<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1997
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _________ to __________
COMMISSION FILE NUMBER: 0-20971
STAFFMARK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 71-0788538
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
302 EAST MILLSAP ROAD
FAYETTEVILLE, AR 72703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(501) 973-6000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value $.01 per
share, outstanding at July 28, 1997 was 14,795,795.
1
<PAGE> 2
STAFFMARK INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
Index
-----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Introduction 3
StaffMark, Inc. Pro Forma Statements of Income
Pro Forma Statements of Income 4
Notes to Pro Forma Statements of Income 5
StaffMark, Inc. Consolidated Financial Statements
Consolidated Statements of Income 7
Consolidated Balance Sheets 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction 14
Pro Forma Results for the Three and Six Months Ended June 30, 1997 Compared to Pro Forma 14
Results for the Three and Six Months Ended June 30, 1996
Results for the Three and Six Months Ended June 30, 1997 Compared to Results for the Three 16
and Six Months Ended June 30, 1996
Results for the Three and Six Months Ended June 30, 1997 Compared to the Combined Results 17
for the Three and Six Months Ended June 30, 1996
Liquidity and Capital Resources 19
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 20
ITEM 2 - CHANGES IN SECURITIES 20
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 21
(a) Exhibits
(b) Reports on Form 8-K
SIGNATURES 22
</TABLE>
2
<PAGE> 3
PART I
ITEM 1 - FINANCIAL STATEMENTS
INTRODUCTION
StaffMark, Inc. (the "Company" or "StaffMark") was founded in March
1996 to create a leading provider of diversified staffing and consulting
services to businesses, professional and service organizations, governmental
agencies and medical niches. On October 2, 1996, StaffMark and six staffing
service businesses, 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"), (each a "Founding Company" and collectively, the "Founding
Companies"), merged through a series of separate transactions (the "Merger")
simultaneously with the closing of the Company's initial public offering (the
"Offering").
Between March 1996 and the consummation of the Offering, the Company
did not conduct any operations and all activities prior to the Offering related
to the Merger and the Offering. Pursuant to the requirements of the Securities
and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 97 ("SAB 97"),
which was issued and became effective July 31, 1996, Brewer was designated as
the acquirer, for financial reporting purposes, of Prostaff, Maxwell, HRA,
First Choice, and Blethen (collectively, the "Other Founding Companies"). Based
on the applicable provisions of SAB 97, these acquisitions were accounted for
as combinations at historical cost. Additionally, the consolidated financial
information presented in this quarterly report on Form 10-Q relates to Brewer
through the date of the Offering and to StaffMark on a consolidated basis for
all periods subsequent to October 2, 1996.
Since the Offering, the Company has acquired 13 additional staffing and
consulting service businesses, allowing the Company to grow geographically and
expand its presence in the rapidly growing professional and information
technology fields, as well as in medical niches.
The following unaudited pro forma statements of income give effect to
the following pro forma adjustments: (i) Brewer's acquisition of the Other
Founding Companies; (ii) the effect of Brewer's February 1996 acquisition of On
Call Employment Services, Inc. ("On Call"); (iii) StaffMark's March 1997
acquisition of Flexible Personnel, Inc., Great Lakes Search Associates, Inc.,
and HR America, Inc. (collectively, "Flexible"); (iv) StaffMark's April 1997
acquisition of Global Dynamics, Inc. ("Global"); (v) the adjustment to
compensation expense for the difference between the historical compensation
paid to certain previous owners of the Founding Companies, Flexible and Global
and the employment contract compensation negotiated in conjunction with the
Merger and respective acquisitions ("Compensation Differential"); and (vi) the
incremental provision for income taxes attributable to the income of subchapter
S Corporations, net of the income tax benefits related to the Compensation
Differential and adjusted for nondeductible goodwill amortization.
These pro forma statements of income should be read in conjunction with
the audited financial statements and the notes thereto included in StaffMark's
1996 Annual Report on Form 10-K, as amended, and the respective Form 8-K
filings prepared in conjunction with the respective acquisitions of Flexible
and Global.
3
<PAGE> 4
STAFFMARK, INC.
PRO FORMA STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
------------------------------ ------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SERVICE REVENUES $ 67,362,330 $ 96,123,410 $ 123,430,877 $ 173,298,495
COST OF SERVICES 53,053,593 74,675,962 97,417,454 134,965,004
------------- ------------- ------------- -------------
Gross profit 14,308,737 21,447,448 26,013,423 38,333,491
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Selling, general and administrative 10,042,052 14,074,153 19,427,700 26,118,867
Depreciation and amortization 793,650 1,061,782 1,537,303 2,005,202
------------- ------------- ------------- -------------
Operating income 3,473,035 6,311,513 5,048,420 10,209,422
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (862,082) (475,593) (1,666,759) (781,618)
Other, net 328,162 14,833 398,454 254,388
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 2,939,115 5,850,753 3,780,115 9,682,192
PROVISION FOR INCOME TAXES 1,265,577 2,398,809 1,712,889 4,014,698
------------- ------------- ------------- -------------
NET INCOME $ 1,673,538 $ 3,451,944 $ 2,067,226 $ 5,667,494
============= ============= ============= =============
PRO FORMA PRIMARY EARNINGS
PER SHARE $ 0.18 $ 0.24 $ 0.23 $ 0.39
============= ============= ============= =============
PRO FORMA FULLY DILUTED
EARNINGS PER SHARE $ 0.18 $ 0.23 $ 0.23 $ 0.38
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
STAFFMARK, INC.
NOTES TO PRO FORMA STATEMENTS OF INCOME
(UNAUDITED)
1. ORGANIZATION:
StaffMark was founded in March 1996 to create a leading provider of
diversified staffing and consulting services to businesses, professional and
service organizations, governmental agencies and medical niches. On October 2,
1996, StaffMark merged through a series of separate transactions with the
Founding Companies. The Merger was effected by StaffMark simultaneously with
the closing of its Offering. The consideration for the stock of the Founding
Companies consisted of a combination of cash and Common Stock of the Company.
The Company recognizes revenues upon performance of services. The
Company generally compensates its temporary employees and consultants only for
hours actually worked, therefore wages of the temporary employees and
consultants are a variable cost that increase or decrease as revenues increase
or decrease. However, certain of the Company's professional and information
technology consultants are full-time, salaried employees. Cost of services
primarily consists of wages paid to temporary 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.
2. BASIS OF PRESENTATION:
The pro forma financial information included herein is unaudited and
includes the financial results of StaffMark, the Founding Companies, On Call,
Flexible and Global as if these acquisitions had occurred at the beginning of
the periods presented. Other acquisitions made by the Company since its
Offering have not been significant and therefore have not been included in
these pro forma statements of income. Management believes this information
reflects all adjustments which are necessary for a fair presentation of results
for the interim periods. The pro forma results of operations for the three and
six months ended June 30, 1996 and 1997 are not necessarily indicative of the
results to be expected for the full year. These pro forma statements of income
should be read in conjunction with the audited financial statements and notes
thereto included in StaffMark's Annual Report on Form 10-K, as amended, and the
respective Form 8-K filings prepared in conjunction with the respective
acquisitions of Flexible and Global.
3. SEASONALITY:
The timing of certain holidays, weather conditions and seasonal
vacation patterns may cause the Company's quarterly results of operations to
fluctuate. The Company generally 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.
4. INCOME TAXES:
Certain of the Founding Companies and acquired companies were S
Corporations for income tax purposes and, accordingly, any income tax
liabilities for the periods prior to the Merger and respective acquisitions are
the responsibility of the respective stockholders. Effective with the Merger
and respective acquisitions, these S Corporations converted to C Corporation
status which require them to recognize the tax consequences of operations in
their respective statements of income. For purposes of preparing these pro
forma statements of income, federal and state income taxes have been provided
for at an estimated effective combined tax rate of 39%, adjusted for
nondeductible goodwill amortization.
5
<PAGE> 6
5. EARNINGS PER SHARE:
Primary and fully diluted earnings per share have been computed by
dividing net income by the weighted-average shares of Common Stock outstanding
during the periods presented, including the incremental shares that would have
been outstanding upon the assumed exercise of dilutive stock options even
though these options are not vested. The weighted-average shares used to
compute earnings per share were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary 9,174,386 14,677,299 9,174,386 14,561,699
========== ========== ========== ==========
Fully Diluted 9,174,386 14,892,201 9,174,386 14,815,536
========== ========== ========== ==========
</TABLE>
The computation of earnings per share for the three and six months
ended June 30, 1996 was based upon 9,174,386 weighted average shares
outstanding which includes: (i) 1,355,000 shares issued by StaffMark prior to
the Offering; (ii) 5,618,249 shares issued to the stockholders of the Founding
Companies in connection with the Merger; (iii) 1,326,459 shares issued in
connection with the Offering to pay the cash portion of the consideration for
the Founding Companies; (iv) 183,823 shares issued in conjunction with the
March 1997 acquisition of Flexible; and (v) 690,855 shares issued in
conjunction with the April 1997 acquisition of Global.
The computation of both primary and fully diluted earnings per share
for the three months ended June 30, 1997 was based upon the actual weighted
average shares outstanding during the period since both the Flexible and Global
acquisitions were effective on or before the beginning of the second quarter.
The computation of both primary and fully diluted earnings per share
for the six months ended June 30, 1997 was based upon the actual weighted
average shares outstanding during the period adjusted to reflect the
acquisitions of Flexible and Global as if these acquisitions had occurred on
January 1, 1997.
6
<PAGE> 7
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
------------------------------ ------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SERVICE REVENUES $ 16,690,130 $ 96,123,410 $ 30,556,381 $ 159,987,151
COST OF SERVICES 13,074,504 74,675,962 24,027,885 124,515,015
------------- ------------- ------------- -------------
Gross profit 3,615,626 21,447,448 6,528,496 35,472,136
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Selling, general and administrative 2,410,152 14,074,153 4,445,462 24,005,794
Depreciation and amortization 301,390 1,061,782 565,974 1,749,616
------------- ------------- ------------- -------------
Operating income 904,084 6,311,513 1,517,060 9,716,726
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (455,031) (475,593) (879,924) (507,226)
Other, net (14,571) 14,833 (3,182) 253,539
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 434,482 5,850,753 633,954 9,463,039
PROVISION FOR INCOME TAXES -- 2,398,809 -- 3,879,846
------------- ------------- ------------- -------------
NET INCOME $ 434,482 $ 3,451,944 $ 633,954 $ 5,583,193
============= ============= ============= =============
PRIMARY EARNINGS PER SHARE $ 0.24 $ 0.39
============= =============
FULLY DILUTED EARNINGS PER SHARE $ 0.23 $ 0.39
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
STAFFMARK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,856,422 $ 2,639,536
Accounts receivable, net of allowance
for doubtful accounts 21,064,875 41,060,043
Advances to stockholders -- 175,635
Prepaid expenses and other 1,577,508 1,930,467
Deferred income taxes -- 753,515
------------ ------------
Total current assets 36,498,805 46,559,196
PROPERTY AND EQUIPMENT, net 4,003,638 6,663,478
INTANGIBLE ASSETS, net 30,512,571 86,734,041
ADVANCES TO STOCKHOLDERS 160,000 984,365
OTHER ASSETS 323,217 967,362
------------ ------------
$ 71,498,231 $141,908,442
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities $ 1,907,331 $ 3,128,388
Outstanding checks 176,156 --
Payroll and related liabilities 3,515,743 11,649,723
Reserve for workers' compensation claims 3,771,398 6,556,738
Accrued interest -- 459,743
Income taxes payable 2,415,203 676,856
Deferred income taxes 662,505 --
------------ ------------
Total current liabilities 12,448,336 22,471,448
LONG-TERM DEBT -- 43,430,000
OTHER LONG TERM LIABILITIES 518,669 136,075
DEFERRED INCOME TAXES 421,147 396,226
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized shares of
1,000,000; no shares issued or outstanding -- --
Common stock, $.01 par value in 1996 and 1997; authorized
shares of 26,000,000 in 1996 and 1997; shares issued and
outstanding of 13,417,012 in 1996 and 14,509,633 in 1997 134,170 145,097
Paid-in capital 55,379,391 67,149,885
Retained earnings 2,596,518 8,179,711
------------ ------------
Total stockholders' equity 58,110,079 75,474,693
------------ ------------
$ 71,498,231 $141,908,442
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
8
<PAGE> 9
STAFFMARK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 434,482 $ 3,451,944 $ 633,954 $ 5,583,193
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 301,390 1,061,782 565,974 1,749,616
Provision for bad debts 57,821 108,681 57,932 148,528
Change in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (232,496) (4,130,596) (1,246,671) (8,610,894)
Prepaid expenses and other 74,118 214,707 (22,263) (49,613)
Other assets 4 543,268 (2,095) 657,973
Deferred income taxes -- (1,190,040) -- (2,278,141)
Accounts payable and other accrued 33,012 904,257 8,644 359,817
liabilities
Outstanding checks (66,694) -- 115,345 (176,156)
Payroll and related liabilities 166,871 2,098,641 250,733 5,243,007
Reserve for workers' compensation claims 27,115 504,114 (26,404) 1,066,629
Income taxes payable/receivable -- (1,175,440) -- (1,906,114)
Accrued interest and other (213,825) (1,529,190) (445,296) (1,645,111)
------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities 581,798 862,128 (110,147) 142,734
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired -- (41,800,708) (3,000,000) (50,930,702)
Capital expenditures (45,677) (1,553,794) (234,143) (1,923,674)
------------ ------------ ------------ ------------
Net cash used in investing activities (45,677) (43,354,502) (3,234,143) (52,854,376)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 485,088 43,430,000 4,736,794 43,430,000
Payments on borrowings (571,558) (1,935,244) (860,204) (1,935,244)
Cash dividends -- -- (17,000) --
Deferred financing costs -- -- (56,250) --
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (86,470) 41,494,756 3,803,340 41,494,756
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 449,651 (997,618) 459,050 (11,216,886)
CASH AND CASH EQUIVALENTS,
beginning of period 328,558 3,637,154 319,159 13,856,422
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 778,209 $ 2,639,536 $ 778,209 $ 2,639,536
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 434,312 $ 290,014 $ 1,042,906 $ 326,243
============ ============ ============ ============
Income taxes paid $ -- $ 2,510,550 $ -- $ 4,533,450
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE> 10
STAFFMARK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION:
In March 1996, StaffMark was founded to create a leading provider of
temporary staffing and consulting services. Effective October 2, 1996, the
Company acquired the Founding Companies and completed its Offering. Based on
the provisions of SAB 97, Brewer was designated as the acquirer, for financial
reporting purposes, of 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 three and six months
ended June 30, 1996. Based on the applicable provisions of SAB 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.
