December 31, 1995 and 1996, the
Commercial Division generated 90.0% and 84.0% of the Company's combined
revenues, respectively. The Company's commercial 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 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.
The Specialty Medical division provides healthcare and medical staffing
services, such as physical and occupational therapists, speech pathologists and
clinical trial support services, and generated approximately 8.3% and 7.4% of
the Company's combined revenues for the years ended December 31, 1995 and
December 31, 1996, respectively. For the fourth quarter ended December 31, 1995
and 1996, the Specialty Medical division generated 8.1% and 8.4% of the
Company's combined revenues, respectively. The Company offers specialty medical
staffing services to meet the growing demand for physical and occupational
therapists in the United States 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. The Company's clinical trials
personnel support the staffing demands of the pharmaceutical, biotechnology,
medical device and medical and clinical 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, 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.
(2)
<PAGE>
The Professional/IT division provides technical, professional and
information technology staffing services and generated approximately 1.8% and
4.5% of the Company's combined revenues for the years ended December 31, 1995
and December 31, 1996, respectively. For the fourth quarter ended December 31,
1995 and 1996, the Professional/IT Division generated 1.9% and 7.6% of the
Company's combined revenues, respectively. 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, system
maintenance, "help-desk" assistance and education and training. The Company
provides technical services personnel such as drafters, designers and engineers
in the mechanical and electrical engineering and computer science fields. The
Company also provides accounting personnel, paralegals and other legal
assistants, and sales and marketing professionals.
Recent Developments
A key element of the Company's strategy is to acquire independent
staffing companies that will provide geographic expansion, increased market
penetration, compliment existing services and increase the revenue mix in the
Professional/IT and Specialty Medical divisions. The Company has completed five
acquisitions since the Offering.
Acquired Date of Revenue Services
Company Acquisition Location (in Millions) Provided
- ------------------------------- ------------- ------------------------ ---------
The Technology
Source L.L.C. November 1996 St. Louis, Missouri $6.8 Professional/IT
Advantage
Staffing December 1996 Spartanburg, South 3.6 Commercial and
Carolina Professional/IT
Tom Bain, Inc. December 1996 Brentwood, 3.6 Commercial and
Tennessee Professional/IT
Advance
Personnel
Service,Inc. January 1997 Memphis, Tennessee 6.3 Commercial
MRIC
Medical
Recruiters
International February 1997 Vancouver, British 2.5 Specialty
LTD Columbia Medical
The Staffing Services Industry
The staffing services 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
United States market for temporary staffing services has grown at a compound
annual rate of approximately 17.7%, from approximately $20.4 billion in revenue
in 1991 to an estimated $45.1 billion in 1996. According to the Staffing
Industry Report, technical, professional and healthcare staffing are among the
fastest growing sectors of the staffing services industry. The Company believes
that these specialized services offer a greater opportunity for growth and
profitability than commercial staffing services alone. The Company believes the
temporary staffing industry is highly fragmented with an estimated 4,000 to
6,000 companies and is experiencing increasing consolidation (over 200
acquisitions by public companies since 1995) largely in response to increased
competition, the need to offer a full range of services to regional and national
accounts and as a way for these owners to solidify their equity or define an
exit strategy.
Business Development and Growth Strategy
The Company's goal is to expand throughout the regions it currently
serves, and expand nationally to meet the broad geographic needs of regional and
national companies seeking to centralize purchasing decisions for temporary
staffing needs. Additionally, the Company seeks to increase the information
technology and specialty medical revenues of the Company to a significantly
higher percentage of the Company's total revenues. The information technology
and specialty medical sectors provide higher gross margins and are growing at an
accelerated pace. For example, the information technology sector is reportedly
growing at an annual rate in excess of 25%. The Company plans to achieve these
goals through an active acquisition program, internal growth and cross
development of clients and services.
(3)
<PAGE>
Key Elements of the Business Strategy
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 has been 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. The Company has also
established a profit-based compensation plan at the regional and local levels
and, at the time of the Offering, distributed Company stock options to
approximately 80% of its employees to further motivate employees through
ownership in the Company.
Capitalize on Strong Reputation and Local Name Recognition. Management
intends on building the Company into the top firm in their markets by using the
Founding Companies' strong reputations and client familiarity with their
service. The Company believes that its local presence, accessible management and
sophisticated support services position it as a provider of choice for staffing
services in the markets it serves.
Capitalize on New Corporate Structure. The Company intends to take
advantage of its new corporate structure by utilizing the following:
Adopting the Best Practices. Management of the Company has evaluated
the operating policies and procedures of each of the Founding
Companies, as well as newly acquired companies, and is implementing
Company-wide the various practices that best serve the needs of the
Company.
Centralizing Control Functions. The Company is in the process
of supporting its branch office network by providing risk
management, payroll,billing and collection, purchasing, cash
management,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 while freeing up the branches to
market, sell and recruit our core business.
Increasing Operating Efficiencies. The Company is achieving 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
Company is also benefiting from further economies of scale through
common regional management and the spreading of recruiting, training,
advertising, administrative and branch office costs over a large
number of temporary employees and clients.
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, information technology and
specialty medical staffing services by providing personnel such as computer
operators, programmers, network designers, engineers, physical and occupational
therapists and clinical trial support employees. The Professional/IT 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 direct placement services in several of its
branches and believes that the relatively higher margins and cross-development
opportunities associated with direct 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,
direct placement services and recruiting specialists. 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 its services has enabled it
to establish and maintain long-term relationships with clients by understanding
the clients' businesses, responding promptly to clients requests, proactively
assessing clients' staffing needs, and continually monitoring job performance
and client satisfaction.
(4)
<PAGE>
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.
Key Elements of Growth Strategy
Internal Growth. 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.
Spin-off Branches. 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 to a size
sufficient to split into two offices. This allows the new branch to open with an
existing client base and provides the Company with geographical expansion at low
marginal cost. These office clusters provide economies of scale by spreading
common costs such as recruiting, advertising, management, etc., over a larger
revenue base. During the past two years, the Company has opened 21 spin-off
branches in addition to having opened several branch offices by following
existing clients into new geographical areas.
Vendor-on-Premises Relationships ("VOP"). The Company currently has 27
VOP partnering relationships, as compared to 10 at December 31, 1995. VOP
relationships represented 9.4% and 18.7% of the Company's combined revenues for
the years ended December 31, 1995 and December 31, 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 relationships, which result in a more
stable source of revenue, while providing clients with a dedicated on-site
account manager who can more effectively meet the client's changing staffing
needs with high quality and consistent service.
Expanding Professional/IT Services. The Professional/IT Services division
generally enjoys higher profit margins than the Commercial division due to the
specialized expertise of the temporary personnel provided throughout the
Professional/IT division. The Company's strategy is to continue to increase the
percentage of its revenue and gross profits from the Professional/IT by
emphasizing the expansion of information technology through acquisition,
cross-developing into new and existing geographic markets, and by adding new
professional lines of business, leveraging wherever possible on existing
customer relationships.
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
trial support services such as clinical monitoring, project management,
programming, statistical analysis, regulatory affairs, medical writing and
training. The Company's Medical Staffing Group provides front and back office
support to doctors, hospitals and clinics and is supported by the Company's own
training school. The Specialty Medical division generally enjoys higher gross
margins than the Commercial division because it offers specialized expertise.
Cross-Developing Professional/IT and Specialty Medical Services. The
Company currently provides Commercial staffing services in the majority of its
offices and plans to introduce its Professional/IT and Specialty Medical
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 to its strong client base
throughout its network of branch offices.
Growth Through Strategic Acquisitions
The Company is actively pursuing acquisitions of profitable, well-managed
staffing companies that will expand the geographic scope of its operations,
offer services that may be cross-sold to the Company's existing client base or
increase its market penetration. The Company evaluates acquisitions using
numerous criteria, including profitability of operations, historical growth
rates, management strength, market location, market share, staffing services
offered and 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
(5)
<PAGE>
successful assimilation of previous acquisitions; (iii) its decentralized
entrepreneurial environment; and (iv) its greater visibility and resources as a
public company. The Company uses various combinations of cash, equity or debt to
meet the individual needs of its acquisition targets. The Company currently has
available a $30 million credit facility for acquisitions and has also registered
an additional 4 million shares of its Common Stock for use in future
acquisitions.
Since the Offering and the simultaneous Mergers on October 2, 1996,
StaffMark has acquired five temporary staffing companies, three in the fourth
quarter of 1996 and two in the first quarter of 1997. The acquired companies are
as follows:
Fourth Quarter 1996
The Technology Source, L.L.C. ("Technology") was acquired in November
1996. Technology, located in St. Louis, Missouri, provides information
technology services to several Fortune 100 companies in the St. Louis and
operates as part of the Professional/IT division.
Chandler Enterprises, Inc. d.b.a. Advantage Staffing ("Advantage")
was acquired in December 1996. Advantage, located in Spartanburg, South
Carolina, provides clerical and light industrial services. Advantage had
1996 revenues of approximately $3.6 million and operates as part of the
Commercial and Professional/IT divisions.
Tom Bain Personnel, Inc. ("Tom Bain") was acquired in December
1996. Tom Bain, located in Brentwood, Tennessee, provides
primarily clerical and information technology services. Tom Bain had
1996 revenues of approximately $3.6 million and operates in the Commercial
and Professional/IT divisions.
First Quarter 1997
Advance Personnel Service, Inc. ("Advance ") was acquired in January
1997. Advance,located in Memphis, Tennessee, provides clerical,
light industrial, assembly and packing services for several Fortune 500
companies. Advance had 1996 revenues of approximately $6.3 million
and operates in the Commercial division.
MRIC Medical Recruiters International LTD ("MRIC") was acquired in
February 1997. MRIC, located in Vancouver, British Columbia, provides
physical therapists on a direct placement and locum basis in Canada
and the United States. MRIC had 1996 revenues of approximately $2.5
million and operates in the Specialty Medical division.
A major driver of the Company's growth strategy is to acquire existing
staffing operations. The Company seeks acquisitions that will expand the
geographic scope of its operations, increase as a percentage of total revenues
its professional and information technology services and specialty medical
business, locate new specialty services and increase market penetration in areas
it currently operates. StaffMark has established a team of Corporate officers
responsible for identifying prospective acquisitions, performing due diligence,
contract negotiations and the subsequent integration of the acquired company. A
key element of the acquisition strategy is to acquire only accretive operations
with strong local and reginal presence. Each potential acquisition is rated to
ensure that it will be a good fit with the StaffMark team, philosophies, culture
and goals. It is generally the Company's policy to include some amount of
StaffMark Common Stock as a part of the consideration so that the acquired
company and StaffMark, who will be partners, will have the same motivation and
goals.
(6)
<PAGE>
OPERATIONS
Branch Offices
The Company offers its services through 94 branch offices in Arkansas,
Colorado, Georgia, Missouri, North Carolina, Oklahoma, South Carolina,
Tennessee, Virginia and British Columbia, Canada. Branch managers operate their
offices with a significant degree of autonomy and accountability and receive
bonuses based on the profitability and growth of the branch. The compensation
system is designed to motivate the managers and staff to maximize the growth and
profitability of their offices. Branch managers report directly to regional
managers who report to regional vice presidents, all of whom receive bonuses
based upon the profitability of their region. Operating within the guidelines
set by the Company, the branch managers are responsible for pursuing new
business opportunities and focusing on sales and marketing, account development,
and employee recruitment and retention and development.
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 prospective clients. 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 sales calls, consultation
meetings with target companies, client referrals, telemarketing and advertising
in a variety of local and regional media, including television, radio, direct
mail, Yellow Pages, newspaper, magazines and trade publications. Also, the
Company's national marketing director has developed a strategy utilizing sales
calls and consultation meetings with targeted companies. In addition, the
Company sponsors job fairs and other community events and the Company's officers
and senior management 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 higher quality and largest number of new temporary employees. 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, on television, in the Yellow Pages and through other print
media.
Full Time Employees / Field Employees
Currently, StaffMark provides over 11,000 field employees to more than
2,600 clients during a typical week. As of December 31, 1996, the Company
employed approximately 550 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 to be strong. 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 also offers access to
various insurance programs and other benefits, such as vacations, holidays and
401(k) programs to certain of its field employees.
(7)
<PAGE>
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 individuals 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, industry aptitude, hand and
finger dexterity, soldering, mathematics, ability to read a blue print, ability
to assemble electronic components 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 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 for placement with the Company's clients.
Management Information Systems
The primary operating system software utilized by the Company for the
front office is the Caldwell-Spartin system which management believes is
currently one of the leading application software systems in the staffing
industry. This system permits access to a shared database of resumes and job
orders 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. The Company believes that the Caldwell-Spartin system
can readily be expanded to meet increased demands without significant additional
capital expenditures.
StaffMark has contracted with PeopleSoft for development of the back
office accounting and administrative systems. The Company believes that
PeopleSoft applications will provide excellent management tools, the ability to
eliminate duplicate functions and provide a high degree of internal control as
well as lower cost through centralization of systems, providing economy and
control in such areas as accounts payable, cash control, budgeting, management
reporting and human resource functions. The PeopleSoft implementation plan will
begin in March 1997 with the general ledger and accounts payable modules
scheduled to be implemented first, followed by payroll interface, budgeting,
treasury and human resource modules. The Company has chosen Digital as the
hardware provider for its client server. Digital is currently the "host"
provider of the Caldwell-Spartin system. The Company anticipates investing
approximately $2 million in 1997 on the PeopleSoft implementation and the
network expansion.
(8)
<PAGE>
Workers' Compensation Program
The Company maintains workers' compensation insurance for all claims in
excess of a retention level of $250,000 per occurrence. The Company's risk
management team takes a proactive approach to safety and risk control. The team
works 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 also performs periodic safety inspections at client
locations 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 evaluates new clients
and has 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 periodically performs an actuarial
valuation regarding the adequacy of the Company's reserve for workers'
compensation claims. Newly acquired operations will be integrated into the
Company's program at such time as, in management's judgment, the integration is
most cost effective.
Seasonality
The timing of certain holidays, weather conditions and seasonal vacation
patterns may cause the Company's results of operations to fluctuate slightly.
The Company expects to realize higher revenues, operating income and net income
during the second and third quarters and lower revenues, operating income and
net income during the first and fourth quarters.
Competition
The staffing services industry is fragmented and highly competitive, with
limited barriers to entry. A large percentage of temporary staffing companies
are local operators with fewer than five offices. Within local markets, these
operators actively compete with the Company for business and, in most of these
markets, no single company has a dominant share of the market. The Company also
competes with larger, full-service and specialized competitors in national,
regional and local markets. The principal national competitors include
AccuStaff, Inc., Manpower, Inc., Kelly Services, Inc., The Olsten Corporation,
Interim Services, Inc., Express Personnel, and Norrell Corporation, all of which
have greater marketing, financial and other resources than the Company. The
Company believes that the primary competitive factors in obtaining and retaining
clients are the number and location of offices, an understanding of clients'
specific job requirements, the ability to provide temporary personnel in a
timely manner, the monitoring of quality of job performance and the price of
services. The primary competitive factors in obtaining qualified candidates for
temporary employment assignments are wages, responsiveness to work schedules and
number of hours of work available. Management believes that StaffMark is highly
competitive in these areas. 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
several 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. However, no assurance can be given that the
Company's acquisition program will continue to be successful.
(9)
<PAGE>
Directors and Executive Officers
Name Age Position
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 40 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 Vice President and General Manager - Carolina Region;
Director
Mary Sue Maxwell (2) 53 Vice President and General Manager-Oklahoma Region
William J. Lynch 54 Director
R. Clayton McWhorter 63 Director
Charles A. Sanders,
M.D. 65 Director
(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 served 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 served since April 1995, as President, Chief Executive
Officer and 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 became the Chief Operating Officer of StaffMark upon
consummation of the Offering. Mr. Feldman founded HRA in 1991 and since its
inception served as its President and Chief Executive Officer. From 1979 until
1992, Mr. Feldman served as President of Nashville Trunk & Bag Co.
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
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 and one of the underwriters of the
Offering. In 1992, Mr. Janes obtained an MBA from the Wharton School.
W. David Bartholomew is a Director and is the Executive Vice
President - Southeastern Operations of the Company and oversees the Company's
Commercial and Professional/IT divisions in that region. Mr. Bartholomew served
as Secretary/Treasurer and Principal of HRA since 1993. From 1991 through 1993,
Mr. Bartholomew was President of Cobble Personnel of Nashville.
Donald A. Marr, Jr. is the Executive Vice President - Southwestern
Operations of the Company and oversees the Company's Commercial and
Professional/IT divisions in that region. He has been employed by Brewer since
1990 and served as Brewer's Vice President of Operations since 1994.
Steven S. Schulte is a Director and is the Executive Vice President -
Administration of the Company. He has been employed by Prostaff since August
1987 and served as President and Chief Executive Officer since June 1992.
(10)
<PAGE>
John H. Maxwell, Jr. is a Director and Executive Vice President - Medical
Services of the Company. Mr. Maxwell 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 a Director and Executive Vice President - Clinical Trial
Support Services of the Company. Ms. Blethen served as the Chief Executive
Officer of Blethen since its inception in 1975. Ms. Blethen is a Certified
Personnel Consultant.
William T. Gregory is a Director, Vice President and General
Manager-Carolina Region of the Company. Mr. Gregory served as President of First
Choice since 1985. Mr. Gregory is a Certified Personnel Consultant.
Mary Sue Maxwell is a Vice President and General Manager - Oklahoma Region
of the Company. Ms. Maxwell served as President of Maxwell 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 Coach USA, Inc.,a publicly traded motorcoach services company.
R. Clayton McWhorter is a Director of the Company. Mr. McWhorter founded
Clayton Associates, LLC, in 1996 to provide venture capital to start-up
companies. Mr. McWhorter is a member of the Board of Directors of Columbia/HCA
Healthcare Corporation ("Columbia/HCA") and served as its Chairman of the Board
from April 1996 to May 1996. Mr. McWhorter served as Chairman, President and
Chief Executive Officer of Healthtrust, Inc. from 1987 to April 1995 until its
merger with Columbia/HCA. From 1985 to 1987, Mr. McWhorter served as President
and Chief Operating Officer of Hospital Corporation of America (Columbia/HCA's
predecessor). Mr. McWhorter is a director of publicly traded companies, Suntrust
Bank -- Nashville, Columbia/HCA, and Corrections Corporation of America.
He is also a director of Ingram Industries Inc.
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 Metal Company.
Full-time Employees
At December 31, 1996, the Company employed approximately 700 personnel on a
full time equivalent basis of which approximately 530 employees work in
operations, approximately 50 employees work in corporate administration and
approximately 120 employees represent full time information technology
consultants who are billed out by the Company. Full time employees may receive
or participate in benefits such as life insurance, health insurance, disability
insurance and other benefits.
Trademarks
The Company has applied for Federal Service Mark registration of
"StaffMark" and the associated Company logo with the United States 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 using the mark concurrently or 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 and the companies
which have been acquired. The Company believes that it has all rights to
trademarks and trade names necessary for the conduct of its business.
(11)
<PAGE>
ITEM 2. PROPERTIES The Company owns no real property. It leases its
corporate headquarters as well as space for all of its branch offices. These
facilities are principally used for operations, general and administrative
functions and training. In addition, several facilities are maintained for
storage purposes. 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 aggregate rental expense for
the Company was approximately $1.7 million during 1996. See the notes to the
financial statements of StaffMark and the Founding Companies included elsewhere
herein for further information relating to these leases. The Company's
headquarters are located at 302 East Millsap Road, Fayetteville, Arkansas 72703.
The Company's telephone number is (501) 973-6000. ITEM 3. LEGAL PROCEEDINGS The
Company is not a party to any material pending legal proceedings other than
routine litigation incidental to its business. In the opinion of the Company's
management, such proceedings should not, individually or in the aggregate, have
a materially adverse effect on the Company's results of operations or financial
condition. The Company maintains insurance in such amounts and with such
coverage and deductibles as management believes are reasonable. ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to
a vote of the Company's security holders from the closing date of the Offering
to the end of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has traded on the Nasdaq National Market under
the symbol STAF since September 27, 1996. At March 13, 1997, there were
approximately 165 holders of record of the Company's Common Stock. The
following table sets forth the range of high and low closing prices for the
Company's Common Stock as reported by the Nasdaq National Market for each
quarter since September 27, 1996.
HIGH LOW
FISCAL 1996
Third Quarter 14.750 13.375
Fourth Quarter 16.750 9.750
FISCAL 1997
First Quarter 15.000 12.250
(through March 13, 1997)
The Company does not anticipate paying any dividends on its Common Stock
in the foreseeable future and intends to retain future earnings for the
operations and expansion of its business. Any future payment of dividends on the
Common Stock is within the discretion of the Board of Directors and will depend
upon varying factors, including the capital requirements, operating results and
financial condition of the Company from time to time.
(12)
<PAGE>
ITEM 6. SELECTED 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 ("SAB") No. 97, which was issued and
became effective July 31, 1996, Brewer was designated, for financial reporting
purposes, as the acquirer of Prostaff, Maxwell, HRA, First Choice and Blethen
(collectively referred to as the "Other Founding Companies"). Accordingly, the
primary financial information presented below relates to Brewer through the date
of the Offering. The Selected Financial Data should be read in conjunction with
the audited financial statements of StaffMark and related notes thereto as well
as "Management's Discussion and Analysis of Financial Condition and Results of
Operations" which presents the results of operations on a consolidated basis.
Years Ended December 31,
------------------------------------------------
1992 1993 1994 1995 1996
--------- -------- --------- -------- ----------
(In thousands, except per share data)
Statement of Income Data:
Revenues ................... $11,159 $12,313 $27,894 $43,874 $ 104,476
Cost of Services ........... 9,609 10,063 22,906 35,115 81,607
------- ------- ------- ------- -------
Gross profit ............... 1,550 2,250 4,988 8,759 22,869
Operating expenses:
Selling, general and .....
administrative .............. 1,043 1,623 3,483 5,804 14,623
Depreciation and amortization 113 121 256 591 1,374
------ ------- ------- ------- -----
Operating income ............... 394 506 1,249 2,364 6,872
Interest expense ............... 26 54 92 801 1,188
Net income ..................... 381 478 1,177 1,587 4,023
Pro Forma:
Revenues (1).... $200,020
Operating income (2) 11,893
Net income (2)(3).... 6,368
Net income per share .... 0.67
Weighted average shares outstanding (4).. 9,545
As of December 31,
------------------------------------------------
Balance Sheet Data: 1992 1993 1994 1995 1996
--------- -------- --------- -------- ----------
Working capital ........... ($324) $336 $1,157 $1,508 $24,050
Total assets ................ 2,321 2,917 4,054 21,752 71,498
Long-term debt, incl. current
maturities ............... 1,232 224 15,986 -- --
Stockholders' equity ........ 846 1,110 2,110 2,786 58,110
- --------------
(1) Adjusted to reflect the acquisition of the Other Founding Companies as
well as Brewer's acquisition of On Call Employment Services, Inc. ("On
Call").
(2) Adjusted to reflect the acquisition of the Other Founding Companies and On
Call and reductions in salaries to certain owners of the Founding Companies
which were agreed to in conjunction with the Mergers.
(3) 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.
(4) Pro forma weighted average shares outstanding is computed based on: (i)
8,300,000 weighted average shares outstanding from January 1, 1996 through
the Offering on October 2, 1996 representing 1,355,000 shares issued by
StaffMark prior to the Offering, approximately 5,618,000 shares issued to
the stockholders of the Founding Companies in connection with the Mergers
and approximately 1,327,000 shares issued in connection with the Offering to
pay the cash portion of the consideration for the Founding Companies; and
(ii) 13,242,000 weighted average actual shares outstanding from the Offering
date through December 31, 1996.
(13)
<PAGE>
- --------------------------------------------------------------------------------
ITEM 7. 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 StaffMark's audited financial
statements and related notes thereto appearing elsewhere in this Form 10-K.
Introduction
On October 2, 1996, StaffMark acquired, simultaneously with the closing
of the Offering, the Founding Companies. Based on the provisions of SAB No. 97,
Brewer was designated as the acquirer of the Other Founding Companies for
financial reporting purposes. As Brewer was designated as the acquirer for
financial reporting purposes, the financial information presented below reflects
the results of its operations for the years ended January 1, 1995 and December
31, 1995. The Company's results of operations for 1996 represent a combination
of Brewer's results for the nine months ended September 30, 1996 and the
Company's consolidated results of operations for the three months ended December
31, 1996. As the acquisition and the Offering were accounted for based on the
provisions of SAB No. 97, the acquisition of assets and assumption of
liabilities of the Founding Companies are reflected at their historical cost.
Throughout management's discussion and analysis of financial condition and
results of operations, references to "the Company" relate to Brewer for the
periods prior to the acquisition of the Other Founding Companies, which occurred
on October 2, 1996 and relate to StaffMark and its consolidated subsidiaries
subsequent to that date.
The information below is intended to discuss the results of operations
for the Company for fiscal year 1996 as compared to fiscal year 1995 and the
results of operations of the Company for fiscal year 1995 as compared to fiscal
year 1994. Also presented are the combined results of operations for fiscal year
1996 as compared to fiscal year 1995 and fiscal year 1995 as compared to fiscal
year 1994.
Overview
The Company provides temporary staffing, outsourcing and direct placement
services to businesses, professional organizations, medical niches, service
organizations and governmental agencies. The Company generally recognizes
revenues upon performance of services. The Company compensates its field
employees (temporary employees) only for hours actually worked, therefore wages
of the field employees are a variable cost that increase or decrease in
proportion to revenues. Cost of services primarily consists of wages paid to
field employees, payroll taxes, workers' compensation and other related employee
benefits. Selling, general and administrative expenses are comprised primarily
of administrative salaries, benefits, marketing, rent and recruitment expenses.
StaffMark completed its initial public stock offering and merger of the
six founding companies on October 2, 1996. The Company, on a combined revenue
basis, grew at 35% during fiscal 1996 and at 38% during the fourth quarter of
1996, our first quarter as a public company. Gross profit and operating profits
for the year and for the fourth quarter were substantially above 1995 with
increasing net margins.
StaffMark was able to achieve these results with a very focused internal
growth plan, emphasis on integration of services among the founding companies
and an aggressive acquisition plan.
StaffMark completed three acquisitions in the fourth quarter of 1996 and
two acquisitions in the first quarter of 1997 and will continue to make
acquisitions within the parameters established by the Board of Directors of the
Company. The Company, after completing these five acquisitions, still had
approximately $10 million in cash, no debt, and a $50 million credit facility
available with Mercantile Bank of St. Louis National Association.
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 Form 10-K. Additionally, the combined results discussed below occurred when
the combined companies were not under common control or management and may not
be comparable to, or indicative of future performance.
(14)
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues increased $60.6 million, or 138.1%, to $104.5 million
for 1996 compared to $43.9 million for 1995. This increase was largely
attributable to the fourth quarter 1996 acquisitions of the Other Founding
Companies, Technology, Advantage and Tom Bain, which accounted for $37.3 million
of the increase. The acquisition of On Call in February 1996 and the acquisition
of Caldwell in July 1995 accounted for $13.0 million and $11.7 million,
respectively, of the increase in revenues, which was partially offset by a
decrease in Brewer's revenues, exclusive of acquisitions, of approximately $1.3
million.
Cost of Services. Cost of services increased $46.5 million, or 132.4%, to
$81.6 million for 1996 compared to $35.1 million for 1995. This increase was
mainly attributable to the acquisitions of the Other Founding Companies,
Technology, Advantage and Tom Bain, which accounted for $28.6 million of this
increase. Also attributing to the increase were the acquisitions of On Call and
Caldwell, which accounted for $10.7 million and $9.3 million, respectively, of
the change. This increase 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 $14.1 million, or 161.1%, to $22.9
million for 1996 as compared to $8.8 million for 1995. Gross profit as a
percentage of revenues increased to 21.9% for 1996 compared to 20.0% for 1995.
These increases are primarily attributable to the acquisitions of the Other
Founding Companies, Technology, Advantage, Tom Bain, On Call and Caldwell, as
well as a reduction in workers' compensation expense.
Operating Expense. SG&A increased $8.8 million, or 152.0%, to $14.6
million for 1996 compared to $5.8 million for 1995. This increase was primarily
attributable to the acquisitions of the Other Founding Companies, Technology,
Advantage and Tom Bain, which accounted for $5.5 million of the increase. Also
contributing to the increase were the acquisitions of On Call and Caldwell,
which accounted for $1.6 million and $1.4 million of the increase, respectively.
SG&A as a percentage of revenues increased to 14.0% for 1996 compared to 13.2%
for 1995. Depreciation and amortization expense increased $784,000, or 132.9%,
to $1.4 million for 1996 compared to $590,000 for 1995. This increase was
primarily attributable to increased amortization of intangibles resulting from
the February 1996 acquisition of On Call. Also, 1996 included a full year of
amortization of intangibles relating to the July 1995 acquisition of Caldwell.
Both of these acquisitions were accounted for using the purchase accounting
method.
Operating Income. Operating income increased $4.5 million, or 190.1%, to
$6.9 million for 1996 as compared to $2.4 million for 1995. Operating income as
a percentage of revenues increased to 6.6% for 1996 as compared to 5.4% for
1995.
Net Income. Net income increased $2.4 million, or 153.6%, to $4.0 million
for 1996 compared to $1.6 million for 1995. Net income as a percentage of
revenues increased to 3.9% for 1996 compared to 3.6% for 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 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.
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 as a percentage
of revenues increased to 20.0% for 1995 compared to 17.9% for 1994. These
increases for the branches were primarily attributable to the impact of the
acquisition of Caldwell and the improvement in gross margins for the branches
acquired from Aaron Temporary Services, Inc. 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.
(15)
<PAGE>
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.
Results of Operations - Combined
The combined results from January 1, 1994 through the Offering date of
October 2, 1996 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. The following table sets forth the combined results of
operations for fiscal years 1994, 1995 and 1996.
Years Ended December 31,
--------------------------------------------------
1994 % 1995 % 1996 %
------ ------ ------ ------ ------ ------
REVENUES ............... $121,156 100.0% $146,687 100.0% $198,444 100.0%
COST OF SERVICES
97,112 80.2 117,103 79.8 155,472 78.3
------- ----- -------- ----- -------- ------
Gross profit 24,044 19.8 29,584 20.2 42,972 21.7
OPERATING EXPENSES:
Selling, general and
administrative 19,067 15.7 24,069 16.4 29,840 15.0
Depreciation and
amortization ....... 742 0.6 1,157 0.8 1,911 1.0
------- ----- -------- ----- -------- ------
Operating profit $ 4,235 3.5% $ 4,358 3.0% $ 11,221 5.7%
======= ===== ======= ===== ======== ====
Combined Results for the Year Ended December 31, 1996 Compared to the Year
Ended December 31, 1995
Combined Revenues. Combined revenues increased $51.8 million, or 35.3%,
to $198.4 million for 1996 compared to $146.7 million for 1995. This increase
was largely attributable to Brewer's increase in revenue of $23.3 million
primarily resulting from the acquisitions of On Call in February 1996 and
Caldwell in July 1995. Also contributing to the increase in combined revenues
was an increase in Prostaff's, Maxwell's, HRA's, First Choice's and Blethen's
revenues of $4.6 million, $5.4 million, $9.0 million, $3.9 million and $3.4
million, respectively, and the acquisitions of Technology, Advantage and Tom
Bain during the fourth quarter of 1996.