The Company provides diversified staffing and consulting services to
businesses, professional and service organizations and medical niches. The
Company recognizes revenues upon performance of services. The Company generally
compensates its temporary employees and consultants only for hours actually
worked, therefore wages of the temporary employees and consultants are a
variable cost that increase or decrease as revenues increase or decrease.
However, certain of the Company's professional and information technology
consultants are full-time, salaried employees. Cost of services primarily
consists of wages paid to temporary 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.
As of June 30, 1997, StaffMark operated offices in 19 states, British
Columbia and the United Kingdom and provides temporary staffing in the
commercial, professional 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. INITIAL PUBLIC OFFERING OF COMMON STOCK AND MERGER:
On October 2, 1996, the Company completed the Offering, which involved
the public sale of 6,325,000 shares (including underwriters' over-allotment) of
Common Stock at a price of $12.00 per share. The proceeds from the transaction,
net of underwriting discounts, commissions and expenses of the Offering, were
approximately $67.0 million. Of this amount, $15.9 million was used to pay the
cash portion of the purchase price for the Founding Companies, approximately
$31.0 million was used to repay indebtedness of the Founding Companies and
approximately $4.1 million was used for S Corporation distributions to
stockholders of the Founding Companies. The remaining net proceeds were for
working capital and general corporate purposes, including acquisitions.
Concurrent with the completion of the Offering, the Company issued
5,618,249 shares of Common Stock to the stockholders of the Founding Companies,
in addition to the cash consideration discussed above, to effect the Merger.
10
<PAGE> 11
3. BASIS OF PRESENTATION:
The accompanying interim financial statements have been prepared
pursuant to the rules and regulations of the SEC. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to those rules and regulations, although the Company believes that the
disclosures made are adequate to ensure the information presented is not
misleading. Additionally, certain reclassifications have been made to prior
period balances in order to conform with the current period presentation. These
financial statements should be read in conjunction with the audited financial
statements of the Company and the Founding Companies and notes thereto included
in StaffMark's Annual Report on Form 10-K, as amended.
4. SEASONALITY:
The timing of certain holidays, weather conditions and seasonal
vacation patterns may cause the Company's quarterly results of operations to
fluctuate. The Company generally 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.
5. BUSINESS COMBINATIONS:
In February 1996, Brewer acquired the stock of On Call. On Call is
engaged in providing temporary personnel services through four staffing offices
in Colorado. On Call had 1995 revenues of approximately $12.5 million and
operates in the Commercial and Professional/Information Technology divisions.
The total consideration paid for On Call was approximately $3.8 million.
Advance Personnel Service, Inc. ("Advance") was acquired in February
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, L.T.D. ("MRIC") was
also acquired in February 1997. Located in Vancouver, British Columbia, MRIC
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. The aggregate consideration paid in
these transactions consisted of $2.5 million in cash.
Flexible was acquired in March 1997. Flexible, headquartered in Fort
Wayne, Indiana, operates a total of 40 offices located in Indiana, Michigan and
Ohio. Providing clerical, light industrial, professional/information technology
and accounting services, Flexible also operates a staff leasing company.
Flexible had 1996 revenues of approximately $49.3 million and operates in the
Commercial and Professional/Information Technology divisions. The consideration
paid for Flexible included $7.5 million in cash and 183,823 shares of StaffMark
Common Stock.
Global was acquired in April 1997. Located in Walnut Creek, California,
Global provides information technology staffing services to several Fortune 500
companies. Global had 1996 revenues of approximately $17.2 million and operates
in the Professional/Information Technology division. The consideration paid for
Global included $14.0 million in cash and 690,855 shares of StaffMark Common
Stock.
Lindenberg & Associates, Inc. ("Lindenberg") was acquired in April
1997. Lindenberg, headquartered in St. Louis, Missouri, provides information
technology staffing services through offices in St. Louis, Missouri; Kansas
City, Kansas; Omaha, Nebraska and Minneapolis/St. Paul, Minnesota. Lindenberg
had 1996 revenues of approximately $18.0 million and operates in the
Professional/Information Technology division. The consideration paid for
Lindenberg included $15.25 million in cash.
11
<PAGE> 12
5. BUSINESS COMBINATIONS (CONTINUED):
TPS/Furr & Associates, Inc. ("TPS") was acquired in May 1997.
TPS, located in Monroe, North Carolina, provides clerical and light industrial
services in the Charlotte, North Carolina area. TPS had 1996 revenues of
approximately $4.5 million and operates in the Commercial division. HR
Alternatives, Inc. ("Alternatives") was acquired in June 1997. Headquartered in
Kingsport, Tennessee, Alternatives provides clerical and light industrial
services through eight offices in the areas of Eastern Tennessee, Western
Carolina and Southwestern Virginia. Alternatives had 1996 revenues of
approximately $8.4 million and operates in the Commercial division. The Kleven
Group and Affiliates, Inc. ("Kleven") was acquired in June 1997. Located in
Lexington, Massachusetts, Kleven provides clerical and information technology
services in the New England area and had 1996 revenues of approximately $5.0
million. Kleven operates in the Commercial and Professional/Information
Technology divisions. Sterling Human Resource Company ("Sterling") was
acquired in June 1997. Located in Phoenix, Arizona and Boca Raton, Florida,
Sterling provides clerical, light industrial and information technology services
and had 1996 revenues of approximately $19.0 million. Sterling operates in the
Commercial and Professional/Information Technology divisions. The aggregate
consideration paid in these transactions consisted of $11.7 million in cash and
217,123 shares of StaffMark Common Stock.
In addition to the purchase prices disclosed above, certain of the
Company's acquisition agreements include provisions for the payment of
additional consideration which is contingent upon the achievement of certain
performance measures of the businesses acquired, typically during the twelve
months immediately following the respective acquisitions. Although the
contingent consideration could be significant to the accompanying financial
statements, the amounts are not currently determinable and, accordingly, have
not been reflected in the Company's financial statements. The obligations for
this contingent consideration, which will be payable in a combination of cash
and Common Stock, will be recorded in the Company's financial statements when
they become fixed and determinable.
The accompanying balance sheet as of June 30, 1997 includes preliminary
allocations of the respective purchase prices and are subject to final
adjustment. The excess of purchase price over net assets acquired has been
included in intangible assets and is being amortized over a period of 30 years.
The unaudited consolidated results of operations on a pro forma basis
as though Flexible, Global and Lindenberg had been acquired as of the beginning
of the respective periods are as follows:
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $ 134,136,209 $ 178,698,826
============= =============
Net income $ 1,827,642 $ 5,626,639
============= =============
Primary earnings per share $ 0.20 $ 0.39
============= =============
Fully diluted earnings per share $ 0.20 $ 0.38
============= =============
</TABLE>
The unaudited pro forma statements of income presented elsewhere in
this Form 10-Q have been prepared in accordance with the applicable SEC
requirements for presenting pro forma financial information and, accordingly,
do not reflect the pro forma impact of the Lindenberg acquisition.
12
<PAGE> 13
6. CREDIT FACILITY:
During the three months ended June 30, 1997, StaffMark completed the
expansion of its line of credit with Mercantile Bank of St. Louis National
Association ("Mercantile") from $50.0 million to $100.0 million, which includes
a $30.0 million revolving credit facility and a $70.0 million acquisition
facility. As of June 30, 1997, the Company had borrowed approximately $42.6
million on the acquisition facility. These borrowing were used to pay the cash
portion for several of the Company's recent acquisitions. As of June 30, 1997,
the Company's net borrowing on the revolving credit facility totaled $800,000.
These funds were used for general operating purposes.
7. EARNINGS PER SHARE:
The weighted-average shares used to compute earnings per share were as
follows:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Primary 14,677,376 14,158,260
========== ==========
Fully Diluted 14,892,278 14,412,097
========== ==========
</TABLE>
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"), which requires the dual presentation of basic and diluted
earnings per share, as defined in SFAS 128, on the face of the statement of
income beginning with the year end 1997 and subsequent quarterly reporting
periods. Basic and diluted earnings per share as computed under SFAS 128 were
$0.24 for the three months ended June 30, 1997 and $0.40 for the six months
ended June 30, 1997.
8. SUBSEQUENT EVENTS:
Subsequent to quarter-end, StaffMark merged with Baker Street Group,
Inc. ("Baker Street"). Located in Houston, Texas, Baker Street provides
professional and information technology staffing, clerical services and
staffing in niche areas such as mortgage banking and title search. Baker
Street had 1996 revenues of approximately $11.0 million and operates in the
Professional/Information Technology and Commercial divisions. This transaction
will be accounted for as a pooling-of-interests.
13
<PAGE> 14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
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 applicable
financial statements, the notes thereto and the other financial data included
elsewhere in this Form 10-Q. Additionally, the pro forma and combined results
for the three and six months ended June 30, 1996 discussed below occurred when
the companies were not under common control or management and may not be
comparable to, or indicative of future performance.
This filing contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
based on current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results
to differ include, among others, risks associated with acquisitions,
fluctuations in operating results because of acquisitions and variations in
stock prices, changes in government regulations, competition, risks of
operations and growth of the newly acquired businesses.
PRO FORMA RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
PRO FORMA RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
The information below discusses the pro forma results of operations
for the three and six months ended June 30, 1997 as compared to the pro forma
results for the three and six months ended June 30, 1996. These pro forma
amounts include the effect of Brewer's February 1996 acquisition of On Call,
Brewer's October 1996 acquisition of the Other Founding Companies, StaffMark's
March 1997 acquisition of Flexible, StaffMark's April 1997 acquisition of
Global, adjustments to reflect the Compensation Differential and adjustments to
the provision for income taxes relating to the income of subchapter S
corporations, net of the income tax benefits related to the Compensation
Differential and adjusted for nondeductible goodwill.
Pro Forma Revenues. Pro forma revenues increased $28.8 million, or
42.7%, to $96.1 million for the three months ended June 30, 1997 as compared
$67.4 million for the three months ended June 30, 1996. Pro forma revenues
increased $49.9 million, or 40.4%, to $173.3 million for the six months ended
June 30, 1997 as compared $123.4 million for the six months ended June 30,
1996. These increases were primarily attributable to the acquisitions of The
Technology Source L.L.C. ("Technology Source"), Chandler Enterprises, Inc.
d/b/a Advantage Staffing ("Advantage"), and Tom Bain Personnel, Inc. ("Tom
Bain"), MRIC, Advance, Lindenberg, TPS, Alternatives and Kleven which totaled
$14.2 million for the three months ended June 30, 1997 and $19.5 million for
the six months ended June 30, 1997. The Company's internal growth accounted for
$14.6 million and $30.4 million of the increase for the three and six months
ended June 30, 1997, respectively, as a result of the Company's emphasis on
customer development and an overall increase in demand for staffing services
from existing customers.
Pro Forma Cost of Services. Pro forma cost of services increased $21.6
million, or 40.8%, to $74.7 million for the three months ended June 30, 1997
compared to $53.1 million for the three months ended June 30, 1996. Pro forma
cost of services increased $37.5 million, or 38.5%, to $135.0 million for the
six months ended June 30, 1997 compared to $97.4 million for the six months
ended June 30, 1996. These increases in staffing payroll and benefit costs were
related to the higher revenues resulting from the increased demand for staffing
services, the Company's internal growth and the acquisitions discussed above.
14
<PAGE> 15
Pro Forma Gross Profit. Pro forma gross profit increased $7.1 million,
or 49.9%, to $21.4 million for the three months ended June 30, 1997 as compared
to $14.3 million for the three months ended June 30, 1996. Pro forma gross
profit increased $12.3 million, or 47.4%, to $38.3 million for the six months
ended June 30, 1997 as compared to $26.0 million for the six months ended June
30, 1996. The increases in pro forma gross profit are primarily attributable to
the increased revenues from the Company's acquisitions and internal growth. Pro
forma gross margin increased to 22.3% for the three months ended June 30, 1997
from 21.2% for the three months ended June 30, 1996. Pro forma gross margin
increased to 22.1% for the six months ended June 30, 1997 from 21.1% for the
six months ended June 30, 1996. The increases in pro forma gross margin are
primarily attributable to the Company's focus on increasing the
Professional/Information Technology division revenues, which generally provide
higher profit margins than the Commercial division due to the specialized
expertise of the consultants. Emphasis on the reduction of variable costs,
such as workers' compensation expense, have also contributed to increases in
the Company's gross margin.
Pro Forma Operating Expenses. Pro forma selling, general and
administrative expenses ("SG&A") increased $4.0 million, or 40.2%, to $14.1
million for the three months ended June 30, 1997 as compared to $10.0 million
for the three months ended June 30, 1996. Pro forma SG&A increased $6.7
million, or 34.4%, to $26.1 million for the six months ended June 30, 1997 as
compared to $19.4 million for the six months ended June 30, 1996. These
increases were primarily attributable to the Company's acquisition growth
as well as its internal growth. Pro forma SG&A as a percentage of revenues
decreased to 14.6% for the three months ended June 30, 1997 compared to 14.9%
for the three months ended June 30, 1996. Pro forma SG&A as a percentage of
revenues decreased to 15.1% for the six months ended June 30, 1997 compared to
15.7% for the six months ended June 30, 1996. These decreases relate to
efficiencies the Company has begun to realize from the Mergers in conjunction
with an overall increase in revenues, somewhat offset by higher SG&A associated
with being a public company and costs associated with maintaining the Company's
acquisition program. Pro forma depreciation and amortization expense increased
$268,000, or 33.8%, to $1.1 million for the three months ended June 30, 1997 as
compared to $794,000 for the three months ended June 30, 1996. Pro forma
depreciation and amortization expense increased $468,000, or 30.4%, to $2.0
million for the six months ended June 30, 1997 as compared to $1.5 million for
the six months ended June 30, 1996. These increases are primarily related to
the amortization of goodwill resulting from the Company's acquisitions.
Pro Forma Operating Income. Pro forma operating income increased $2.8
million, or 81.7%, to $6.3 million for the three months ended June 30, 1997 as
compared to $3.5 million for the three months ended June 30, 1996. Pro forma
operating income increased $5.2 million, or 102.2%, to $10.2 million for the
six months ended June 30, 1997 as compared to $5.0 million for the six months
ended June 30, 1996. Pro forma operating margin increased to 6.6% for the three
months ended June 30, 1997 as compared to 5.2% for the three months ended June
30, 1996. Pro forma operating margin increased to 5.9% for the six months ended
June 30, 1997 as compared to 4.1% for the six months ended June 30, 1996.
Pro Forma Interest Expense. Pro forma interest expense was $476,000 for
the three months ended June 30, 1997 as compared to $862,000 for the three
months ended June 30, 1996. Pro forma interest expense was $782,000 for the six
months ended June 30, 1997 as compared to $1.7 million for the six months ended
June 30, 1996. The decrease in interest cost was a result of all debt being
repaid with proceeds from the Offering. Interest expense for the three and six
months ended June 30, 1997 is primarily related to borrowings made to fund the
cash portion of several acquisitions.
Pro Forma Net Income. Pro forma net income increased $1.8 million, or
106.3%, to $3.5 million for three months ended June 30, 1997 compared to $1.7
million for the three months ended June 30, 1996. Pro forma net income
increased $3.6 million, or 174.2%, to $5.7 million for six months ended June
30, 1997 compared to $2.1 million for the six months ended June 30, 1996. Pro
forma net income as a percentage of revenues increased to 3.6% for the three
months ended June 30, 1997 compared to 2.5% for the three months ended June 30,
1996. Pro forma net income as a percentage of revenues increased to 3.3% for
the six months ended June 30, 1997 compared to 1.7% for the six months ended
June 30, 1996.
15
<PAGE> 16
RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO RESULTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
The following is a discussion of the results of operations for the
three and six months ended June 30, 1997 as compared to Brewer's results of
operations for the three and six months ended June 30, 1996 which have been
reported in accordance with the provisions of SAB 97.
Revenues. Revenues increased $79.4 million, or 475.9%, to $96.1 million
for the three months ended June 30, 1997 compared to $16.7 million for the
three months ended June 30, 1996. Revenues increased $129.4 million, or 423.6%,
to $160.0 million for the six months ended June 30, 1997 compared to $30.6
million for the six months ended June 30, 1996. These increases are largely
attributable to the fourth quarter 1996 acquisitions of the Other Founding
Companies, Technology Source, Advantage and Tom Bain as well as the 1997
acquisitions of Advance, MRIC, Flexible, Global, Lindenberg, TPS, Alternatives
and Kleven. These acquisitions accounted for approximately $74.2 million of
the increase for the three months ended June 30, 1997 and $120.1 million of the
increase for the six months ended June 30, 1997. The Company's internal growth
accounted for $5.2 million and $9.3 million of the increase for the three and
six months ended June 30, 1997, respectively, as a result of the Company's
emphasis on customer development and an overall increase in the demand for
staffing services.
Cost of Services. Cost of services increased $61.6 million, or 471.2%,
to $74.7 million for the three months ended June 30, 1997 compared to $13.1
million for the three months ended June 30, 1996. Cost of services increased
$100.5 million, or 418.2%, to $124.5 million for the six months ended June 30,
1997 compared to $24.0 million for the six months ended June 30, 1996. These
increases were primarily attributable to the acquisitions of the Other Founding
Companies and the subsequent acquisitions discussed above which accounted for
approximately $57.5 million of the increase for the three months ended June 30,
1997 and $93.3 million for the six months ended June 30, 1997. Also accounting
for these increases were increases in staffing payroll and related benefit
costs associated with increased revenues resulting from internal growth.
Gross Profit. Gross profit increased $17.8 million, or 493.2%, to
$21.4 million for the three months ended June 30, 1997 compared to $3.6 million
for the three months ended June 30, 1996. Gross profit increased $28.9 million,
or 443.3%, to $35.5 million for the six months ended June 30, 1997 compared to
$6.5 million for the six months ended June 30, 1996. These increases are
primarily attributable to the internal growth and acquisitions discussed above.
Gross margin increased to 22.3% for the three months ended June 30, 1997
compared to 21.7% for the three months ended June 30, 1996. Gross margin
increased to 22.2% for the six months ended June 30, 1997 compared to 21.4% for
the six months ended June 30, 1996. These increases in gross margin are
primarily attributable to the Company's focus on increasing the
Professional/Information Technology division revenues. The Professional/
Information Technology division generally provides higher profit margins than
the Commercial division due to the specialized expertise of the consultants.
Control of variable costs, such as workers' compensation expenses, also
contributed to the Company's increase in gross margins.
Operating Expenses. SG&A increased $11.7 million, or 484.0%, to $14.1
million for the three months ended June 30, 1997 compared to $2.4 million for
the three months ended June 30, 1996. SG&A increased $19.6 million, or 440.0%,
to $24.0 million for the six months ended June 30, 1997 compared to $4.4 million
for the six months ended June 30, 1996. These increases were primarily
attributable to the acquisitions discussed above which accounted for
approximately $10.5 million of the increase for the three months ended June 30,
1997 and $17.0 million of the increase for the six months ended June 30, 1997.
SG&A as a percentage of revenues increased to 14.6% for the three months ended
June 30, 1997 compared to 14.4% for the three months ended June 30, 1996. SG&A
as a percentage of revenues increased to 15.0% for the six months ended June 30,
1997 compared to 14.5% for the six months ended June 30, 1996. These increases
primarily result from the merger of the Founding Companies, new costs associated
with being a public company and costs associated with the Company's other
acquisitions. Depreciation and amortization expense increased $760,000, or
252.3%, to $1.1 million for the three months ended June 30, 1997 compared to
$301,000 for the three months ended June 30, 1996. Depreciation and amortization
expense increased $1.2 million, or 209.1%, to $1.7 million for the six months
ended June 30, 1997 compared to $566,000 for the six months ended June 30, 1996.
These increases are primarily attributable to amortization of goodwill
associated with the acquisitions subsequent to the Offering.
16
<PAGE> 17
Operating Income. Operating income increased $5.4 million, or 598.1%,
to $6.3 million for the three months ended June 30, 1997 compared to $904,000
for the three months ended June 30, 1996. Operating income increased $8.2
million, or 540.5%, to $9.7 million for the six months ended June 30, 1997
compared to $1.5 million for the six months ended June 30, 1996. The Company's
operating margin increased to 6.6% for the three months ended June 30, 1997
compared to 5.4% for the three months ended June 30, 1997. The Company's
operating margin increased to 6.1% for the six months ended June 30, 1997
compared to 5.0% for the six months ended June 30, 1996.
Interest Expense. Interest expense was $476,000 for the three months
ended June 30, 1997 as compared to $455,000 for the three months ended June 30,
1996. Interest expense was $507,000 for the six months ended June 30, 1997 as
compared to $880,000 for the six months ended June 30, 1996. Interest expense
for the three and six months ended June 30, 1997 is primarily related to
borrowings made to fund the cash portion of several of the Company's
acquisitions.
Net Income. Net income increased $3.0 million, or 694.5%, to $3.5
million for three months ended June 30, 1997 compared to $434,000 for the three
months ended June 30, 1996. Net income increased $4.9 million, or 780.7%, to
$5.6 million for six months ended June 30, 1997 compared to $634,000 for the
six months ended June 30, 1996. Net income as a percentage of revenues
increased to 3.6% for the three months ended June 30, 1997 compared to 2.6% for
the three months ended June 30, 1996. Net income as a percentage of revenues
increased to 3.5% for the six months ended June 30, 1997 compared to 2.1% for
the six months ended June 30, 1996. The increases are primarily the result of
the factors described above.
RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
COMBINED RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
The following information compares actual results for the three and six
months ended June 30, 1997 to the combined results of the Founding Companies
for the three and six months ended June 30, 1996 as if they had been members of
the same operating group. These combined amounts for the three and six months
ended June 30, 1996 have not been adjusted for significant acquisitions or
reductions in salaries to certain owners of the Founding Companies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, Six Months Ended June 30,
(DOLLARS IN THOUSANDS) (Dollars in Thousands)
=====================================================================================
1996 1997 1996 1997
=================== =================== =================== ===================
$ % $ % $ % $ %
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SERVICE REVENUES $ 48,928 100.0 $ 96,123 100.0 $ 89,854 100.0 $159,987 100.0
COST OF SERVICES 38,357 78.4 74,676 77.7 70,807 78.8 124,515 77.8
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 10,571 21.6 21,447 22.3 19,047 21.2 35,472 22.2
OPERATING EXPENSES:
Selling, general and 7,258 14.8 14,074 14.6 14,197 15.8 24,006 15.0
administrative
Depreciation and amortization 491 1.0 1,061 1.1 919 1.0 1,749 1.1
-------- -------- -------- -------- -------- -------- -------- --------
Operating income $ 2,822 5.8 $ 6,312 6.6 $ 3,931 4.4 $ 9,717 6.1
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Combined Revenues. Revenues increased $47.2 million, or 96.5%, to $96.1
million for the three months ended June 30, 1997 compared to combined revenues
of $48.9 million for the three months ended June 30, 1996. Revenues increased
$70.1 million, or 78.1%, to $160.0 million for the six months ended June 30,
1997 compared to combined revenues of $89.9 million for the six months ended
June 30, 1996. These increases are largely attributable to the acquisitions of
Technology Source, Advantage, Tom Bain, Advance, MRIC, Flexible, Global,
Lindenberg, TPS, Alternatives and Kleven. These acquisitions accounted for
$33.2 million of the increase for the three months ended June 30, 1997 and
$42.5 million of the increase for the six months ended June 30, 1997. The
Company's internal growth accounted for $14.0 million and $27.6 million of the
increase for the three and six months ended June 30, 1997 as a result of the
Company's emphasis on customer development and the increased demand from
existing customers.
17
<PAGE> 18
Combined Cost of Services. Cost of services increased $36.3 million, or
94.7%, to $74.7 million for the three months ended June 30, 1997 compared to
combined cost of services of $38.4 million for the three months ended June 30,
1996. Cost of services increased $53.7 million, or 75.9%, to $124.5 million for
the six months ended June 30, 1997 compared to combined cost of services of
$70.8 million for the six months ended June 30, 1996. These increases were
primarily due to increased staffing and benefit costs associated with the
increase in revenue.
Combined Gross Profit. Gross profit increased $10.9 million, or 102.9%,
to $21.4 million for the three months ended June 30, 1997 as compared to
combined gross profit of $10.6 million for the three months ended June 30,
1996. Gross profit increased $16.4 million, or 86.2%, to $35.5 million for the
six months ended June 30, 1997 as compared to combined gross profit of $19.0
million for the six months ended June 30, 1996. This increase is attributable
to higher revenues due to internal growth and the acquisitions discussed above.
Gross margin increased to 22.3% for the three months ended June 30, 1997 as
compared to combined gross margin of 21.6% for the three months ended June 30,
1996. Gross margin increased to 22.2% for the six months ended June 30, 1997 as
compared to combined gross margin of 21.2% for the six months ended June 30,
1996. The increases in gross margin are primarily attributable to the Company's
focus on increasing the Professional/Information Technology division revenues,
which generally provides higher profit margins than the Commercial division due
to the specialized expertise of the consultants. Emphasis on controlling
variable costs, such as workers' compensation expenses, also contributed to the
increase in gross margin.
Combined Operating Expenses. SG&A increased $6.8 million, or 93.9%, to
$14.1 million for the three months ended June 30, 1997 compared to combined
SG&A of $7.3 million for the three months ended June 30, 1996. SG&A increased
$9.8 million, or 69.1%, to $24.0 million for the six months ended June 30, 1997
compared to combined SG&A of $14.2 million for the six months ended June 30,
1996. These increases were primarily attributable to costs and expenses
associated with the acquisitions as well as the new costs associated with being
a public company. SG&A as a percentage of revenues decreased to 14.6% for the
three months ended June 30, 1997 compared to combined SG&A of 14.8% for the
three months ended June 30, 1996. SG&A as a percentage of revenues decreased to
15.0% for the six months ended June 30, 1997 compared to combined SG&A of 15.8%
for the six months ended June 30, 1996. These decreases relate to efficiencies
the Company has begun to realize from the Mergers in conjunction with an
overall increase in revenues, somewhat offset by higher SG&A associated with
being a public company and costs associated with maintaining the Company's
acquisition program. Depreciation and amortization expense increased $570,000,
or 116.1%, to $1.1 million for the three months ended June 30, 1997 compared to
combined depreciation and amortization of $491,000 for the three months ended
June 30, 1996. Depreciation and amortization expense increased $830,000, or
90.3%, to $1.7 million for the six months ended June 30, 1997 compared to
combined depreciation and amortization of $919,000 for the six months ended
June 30, 1996. These increases are primarily related to the amortization of
goodwill resulting from the Company's acquisitions.
Combined Operating Income. Operating income increased $3.5 million, or
123.6%, to $6.3 million for the three months ended June 30, 1997 as compared to
combined operating income of $2.8 million for the three months ended June 30,
1996. Operating income increased $5.8 million, or 147.2%, to $9.7 million for
the six months ended June 30, 1997 as compared to combined operating income of
$3.9 million for the six months ended June 30, 1996. Operating margin increased
to 6.6% for the three months ended June 30, 1997 as compared to combined
operating margin of 5.8% for the three months ended June 30, 1996. Operating
margin increased to 6.1% for the six months ended June 30, 1997 as compared to
combined operating margin of 4.4% for the six months ended June 30, 1996.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
In October 1996, the Company established a $50.0 million line of credit
with Mercantile to be used for working capital and other general corporate
purposes, including acquisitions (the "Credit Facility"). In May 1997, the
Company expanded its Credit Facility from $50.0 million to $100.0 million,
which includes a $30.0 million revolving credit facility and a $70.0 million
acquisition facility. The Credit Facility matures on April 1, 2002 and interest
on any borrowings is computed at the Company's option at either LIBOR or
Mercantile's prime rate and incrementally adjusted based on the Company's
operating leverage ratios. For the period ended March 31, 1997 the Company paid
a quarterly commitment fee equal to 0.25% of the revolving credit commitment.
Subsequent to March 31, 1997, the quarterly 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
of the Company's subsidiaries. During the three months ended June 30, 1997, the
Company borrowed approximately $42.6 million on the acquisition facility which
was used to pay the cash portion for acquisitions during the quarter. The
Company's net borrowing on the revolving credit facility totaled $800,000 during
the three months ended June 30, 1997. These funds were used for general
corporate purposes.
The Company is obligated under various acquisition agreements to pay
additional consideration, which will be paid in a combination of cash and
Common Stock to certain former stockholders of the acquired companies as
discussed in Note 5 to the consolidated financial statements. The Company
cannot currently estimate the total amount of these contingent payments;
however, the Company believes that the cash generated from operations and its
ability to issue additional shares of Common Stock will provide sufficient
liquidity and capital to satisfy these obligations.
Net cash provided by (used in) operating activities was $862,000 and
$582,000 for the three months ended June 30, 1997 and 1996, respectively, and
$143,000 and ($110,000) for the six months ended June 30, 1997 and 1996,
respectively. The net cash provided by operating activities for the periods
presented was primarily attributable to net income adjusted for non-cash
expenses such as depreciation and amortization and changes in operating assets
and liabilities.