Combined Cost of Services. Combined cost of services increased $38.4
million, or 32.8%, to $155.5 million for 1996 compared to $117.1 million for
1995. This increase was largely attributable to Brewer's increase in cost of
services of $17.9 million resulting from the acquisitions of On Call in February
1996 and Caldwell in July 1995. Also contributing to the increase in combined
cost of services was an increase in Prostaff's, Maxwell's, HRA's, First Choice's
and Blethen's cost of services of $3.3 million, $3.6 million, $6.1 million, $2.9
million and $2.8 million, respectively, and the acquisitions of Technology,
Advantage and Tom Bain during the fourth quarter of 1996.
Combined Gross Profit. Combined gross profit increased $13.4 million, or
45.3%, to $43.0 million for 1996 as compared to $29.6 million for 1995. Combined
gross profit as a percentage of revenues increased to 21.7% at December 31, 1996
from 20.2% at December 31, 1995. These increases are primarily attributable to
increased revenues and an expansion of the information technology and specialty
medical divisions, which provide higher gross margins, as well as a reduction in
workers' compensation expense.
(16)
<PAGE>
Combined Operating Expense. Combined SG&A increased $5.8 million, or
24.0%, to $29.8 million for 1996 compared to $24.1 million for 1995. This
increase was primarily attributable to Brewer's SG&A increase of $3.3 million
resulting from their acquisitions of On Call and Caldwell. Also contributing to
the increase in combined SG&A was an increase in Maxwell's, HRA's, and First
Choice's SG&A of $750,000, $895,000 and $216,000, respectively. Combined SG&A as
a percentage of revenues decreased to 15.0% for 1996 compared to 16.4% for 1995
as a result of spreading fixed costs over increased revenues and gaining
operating efficiencies as the result of the Mergers. Combined depreciation and
amortization expense increased $.8 million, or 65.2%, to $1.9 million for 1996
compared to $1.2 million for 1995. This increase was primarily attributable to
increased amortization of intangibles resulting from the acquisition of On Call
in February 1996. Also, 1996 included a full year of amortization of intangibles
relating to the acquisition of Caldwell in July 1995.
Combined Operating Profit. Combined operating profit increased $6.9
million, or 157.5%, to $11.2 million for 1996 as compared to $4.4 million for
1995. Combined operating profit as a percentage of revenues increased to 5.7%
for 1996 as compared to 3.0% for 1995.
Combined Results for the Year Ended December 31, 1995 Compared to the Year
Ended December 31, 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 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 as compared to $24.0 million for 1994. Combined
gross margin as a percentage of combined revenues increased to 20.2% for 1995
compared to 19.8% for 1994. These increases in combined gross margin was largely
the result of the acquisition of Caldwell by Brewer.
Combined Operating Expense. 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 as compared to $4.2 million for 1994. Combined
operating profit as a percentage of combined revenues decreased to 3.0% for 1995
as compared to 3.5% for 1994.
(17)
<PAGE>
Liquidity and Capital Resources
On October 2, 1996, the Company completed the Offering which involved the
public sale of 6.325 million shares of Common Stock (including the underwriters'
over-allotment) at a price of $12.00 per share. The proceeds from the
transaction, net of underwriting discounts and commissions and after deducting
expenses of the Offering were approximately $66.6 million. Of this amount, $15.9
million was used to pay the cash portion of the purchase price for the Founding
Companies. In addition, approximately $31.0 million of the net proceeds were
used to repay indebtedness of the Founding Companies. The remaining net proceeds
are for working capital and general corporate purposes, which are expected to
include future acquisitions.
Between the date of the Offering and December 31, 1996, the Company
completed three acquisitions accounted for using the purchase accounting method.
The aggregate consideration paid for Technology, Advantage and Tom Bain was
approximately $9.6 million in cash and 118,763 shares of the Company's Common
Stock. The cash portion of the consideration paid was funded with proceeds from
the Offering.
In October 1996, the Company established a $50 million line of credit
with Mercantile Bank of St. Louis National Association to be used for working
capital and other general corporate purposes, including future acquisitions. The
commitment includes a $20 million revolving credit facility and a $30 million
acquisition facility. The facility matures on October 4, 2001 and interest on
any borrowings will be 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 Company is obligated to pay a commitment fee equal to 0.25%
per annum multiplied by the total line of credit commitment through March 31,
1997. Subsequent to March 31, 1997, the commitment fee is equal to 0.25% of the
unused portion of the total revolving credit commitment. The credit facility is
secured by all assets of the Company and a pledge of 100% of the stock of all
the subsidiaries. As of December 31, 1996, no funds have been borrowed on either
credit facility.
In October 1996, the Company registered an additional 4 million shares of
its Common Stock for use by the Company as consideration to be paid in
conjunction with future acquisitions. As of December 31, 1996, none of these
shares had been issued.
Net cash provided by operating activities was $1.9 million and $1.6
million in 1996 and 1995, 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.
Cash used in investing activities was $28.0 million and $12.0 million in 1996
and 1995, respectively. Cash used in investing activities in 1996 was primarily
related to the acquisitions of the Founding Companies, On Call, Technology,
Advantage and Tom Bain. Cash used in investing activities in 1995 was primarily
related to the acquisition of Caldwell for approximately $11.5 million.
Cash provided by financing activities was $39.7 million and $10.6 million in
1996 and 1995, respectively. Cash provided by financing activities in 1996 was
primarily attributable to the issuance of common stock in conjunction with the
Offering and proceeds from debt issued in conjunction with the acquisition of
On Call partially offset by the repayment of all Founding Company debt
obligations with proceeds from the Offering and dividends to stockholders.Cash
provided by financing activities in 1995 was primarily attributable to the
proceeds from debt issued in conjunction with the acquisition of Caldwell
partially offset by debt payments and dividends paid to stockholders.
As a result of the foregoing, cash and cash equivalents increased $13.5 million
and $211,000 in 1996 and 1995, respectively. As of December 31, 1996, the
Company had no long-term debt outstanding.
The Company expects to continue its aggressive acquisition program. The Company
intends to use a combination of cash, debt and Common Stock to finance the
majority of the consideration payable in acquisitions. While there can be no
assurance, management of the Company 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
Company's additional borrowing capacity, will be sufficient to meet the
Company's 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.
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
new services and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements made by or on
behalf of the Company. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual results
and experience to
(18)
<PAGE>
differ materially from the anticipated results or other
expectations expressed in any forward-looking statements, whether oral or
written, made by or on behalf of the Company.
The risks and uncertainties that may affect the operations, performance,
development and results of the Company's business include the following:
competitive pressures, inflation, consumer debt levels, interest rate
fluctuations, loss of existing customers, loss of key management, unexpected
costs or operational problems, those certain risk factors set forth under "Risk
Factors" and elsewhere in the Company's Prospectus dated September 26, 1996,
made under the Securities and Exchange Act of 1933 and other factors previously
identified in filings or statements made with the Commission by or on behalf of
the Company. Forward-looking statements made by or on behalf of the Company are
based on a knowledge of its business and the environment in which it operates,
but because of the factors listed above, actual results may differ from those in
the forward-looking statements. Consequently, all of the forward-looking
statements made are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
Subsequent Acquisitions
Between January 1, 1997 and March 13, 1997, the Company acquired two
businesses (see "Acquisitions"). The consideration paid for these businesses
consisted of $2.5 million in cash.
(19)
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
STAFFMARK, INC.
Report of Independent Public Accountants 21
Consolidated Balance Sheets 22
Consolidated Statements of Income 23
Consolidated Statements of Stockholders' Equity 24
Consolidated Statements of Cash Flows 25
Notes to Consolidated Financial Statements 27
THE PROSTAFF COMPANIES
Report of Independent Public Accountants 38
Combined Balance Sheets 39
Combined Statements of Income 40
Combined Statements of Stockholders' Equity 41
Combined Statements of Cash Flows 42
Notes to Combined Financial Statements 44
THE MAXWELL COMPANIES
Report of Independent Public Accountants 51
Combined Balance Sheets 52
Combined Statements of Income 53
Combined Statements of Stockholders' Equity 54
Combined Statements of Cash Flows 55
Notes to Combined Financial Statements 57
HRA, INC.
Report of Independent Public Accountants 64
Balance Sheets 65
Statements of Income 66
Statements of Stockholders' Equity 67
Statements of Cash Flows 68
Notes to Financial Statements 70
FIRST CHOICE STAFFING, INC.
Report of Independent Public Accountants 79
Balance Sheets 80
Statements of Income 81
Statements of Stockholders' Equity 82
Statements of Cash Flows 83
Notes to Financial Statements 84
THE BLETHEN GROUP
Report of Independent Public Accountants 90
Combined Balance Sheets 91
Combined Statements of Income 92
Combined Statements of Stockholders' Equity 93
Combined Statements of Cash Flows 94
Notes to Combined Financial Statements 96
(20)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of StaffMark, Inc.:
We have audited the accompanying consolidated balance sheets of
StaffMark, Inc. (the "Company", a Delaware Corporation) and Subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 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 StaffMark, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
February 5, 1997.
(21)
<PAGE>
================================================================================
STAFFMARK, INC.
================================================================================
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............. $319,159 $13,856,422
Accounts receivable, net of allowance
for doubtful accounts of $214,187 and
$441,397 4,798,476 21,064,875
Prepaid expenses and other ............. 253,143 1,577,508
Total current assets ........ 5,370,778 36,498,805
PROPERTY AND EQUIPMENT, net ............... 796,930 4,003,638
INTANGIBLE ASSETS, net .................... 15,555,459 30,512,571
OTHER ASSETS .............................. 29,192 483,217
$21,752,359 $71,498,231
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued
liabilities ......................... $648,106 $1,907,331
Outstanding checks ......................... 226,307 176,156
Payroll and related liabilities .............1,020,973 3,515,743
Reserve for workers' compensation claims .... 775,801 3,771,398
Line of credit .............................. 309,068 --
Current maturities of long-term debt ........ 882,487 --
Income taxes payable ....................... -- 2,415,203
Deferred income taxes ....................... -- 662,505
Total current liabilities ........3,862,742 12,448,336
LONG-TERM DEBT, less current maturities ... 15,103,831 --
OTHER LONG-TERM LIABILITIES .......... .... -- 518,669
DEFERRED INCOME TAXES ..................... -- 421,147
COMMITMENTS AND CONTINGENCIES
(Notes 12 through 14) STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized shares of 1,000,000;
no shares issued or outstanding .......... -- --
Common stock, $.01 par value in 1995 and 1996; authorized
shares of 10,000 in 1995 and 26,000,000 in 1996; shares
issued and outstanding of 117.5 in 1995
and 13,417,012 in 1996 1 134,170
Paid-in capital ........................... 98,059 55,379,391
Retained earnings ......................... 2,687,726 2,596,518
Total stockholders' equity .. 2,785,786 58,110,079
$21,752,359 $71,498,231
The accompanying notes to consolidated financial
statements are an integral part of these consolidated
balance sheets.
(22)
<PAGE>
================================================================================
STAFFMARK, INC.
================================================================================
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years
1994 1995 1996
SERVICE REVENUES ...... . $ 27,894,455 $43,874,246 $104,476,109
COST OF SERVICES ............. 22,906,230 35,115,355 81,606,986
Gross profit .. 4,988,225 8,758,891 22,869,123
OPERATING EXPENSES:
Selling, general and
administrative ......... 3,483,070 5,804,348 14,623,615
Depreciation and
amortization .............. 255,895 590,066 1,373,954
Operating income ... 1,249,260 2,364,477 6,871,554
OTHER INCOME (EXPENSE):
Interest expense .......... (92,132) (800,704)
Other, net ................ 19,653 22,765 300,954
Income before provision
for income taxes 1,176,781 1,586,538 5,796,629
PROVISION FOR INCOME TAXES ...... -- -- --
Net income ..... $ 1,176,781 $1,586,538 $4,022,796
Unaudited Pro Forma Data (Note 15):
Pro forma net income .............................. $ 6,368,000
Pro forma earnings per share ...................... $ 0.67
Weighted average common shares outstanding ........ 9,545,558
Theaccompanying notes to consolidated financial
statements are an integral part of these consolidated
statements.
(23)
<PAGE>
================================================================================
STAFFMARK, INC.
================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
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
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
Dividends declared:
Cash - - - (1,015,092)(1,015,092)
Property - - - (73,700) (73,700)
Shares issued in
conjunction with
purchase of On Call 10.0 - 319,149 - 319,149
Exercise of stock options 7.5 - 160,000 - 160,000
Issuance of common stock
upon formation of
StaffMark, Inc. 1,000.0 10 - - 10
Split of StaffMark,
Inc. common stock 1,354,000. 13,540 (13,540) - -
Issuance of common stock,
net of offering costs 6,325,000. 63,250 66,518,234 - 66,581,484
Conversion of Brewer
common stock into common
stock of StaffMark,
Inc. 1,934,865.0 19,349 (2,969,349) - (2,950,000)
Acquisition of Other
Founding Companies 3,683,249.0 36,832 (10,940,326) - (10,903,494)
Reclassification of
retained earnings in
conjunction with the conversion from
S Corporation to C Corporation status
for tax reporting
purposes - - 3,025,212 (3,025,212) -
Establishment of deferred income tax
liabilities in conjunction with the
conversion from S Corporation to
C Corporation status for tax
reporting purposes - - (1,839,706) - (1,839,706)
Shares issued in conjunction
with purchase of
Technology Source 118,763.0 1,188 1,021,658 - 1,022,846
Net income - - - 4,022,796 4,022,796
BALANCE,
December 31, 1996 13,417,012. $134,170 $55,379,391 $2,596,518 $58,110,079
The accompanying notes to consolidated financial
statements are an integral part of these consolidated
statements.
(24)
<PAGE>
================================================================================
STAFFMARK, INC.
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years
1994 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............. $1,176,781 $ 1,586,538$ 4,022,796
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 255,895 590,066 1,373,954
Provision for bad debts .. 24,058 169,879 206,123
Net (gain) loss on sale
of property and equipment . (5,066) 4,095 (24,985)
Change in operating accounts, net of effects of acquisitions:
Accounts receivable . (963,971) (334,940) (1,547,830)
Prepaid expenses and other (49,960) (44,025) (207,421)
Other assets ........ (16,152) (6,101) (421,792)
Accounts payable and
other accrued liabilities 88,096 58,395 (439,051)
Outstanding checks ..... 66,468 (508,117) (305,921)
Payroll and related
liabilities .......... 241,001 (270,377) (2,228,932)
Reserve for workers'
compensation claims .. 76,391 359,810 94,496
Income taxes payable . -- -- 1,340,056
Net cash provided by
operating activities 893,541 1,605,223 1,861,493
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Founding
Companies, net of cash acquired -- -- (14,989,436)
Purchases of businesses, net of
cash acquired ............ -- (11,500,000) (12,322,832)
Capital expenditures .... (253,373) (414,569) (664,996)
Acquisition of training licenses
and rights ........... -- (65,262) --
Receipts on notes receivable 110,000 -- --
Advances of notes receivable .. (220,445) (40,000) --
Proceeds from sale of property
and equipment .......... 19,067 16,652 --
Net cash used in investing
activities .... ... (344,751) (12,003,179) (27,977,264)
Theaccompanying notes to consolidated financial
statements are an integral part of these consolidated
statements.
(25)
<PAGE>
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Fiscal Years
1994 1995 1996
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock,
net of offering costs -- -- $ 66,581,484
Proceeds from borrowings ...... 1,584,500 13,366,512 5,875,106
Payments on debt and borrowings . (1,920,296) (1,919,865)
Distributions to stockholders ..... (176,271) (623,484) (1,015,092)
Contribution from stockholder ... -- 57,636 --
Proceeds from exercise of stock options -- -- 160,000
Deferred financing costs ..... -- (271,750) (398,708)
Other, net ............................. -- -- 465,542
Net cash (used in) provided by
financing activities ... ..... (512,067) 10,609,049 39,653,034
NET INCREASE IN CASH AND CASH
EQUIVALENTS ........ ......... 36,723 211,093 13,537,263
CASH AND CASH EQUIVALENTS,
beginning of period ........ 71,343 108,066 319,159
CASH AND CASH EQUIVALENTS,
end of period .......... 108,066 $319,159 $13,856,422
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Interest paid ......... 107,222 427,456 $1,629,958
Income taxes paid .......... -- -- 344,000
Non-cash transactions:
Notes payable issued to
purchase businesses .. -- $ 3,100,000 --
Distribution of notes
receivable to stockholders -- 345,107 --
Distribution of property to
stockholders .. -- -- 73,700
Theaccompanying notes to consolidated financial
statements are an integral part of these consolidated
statements.
(26)
<PAGE>
================================================================================
STAFFMARK, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
In March 1996, StaffMark, Inc. (the "Company" or "StaffMark") was founded
to create a national company to provide temporary staffing services. Effective
October 2, 1996, the Company acquired six local and regional temporary staffing
companies (the "Founding Companies") and completed an initial public offering of
its common stock (the "Offering"). Based on the provisions of the Securities and
Exchange Commission's Staff Accounting Bulletin ("SAB") No. 97, Brewer Personnel
Services, Inc. ("Brewer") was designated as the acquirer, for financial
reporting purposes, of The Prostaff Companies, The Maxwell Companies, Human
Resources, Inc. , First Choice Staffing, Inc. and The Blethen Group
(collectively referred to as the "Other Founding Companies"). As Brewer was
designated as the acquirer for financial reporting purposes, the accompanying
financial statements reflect the results of its operations for the years ended
January 1, 1995 and December 31, 1995. The results of operations for 1996
represent a combination of Brewer's results for the nine months ended September
30, 1996 and the Company's consolidated results of operations for the three
months ended December 31, 1996. Based on the applicable provisions of SAB No.
97, the acquisition of assets and assumption of liabilities of the Other
Founding Companies are reflected at their historical cost. All significant
intercompany transactions have been eliminated in the accompanying consolidated
financial statements. References to "the Company" relate to Brewer for the
periods prior to the acquisitions discussed above and relate to StaffMark, Inc.
and its consolidated subsidiaries subsequent to that date.
As of December 31, 1996, StaffMark operated offices in 9 states located in
the Southeastern and Southwestern regions of the United States and provides
temporary staffing in the commercial, professional/information technology and
specialty medical staffing service lines. StaffMark extends trade credit to
customers representing a variety of industries. There are no individual
customers that account for more than 10% of service revenues of StaffMark in any
of the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Periods--
Prior to the Offering, the fiscal years of Brewer ended on the Sunday
closest to December 31. The fiscal years 1994 and 1995 each included 52 weeks.
Upon completion of the Offering, StaffMark established a calendar year reporting
period.
Classification of Prior Year Balances--
Certain reclassifications have been made to prior year balances in order
to conform with the current year presentation.
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 consolidated 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 these
financial statements.
Cash and Cash Equivalents--
For statement of cash flow purposes, StaffMark considers cash on deposit
with financial institutions and all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(27)
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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:
Furniture, fixtures and equipment 5-7 years
Computer equipment and software 3-5 years
Leasehold improvements 3-15 years
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 related cost and 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 ranging from 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 non-compete agreements are amortized using the straight-line method over
the life of the respective agreements.
Income Taxes--
Prior to the acquisition of the Other Founding Companies, Brewer was an S
Corporation for income tax reporting purposes. Accordingly, no provision for
federal or state income taxes related to the income for those periods is
reflected in the accompanying consolidated financial statements as such taxes
are liabilities of the individual stockholders. The S Corporation status of
Brewer terminated upon the effective date of the acquisition of the Other
Founding Companies.
Subsequent to the acquisition of the Other Founding Companies, income
taxes have been provided based upon the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred income taxes using the liability method.
Deferred income taxes result from the effect of transactions which are
recognized in different periods for financial and tax reporting purposes.
Deferred income taxes are recognized for the tax consequences of such temporary
differences by applying enacted statutory tax rates to differences between the
financial reporting and the tax bases of existing assets and liabilities.
Revenue Recognition--
Service revenues are recognized as income at the time staffing services
are provided.
Workers' Compensation--
StaffMark 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. StaffMark
has engaged the services of a third party actuary to assist with the development
of these cost estimates.
Fair Value of Financial Instruments--
StaffMark's financial instruments include cash and cash equivalents and
its debt obligations. Management believes that these 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.
(28)
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Accounting for Stock Options--
During 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," 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 No. 123
requires the fair value of the instruments granted, which is measured pursuant
to the provisions of the statement, to be recognized as compensation expense
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 ("APB 25"), "Accounting for Stock Issued to Employees." 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 No. 123 had been applied. StaffMark has elected to account for
stock options under the provisions of APB 25 and has included the disclosures
required by SFAS No. 123 in Note 11.
Impairment of Long-Lived Assets--
StaffMark regularly evaluates whether events and circumstances have
occurred which may indicate that the carrying amount of intangible or other
long-lived assets warrant revision or may not be recoverable. When factors
indicate that an asset or assets should be evaluated for possible impairment, an
evaluation would be performed pursuant to the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
value is required. As of December 31, 1995 and 1996, management considered
StaffMark's intangible and other long-lived assets to be fully recoverable.
3. BUSINESS COMBINATIONS:
Brewer Acquisitions--
On July 10, 1995, Brewer 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 operations of Caldwell have been included in the accompanying consolidated
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 February 2, 1996, Brewer 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 operations of On Call have been
included in the accompanying consolidated 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
non-compete agreement, 10 shares of Brewer'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.
(29)
<PAGE>
3. BUSINESS COMBINATIONS (Continued):
Acquisition of the Other Founding Companies--
Simultaneously with the closing of the Offering, StaffMark acquired by
merger all of the issued and outstanding stock of the Founding Companies. The
aggregate consideration paid in conjunction with the mergers with the Other
Founding Companies consisted of approximately $13.0 million in cash and
3,683,249 shares of common stock. The consideration paid in conjunction with the
merger with Brewer consisted of approximately $2.9 million in cash and 1,935,000
shares of common stock.
Based upon the applicable provisions of SAB No. 97, these acquisitions
have been accounted for as combinations at historical cost. Accordingly, the
consideration paid to the Founding Companies as reflected in the accompanying
consolidated financial statements represents the carryover basis in the net
assets of the Founding Companies, reduced by the cash consideration paid.
StaffMark Acquisitions--
Between the date of the Offering and December 31, 1996, StaffMark
completed three acquisitions accounted for as purchases. The aggregate
consideration paid for The Technology Source, L.L.C. ("Technology"), Chandler
Enterprises, Inc. d/b/a Advantage Staffing ("Advantage") and Tom Bain Personnel,
Inc. ("Tom Bain") included $9.6 million in cash and 118,763 shares of
StaffMark's common stock. The operating results of these companies have been
included since the effective date of their acquisitions. The costs of these
acquisitions have been allocated on the basis of estimated fair market value of
the assets acquired. The tangible assets acquired have been recorded at
historical, depreciated cost, which approximated fair value as of the
acquisition date, with the remaining acquisition costs being recorded as
goodwill.
The operating results of Technology, Advantage and Tom Bain prior to
their acquisitions are not material to StaffMark's 1996 consolidated statements
of income and, accordingly, have not been reflected in the pro forma results
shown below.
Pro Forma Operating Results--
The unaudited consolidated results of operations on a pro forma basis as
though the Other Founding Companies, Caldwell and On Call had been acquired as
of the beginning of 1995 are shown below. Note that the pro forma information
presented below does not reflect income tax expense as if the Company had been a
C Corporation for income tax reporting purposes for the entire periods presented
or the reductions in salaries of certain owners of the Founding Companies which
have been agreed to in conjunction with the acquisitions discussed in Note 1.
See the accompanying consolidated statements of income and Note 15 for a
presentation of pro forma information which reflects these adjustments:
Fiscal Years
1995 1996
Revenues . $171,463,305 $200,020,807
Net income $ 3,742,274 $ 8,020,520
4. ACCOUNTS RECEIVABLE:
Included in accounts receivable in the accompanying consolidated balance
sheets are unbilled amounts of approximately $541,906 and $1,195,370 at December
31, 1995 and 1996, respectively. StaffMark maintains allowances for potential
losses which management believes are adequate to absorb losses to be incurred in
realizing the amounts recorded in the accompanying consolidated financial
statements.
(30)
<PAGE>
4. ACCOUNTS RECEIVABLE (Continued):
The following are the changes in the allowance for doubtful accounts:
Fiscal Years
1994 1995 1996
Balance at beginning of year ..... $ 10,250 $ 34,308 $214,187
Increases relating to acquisitions -- 10,000 252,216
Provision for bad debts .......... 24,058 169,879 206,123
Charge offs, net of recoveries ... -- -- 231,129
Balance at end of year ........... $ 34,308 $214,187 $441,397
5. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
December 31,
1995 1996
Goodwill .................... $15,356,334 $30,506,256
Deferred financing costs .... 271,750 342,457
Non-compete agreements ...... 299,010 889,647
Other ....................... 140,262 160,262
16,067,356 31,898,622
Less accumulated amortization 511,897 1,386,051
$15,555,459 $30,512,571
Amortization expense related to intangible assets for the years ended
December 31, 1995 and 1996, totaled approximately $391,207 and $879,288,
respectively.
6. PROPERTY AND EQUIPMENT:
Components of property and equipment are as follows:
December 31,
1995 1996
Furniture, fixtures and equipment ............ $ 553,328 $2,923,451
Computer equipment and software .............. 749,750 4,033,251
Leasehold improvements ....................... 31,483 501,525
1,334,561 7,458,227
Less accumulated depreciation and amortization 537,631 3,454,589
$ 796,930 $4,003,638
Depreciation and amortization expense related to property and equipment
for the years ended December 31, 1995 and 1996, totaled approximately $198,859
and $494,666, respectively.
7. DEBT:
Proceeds from the Offering were used to repay all debt obligations of
StaffMark, Brewer and the Other Founding Companies.
StaffMark has established a $50 million line of credit with Mercantile
Bank of St. Louis, National Association to be used for working capital and other
general corporate purposes, including future acquisitions. The commitment
includes a $20 million revolving credit facility and a $30 million acquisition
facility. The facility matures on October 4, 2001 and interest on any borrowings
will be computed at StaffMark's option at either LIBOR or the bank's prime rate
and incrementally adjusted based on StaffMark's operating leverage ratios.
(31)
<PAGE>
7. DEBT (Continued):
Through March 31, 1997, StaffMark is obligated to pay a commitment fee
equal to 0.25% per annum multiplied by the total line of credit commitment.
Subsequent to March 31, 1997, the quarterly commitment fee is equal to 0.25%
multiplied by the average daily unused portion of the total revolving credit
commitment. The credit facility is secured by all assets of StaffMark and a
pledge of 100% of the stock of all the subsidiaries. As of December 31, 1996, no
funds have been borrowed on this credit facility.
As of December 31, 1995, debt consisted of the following:
Term loan note with Boatmen's. Interest payable monthly
at a variable rate which averaged 9.56% during the
year ended December 31, 1995. Principal was due
in quarterly installments beginning October 1, 1995
through maturity on June 30, 2001. Note was
secured by the assets and common stock of Brewer
and partially guaranteed by certain stockholders of Brewer. $12,750,000
Note payable to the previous owner of Caldwell, interest at 8.00%,
payable quarterly. Principal was to be paid in equal annual installments
beginning June 30, 1998 through June 30, 2001 or in full upon a change in
control of Brewer. Note was secured by a lien on the assets of
Brewer and guaranteed by certain stockholders of Brewer 3,100,000
Other .................................................. 445,386
16,295,386
Less short term borrowings, including current maturities 1,191,555
$15,103,831
8. INCOME TAXES:
The income tax provision (benefit) for the year ended December 31, 1996
consisted of the following:
Current:
Federal $ 2,022,827
State . 392,376
2,415,203
Deferred:
Federal (532,521)
State . (108,849)
(641,370)
$ 1,773,833
(32)
<PAGE>
8. INCOME TAXES (Continued):
The components of deferred income tax assets and liabilities as of
December 31, 1996 were as follows:
Deferred income tax assets:
Workers' compensation reserves ........................ $ 797,321
Non-compete and deferred compensation agreements ...... 156,912
Other expense accruals ................................ 424,292
Total deferred income tax assets .................. 1,378,525
Deferred income tax liabilities:
Change in income tax accounting method from cash
to accrual basis in conjunction with termination of
S Corporation status .............................. 1,884,118
Depreciation and amortization ......................... 280,609
Other ................................................. 297,450
Total deferred income tax liabilities ............. 2,462,177
$1,083,652
Components of the net deferred tax liabilities reported in the
accompanying consolidated balance sheet were as follows as of December 31, 1996:
Current Long-term
Assets $1,221,613 $ 156,912
Liabilities 1,884,118 578,059
$ 662,505 $ 421,147
A valuation allowance for the deferred tax assets has not been recorded
in the accompanying consolidated balance sheet because management believes that
all deferred tax assets are more likely than not to be recovered. In assessing
the realizability of deferred income tax assets, management has considered
scheduled reversals of the deferred income tax liabilities and projected future
taxable income.
The differences in income taxes determined by applying the statutory
federal tax rate of 34% to income before income taxes and the amounts recorded
in the accompanying consolidated statement of income for 1996 result from the
following:
Amount Rate
Tax at statutory rate .......... $ 1,970,854 34.0%
Add (deduct):
Effect of S Corporation income (484,934) (8.4)
State income taxes, net of
federal tax benefit ....... 185,542 3.2
Non-deductible amortization .. 52,204 .9
Other, net ................... 50,167 .9
$ 1,773,833 30.6%
9. WORKERS' COMPENSATION:
StaffMark is self-insured for certain workers' compensation claims and is
regulated by various state-administered workers' compensation insurance
commissions. StaffMark has purchased insurance for medical claims which exceed
certain thresholds and is required in certain states to maintain letters of
credit to cover any potential unpaid claims. At December 31, 1996, these letters
of credit totaled $2,300,000.
(33)
<PAGE>
10. EMPLOYEE BENEFIT PLANS:
Certain of the Founding Companies maintain employee benefit plans, some
of which allow eligible employees to defer a portion of their income through
contributions to the plans. Under provisions of certain of these plans,
StaffMark matches a percentage of the employee contributions, up to a maximum as
specified in the individual plan, and may contribute additional amounts at the
discretion of management. Contributions by StaffMark to the various plans were
approximately $23,000 for the year ended December 31, 1996.
11. COMMON STOCK AND STOCK OPTIONS:
Common Stock--
In conjunction with the organization and initial capitalization,
StaffMark issued 1,000 shares of common stock at a par value of $.01 per share.
In June 1996, StaffMark'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 consolidated
financial statements.
StaffMark issued 5,618,249 shares of common stock to the stockholders of
the Founding Companies and issued 6,325,000 shares of common stock to the public
in conjunction with the Offering. StaffMark also issued 118,763 shares of common
stock in conjunction with business acquisitions.
Stock Options--
Prior to the Offering, Brewer granted stock options to certain key
employees. These options were granted at fair value as determined by management,
were exercisable in installments and expired from June 30, 1999 to February 26,
2001. A summary of Brewer's stock option activity is as follows:
Weighted
Average
Shares Under Price Per
Option Option
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 ...................... (7.5) 21,333
Forfeited ...................... (5.0) 30,000
Outstanding prior to conversion to
StaffMark options .............. 1.0 $35,000
In June 1996, StaffMark's Board of Directors and stockholders approved
StaffMark's 1996 Stock Option Plan (the "Plan"). The maximum number of shares of
StaffMark's common stock that may be issued under the Plan is approximately
1,600,000. As of December 31, 1996 approximately 740,000 shares have been
reserved for future options. Options granted under the Plan generally become 40%
vested after two years and then vest 20% in each of the next three years. Under
the Plan, the exercise price of the option equals the market value of
StaffMark's common stock on the date of the grant, and the maximum term for each
option is 10 years.