Net cash used in investing activities was $43.3 million and $46,000
for the three months ended June 30, 1997 and 1996, respectively, and $52.9
million and $3.2 million for the six months ended June 30, 1997 and 1996,
respectively. Cash used in investing activities in the first half of 1996 was
largely for the acquisition of On Call by Brewer for cash totaling $3.0
million. Cash used in investing activities in the first half of 1997 was
primarily related to the acquisition of Advance, MRIC, Flexible, Global,
Lindenberg, TPS, Alternatives, Kleven and Sterling for cash totaling $51.0
million and capital expenditures totaling approximately $1.9 million.
Net cash provided by (used in) financing activities was $41.5 million,
and ($86,000) for the three months ended June 30, 1996 and 1997, respectively,
and $41.5 million and $3.8 million for the six months ended June 30, 1997 and
1996, respectively. Cash provided by financing activities in the first half of
1996 was primarily attributable to the proceeds from debt issued by Brewer in
conjunction with the acquisition of On Call. Cash provided by financing
activities in the first half of 1997 was primarily attributable to the proceeds
from debt issued in conjunction with the acquisitions of Global, Lindenberg,
TPS, Alternatives, Kleven and Sterling.
As a result of the foregoing, combined cash and cash equivalents
decreased $1.0 million for the three months ended June 30, 1997, decreased
$11.2 million for the six months ended June 30, 1997, increased $450,000 for
the three months ended June 30, 1996, and increased $459,000 for the six months
ended June 30, 1996, respectively.
Management believes that the Credit Facility, its cash flows from
operations, and the issuance of shares of Common Stock in conjunction with
acquisitions will provide sufficient liquidity or acquisition currency to
execute the Company's acquisition and internal growth plans through the
expiration of the credit facility discussed above. Should the Company
accelerate its acquisition program, the Company may need to seek additional
financing through the public or private sale of equity or debt securities.
There can be no assurance that the Company could secure such financing if and
when it is needed or on terms the Company deems acceptable. Management plans to
continue to periodically reassess the adequacy of the Company's liquidity
position, 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 needs on a short-term and long-term basis.
19
<PAGE> 20
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
The Company at times does have 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 2. CHANGES IN SECURITIES
In connection with the acquisition of Global, the Company issued
690,855 shares of Common Stock to the stockholders of Global in April 1997. In
connection with the acquisition of Kleven, the Company issued 23,263 shares of
Common Stock to the stockholders of Kleven in June 1997. In connection with the
acquisition of Sterling, the Company issued 193,860 shares of Common Stock to
the stockholders of Sterling in June 1997. Each of these transactions was
effected without registration of the respective securities under the Securities
Act in reliance upon the exemption provided by Section 4(2) of the Securities
Act for transactions not involving a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 2, 1997.
For purposes of voting for the election of Directors and upon such other
business as may have properly come before the meeting, there were 13,600,836
shares of outstanding Common Stock entitled to vote at the meeting. Of those
outstanding shares, 12,693,293 were represented either in person or by proxy at
the meeting. The stockholders voted on the following items:
<TABLE>
<CAPTION>
Election of Directors
----------------------------------------------------------------------------------
Authority
Name For Withheld
----------------------------- --------------- --------------
<S> <C> <C>
Jerry T. Brewer 12,682,393 10,900
Clete T. Brewer 12,681,393 11,900
W. David Bartholomew 12,682,393 10,900
Steven E. Schulte 12,682,393 10,900
John H. Maxwell, Jr. 12,682,393 10,900
Janice Blethen 12,682,193 11,100
William T. Gregory 12,682,393 10,900
William J. Lynch 12,682,393 10,900
R. Clayton McWhorter 12,682,393 14,900
Charles A. Sanders, M.D. 12,682,393 10,900
</TABLE>
<TABLE>
<CAPTION>
Proposal for Employee Stock Purchase Plan
--------------------------------------------------------
<S> <C>
Shares Voted For 12,637,157
Shares Voted Against 37,245
Abstentions 13,320
Non-votes 5,571
</TABLE>
No other matters to be voted upon were brought before the meeting.
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.2 Agreement and Plan of Reorganization, dated April 4, 1997,
among StaffMark, Inc., StaffMark Acquisition Corporation Four,
and Global Dynamics, Inc., Perry Butler, trustee of the Perry
Butler Charitable Remainder Trust, Carolyn J. Butler, trustee
of the Carolyn J. Butler Charitable Remainder Trust, Perry
Butler, individually, Carolyn J. Butler, individually, and
Paul Sharps, individually (Incorporated by reference from
Exhibit 2.1 to the Company's Form 8-K filed with the
Commission on April 18, 1997). /1/
2.3 Asset Purchase Agreement, dated April 24, 1997, among
StaffMark, Inc., StaffMark Acquisition Corporation Five, and
Lindenberg & Associates, Inc., Earl Lindenberg, and Mark
Tiemann (Incorporated by reference from Exhibit 2.1 to the
Company's Form 8-K filed with the Commission on May 9, 1997).
/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 of 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)).
4.2 Article Four of the Certificate of Incorporation of the
Company (included in Exhibit 3.1).
10.1 Employment Agreement among StaffMark, Inc. and Gordon Y.
Allison dated June 23, 1997.
10.2 Second Amendment to Credit Agreement dated May 30, 1997 by and
between StaffMark, Inc., the Lenders named therein ("Lenders")
and Mercantile Bank National Association, as Agent on behalf
of the Lenders.
10.3 StaffMark, Inc.'s Employee Stock Purchase Plan adopted May 2,
1997 (Incorporated by reference from the Company's
Registration Statement on Form S-8 (File No. 333-29689)).
11 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
/1/ The Company will furnish supplementally a copy of any omitted
schedule to the Commission upon request.
21
<PAGE> 22
(b) Reports on Form 8-K
1. A report on Form 8-K was filed with the SEC on April 2,
1997 in connection with the acquisition by the Company
of Flexible on March 18, 1997.
2. A report on Form 8-K was filed with the SEC on April
18, 1997 in connection with the acquisition by the
Company of Global on April 4, 1997.
3. A report on Form 8-K was filed with the SEC on May 9,
1997 in connection with the acquisition by the Company
of Lindenberg on April 25, 1997.
4. A report on Form 8-K/A was filed with the SEC on May
30, 1997 in connection with the acquisition by the
Company of Flexible on March 18, 1997.
5. A report on Form 8-K/A was filed with the SEC on June
6, 1997 in connection with the acquisition by the
Company of Global on April 4, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAFFMARK, INC.
Date: July 28, 1997 /s/ CLETE T. BREWER
------------------------------
Clete T. Brewer
Chief Executive Officer and President
Date: July 28, 1997 /s/ TERRY C. BELLORA
------------------------------
Terry C. Bellora
Chief Financial Officer
22
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.1 -- Employment Agreement among StaffMark, Inc.
and Gordon Y. Allison dated June 23, 1997.
10.2 -- Second Amendment to Credit Agreement dated
May 30, 1997 by and between
StaffMark, Inc. the Lenders named
therein ("Lenders") and Mercantile
Bank National Association, as Agent
on behalf of the Lenders.
11 -- Statement re: Computation of per share earnings.
27.1 -- Financial Data Schedule.
</TABLE>
23
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") by and between StaffMark, Inc., a
Delaware corporation (the "Company"), and Gordon Y. Allison ("Employee") is
hereby entered into and effective as of June 23, 1997. This Agreement hereby
supersedes any other employment agreements or understandings; written or oral,
between the Company and Employee.
R E C I T A L S
The following statements are true and correct:
As of the date of this Agreement, the Company is engaged primarily in the
temporary staffing business.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and
will continue to become familiar with and aware of information as to the
Company's customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by the Company, and future
plans with respect thereto, all of which has been and will be established and
maintained at great expense to the Company; this information is a trade secret
and constitutes the valuable goodwill of the Company.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, it is hereby agreed as
follows:
A G R E E M E N T S
1. Employment and Duties.
(a) The Company hereby employs Employee as Executive Vice
President and General Counsel. As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and
expected of a General Counsel and Chief Legal Officer and will report
directly to the Chief Executive Officer and the Board of Directors of
the Company (the "Board"). Employee hereby accepts this employment upon
the terms and conditions herein contained and, subject to paragraph
1(b), agrees to devote his working time, attention and efforts to
promote and further the business of the Company.
(b) Employee shall not, during the term of his employment
hereunder, be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage except to the extent that such
activity (i) does not interfere with Employee's duties and
responsibilities hereunder and (ii) does not violate paragraph 3
hereof. The foregoing limitations shall not be construed as prohibiting
Employee from serving on the boards of directors of other companies or
making personal investments in such form or manner as will require his
services, other than to a minimal extent, in the operation or affairs
of the companies or enterprises in which such investments are made nor
violate the terms of paragraph 3 hereof.
2. Compensation. For all services rendered by Employee, the
Company shall compensate Employee as follows:
(a) Base Salary. The base salary payable to Employee shall be
$120,000 per year, payable on a regular basis in accordance with the
Company's standard payroll procedures but not less than bi-monthly. On
at least an annual basis, the CEO and Compensation Committee will
review Employee's performance and may make increases to such base
salary if, in its discretion, any such increase is warranted. Such
recommended increase would, in all likelihood, require approval by the
Board or a duly constituted committee thereof.
(b) Incentive Bonus Plan. For 1997 and subsequent years, it is
the Company's intent to develop a written Incentive Bonus Plan setting
forth the criteria under which Employee and other officers and key
employees will be
24
<PAGE> 2
eligible to receive year-end bonus awards. Employee shall be eligible
for a bonus opportunity of up to 50% of his base salary in accordance
with this Incentive Bonus Plan, unless such bonus opportunity
percentage is increased by the CEO or Board or a duly constituted
committee thereof. The award of any bonus shall be based on the total
performance of the Company, but shall be related to the earnings per
share and stock price per share growth of the Company and shall be
payable in various increments based on the performance of the Company
versus targeted goals. The incremental payments and the Company's
targeted performance shall be determined by the Chief Executive Officer
or the compensation committee of the Board.
(c) Executive Perquisites, Benefits and Other Compensation.
Employee shall be entitled to receive additional benefits and
compensation from the Company in such form and to such extent as
specified below:
(i) When eligible under non-discriminatory standards,
Employee shall be entitled to participate in any employee
benefit plan maintained by the Company for its full time
employees, and such benefits shall be not less favorable than
the benefits provided to other Company executives.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the
performance of his services pursuant to this Agreement. All
reimbursable expenses shall be appropriately documented in
reasonable detail by Employee upon submission of any request
for reimbursement, and in a format and manner consistent with
the Company's expense reporting policy.
(iii) Four weeks paid vacation for each year during the
period of employment or such greater amount as may be afforded
officers and key employees generally under the Company's
policies in effect from time to time (pro rated for any year in
which Employee is employed for less than the full year).
(iv) An automobile allowance in the amount of $300 per
month.
(v) The Company shall reimburse Employee up to $150 per
month for club dues actually incurred by Employee, provided
that such club is used at least fifty (50%) percent of the time
for business purposes and such usage is subject to audit by the
Company.
(vi) The Company shall provide Employee with other
executive perquisites as maybe available to or deemed
appropriate for Employee by the Board and participation in all
other company-wide employee benefits as available from time to
time.
(vii) Employee shall be granted options (the "Options")
to acquire 30,000 shares of Common Stock at $16.00 or price
upon execution of agreement, whichever is lower. The Options
shall be exercisable as follows: 5 years @ 20% per year. All
terms and conditions shall be subject to the Company's 1996
Stock Option Plan.
3. Non-Competition Agreement.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company and its affiliates.
Therefore, in consideration of this Agreement, Employee hereby agrees
that neither he nor his spouse nor any member of his immediate family
that resides with him will, directly or indirectly, except for the
benefit of the Company or its affiliates or subsidiaries, or with the
prior written consent of the Board of Directors of the Company, which
consent may be granted or withheld at the sole discretion of the
Company's Board of Directors:
25
<PAGE> 3
(i) During the Noncompetition Period (as hereinafter
defined), become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise,
or be interested in or associated with any other person,
corporation, firm or business engaged in providing temporary or
permanent staffing services, IT, consulting and related
business outsourcing or medical or clinical staffing or
recruiting (a "StaffMark, Inc. Services Business") within a
radius of fifty (50) miles from any office operated during the
Noncompetition Period by the Company or any of its affiliates
(collectively, the "Territory") or in any StaffMark, Inc.
Services Business directly competitive with that of the Company
or any of its affiliates, or itself engage in such business;
provided, however, that
(A) Nothing herein shall be construed to prohibit
Employee from owning not more than five percent (5%) of
any class of securities issued by an entity which is
subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or which is traded
over the counter;
(ii) During the Noncompetition Period, in the
Territory, solicit, cause or authorize, directly or indirectly,
to be solicited for or on behalf of himself or third parties,
from parties who are or were customers of the Company or its
affiliates, any StaffMark, Inc. Services Business transacted by
or with such customer by the Company or its affiliates; or
(iii) During the Noncompetition Period, in the
Territory, accept or cause or authorize, directly or
indirectly, to be accepted for or on behalf of himself or for
third parties, any such StaffMark, Inc. Services Business from
any such customers of the Company or its affiliates; or
(iv) During the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used
by the Company or its affiliates relating to their business or
the operations, employees or customers of the Company or its
affiliates which constitutes proprietary or confidential
information of the Company or its affiliates ("Confidential
Information"), including without limitation any Confidential
Information contained in any customer lists, mailing lists and
sources thereof, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae,
methods, processes, agreements, contracts, manuals or any other
documents; and (B) from and after the date hereof, use,
publish, disseminate or otherwise disclose, directly or
indirectly, any information heretofore or hereafter acquired,
developed or used by the Company or its affiliates which
constitutes Confidential Information, but excluding any
Confidential Information which has become part of common
knowledge or understanding in the StaffMark, Inc. Services
Business industry or otherwise in the public domain (other than
from disclosure by Employee in violation of this Agreement);
provided, however, this subparagraph (iv) shall not be
applicable to the extent Employee is required to testify in a
judicial or regularity proceeding pursuant to the order of a
judge or administrative law judge after Employee requests that
such Confidential Information be preserved; or
(v) During the Noncompetition Period, in the
Territory,
(A) Solicit, entice, persuade or induce, directly
or indirectly, any employee (or person who within the
preceding ninety (90) days was an employee) of the
Company or its affiliates or any other person who is
under contract with or rendering services to the
Company or its affiliates, to terminate his or her
employment by, or contractual relationship with, such
person or to refrain from extending or renewing the
same (upon the same or new terms) or to refrain from
rendering services to or for such person or to become
employed by or to enter into contractual relations with
any persons other than such person or to enter into a
relationship with a competitor of the Company or its
affiliates;
26
<PAGE> 4
(B) Approach any such employee for any of the
foregoing purposes; or
(C) Authorize or knowingly approve or assist in
the taking of any such actions by any person other than
the Company or its affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the date hereof and ending
[twenty-four (24) months] after the date Employee ceases to be an
officer or employee of, or consultant to, the Company, or any of its
affiliates; provided, however, that the Noncompetition Period shall end
one (1) year from the date of termination of the employment of Employee
by the Company under this Agreement which is without cause.
(c) The invalidity or non-enforceability of this paragraph 3 in
any respect shall not affect the validity or enforceability of this
paragraph 3 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this paragraph 3 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof,
such invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement, and, to the
fullest extent permitted by law, this Agreement shall be construed as
if the geographic or business scope or the duration of such provision
had been more narrowly drafted so as not to be invalid or unenforceable
and further, to the extent permitted by law, such geographic or
business scope or the duration thereof may be re-written by a court of
competent jurisdiction to make such sufficiently limited to be
enforceable.
(d) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this paragraph 3 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary and permanent
injunction, in addition to any remedies the Company may have at law.
(e) The provisions of this paragraph 3 shall survive
termination of this Agreement.
4. Place of Performance.
(a) Employee has agreed to employment at the Company's
corporate headquarters in Fayetteville, Arkansas.
(b) If Employee is requested by the Board to relocate and
Employee refuses, such refusal shall not constitute "good cause" for
termination of this Agreement under the terms of paragraph 5 (c).
5. Term; Termination; Rights on Termination. The term of this Agreement
shall begin on the date hereof and continue for four (4) years (the "Initial
Term"), and, unless terminated sooner as herein provided, shall continue
thereafter on a year-to-year basis on the same terms and conditions contained
herein. Upon termination of this Agreement for any reason provided in clauses
(a) through (e) below, Employee shall be entitled to receive all compensation
earned and all benefits vested and reimbursements due through the effective
date of termination, as well as the particular payments, vesting and other
rights enumerated in clauses (a), (b), (d), and (e), which items shall survive
termination of this Agreement in accordance with said clauses. This Agreement
and Employee's employment may be terminated in any one of the following ways:
(a) Death. The death of Employee shall immediately terminate
the Agreement. Employee's estate shall receive from the Company, in a
lump-sum payment due within thirty (30) days of Employee's death, the
lesser of the base salary at the rate then in effect (i) for whatever
time period is remaining under the Initial Term of this Agreement or
(ii) for one (1) year.
(b) Disability. If, as a result of incapacity due to physical
or mental illness or injury, Employee shall have been absent from his
full-time duties hereunder for six (6) consecutive months, then thirty
(30) days after receiving written notice (which notice may occur before
or after the end of such six (6) month period, but which shall not be
effective earlier than the last day of such six (6) month period), the
Company may terminate Employee's employment
27
<PAGE> 5
hereunder provided Employee is unable to resume his full-time duties at
the conclusion of such notice period. Also, Employee may terminate his
employment hereunder if his health should become impaired to an extent
that makes the continued performance of his duties hereunder hazardous
to his physical or mental health or his life, provided that Employee
shall have furnished the Company with a written statement from a
qualified doctor to such effect and provided, further, that, at the
Company's request made within thirty (30) days of the date of such
written statement, Employee shall submit to an examination by a doctor
selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the
conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from the Company, in a lump-sum payment due within ten (10) days of the
effective date of termination, the lesser of the base salary at the
rate then in effect (i) for whatever time period is remaining under the
Initial Term of this Agreement or (ii) for one (1) year.
(c) Good Cause. The Company may terminate the Agreement ten
(10) days after written notice to Employee for good cause, which shall
be: (1) Employee's material and irreparable breach of this Agreement;
(2) Employee's negligence in the performance or intentional
nonperformance (continuing for ten (10) days after receipt of the
written notice) of any of Employee's material duties and
responsibilities hereunder; (3) Employee's dishonesty, fraud or
misconduct with respect to the business or affairs of the Company which
materially and adversely affects the operations or reputation of the
Company; (4) Employee's conviction of a felony crime; or (5) chronic
alcohol abuse or illegal drug abuse by Employee. In the event of a
termination for good cause, as enumerated above, Employee shall have no
right to any severance compensation.
(d) Without Cause. At any time after the commencement of
employment, the Company may, without cause, terminate this Agreement
and Employee's employment, effective thirty (30) days after written
notice is provided to the Employee. Should Employee be terminated by
the Company without cause, Employee shall receive from the Company two
payments, each equal to one-half of the following: the lesser of the
base salary at the rate then in effect (i) for whatever time period is
remaining under the Initial Term of this Agreement or (ii) for two (2)
years ("Severance Pay"). The first payment shall be due on the
effective date of termination and the second payment shall be due
ninety days after the effective date of termination. Upon the effective
date of termination by the Company without cause, all Options granted
to Employee in paragraph 2(c)(vii) shall become immediately
exercisable. Further, any termination without cause by the Company
shall operate to shorten the period set forth in paragraph 3 (b) and
during which the terms of paragraph 3 apply to one (1) year from the
date of termination of employment.
(e) Change in Control. Refer to paragraph 9 below.
(f) Termination by Employee Without Cause. If Employee resigns
or otherwise terminates his employment, Employee shall receive no
severance compensation. All other rights and obligations of the Company
and Employee under this Agreement shall cease as of the effective date
of termination, except that the Employee's obligations under paragraphs
3, 6 and 7 herein shall survive such termination in accordance with
their terms.
6. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. Trade secrets. Employee agrees that he will not, during or after the
term of this Agreement with the Company, disclose the specific terms of the
Company's relationships or agreements with its significant vendors or customers
or any other significant and material trade secret of the Company, whether in
existence or proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever, except as is disclosed in the
ordinary course of business.
8. Assignment; Binding Effect. This Agreement and the rights and
obligations hereunder shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives and successors
28
<PAGE> 6
or assigns and shall also bind and inure to the benefit of any successor of the
Company by merger or consolidation except to any such successor, purchaser, or
assignee of the Company, neither this Agreement nor any rights, duties, or
benefits hereunder or any portion thereof may be assigned by either party
hereto.
9. Change in Control.
(a) Unless he elects to terminate this Agreement pursuant to
(c) below, Employee understands and acknowledges that the Company may
be merged or consolidated with or into another entity and that such
entity shall automatically succeed to the rights and obligations of the
Company hereunder.
(b) In the event of a pending Change in Control wherein the
Company and Employee have not received written notice at least fifteen
(15) business days prior to the anticipated closing date of the
transaction giving rise to the Change in Control from the successor to
all or a substantial portion of the Company's business and/or assets
that such successor is willing as of the closing to assume and agree to
perform the Company's obligations under this Agreement in the same
manner and to the same extent that the Company is hereby required to
perform, then such Change in Control shall be deemed to be a
termination of this Agreement by the Company without cause and the
applicable portions of paragraph 5(d) will apply; however, under such
circumstances, the amount of the lump-sum severance payment due to
Employee shall be 100% of the amount calculated under the terms of
paragraph 5(d) and the non-competition provisions of paragraph 3 shall
not apply whatsoever.
(c) In any Change in Control situation in which Employee has
received written notice from the successor to the Company that such
successor is willing to assume the Company's obligations hereunder,
Employee may nonetheless, at his sole discretion, elect to terminate
this Agreement by providing written notice to the Company at least five
(5) business days prior to the anticipated closing of the transaction
giving rise to the Change in Control. In such case, the applicable
provisions of paragraph 5(d) will apply with the exception of any lump
sum severance payments. Employee will still be eligible to exercise all
options vested or unvested but not to any severance pay. The
non-competition provisions of paragraph 3 shall all apply for a period
of one (1) year from the effective date of termination.
(d) For purposes of applying paragraph 5 under the
circumstances described in (b) and (c) above, the effective date of
termination will be the closing date of the transaction giving rise to
the Change in Control and all compensation, reimbursements and lump-sum
payments due Employee must be paid in full by the Company at or prior
to such closing. Further, Employee will be given sufficient time and
opportunity to elect whether to exercise all or any of his vested
options to purchase Common Stock of the Company such that he may
convert the options to shares of Common Stock of the Company at or
prior to the closing of the transaction giving rise to the Change in
Control, if he so desires.
(e) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee
benefit plan of the Company, acquires directly or indirectly
the Beneficial Ownership (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended) of any voting
security of the Company and immediately after such acquisition
such person is, directly or indirectly, the Beneficial Owner of
voting securities representing 50% or more of the total voting
power of all of the then-outstanding voting securities of the
Company;
(ii) the individuals (A) who, as of the effective date
of the Company's registration statement with respect to its
initial public offering, constitute the Board of Directors of
the Company (the "Original Directors") or (B) who thereafter
are elected to the Board of Directors of the Company and whose
election, or nomination for election, to the Board of Directors
of the Company was approved by vote of at least two-thirds
(2/3) of the Original Directors then still in office (such
directors becoming "Additional Original Directors" immediately
following their election) or (C) who are elected to the Board
of Directors of the Company and whose election, or nomination
for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original
Directors and Additional Original Directors then still in
office (such directors also
29
<PAGE> 7
becoming "Additional Original Directors immediately following
their election), cease for any reason to constitute a majority
of the members of the Board of Directors of the Company;
(iii) the stockholders of the Company shall approve a
merger, consolidation, recapitalization, or reorganization of
the Company, a reverse stock split of outstanding voting
securities, or consummation of any such transaction if
stockholder approval is not sought nor obtained, other than any
such transaction which would result in at least 75% of the
total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction
being Beneficially Owned by at least 75% of the holders of
outstanding voting securities of the Company immediately prior
to the transaction, with the voting power of each such
continuing holder relative to other such continuing holders not
substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a
plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or a substantial
portion of the Company's assets (i.e., 50% or more of the total
assets of the Company).
(f) Employee must be notified by the Company at any time that
the Company or any member of its Board anticipates that a Change in
Control may take place.
(g) Employee shall be reimbursed by the Company or its
successor for any excise taxes that Employee incurs under Section 4999
of the Internal Revenue Code of 1986, as a result of any Change in
Control. Such amount will be due and payable by the Company or its
successor within ten (10) days after Employee delivers a written
request for reimbursement accompanied by a copy of his tax return(s)
showing the excise tax actually incurred by Employee.
10. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with the Company or any of officers, directors or representatives covering the
same subject matter as this Agreement. This Agreement is the final, complete
and exclusive statement and expression of the agreement between the Company and
Employee and of all the terms of this Agreement, and it cannot be varied,
contradicted or supplemented by evidence of any prior or contemporaneous oral
or written agreements. This Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Employee, and no term of this Agreement may be waived except by writing signed
by the party waiving the benefit of such term.
11. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: StaffMark, Inc.
302 E. Millsap Road
Fayetteville, Arkansas 72703
Attn: Clete T. Brewer, President & Chief
Executive Officer
With a copy to: Wright, Lindsey, & Jennings
200 West Capitol Avenue, Suite 2200
Little Rock, AR 72201-3699
Attn: Fred Perkins
To Employee: Gordon Y. Allison
2162 Revere Place
Fayetteville, AR 72701
Notice shall be deemed given and effective three (3) days after the deposit in
the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party
may change the address for notice by notifying the other party of such change
in accordance with this paragraph 11.
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<PAGE> 8
12. Severability: Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
13. Assignment. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall sell
all or substantially all of its assets.
14. 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.
15. Reasonableness of Conditions. Employee has carefully read all of
the terms herein stated and agrees that the same are necessary for the
reasonable and proper protection of the Company's business; and that Employee
has been induced to offer this employment upon the representation of Employee
that he will abide by and be bound by each of the aforesaid covenants and
restraints; and that each and every covenant is reasonable with respect to such
matter, length of time, and the geographical area embraced; and that
irrespective of all other conditions, the covenants and restrictions
hereinabove provided shall be operative during the full period and throughout
the geographical area described.
16. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Arkansas.
I HAVE READ AND UNDERSTAND THIS AGREEMENT AND IN PARTICULAR THE NON-COMPETITION
ASPECTS HEREOF CONTAINED IN PARAGRAPH 3, AND DO HEREBY EXECUTE THE SAME BEFORE
THE WITNESS WHO HAS SIGNED HEREUNDER.
[EMPLOYEE]
/s/ GORDON Y. ALLISON
-----------------------------------
Gordon Y. Allison
/s/ DANA R. WILLIAMS
- --------------------------
WITNESS
STAFFMARK, INC.
/s/ CLETE T. BREWER
-----------------------------------
Clete T. Brewer, President & Chief
Executive Officer
31
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second
Amendment") is made and entered into as of this 30th day of May, 1997, by and
among STAFFMARK, INC., a Delaware corporation (the "Borrower"), MERCANTILE BANK
NATIONAL ASSOCIATION, as successor by merger to Mercantile Bank of St. Louis
National Association, a national banking association ("Mercantile"), DEPOSIT
GUARANTY NATIONAL BANK, a national bank, THE FIRST NATIONAL BANK OF CHICAGO, a
national bank and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national bank
(collectively, with Mercantile, the "Lenders") 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, Mercantile and the Agent have
previously entered into that certain Credit Agreement dated October 4, 1996, as
amended by a certain First Amendment to Credit Agreement dated as of December
18, 1996 made by and among Borrower, Mercantile and Agent, as partially
assigned to the other Lenders by Mercantile pursuant to three certain
Assignment Agreements each dated as of January 6, 1997 and respectively made by
and among Mercantile, such respective Lenders and the Agent (as amended and as
the same may be further amended from time to time, the "Credit Agreement"); and
WHEREAS, the Borrower has executed and delivered to Lenders,
respectively, its Revolving Credit Notes in the aggregate original principal
amount of $20,000,000.00 (as amended and as the same may be further amended
from time to time, the "Revolving Credit Notes"); and
WHEREAS, the Borrower has executed and delivered to Lenders,
respectively, its Reducing Revolving Credit Notes in the aggregate original
principal amount of $30,000,000.00 (as amended and as the same may be further
amended from time to time, the "Reducing Revolver Notes"); and
WHEREAS, the Borrower, Agent and Lenders desire to make
certain modifications to the Credit Agreement and to amend and restate the
Revolving Credit Notes and the Reducing Revolver Notes 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. Section 1 of the Credit Agreement hereby is deleted
in its entirety and the following is substituted in its place:
The "Term" of this Agreement shall commence
on the date hereof and shall end on April 1, 2002, unless
earlier terminated pursuant to Section 3.12 or by
acceleration or otherwise upon the occurrence of an Event of
Default under this Agreement, in which case the Term hereof
shall end on such earlier date.