(34)
<PAGE>
11. COMMON STOCK AND STOCK OPTIONS (Continued):
A summary of StaffMark's stock option activity is as follows:
Weighted
Average
Shares Under Price Per
Option Option
Outstanding Brewer options prior to conversion to
StaffMark options ............................. 1 $ 35,000.00
Conversion of Brewer options .................. 16,397 2.13
Granted ....................................... 867,928 12.01
Forfeited ..................................... (14,550) 12.00
Outstanding, December 31, 1996 .................. 869,776 $ 11.82
The following is a summary of stock options outstanding as of December 31, 1996:
Options Outstanding Options Exercisable
- ------------------------------------------ -----------------------
Weighted Weighted
Weighted Average Average Average
Options Range of Remaining Exercise Options Exercise
Outstanding Exercise Contractual Life Per Share Exercisable Per Share
Prices
16,398 $2.13 1.17 years $2.13 -- $--
853,378 $11.38 - 4.37 years 12.01 35,000 12.00
12.75
869,776 4.31 years $11.82 35,000 $12.00
As discussed in Note 2, StaffMark has elected to account for its stock
options under the provisions of APB 25. Accordingly, no compensation expense has
been recognized in the accompanying consolidated statements of income. However,
pursuant to the requirements of SFAS No. 123, the following disclosures are
presented to reflect StaffMark's pro forma net income for the years ended
December 31, 1995 and 1996, as if the fair value method of accounting prescribed
by SFAS No. 123 had been used. In preparing the pro forma disclosures, StaffMark
determined the value of all options granted from January 1, 1995 through the
Offering date using the minimum value method, as discussed in SFAS No. 123. For
stock options granted from the Offering date to December 31, 1996, the fair
value was estimated on the grant date using the Black-Scholes option-pricing
model. These fair value calculations were based on the following assumptions:
Fiscal Years
1995 1996
Weighted average risk-free interest rate 6.5% 6.3%
Dividend yield ......................... 0% 0%
Weighted average expected life ......... 2.5 years 4.6 years
Expected volatility .................... 0% 65%
Using these assumptions, the fair value of the stock options granted
during the years ended December 31, 1995 and 1996 was approximately $36,000 and
$5,958,000, respectively. The weighted average fair value of options granted
during 1995 and 1996 was $4,800 and $7.04, respectively. Had compensation
expense been determined consistent with SFAS No. 123, utilizing the assumptions
above and the straight-line amortization method over the vesting period, net
income would have been reduced to the following pro forma amounts:
Fiscal Years
1995 1996
Net income, as reported $1,586,538 $4,022,796
Pro forma net income .. $1,578,367 $3,711,738
(35)
<PAGE>
12. RELATED PARTY TRANSACTIONS:
Concurrent with the acquisition, StaffMark entered into agreements with
certain officers of the company to lease certain parcels of land and buildings
used in the operations of StaffMark for negotiated amounts and terms. Rent
expense related to these facilities totaled approximately $60,000 and $304,000
for the years ended December 31, 1995 and 1996, respectively. Annual future
minimum payments required under these leases are included in the table in Note
14 and are summarized as follows:
Years Ending
December 31,
1997 $ 548,416
1998 535,143
1999 407,921
2000 351,167
2001 345,951
$2,188,598
Included in Other Assets in the accompanying consolidated balance sheets
are advances to certain officers and employees totaling $160,000 which bear
interest at 6%.
Included in Accounts Payable and Other Accrued Liabilities is an
unsecured demand note payable to an officer in the amount of $61,436 which bears
interest at 8%.
In December 1995, a note receivable from Brewer Investments, a
partnership owned by certain stockholders, in amount of $345,107 was distributed
to the individual stockholders of Brewer.
13. COMMITMENTS AND CONTINGENCIES:
StaffMark is subject to certain claims and lawsuits arising in the normal
course of business, primarily relating to workers' compensation and other
employee related matters. StaffMark maintains various insurance coverages in
order to minimize the financial risk associated with certain of these claims.
StaffMark has provided for certain of these actions in the accompanying
consolidated financial statements and, in the opinion of management, any
uninsured losses resulting from the ultimate resolution of these matters will
not be material to StaffMark's financial position or results of operations.
StaffMark 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 covenants against competition with
StaffMark, which extends for a period of time after termination. These
agreements generally continue until terminated by the employee or StaffMark.
14. NONCANCELABLE OPERATING LEASES:
StaffMark leases office space under noncancelable operating leases. As
discussed in Note 12, certain of these facilities are leased from related
parties. 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:
Years Ended
December 31,
1997 $1,819,176
1998 1,601,881
1999 1,312,904
2000 887,981
2001 615,658
$6,237,600
(36)
<PAGE>
14. NONCANCELABLE OPERATING LEASES (Continued):
Rent expense, including amounts paid to related parties, was $275,460 and
$951,369 for the years ended December 31, 1995 and 1996, respectively.
15. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENTS PRESENTATION (UNAUDITED):
The supplemental pro forma information included in the accompanying
consolidated statements of income reflects: (i) the acquisition of the Other
Founding Companies at historical cost in accordance with the applicable
provisions of SAB No. 97;
(ii) the effects of the acquisition of On Call; (iii) the estimated impact
of recognizing income tax expense as if StaffMark had been a C Corporation for
tax reporting purposes during the entire year ended December 31, 1996; and (iv)
the adjustment to compensation expense to reflect the reductions in salaries to
certain owners of the Founding Companies which were agreed to in conjunction
with the acquisitions discussed in Note 1. Following is a reconciliation of the
reported 1996 net income to the pro forma net income shown in the accompanying
consolidated statement of income:
Net income, as reported .............................. $ 4,022,796
Pro forma adjustments:
Inclusion of the operating results of the Other
Founding Companies and On Call as if these
acquisitions were effected as of January 1, 1996 3,995,095
Reductions in salaries to certain owners of the
Founding Companies ............................. 581,332
Recognition of income tax expense as if StaffMark
had been a C Corporation during the entire
year ended December 31, 1996 ................... (2,231,223)
Pro forma net income, as reported .................... $ 6,368,000
The computation of pro forma earnings per share for the year ended
December 31, 1996, is based on the pro forma shares outstanding for the period
prior to the Offering of approximately 8.3 million and the actual weighted
average shares outstanding for the period from the Offering through December 31,
1996, of approximately 13.2 million.
(37)
<PAGE>
================================================================================
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 the nine months ended September 29, 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 nine
months ended September 29, 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 nine months ended September
29, 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 nine months ended
September 29, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
October 22, 1996.
(38)
<PAGE>
================================================================================
THE PROSTAFF COMPANIES
================================================================================
COMBINED BALANCE SHEETS
December 31, September 29,
1994 1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...............$ 228,372 $ 188,145 $ 69,587
Certificates of deposit ................. 152,028 155,154 --
Accounts receivable, net of allowance for
doubtful accounts of $10,000, $48,500
and $45,096, respectively ............ 2,634,108 3,020,622 3,952,688
Deferred tax asset ...................... 154,601 -- --
Prepaid expenses and other .............. 86,337 135,673 120,604
Total current assets ......... 3,255,446 3,499,594 4,142,879
PROPERTY AND EQUIPMENT, net ................ 640,552 756,983 735,737
OTHER ASSETS:
Cash surrender value of officer's life
insurance ............................ 34,670 41,280-
Advance to StaffMark, Inc. .............. -- -- 40,703
Other ................................... 3,675 4,730 7,440
Total other assets ........... 38,345 46,010 48,143
$3,934,343 $4,302,587 $4,926,759
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit ..........................$ 417,000 $ 20,000 $1,554,005
Current maturities of long-term debt ........61,742 64,872 67,598
Note payable to stockholder ...................-- 30,000 30,000
Accounts payable and accrued liabilities ....83,413 117,339 84,911
Outstanding checks .........................109,084 -- 71,212
Payroll and related liabilities ............703,263 1,129,777 1,116,619
Reserve for workers' compensation claims ...439,444 635,290 671,640
Income taxes payable ....................... 54,883 -- --
Total current liabilities .....1,868,829 1,997,278 3,595,985
LONG-TERM DEBT, less current maturities .......170,064 111,459 65,874
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 September 29, 1996, shares issued and
outstanding of 55,000 in 1994, 55,100 in 1995
and at September 29, 1996 ............... 11,000 11,100 11,100
Retained earnings ........................1,826,565 2,182,750 1,253,800
Total stockholders' equity ....1,837,565 2,193,850 1,264,900
$3,934,343 $4,302,587 $4,926,759
The accompanying notes to combined financial
statements are an integral part of these balance
sheets.
(39) <PAGE>
================================================================================
THE PROSTAFF COMPANIES
================================================================================
COMBINED STATEMENTS OF INCOME
Years Ended Nine Months Ended
December 31, December 31, December 31, September 30,September 29,
1993 1994 1995 1995 1996
(Unaudited)
SERVICE
REVENUES........$ 27,244,744 $ 30,607,744 $ 34,330,413 $ 25,840,311 $ 29,509,631
COST OF
SERVICES .... 22,858,206 25,455,432 28,234,379 21,339,195 24,034,483
Gross profit ..... 4,386,538 5,152,312 6,096,034 4,501,116 5,475,148
OPERATING EXPENSES:
Selling, general
and
administrative .3,640,825 4,184,021 5,338,844 3,796,754 4,043,409
Depreciation
and
amortization 114,796 174,998 220,433 160,700 186,171
Operating income..630,917 793,293 536,757 543,662 1,245,568
OTHER INCOME (EXPENSE):
Interest expense .(87,181) (28,689) (20,393) (16,088) (49,443)
Interest income
and other .........60,745 10,987 26,537 20,949 28,515
INCOME BEFORE PROVISION
FOR INCOME TAXES .604,481 775,591 542,901 548,523 1,224,640
PROVISION FOR
INCOME TAXES ........205,742 253,847 96,716 96,716 --
Net income .. $ 398,739 $ 521,744 $ 446,185 $ 451,807 $1,224,640
PRO FORMA DATA (Unaudited) (Note 11):
Historical income
before income taxes ..... $ 542,901 $ 1,224,640
Less: Pro forma
provision for income taxes 211,731 477,610
PRO FORMA NET INCOME ......................... $ 331,170 $ 747,030
The accompanying notes to combined financial
statements are an integral part of these
statements.
(40)
<PAGE>
================================================================================
THE PROSTAFF COMPANIES
================================================================================
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Retained
Shares Amount Earnings Total
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 .................... -- -- 1,224,640 1,224,640
Dividends:
Cash ..................... -- -- (2,043,210) (2,043,210)
Property ................. -- -- (110,380) (110,380)
BALANCE, September 29, 1996 ...55,100 $ 11,100 $ 1,253,800 $ 1,264,900
The accompanying notes to combined financial statements
are an integral part of these statements.
(41)
<PAGE>
================================================================================
THE PROSTAFF COMPANIES
================================================================================
COMBINED STATEMENTS OF CASH FLOWS
Years Ended Nine Months Ended
Dec 31, Dec 31, Dec 31, Sept 30, Sept 29,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 398,739 $521,744 $446,185 $451,807 $1,224,640
Adjustments to
reconcile net
income to net
cash provided
by operating
activities:
Depreciation and
amortization 114,796 174,998 220,433 160,700 186,171
Provision for
deferred
income
taxes (35,138) (20,021) -- 96,716 --
Write-off of net
deferred tax assets- -- 96,716 -- -- --
Provision for
bad debts 27,561 10,000 38,500 20,300 45,659
Loss (gain) on
sale of property and
equipment -- 20,854 -- -- (14,854)
Change in
operating assets
and liabilities,
net of
effects of
acquisition:
Restricted
certificates
of deposit600,000 - 152,028 -- --
Accounts
receivable (637,401) (143,183) (403,041)(1,243,341) (977,725)
Prepaid
expenses
and other (38,493) (2,052) (49,336) 18,555 15,069
Other 2,357 (8,979) (7,665) (6,647) (1,405)
Accounts payable
and
accrued
liabilities 21,229 (10,535) 33,926 (22,994) (32,428)
Outstanding
checks -- 109,084 (109,084) (109,084) 71,212
Payroll and related
liabilities 193,651 5,365 426,514 1,188,217 (13,158)
Reserve for
workers'
compensation
claims 148,385 101,480 195,846 144,306 36,350
Income
taxes
payable (15,039) (19,130) (54,883) (54,883) --
Net
cash
provided
by
operating
activities 780,647 739,625 986,139 643,652 539,531
CASH FLOWS
FROM
INVESTING
ACTIVITIES:
Advance to
StaffMark, Inc. -- -- -- -- (40,703)
Acquisition
of personnel
service business -- -- (30,000) -- --
Capital
expenditures (405,265) (293,936) (328,837) (279,848) (220,476)
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) (279,848) (106,025)
The accompanying notes to combined financial
statements are an integral part of these
statements.
(42)
<PAGE>
THE PROSTAFF COMPANIES
COMBINED STATEMENTS OF CASH FLOWS (Continued)
Years Ended Nine Months Ended
Dec 31, Dec 31, Dec 31, Sept 30, Sept 29,
1993 1994 1995 1995 1996
(Unaudited)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net (payments) borrowings
under line
of credit .. $(125,000) $(158,000) $(397,000) $(369,995) $ 1,534,005
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) (39,828) (42,859)
Proceeds from issuance of
common stock .......... -- -- 100 -- --
Dividends ................ (25,625) (44,479) (90,000) -- (2,043,210)
Net cash used in financing
activities ........... (390,388) (260,910) (512,375) (409,823) (552,064)
NET (DECREASE) INCREASE
IN CASH AND
CASH EQUIVALENTS ........ (15,006) 186,179 (40,227) (46,019) (118,558)
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 $ 182,353 $ 69,587
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid ........$ 84,708 $ 30,549 $ 21,006 $ 16,088 $ 49,443
Income taxes paid ....$ 242,989 $ 284,847 $ 54,883 $ 54,883 $ --
The accompanying notes to combined financial
statements are an integral part of these
statements.
(43)
<PAGE>
================================================================================
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 September 29, 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 15% of combined service revenues
for 1993, 1994, 1995 and the nine months ended September 29, 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 nine months ended September 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 nine months ended September 29, 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.
(44)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 $838,847 at December 31, 1994, 1995 and September 29, 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:
Office equipment 5 years
Computer equipment 5 years
Vehicles 5 years
Computer software 5 years
Leasehold improvements 10 years
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.
(45)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
Upon election of S Corporation status, the Company wrote off net deferred
tax assets totaling $96,716 related to years prior to 1995, which is reflected
as provision for income taxes in the accompanying combined statements of income.
(See Note 11)
The Company's tax returns are subject to examination by federal and state
taxing authorities. If such examinations result in a change to the Company's
reported income or loss, the taxable income or loss reported by the individual
stockholders could also change.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
December 31, September 29,
1994 1995 1996
Office equipment ...........................$ 311,414 $ 412,661 $ 481,410
Computer equipment ......................... 382,903 477,744 523,890
Vehicles ................................... 107,900 136,859 --
Computer software .......................... 113,884 165,635 220,046
Leasehold improvements ..................... 83,593 136,949 172,464
999,694 1,329,848 1,397,810
Less accumulated
depreciation and amortization 359,142 572,865 662,073
$ 640,552 $ 756,983 $ 735,737
3. DEBT:
Long-term debt consisted of the following:
December 31, September 29,
1994 1995 1996
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 $133,472
Less current maturities ............................61,742 64,872 67,598
$170,064 $111,459 $ 65,874
Total maturities of long-term debt are as follows:
Years Ending
December 31, September 29,
1996 $ 64,872 $ -
1997 68,531 67,598
1998 42,928 65,874
$176,331 $133,472
(46)
<PAGE>
3. DEBT (Continued):
Line of credit balances consisted of the following:
December 31, September 29,
1994 1995 1996
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 8.5% during the nine months
ended September 29, 1996. Due upon
demand. Secured by the accounts
receivable of Prostaff and guaranteed
by stockholders ...................... $417,000 $-- $1,500,000
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 44,000
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 9.67% during the nine months
ended September 29, 1996. Secured by
accounts receivable
of Excel and guaranteed
by stockholders ................. -- -- 10,005
$ 417,000 $ 20,000 $1,554,005
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 nine months ended
September 29, 1996 was $246 and $1,850, 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:
1993 1994
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
(47)
<PAGE>
5. INCOME TAXES (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:
1993 1994
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
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:
1993 1994
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
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 $401,146 for 1993,
1994, 1995 and the nine months ended September 29, 1996, respectively. Unaudited
workers' compensation expense for the nine months ended September 30, 1995 was
$567,242. 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 contributions made by
the Company to the plan for 1995 and the nine months ended September 29, 1996
were $12,448 and $16,547, respectively.
(48)
<PAGE>
7. EMPLOYEE BENEFIT PLANS (Continued):
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 nine months ended September 29, 1996
was $35,550 and $83,562, 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 not to compete 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 not to compete 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:
Years Ending
December 31, September 29,
1995 1996
1996 $323,397 $ -
1997 264,480 304,634
1998 216,665 239,562
1999 106,499 156,280
2000 63,424 79,677
$974,465 $780,153
Rent expense totaled $147,835, $197,243, $258,992 and $251,165 for fiscal
years 1993, 1994, 1995 and the nine months ended September 29, 1996,
respectively. Unaudited rent expense for the nine months ended September 30,
1995 was $189,315. The Company leases the office facilities of its headquarters
from a limited liability corporation ("LLC") owned by a stockholder of the
Company. For the fiscal years 1993, 1994, 1995 and the nine months ended
September 29, 1996, rent paid to the LLC totaled $61,100, $73,761, $114,180 and
$94,275, respectively. Unaudited rent paid to the LLC was $85,152 for the nine
months ended September 30, 1995.
(49)
<PAGE>
10. 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. Effective October 2, 1996,
StaffMark completed the initial public offering. In conjunction with this
merger, certain of the stockholders entered 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. Prior to this merger, the Company declared a dividend
of 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 $91,749. In addition, the Company made cash distributions
equal to the Company's S Corporation Accumulated Adjustment Account as of the
merger date.
As of September 29, 1996, the Company had advanced $40,703 to StaffMark
to fund organizational and other costs related to the merger and StaffMark's
initial public offering. On October 2, 1996, all of the Company's borrowings and
debt obligations totaling $1,717,477 were repaid using a portion of the proceeds
from the completed initial public offering.
11. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED):
In conjunction with the merger with StaffMark as discussed in Note 10,
the Company changed from an S Corporation to C Corporation for federal and state
income tax reporting purposes, which required 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 nine
months ended December 31, 1995 and September 29, 1996, respectively.
(50)
<PAGE>
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 September 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 nine months ended
September 30, 1996. These financial statements are the responsibility of The
Maxwell 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 September 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 nine months ended September 30,
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
October 22, 1996.
(51)
<PAGE>
================================================================================
THE MAXWELL COMPANIES
================================================================================
COMBINED BALANCE SHEETS
December 31, September 30,
1994 1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............... $ 556,544 $1,041,373 $ 162,562
Restricted cash ......................... 138,453 253,171 50,279
Investments ............................. 209,505 273,354 --
Accounts receivable, net of allowance for
doubtful accounts of $75,711, $63,988
and $122,120, respectively ........... 2,810,176 2,536,603 2,898,083
Prepaid expenses and other .............. 96,669 24,628 153,609
Total current assets ............ 3,811,347 4,129,129 3,264,533
PROPERTY AND EQUIPMENT, net ............. 480,594 499,792 337,774
INTANGIBLE ASSETS, net .................... -- -- 294,632
ADVANCE TO STAFFMARK, INC ................. -- -- 31,250
$4,291,941 $4,628,921 $3,928,189
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .....................$ 167,991 $ 169,250 $ 333,471
Payroll and related liabilities ...... 653,772 570,444 851,469
Reserve for workers' compensation
claims ..... 476,000 1,153,000 912,000
Current maturities of long-term debt -- -- 1,821,618
Accrued dividends .................. 197,500 151,000 --
Other accrued liabilities .......... 20,728 25,462 18,993
Total current liabilities .. 1,515,991 2,069,156 3,937,551
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 (91,924)
Total stockholders' equity ....2,775,950 2,559,765 (86,924)
$ 4,291,941 $ 4,628,921 $ 3,928,189
The accompanying notes to combined financial
statements are an integral part of these balance
sheets.
(52)
<PAGE>
================================================================================
THE MAXWELL COMPANIES
================================================================================
COMBINED STATEMENTS OF INCOME
Nine Months Ended
Years Ended December 31, September 30,
1993 1994 1995 1995 1996
(Unaudited)
SERVICE REVENUES.$16,324,216 $21,225,866 $23,092,606 $17,154,803 $20,428,988
COST OF SERVICES .11,253,565 16,003,387 17,748,020 13,009,183 15,385,451
Gross profit ..... 5,070,651 5,222,479 5,344,586 4,145,620 5,043,537
OPERATING EXPENSES:
Selling,
general and
administrative.3,582,427 3,820,565 4,296,703 3,233,692 3,815,406
Depreciation and
amortization ..... 75,368 107,601 136,135 107,187 98,997
Operating income.. 1,412,856 1,294,313 911,748 804,741 1,129,134
OTHER INCOME
(EXPENSE):
Interest income ...14,767 21,645 43,213 35,969 49,493
Interest expense .(27,678) (33,849) -- -- (62,540)
Other, net ......(104,397) (18,836) (35,396) (35,009) 18,616
Net income ......$ 1,295,548 $ 1,263,273 $ 919,565 $ 805,701 $1,134,703
PRO FORMA DATA (Unaudited) (Note 15):
Historical income before income
taxes ..... $ 919,565 $1,134,703
Less: Pro forma provision for
income taxes 358,630 442,534
PRO FORMA NET INCOME .................... $ 560,935 $ 692,169
The accompanying notes to combined financial
statements are an integral part of these
statements.
(53)
<PAGE>
================================================================================
THE MAXWELL COMPANIES
================================================================================
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Unrealized
Common Stock Gain on Retained
Shares Amount Investments Earnings Total
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 ............. -- -- -- 1,134,703 1,134,703
Issuance of stock ...... 1,000 1,000 -- -- 1,000
Dividends declared:
Cash ................ -- -- -- (3,288,223 (3,288,223)
Investments ......... -- -- (43,296) (230,058) (273,354)
Property ............ -- -- -- (220,815) (220,815)
BALANCE, September 30, 1996 5,000 $5,000 $ -- $ (91,924) $ (86,924)
The accompanying notes to combined financial
statements are an integral part of these
statements.
(54)
<PAGE>
================================================================================
THE MAXWELL COMPANIES
================================================================================
COMBINED STATEMENTS OF CASH FLOWS
Nine Months Ended
Years Ended December 31, September 30,
1993 1994 1995 1995 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............ $1,295,548 $1,263,273 $919,565 $805,701 $1,134,703
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation
and
amortization ............... 75,368 107,601 136,135 107,187 98,997
Provision for bad debts .... 77,690 100,615 223,216 223,216 50,056
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) (34,096) 202,892
Accounts receivable .......(777,846)(1,073,300) 50,357 (77,936) (411,536)
Prepaid expenses
and other ...... 26,124 (10,457) 72,041 60,524 (128,981)
Accounts
payable ..... 40,808 (74,812) 1,259 (23,898) 158,478
Payroll and related
liabilities ............ 525,769 33,483 (83,328) 49,385 281,025
Reserve for workers'
compensation claims ..... -- 476,000 677,000 520,250 (241,000)
Other accrued liabilities ...64,574 (43,846) 4,734 27,090 (726)
Net cash provided by
operating
activities ....... 1,364,617 718,558 1,884,115 1,657,423 1,143,908
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Sumner-Ray
Technical Resources, Inc. -- -- -- -- (168,000)
Capital expenditures ..... (155,150) (211,595) (155,333) (150,435) (135,246)
Purchases of investments . (109,144) (13,750) (116,526) (116,526) --
Sales of investments ..... -- -- 98,119 -- --
Advance to StaffMark, Inc. -- -- -- -- (31,250)
Net cash used in
investing activities (264,294) (225,345) (173,740) (266,961) (334,496)
The accompanying notes to combined financial
statements are an integral part of these
statements.
(55)
<PAGE>
================================================================================
THE MAXWELL COMPANIES
================================================================================
COMBINED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
Years Ended December 31, September 30,
1993 1994 1995 1995 1996
(Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends . $(813,409) $(666,854)$(1,225,546)$(1,176,956)$(3,439,223)
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)(1,176,956) (1,688,223)
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS 240,617 (509,942) 484,829 213,506 (878,811)
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 $ 770,050 $ 162,562
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Interest paid ....$ 27,678 $ 23,950 $ -- $ -- $ 48,085
Non-cash transactions:
Notes payable issued in
conjunction with
the purchase of
Sumner-Ray Technical
Resources, Inc. $ -- $ -- $ -- $ -- $ 149,180
Distribution of investments
to stockholders $ -- $ -- $ -- $ -- $ 273,354
Distribution of property
to stockholders $ -- $ -- $ -- $ -- $ 220,815
The accompanying notes to combined financial
statements are an integral part of these
statements.
(56)
<PAGE>
================================================================================
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 and related
disclosures for the nine months ended September 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 nine
months ended September 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.
(57)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 $166,429 at December 31, 1994, December 31, 1995 and
September 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 on the accompanying 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:
Office equipment 5-7 years
Computer equipment 5-7 years
Vehicles 5 years
Building and improvements 7-32 years
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 September 30, 1996, the Company's intangible assets were
considered to be fully recoverable.
(58)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
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 loss development
trends and may be subsequently revised based on developments relating to such
claims.
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 direct 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:
December 31, September 30,
1994 1995 1996
Building and improvements ... $ 483,136 $ 502,130$ --
Office equipment ............ 346,530 386,411 439,829
Computer equipment .......... 204,268 300,265 361,710
Vehicles .................... 25,105 27,561 27,561
Leasehold improvements ...... -- -- 31,089
Land ........................ 13,000 13,000 --
1,072,039 1,229,367 860,189
Less accumulated
depreciation and amortization 591,445 729,575 522,415
$ 480,594 $ 499,792 $337,774
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 nine
months ended September 30, 1995 and 1996 totaled $107,187 (unaudited) and
$91,449, respectively.
(59)
<PAGE>
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:
Gross Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
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
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 September 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 $7,548 for the
nine months ended September 30, 1996.
6. LONG-TERM DEBT:
Long-term debt as of September 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.
(60)
<PAGE>
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. See Note 15.
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 September
30, 1996, this letter of credit was in the amount of $575,000. Workers'
compensation expense totaled $485,151, $918,961 and $1,089,901 for the years
ended December 31, 1993, 1994 and 1995, respectively. For the nine months ended
September 30, 1995 and 1996, workers' compensation expense was $713,749
(unaudited) and $29,722, respectively. The decrease in workers' compensation
expense for the nine months ended September 30, 1996 is 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 nine months ended September 30, 1996 were $30,578.
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
and 1995 and September 30, 1996, respectively. Expenses related to this plan for
the years ended December 31, 1993, 1994 and 1995 were $190,537, $184,605 and
$188,066, respectively. Expenses related to this plan for the nine months ended
September 30, 1995 and 1996 were $191,298 (unaudited) and $180,205,
respectively.
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 $12,600 (unaudited) and $13,000 for the nine
months ended September 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. Effective May 31, 1996, the Company entered
into an agreement with certain stockholders to lease the building in which the
Company is headquartered for $100,000 a year. Rent expense totaled $33,332 for
the nine months ended September 30, 1996.
(61)
<PAGE>
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 September 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. See Note 15.
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:
Years Ending
December 31, September 30,
1996 $224,093 $181,766
1997 67,545 154,257
1998 52,132 110,311
1999 43,643 43,643
2000 43,643 18,971
$431,056 $508,948
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 nine months ended
September 30, 1995 and 1996 was $69,303 (unaudited) and $111,847, respectively.
13. SIGNIFICANT CUSTOMERS:
The Company's sales to customers which individually account for 10% or
more of service revenues were as follows:
Nine Months Ended
Years Ended December 31, September 30,
1993 1994 1995 1995 1996
(Unaudited)
Customer 1 .............. 21% 14% 10% -- --
Customer 2 .............. -- 14% 12% 13% 11%
(62)
<PAGE>
14. 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. Effective October 2, 1996, StaffMark
completed the initial public offering. In conjunction with the 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 $100,000 per year by
assuming the lease agreement discussed in Note 10. In addition, the Company made
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 $3.3 million, which represented the Company's estimated S
Corporation Accumulated Adjustment Account at September 30, 1996.
In conjunction with this merger, the owners entered 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.
As of September 30, 1996, the Company had advanced $31,250 to StaffMark
to fund organizational and other costs related to the merger and StaffMark's
initial public offering.
On October 2, 1996, all of the Company's borrowings and debt obligations
totaling $1,899,180 were repaid using a portion of the proceeds from the
completed 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 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 nine months ended December 31, 1995 and September 30, 1996,
respectively.
(63)
<PAGE>
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, 1995 and 1996, and the
related statements of income (loss), stockholders' equity and cash flows for
each of the three years ended September 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, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years ended September 30, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
October 22, 1996.
(64)
<PAGE>
================================================================================
HRA, INC.
================================================================================
BALANCE SHEETS
September 30,
1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 367,978 $ 354,417
Restricted cash ................................. 50,251 --
Accounts receivable, net of allowance
for doubtful accounts of $26,000 and $40,000 . 1,998,724 2,944,791
Advances to StaffMark, Inc. ..................... -- 31,250
Prepaid expenses and other ...................... 467,002 756,836
Income taxes receivable ......................... 25,125 --
Deferred income taxes ........................... 160,000 281,300
Total current assets .................... 3,069,080 4,368,594
PROPERTY AND EQUIPMENT, net ......................... 144,179 258,087
INTANGIBLE ASSETS, net .............................. 37,156 1,001,308
OTHER ASSETS:
Deferred income taxes ........................... 65,000 55,300
Other ........................................... 21,071 1,423
Total other assets ...................... 86,071 56,723
$3,336,486 $5,684,712
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings under accounts receivable
financing agreement ......................... $ 502,512 $ --
Line of credit .................................. -- 1,340,000
Current portion of note payable to Liberty Mutual -- 255,238
Current portion of deferred compensation
arrangements ................................. 43,699 108,939
Outstanding checks .............................. 166,761 184,558
Accounts payable ................................ 193,096 164,199
Payroll and related liabilities ................. 621,317 766,417
Reserve for workers' compensation claims ........ 1,390,351 1,224,378
Income taxes payable ............................ -- 443,896
Accrued expenses ................................ 138,416 169,594
Total current liabilities ............... 3,056,152 4,657,219
DEFERRED COMPENSATION ARRANGEMENTS,
less current portion ............................ 127,332 247,383
NOTE PAYABLE TO A STOCKHOLDER ....................... 122,000 116,000
NOTE PAYABLE TO LIBERTY MUTUAL,
less current portion ............................ -- 386,156
COMMITMENTS AND CONTINGENCIES
(Notes 11, 12 and 15) STOCKHOLDERS' EQUITY:
Common stock, no par value, 1,000 shares
authorized, 790 shares issued and
outstanding .................................. 12,600 12,600
Retained earnings ............................... 18,402 265,354
Total stockholders' equity .............. 31,002 277,954
$3,336,486 $5,684,712
The accompanying notes are an integral part of
these balance sheets.
(65)
<PAGE>
HRA, INC.
STATEMENTS OF INCOME (LOSS)
Fiscal Years
1994 1995 1996
SERVICE REVENUES ............ $ 16,453,375 $ 18,306,542 $ 24,629,470
COST OF SERVICES ............ 13,367,561 14,939,279 19,525,952
Gross profit ............ 3,085,814 3,367,263 5,103,518
OPERATING EXPENSES:
Selling, general and
administrative ....... 2,381,168 3,438,436 4,224,370
Depreciation and
amortization ......... 45,783 65,691 107,697
Operating income (loss) . 658,863 (136,864) 771,451
OTHER INCOME (EXPENSE):
Interest expense ........ (100,828) (107,364) (120,126)
Interest and other, net . 16,466 13,443 245,922
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES ............ 574,501 (230,785) 897,247
PROVISION (BENEFIT) FOR
INCOME TAXES ............ 221,100 (84,160) 353,006
Net income (loss) $ 353,401 $ (146,625) $ 544,241
The accompanying notes are an integral part of
these financial statements.
(66)
<PAGE>
HRA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Retained
Common Stock Earnings
Shares Amount (Deficit) Total
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
Dividends .............. -- -- (297,289) (297,289)
Net income ............. -- -- 544,241 544,241
BALANCE, September 30, 1996 90 $ 12,600 $ 265,354 $ 277,954
The accompanying notes are an integral part of
these financial statements.
(67)
<PAGE>
HRA, INC.
STATEMENTS OF CASH FLOWS
Fiscal Years
1994 1995 1996
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............................$ 353,401 $(146,625) $ 544,241
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization ............. 45,783 65,691 107,697
Provision (recovery) for
bad debts, net ............................ 4,498 2,041 (5,578)
Change in deferred income taxes ........... (10,200) (112,200) (111,600)
Change in operating assets
and liabilities:
Accounts receivable .................... (421,143) (316,713) (940,489)
Prepaid expenses and other ............. 2,531 (454,386) (289,834)
Income taxes receivable ................ -- (25,125) 25,125
Other assets ........................... 17 (20,671) 19,648
Outstanding checks ..................... -- 166,761 17,797
Accounts payable ....................... 51,940 49,190 (34,153)
Payroll and related liabilities ........ (30,697) 128,284 145,100
Reserve for workers' compensation claims (68,655) 914,639 500,421
Income taxes payable ................... 192,487 (228,217) 443,896
Accrued expenses ....................... (21,755) 66,332 6,178
Net cash provided by
operating activities ......... 98,207 89,001 428,449
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ............... (40,096) (135,765) (177,713)
Advances to StaffMark, Inc. ........ -- -- (31,250)
Other .............................. -- (16,000) --
Payment for purchase acquisition ... -- -- (863,151)
Net cash used in
investing activities (40,096) (151,765) (1,072,114)
The accompanying notes are an integral part of
these financial statements.
(68)
<PAGE>
HRA, INC.
STATEMENTS OF CASH FLOWS (Continued)
Fiscal Years
1994 1995 1996
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net (increase) decrease in
restricted cash .................. $ (60,083) $ 9,832 $ 50,251
Increase in deferred
compensation arrangements ........ 21,559 -- 135,596
Payments on deferred
compensation arrangements ......... -- (24,691) (89,942)
Net borrowings (payments)
under an accounts
receivable financing agreement 100,830 (98,318) (502,512)
Net borrowings under a
revolving line of credit .......... -- -- 1,340,000
Principal payments on note
payable to a stockholder .......... -- (33,295) (6,000)
Dividends ........................ -- -- (297,289)
Proceeds from issuance of
common stock ...................... 11,600 -- --
Other ............................ (5,749) -- --
Net cash provided by
(used in) financing
activities ........... 68,157 (146,472) 630,104
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ........ 126,268 (209,236) (13,561)
CASH AND CASH EQUIVALENTS,
beginning of period .............. 450,946 577,214 367,978
CASH AND CASH EQUIVALENTS,
end of period .................... $ 577,214 $ 367,978 $ 354,417
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
Interest paid .................... $ 77,737 $ 106,467 $ 116,161
Taxes paid ....................... $ 41,813 $ 267,622 $ 18,000
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During fiscal year 1995, the Company incurred a liability totaling $41,000 for
the purchase of a consulting and noncompete agreement.
During fiscal year 1996, the Company recorded a deferred compensation
arrangement liability for the purchase of a noncompete agreement with a former
stockholder totaling $139,637.
During fiscal year 1996, the Company settled a dispute with its former workers'
compensation insurance carrier for $641,394. The anticipated settlement amount
had been recorded in previous periods in the Reserve for Workers' Compensation
and was reclassified in fiscal year 1996 to Note Payable to Liberty Mutual (Note
7).
The accompanying notes are an integral part of
these financial statements.
(69)
<PAGE>
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 and direct placement services primarily in the Nashville, Tennessee
area. 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 presented.
Fiscal Periods--
The Company's fiscal year ends on September 30. The fiscal years 1994, 1995
and 1996 each included 52 weeks.
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 5).
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.
(70)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
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:
Office equipment ........................................ 5-7 years
Computer equipment ...................................... 5 years
Computer software ....................................... 5 years
Leasehold improvements .................................. 5 years
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 4). 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 September 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, 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. These accruals are based upon historical loss development
trends and may be subsequently revised based on developments relating to such
claims. The Company engages, from time-to-time, 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 a stockholder and the Company's borrowing arrangements secured
by accounts receivable, including the Company's line of credit, approximate fair
value based upon management's assessment of interest rates currently available
to the Company.
(71)
<PAGE>
2. BUSINESS COMBINATION:
On July 11, 1996, the Company completed the purchase of the assets and
intellectual property of Dorothy Johnson's Career Consultants, Inc. ("Career
Consultants") for a cash payment of $850,000. Career Consultants provides direct
placement services on a fee basis to companies primarily in the Nashville,
Tennessee area. In addition, the Company entered into 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 6), which was extended
in contemplation of this transaction.
Since the acquisition of Career Consultants was accounted for as a
purchase, the Company recorded Career Consultant's assets and liabilities at
their estimated fair market values at the date of the acquisition. Results of
operations of Career Consultants are included in the accompanying financial
statements subsequent to July 11, 1996. Of the total consideration paid for
Career Consultants, $70,000 was associated with a noncompete agreement with the
remaining purchase price in excess of the estimated fair market value of the net
assets acquired of approximately $769,000 being recorded as goodwill. In
connection with the purchase of Career Consultants, the Company incurred certain
legal and other costs of approximately $13,000.
The following unaudited pro forma combined results for fiscal years 1995
and 1996 give effect to the acquisition of Career Consultants as if it had
occurred at the beginning of those periods. This pro forma information does not
necessarily represent what the results would have been had the acquisition
actually occurred at the beginning of each period presented.
1995 1996
Revenue ...................................... $19,243,686 $25,906,321
Income (loss) before taxes ................... (249,334) 894,097
Net income (loss) ............................ (158,410) 542,876
3. PROPERTY AND EQUIPMENT:
Components of property and equipment are as follows:
1995 1996
Office equipment ............................. $ 65,237 $134,387
Computer equipment ........................... 141,200 173,192
Computer software ............................ 76,715 139,179
Leasehold improvements ....................... 17,569 42,474
300,721 489,232
Less accumulated depreciation and amortization 156,542 231,145
$144,179 $258,087
Depreciation and amortization expense related to property and equipment
totaled $45,783, $61,847 and $74,603 for fiscal years 1994, 1995 and 1996,
respectively.
(72)
<PAGE>
4. 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 of up to $67,000, based upon
certain performance events. Contingent consideration payments during fiscal
years 1995 and 1996 totaled approximately $1,700 and $6,600, respectively. The
Company is amortizing this arrangement over the 48 month term of the agreement.
Amortization Methods
1995 1996 and Periods
Consulting and
noncompetition agreements ....$41,000 $1 Straight line over 4 & 5 years
Noncompete agreement with a
former stockholder
(see Note 11) .....................-- 139,637 Straight line
over 10 years
Goodwill (Note 2) .................-- 769,202 Straight line over 30 years
Other (Note 2) ....................-- 18,407 Straight line over 5 years
41,000 1,038,286
Less accumulated
amortization ...................3,844 36,938
$37,156 $1,001,308
Amortization expense totaled $3,844 and $33,094 in fiscal years 1995 and
1996, respectively.
5. 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 were not collected. Accordingly, this
arrangement has been reflected as a financing transaction in the accompanying
financial statements.
As of September 30, 1995, the receivables financed pursuant to this
agreement totaled $502,512. 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 $7,538 for fiscal year 1995 and have been reflected in
interest expense in the accompanying statements of income (loss). 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.
6. LINE OF CREDIT:
In November 1995, the Company replaced its "Purchase of Accounts" bank
agreement (Note 5) with a revolving line of credit with the same 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 8.55% during fiscal year 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. The Company is in compliance
with or has received waivers through maturity for all covenants of this line of
credit as of September 30, 1996.
(73)
<PAGE>
6. LINE OF CREDIT (Continued):
As of September 30, 1996, the Company had borrowed $1,340,000 under this
line of credit and principally used the proceeds to fund the acquisition of
Career Consultants (Note 2).
As discussed in Note 2, the line of credit was extended on July 11, 1996.
The extension agreement 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.
7. NOTE PAYABLE TO LIBERTY MUTUAL:
On September 27, 1996, the Company settled a lawsuit with its former
workers' compensation insurance carrier, in which the Company had disputed the
amount of insurance premiums owed for fiscal years 1993 and 1994 and a portion
of fiscal year 1995. The settlement totaled $641,394 and calls for the Company
to make an initial payment of $100,000, with the balance due in 36 monthly
installments of $16,470, including interest at 6%. The note may be prepaid in
whole or in part at any time without penalty. In the event that the Company
elects to prepay the note, the Company will be entitled to a 10% discount of the
present value of the balance outstanding at prepayment date. The Company had
provided for these disputed amounts in the fiscal years in which they arose.
Annual maturities pursuant to this note are as follows:
1997 $255,238
1998 179,353
1999 190,415
2000 16,388
$641,394
8. NOTE PAYABLE TO A STOCKHOLDER:
As of September 30, 1995 and 1996, the Company had a note payable to a
former stockholder for $122,000 and $116,000, 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,
1994, 1995 and 1996, interest expense on this note totaled $18,636, $12,100 and
$11,310, respectively.
In connection with the purchase of this stockholder's common stock in the
Company by two of the remaining stockholders (Note 11), 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.
As of September 30, 1996, the Company owed $116,000 pursuant to this
amended note agreement. Annual maturities pursuant to this note are as follows:
1997 $ --
1998 35,753
1999 57,917
2000 20,301
Thereafter 2,029
$116,000
(74)
<PAGE>
9. INCOME TAXES:
Components of the provision for income taxes were as follows:
1994 1995 1996
Current:
Federal ............... $ 194,600 $ 10,180 $ 391,206
State ................. 36,700 4,100 73,400
Deferred ................. (10,200) (98,440) (111,600)
$ 221,100 $ (84,160) $ 353,006
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:
1994 1995 1996
Taxes at statutory U.S. .....
income tax rate .......... $ 201,075 $ (80,775) $ 305,064
Increase (decrease) resulting
from:
Tax penalties ............... 846 -- --
State income taxes, net of
federal benefit .......... 23,855 2,666 45,837
Effect of graduated federal
income tax rate .......... (7,672) (9,933) (5,150)
Meals and entertainment
and other ................ 2,996 3,882 7,255
$ 221,100 $ (84,160) $ 353,006
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:
1995 1996
Compensation arrangements .......................... $ 65,000 $ 87,800
Vacation and workers' compensation reserves ........ 160,000 238,700
Other .............................................. -- 10,100
$225,000 $336,600
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.
(75)
<PAGE>
10. 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 prepaids and other in the accompanying
balance sheets are deposits to fund workers' compensation claims totaling
$451,617 and $722,000 as of September 30, 1995 and 1996, respectively. Workers'
compensation expense totaled $664,468 and $1,270,271 and $1,306,212 for fiscal
years 1994, 1995 and 1996, respectively.
11. RELATED PARTY TRANSACTIONS:
Stockholder Transaction--
During November 1995, two of the Company's stockholders purchased from
another stockholder his entire common stock interest in the Company
(approximately 32%). 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 12).
Dividend Distributions to Stockholders--
In conjunction with the stockholder transaction described above and other
matters, the Company advanced via dividend distributions, $250,000 to two of its
stockholders during 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 16. These costs are to be borne by the stockholders of the
Company, and have been reflected as dividends to stockholders in the
accompanying statement of stockholders' equity as of September 30, 1996.
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 fiscal year 1996.
Included in general and administrative expenses are advisor and/or
director fees paid or payable to the stockholders of the Company totaling
$69,000 and $94,000 for the years ended September 30, 1994 and 1995. No such
fees were accruable for the year ended September 30, 1996.
12. 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 arrangement 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.
(76)
<PAGE>
12. COMMITMENTS AND CONTINGENCIES (Continued):
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 11). 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 fiscal year 1996, with a related liability
established in the accompanying balance sheets. The discounted value of the
noncompete agreement (8.75% discount rate) was recorded as an intangible asset
(Note 4) and a related liability was established in the accompanying balance
sheets.
The following summarizes the Company's obligations under these deferred
compensation arrangements:
1995 1996
Consulting arrangement ....................... $171,031 $127,332
Severance agreement with a former stockholder -- 87,015
Noncompete agreement with a former stockholder -- 141,975
171,031 356,322
Less current portion ......................... 43,699 108,939
$127,332 $247,383
Annual maturities pursuant to these deferred compensation arrangements
are as follows:
1997 111,955
1998 61,079
1999 35,402
2000 5,911
2001 --
Thereafter 141,975
$356,322
13. NONCANCELABLE OPERATING LEASES:
The Company leases office locations and certain equipment under
noncancelable operating lease agreements expiring at various times through June
30, 1998. Future minimum payments required under operating leases that have an
initial or remaining noncancelable lease term in excess of one year at September
30, 1996, are as follows:
1997 $184,904
1998 105,265
1999 94,276
2000 96,825
2001 113,594
$594,862
Rent expense totaled $143,430, $194,096 and $228,686 for fiscal years 1994,
1995 and 1996, respectively.
(77)
<PAGE>
14. 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 and $7,600 were made during fiscal years 1995 and 1996,
respectively. 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 $7,800 for fiscal years 1995 and
1996, respectively. Contributions deposited into the plan are held by an
unrelated third party and are registered in the name of the participants.
15. LITIGATION:
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 fiscal year ending September 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.
16. 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. Effective October 2, 1996,
StaffMark completed the initial public offering. In conjunction with this
merger, 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. Prior to or coincident with this proposed merger, the Company's
leased automobiles will be transferred to the respective stockholders.
The Company advanced $31,250 to StaffMark as an advance to fund
organizational and other costs related to the merger and StaffMark's initial
public offering.
Subsequent to fiscal year 1996, using a portion of the proceeds from the
completed initial public offering described above, the Company repaid $1,340,000
borrowed under its line of credit (Note 6) and retired certain other obligations
outstanding to a former stockholder of approximately $489,000 (Notes 8, 11 and
12).
17. SUBSEQUENT EVENT:
In November 1996, two of the principal stockholders of the Company
remitted $109,000 to the Company representing dividends previously distributed
as described in Note 11.
(78)
<PAGE>
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
September 29, 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 nine-month period ended September 29, 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 September 29, 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 nine-month period ended September
29, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 22, 1996.
(79)
<PAGE>
FIRST CHOICE STAFFING, INC.
BALANCE SHEETS
Fiscal Years September 29,
----------------------------------
1994 1995 1996
---------------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........ 194,111 268,440 174,946
Accounts receivable, net ............ 1,078,340 1,145,532 1,835,493
Prepaid expenses and other ..... ... 71,100 72,171 31,467
-------- ---------- ---------
Total current assets ........ 1,343,551 1,486,143 2,041,906
PROPERTY AND EQUIPMENT, net .... ........ 196,110 327,240 348,628
OTHER ASSETS:
Investment in captive
insurance pool .............................. 36,000 36,000 36,000
Advance to StaffMark, Inc. .......... -- 31,801 --
Other ............................... -- -- 727,194
---------- ---------- ---------
Total other assets ...................... 36,000 36,000 794,995
---------- ---------- ---------
$1,575,661 $1,849,383 $3,185,529
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit ........... -- 200,000 225,000
Accounts payable ..................... 21,326 65,608 99,853
Accrued workers' compensation ........ 92,347 46,359 27,083
Payroll and related benefits .......... 630,555 534,047 510,688
Other accrued expenses ................ 7,000 5,735
Current maturities of long-term debt .... -- -- 1,488,754
Note payable to stockholder ........ 250,000 180,000
--------- ---------- ---------
Total current liabilities ............ 1,001,228 1,031,749 2,351,378
LONG-TERM DEBT, less current maturities -- -- 500,000
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 8 and 9)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value,
100,000 shares ....... 10,000 10,000 10,000
authorized, 10,000 shares issued and
outstanding Retained earnings ........... 564,433 807,634 324,151
------- ------- -------
Total stockholders' equity ........ 574,433 817,634 334,151
$1,575,661 $1,849,383 $3,185,529
The accompanying notes to financial statements
are an integral part of these balance sheets.
(80)
<PAGE>
FIRST CHOICE STAFFING, INC.
STATEMENTS OF INCOME
Nine Months Ended
---------------------------
Fiscal Years September 24, September 29,
1993 1994 1995 1995 1996
(Unaudited)
SERVICE REVENUES$10,807,801 13,007,484 $ 13,703,404 9,956,709 $ 12,695,551
COST OF SERVICES 8,825,086 10,573,111 11,149,085 8,105,090 10,186,083
- --------------------------------------------------------------------------------
Gross profit 1,982,715 2,434,373 2,554,319 1,851,619 2,509,468
OPERATING EXPENSES:
Selling, general
and administrative
1,361,834 2,485,029 2,258,780 1,605,478 1,780,660
Depreciation and
amortization
34,570 34,357 32,923 24,693 79,068
- --------------------------------------------------------------------------------
Operating income (loss)
586,311 (85,013) 262,616 221,448 649,740
OTHER INCOME (EXPENSE):
Interest expense
(71) (26,109) (19,415) (15,717) (33,416)
Other, net
(2,427) 2,256 -- -- (1,053)
- --------------------------------------------------------------------------------
INCOME (LOSS)
BEFORE PROVISION
583,813 (108,866) 243,201 205,731 615,271
(BENEFIT) FOR INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES
232,787 (168,251) -- -- --
----------- ------------ ------------ ------------ ------------
NET
INCOME $ 351,026 $ 59,385 $ 243,201 $ 205,731 $ 615,271
============ ============ ============ ============ ============
PRO FORMA DATA (Unaudited) (Note 10):
Historical Income before income
taxes .................... $ 243,201 $ 615,271
Less pro forma provision for income
taxes ......................... 94,848 239,956
PRO FORMA NET INCOME ....... $ 148,353 $ 375,315
The accompanying notes to financial statements
are an integral part of these statements.
(81)
<PAGE>
FIRST CHOICE STAFFING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------------ Retained
Shares Amount Earnings Total
-------- ---------- --------- ---------
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
-- -- 615,271 615,271
Distributions
-- -- (1,098,754)
----------- -------- -----------
BALANCE, September 29, 1996 .. 10,000 $ 10,000 $324,151 $ 334,151
=========== =========== ======== ===========
The accompanying notes to financial statements
are an integral part of these statements.
(82)
<PAGE>
FIRST CHOICE STAFFING, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended
-------------------------
Fiscal Years September September
24, 29,
---------------------------
1993 1994 1995 1995 1996
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net ...... $ 351,026 $ 59,385 $ 243,201 $ 205,731 $ 615,271
income
Adjustments to
reconcile net
income to net
cash provided by
(used in) operating
activities:
Depreciation and
amortization ..... 34,570 34,357 32,923 24,693 79,068
Loss on sale
of equipment
-- -- -- -- 1,053
Deferred income taxes
(3,908) 11,256 -- -- --
Change in
operating
assets and
liabilities:
Accounts
receivable, net
(311,121) (149,482) (67,192) (67,512) (689,961)
Prepaid expenses
and other
(32,022) (15,485) (1,071) 42,486 40,704
Other assets
(158,104) -- -- -- (735,406)
Accounts
payable 12,587 (2,923) 44,282 46,555 34,245
Accrued workers'
compensation 68,247 10,867 (45,988) (132,269) (19,276)
Payroll and
related liabilities 189,670 259,929 (96,508) (3,820) (23,359)
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 45,576 108,382 108,864 (703,396)
--------- --------- --------- --------- ---------
CASH
FLOWS
FROM
INVESTING
ACTIVITIES:
Capital
expenditures (53,582) (120,441) (164,053) (150,833) (93,297)
Advance to
StaffMark, Inc. ..... -- -- -- -- (31,801)
-------- --------- -------- ---------- ----------
Net cash used
in investing
activities (53,582) (120,441) (164,053) (150,833) (125,098)
-------- --------- -------- ---------- ----------
CASH FLOWS
FROM FINANCING
ACTIVITIES:
Distributions
-- -- -- -- (1,098,754)
Proceeds from
(payments on)
line of credit
(191,038) -- 200,000 -- 25,000
Proceeds from
issuance of
long-term debt
-- -- -- -- 1,988,754
Proceeds from note
payable to stockholder
9,349 250,000 -- -- --
Payments on note
payable to stockholder
-- (9,349) (70,000) (70,000) (180,000)
-------- --------- -------- ---------- ----------
Net
cash
provided
by (used in)
financing
activities ........... (181,689) 240,651 130,000 (70,000) 735,000
--------- --------- --------- ------- --------
NET
INCREASE
(DECREASE)
IN CASH
AND CASH
EQUIVALENTS (26,893) 165,786 74,329 (111,969) (93,494)
CASH AND CASH
EQUIVALENTS,
beginning
of period 55,218 28,325 194,111 194,111 268,440
AND CASH
EQUIVALENTS,
end of period $ 28,325 $194,111 $ 268,440 $ 82,142 $ 174,946
SUPPLEMENTAL
DISCLOSURES
OF CASH FLOW
INFORMATION:
Interest paid $ 71 $ 26,109 $ 19,415 $ 6,285 $ 19,502
Taxes
paid
(refunded) .............$189,769 $ (26,393) $ -- $ -- $ --
The accompanying notes to financial statements
are an integral part of these statements.
(83)
<PAGE>
================================================================================
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 September 29, 1996, and for the nine-month periods ended
September 24, 1995 (unaudited), and September 29, 1996, correspond to the
Company's fiscal quarters which ended on the last Sunday in September.
Interim Financial Statements--
The accompanying interim financial statements and related disclosures for
the nine-month period ended September 24, 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 include all adjustments 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.
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.
(84)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 September 29, 1996. Included in accounts receivable in the accompanying
balance sheets are unbilled amounts of $188,778, $172,834 and $380,414 at
December 31, 1994, December 31, 1995 and September 29, 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 which are as
follows:
Office equipment ......................................... 7 years
Computer equipment ....................................... 5 years
Vehicles ................................................. 5 years
Computer software ........................................ 3 years
Leasehold improvements ................................... 7 years
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 are 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 goodwill and a noncompete agreement, recorded in
conjunction with the acquisition of Strategic Sourcing, Inc. ("SSI") (as
described in Note 9). The goodwill is amortized using the straight-line method
over its estimated economic life of 30 years. The investment in the insurance
pool 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.
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.
(85)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
In connection with the reorganization in April 1994, the Company elected
subchapter 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 a subchapter 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:
Fiscal Year September 29,
1994 1995 1996
Office equipment ............ $117,938 $171,842 $200,981
Computer equipment .......... 123,966 153,405 199,337
Vehicles .................... 16,301 26,501 26,501
Computer software ........... 33,531 45,775 55,805
Leasehold improvements ...... 56,009 83,248 88,103
347,745 480,771 570,727
Less accumulated depreciation 151,635 153,531 222,099
$196,110 $327,240 $348,628
3. DEBT:
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 September 29, 1996), with principal due
June 17, 1997. The weighted average interest rate was approximately 8.25% for
the nine months ended September 29, 1996. Amounts outstanding under the line
were $0, $200,000 and $225,000 as of December 31, 1994, December 31, 1995 and
September 29, 1996, respectively. The line of credit is secured by a personal
guaranty of the majority stockholder. The Company had approximately $275,000
available under its line of credit at September 29, 1996.
During July 1996, the Company entered into a $375,000 note payable to the
seller of SSI (see Note 9). This note is payable in three equal installments of
$125,000 beginning on July 1, 1997, and bears interest at an annual rate of 7%.
This note is secured by the personal guaranty of the Company's majority
stockholder.
During July 1996, the Company entered into a $375,000 note payable to a
bank. This note is payable beginning October 5, 1996, in 36 monthly installments
of $10,417 plus interest at prime. Proceeds from this note were used for the
acquisition of SSI (see Note 9). This note is secured by the personal guaranty
of the Company's majority stockholder.
During September 1996, the Company entered into a $1,238,754 note payable
to a bank. This note is payable in full on November 25, 1996, and bears interest
at prime less 0.50%. Proceeds from this note were used to repay the note payable
to stockholder (see Note 4) and to fund the cash distribution of the Company's
estimated September 29, 1996 S Corporation Accumulated Adjustment Account
balance (see Note 8). This note is secured by the personal guaranty of the
Company's majority stockholder.
(86)
<PAGE>
3. DEBT (CONTINUED):
Certain of the debt instruments described above are subject to covenants
requiring that the Company achieve certain
financial ratios and restrictions on
incurring additional debt. The Company was in compliance with or had obtained
waivers for these covenants as of September 29, 1996.
4. NOTE PAYABLE TO STOCKHOLDER:
The Company had an unsecured note payable to the majority stockholder
with interest payable semiannually in June and December at 8% and principal due
on demand. This note was repaid during September 1996.
5. INCOME TAXES:
Components of the tax provision (benefit) for the periods prior to the
subchapter S Corporation election, effective April 1, 1994, are shown below:
Fiscal Years
1993 1994
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)
The income tax provision (benefit) for the periods prior to the
subchapter 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:
Fiscal Years
1993 1994
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 subchapter S
Corporation election ........................... -- 3,827
Taxable income earned after subchapter
S Corporation election, not subject to`
taxation ....................................... -- (137,854)
Other .......................................... (1,108) --
Provision (benefit) for income taxes ........... $ 232,787 $(168,251)
(87)
<PAGE>
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 September 29, 1996, are as follows:
Years Ending
December 31, September 29,
1995 1996
1996 $111,000 $ 32,000
1997 101,000 114,000
1998 86,000 91,000
1999 68,000 68,000
2000 43,000 43,000
Thereafter 78,000 78,000
$487,000 $426,000
Rental expense totaled $61,000, $82,000 and $103,000 for fiscal years
1993, 1994 and 1995, respectively, and $56,279 (unaudited) and $84,886 for the
nine-month periods ended September 24, 1995 and September 29, 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
$11,086 (unaudited) and $15,844 for the nine-month periods ended September 24,
1995 and September 29, 1996, respectively.
7. SIGNIFICANT CUSTOMERS:
The Company had one customer which represented 12%, 13%, 12%, 13% and 11%
of service revenues for the years ended December 31, 1993, 1994 and 1995, and
the nine-month periods ended September 24, 1995 (unaudited) and September 29,
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. SUBSEQUENT CLOSING OF 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. Effective October 2, 1996,
StaffMark completed the initial public offering. In conjunction with the merger,
the majority stockholder entered 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 following termination of such person's
employment. During September 1996, in anticipation of the completion of this
merger, the Company made cash distributions of $1,098,754 which equal the
Company's estimated S Corporation Accumulated Adjustment Account as of September
29, 1996.
In April 1996, the Company advanced $31,250 to StaffMark to fund offering
costs related to StaffMark's initial public offering.
On October 2, 1996, using a portion of the proceeds from the completed
initial public offering, StaffMark repaid all of the Company's borrowings, debt
and interest obligations.
(88)
<PAGE>
9. SIGNIFICANT 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 has been accounted for
using the purchase method of accounting. Fixed assets acquired were recorded at
historical, depreciated cost, which approximated fair value as of the
acquisition date, and the remaining purchase price of approximately $685,000 has
been recorded as goodwill and will be amortized on a straight-line basis over
its estimated economic life of 30 years. The $50,000 noncompete agreement with
the seller will be amortized on a straight-line basis over its five year term.
10. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED):
In conjunction with the merger with StaffMark as discussed in Note 8, the
Company changed from an S Corporation to a C Corporation for federal and state
income tax reporting purposes, which required 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 nine
months ended December 31, 1995 and September 29, 1996, respectively.
(89)
<PAGE>
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 September 29, 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 nine months ended September 29, 1996. These financial statements are the
responsibility of The Blethen Group'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 September 29, 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 nine months ended September 29,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 22, 1996.
(90)
<PAGE>
================================================================================
================================================================================
THE BLETHEN GROUP
COMBINED BALANCE SHEETS
January 1, December 31, September 29,
1995 1995 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . $ 31,921 $ 44,644 $ 115,773
Accounts receivable ....... 1,136,081 1,377,799 1,782,289
Deferred tax asset ........ 5,500 11,000 16,000
Prepaid expenses and other 16,809 14,510 2,776
Total current assets 1,190,311 1,447,953 1,916,838
PROPERTY AND EQUIPMENT, net . 393,330 307,286 255,298
OTHER ASSETS:
Due from stockholders ..... 185,236 194,163 2,998
Deferred tax asset ........ 24,100 20,760 --
Advances to StaffMark, Inc. -- -- 31,250
Other ..................... 11,750 12,232 14,492
Total other assets .. 221,086 227,155 48,740
$1,804,727 $1,982,394 $2,220,876
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit ....................... $ 764,645 $ 971,436 $1,175,203
Accounts payable ...................... 220,801 105,648 62,446
Outstanding checks .................... -- 25,329 --
Payroll and related
liabilities ........................... 295,472 301,258 511,412
Current maturities of
long-term debt ........................ 25,341 10,151 10,678
Current maturities of
capital lease obligations ............. 82,708 47,148 --
Current maturities of notes
payable to related parties ............ 83,308 62,813 105,582
Income taxes payable .................. 15,783 82,583 49,638
Accrued interest and other ............ 16,001 55,043 25,967
Total current liabilities ....... 1,504,059 1,661,409 1,940,926
LONG-TERM DEBT, less
current maturities ...................... 35,604 24,922 17,057
CAPITAL LEASE OBLIGATIONS,
less current maturities ................. 67,452 22,475 --
NOTES PAYABLE TO RELATED PARTIES,
less current maturities ............... 49,037 45,271 --
DEFERRED TAX LIABILITY .................. -- -- 26,300
COMMITMENTS AND CONTINGENCIES
Notes 5, 6, 7 and 8)
STOCKHOLDERS' EQUITY:
Common stock .......................... 8,399 8,399 8,399
Additional paid-in capital ............ 8,940 8,940 8,940
Retained earnings ..................... 131,236 210,978 219,254
Total stockholders' equity ...... 148,575 228,317 236,593
$1,804,727 $1,982,394 $2,220,876
The accompanying notes to combined financial
statements are an integral part of these balance
sheets.