2. 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:
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<PAGE> 2
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 Ten (10)
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 $8,000,000.00, 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.
3. 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.
Schedule 1 to the Compliance Certificate attached as Exhibit E to the Credit
Agreement is hereby is amended to the form of Schedule 1 attached to this
Amendment. All references in the Credit Agreement or any of the other
Transaction Documents to the Compliance Certificate or to such Schedule 1 shall
hereafter mean the Compliance Certificate with a Schedule 1 in the form of
Schedule 1 attached to this Amendment.
4. 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 during such specified period,
including, without limitation, interest charges during such
period under any Capitalized Leases, plus all income taxes
paid during the specified period of such calculation, plus
all payments of principal made on any Subordinated Debt as
permitted to be paid pursuant to the terms of the
subordination and standby agreement or intercreditor
agreement made between Agent and the holder of any such
Subordinated Debt, plus all cash payments made with respect
to any Deferred Payment Obligations within the specified
period of any such calculation, 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.
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<PAGE> 3
5. A new definition of "Deferred Payment Obligation"
shall be added to Section 2 of the Credit Agreement as follows:
Deferred Payment Obligation shall mean any contingent
obligation incurred by Borrower or any of its Consolidated
Subsidiaries in connection with any Acquisition pursuant to
which Borrower or any such Consolidated Subsidiary upon the
occurrence of specified circumstances would be required to
pay or deliver additional consideration (whether in
installments or in a lump sum) in the form of cash payments
or additional shares of Borrower's stock only (no other forms
of Deferred Payment Obligations being permitted by Agent or
Lenders hereunder without their prior written consent) to the
sellers or other third parties in connection with such
Acquisition.
6. 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 or, except as made ineligible below, information
technology Accounts) which are not invoiced (and dated as of
such date) and sent to the Account Debtor thereof
concurrently with or not later than fifteen (15) 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, and information technology
Accounts 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; (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,
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<PAGE> 4
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., Tom Bain Personnel, Inc. and
APS-Advanced Personnel Service Acquisition Corporation,
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 any of HRA, Inc., Tom Bain Personnel, Inc.
and APS-Advanced Personnel Service Acquisition Corporation
(whichever subsidiary's or subsidiaries' Accounts are to be
made Eligible Accounts) has an office or holds any inventory
or equipment on all collateral described in the Subsidiary
Security Agreement executed by HRA, Inc., Tom Bain Personnel,
Inc. and/or APS-Advanced Personnel Service Acquisition
Corporation, as the case may be, (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., Tom Bain
Personnel, Inc. and/or APS-Advanced Personnel Service
Acquisition Corporation, as the case may be, 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 for HRA, Inc., of at least $5,000,000.00
for Tom Bain Personnel, Inc. and of at least $5,000,000.00
for APS-Advanced Personnel Service Acquisition Corporation,
as the case may be; 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.
7. The definition of "Indebtedness" in Section 2 of the
Credit Agreement hereby is deleted in its entirety and the following is
substituted in its place:
Indebtedness of any Person shall mean and include, without
duplication, any and all indebtedness (principal, interest,
fees and other amounts), liabilities and obligations of such
Person which in accordance with generally accepted accounting
principles, consistently applied are or should be classified
upon a balance sheet of such Person as liabilities of such
Person, and in any event shall include all (i) obligations of
such Person for borrowed money or which have been incurred in
connection with the acquisition of Property, (ii) obligations
secured by any Lien or other charge upon any Property owned
by such Person, provided that if such Person has not assumed
or become liable for the payment of such obligations, such
obligations shall still be included in Indebtedness but the
determination of the amount of Indebtedness evidenced by such
obligations shall be limited to the book value of such
Property, (iii) obligations created or arising under any
conditional sale or other title retention agreement with
respect to any Property acquired by such Person, provided
that if the rights and remedies of the seller, lender or
lessor in the event of default under such agreement are
limited solely to repossession or sale of such Property, such
obligations shall still be included in Indebtedness but the
determination of the amount of Indebtedness evidenced by such
obligations shall be limited to the book value of such
Property, (iv) all Guarantees and other contingent
indebtedness, liabilities and obligations of such Person
whether or not reflected on the balance sheet of such Person
(other than any such contingent obligation with respect to
any Deferred Payment Obligation unless such Deferred Payment
Obligation is required to be classified as a liability on the
balance sheet of such Person) and (v) all obligations of such
Person as lessee under any Capitalized Lease.
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<PAGE> 5
8. The definition of "Reducing Revolver Commitment" in
Section 2 of the Credit Agreement hereby is deleted in its entirety and the
following is substituted in its place:
Reducing Revolver Commitment shall mean, subject to
termination or reduction as set forth in Section 3.12 and
subject to quarterly reductions required by Section 3.2(a),
for each Lender the amount set forth as the Reducing Revolver
Commitment of such Lender next to its name on the signature
pages of the Second Amendment to Credit Agreement dated May
30, 1997 made by and among Borrower, Lenders and Agent (the
"Second Amendment") or on the signature pages of any
subsequent Assignment Agreement to which such Lender is a
party.
9. The definition of "Reducing Revolver Notes" in
Section 2 of the Credit Agreement hereby is deleted in its entirety and the
following is substituted in its place:
Reducing Revolver Notes shall mean each of the amended and
restated Reducing Revolver Notes of the Borrower to be
executed and delivered to each of the Lenders pursuant to the
Second Amendment or thereafter pursuant to Section 3.2
herein, as such Notes may from time to time be amended,
modified, extended or renewed.
All references in the Credit Agreement or any of the other Transaction
Documents to the "Reducing Revolver Notes," the "Notes" and other references of
similar import as such relate to the Reducing Revolver Notes, shall hereafter
mean the Reducing Revolver Notes in the forms of Exhibit F through Exhibit I
attached to this Second Amendment.
10. The definition of "Revolving Credit Commitment" in
Section 2 of the Credit Agreement hereby is deleted in its entirety and the
following is substituted in its place:
Revolving Credit Commitment shall mean, subject to
termination or reduction as set forth in Section 3.12, for
each Lender the amount set forth as the Revolving Credit
Commitment of such Lender next to its name on the signature
pages of the Second Amendment or on the signature pages of
any subsequent Assignment Agreement to which such Lender is a
party.
11. The definition of "Revolving Credit Notes" in
Section 2 of the Credit Agreement hereby is deleted in its entirety and the
following is substituted in its place:
Revolving Credit Notes shall mean each of the amended and
restated Revolving Credit Notes of the Borrower to be
executed and delivered to each of the Lenders pursuant to the
Second Amendment or thereafter pursuant to Section 3.1(a), as
such Notes may from time to time be amended, modified,
extended or renewed.
All references in the Credit Agreement or any of the other Transaction
Documents to the "Revolving Credit Notes," the "Notes" and other references of
similar import as such relate to the Revolving Credit Notes, shall hereafter
mean the Revolving Credit Notes in the forms of Exhibit B through Exhibit E
attached to this Second Amendment.
12. Section 3.1(a) of the Credit Agreement hereby is
deleted in its entirety and the following is substituted in its place:
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<PAGE> 6
(a) Subject to the terms and conditions hereof, during the
Term of this Agreement, each Lender hereby severally agrees
to make such loans (individually, a "Revolving Credit Loan"
and collectively, the "Revolving Credit Loans"), to the
Borrower as the Borrower may from time to time request
pursuant to Section 3.3(a). The aggregate principal amount of
Revolving Credit Loans which Lenders, cumulatively, shall be
required to have outstanding hereunder at any one time, plus
the face amount of Letters of Credit issued by Agent and then
outstanding under Section 3.4, shall not exceed the lesser of
(i) the Borrowing Base (as hereinafter defined); or (ii)
Thirty Million Dollars ($30,000,000.00) (the "Total Revolving
Credit Commitment"), and the amount each Lender shall be
required to have outstanding hereunder as Revolving Credit
Loans plus their undivided Pro Rata Share participation
interest in each Letter of Credit issued by Agent under
Section 3.4 shall not exceed, in the aggregate at any one
time outstanding, the lesser of (x) the amount of such
Lender's Revolving Credit Commitment or (y) such Lender's Pro
Rata Share of the then current Borrowing Base. Each Revolving
Credit Loan under this Section 3.1(a) shall be made from the
several Lenders ratably in proportion to their respective
Revolving Credit Commitments. The Revolving Credit Loans from
Lenders to the Borrower shall be evidenced by Revolving
Credit Notes of the Borrower dated as of May 30, 1997 and
payable to the order of each of the Lenders in the respective
original principal amounts of each such Lender's Revolving
Credit Commitment and otherwise in the forms attached as
Exhibits B through E to the Second Amendment and incorporated
herein by reference (as the same may from time to time be
amended, modified, extended or renewed, the "Revolving Credit
Notes"). Subject to the terms and conditions hereof, the
Borrower may borrow, repay and reborrow such sums from
Lenders.
13. Section 3.2(a) of the Credit Agreement hereby is deleted
in its entirety and the following is substituted in its place:
(a) Subject to the terms and conditions hereof, during the
Term of this Agreement, each Lender hereby severally agrees
to make such loans (individually, a "Reducing Revolver Loan,"
and collectively, the "Reducing Revolver Loans"), to the
Borrower as the Borrower may from time to time request
pursuant to Section 3.3(b). The aggregate principal amount of
Reducing Revolver Loans which Lenders, cumulatively, shall be
required to have outstanding hereunder at any one time shall
not exceed the lesser of (i) Seventy Million Dollars
($70,000,000.00), or (ii) three hundred fifty percent (350%)
of the amount of Borrower's Consolidated Proforma Operating
Cash Flow determined as of the most recent fiscal
quarter-end, and the amount each Lender shall be required to
have outstanding hereunder as Reducing Revolver Loans shall
not exceed the lesser of (x) amount of such Lender's Reducing
Revolver Commitment, or (y) such Lender's Pro Rata Share
multiplied times an amount equal to three hundred fifty
percent (350%) of Borrower's Consolidated Proforma Operating
Cash Flow determined as of the most recent fiscal
quarter-end. Each Reducing Revolver Loan under this Section
3.2 shall be made by the Lenders ratably in proportion to
their respective Reducing Revolver Commitments. The Reducing
Revolver Loans shall be evidenced by the Reducing Revolver
Notes of the Borrower, each dated as of May 30, 1997 and
payable by the Borrower to the respective orders of each of
the Lenders in the aggregate original principal amount of
Seventy Million Dollars ($70,000,000.00) and otherwise in the
forms attached as Exhibits F through I to the Second
Amendment and incorporated herein by reference (as the same
may from time to time be amended, modified, extended or
renewed, the "Reducing Revolver Notes"). The Reducing
Revolver Notes shall mature on April 1, 2002, unless earlier
terminated by acceleration or otherwise upon the occurrence
of an Event of Default under this Agreement. Subject to any
such earlier maturity by reason of acceleration or otherwise
and in addition to any voluntary reduction requested by
Borrower pursuant to Section 3.12, the aggregate Reducing
Revolver Commitments of the Lenders shall be reduced by the
amount of Five Million Eight Hundred Thirty-Three Thousand
Three Hundred Thirty-Three and 33/100 Dollars ($5,833,333.33)
on the first day of each fiscal quarter commencing with the
first such reduction on July 1, 1999 and continuing on the
first day of each fiscal quarter thereafter during the Term
hereof, with such reductions being applied to the respective
Reducing Revolver Commitments of the Lenders in accordance
with their Pro Rata Shares thereof. In the event any such
quarterly reduction in the aggregate Reducing Revolver
Commitments shall cause the amount of the Reducing Revolver
Commitments of all of the Lenders to be decreased below the
then outstanding principal amount of all Reducing Revolver
Loans to Borrower, or in the event any reduction in
Borrower's most recent quarter-end Consolidated Proforma
Operating Cash Flow shall cause the aggregate principal
amount of the Reducing Revolver Loans to exceed three hundred
fifty percent (350%) of such most recent
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<PAGE> 7
quarter-end Consolidated Proforma Operating Cash Flow,
Borrower agrees to pay to Agent for distribution to the
Lenders in accordance with their respective Pro Rata Shares
of the Reducing Revolver Commitments, the amount by which the
aggregate outstanding Reducing Revolver Loans then exceeds
the lesser of the then available aggregate Reducing Revolver
Commitments or three hundred fifty percent (350%) of
Borrower's most recent quarter-end Consolidated Proforma
Operating Cash Flow. To the extent such sums have not been
previously repaid pursuant to the preceding sentence, the
entire outstanding and unpaid principal balance of the
Reducing Revolver Loans shall be due and payable on April 1,
2002. Subject to the terms and conditions of this Agreement,
the Borrower may borrow, repay and reborrow the amounts
available under this Section 3.2.
14. Section 3.4(a)(iii) of the Credit Agreement hereby
is deleted in its entirety and the following is substituted in its place:
(iii) the aggregate undrawn face amount of all outstanding
Letters of Credit shall not at any one time exceed Seven
Million Five Hundred Thousand Dollars ($7,500,000.00) and the
aggregate undrawn face amount of all outstanding Letters of
Credit plus the outstanding principal amount of all Revolving
Credit Loans shall not at any one time exceed the lesser of
(a) the Borrowing Base or (b) Thirty Million Dollars
($30,000,000.00); and
15. Section 7.1(a)(ix) of the Credit Agreement hereby is
deleted in its entirety and the following two paragraphs are substituted in its
place:
(ix) Within forty-five (45) days after the end of each
fiscal quarter, a schedule of all Deferred Payment
Obligations of Borrower and its Consolidated Subsidiaries
which remain outstanding as of the end of such quarter,
certified by the principal financial officer of Borrower; and
(x) With reasonable promptness, such further information
regarding the business, affairs and/or financial condition of
Borrower or any Subsidiary of Borrower as Agent or any of the
Lenders may from time to time reasonably request.
16. Section 7.1(i)(i) of the Credit Agreement hereby is
deleted in its entirety and the following is substituted in its place:
(i) Fixed Charges Coverage Ratio. Maintain on a
consolidated basis as of each fiscal quarter-end during the
Term hereof a ratio of Consolidated Proforma Operating Cash
Flow to Consolidated Fixed Charges determined for the
12-month period ending as of each such fiscal quarter-end of
not less than (a) 1.25 to 1.0 for each fiscal quarter ending
on or before June 30, 1999, and (b) 1.50 to 1.0 for each
fiscal quarter end thereafter during the Term hereof.