(91)
<PAGE>
================================================================================
================================================================================
THE BLETHEN GROUP
COMBINED STATEMENTS OF INCOME (LOSS)
Fiscal Years
1993 1994 1995
SERVICE
REVENUES ...$ 11,197,726 $ 11,966,633 $ 13,380,157 $ 9,743,890 $ 12,047,667
COST OF
SERVICES ... 8,131,773 8,729,634 9,743,747 7,211,548 9,084,803
Gross
profit ..... 3,065,953 3,236,999 3,636,410 2,532,342 2,962,864
OPERATING
EXPENSES:
Selling,
general and
administrative.3,042,816 2,789,866 3,105,682 2,115,861 2,274,816
Depreciation
and
amortization.....134,968 122,963 111,437 83,578 83,475
Operating
income (loss) ..(111,831) 324,170 419,291 332,903 604,573
OTHER
INCOME
(EXPENSE):
Interest
expense ........(134,815) (137,448) (140,800) (100,702) (112,958)
Other,
net ..............19,467 2,917 10,884 4,760 (8,392)
INCOME
(LOSS) BEFORE
PROVISION
(BENEFIT) FOR
INCOME
TAXES ..........(227,179) 189,639 289,375 236,961 483,223
PROVISION
(BENEFIT) FOR
INCOME
TAXES ..........(136,263) 49,000 81,000 71,000 76,755
Net
income (loss) ..$(90,916) $ 140,639 $ 208,375 $ 165,961 $ 406,468
PRO FORMA DATA
(Unaudited) (Note 9):
Historical
income before
income taxes ........ $ 289,375 $ 483,223
Less pro
forma provision
for income
taxes ............... 112,856 188,457
PRO FORMA
NET INCOME .......... $ 176,519 $ 294,766
The accompanying notes to combined financial
statements are an integral part of these
statements.
(92)
<PAGE>
================================================================================
================================================================================
THE BLETHEN GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Paid-in Retained
Stock Capital Earnings Total
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 .................. -- -- 406,468 406,468
Dividends ................... -- -- (398,192) (398,192)
BALANCE, September 29, 1996 ... $ 8,399 $ 8,940 $ 219,254 $ 236,593
The accompanying notes to combined financial
statements are an integral part of these
statements.
(93)
<PAGE>
================================================================================
================================================================================
114
THE BLETHEN GROUP
COMBINED STATEMENTS OF CASH FLOWS
Nine Months Ended
Fiscal Years October 1, September 29,
1993 1994 1995 1995 1996
(Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income
(loss) ......... $ (90,916) $ 140,639 $ 208,375 $ 165,961 $ 406,468
Adjustments
to reconcile
net income
(loss) to net
cash provided by
operating
activities:
Depreciation
and amortization 134,968 122,963 111,437 83,578 83,475
Provision
for
(benefit from)
deferred
income taxes .... (136,263) 29,898 (2,160) (1,400) 42,060
Change in
operating assets
and liabilities:
Accounts
receivable (17,767) .... (54,870) (241,718) (211,584) (404,490)
Prepaid expenses
and other ........(14,096) 30,971 2,299 (26,299) 11,734
Other assets ......21,491 5,769 (482) 11,750 (2,260)
Accounts payable .180,570 (97,532) (115,153) 10,471 (43,202)
Outstanding checks ..-- -- 25,329 -- (25,329)
Payroll and related
liabilities ......(75,190) 65,663 5,786 1,099 210,154
Income taxes payable
(receivable) ...(13,711) 29,494 66,800 56,040 (32,945)
Accrued
interest
and other ...........77,477 (55,306) 39,042 98,575 (29,076)
Net cash provided
by operating
activities ......66,563 217,689 99,555 188,191 216,589
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital
expenditures ..... (130,178) (72,119) (25,393) (6,396) (31,487)
Advances to
StaffMark .............-- -- -- -- (31,250)
Net cash
used in
investing
activities(130,178) .............(72,119) (25,393) (6,396) (62,737)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from
lines of credits 53,773 ......10,681 206,791 48,151 203,767
Proceeds from issuance of
long-term debt ....12,851 54,172 -- -- --
Payments on
long-term debt (28,243) .......(10,282) (25,872) (5,170) (7,338)
Payments on capital
lease obligations(16,213) ....(113,042) (80,537) (61,240) (69,623)
Change in
notes payable to
related
parties .............34,314 73,031 (24,261) (8,049) (2,502)
Cash distributions
to stockholders (57,343) (99,474) (128,633) (94,181) (398,192)
Change in
due from stockholders 837 .... (44,099) (8,927) (40,126) 191,165
Net cash used in
financing activities (24) ... (129,013) (61,439) (160,615) (82,723)
NET INCREASE (DECREASE) IN
CASH AND
CASH EQUIVALENTS ...(63,639) 16,557 12,723 21,180 71,129
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 $ 53,101 $ 115,773
THE BLETHEN GROUP
(94)
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS (Continued)
Nine Months Ended
Fiscal Years Oct 1, Sept 29,
1993 1994 1995 1995 1996
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid ......... $ 97,062 $169,227 $141,324 $122,591 $131,963
Taxes paid ............ $ -- $ 66 $ 41,476 $ 41,476 $ 66,939
Noncash transactions:
Repurchase of
common stock
through issuance
of a note payable$ .... $ 25,000 $ -- $ $ --
Purchase of
property and
equipment through
capital leases $ 45,975$ $ -- $ -- $ --
The accompanying notes to combined financial
statements are an integral part of these
statements.
(95)
<PAGE>
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 September 29, 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 Company:
Form of
Date of Corporation
Incorporation for Income
Entity in North Carolina Tax Purposes Service Type
Blethen
Temporaries, Inc. October 6, 1981 S Corporation Clerical and light industrial
Dixon
Enterprises of
Burlington, Inc. February 7, 1992 C Corporation 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 Direct placement
TRASEC Corp. February 7, 1992 C Corporation Clerical and light industrial
Jaeger Personnel
Services, Ltd. December 20, 1985 S Corporation Clerical and light industrial
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 included 39 weeks.
(96)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Interim Financial Statements--
The accompanying interim combined financial statements and related
disclosures for the nine months ended October 1, 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 include all adjustments 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.
Revenue Recognition--
Service revenues and direct 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 (see Note 6), employs and pays individuals to perform
services for the licensees' customers, invoices customers, maintains
professional liability insurance and supports 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 for potential losses 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 September
29, 1996. Included in accounts receivable in the accompanying combined balance
sheets are unbilled amounts of $143,515, $149,665 and $449,040 at January 1,
1995, December 31, 1995, and September 29, 1996, respectively. All unbilled
amounts are normally billable 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.
(97)
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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:
Office equipment ....................................... 5 to 7 years
Computer equipment and software ........................ 5 years
Vehicles ............................................... 5 years
Leasehold improvements ................................. 5 to 15 years
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.
Fair Value of Financial Instruments--
The Company's financial instruments include cash, related party notes
payable, due from stockholders and their 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.
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.
Reclassifications--
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform with 1996 presentations.
(98)
<PAGE>
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
Jan 1, Dec 31, Sept 29,
1995 1995 1996
Office equipment ............................. $421,890 $428,610 $444,556
Computer equipment and software .............. 336,166 352,528 368,069
Vehicles ..................................... 65,118 65,118 65,118
Leasehold improvements ....................... 109,926 109,926 109,926
933,100 956,182 987,669
Less accumulated depreciation and amortization 539,770 648,896 732,371
$393,330 $307,286 $255,298
3. DEBT:
Long-term debt consisted of the following:
Jan 1, Dec 31, Sept 29,
1995 1995 1996
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 $24,291
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 nine months of 1996 ..... 9,873 6,559 3,444
60,945 35,073 27,735
Less current maturities .................... 25,341 10,151 10,678
$35,604 $24,922 $17,057
(99)
<PAGE>
3. DEBT (CONTINUED):
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 10.78% during the nine months ended September 29, 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 September 29, 1996,
approximately $9,800 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 September 29,
1996, the Company did not comply with certain of these ratios, as well as
certain other negative covenants. However, Lighthouse Financial Corp. has waived
all events of noncompliance and default through June 30, 1997.
Balances outstanding under these lines were $764,645, $971,436 and
$1,175,203 as of January 1, 1995, December 31, 1995, and September 29, 1996,
respectively.
Annual maturities of debt were as follows:
Year Ending
December 31, September 29,
1996 $ 981,587 $ --
1997 10,262 1,185,881
1998 7,773 7,963
1999 6,887 8,027
2000 -- 1,067
$1,006,509 $1,202,938
4. INCOME TAXES:
Provision (benefit) for income taxes consisted of the following
components:
Nine Months Ended
Fiscal Years October 1,
September 29,
1993 1994 1995 1995 1996
(Unaudited)
Current-
Federal ... $ -- $ 19,102 $ 69,160 $ 58,500
$ 27,695
State ..... -- -- 14,000 14,000 7,000
-- 19,102 83,160 72,500 34,695
Deferred-
Federal ... (109,263) 23,898 (1,660) (1,200)
34,060
State ..... (27,000) 6,000 (500) (300) 8,000
(136,263) 29,898 (2,160) (1,500) 42,060
Total $(136,263) $ 49,000 $ 81,000 $ 71,000 $ 76,755
(100)
<PAGE>
4. INCOME TAXES (CONTINUED):
Provision (benefit) for income taxes differs from the amount computed by
applying the federal statutory tax rate to pretax income due to the following:
Nine Months Ended
Fiscal Years October 1, September 29,
1993 1994 1995 1995 1996
(Unaudited)
Provision
(benefit) for
income taxes computed
at the federal
statutory
rate ................$ (77,000) $ 64,000 $ 98,000 $ 81,000 $ 164,000
State taxes,
net of
federal
tax benefit ......... (12,000) 10,000 15,000 12,000 25,000
Effect
of permanent
differences ......... 1,000 2,000 3,000 3,000 3,000
(Income)
of S
Corporations
not subject
to taxation ......... (43,000) (19,000) (32,000) (16,000) (113,000)
Other ............... (5,263) (8,000) (3,000) (9,000) (2,245)
Provision
(benefit) for
income taxes ........ $(136,263) $ 49,000 $ 81,000 $ 71,000 $ 76,755
Deferred income taxes reflect the impact of "temporary differences"
between the financial and tax basis of assets and liabilities. The temporary
differences which gave rise to deferred tax assets and (liabilities) are as
follows:
Jan 1, Dec 31, Sept 29,
1995 1995 1996
Current-
Employee advances treated as compensation $ (1,000)$ -- $ --
Workers' compensation accrual ........... 4,000 4,000 11,000
Vacation accrual ........................ 2,000 3,000 5,000
Other ................................... 500 4,000
--------
5,500 11,000 16,000
Long term-
NOLs .................................... 78,000 42,000 1,000
Accelerated depreciation for tax purposes (30,000) (26,000) (28,800)
Alternative minimum tax and other credits 13,000 4,000 1,500
Change in income tax accounting method .. (37,000) -- --
Other ................................... 100 760
--------
24,100 20,760 (26,300)
Net deferred tax asset (liability) ......... $ 29,600 $ 31,760 $(10,300)
The NOL carryforward at September 29, 1996, was, approximately $16,000.
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 (see 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.
(101)
<PAGE>
5. RELATED PARTY TRANSACTIONS:
Notes Payable to Related Parties--
The Company had an informal note payable to a member of its Board of
Directors and relative of the majority stockholder which was paid in full in the
nine-month period ended September 29, 1996. The note was payable in monthly
installments of $711. The note bore interest at an annually adjustable rate
equal to the six month average rate of two year treasury notes (approximately 6%
at September 29, 1996). The outstanding balances as of January 1, 1995, and
December 31, 1995, were $68,694 and $49,038. 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 $2,200 during the unaudited nine-month
period ended October 1, 1995, and $3,000 during the nine-month period ended
September 29, 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 September 29, 1996, were $52,337, $59,046 and $105,582, respectively.
Interest expense related to these notes amounted to $5,000 and $6,000 during
fiscal years 1994 and 1995, respectively, and $4,500 and $6,000 during the
unaudited nine-month period ended October 1, 1995, and the nine-month period
ended September 29, 1996, respectively.
Stockholder Transactions--
The Company leases office space and a vehicle from the majority
stockholder at a monthly cost of $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 $10,800 and
$15,000 for the unaudited nine-month period ended October 1, 1995, and for the
nine-month period ended September 29, 1996, respectively.
Due from stockholders primarily represents advances to the majority
stockholder.
The Company rents its Henderson, North Carolina, office facilities from a
stockholder under a month-to-month agreement. Rental expense related to these
facilities was $17,500, $19,000 and $24,000 during the fiscal years 1993, 1994
and 1995, respectively, and $18,000 during the unaudited nine-month period ended
October 1, 1995, and $20,700 during the nine-month period ended September 29,
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.
(102)
<PAGE>
6. COMMITMENTS AND CONTINGENCIES (CONTINUED):
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 nonexclusive
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 $36,516 during fiscal year 1995 and $80,290 during the
nine-month period ended September 29, 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
nine-month period ended September 29, 1996.
7. NONCANCELABLE OPERATING LEASES:
The Company leases office space and a vehicle under noncancelable
operating lease agreements. As discussed in Note 5, some of these agreements are
with 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:
Year Ending
December 31, September 29,
1996 $ 93,395 $ --
1997 86,317 102,324
1998 88,140 104,136
1999 33,932 64,950
2000 -- 3,393
$301,784 $274,803
Rental expense totaled $95,208, $155,230 and $157,121 for fiscal years
1993, 1994 and 1995, respectively, and $113,086 and $111,379 for the unaudited
nine-month period ended October 1, 1995, and the nine-month period ended
September 29, 1996, respectively.
(103)
<PAGE>
8. 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. Additionally,
effective October 2, 1996, StaffMark, Inc. completed the initial public
offering. In conjunction with this merger, the majority stockholder will enter
into an employment agreement which provides for a base salary, participation in
future incentive bonus plans and certain other benefits. The agreement also
includes a noncompete provision if and when the stockholder's employment is
terminated. The Company advanced $31,250 to StaffMark to fund organizational and
other costs related to the planned merger and StaffMark's initial public
offering.
Prior to and coincident with this merger, the Company made a cash
distribution to the majority stockholder representing the Company's subchapter S
Corporation Accumulated Adjustment Account. The balance of the Company's
subchapter S Corporation Accumulated Adjustment Account at September 29, 1996,
was $0.
Coincident with the above mentioned business combination on October 2,
1996, all outstanding debt related to the Lighthouse Financial Corp. line of
credit totaling $1,406,964 (principal and accrued interest at October 2) was
extinguished.
9. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENT PRESENTATION (UNAUDITED):
In conjunction with the merger with StaffMark as discussed in Note 8, the
Company changed from an S Corporation to a C Corporation for federal and state
income tax reporting purposes, which required 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 nine
months ended December 31, 1995 and September 29, 1996, respectively.
(104)
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information called for by Item 10 with respect to identification
of executive officers of the Company is included in Part I of this Form 10-K.
(b) The information called for by Item 10 with respect to identification of
directors of the Company is incorporated herein by reference to the material
under the captions "Election of Directors" and "Section 16 Requirements" in the
Company's Proxy Statement for its Annual Meeting of Stockholders to be held May
2, 1997 and such proxy will be filed with the Securities and Exchange Commission
within 120 days following December 31, 1996 (the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 with respect to management
remuneration and transactions is incorporated herein by reference to the
material under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 with respect to security ownership
of certain beneficial owners and management is incorporated herein by reference
to the material under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is incorporated herein by
reference to the material under the caption "Certain Transactions;
Compensation Committee Interlocks and Insider Participation" in the
Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements required by Item 14 are included and indexed in
Part II, Item 8.
(b) 2. Financial Statement Schedule
Included in Part IV of this report
Schedule II is omitted because the information is included in the Notes
to Consolidated Financial Statements.
All other schedules for which provisions is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
(105)
<PAGE>
(a) 3. EXHIBITS
Exhibit
Number Description
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. 333-07513)./1/
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. 333-07513))./1/
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. 333-07513))./1/
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. 333-07513))./1/
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. 333-07513))./1/
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. 333-07513))./1/
2.7 Asset Purchase Agreement, dated as of November 29, 1996, among StaffMark,
The Technology Source Acquisition Corporation, and the Technology Source,
L.L.C. (Incorporated by reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K filed with the Commission on December 16, 1996)./1/
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.
333-07513)).
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. 333-07513)).
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. 333-07513)).
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. 333-07513)).
(106)
<PAGE>
4.2 Article Four of the Certificate of Incorporation of the Company (included
in Exhibit 3.1).
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.
333-07513)).
10.2 Form of Director Indemnification Agreement between the Company and each of
its directors and executive officers (Incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No.
333-07513)).
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. 333-07513)).
10.4 Employment Agreement among StaffMark, Brewer and Clete T. Brewer.
(Incorporated by reference from Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.5 Employment Agreement among StaffMark, Brewer and Jerry T. Brewer.
(Incorporated by reference from Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.6 Employment Agreement among StaffMark, Prostaff and Steven E. Schulte.
(Incorporated by reference from Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.7 Employment Agreement among StaffMark, Maxwell and John H. Maxwell, Jr.
(Incorporated by reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.8 Employment Agreement among StaffMark, Maxwell and Mary Sue Maxwell.
(Incorporated by reference from Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.9 Employment Agreement among StaffMark, HRA and W. David Bartholomew.
(Incorporated by reference from Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.10 Employment Agreement among StaffMark, HRA and Ted Feldman.
(Incorporated by reference from Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.11 Employment Agreement among StaffMark, First Choice and William T.
Gregory. (Incorporated by reference from Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.12 Employment Agreement among StaffMark, DP Pros of Burlington, Inc.
and Janice Blethen.(Incorporated by reference from Exhibit 10.12 to
the Company's Registration Statement on Form S-1 (File No. 333-15059)).
(107)
<PAGE>
10.13 Credit Agreement dated October 4, 1996, in the amount of $50,000,000 by
and between the Registrant, the Lenders named therein ("Lenders") and
Mercantile Bank of St. Louis National Association, as Agent on behalf
of the Lenders.(Incorporated by reference from Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (File No. 333-15059))./1/
10.14 First Amendment to the Credit Agreement dated December 18, 1996 among the
registant and the Lenders named therein.
10.15 Lock-up and Registration Rights Agreement dated September 20,1996 among
the Company, Jerry T. Brewer, Clete T. Brewer, Chad J. Brewer, Donald A.
Marr, Jr., Robert H. Janes III, John C. Becker, Betty Becker, Donna F.
Vassil, Janice Blethen and Capstone Partners, L.L.C.
10.16 Lease Agreement among Brewer and Brewer Investments for the StaffMark
Corporate offices located at 302 East Millsap Road, City of
Fayetteville, County of Washington, State of Arkansas.
10.17 Lease Agreement among Maxwell Staffing, Inc. and Maxwell Properties,
L.L.C. for the Company's offices located at 8221 East 63rd Place, Tulsa,
Oklahoma.
10.18 Lease Agreement among Maxwell/Healthcare, Inc. and Maxwell Properties,
L.L.C. for the Company's offices located at 8211-8213 East 65th Street,
Tulsa, Oklahoma.
11.1 Statement re: computation of per share earnings, reference is made to Note
15 of the StaffMark, Inc. Consolidated Financial Statements contained in
this Form 10-K.
21.1 Subsidiaries of StaffMark as of December 31, 1996.
23.1 Consents of Arthur Andersen LLP, Independent Public Accountants.
27.1 Financial Data Schedule for the year ended December 31, 1996, submitted
to the Commission in electronic format.
/1/ The Company will furnish supplementally a copy of any omitted schedule to
the Commission upon request.
(b) Reports on Form 8-K.
1. Report on Form 8-K filed with the Commission on December 16, 1996 to report
the acquisition of The Technology Source.
2. Report on Form 8-K filed with the Commission on December 26, 1996 to report
the acquisition of Advantage.
(108)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Fayetteville, State of Arkansas, on March 14, 1997.
StaffMark, Inc.
By: /s/ Clete T. Brewer
Clete T. Brewer
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Name Title Date
/s/ Clete T. Brewer President, Chief Executive March 14, 1997
Clete T. Brewer Officer and Director
(Principal Executive Officer)
/s/ Terry C. Bellora Chief Financial Officer March 14, 1997
Terry C. Bellora (Principal Financial and
Accounting Officer)
/s/ Jerry T. Brewer Chairman of the Board March 14, 1997
Jerry T. Brewer
/s/ W. David Bartholomew Executive Vice March 14, 1997
W. David Bartholomew President-Southeastern
Operations and Director
/s/ Steven E. Schulte Executive Vice President- March 14, 1997
Steven E. Schulte Administration and Director
/s/ John H. Maxwell, Jr. Executive Vice President- March 14, 1997
John H. Maxwell, Jr. Medical Services and Director
/s/ Janice Blethen Executive Vice President- March 14, 1997
Janice Blethen Clinical Trials Support
Services and Director
/s/ William T. Gregory Vice President and March 14, 1997
William T. Gregory General Manager -
Carolina Region
/s/ William J. Lynch Director March 14, 1997
William J. Lynch
/s/ R. Clayton McWhorter Director March 14, 1997
R. Clayton McWhorter
/s/ Charles A. Sanders Director March 14, 1997
Charles A. Sanders, M.D.
(109)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
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. 333-07513)./1/
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. 333-07513))./1/
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. 333-07513))./1/
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. 333-07513))./1/
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. 333-07513))./1/
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. 333-07513))./1/
2.7 Asset Purchase Agreement, dated as of November 29, 1996, among StaffMark,
The Technology Source Acquisition Corporation, and the Technology Source,
L.L.C. (Incorporated by reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K filed with the Commission on December 16, 1996)./1/
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.
333-07513)).
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. 333-07513)).
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. 333-07513)).
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. 333-07513)).
(110)
<PAGE>
4.2 Article Four of the Certificate of Incorporation of the Company (included
in Exhibit 3.1).
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.
333-07513)).
10.2 Form of Director Indemnification Agreement between the Company and each of
its directors and executive officers (Incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on Form S-1 (File No.
333-07513)).
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. 333-07513)).
10.4 Employment Agreement among StaffMark, Brewer and Clete T. Brewer.
(Incorporated by reference from Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.5 Employment Agreement among StaffMark, Brewer and Jerry T. Brewer.
(Incorporated by reference from Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.6 Employment Agreement among StaffMark, Prostaff and Steven E. Schulte.
(Incorporated by reference from Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.7 Employment Agreement among StaffMark, Maxwell and John H. Maxwell, Jr.
(Incorporated by reference from Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.8 Employment Agreement among StaffMark, Maxwell and Mary Sue Maxwell.
(Incorporated by reference from Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.9 Employment Agreement among StaffMark, HRA and W. David Bartholomew.
(Incorporated by reference from Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (File No. 333-15059)).
10.10 Employment Agreement among StaffMark, HRA and Ted Feldman. (Incorporated
by reference from Exhibit 10.10 to the Company's Registration Statement
on Form S-1 (File No. 333-15059)).
10.11 Employment Agreement among StaffMark, First Choice and William T.
Gregory.(Incorporated by reference from Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File No. 333-15059)).
10.12 Employment Agreement among StaffMark, DP Pros of Burlington, Inc.
and Janice Blethen.(Incorporated by reference from Exhibit 10.12 to
the Company's Registration Statement on Form S-1 (File No. 333-15059))
(111)
<PAGE>
10.13 Credit Agreement dated October 4, 1996, in the amount of $50,000,000 by
and between the Registrant, the Lenders named therein ("Lenders") and
Mercantile Bank of St. Louis National Association, as Agent on behalf
of the Lenders.(Incorporated by reference from Exhibit 10.13 to the
Company's Registration Statement on Form S-1 (File No. 333-15059))./1/
10.14 First Amendment to the Credit Agreement dated December 18, 1996 among the
registant and the Lenders named therein.
10.15 Lock-up and Registration Rights Agreement dated September 20,1996 among
the Company, Jerry T. Brewer, Clete T. Brewer, Chad J. Brewer, Donald A.
Marr, Jr., Robert H. Janes III, John C. Becker, Betty Becker, Donna F.
Vassil, Janice Blethen and Capstone Partners, L.L.C.
10.16 Lease among Brewer and Brewer Investments for the StaffMark
Corporate offices located at 302 East Millsap Road, City of
Fayetteville, County of Washington, State of Arkansas.
10.17 Lease among Maxwell Staffing, Inc. and Maxwell Properties, L.L.C. for
the Companys offices located at 8221 East 63rd Place, Tulsa, Oklahoma.
10.18 Lease among Maxwell/Healthcare, Inc. and Maxwell Properties, L.L.C. for
the Company's offices located at 8211-8213 East 65th Street, Tulsa,
Oklahoma.
11.1 Statement re: computation of per share earnings, reference is made to Note
15 of the StaffMark, Inc. Consolidated Financial Statements contained in
this Form 10-K.
21.1 Subsidiaries of StaffMark as of December 31, 1996.
23.1 Consents of Arthur Andersen LLP, Independent Public Accountants.
27.1 Financial Data Schedule for the year ended December 31, 1996, submitted
to the Commission in electronic format.
/1/ The Company will furnish supplementally a copy of any omitted schedule to
the Commission upon request.
(112)
<PAGE>
Exhibit 10.14
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT
(this "Amendment") is made and entered into as of this 18th day of December,
1996, by and among STAFFMARK, INC., a Delaware corporation (the "Borrower"),
the Lenders ("Lenders") who are parties to that certain Credit Agreement
with Borrower dated October 4, 1996 (as amended from time to time, the "Credit
Agreement"), and MERCANTILE BANK NATIONAL ASSOCIATION, as successor by
merger to 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, Lenders and the Agent have previously entered
into the Credit Agreement; and WHEREAS, the Borrower, Agent and Lenders desire
to make certain modifications to the Credit Agreement upon the terms and
conditions set forth herein; 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 mutually promise and agree as
follows:
1. The definition of "Acceptable Acquisition" in Section 2 of the Credit
Agreement hereby is deleted in its entirety and the following is
substituted in its place: Acceptable Acquisition shall mean any Acquisition of
an ongoing business similar to or consistent with the Borrower's current line of
business where each of the following are true: (a) such Acquisition 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 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 if
Lenders' consent is required under the succeeding clause (c) or Five (5)
Business Days prior written notice of such Acquisition if Lenders' consent is
not required under the succeeding clause (c); (c) if (1) the sum of: (i) the
principal amount of any Loan requested in connection with such Acquisition, plus
(ii) the then outstanding principal balance of all Loans made in connection with
an Acceptable Acquisition, exceeds $20,000,000.00, and the portion of the
purchase price for such Acquisition payable by Borrower in cash exceeds
$5,000,000.00, or (2) the portion of the purchase price for such Acquisition
payable by Borrower in cash exceeds the lesser of $15,000,000.00 or 25% of
Consolidated Shareholders' Equity, Borrower has obtained the prior written
consent of the Required Lenders and the Agent; and (d) Borrower or a
wholly-owned Subsidiary of Borrower is the surviving entity; 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.
2. The words "and its successors and assigns" hereby are added at the end
of the definition of "Agent" in Section 2 of the Credit Agreement.
3. The definition of "Consolidated Fixed Charges" in Section 2 of the Credit
Agreement hereby is deleted in its entirety and the following is substituted
in its place: 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 or required to be paid during such specified period, including,
without limitation, interest charges during such period under any Capitalized
Leases, plus all income taxes paid or required to be paid during the specified
period of such calculation, plus all payments of principal made or scheduled to
be 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.
4. The definition of "Eligible Accounts" in Section 2 of the Credit
Agreement hereby is deleted in its entirety and the following is substituted in
its place: 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 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; (q)
Accounts of HRA, Inc. unless: (X) Borrower has requested Agent to file UCC-1
financing statements with the Tennessee Secretary of State's Office and in the
Recorders' Offices of each county in Tennessee where HRA, Inc. has an office or
holds any inventory or equipment on all collateral described in the Subsidiary
Security Agreement executed by HRA, Inc. and dated the date hereof, (Y) Agent
has conducted UCC searches in Tennessee to its satisfaction evidencing that upon
such filings in Tennessee that Agent will hold a first perfected security
interest in all Accounts, inventory, equipment and other collateral of HRA, Inc.
located in Tennessee, and (Z) Borrower has paid all search fees, filing fees,
recording fees and other amounts incurred or required to be paid by Agent under
(X) and (Y) above with the filing in the Tennessee Secretary of State's Office
providing for a maximum collateral value in the State of Tennessee of at least
$10,000,000.00; and (r)Accounts which are not subject to a first priority
perfected security interest in favor of Agent for the benefit of each of the
Lenders.
5. The following new definition of "Subsidiary Pledge Agreements"
hereby is added to Section 2 of the Credit Agreement: Subsidiary Pledge
Agreements shall mean those certain pledge agreements 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 Pledge
Agreements executed by any Subsidiary of Borrower created or acquired subsequent
to the date of this Agreement, which Subsidiary Pledge Agreement shall be
delivered pursuant to Section 4.3 or Section 7.2(e), pledging all of the issued
and outstanding capital stock of each Subsidiary 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 5.5, all as the same may be from time to time amended.
6. The term "Borrowing Base Certificate" as defined in Section 3.1(c) of
the Credit Agreement hereby is amended and deemed to refer to the Borrowing Base
Certificate in the form of Exhibit A attached to this Amendment. All references
in the Credit Agreement or any of the other Transaction Documents to the
Borrowing Base Certificate shall hereafter mean the Borrowing Base Certificate
in the form of Exhibit A attached to this Amendment.
7. Section 3.3(a) of the Credit Agreement hereby is deleted in its entirety
and the following is substituted in its place: (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 third 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, 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).
8. The introductory clause of Section 4.3(c) of the Credit Agreement hereby
is deleted in its entirety and the following is substituted in its place: (c)
Any Subsidiary created or acquired by Borrower in connection with the Acceptable
Acquisition shall have executed and delivered:
9. Subsection (ii) of Section 4.3(c) of the Credit Agreement hereby is
deleted in its entirety and the following is substituted in its place: (ii) A
Subsidiary Security Agreement and a Subsidiary Pledge Agreement, together with
such financing statements, collateral schedules, Reg. U-1 affidavits, stock
powers (signed in blank) and other documents as Agent may reasonably require
under Sections 5.4 and 5.5, each executed by a duly authorized officer of such
new Subsidiary;
10. The following new Section 5.5 hereby is added to the Credit
Agreement: 5.5 Subsidiary Pledge Agreements. In order to further secure the
payment when due of the Borrower's Obligations, as guaranteed under each of the
respective Subsidiary Guaranties, the Borrower shall cause each of its
Subsidiaries to pledge to Agent for the benefit of each of the Lenders all of
the issued and outstanding capital stock of each present Subsidiary of such
Subsidiary of 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 cause each of its Subsidiaries to 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. Each such pledge shall be evidenced by a General
Pledge and Security Agreement executed, respectively, by each such Subsidiary of
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,
modified, extended or renewed, the "Subsidiary Pledge Agreements"). The Borrower
covenants and agrees to cause each of its Subsidiaries 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 pledges created by the Subsidiary Pledge Agreements 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 pledges 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.
11. The period at the end of subsection 7.1(a)(ix) hereby is replaced with
a semicolon and the following two new subsections, (x) and (xi), hereby are
added to Section 7.1(a) of the Credit Agreement: (x) Within thirty (30) days
after the end of each fiscal month of Borrower, an aging report of Accounts
indicating which Accounts are current, up to 30, 30 to 60, 60 to 90 and 90 days
or more past the invoice date and including, if requested by Agent, a listing of
the names and addresses of all applicable Account Debtors, all in form and
detail reasonably satisfactory to Agent and certified as being true, correct and
complete by the chief financial officer of Borrower; and (xi) Not less than
Fifteen (15) Business Days, if Lenders' consent is required, or Five (5)
Business Days if Lenders' consent is not required, under clause (c) of the
definition of Acceptable Acquisition in Section 2 of this Agreement, prior to
the closing of any Acceptable Acquisition, the following documents and
information with respect to such Acceptable Acquisition: (A) a copy of the
letter of intent signed by all parties or if no letter of intent has been
signed, a detailed summary of the terms and conditions upon which the
Acquisition is being negotiated, including Borrower's rationale for pursuing the
Acquisition, (B) historical financial statements of the target company and any
other documents reasonably requested by any Lender received by Borrower in
performing its due diligence; (C) a copy of the financial models run or
projections made of the Borrower that include the target company; and (D) such
other information and documents reasonably requested by any Lender with respect
to such Acceptable Acquisition.
12. Section 7.1(i)(iii) of the Credit Agreement hereby is deleted in its
entirety and the following is substituted in its place: 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) $53,000,000.00, 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.
13. Section 7.2(e) hereby is deleted in its entirety and the following is
substituted in its place: (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 (w) 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, (x) 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, (y) cause
such Subsidiary to pledge all of the issued and outstanding stock of any
Subsidiary to Agent for the benefit of each of the Lenders pursuant to a
Subsidiary Pledge Agreement, and deliver to Agent collateral schedules, stock
powers and other pledge documents in form and substance satisfactory to Agent
and the Required Lenders, 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 and deliver to Agent 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.
14. Section 8.14 of the Credit Agreement hereby is deleted in its
entirety and the following is substituted in its place: 8.14 Any "Event of
Default" (as defined therein) shall occur under or within the meaning of any of
the Subsidiary Security Agreements or any of the Subsidiary Pledge Agreements.
15. The paragraph on page 54 of the Credit Agreement beginning with the word
"THEN" hereby is deleted in its entirety and the following is substituted in its
place: THEN, and in each such event (other than an event described in Section
8.7 or 8.8), Agent may, with the consent of the Required Lenders, 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, with the
consent of the Required Lenders, 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 Section 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
with the consent of the Required Lenders, 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, any of the Subsidiary Pledge 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.
16. Schedule 1 referred to in Exhibit E to the Credit Agreement hereby is
amended and deemed to refer to Schedule 1 in the form attached to this
Amendment. All references in the Credit Agreement or any of the other
Transaction Documents to such Schedule 1 shall hereafter mean Schedule 1 in the
form attached to this Amendment.
17. Borrower hereby represents and warrants to Agent and to Lenders
that: a. The execution, delivery and performance by Borrower of this Amendment
are within the corporate powers of Borrower, have been duly authorized by all
necessary corporate action and require no action by or in respect of, or filing
with, any governmental or regulatory body, agency or official. The execution,
delivery and performance by Borrower of this Amendment do not conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under or result in any violation of, and Borrower is not now in default
under or in violation of, the terms of the Articles of Incorporation or Bylaws
of Borrower, any applicable law, any rule, regulation, order, writ, judgment or
decree of any court or governmental or regulatory agency or instrumentality, or
any agreement or instrument to which Borrower is a party or by which it is bound
or to which it is subject; b. This Amendment has been duly executed and
delivered and constitutes the legal, valid and binding obligation of Borrower
enforceable in accordance with its terms; and c. As of the date hereof,
all of the covenants, representations and warranties of Borrower set forth in
the Credit Agreement are true and correct and no "Event of Default" (as defined
therein) under or within the meaning of the Credit Agreement, as hereby amended,
has occurred and is continuing. d. On or before the date of this Amendment,
Borrower has furnished Agent and the Lenders with the following financial
statements: an unaudited consolidated balance sheet and consolidated statements
of income, retained earnings and cash flows of the Founding Companies as of
September 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 sheet and its accompanying notes fairly present the condition of the
Founding Companies as of the date thereof; (2) there has been no material
adverse change n the condition or operation, financial or otherwise, of any of
the Founding Companies since September 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.
18. The Credit Agreement, as hereby amended, and the other Transaction
Documents are and shall remain the binding obligations of Borrower, and except
to the extent amended by this Amendment, all of the terms, provisions,
conditions, agreements, covenants, representations, warranties and powers
contained in the Credit Agreement and the other Transaction Documents shall be
and remain in full force and effect and the same are hereby ratified and
confirmed.
19. All references in the Credit Agreement or the other Transaction Documents
to "this Agreement" and any other references of similar import shall
henceforth mean the Credit Agreement as amended by this Amendment.
20. This Amendment 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, transfer or delegate any of its rights or obligations
hereunder.
21. This Amendment is made solely for the benefit of Borrower, Agent
and Lenders as set forth herein, and is not intended to be relied upon or
enforced by any other person or entity.
22. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER, AGENT AND LENDERS
FROM ANY MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER,
AGENT AND LENDERS COVERING SUCH MATTERS ARE CONTAINED IN THIS AMENDMENT, THE
CREDIT AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, WHICH CONSTITUTE A
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS BETWEEN BORROWER, AGENT AND
LENDERS EXCEPT AS BORROWER, AGENT AND LENDERS MAY LATER AGREE IN WRITING TO
MODIFY. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS
EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND
SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO
THE SUBJECT MATTER HEREOF.
23. This Amendment shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
24. In the event of any inconsistency or conflict between this Amendment and
the Credit Agreement or the other Transaction Documents, the terms, provisions
and conditions of this Amendment shall govern and control.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
and delivered by their duly authorized officers as of the date first above
written.
STAFFMARK, INC.
By: /s/ Terry C. Bellora
Name: Terry C. Bellora
Title: Chief Financial Officer
MERCANTILE BANK NATIONAL ASSOCIATION, as successor by merger to Mercantile
Bank of St. Louis National Association, as Lender
By: /s/ Patricia M. Watson
Name: Patricia M. Watson
Title: Vice President
<PAGE>
MERCANTILE BANK NATIONAL ASSOCIATION, as successor by merger to Mercantile
Bank of St. Louis National Association, as Agent
By: /s/ John C. Billings
Name: John C. Billings
Title: Vice President
<PAGE>
CONSENT OF GUARANTORS
The undersigned hereby consent to the terms, provisions and conditions of
that certain First Amendment to Credit Agreement dated as of December 18th, 1996
made by and between StaffMark, Inc. as Borrower, and Mercantile Bank National
Association, as successor by merger to Mercantile Bank of St. Louis National
Association, as Agent and Lender (the "First Amendment"), which amends that
certain Credit Agreement dated October 4, 1996 made by and between Borrower,
Agent and Lender. The undersigned hereby acknowledge and agree that said
amendments by Borrower, Agent and Lender will not affect or impair any of the
undersigned's obligations to Agent and the Lenders (as defined in the First
Amendment) under: (i) those certain Unlimited Continuing Guaranties, each dated
October 4, 1996 and executed respectively by the undersigned in favor of Agent
and Lenders (collectively, the "Guaranties"), guarantying all of the obligations
of Borrower to Agent and Lenders, which Guaranty obligations are hereby ratified
and confirmed. Executed this 18th day of December, 1996.
BREWER PERSONNEL SERVICES, INC.
By: /s/ Clete T. Brewer
Title: Vice President
PROSTAFF PERSONNEL, INC.
By: /s/ Clete T. Brewer
Title: Vice President
MAXWELL STAFFING, INC.
By: /s/ Clete T. Brewer
Title: Vice President
HRA, INC.
By: /s/ Clete T. Brewer
Title: Vice President
FIRST CHOICE STAFFING, INC.
By: /s/ Clete T. Brewer
Title: Vice President
BLETHEN TEMPORARIES, INC.
By: /s/ Clete T. Brewer
Title: Vice President
PROFESSIONAL RESOURCES, INC.
By: /s/ Clete T. Brewer
Title: Vice President
EXCEL TEMPORARY STAFFING, INC.
By: /s/ Clete T. Brewer
Title: Vice President
DP PROS OF BURLINGTON, INC.
By: /s/ Clete T. Brewer
Title: Vice President
PERSONNEL PLACEMENT, INC.
By: /s/ Clete T. Brewer
Title: Vice President
JAEGER PERSONNEL SERVICES, LTD.
By: /s/ Clete T. Brewer
Title: Vice President
DIXON ENTERPRISES OF BURLINGTON, INC.
By: /s/ Clete T. Brewer
Title: Vice President
TRASEC CORP.
By: /s/ Clete T. Brewer
Title: Vice President
MAXWELL HEALTHCARE, INC.
By: /s/ Clete T. Brewer
Title: Vice President
SQUARE ONE REHAB, INC.
By: /s/ Clete T. Brewer
Title: Vice President
MAXWELL STAFFING OF BRISTOW, INC.
By: /s/ Clete T. Brewer
Title: Vice President
TECHNICAL STAFFING, INC.
By: /s/ Clete T. Brewer
Title: Vice President
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
This Borrowing Base Certificate is delivered pursuant to Section 3.1(c) of
that certain Credit Agreement dated as of October, 4, 1996, by and between
StaffMark, Inc., the Lenders a party thereto, and Mercantile Bank of St. Louis
National Association as Agent (as from time to time amended, the "Loan
Agreement"). All capitalized terms used and not otherwise defined herein shall
have the respective meanings ascribed to them in the Loan Agreement.
Borrower hereby represents and warrants to Lenders that the following
information is true and correct as of , 19 :
I. BORROWING BASE CALCULATIONS
1. Total Accounts as of ___________________ $
2. Less ineligible Accounts
(a) Over 90 days from invoice $
(b) U. S. Government $
(c) Due from Related Parties $ (d) HRA, Inc
Accounts (unless Tennessee UCC financing
statements have been filed) $
(e) All other ineligible Accounts $
(f) Total ineligible Accounts (sum of
(a) through (e)) $
3. Eligible Accounts (Line 1 minus Line 2(f)) $
4. Advance Rate 85%
5. Borrowing Base (Line 3 multiplied by Line 4
but not to exceed $ $20,000,000.00) $
II. LOAN AVAILABILITY
6. Aggregate principal amount of outstanding
Revolving Credit Loans $
7. Face amount of outstanding Letters of Credit $
8. Total Outstandings (Line 6 plus Line 7) $
9. Borrowing Base Excess (Deficit) (Line 5
minus Line 8) (Negative amount represents
mandatory repayment) $
If Line 9 above is negative, this Borrowing Base Certificate is accompanied
by the mandatory repayment required by Section 3.1(d) of the Loan Agreement.
This Borrowing Base Certificate is dated the day of , 19___.
STAFFMARK, INC.
By:
Name:
Title:
<PAGE>
Schedule 1
To Compliance Certificate
(The Certificate attached hereto is as of _____________ )
Capitalized terms used herein shall have the meanings set forth in the
Credit Agreement dated as of October 4, 1996 among StaffMark, Inc., Mercantile
Bank of St. Louis National Association, as agent, and the lenders named therein
(as amended, restated, supplemented or otherwise modified from time to time, the
"Agreement"). Subsection references herein relate to the subsections of the
Agreement.
A. MAXIMUM CAPITAL EXPENDITURES
1. Actual Capital Expenditures for
current Fiscal Year-To-Date $
2. Maximum Permitted (Section 7.2(i)) $
B. CONSOLIDATED PROFORMA OPERATING CASH FLOW For the 12 months ended :
1. Net Income (excluding extraordinary items) $
2. Income Tax Expense $
3. Interest Expense $
4. Amortization and Depreciation Expenses $
5. Operating Lease Expense $
6. Proforma Operating Cash Flow (Sum of Lines B1 through B5) $
C. FIXED CHARGE COVERAGE RATIO
1. Proforma Operating Cash Flow (Line B6 above) $
2. Capital Expenditures $
3. Interest Paid $
4. Scheduled payments of principal on Indebtedness $
5. Income Taxes Paid $
6. Operating Lease Expense $
7. Fixed Charges (Sum of C2 through C6) $
8. Fixed Charges Coverage (C1 divided by C7) _____ to 1.0
9. Minimum Required (Section 7.1(i)(i)) _____ to 1.0
D. OTHER INDEBTEDNESS
1. Purchase money debt as of $
2. Maximum permitted (Section 7.2(a)(iii)) $ 4,000,000.00
3. Subordinated Debt as of $
4. Maximum permitted (Section 7.2(a)(v)) $ 5,000,000.00
5. Other Indebtedness $
6. Maximum permitted (Section 7.2(a)(vi)) $ 1,000,000.00
E. RESTRICTION ON LEASES
1. Direct and indirect
obligations with respect to leases $
2. Maximum permitted (Section 7.2(m)) $
F. MAXIMUM LEVERAGE RATIO
1. Revolving Credit Loans outstanding $
2. Reducing Revolver Loans outstanding $
3. Face amount of Letters of Creditoutstanding $
4. Other Borrowed Money Indebtedness outstanding $
5. Adjusted Total Funded Debt outstanding as of $
(Sum of F1 through F4)
6. Proforma Operating Cash Flow (from B6 above) $
7. Leverage Ratio (F5 divided by F6) _____ to 1.0
8. Maximum Permitted (Section 7.1(i)(ii)) _____ to 1.0 G.
SHAREHOLDERS' EQUITY
1. Shareholders' Equity $
2. Beginning Required Shareholders' Equity $
3. Cumulative Quarterly Net Income (excluding
any Quarterly Net Losses) for Quarters ending September
30, 1996 and thereafter $
4. 50% of G3 $
5. Net Proceeds of Capital Stock issued subsequent to
October 4, 1996 $
6. Total Required Shareholders' Equity (sum of G2, G4 and G5) $
<PAGE>
Exhibit 10.15
LOCK-UP AND REGISTRATION RIGHTS AGREEMENT
This Lock-Up and Registration Rights Agreement (the "AGREEMENT") dated as
of September 20, 1996 is among STAFFMARK, INC., a Delaware corporation
("STAFFMARK"), and JERRY T. BREWER, CLETE T. BREWER, CHAD J. BREWER, DONALD A.
MARR, JR., ROBERT H. JANES III, JOHN C. BECKER, BETTY BECKER, DONNA F. VASSIL,
JANICE BLETHEN and CAPSTONE PARTNERS, LLC (collectively, together with permitted
transferees, the "STOCKHOLDERS").
WHEREAS, the STOCKHOLDERS are the initial stockholders of STAFFMARK and
currently own all the issued and outstanding shares of STAFFMARK common stock,
as set forth in Schedule A attached hereto, ("STAFFMARK Stock");
WHEREAS, in order to facilitate the consummation of the Agreements and
Plans of Reorganization dated as of June 17, 1996 (the "Reorganization
Agreements") and the consummation of the initial public offering of STAFFMARK
Stock, the STOCKHOLDERS have agreed to certain conditions as set forth herein;
and
NOW, THEREFORE, IN CONSIDERATION of the mutual promises, terms, covenants
and conditions set forth herein and the performance of each, the parties agree
as follows:
1. Transfer Restrictions. Except for (i) transfers to immediate family
members who agree to be bound by the restrictions in this AGREEMENT (or trusts
for the benefit of the STOCKHOLDERS (ii) family members, the trustees of which
so agree or family limited partnership), or (iii) in the case of Capstone
Partners, LLC ("Capstone"), Members of Capstone who agree that they will be
subject to the terms and conditions and entitled to the benefits hereof as of
parties hereto, for a period of two years from the closing of the initial public
offering of STAFFMARK Stock, except in the event of death of any STOCKHOLDER,
none of the STOCKHOLDERS shall sell, exchange, transfer or otherwise dispose of
(a) any shares of STAFFMARK Stock, or (b) grant any interest (including, without
limitation, an option to buy or sell) in any such shares of STAFFMARK Stock, in
whole or in part, and no such attempted transfer shall be treated as effective
for any purpose.
2.1. Piggyback Registration Rights. At any time following the Closing,
whenever STAFFMARK proposes to register any STAFFMARK Stock for its own or
others' accounts under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by STAFFMARK and (ii) registrations relating solely to
employee benefit plans, STAFFMARK shall give each of the STOCKHOLDERS prompt
written notice of its intent to do so. Upon the written request of any of the
STOCKHOLDERS given within 30 days after receipt of such notice, STAFFMARK shall
cause to be included in such registration all of the STAFFMARK Stock which any
such STOCKHOLDER requests ("Registrable Securities"), provided that STAFFMARK
shall have the right to reduce the number of shares included in such
registration to the extent that inclusion of such shares could, in the opinion
of tax counsel to STAFFMARK or its independent auditors, jeopardize the status
of the transactions contemplated hereby and by the Registration Statement as a
tax-free reorganization.
If a STOCKHOLDER requests inclusion of any shares of Registrable Securities
in a registration and if the public offering is to be underwritten, STAFFMARK
will request the underwriters of the offering to purchase and sell such shares
of Registrable Securities. If STAFFMARK is advised in writing in good faith by
any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 2.2 that the
number of shares to be sold by persons other than STAFFMARK is greater than the
number of such shares which can be offered without adversely affecting the
offering, STAFFMARK may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such person)
to a number deemed satisfactory by such managing underwriter; provided, that,
for each such offering made by STAFFMARK after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
STAFFMARK and the FOUNDING COMPANY HOLDERS or persons with registration rights
equal in right to those of the FOUNDING COMPANY HOLDERS. FOUNDING COMPANY
HOLDERS shall mean persons who received StaffMark Stock pursuant to a
REORGANIZATION AGREEMENT. StaffMark Stock received by certain FOUNDING COMPANY
HOLDERS other than pursuant to a REORGANIZATION AGREEMENT shall not be included
in determining the pro rata number of shares which can be offered by the other
FOUNDING COMPANY HOLDERS or persons with registration rights equal in right to
those of the FOUNDING COMPANY HOLDERS.
A STOCKHOLDER may at any time prior to the effectiveness of a registration
statement withdraw shares of Registrable Securities held by it from the public
offering. The fact that any shares of STAFFMARK Stock have been the subject of a
request for registration pursuant to this Section 17.1 shall not prevent such
shares from being the subject of a future request for registration pursuant to
this Section 17.1 if for any reason such shares were not included in the
registration statement.
2.2. Registration Procedures. STAFFMARK will bear all expenses incurred in
connection with each registration statement filed in accordance with this
Article and any action taken by STAFFMARK in conjunction with the offering made
pursuant to such registration statement (including the expense of preparing and
filing of such registration statement, furnishing of such number of copies of
the prospectus included therein as may be reasonably required in connection with
the offering, printing expenses, fees and expenses of independent certified
public accountants (including the expense of any audit), qualification of such
offering under such state securities laws as the holders of shares of STAFFMARK
Stock shall reasonably request, and payment of the fees and expenses of counsel
for STAFFMARK, but excluding underwriting commissions and discounts).
If and whenever STAFFMARK is required to effect or cause the registration
of any shares of STAFFMARK Stock under this Article, STAFFMARK will, as
expeditiously as possible:
(a) Prepare and file with the SEC an appropriate registration statement
with respect to such shares of STAFFMARK Stock and use its best efforts to cause
such registration statement to become effective, provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
STAFFMARK will furnish the STOCKHOLDERS with copies of all such documents
proposed to be filed;
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith and use
its best efforts to cause such registration statement to remain effective for a
period of at least sixty (60) days (or such shorter period during which holders
shall have sold all Registrable Securities which they requested to be
registered) and to comply with the provisions of the 1933 Act (to the extent
applicable to STAFFMARK) with respect to the disposition of all securities in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c) Furnish to each STOCKHOLDER selling shares of STAFFMARK Stock such
number of copies of the registration statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus), in conformity with the requirements of the 1933 Act and
the regulations thereunder and such other documents, as each seller may
reasonably request in order to facilitate a public sale or other disposition of
the shares of STAFFMARK Stock;
(d) Use its best efforts to register or qualify the shares of STAFFMARK
Stock covered by such registration statement under the securities or blue sky
laws of such states as any selling STOCKHOLDER reasonably requests, and do any
and all other acts and things which may be necessary or advisable to enable such
seller to consummate the public sale or other disposition in such jurisdictions
of shares of STAFFMARK Stock owned by such STOCKHOLDER, except that STAFFMARK
will not be required to qualify generally to do business as a foreign
corporation in any state wherein it would not but for the requirements of this
subparagraph be obligated to be qualified, to subject itself to taxation in any
such state, or to consent to general service of process in any such state;
(e) Notify each STOCKHOLDER selling shares of STAFFMARK Stock covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of this happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing. At the
request of any such STOCKHOLDER, STAFFMARK will prepare and furnish to each
STOCKHOLDER a reasonable number of copies of a supplement or an amendment of
such prospectus as may be necessary so that, as thereafter delivered, such
prospectus will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(f) Cause all shares of STAFFMARK Stock covered by such registration
statement to be listed on securities exchanges on which similar securities
issued by STAFFMARK are then listed, if any;
(g) Provide a transfer agent and registrar for all shares of STAFFMARK
Stock covered by such registration statement not later than the effective date
of such registration statement;
(h) Enter into such customary agreements (including an underwriting
agreement in customary form with underwriters) and take such other reasonable
and customary action necessary to facilitate the disposition of the shares of
STAFFMARK Stock being sold; and
(i) Make available for inspection by any seller (upon the reasonable
request of any such seller) of shares of STAFFMARK Stock covered by such
registration statement, by any underwriter participating in any disposition to
be effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by any such seller or any such underwriter,
all financial and other records, pertinent corporate documents and properties of
STAFFMARK, and cause all of STAFFMARK's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
3. Availability of Rule 144. STAFFMARK shall not be obligated to register
shares of STAFFMARK Stock held by any STOCKHOLDER pursuant to this Section 17 if
such Registrable Securities held by such STOCKHOLDER may be sold in the public
market without registration under the 1933 Act pursuant to Rule 144(k) and any
applicable state securities laws.
4. Merger, etc. In the event that any capital stock or other securities are
issued in respect of, in exchange for, or in substitution of, any of the shares
of STAFFMARK held by the STOCKHOLDERS by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, partial or complete liquidation,
stock dividend, split-up, sale of assets, distribution to stockholders or
combination of the shares of STAFFMARK, or any other change in STAFFMARK's
capital structure, appropriate adjustment shall be made to the registration
rights granted to the STOCKHOLDERS so as to fairly and equitably preserve, as
far as practical, the original rights and obligations of the parties hereto
under this Agreement.
5. 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.
4. Governing Law. This AGREEMENT shall in all respects be construed
according to the laws of the State of Delaware.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
This AGREEMENT is executed as of the date first above written.
STAFFMARK, INC.
By:___________________ /s/ Jerry T. Brewer
Its:___________________ JERRY T. BREWER
/s/ Clete T. Brewer /s/ Chad J. Brewer
CLETE T. BREWER CHAD J. BREWER
/s/ Donald A. Marr, Jr. /s/ Robert H. Janes
DONALD A. MARR, JR. ROBERT H. JANES III
/s/ John C. Becker /s/ Betty Becker
JOHN C. BECKER BETTY BECKER
/s/ Donna F. Vassil /s/ Janice Blethen
DONNA F. VASSIL JANICE BLETHEN
CAPSTONE PARTNERS, LLC
K:dhc1598.308
SCHEDULE A
Stockholder Name Certificate Number Number of Shares
Brewer, Jerry T. 3 179,944.00
Brewer, Clete T. 4 457,042.00
Brewer, Chad J. 5 252,978.00
Marr, Donald A., Jr. 6 34,010.00
Janes, III, Robert H. 7 184,957.00
Becker, John 8 32,656.00
Becker, Betty 9 35,366.00
Vassil, Donna 10 16,938.00
Capstone Partners, LLC 11 136,042.00
Blethen, Janice 12 25,067.00
<PAGE>
Exhibit 10.16
LEASE AGREEMENT WITH OPTION TO RENEW AND
RIGHT OF FIRST REFUSAL
THIS LEASE AGREEMENT WITH OPTION TO RENEW AND RIGHT OF FIRST REFUSAL (the
"Lease") is entered into on the 15th day of January, 1996, by and between Brewer
Investments, an Arkansas general partnership, hereinafter referred to as
"Lessor," and Brewer Personnel Services, Inc., an Arkansas corporation, Clete T.
Brewer, President, Chad J. Brewer, Director, hereinafter collectively referred
to as "Lessees," wherein the following mutual covenants and understandings are
made and entered into upon the following terms and conditions:
SECTION ONE
SUBJECT OF LEASE
Lessor hereby lets and leases unto Lessees, and Lessees accept from Lessor,
subject to the terms and conditions contained herein, the following described
property located at 302 E. Millsap, in the City of Fayetteville, County of
Washington, State of Arkansas, to-wit:
Lot Numbered 8, CMN Business Park, an Addition to the City of Fayetteville,
Washington County, Arkansas, as per plat of said Addition on file in the office
of the Circuit Clerk and Ex-Officio Recorder of Washington County, Arkansas.
Subject to existing easements and restrictions of record, if any.
hereinafter referred to as the "Premises."
SECTION TWO
TERM
The Premises are hereby leased to Lessees for a period of fifteen (15)
years, commencing at 12:01 a.m. on the 15th day of January 1996, and ending at
12:01 a.m. on the 31st day of December, 2011, hereinafter referred to as the
"Lease Term."
SECTION THREE
RENTAL AMOUNT
The monthly rental payment for the Lease Term shall be payable as set forth
below in advance on the 1st day of each month, with the first payment being due
on or before the date of the signing of this Lease, with the January rent being
prorated as of the date the Lease Agreement is signed. The Lessees agree to pay
to Lessor as monthly rental the following amounts for the following portions of
the Lease Term:
1. Years 1 - 5: January 1, 1996 through December 1, 2000 the sum of
$18,791.00 per month; 2. Years 6 - 10: January 1, 2001 through December 1, 2005
the sum of $19,133.00 per month; 3. Years 11 - 15: January 1, 2006 through
December 1, 2015 the sum of $19,475.00 per month;
SECTION FOUR
RIGHT OF FIRST REFUSAL
If the Lessees shall have fully performed every agreement and covenant on
Lessees' part to have been kept and performed under the terms of the Lease at
the time of exercise, Lessees shall be granted a right of first refusal on the
following terms and conditions, to purchase the above-described Premises.
In the event that the Lessor shall receive a bona fide offer from a third
party to purchase the Premises, or if the Lessor shall decide to sell the
Premises to any third party, Lessor shall give Lessees a written offer to sell
the property described above to the Lessees, setting forth the price and terms
of sale as set forth in the offer from the potential third party purchaser of
the Premises, or the Lessor's offer to sell to a third party.
In either event, Lessor shall send the written offer to Lessees at the
address required under Section Twenty for notices by certified mail, requiring
Lessees to accept the offer in writing and to sign a suitable contract to
purchase the Premises within the period of ten (10) business days after the
mailing of the notice.
The failure of Lessees to accept the offer to purchase or sign a contract
within the period provided shall nullify and void the right of refusal to
Lessees, and Lessor shall be at liberty to sell the Premises to any other
person, firm, corporation or other entity, at the price and on the terms offered
to Lessees. Any subsequent sale, except to Lessees, shall be subject to this
Lease and any renewals or extensions hereof.
SECTION FIVE
RENEWAL TERMS
If the Lessees shall have fully performed every agreement and covenant on
Lessees part to have been kept and performed under the terms of this Lease, and
any amendments and renewals hereof at the time of exercise and at the time of
each renewal, then upon the expiration of the Lease Term, Lessees shall have the
option to renew this Lease of the Premises for as many additional terms of five
(5) years as the parties shall agree (the "Renewal Term"), subject to the
following provisions:
A. Notice of the exercise of the option to renew must be given in writing
to Lessor not later than six (6) months prior to the end of the original Lease
Term, or each renewal term agreed by the parties, as applicable.
B. The Right of First Refusal described in Section Four of the Lease shall
not be renewed or extended during any of the Renewal Terms.
C.This Lease may be extended on the same terms and conditions, except the
amount of the monthly rental payments, for each of the Renewal Terms. Should the
Lessees exercise the option to renew granted herein, the amount of the monthly
rental payments for the Renewal Term shall be renegotiated between the Lessor
and Lessees at the time of renewal. The amount of the monthly rental payments
for the renewal terms shall be as agreed by the parties, and if the parties
cannot agree, it shall be based on the fair market value for rentals of similar
and comparable properties in the area, not to exceed 8% of the current rental
amount.
SECTION SIX
LIENS
Lessees shall not encumber the Premises or any buildings thereon and shall
keep the Premises free and clear of any and all mechanic's, laborer's,
materialmen's, and other liens arising out of or in connection with any work or
labor done, services performed, or materials or appliances used or furnished for
or in connection with any operations of Lessees.
SECTION SEVEN
ASSIGNMENT AND SUBLEASE
Lessees shall not assign any rights, duties or privileges under this Lease,
nor allow any other person to occupy or use the Premises (other than invitees of
Lessees who are present at the same time the Lessees are present) without the
prior written consent of Lessor. A consent to one assignment, sublease,
occupation or use by any other person or entity shall not be a concent to any
subsequent assignment, sublease, occupation or use by any other person or
entity, nor will such consent release the Lessees from any of Lessees
obligations hereunder. At Lessor's option, Lessor may release Lessees from this
Lease and their obligations hereunder if (1) a sublessee, acceptable to Lessor,
is found and (2) the sublessee is willing to enter into a long term lease of the
Premises which is acceptable to Lessor. Any assignment or subletting without the
written consent of Lessor shall be void, and shall, at the option of the Lessor,
terminate this Lease.
SECTION EIGHT
WARRANTIES OF TITLE AND QUIET POSSESSION
Lessor covenants that it has the right to make this Lease, and that Lessees
shall have the quiet and peaceable possession of the Premises during the term
hereof.
SECTION NINE
WASTE AND NUISANCE PROHIBITED
During the term of this Lease, Lessees shall comply with all laws
applicable to Lessees' operation of business on the Premises, the breach of
which might result in any penalty on Lessor or forfeiture of Lessor's title to
the property. Lessees shall not commit, or suffer to be committed, any waste on
the Premises or any nuisance.
SECTION TEN
LESSORS' RIGHTS OF ENTRY
Lessees shall permit Lessor or Lessor's agents to enter into and upon the
Premises at all reasonable times during normal business hours, upon prior
reasonable notice, for the purpose of inspecting the same; provided that Lessor
shall not interfere with the privacy rights or treatment of any of Lessees'
patrons while in the Premises, or otherwise disrupt Lessee's business
operations.
SECTION ELEVEN
UTILITIES
Lessees shall fully and promptly pay all water, electricity, gas, telephone
service, and other public utilities furnished to the Premises throughout the
term hereof.
SECTION TWELVE
TRADE FIXTURES
All trade fixtures installed by Lessees or acquired by Lessees
independently of this Lease shall remain the Lessees' property and may be
removed by Lessees at the expiration or termination of this Lease; provided,
however, Lessee shall restore the Premises and repair any damage thereto caused
by such removal.
SECTION THIRTEEN
MAINTENANCE AND REPAIR OF PREMISES
Lessees have inspected the Premises, and acknowledge by signing hereinafter
that the Premises are now in a tenantable and good condition. Lessees, at their
expense, shall keep the Premises in good order, condition and repair and shall
promptly make all repairs and replacements to the Premises of every kind and
nature, including but not limited to repairs to the building.