17. Section 7.2(m) of the Credit Agreement hereby is
deleted in its entirety and the following is substituted in its place:
(m) Operating Leases. Neither Borrower nor any Subsidiary
of the Borrower will enter into or permit to remain in effect
any agreements to rent or lease (as lessee) any real or
personal property (other than Capitalized Leases) for initial
terms (including options to renew or extend any term, whether
or not exercised) of more than one (1) year which in the
aggregate (for the Borrower and all Subsidiaries of the
Borrower) provide for payments in excess of $7,500,000.00
during any consecutive twelve-month (12-month) period.
18. In consideration of the amendments and agreements of
Agent and Lenders as set forth herein, Borrower agrees to pay to Agent the fees
set forth in that certain fee letter dated as of the date hereof. Agent shall
pay each Bank from such amount received from Borrower the amendment fee agreed
to between Agent and each such Lender as evidenced by letters from Agent to
each such Lender, with Agent retaining the remaining portion of such amendment
fee for its own account.
38
<PAGE> 8
19. The agreements of Agent and the Lenders as set forth
herein are expressly conditioned upon the following:
(a) Execution by Borrower and Guarantors of this
Agreement and each of the Amended and Restated Revolving
Credit Notes and Amended and Restated Reducing Revolver
Notes;
(b) Execution by Guarantors of the Consent of Guarantors
in the form attached to this Agreement;
(c) Delivery to Agent and Lenders of an opinion of
Borrower's counsel in form and substance satisfactory to
Agent and Lenders relating to the due execution, delivery and
enforceability of this Agreement and the other Transaction
Documents and such other matters as Agent and Lenders may
reasonably require; and
(d) Payment by Borrower to Agent of the amendment fee
required under Paragraph 18 above.
20. Borrower hereby represents and warrants to Agent and
to Lenders that:
a. The execution, delivery and performance by
Borrower of this Second Amendment and the amended and restated Reducing
Revolver Notes 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 Second
Amendment and the amended and restated Reducing Revolver Notes 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 Certificate 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 Second Amendment and the amended and
restated Reducing Revolver Notes have been duly executed and delivered and
constitute the legal, valid and binding obligations of Borrower enforceable in
accordance with their respective 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.
21. The Credit Agreement, as hereby amended, the Reducing
Revolver Notes, as hereby amended and restated, and the other Transaction
Documents are and shall remain the binding obligations of Borrower, and except
to the extent amended by this Second Amendment, all of the terms, provisions,
conditions, agreements, covenants, representations, warranties and powers
contained in the Credit Agreement, the Reducing Revolver Notes and the other
Transaction Documents shall be and remain in full force and effect and the same
are hereby ratified and confirmed.
This Second Amendment amends the Credit Agreement and is not a novation
thereof.
22. 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 Second
Amendment.
23. This Second 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.
24. This Second 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.
39
<PAGE> 9
25. 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 SECOND
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 SECOND 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.
26. This Second Amendment shall be governed by and
construed in accordance with the internal laws of the State of Missouri.
27. In the event of any inconsistency or conflict
between this Second Amendment and the Credit Agreement or the other Transaction
Documents, the terms, provisions and conditions of this Second Amendment shall
govern and control.
IN WITNESS WHEREOF, the parties have caused this Second
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: CFO
---------------------------------
Revolving Credit Commitment: MERCANTILE BANK
$15,900,000.00 NATIONAL ASSOCIATION
Reducing Revolver Commitment:
$37,100,000.00
By: /s/ JOHN C. BILLINGS
------------------------------------
Name: John C. Billings
----------------------------------
Title: Vice President
---------------------------------
Address: 721 Locust Street
St. Louis, Missouri 63101
Attention: Mid America Group
Telecopy No: 314-425-3859
40
<PAGE> 10
<TABLE>
<S> <C>
Revolving Credit Commitment: DEPOSIT GUARANTY NATIONAL BANK
$3,000,000.00
Reducing Revolver Commitment:
$7,000,000.00
By: /s/ STEVE C. KROHN
------------------------------------
Name: Steve C. Krohn
----------------------------------
Title: Senior Vice President
---------------------------------
Address: Post Office Box 1200
Jackson, Mississippi 39215-1200
Attention: Steven C. Krohn, Senior Vice
President
Revolving Credit Commitment: THE FIRST NATIONAL BANK OF CHICAGO
$5,850,000.00
Reducing Revolver Commitment:
$13,650,000.00
By: /s/ JENNY A. GILPIN
------------------------------------
Name: Jenny A. Gilpin
----------------------------------
Title: Vice President
---------------------------------
Address: One First National Plaza, 14th Floor
Mail Suite 0088
Chicago, Illinois 60670-0088
Attention: Jenny A. Gilpin, Vice President
Revolving Credit Commitment: FIRST UNION NATIONAL BANK OF NORTH $5,250,000.00
CAROLINA
Reducing Revolver Commitment:
$12,250,000.00
By: /s/ ALAN P. SPURGIN
------------------------------------
Name: Alan P. Spurgin
----------------------------------
Title: Director
---------------------------------
Address: One First Union Center
301 South College Street
Charlotte, North Carolina 28288-0745
Attention: Alan P. Spurgin, Director
MERCANTILE BANK NATIONAL ASSOCIATION, as Agent
By: s/ JOHN C. BILLINGS
------------------------------------
Name: John C. Billings
----------------------------------
Title: Vice President
---------------------------------
</TABLE>
41
<PAGE> 11
CONSENT OF GUARANTORS
The undersigned hereby consent to the terms, provisions and
conditions of that certain Second Amendment to Credit Agreement dated as of May
30, 1997 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 the Lenders named therein (the "Second
Amendment"), which amends that certain Credit Agreement dated October 4, 1996
made by and between Borrower, Agent and Lenders, as previously amended and
assigned. The undersigned hereby acknowledge and agree that said amendments by
Borrower, Agent and Lenders will not affect or impair any of the undersigneds'
obligations to Agent and the Lenders (as defined in the Second Amendment)
under: (i) those certain Unlimited Continuing Guaranties and those certain
Security Agreements, each dated October 4, 1996 and one of each executed
respectively by Brewer Personnel Services, Inc., Prostaff Personnel, Inc.,
Maxwell Staffing, Inc., HRA, Inc., First Choice Staffing, Inc., Blethen
Temporaries, Inc., Professional Resources, Inc., Excel Temporary Staffing,
Inc., DP Pros of Burlington, Inc., Personnel Placement, Inc., Jaeger Personnel
Services, Ltd, Dixon Enterprises of Burlington, Inc., Trasec Corp.,
Maxwell/Healthcare, Inc., Square One Rehab, Inc., Maxwell Staffing of Bristow,
Inc. and Technical Staffing, Inc. in favor of Agent and Lenders, guarantying
all of the obligations of Borrower to Agent and Lenders and securing such
guaranties with a first perfected security interest in the assets of such
undersigned subsidiary as specified in each such Security Agreement, which
guaranty obligations and collateral obligations are hereby ratified and
confirmed, (ii) those certain Unlimited Continuing Guaranties and those certain
Security Agreements, each dated as of January 31, 1997 and one of each executed
respectively by The Technology Source Acquisition Corporation, APS-Advanced
Personnel Service Acquisition Corporation, Tom Bain Personnel, Inc., StaffMark
Acquisition Corporation Two, StaffMark Acquisition Corporation Three, StaffMark
Acquisition Corporation Four, StaffMark Acquisition Corporation Five and
StaffMark Acquisition Corporation Six in favor of Agent and Lenders,
guarantying all of the obligations of Borrower to Agent and Lenders and
securing such guaranties with a first perfected security interest in the assets
of such undersigned subsidiary as specified in each such Security Agreement,
which guaranty obligations and collateral obligations are hereby ratified and
confirmed, and (iii) that certain Unlimited Continuing Guaranty and that
certain Security Agreement, each dated as of May ___, 1997 and executed by MRIC
Medical Recruiters International Ltd. in favor of Agent and Lenders,
guarantying all of the obligations of Borrower to Agent and Lenders and
securing such guaranties with a first perfected security interest in the assets
of MRIC Medical Recruiters International Ltd. as specified in such Security
Agreement, which guaranty obligations and collateral obligations are hereby
ratified and confirmed.
Executed this 30th day of May, 1997.
BREWER PERSONNEL SERVICES, INC. HRA, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
-------------------------- --------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
PROSTAFF PERSONNEL, INC. FIRST CHOICE STAFFING, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
-------------------------- --------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
MAXWELL STAFFING, INC. BLETHEN TEMPORARIES, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
-------------------------- --------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
42
<PAGE> 12
PROFESSIONAL RESOURCES, INC. MAXWELL HEALTHCARE, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
EXCEL TEMPORARY STAFFING, INC. SQUARE ONE REHAB, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
DP PROS OF BURLINGTON, INC. MAXWELL STAFFING OF BRISTOW, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
PERSONNEL PLACEMENT, INC. TECHNICAL STAFFING, INC.
By: /s/ CLETE T. BREWER By: /s/ CLETE T. BREWER
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
JAEGER PERSONNEL SERVICES, LTD. THE TECHNOLOGY SOURCE
ACQUISITION CORPORATION
By: /s/ CLETE T. BREWER By: /s/ TERRY C. BELLORA
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
DIXON ENTERPRISES OF BURLINGTON, INC. APS-ADVANCED PERSONNEL SERVICE
ACQUISITION CORPORATION
By: /s/ CLETE T. BREWER By: /s/ TERRY C. BELLORA
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
TRASEC CORP. TOM BAIN PERSONNEL, INC.
By: /s/ CLETE T. BREWER By: /s/ TERRY C. BELLORA
---------------------------- ----------------------------
Title: Vice President Title: Vice President
--------------------------- --------------------------
43
<PAGE> 13
STAFFMARK ACQUISITION CORPORATION TWO
By: /s/ TERRY C. BELLORA
--------------------------------
Title: Vice President
----------------------------
STAFFMARK ACQUISITION
CORPORATION THREE
By: /s/ TERRY C. BELLORA
--------------------------------
Title: Vice President
----------------------------
STAFFMARK ACQUISITION
CORPORATION FOUR
By: /s/ TERRY C. BELLORA
--------------------------------
Title: Vice President
----------------------------
STAFFMARK ACQUISITION
CORPORATION FIVE
By: /s/ TERRY C. BELLORA
--------------------------------
Title: Vice President
----------------------------
STAFFMARK ACQUISITION
CORPORATION SIX
By: /s/ TERRY C. BELLORA
--------------------------------
Title: Vice President
----------------------------
MRIC MEDICAL RECRUITERS
INTERNATIONAL LTD.
By: /s/ TERRY C. BELLORA
--------------------------------
Title: Vice President
----------------------------
44
<PAGE> 14
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__:
<TABLE>
<S> <C>
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 $30,000,000.00) $
--------------
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) --------------
</TABLE>
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:
---------------------------
45
<PAGE> 15
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$15,900,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of MERCANTILE BANK NATIONAL
ASSOCIATION ("Lender"), the principal sum of Fifteen Million Nine Hundred
Thousand Dollars ($15,900,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Lender shall be
committed to have outstanding hereunder at any one time shall not exceed
Fifteen Million Nine Hundred Thousand Dollars ($15,900,000.00) subject to the
limitation of the "Borrowing Base" (as defined in the Credit Agreement), which
amount may be borrowed, paid, reborrowed and repaid, in whole or in part,
subject to the terms and conditions hereof and of the Credit Agreement
hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
All payments of principal and interest hereunder shall be made in
lawful currency of the United States in federal or other immediately available
funds at the office of Mercantile Bank National Association (the "Agent")
situated at 721 Locust Street, St. Louis, Missouri 63101, or at such other
place as the Agent shall designate in writing. Interest shall be computed on an
actual day, 360-day year basis. Consistent with the terms of the Credit
Agreement, the Agent shall determine each interest rate applicable to the
advances hereunder, which determination shall be conclusive in the absence of
manifest error.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in that certain Credit Agreement dated
October 4, 1996 by and between the Borrower, Agent, Lender, as successor by
merger to Mercantile Bank of St. Louis National Association, and the other
lenders party thereto (as the same may from time to time be amended, the
"Credit Agreement"), to which Credit Agreement reference is hereby made for a
statement of the terms and conditions upon which the maturity of this Note may
be accelerated, and for other terms and conditions, including prepayment, which
may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of a trustee
for Agent for the benefit of Lender and others (as the same may from time to
time be amended, the "Pledge Agreement"), to which Pledge Agreement reference
is also hereby made for a description of the security and a statement of the
terms and conditions upon which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
46
<PAGE> 16
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Amended and Restated Revolving Credit Note of Borrower dated January 6,
1997, and payable to the order of Lender in the original principal amount of
$8,000,000.00, and is not a novation thereof. All interest evidenced by such
prior note being restated by this instrument shall continue to be due and
payable until paid.