Lessees shall take good care in the use of the Premises and shall not
alter, repair, modify, construct additions or improvements or change the
Premises without the written consent of the Lessor; provided that Lessors
written consent will not be unreasonably withheld. Lessees, at their expense and
with the written consent of Lessor, may make any additions, modifications, and
repairs which are needed to comply with any licensing requirements, health and
safety regulations, or other requirements or regulations associated with
Lessees' use and occupancy of the Premises. Any alterations, improvements and
changes the Lessees may desire or need shall be done either by or under the
approval of the Lessor, but at the expense of Lessees and shall become the
property of Lessor and remain on the Premises.
Lessees shall, at the termination of this Lease, surrender the Premises to
Lessor in as good condition and repair as reasonable and proper use thereof will
permit, ordinary wear and tear, damage or destruction by fire, flood, storm,
civil commotion, or other unavoidable cause or Acts of God excepted. Lessor
shall not be responsible for any additions, replacements or repairs except those
which Lessor may specifically assume in writing.
SECTION FOURTEEN
TAXES
Lessees shall pay all ad valorem real property taxes and assessments due to
improvement districts or governmental bodies which may be levied, assessed or
charged against the Premises, and proof of payment thereof shall be submitted to
Lessor upon payment. Lessees shall also be responsible for assessing and paying
the personal property taxes on any personal property of Lessees located on the
Premises and for all license, privilege and occupation taxes levied, assessed or
charged against the Lessees on account of the operation of the business on the
Premises.
SECTION FIFTEEN
INSURANCE
Lessees shall, at their own expense, at all times during the Lease Term and
any Renewal Term of the Lease, maintain in force a policy or policies of
insurance, written by one or more responsible insurance carriers acceptable to
Lessor, which will insure Lessor and Lessees against liability for injury to or
death of persons or loss or damage to property occurring in or about the
Premises. The liability coverage under such insurance shall not be less than
$1,000,000.00 per occurrence, or $2,000,000.00 aggregate.
Lessees shall also, at their expense, at all times during the Lease Term
and any Renewal Term of this Lease, keep insured all buildings and improvements
on the Premises against all losses or damage by fire and other casualty, in an
amount not less than $1,400,000.00, with Lessor and Lessee named as insured
parties and with standard mortgagee coverage in favor of all persons who may
hold mortgages on the Premises. Lessees, during the Lease Term and any Renewal
Term, shall be responsible for insuring the contents of the Premises.
Lessees shall provide Lessor with proof of the above described insurance
coverage at all times, and inform Lessor of any lapse, deficiency or
cancellation, or any notices thereof immediately.
Should Lessees fail to keep in effect and pay such insurance as it is in
this section required to be maintained, Lessor may do so, in which event the
insurance premiums paid by Lessor shall become immediately due and payable by
Lessees to Lessor.
SECTION SIXTEEN
INDEMNIFICATION OF LANDLORD
Notwithstanding the existence of any insurance provided for in Section
Fifteen, Lessees shall indemnify and hold Lessor harmless from and against any
and all claims, damages, causes of action, expenses, costs, and liabilities of
any nature which may be asserted against Lessor arising out of any breach by
Lessees, Lessees' agents, employees, customers, visitors or licensees, of any
covenant or condition of this Lease, or as a result of Lessees' use or occupancy
of the Premises, or as a result of the carelessness, negligence or improper
conduct of Lessees, Lessees' agents, employees, customers, visitors or
licensees, except as specifically provided for below. Lessees shall not be
responsible for damage caused by the carelessness, negligence or improper
conduct of the Lessor.
SECTION SEVENTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
In the event of a partial destruction of the Premises during the term of
the Lease from any cause covered by Lessees' casualty insurance, to an extent
repairable within sixty (60) days from the date of such damage, Lessor shall
forthwith repair the same, provided the repairs can be made within sixty (60)
days under the laws and regulations of applicable governmental authorities. Any
partial destruction shall not annul or void this Lease; however, the Lessees
shall be entitled to a proportionate reduction of the monthly rental while the
repairs are being made. Any proportionate reduction shall be based on the extent
to which the making of repairs shall interfere with the business carried on by
Lessees on the Premises. If the repairs cannot be made in sixty (60) days,
Lessor may, at its option, make repairs within a reasonable amount of time, and
this Lease shall continue in full force and effect with appropriate
proportionate reduction of this monthly rental as stated above. In the event
Lessor does not elect to make repairs that cannot be made in sixty (60) days, or
in the event those repairs cannot be made under the laws and regulations of this
applicable governmental authorities, or in the event of a total destruction of
the Premises, this Lease may be terminated at the option of either party and in
such event, Lessees shall be entitled to a proportionate rebate of the monthly
rental based upon number of days remaining for the month in which Rental has
been paid.
SECTION EIGHTEEN
BREACH OR DEFAULT
Lessees shall have breached this Lease and shall be considered in default
hereunder if: (a) Clete T. Brewer and Chad J. Brewer, shall both file a petition
in bankruptcy or insolvency or for reorganization under any bankruptcy act, or
makes an assignment for the benefit of creditors which is not released within
thirty (30) days; (b) involuntary proceedings are instituted against any of the
Lessees under any bankruptcy act, and such proceedings are not dismissed within
thirty (30) days of the filing thereof; (c) Brewer Personnel Services, an
Arkansas corporation, Clete T. Brewer, President & CEO, and Chad J. Brewer,
Director, shall both abandon or vacate said Premises before the end of the term
of this Lease without being released pursuant to the terms hereof; (d) Lessees
suffer the rent to be more than ten (10) days in arrears; or (e) Lessees fail to
perform or comply with any of the covenants or conditions of this Lease and such
failure continues for a period of ten (10) days.
In the event of a breach of this Lease by Lessees, the Lessor may elect to
take any of the following actions:
(a) Lessor may terminate this Lease and the use of the Premises by Lessees
and remove any goods of Lessees from the Premises, and retain the same or store
or dispose of same in such manner as the Lessor shall deem appropriate under the
circumstances pursuant to Arkansas law. In the event of storage, Lessees shall
be responsible for the reasonable costs of same and such costs of storage shall
be a lien against the property if the storage fees are not promptly paid; or
(b) Lessor may enter said premises as the agent of Lessees, without being
liable in any way therefor, and relate the Premises with or without fixtures
that may be therein, as the agent of Lessees, at such price and upon such terms
and for such duration of time as the Lessor may determine, and receive the rent
therefor, applying the same to the payment of the rent due by these presents,
and if the full rental herein provided shall not be realized by Lessor over and
above the expenses to Lessor in such reletting, the said Lessees shall pay any
deficiency upon demand, and if more than the full rental is realized, Lessor
will pay over to said Lessees the excess on demand.
Notwithstanding the above, Lessor is entitled to pursue any remedies
available at law or in equity.
SECTION NINETEEN
PARTIES BOUND
The covenants and conditions contained herein shall, subject to the
provisions as to assignment, transfer and subletting, apply to and bind the
successors and assigns of the parties hereto.
SECTION TWENTY
NOTICES
Any notices provided for herein will be deemed to have been given when
deposited by certified mail, return receipt requested, postage prepaid,
addressed to the parties as follows:
To Lessor: Brewer Investments
attn: Jerry Brewer
2683 Joyce Blvd.
Fayetteville, Arkansas 72703
To Lessees: Brewer Personnel Services
attn: Clete T. Brewer, President
302 E. Millsap
Fayetteville, Arkansas 72703
SECTION TWENTY-ONE
MERGER
This Lease Agreement with Option to Renew and Right Of First Refusal
contains the entire agreement between the parties and supersedes any prior or
contemporaneous oral or written agreements which supplement or contradict the
terms and provisions set forth herein.
SECTION TWENTY-TWO
APPLICABLE LAW
This Lease shall be construed in accordance with and governed by the laws
of the State of Arkansas applicable to agreements made and to be performed
wholly within such jurisdiction with regard to the conflicts of laws provisions
thereof. The Courts of the State of Arkansas for Washington County, and the
Federal Courts for the Western District of Arkansas shall have jurisdiction over
any and all disputes which arise between the parties under this Agreement,
whether in law or in equity, and each of the parties shall submit and hereby
consents to such Court's exercise of jurisdiction.
SECTION TWENTY-THREE
ATTORNEY'S FEES
If any legal action shall be brought to recover any rent or enforce any
right under the terms of this Lease, the prevailing party shall be entitled to
recover from the other party any reasonable costs of collection and attorneys'
fees incurred as a consequence of enforcing the provisions of the Lease, the
amount of which shall be fixed by the Court and shall be made a part of the
judgment or decree rendered.
SECTION TWENTY-FOUR
PROVISIONS SEPARABLE
In the event any one or more of the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect the
remaining provisions of this Lease and this Lease shall be construed as if such
invalid, illegal or unenforceable provision or provisions had never been
contained herein.
SECTION TWENTY-FIVE
CONSENT OR WAIVER OF BREACH
The consent of either party to act or the waiver by either party of a
breach of any provision of this Lease shall not operate or be constructed as a
consent or waiver of any subsequent act or breach by the other party.
SECTION TWENTY-SIX
MISCELLANEOUS
A. Time shall be of the essence with respect to every term and condition of
this Lease.
B. In the event that any rental payment to be made under this Lease is more
than ten (10) days past due, Lessees agree to pay a late charge equal to five
percent (5%) of said past due rental payment.
C. This Lease may be amended or modified only by an strument in writing
duly executed by all parties hereto or their successors.
D. This Lease may be executed in multiple counterparts, each of which shall
be deemed an original, and all of which shall taken together shall be deemed one
instrument.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement With
Right Of First Refusal on this 26th day of December 1995.
LESSOR:
BREWER INVESTMENT,
an Arkansas general partnership
By: /s/ Jerry Brewer
---------------
Jerry Brewer, General Partner
LESSEES:
BREWER PERSONNEL SERVICES, INC.
an Arkansas corporation
By: /s/ Clete T. Brewer
--------------------
Clete T. Brewer, President
/s/ Chad J. Brewer
------------------
Chad J. Brewer, Director
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)ss.
COUNTY OF WASHINGTON )
On this day, before the undersigned, a Notary Public, duly commissioned,
qualified and acting, within and for the said County and State, appeared in
person the within named Jerry Brewer, to me personally known, who stated that he
was a General Partner of Brewer Investments, an Arkansas general partnership,
and was duly authorized in his respective capacity to execute the foregoing
instrument for and in the name and behalf of said partnership, and further
stated and acknowledged that he had so signed, executed and delivered said
instrument for the consideration, uses and purposes therein mentioned and set
forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
27th day of December, 1995.
My Commission Expires: /s/ Joyce Gail Eads
-------------------
04-17-99 Notary Public
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)ss.
COUNTY OF WASHINGTON )
On this day, before the undersigned, a Notary Public, duly commissioned,
qualified and acting, within and for the said County and State, appeared in
person the within named Clete T. Brewer, to me personally known, who stated that
he is President of Brewer Personnel Services, an Arkansas corporation, and was
duly authorized in his respective capacity to execute the foregoing instrument
for and in the name and behalf of said partnership, and further stated and
acknowledged that he had so signed, executed and delivered said instrument for
the consideration, uses and purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
27th day of December, 1995.
My Commission Expires: /s/ Joyce Gail Eads
-------------------
04-17-99 Notary Public
FIRST AMENDMENT TO LEASE FOR
302 E. Millsap
Brewer Investments, an Arkansas general partnership, hereinafter referred
to as "Lessor" and Brewer Personnel Services, Inc., an Arkansas corporation,
hereinafter referred to as "Lessee", agree to amend the Lease Term to a period
of five (5) years, commencing at 12:01 a.m. on the 15th day of January 1996, and
ending at 12:01 a.m. on the 31st day of December, 2001.
IN WITNESS WHEREOF, the parties have executed this First Amendment on the
3rd day of April, 1996.
LESSOR:
BREWER INVESTMENT,
an Arkansas general partnership
By: /s/ Jerry Brewer
----------------
Jerry Brewer, General Partner
LESSEES:
BREWER PERSONNEL SERVICES, INC.
an Arkansas corporation
By: /s/ Clete T. Brewer
-------------------
Clete T. Brewer, President
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)ss.
COUNTY OF WASHINGTON )
On this day, before the undersigned, a Notary Public, duly commissioned,
qualified and acting, within and for the said County and State, appeared in
person the within named Jerry Brewer, to me personally known, who stated that he
was a General Partner of Brewer Investments, an Arkansas general partnership,
and was duly authorized in his respective capacity to execute the foregoing
instrument for and in the name and behalf of said partnership, and further
stated and acknowledged that he had so signed, executed and delivered said
instrument for the consideration, uses and purposes therein mentioned and set
forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
3rd day of April, 1996.
My Commission Expires: /s/ Lois McAlister
------------------
10-21-2005 Notary Public
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)ss.
COUNTY OF WASHINGTON )
On this day, before the undersigned, a Notary Public, duly commissioned,
qualified and acting, within and for the said County and State, appeared in
person the within named Clete T. Brewer, to me personally known, who stated that
he is President of Brewer Personnel Services, an Arkansas corporation, and was
duly authorized in his respective capacity to execute the foregoing instrument
for and in the name and behalf of said partnership, and further stated and
acknowledged that he had so signed, executed and delivered said instrument for
the consideration, uses and purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal this
3rd day of April, 1996.
My Commission Expires: /s/ Lois McAlister
------------------
10-21-2005 Notary Public
<PAGE>
-13-
Exhibit 10.17
LEASE
This Lease is entered into as of May 15, 1996, by and between Maxwell
Properties, L.L.C., an Oklahoma limited liability company ("Lessor"), and
Maxwell Staffing, Inc., an Oklahoma corporation ("Lessee").
The Premises. In consideration of the rents and covenants hereinafter set
forth, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
real property and all buildings and improvements now existing or hereafter
placed thereon located at 8221 East 63rd Place, Tulsa, Oklahoma, and more
specifically described as set forth on Exhibit A attached hereto (collectively,
the "Premises").
Term. The term of this Lease shall be for a period of three (3) years
commencing on June 1, 1996 (the "Commencement Date") and expiring on May 31,
1999, unless sooner terminated as provided herein.
Rent. Lessee shall pay to Lessor without deduction, setoff or credit, and
without demand, at the address of Lessor set forth below or at such other place
as Lessor may from time to time designate in writing, the sum of $8,333.33 as
monthly rental for the Premises, or $300,000.00 for the term hereof, with
monthly installments payable in advance on the first day of each month during
the term of this Lease.
Option to Renew. Lessor hereby grants Lessee the option to extend the term
hereof for an additional period of two (2) years (the "Renewal Term"). This
option shall be exercisable by Lessee upon delivery of written notice to Lessor,
which notice must be received by Lessor not less than one hundred twenty (120)
days prior to the expiration of the initial term. All the terms of this Lease
shall apply during the Renewal Term except that the Rental for the Renewal Term
shall be increased by an amount corresponding to the change in the "CPI" (as
defined hereinafter) over the period from the Commencement Date to the reporting
period closest to the commencement of the Renewal Term. "CPI" as used herein,
shall mean the index now known as the "Consumer Price Index for All Urban
Consumers: U.S. City Average - All Items (1982 - 84) = 100)" published by the
United States Department of Labor, Bureau of Labor Statistics. In the event the
publication of the CPI is hereafter discontinued, Lessor and Lessee shall agree
upon and designate a comparable index to be used in lieu thereof for the
purposes thereof.
Utilities. Lessee shall, during the term hereof, pay all charges and post
all security deposits, if any, for all utilities of the Premises, including
without limitation, telephone, gas, electricity, water, sewer and garbage
removal services.
Taxes and Assessments. Lessee shall pay all real estate taxes and
assessments levied against the Premises or imposed by reason of occupancy of the
Premises during the term of this Lease and during any Renewal Term, prior to the
time the same became delinquent.
Use of Premises. The Premises shall be used and occupied by Lessee in
connection with general office operations, or any other legal purpose with the
prior written consent of Lessor. Lessee shall not possess, occupy or use the
Premises in violation of any federal, state or local laws, rules and
regulations, or for any purpose that would constitute a nuisance. Lessee shall
likewise observe and comply with the requirements of all policies of public
liability, fire and all other policies of insurance at any time in force with
respect to the Premises or improvements or to the use or manner of use of the
same.
Entry and Inspection. Lessor reserves the right to enter upon the Premises
at reasonable hours and upon reasonable notice to inspect the same, or to make
repairs, additions or alterations to the Premises, and to enter at any time in
the event of an emergency. In the event Lessee fails to exercise its renewal
option as provided in Section 4, Lessor may show the Premises to prospective
tenants during normal business hours and upon reasonable advance notice to
Lessee, and may display a notice on the Premises advertising the same for lease.
Lessor further reserves the right at any time during the term hereof to show the
Premises to prospective purchasers and to display notices advertising the same
for sale; provided, however, that any showing of the Premises to a prospective
purchaser will be made during normal business hours and upon reasonable advance
notice to Lessee. Notwithstanding the foregoing, all such entries and
inspections (except in the case of emergency) shall not unreasonably interfere
with Lessee's use and enjoyment of the Premises.
Maintenance. During the term of this Lease, Lessee, at its own expense,
shall repair, replace and maintain the Premises in a good and safe condition
including glass, electrical, plumbing, air conditioning, heating and any other
system or appliances, fixtures or equipment on the Premises, and shall surrender
the same, at termination hereof, in as good condition as received, normal wear
and tear excepted. Notwithstanding the foregoing, Lessor, at its own expense,
shall maintain and repair the roof, the floor (excluding carpeting), the walls
(excluding wall coverings and paint) and structural foundations of the Premises.
Lessee further agrees to make all repairs to the Premises and to do all
interior office painting and decorating when such repairs and/or painting and
decorating are necessitated by the occurrence of perils normally covered by fire
and extended coverage insurance, or the act or omissions of the Lessee or anyone
under Lessee's control. Lessee shall keep and maintain all portions of the
Premises in a clean and orderly condition at all times free of accumulation of
dirt, rubbish, snow and ice. If Lessee fails to make the repairs required of
Lessee herein within ten (10) days, or in the event of an emergency, Lessor may,
at Lessor's option, make the repairs in which event Lessee shall reimburse
Lessor for the cost thereof as additional rent hereunder within five (5) days of
demand therefor. Notwithstanding the foregoing, if repairs by Lessee cannot
reasonably be completed within ten (10) days, Lessee shall not be in default of
this provision if Lessee commences to make repairs within the ten (10) day
period and diligently and in good faith continues to make such repairs.
Alterations. Lessee shall have the right to make such alterations,
decorations, improvements or additions to the Premises as may be proper and
necessary for the conduct of its business and/or the fully beneficial use of the
Premises. No structural, roofing, plumbing, electrical, or heating and air
conditioning changes, however, shall be made by Lessee without on each occasion
submitting to Lessor plans and specifications for any proposed changes and
obtaining the prior written consent of Lessor, which shall not be unreasonably
withheld. Lessor agrees to respond to any such request within twenty (20) days
of receipt of said plans and specifications. Lessee agrees that it will procure
all necessary permits before making any repairs, alterations, other improvements
and/or installations. Any such alterations, decorations, improvements or
additions shall, when made, become the property of Lessor and remain at the
Premises upon termination or expiration of this Lease; provided, however, that
any and all trade fixtures and equipment shall remain the property of Lessee.
Mechanics' Liens. Lessee shall keep the Premises free and clear of all
mechanics' liens resulting from construction done by or for Lessee. Lessee shall
have the right to contest the amount or validity of any such lien by appropriate
legal proceedings provided Lessee diligently prosecutes such proceedings and
does not permit any imminent risk of loss of any part of the Premises in respect
of such liens or Lessee's contest thereof.
Insurance.
Lessee shall, at its sole cost and expense, keep the Premises
insured at all times during the primary term of this Lease and all renewals and
extensions thereof against loss or damage by fire and such other hazards as are
embraced by the standard extended coverage endorsement approved for use in the
state in which the Premises are located in an amount not less than the full
insurable value of the building and improvements.
Lessee further agrees to obtain and keep in force during the term hereof,
at Lessee's sole cost and expense, comprehensive general public liability
insurance with minimum limits of $1,000,000.00 on account of bodily injuries or
death and property damage insurance with minimum limits of $1,000,000.00.
All policies of insurance provided for under this paragraph shall name
Lessor, any mortgage lender as Lessor shall designate, and Lessee as named
insureds to the extent of their respective interests. The fire and extended
coverage insurance policy shall designate any mortgagee of Premises pursuant to
a standard mortgage clause. All such policies of insurance shall provide that
any loss shall be payable as therein provided notwithstanding any negligence of
Lessor, Lessee or any other person.
All such insurance shall further contain a clause that the insurer thereof
will not cancel or amend the policy without first giving Lessor thirty (30) days
advance written notice. All insurance required to be obtained and maintained
hereunder shall be with reputable insurance companies and a certificate of
insurance shall be delivered to Lessor. If Lessee refuses or neglects to secure
and maintain insurance policies in compliance with the provisions of this
Section, Lessor may, but shall not be required to, secure and maintain such
insurance and Lessee shall immediately pay the cost thereof to Lessor as
additional rent.
Mutual Waiver of Subrogation. Lessor and Lessee each hereby waive any and
all rights of recovery, claims, actions or causes of action against the other,
their respective agents, officers or employees, for any loss or damage that may
occur to the Premises or any portion thereof, or any personal property of such
party therein, by any cause which is insured against under the insurance
policies referenced herein, regardless of the other party hereto, its agents,
officers or employees, and any right of subrogation against such other party.
Quiet Enjoyment. So long as Lessee is not in default of the terms
hereunder, Lessee shall and may peaceably and quietly have, hold, occupy, use
and enjoy the Premises during the term of this Lease subject to the terms of
this Lease.
Damage or Destruction.
If the Premises should be totally destroyed by fire or other casualty, or
if the Premises would be so damaged so that rebuilding or repairs could not
reasonably be completed within ninety (90) working days after the date of
written notification by Lessee to Lessor of the destruction, this Lease shall
terminate and the rent shall be abated for the unexpired portion of the Lease,
effective as of the date of the written notification.
If the Premises should be partially damaged by fire or other casualty, and
rebuilding or repairs can reasonably be completed within ninety (90) working
days from the date of written notification by Lessee to Lessor of the
destruction, this Lease shall not terminate, but Lessor may at its sole risk and
expense proceed with reasonable diligence to build or repair the building or
other improvements to substantially the condition in which they existed prior to
the damage. In the event the Premises are to be rebuilt or repaired and are
untenantable in whole or in part following the damage, rent payable under this
Lease during the period for which the Premises are untenantable shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances. In the event that Lessor fails to complete the necessary repairs
of rebuilding within ninety (90) working days from the date of written
notification by Lessee to Lessor of the destruction, Lessee may at its option
terminate this Lease by delivering written notice of termination to Lessor,
whereupon all rights and obligations under the Lease shall cease to exist. In no
event shall Lessor be required to expend more for repairs, restoration or
replacement then the proceeds of the insurance therefor received by Lessor.
In the event of damage to the Premises, all insurance proceeds from
policies maintained by Lessee shall be utilized for the sole purpose of
rebuilding and repairing the Premises. In the event of termination of the Lease
as provided above, then all such insurance proceeds shall be paid first to
Lessor for the loss of property of Lessor and any remaining amounts shall be
paid to Lessee. All settlements of claims concerning policies maintained by
Lessee shall be made jointly by Lessee and Lessor.
Condemnation. In the event the Premises or any part thereof are taken or
sold under threat of condemnation, all compensation payable for damage to land
and improvements for the taking thereof shall be payable to Lessor, and Lessee
does hereby sell, assign, transfer and set over to Lessor any interest Lessee
might otherwise have in and to such compensation. Although all damages in the
event of any condemnation are to belong to Lessor, whether such damages are
awarded as compensation for diminution in value of the leasehold or to the fee
of the Premises, Lessee shall have the right to claim and recover from the
condemning authority such compensation as may be separately awarded or
recoverable by Lessee in Lessee's own right on account of any and all damage to
Lessee's business by reason of the condemnation or for or on account of any cost
or loss which Lessee might be put in removing Lessee's furniture, fixtures,
leasehold improvements, equipment and relocating Lessee's business.
If the whole of the Premises shall be acquired or condemned by eminent
domain for any public or quasi-public use or purpose, then the term of this
Lease shall cease and terminate as of the date of title vesting in such
proceeding and all rentals shall be paid up to that date and Lessee shall have
no claim against Lessor for the value of any unexpired term of this Lease.
If any portion of the Premises is taken by condemnation, this Lease shall
remain in effect, except that Lessee can elect to terminate this Lease if the
remaining portion of the buildings or other improvements that are a part of the
Premises are rendered unsuitable for Lessee's continued use of the Premises. If
Lessee does not terminate this Lease, this Lease shall continue in full force
and effect, except that the monthly rent shall be reduced by an amount that is
mutually acceptable by the parties.
Indemnification.
Each party (the "Indemnifying Party") hereby agrees to indemnify, defend
and hold harmless the other party and each of its respective shareholders,
officers, directors, employees, affiliates , subsidiaries, legal and personal
representatives, trustees, successors and assigns, against and from any and all
losses, liabilities, damages, claims, demands, costs, obligations, deficiencies
and expenses (including without limitation interest, penalties, court costs, and
reasonable attorneys' fees and expenses) (collectively, "Losses") arising from
or in connection with the negligence or willful misconduct of the Indemnifying
Party or its employees, agents or invitees, or breach by the Indemnifying Party
of its obligations expressed herein.
Lessee hereby agrees to indemnify, defend and hold harmless Lessor, and
Lessor's legal and personal representatives, successors and assigns, against any
and all Losses including, but not limited to, claims for loss or damage to any
property or injury to or death of any person asserted by or on behalf of any
person, arising out of, resulting from or in any way connected with Lessee's
occupancy and/or use of the Premises or the condition, occupancy, use,
possession, conduct or management or any work done in or about the Premises or
any portion thereof or from the assignment or subletting of any part hereof,
except for claims arising from the negligence or willful misconduct of Lessor or
its representatives, trustees, successors or assigns.
Lessee shall defend, indemnify and hold harmless Lessor and Lessor's legal
and personal representatives, trustees, successors and assigns, from and against
any and all Losses of whatever kind and nature resulting from any accident,
occurrence or condition caused by the release by Lessee after the Commencement
Date of any toxic or hazardous substance or waste in, on, under, about or
affecting the Premises which results in any injury or death of any person or
damage to any property or which requires the removal or treatment of such
hazardous or toxic substance or waste or any other remedial action or fine under
the terms of any law, regulation, rule or directive of any federal, state or
local governmental authority.
Lessor shall defend, indemnify and hold harmless Lessee and each of its
shareholders, officers, directors, employees, affiliates or subsidiaries from
and against any and all Losses of whatever kind and nature resulting from any
accident, occurrence or condition caused by the release by Lessor of any toxic
or hazardous substance or waste in, on, under, about or affecting the Premises
prior to the Commencement Date, which results in any injury or death to any
person or damage to any property or which requires the removal or treatment of
such hazardous or toxic substance or waste or any other remedial action or fine
under the terms of any law, regulation, rule or directive of any federal, state
or local governmental authority.
The provisions of this Section shall survive the termination of expiration
of this Lease and the surrender of the Premises by Lessee.
Events of Default. The occurrence of any of the following shall constitute
a default by Lessee:
Failure to pay any portion of the rent required to be paid hereunder, or
failure to pay any other financial obligation imposed upon Lessee by the terms
hereof within ten (10) days after written notice thereof by Lessor to Lessee.
Failure to perform any other provision of this Lease if the failure to
perform is not cured within thirty (30) days after written notice thereof has
been given to Lessee. If a default cannot reasonably be cured within thirty (30)
days, Lessee shall not be in default of this Lease if Lessee commences to cure
the default within the thirty (30) day period and diligently and in good faith
continues to cure the default.
Vacation and/or abandonment by Lessee of the Premises in excess of thirty
(30) consecutive days.
If an order, judgment or decree shall be entered by any court adjudicating
the Lessee a bankrupt or insolvent, or approving a petition seeking
reorganization of the Lessee or appointing a receiver, trustee or liquidator of
the Lessee, or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of sixty
(60) days.
Lessee shall file an answer admitting the material allegations of a
petition filed against the Lessee in any bankruptcy, reorganization or
insolvency proceeding or under any laws relating to the relief of debtors,
readjustment or indebtedness, reorganization, arrangements, composition or
extension.
Lessee shall make any assignment for the benefit of creditors or shall
apply for or consent to the appointment of a receiver, trustee or liquidator of
Lessee or any of the assets of Lessee.
Lessee shall file a voluntary petition in bankruptcy, or shall admit in
writing its ability to pay its debts as they come due or shall file a petition
or an answer seeking reorganization or arrangement with creditors or take
advantage of any insolvency laws.
A decree or order appointing a receiver to the property of Lessee shall be
made and such decree or order shall not have been vacated within sixty (60) days
from the date of entry or granting thereof.
Lessee's Default.
Upon the occurrence of any of the aforesaid events of default Lessor shall
have the option to pursue any one or more of the following remedies without any
demand or notice whatsoever: (i) terminate this Lease in which event Lessee
shall immediately surrender the Premises to Lessor; (ii) without terminating
this Lease, enter upon the Premises and, without disturbing Lessee's occupancy
of the Premises, do whatever Lessee is obligated to do under the terms of this
Lease whereupon Lessee shall reimburse Lessor upon demand for any reasonable
expenses which Lessor may incur in effecting compliance with Lessee's
obligations under this Lease; or (iii) take any other action allowed by law.
\
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law.
Nothing provided by law or contained herein shall be deemed to obligate Lessor
to expend any funds.
Failure or delay by Lessor to enforce any one or more of the remedies
herein provided or provided by law upon any event of default shall not be deemed
or construed to constitute a waiver thereof or preclude the exercise thereof
during the continuation of any default hereunder or be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained.
In the event of default by Lessee of any of the terms and conditions of
this Lease, and upon such default, interest at 12% per annum shall accrue on all
amounts due including costs and reasonable attorney's fees.
Lessor's Default. Lessor shall be in default of this Lease if it fails or
refuses to perform any provision of this Lease that it is obligated to perform
if the failure to perform is not cured within thirty (30) days after written
notice of the default has been given by Lessee to Lessor. If Lessor's default
cannot reasonably be cured within thirty (30) days, Lessor shall not be in
default of this Lease if Lessor commences to cure the default within the thirty
(30) day period and diligently and in good faith continues to cure the default.
Lessee's Right to Cure Lessor's Default. Lessee may, at any time after
Lessor commits a default, either terminate this Lease or cure the default at
Lessor's cost. If Lessee at any time, by reason of Lessor's default, pays any
sum or does any act that requires the payment of any sum, the sum paid by Lessee
shall be due immediately from Lessor to Lessee at the time the sum is paid. If
Lessor fails to reimburse Lessee as required by this Section, Lessee shall have
the right to withhold from future rent due the sum Lessee has paid until Lessee
is reimbursed in full for the sum.
Return on Termination. Upon termination of this Lease for any cause,
including expiration of the term or exercise of rights of re-entry by Lessor,
Lessee agrees to surrender the Premises to Lessor in as good condition as when
received, usual wear and tear excepted. Lessee shall have the right to remove
any equipment or trade fixtures it has on the Premises. The removal of any such
equipment or trade fixtures shall be coordinated by Lessee with Lessor and shall
be completed by Lessee without any destruction or damage to the Premisses.
Miscellaneous.
Relationship. This Lease does not create the relationship of principal and
agent or of partnership or of joint venture or any association between Lessor
and Lessee; the sole relationship between Lessor and Lessee is deemed that of
lessor and lessee.
Entire Agreement; Modification; Waiver. This Lease sets forth the entire
agreement of the parties hereto with respect to the matters contained herein and
no prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective for any purpose. No supplement, modification or
amendment to this Lease shall be binding unless executed in writing by all of
the parties. No waiver of any of the provisions of this Lease shall be deemed,
or shall constitute, any waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the parties making the waiver. No waiver of any
default by Lessee hereunder shall be implied from any omission by Lessor to take
any action on account of such default if such default persists or is repeated,
and no express waiver shall affect any default other than the default specified
in the express waiver and that only for the time and to the extent therein
stated.
Attorneys' Fees. In any action between the parties hereto seeking
enforcement of any of the terms and provisions of this Lease, the prevailing
party in such action shall be entitled, in addition to damages, injunctive or
other relief, to its reasonable costs and expenses not limited to taxable costs,
and reasonable attorneys' fees to be fixed by the court.
Notices. All notices, requests, demands, and other communications under
this Lease shall be in writing and shall be deemed to have been duly given the
party to whom notice is to be given, on the date of service if served
personally, and on the date of receipt, refusal or as of the first attempted
date of delivery if unclaimed, when sent to the party by U.S. registered or
certified mail, postage prepaid, and properly addressed as follows:
Lessor: Maxwell Properties, L.L.C.
7676 South Oswego Place
Tulsa, Oklahoma 74136
Lessee: Maxwell Staffing, Inc.
8221 East 63rd Place
Tulsa, Oklahoma 74133
By written notice to the other in the manner contemplated hereby, either
party may change its address for notices under this Lease.
Binding Effect/Assignment. This Lease shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors, assigns,
heirs, legal and personal representatives; provided, however, that Lessee shall
not assign, sublet or convey any of its interest in this Lease without the prior
written consent of Lessor, which consent shall not be unreasonably withheld.
Upon any such proper assignment, sublease or conveyance, Lessee shall remain
liable for all obligations of the Lessee hereunder; provided, Lessor shall
permit Lessee to submit information to it and will reasonably consider whether
or not to release the Lessee upon an assignment, sublease or conveyance after
giving due consideration to factors which may include, without limitation, the
remaining length of the Lease term, and the creditworthiness of the party to be
substituted as compared to Lessee. In the event Lessor sells, transfers or
assigns its interest in the Premises, and provided such purchaser, transferee or
assignee shall agree in writing to assume all of the obligations of the Lessor
under this Lease, Lessor shall be released from any further obligation
hereunder, and Lessee agrees to look solely to the successor-in-interest of
Lessor for the performance of such obligations.
Sale of Premises. In the event of any sale of the Premises, or any part
thereof or interest therein, by Lessor, including sales by foreclosure or a deed
in lieu thereof, the purchaser of the Premises shall be deemed without any
further agreement between the parties to have assumed and agreed to carry out
any and all of the covenants and obligations of Lessor under this Lease. In the
event of any such sale, Lessee agrees to attorn to and become the Lessor of
Lessor's successor-in-interest. Lessee may, at its expense, record a copy of
this Lease.
Brokerage. Lessor and Lessee each represent that neither has negotiated nor
dealt with any broker in connection with this Lease. Lessor and Lessee shall
each indemnify and hold the other harmless from and against any and all claims,
loss, liability cost or expense, including reasonable attorneys' fees, arising
from or relating to any claim or action by any broker with whom such party has
dealt or is alleged to have dealt.
Construction. This Lease shall be governed by and construed in accordance
with the laws of the state in which the Premises are situated, provided,
however, that this Lease shall be construed as intended by the parties and no
provision of this Lease shall be construed against any party on the ground that
such party drafted such provision.
Headings. The subject headings of the sections and subsections of this
Lease are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
Counterparts. This Lease may be signed by the parties in different
counterparts and the signature pages combined shall create a document binding on
all parties.
Time of Essence. The parties agree that time is of the essence in the
performance of each and every term, covenant and condition of this Lease.
Invalidity and Unenforceability. Should any clause or provision of this Lease be
determined by a court of competent jurisdiction to be invalid, void or voidable
for any reason, such invalid, void or voidable clause or provision shall not
affect the whole of this Lease and the balance of the provisions hereof shall
remain in full force and effect. Further, if the original intent of any clause
or provision held to be invalid, void or voidable, can be preserved and such
invalid, void or voidable clause or provision corrected by revision of the
verbiage utilized in this Lease, then the parties hereto shall enter into such
written amendments to this Lease as shall be necessary in order to effectuate
the enforceability of such clause or provision and the original intent of the
parties as reflected hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR:
MAXWELL PROPERTIES, L.L.C.,
an Oklahoma limited liability
company
By: /s/ John H. Maxwell, Jr.
John H. Maxwell, Jr., Manager
LESSEE:
MAXWELL STAFFING, INC.,
an Oklahoma corporation
By: /s/ Sue Maxwell
Sue Maxwell, President
SWR-4717.DL
Exhibit A
Premises
Lot Five (5), Block One (1), BURNING TREE EXECUTIVE PARK, an Addition to
the City of Tulsa, Tulsa County, State of Oklahoma, according to the recorded
plat thereof.
Exhibit 10.18
LEASE
This Lease is entered into as of May 15, 1996, by and between Maxwell
Properties, L.L.C., an Oklahoma limited liability company ("Lessor"), and
Maxwell/Healthcare, Inc., an Oklahoma corporation ("Lessee").
The Premises. In consideration of the rents and covenants hereinafter set
forth, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
real property and all buildings and improvements now existing or hereafter
placed thereon located at 8211-8213 East 65th Street, Tulsa, Oklahoma, and more
specifically described as set forth on Exhibit A attached hereto (collectively,
the "Premises").
Term. The term of this Lease shall be for a period of three (3) years
commencing on June 1, 1996 (the "Commencement Date") and expiring on May 31,
1999, unless sooner terminated as provided herein.
Rent. Lessee shall pay to Lessor without deduction, setoff or credit, and
without demand, at the address of Lessor set forth below or at such other place
as Lessor may from time to time designate in writing, the sum of $1,500.00 as
monthly rental for the Premises, or $54,000.00 for the term hereof, with monthly
installments payable in advance on the first day of each month during the term
of this Lease.
Option to Renew. Lessor hereby grants Lessee the option to extend the term
hereof for an additional period of two (2) years (the "Renewal Term"). This
option shall be exercisable by Lessee upon delivery of written notice to Lessor,
which notice must be received by Lessor not less than one hundred twenty (120)
days prior to the expiration of the initial term. All the terms of this Lease
shall apply during the Renewal Term except that the Rental for the Renewal Term
shall be increased by an amount corresponding to the change in the "CPI" (as
defined hereinafter) over the period from the Commencement Date to the reporting
period closest to the commencement of the Renewal Term. "CPI" as used herein,
shall mean the index now known as the "Consumer Price Index for All Urban
Consumers: U.S. City Average - All Items (1982 - 84) = 100)" published by the
United States Department of Labor, Bureau of Labor Statistics. In the event the
publication of the CPI is hereafter discontinued, Lessor and Lessee shall agree
upon and designate a comparable index to be used in lieu thereof for the
purposes thereof.
Utilities. Lessee shall, during the term hereof, pay all charges and post
all security deposits, if any, for all utilities of the Premises, including
without limitation, telephone, gas, electricity, water, sewer and garbage
removal services.
Taxes and Assessments. Lessee shall pay all real estate taxes and
assessments levied against the Premises or imposed by reason of occupancy of the
Premises during the term of this Lease and during any Renewal Term, prior to the
time the same became delinquent.
Use of Premises. The Premises shall be used and occupied by Lessee in
connection with accommodations for training and orientation of employees of
Lessee, or any other legal purpose with the prior written consent of Lessor.
Lessee shall not possess, occupy or use the Premises in violation of any
federal, state or local laws, rules and regulations, or for any purpose that
would constitute a nuisance. Lessee shall likewise observe and comply with the
requirements of all policies of public liability, fire and all other policies of
insurance at any time in force with respect to the Premises or improvements or
to the use or manner of use of the same.
Entry and Inspection. Lessor reserves the right to enter upon the Premises
at reasonable hours and upon reasonable notice to inspect the same, or to make
repairs, additions or alterations to the Premises, and to enter at any time in
the event of an emergency. In the event Lessee fails to exercise its renewal
option as provided in Section 4, Lessor may show the Premises to prospective
tenants during normal business hours and upon reasonable advance notice to
Lessee, and may display a notice on the Premises advertising the same for lease.
Lessor further reserves the right at any time during the term hereof to show the
Premises to prospective purchasers and to display notices advertising the same
for sale; provided, however, that any showing of the Premises to a prospective
purchaser will be made during normal business hours and upon reasonable advance
notice to Lessee. Notwithstanding the foregoing, all such entries and
inspections (except in the case of emergency) shall not unreasonably interfere
with Lessee's use and enjoyment of the Premises.
Maintenance.
During the term of this Lease, Lessee, at its own expense, shall repair,
replace and maintain the Premises in a good and safe condition including glass,
electrical, plumbing, air conditioning, heating and any other system or
appliances, fixtures or equipment on the Premises, and shall surrender the same,
at termination hereof, in as good condition as received, normal wear and tear
excepted. Notwithstanding the foregoing, Lessor, at its own expense, shall
maintain and repair the roof, the floor (excluding carpeting), the walls
(excluding wall coverings and paint) and structural foundations of the Premises.
Lessee further agrees to make all repairs to the Premises and to do all
interior office painting and decorating when such repairs and/or painting and
decorating are necessitated by the occurrence of perils normally covered by fire
and extended coverage insurance, or the act or omissions of the Lessee or anyone
under Lessee's control. Lessee shall keep and maintain all portions of the
Premises in a clean and orderly condition at all times free of accumulation of
dirt, rubbish, snow and ice. If Lessee fails to make the repairs required of
Lessee herein within ten (10) days, or in the event of an emergency, Lessor may,
at Lessor's option, make the repairs in which event Lessee shall reimburse
Lessor for the cost thereof as additional rent hereunder within five (5) days of
demand therefor. Notwithstanding the foregoing, if repairs by Lessee cannot
reasonably be completed within ten (10) days, Lessee shall not be in default of
this provision if Lessee commences to make repairs within the ten (10) day
period and diligently and in good faith continues to make such repairs.
Alterations. Lessee shall have the right to make such alterations,
decorations, improvements or additions to the Premises as may be proper and
necessary for the conduct of its business and/or the fully beneficial use of the
Premises. No structural, roofing, plumbing, electrical, or heating and air
conditioning changes, however, shall be made by Lessee without on each occasion
submitting to Lessor plans and specifications for any proposed changes and
obtaining the prior written consent of Lessor, which shall not be unreasonably
withheld. Lessor agrees to respond to any such request within twenty (20) days
of receipt of said plans and specifications. Lessee agrees that it will procure
all necessary permits before making any repairs, alterations, other improvements
and/or installations. Any such alterations, decorations, improvements or
additions shall, when made, become the property of Lessor and remain at the
Premises upon termination or expiration of this Lease; provided, however, that
any and all trade fixtures and equipment shall remain the property of Lessee.
Mechanics' Liens. Lessee shall keep the Premises free and clear of all
mechanics' liens resulting from construction done by or for Lessee. Lessee shall
have the right to contest the amount or validity of any such lien by appropriate
legal proceedings provided Lessee diligently prosecutes such proceedings and
does not permit any imminent risk of loss of any part of the Premises in respect
of such liens or Lessee's contest thereof.
Insurance.
Lessee shall, at its sole cost and expense, keep the Premises insured at
all times during the primary term of this Lease and all renewals and extensions
thereof against loss or damage by fire and such other hazards as are embraced by
the standard extended coverage endorsement approved for use in the state in
which the Premises are located in an amount not less than the full insurable
value of the building and improvements.
Lessee further agrees to obtain and keep in force during the term hereof,
at Lessee's sole cost and expense, comprehensive general public liability
insurance with minimum limits of $1,000,000.00 on account of bodily injuries or
death and property damage insurance with minimum limits of $1,000,000.00.
All policies of insurance provided for under this paragraph shall name
Lessor, any mortgage lender as Lessor shall designate, and Lessee as named
insureds to the extent of their respective interests. The fire and extended
coverage insurance policy shall designate any mortgagee of Premises pursuant to
a standard mortgage clause. All such policies of insurance shall provide that
any loss shall be payable as therein provided notwithstanding any negligence of
Lessor, Lessee or any other person.
All such insurance shall further contain a clause that the insurer thereof
will not cancel or amend the policy without first giving Lessor thirty (30) days
advance written notice. All insurance required to be obtained and maintained
hereunder shall be with reputable insurance companies and a certificate of
insurance shall be delivered to Lessor. If Lessee refuses or neglects to secure
and maintain insurance policies in compliance with the provisions of this
Section, Lessor may, but shall not be required to, secure and maintain such
insurance and Lessee shall immediately pay the cost thereof to Lessor as
additional rent.
Mutual Waiver of Subrogation. Lessor and Lessee each hereby waive any and
all rights of recovery, claims, actions or causes of action against the other,
their respective agents, officers or employees, for any loss or damage that may
occur to the Premises or any portion thereof, or any personal property of such
party therein, by any cause which is insured against under the insurance
policies referenced herein, regardless of the other party hereto, its agents,
officers or employees, and any right of subrogation against such other party.
Quiet Enjoyment. So long as Lessee is not in default of the terms
hereunder, Lessee shall and may peaceably and quietly have, hold, occupy, use
and enjoy the Premises during the term of this Lease subject to the terms of
this Lease.
Damage or Destruction.
If the Premises should be totally destroyed by fire or other casualty, or
if the Premises would be so damaged so that rebuilding or repairs could not
reasonably be completed within ninety (90) working days after the date of
written notification by Lessee to Lessor of the destruction, this Lease shall
terminate and the rent shall be abated for the unexpired portion of the Lease,
effective as of the date of the written notification.
If the Premises should be partially damaged by fire or other casualty, and
rebuilding or repairs can reasonably be completed within ninety (90) working
days from the date of written notification by Lessee to Lessor of the
destruction, this Lease shall not terminate, but Lessor may at its sole risk and
expense proceed with reasonable diligence to build or repair the building or
other improvements to substantially the condition in which they existed prior to
the damage. In the event the Premises are to be rebuilt or repaired and are
untenantable in whole or in part following the damage, rent payable under this
Lease during the period for which the Premises are untenantable shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances. In the event that Lessor fails to complete the necessary repairs
of rebuilding within ninety (90) working days from the date of written
notification by Lessee to Lessor of the destruction, Lessee may at its option
terminate this Lease by delivering written notice of termination to Lessor,
whereupon all rights and obligations under the Lease shall cease to exist. In no
event shall Lessor be required to expend more for repairs, restoration or
replacement then the proceeds of the insurance therefor received by Lessor.
In the event of damage to the Premises, all insurance proceeds from
policies maintained by Lessee shall be utilized for the sole purpose of
rebuilding and repairing the Premises. In the event of termination of the Lease
as provided above, then all such insurance proceeds shall be paid first to
Lessor for the loss of property of Lessor and any remaining amounts shall be
paid to Lessee. All settlements of claims concerning policies maintained by
Lessee shall be made jointly by Lessee and Lessor.
Condemnation. In the event the Premises or any part thereof are taken or
sold under threat of condemnation, all compensation payable for damage to land
and improvements for the taking thereof shall be payable to Lessor, and Lessee
does hereby sell, assign, transfer and set over to Lessor any interest Lessee
might otherwise have in and to such compensation. Although all damages in the
event of any condemnation are to belong to Lessor, whether such damages are
awarded as compensation for diminution in value of the leasehold or to the fee
of the Premises, Lessee shall have the right to claim and recover from the
condemning authority such compensation as may be separately awarded or
recoverable by Lessee in Lessee's own right on account of any and all damage to
Lessee's business by reason of the condemnation or for or on account of any cost
or loss which Lessee might be put in removing Lessee's furniture, fixtures,
leasehold improvements, equipment and relocating Lessee's business.
If the whole of the Premises shall be acquired or condemned by eminent
domain for any public or quasi-public use or purpose, then the term of this
Lease shall cease and terminate as of the date of title vesting in such
proceeding and all rentals shall be paid up to that date and Lessee shall have
no claim against Lessor for the value of any unexpired term of this Lease.
If any portion of the Premises is taken by condemnation, this Lease shall
remain in effect, except that Lessee can elect to terminate this Lease if the
remaining portion of the buildings or other improvements that are a part of the
Premises are rendered unsuitable for Lessee's continued use of the Premises. If
Lessee does not terminate this Lease, this Lease shall continue in full force
and effect, except that the monthly rent shall be reduced by an amount that is
mutually acceptable by the parties.
Indemnification.
Each party (the "Indemnifying Party") hereby agrees to indemnify, defend
and hold harmless the other party and each of its respective shareholders,
officers, directors, employees, affiliates , subsidiaries, legal and personal
representatives, trustees, successors and assigns, against and from any and all
losses, liabilities, damages, claims, demands, costs, obligations, deficiencies
and expenses (including without limitation interest, penalties, court costs, and
reasonable attorneys' fees and expenses) (collectively, "Losses") arising from
or in connection with the negligence or willful misconduct of the Indemnifying
Party or its employees, agents or invitees, or breach by the Indemnifying Party
of its obligations expressed herein.
Lessee hereby agrees to indemnify, defend and hold harmless Lessor, and
Lessor's legal and personal representatives, successors and assigns, against any
and all Losses including, but not limited to, claims for loss or damage to any
property or injury to or death of any person asserted by or on behalf of any
person, arising out of, resulting from or in any way connected with Lessee's
occupancy and/or use of the Premises or the condition, occupancy, use,
possession, conduct or management or any work done in or about the Premises or
any portion thereof or from the assignment or subletting of any part hereof,
except for claims arising from the negligence or willful misconduct of Lessor or
its representatives, trustees, successors or assigns.
Lessee shall defend, indemnify and hold harmless Lessor and Lessor's legal
and personal representatives, trustees, successors and assigns, from and against
any and all Losses of whatever kind and nature resulting from any accident,
occurrence or condition caused by the release by Lessee after the Commencement
Date of any toxic or hazardous substance or waste in, on, under, about or
affecting the Premises which results in any injury or death of any person or
damage to any property or which requires the removal or treatment of such
hazardous or toxic substance or waste or any other remedial action or fine under
the terms of any law, regulation, rule or directive of any federal, state or
local governmental authority.
Lessor shall defend, indemnify and hold harmless Lessee and each of its
shareholders, officers, directors, employees, affiliates or subsidiaries from
and against any and all Losses of whatever kind and nature resulting from any
accident, occurrence or condition caused by the release by Lessor of any toxic
or hazardous substance or waste in, on, under, about or affecting the Premises
prior to the Commencement Date, which results in any injury or death to any
person or damage to any property or which requires the removal or treatment of
such hazardous or toxic substance or waste or any other remedial action or fine
under the terms of any law, regulation, rule or directive of any federal, state
or local governmental authority.
The provisions of this Section shall survive the termination of expiration
of this Lease and the surrender of the Premises by Lessee.
Events of Default. The occurrence of any of the following shall constitute
a default by Lessee:
Failure to pay any portion of the rent required to be paid hereunder, or
failure to pay any other financial obligation imposed upon Lessee by the terms
hereof within ten (10) days after written notice thereof by Lessor to Lessee.
Failure to perform any other provision of this Lease if the failure to
perform is not cured within thirty (30) days after written notice thereof has
been given to Lessee. If a default cannot reasonably be cured within thirty (30)
days, Lessee shall not be in default of this Lease if Lessee commences to cure
the default within the thirty (30) day period and diligently and in good faith
continues to cure the default.
If an order, judgment or decree shall be entered by any court adjudicating
the Lessee a bankrupt or insolvent, or approving a petition seeking
reorganization of the Lessee or appointing a receiver, trustee or liquidator of
the Lessee, or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of sixty
(60) days.
Lessee shall file an answer admitting the material allegations of a
petition filed against the Lessee in any bankruptcy, reorganization or
insolvency proceeding or under any laws relating to the relief of debtors,
readjustment or indebtedness, reorganization, arrangements, composition or
extension.
Lessee shall make any assignment for the benefit of creditors or shall
apply for or consent to the appointment of a receiver, trustee or liquidator of
Lessee or any of the assets of Lessee.
Lessee shall file a voluntary petition in bankruptcy, or shall admit in
writing its ability to pay its debts as they come due or shall file a petition
or an answer seeking reorganization or arrangement with creditors or take
advantage of any insolvency laws.
A decree or order appointing a receiver to the property of Lessee shall be
made and such decree or order shall not have been vacated within sixty (60) days
from the date of entry or granting thereof.
Lessee's Default.
Upon the occurrence of any of the aforesaid events of default Lessor shall have
the option to pursue any one or more of the following remedies without any
demand or notice whatsoever: (i) terminate this Lease in which event Lessee
shall immediately surrender the Premises to Lessor; (ii) without terminating
this Lease, enter upon the Premises and, without disturbing Lessee's occupancy
of the Premises, do whatever Lessee is obligated to do under the terms of this
Lease whereupon Lessee shall reimburse Lessor upon demand for any reasonable
expenses which Lessor may incur in effecting compliance with Lessee's
obligations under this Lease; or (iii) take any other action allowed by law.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law.
Nothing provided by law or contained herein shall be deemed to obligate Lessor
to expend any funds.
Failure or delay by Lessor to enforce any one or more of the remedies
herein provided or provided by law upon any event of default shall not be deemed
or construed to constitute a waiver thereof or preclude the exercise thereof
during the continuation of any default hereunder or be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained.
In the event of default by Lessee of any of the terms and conditions of
this Lease, and upon such default, interest at 12% per annum shall accrue on all
amounts due including costs and reasonable attorney's fees.
Lessor's Default. Lessor shall be in default of this Lease if it fails or
refuses to perform any provision of this Lease that it is obligated to perform
if the failure to perform is not cured within thirty (30) days after written
notice of the default has been given by Lessee to Lessor. If Lessor's default
cannot reasonably be cured within thirty (30) days, Lessor shall not be in
default of this Lease if Lessor commences to cure the default within the thirty
(30) day period and diligently and in good faith continues to cure the default.
Lessee's Right to Cure Lessor's Default. Lessee may, at any time after
Lessor commits a default, either terminate this Lease or cure the default at
Lessor's cost. If Lessee at any time, by reason of Lessor's default, pays any
sum or does any act that requires the payment of any sum, the sum paid by Lessee
shall be due immediately from Lessor to Lessee at the time the sum is paid. If
Lessor fails to reimburse Lessee as required by this Section, Lessee shall have
the right to withhold from future rent due the sum Lessee has paid until Lessee
is reimbursed in full for the sum.
Return on Termination. Upon termination of this Lease for any cause,
including expiration of the term or exercise of rights of re-entry by Lessor,
Lessee agrees to surrender the Premises to Lessor in as good condition as when
received, usual wear and tear excepted. Lessee shall have the right to remove
any equipment or trade fixtures it has on the Premises. The removal of any such
equipment or trade fixtures shall be coordinated by Lessee with Lessor and shall
be completed by Lessee without any destruction or damage to the Premisses.
Miscellaneous.
Relationship. This Lease does not create the relationship of principal and
agent or of partnership or of joint venture or any association between Lessor
and Lessee; the sole relationship between Lessor and Lessee is deemed that of
lessor and lessee.
Entire Agreement; Modification; Waiver. This Lease sets forth the entire
agreement of the parties hereto with respect to the matters contained herein and
no prior or contemporaneous agreement or understanding pertaining to any such
matter shall be effective for any purpose. No supplement, modification or
amendment to this Lease shall be binding unless executed in writing by all of
the parties. No waiver of any of the provisions of this Lease shall be deemed,
or shall constitute, any waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the parties making the waiver. No waiver of any
default by Lessee hereunder shall be implied from any omission by Lessor to take
any action on account of such default if such default persists or is repeated,
and no express waiver shall affect any default other than the default specified
in the express waiver and that only for the time and to the extent therein
stated.
Attorneys' Fees. In any action between the parties hereto seeking
enforcement of any of the terms and provisions of this Lease, the prevailing
party in such action shall be entitled, in addition to damages, injunctive or
other relief, to its reasonable costs and expenses not limited to taxable costs,
and reasonable attorneys' fees to be fixed by the court.
Notices. All notices, requests, demands, and other communications under
this Lease shall be in writing and shall be deemed to have been duly given the
party to whom notice is to be given, on the date of service if served
personally, and on the date of receipt, refusal or as of the first attempted
date of delivery if unclaimed, when sent to the party by U.S. registered or
certified mail, postage prepaid, and properly addressed as follows:
Lessor: Maxwell Properties, L.L.C.
7676 South Oswego Place
Tulsa, Oklahoma 74136
Lessee: Maxwell/Healthcare, Inc.
8221 East 63rd Place
Tulsa, Oklahoma 74133
By written notice to the other in the manner contemplated hereby, either
party may change its address for notices under this Lease.
Binding Effect/Assignment. This Lease shall be binding upon and inure to
the benefit of the parties hereto, and their respective successors, assigns,
heirs, legal and personal representatives; provided, however, that Lessee shall
not assign, sublet or convey any of its interest in this Lease without the prior
written consent of Lessor, which consent shall not be unreasonably withheld.
Upon any such proper assignment, sublease or conveyance, Lessee shall remain
liable for all obligations of the Lessee hereunder; provided, Lessor shall
permit Lessee to submit information to it and will reasonably consider whether
or not to release the Lessee upon an assignment, sublease or conveyance after
giving due consideration to factors which may include, without limitation, the
remaining length of the Lease term, and the creditworthiness of the party to be
substituted as compared to Lessee. In the event Lessor sells, transfers or
assigns its interest in the Premises, and provided such purchaser, transferee or
assignee shall agree in writing to assume all of the obligations of the Lessor
under this Lease, Lessor shall be released from any further obligation
hereunder, and Lessee agrees to look solely to the successor-in-interest of
Lessor for the performance of such obligations.
Sale of Premises. In the event of any sale of the Premises, or any part
thereof or interest therein, by Lessor, including sales by foreclosure or a deed
in lieu thereof, the purchaser of the Premises shall be deemed without any
further agreement between the parties to have assumed and agreed to carry out
any and all of the covenants and obligations of Lessor under this Lease. In the
event of any such sale, Lessee agrees to attorn to and become the Lessor of
Lessor's successor-in-interest. Lessee may, at its expense, record a copy of
this Lease.
Brokerage. Lessor and Lessee each represent that neither has negotiated nor
dealt with any broker in connection with this Lease. Lessor and Lessee shall
each indemnify and hold the other harmless from and against any and all claims,
loss, liability cost or expense, including reasonable attorneys' fees, arising
from or relating to any claim or action by any broker with whom such party has
dealt or is alleged to have dealt.
Construction. This Lease shall be governed by and construed in accordance
with the laws of the state in which the Premises are situated, provided,
however, that this Lease shall be construed as intended by the parties and no
provision of this Lease shall be construed against any party on the ground that
such party drafted such provision.
Headings. The subject headings of the sections and subsections of this
Lease are included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
Counterparts. This Lease may be signed by the parties in different
counterparts and the signature pages combined shall create a document binding on
all parties.
Invalidity and Unenforceability. Should any clause or provision of this
Lease be determined by a court of competent jurisdiction to be invalid, void or
voidable for any reason, such invalid, void or voidable clause or provision
shall not affect the whole of this Lease and the balance of the provisions
hereof shall remain in full force and effect. Further, if the original intent of
any clause or provision held to be invalid, void or voidable, can be preserved
and such invalid, void or voidable clause or provision corrected by revision of
the verbiage utilized in this Lease, then the parties hereto shall enter into
such written amendments to this Lease as shall be necessary in order to
effectuate the enforceability of such clause or provision and the original
intent of the parties as reflected hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
date first above written.
LESSOR:
MAXWELL PROPERTIES, L.L.C.,
an Oklahoma limited liability
company
By: /s/ John H. Maxwell, Jr.
John H. Maxwell, Jr., Manager
LESSEE:
MAXWELL/HEALTHCARE, INC.,
an Oklahoma corporation
By: /s/ John H. Maxwell, Jr.
John H. Maxwell, Jr.,
President
SWR-4721.DL
Exhibit A
Premises
Lot Twenty-Two (22), Block One (1), BURNING TREE WEST RESUBDIVISION, a
portion of Lot Two (2), Block Six (6), BURNING TREE ADDITION, City of Tulsa,
Tulsa County, State of Oklahoma, according to the recorded plat thereof.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF STAFFMARK, INC.
SUBSIDIARY STATE OR COUNTRY
OF ORGANIZATION
Brewer Personnel Services, Inc. Arkansas
Blethen Temporaries, Inc. North Carolina
Dixon Enterprises of Burlington, Inc. North Carolina
DP Pros of Burlington, Inc. North Carolina
Jaeger Personnel Services, Inc. North Carolina
Personnel Placement, Inc. North Carolina
Trasec Corp. North Carolina
First Choice Staffing, Inc. South Carolina
HRA, Inc. Tennessee
Maxwell Staffing, Inc. Oklahoma
Maxwell/Healthcare, Inc. Oklahoma
Maxwell Staffing of Bristow, Inc. Oklahoma
Square One Rehab, Inc. Oklahoma
Technical Staffing, Inc. Oklahoma
Prostaff Personnel, Inc. Arkansas
Excel Temporary Staffing, Inc. Arkansas
Professional Resources, Inc. Arkansas
The Technology Source Acquisition Corporation Delaware
Tom Bain Personnel, Inc., a subsidiary of HRA, Inc. Tennessee
<PAGE>
EXHIBIT 23.1.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports included in or made part of this Form 10-K. It should be noted that we
have not audited any financial statements of StaffMark, Inc. subsequent to
December 31, 1996, or the Maxwell Companies or the Prostaff Companies subsequent
to September 30, 1996, and have not performed any audit procedures subsequent to
the dates of our reports.
ARTHUR ANDERSEN LLP
Little Rock, Arkansas,
March 12, 1997.
<PAGE>
EXHIBIT 23.1.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in or made part of this Form 10-K. It should be noted that we
have not audited any financial statements of HRA, Inc. subsequent to September
30 1996, or performed any audit procedures subsequent to the date of our
report.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 12, 1997.
<PAGE>
EXHIBIT 23.1.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports included in or made part of this Form 10-K. It should be noted that we
have not audited any financial statements of First Choice Staffing, Inc. or the
Blethen Group subsequent to September 29, 1996, or performed any audit
procedures subsequent to the dates of our reports.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
March 12, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0001017968
<NAME> StaffMark
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 13,856,422
<SECURITIES> 0
<RECEIVABLES> 21,506,272
<ALLOWANCES> 441,397
<INVENTORY> 0
<CURRENT-ASSETS> 36,498,805
<PP&E> 7,458,227
<DEPRECIATION> 3,454,589
<TOTAL-ASSETS> 71,498,231
<CURRENT-LIABILITIES> 12,448,336
<BONDS> 0
0
0
<COMMON> 134,170
<OTHER-SE> 57,975,909
<TOTAL-LIABILITY-AND-EQUITY> 71,498,231
<SALES> 104,476,109
<TOTAL-REVENUES> 104,476,109
<CGS> 0
<TOTAL-COSTS> 81,606,986
<OTHER-EXPENSES> 15,997,569
<LOSS-PROVISION> 206,123
<INTEREST-EXPENSE> 1,375,879
<INCOME-PRETAX> 5,796,629
<INCOME-TAX> 1,773,833
<INCOME-CONTINUING> 4,022,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,022,796
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