STAFFMARK, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
47
<PAGE> 17
Revolving Credit Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 18
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$3,000,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of DEPOSIT GUARANTY NATIONAL
BANK ("Lender"), the principal sum of Three Million Dollars ($3,000,000.00), or
such lesser sum as may then be outstanding hereunder. The aggregate principal
amount which Lender shall be committed to have outstanding hereunder at any one
time shall not exceed Three Million Dollars ($3,000,000.00) subject to the
limitation of the "Borrowing Base" (as defined in the Credit Agreement), which
amount may be borrowed, paid, reborrowed and repaid, in whole or in part,
subject to the terms and conditions hereof and of the Credit Agreement
hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
All payments of principal and interest hereunder shall be made in
lawful currency of the United States in federal or other immediately available
funds at the office of Mercantile Bank National Association (the "Agent")
situated at 721 Locust Street, St. Louis, Missouri 63101, or at such other
place as the Agent shall designate in writing. Interest shall be computed on an
actual day, 360-day year basis. Consistent with the terms of the Credit
Agreement, the Agent shall determine each interest rate applicable to the
advances hereunder, which determination shall be conclusive in the absence of
manifest error.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in that certain Credit Agreement dated
October 4, 1996 by and between the Borrower, Agent, Lender and the other
lenders party thereto (as the same may from time to time be amended, the
"Credit Agreement"), to which Credit Agreement reference is hereby made for a
statement of the terms and conditions upon which the maturity of this Note may
be accelerated, and for other terms and conditions, including prepayment, which
may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of a trustee
for Agent for the benefit of Lender and others (as the same may from time to
time be amended, the "Pledge Agreement"), to which Pledge Agreement reference
is also hereby made for a description of the security and a statement of the
terms and conditions upon which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
49
<PAGE> 19
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Revolving Credit Note of Borrower dated January 6, 1997, and payable to
the order of Lender in the original principal amount of $2,000,000.00, and is
not a novation thereof. All interest evidenced by such prior note being
restated by this instrument shall continue to be due and payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
50
<PAGE> 20
Revolving Credit Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 21
EXHIBIT D
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$5,850,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of THE FIRST NATIONAL BANK OF
CHICAGO ("Lender"), the principal sum of Five Million Eight Hundred Fifty
Thousand Dollars ($5,850,000.00), or such lesser sum as may then be outstanding
hereunder. The aggregate principal amount which Lender shall be committed to
have outstanding hereunder at any one time shall not exceed Five Million Eight
Hundred Fifty Thousand Dollars ($5,850,000.00) subject to the limitation of the
"Borrowing Base" (as defined in the Credit Agreement), which amount may be
borrowed, paid, reborrowed and repaid, in whole or in part, subject to the
terms and conditions hereof and of the Credit Agreement hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
All payments of principal and interest hereunder shall be made in
lawful currency of the United States in federal or other immediately available
funds at the office of Mercantile Bank National Association (the "Agent")
situated at 721 Locust Street, St. Louis, Missouri 63101, or at such other
place as the Agent shall designate in writing. Interest shall be computed on an
actual day, 360-day year basis. Consistent with the terms of the Credit
Agreement, the Agent shall determine each interest rate applicable to the
advances hereunder, which determination shall be conclusive in the absence of
manifest error.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in that certain Credit Agreement dated
October 4, 1996 by and between the Borrower, Agent, Lender and the other
lenders party thereto (as the same may from time to time be amended, the
"Credit Agreement"), to which Credit Agreement reference is hereby made for a
statement of the terms and conditions upon which the maturity of this Note may
be accelerated, and for other terms and conditions, including prepayment, which
may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of a trustee
for Agent for the benefit of Lender and others (as the same may from time to
time be amended, the "Pledge Agreement"), to which Pledge Agreement reference
is also hereby made for a description of the security and a statement of the
terms and conditions upon which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
52
<PAGE> 22
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Revolving Credit Note of Borrower dated January 6, 1997, and payable to
the order of Lender in the original principal amount of $5,400,000.00, and is
not a novation thereof. All interest evidenced by such prior note being
restated by this instrument shall continue to be due and payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
53
<PAGE> 23
Revolving Credit Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 24
EXHIBIT E
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$5,250,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of FIRST UNION NATIONAL BANK
OF NORTH CAROLINA ("Lender"), the principal sum of Five Million Two Hundred
Fifty Thousand Dollars ($5,250,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Lender shall be
committed to have outstanding hereunder at any one time shall not exceed Five
Million Two Hundred Fifty Thousand Dollars ($5,250,000.00) subject to the
limitation of the "Borrowing Base" (as defined in the Credit Agreement), which
amount may be borrowed, paid, reborrowed and repaid, in whole or in part,
subject to the terms and conditions hereof and of the Credit Agreement
hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
All payments of principal and interest hereunder shall be made in
lawful currency of the United States in federal or other immediately available
funds at the office of Mercantile Bank National Association (the "Agent")
situated at 721 Locust Street, St. Louis, Missouri 63101, or at such other
place as the Agent shall designate in writing. Interest shall be computed on an
actual day, 360-day year basis. Consistent with the terms of the Credit
Agreement, the Agent shall determine each interest rate applicable to the
advances hereunder, which determination shall be conclusive in the absence of
manifest error.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in that certain Credit Agreement dated
October 4, 1996 by and between the Borrower, Agent, Lender and the other
lenders party thereto (as the same may from time to time be amended, the
"Credit Agreement"), to which Credit Agreement reference is hereby made for a
statement of the terms and conditions upon which the maturity of this Note may
be accelerated, and for other terms and conditions, including prepayment, which
may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of a trustee
for Agent for the benefit of Lender and others (as the same may from time to
time be amended, the "Pledge Agreement"), to which Pledge Agreement reference
is also hereby made for a description of the security and a statement of the
terms and conditions upon which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
55
<PAGE> 25
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Revolving Credit Note of Borrower dated January 6, 1997, and payable to
the order of Lender in the original principal amount of $4,600,000.00, and is
not a novation thereof. All interest evidenced by such prior note being
restated by this instrument shall continue to be due and payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
56
<PAGE> 26
Revolving Credit Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 27
AMENDED AND RESTATED REDUCING REVOLVER NOTE
$37,100,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of MERCANTILE BANK NATIONAL
ASSOCIATION ("Lender"), the principal sum of Thirty-Seven Million One Hundred
Thousand Dollars ($37,100,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Lender shall be
committed to have outstanding hereunder at any one time shall not exceed
Thirty-Seven Million One Hundred Thousand Dollars ($37,100,000.00) subject to
the limitations and reductions of that certain Credit Agreement dated October
4, 1996 made by and among Borrower, Lender, as successor by merger to
Mercantile Bank of St. Louis National Association, the other lenders party
thereto and Mercantile Bank National Association, as successor by merger to
Mercantile Bank of St. Louis National Association, as agent (the "Agent"), as
amended (as the same may be amended, modified, restated or extended from time
to time, the "Credit Agreement"), which amount may be borrowed, paid,
reborrowed and repaid, in whole or in part, subject to the terms and conditions
hereof and of the Credit Agreement hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed for all Loans made hereunder. Consistent with the
terms of the Credit Agreement, the Agent shall determine each interest rate
applicable to the advances hereunder, which determination shall be conclusive
in the absence of manifest error. All such payments of principal, interest and
fees shall be made in lawful money of the United States of America in federal
or other immediately available funds at the office of Agent situated at 721
Locust Street, St. Louis, Missouri 63101, or at such other place as the Agent
shall designate in writing. This Note may be prepaid at any time subject to and
in accordance with Sections 3.6 and 3.16 of the Credit Agreement.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in the Credit Agreement, to which Credit
Agreement reference is hereby made for a statement of the terms and conditions
upon which the maturity of this Note may be accelerated, and for other terms
and conditions, including prepayment, which may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of Agent for
the benefit of Lender and others (as the same may from time to time be amended,
the "Pledge Agreement"), to which Pledge Agreement reference is hereby made for
a description of the security and a statement of the terms and conditions upon
which this Note is secured.
58
<PAGE> 28
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed according to the laws of
the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Amended and Restated Reducing Revolver Note of Borrower dated January
6, 1997, and payable to the order of Lender in the original principal amount of
$12,000,000.00, and is not a novation thereof. All interest evidenced by such
prior note being restated by this instrument shall continue to be due and
payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
59
<PAGE> 29
Reducing Revolver Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE> 30
AMENDED AND RESTATED REDUCING REVOLVER NOTE
$7,000,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of DEPOSIT GUARANTY NATIONAL
BANK ("Lender"), the principal sum of Seven Million Dollars ($7,000,000.00), or
such lesser sum as may then be outstanding hereunder. The aggregate principal
amount which Lender shall be committed to have outstanding hereunder at any one
time shall not exceed Seven Million Dollars ($7,000,000.00) subject to the
limitations and reductions of that certain Credit Agreement dated October 4,
1996 made by and among Borrower, Lender, the other lenders party thereto and
Mercantile Bank National Association, as successor by merger to Mercantile Bank
of St. Louis National Association, as agent (the "Agent"), as amended (as the
same may be amended, modified, restated or extended from time to time, the
"Credit Agreement"), which amount may be borrowed, paid, reborrowed and repaid,
in whole or in part, subject to the terms and conditions hereof and of the
Credit Agreement hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed for all Loans made hereunder. Consistent with the
terms of the Credit Agreement, the Agent shall determine each interest rate
applicable to the advances hereunder, which determination shall be conclusive
in the absence of manifest error. All such payments of principal, interest and
fees shall be made in lawful money of the United States of America in federal
or other immediately available funds at the office of Agent situated at 721
Locust Street, St. Louis, Missouri 63101, or at such other place as the Agent
shall designate in writing. This Note may be prepaid at any time subject to and
in accordance with Sections 3.6 and 3.16 of the Credit Agreement.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in the Credit Agreement, to which Credit
Agreement reference is hereby made for a statement of the terms and conditions
upon which the maturity of this Note may be accelerated, and for other terms
and conditions, including prepayment, which may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of Agent for
the benefit of Lender and others (as the same may from time to time be amended,
the "Pledge Agreement"), to which Pledge Agreement reference is hereby made for
a description of the security and a statement of the terms and conditions upon
which this Note is secured.
61
<PAGE> 31
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed according to the laws of
the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Reducing Revolver Note of Borrower dated January 6, 1997, and payable
to the order of Lender in the original principal amount of $3,000,000.00, and
is not a novation thereof. All interest evidenced by such prior note being
restated by this instrument shall continue to be due and payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
62
<PAGE> 32
Revolving Revolver Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
63
<PAGE> 33
EXHIBIT H
AMENDED AND RESTATED REDUCING REVOLVER NOTE
$13,650,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of THE FIRST NATIONAL BANK OF
CHICAGO ("Lender"), the principal sum of Thirteen Million Six Hundred Fifty
Thousand Dollars ($13,650,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Lender shall be
committed to have outstanding hereunder at any one time shall not exceed
Thirteen Million Six Hundred Fifty Thousand Dollars ($13,650,000.00) subject to
the limitations and reductions of that certain Credit Agreement dated October
4, 1996 made by and among Borrower, Lender, the other lenders party thereto and
Mercantile Bank National Association, as successor by merger to Mercantile Bank
of St. Louis National Association, as agent (the "Agent"), as amended (as the
same may be amended, modified, restated or extended from time to time, the
"Credit Agreement"), which amount may be borrowed, paid, reborrowed and repaid,
in whole or in part, subject to the terms and conditions hereof and of the
Credit Agreement hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed for all Loans made hereunder. Consistent with the
terms of the Credit Agreement, the Agent shall determine each interest rate
applicable to the advances hereunder, which determination shall be conclusive
in the absence of manifest error. All such payments of principal, interest and
fees shall be made in lawful money of the United States of America in federal
or other immediately available funds at the office of Agent situated at 721
Locust Street, St. Louis, Missouri 63101, or at such other place as the Agent
shall designate in writing. This Note may be prepaid at any time subject to and
in accordance with Sections 3.6 and 3.16 of the Credit Agreement.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in the Credit Agreement, to which Credit
Agreement reference is hereby made for a statement of the terms and conditions
upon which the maturity of this Note may be accelerated, and for other terms
and conditions, including prepayment, which may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of Agent for
the benefit of Lender and others (as the same may from time to time be amended,
the "Pledge Agreement"), to which Pledge Agreement reference is hereby made for
a description of the security and a statement of the terms and conditions upon
which this Note is secured.
64
<PAGE> 34
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed according to the laws of
the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Reducing Revolver Note of Borrower dated January 6, 1997, and payable
to the order of Lender in the original principal amount of $8,100,000.00, and
is not a novation thereof. All interest evidenced by such prior note being
restated by this instrument shall continue to be due and payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
65
<PAGE> 35
Reducing Revolver Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE> 36
EXHIBIT I
AMENDED AND RESTATED REDUCING REVOLVER NOTE
$12,250,000.00 St. Louis, Missouri
May 30, 1997
FOR VALUE RECEIVED, on April 1, 2002, the undersigned, STAFFMARK, INC.
("Borrower"), hereby promises to pay to the order of FIRST UNION NATIONAL BANK
OF NORTH CAROLINA ("Lender"), the principal sum of Twelve Million Two Hundred
Fifty Thousand Dollars ($12,250,000.00), or such lesser sum as may then be
outstanding hereunder. The aggregate principal amount which Lender shall be
committed to have outstanding hereunder at any one time shall not exceed Twelve
Million Two Hundred Fifty Thousand Dollars ($12,250,000.00) subject to the
limitations and reductions of that certain Credit Agreement dated October 4,
1996 made by and among Borrower, Lender, the other lenders party thereto and
Mercantile Bank National Association, as successor by merger to Mercantile Bank
of St. Louis National Association, as agent (the "Agent"), as amended (as the
same may be amended, modified, restated or extended from time to time, the
"Credit Agreement"), which amount may be borrowed, paid, reborrowed and repaid,
in whole or in part, subject to the terms and conditions hereof and of the
Credit Agreement hereinafter identified.
Borrower further promises to pay to the order of Lender interest on
the principal amount from time to time outstanding hereunder on the dates and
at the rate or rates provided for in the Credit Agreement. All payments
hereunder (other than prepayments) shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be applied to the
payment of principal. All prepayments hereunder shall be applied solely to the
payment of principal.
Interest shall be computed on the basis of a 360-day year for the
actual number of days elapsed for all Loans made hereunder. Consistent with the
terms of the Credit Agreement, the Agent shall determine each interest rate
applicable to the advances hereunder, which determination shall be conclusive
in the absence of manifest error. All such payments of principal, interest and
fees shall be made in lawful money of the United States of America in federal
or other immediately available funds at the office of Agent situated at 721
Locust Street, St. Louis, Missouri 63101, or at such other place as the Agent
shall designate in writing. This Note may be prepaid at any time subject to and
in accordance with Sections 3.6 and 3.16 of the Credit Agreement.
Lender may record the date and amount of all loans and all payments of
principal and interest hereunder in the records it maintains with respect
thereto. Lender's books and records showing the account between Lender and the
Borrower shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is referred to in the Credit Agreement, to which Credit
Agreement reference is hereby made for a statement of the terms and conditions
upon which the maturity of this Note may be accelerated, and for other terms
and conditions, including prepayment, which may affect this Note.
This Note is secured by that certain Security Agreement dated October
4, 1996 and executed by Borrower in favor of Agent for the benefit of Lender
and others (as the same may from time to time be amended, the "Security
Agreement"), to which Security Agreement reference is hereby made for a
description of the security and a statement of the terms and conditions upon
which this Note is secured.
This Note is also secured by that certain Trademark Collateral
Assignment and Security Agreement dated October 4, 1996 and executed by
Borrower in favor of Agent for the benefit of Lender and others (as the same
may from time to time be amended, the "Trademark Assignment"), to which
Trademark Assignment reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
This Note is also secured by that certain General Pledge and Security
Agreement dated October 4, 1996 and executed by Borrower in favor of Agent for
the benefit of Lender and others (as the same may from time to time be amended,
the "Pledge Agreement"), to which Pledge Agreement reference is hereby made for
a description of the security and a statement of the terms and conditions upon
which this Note is secured.
67
<PAGE> 37
If the Borrower shall fail to make any payment of any principal of or
interest on this Note as and when the same shall become due and payable, or if
any "Event of Default" (as defined therein) shall occur under or within the
meaning of the Credit Agreement or the Security Agreement, the Pledge Agreement
or the Trademark Assignment, Lender's obligation to make any additional loans
under this Note may be terminated as set forth in the Credit Agreement, and
Agent, on behalf of Lender, may further declare the entire outstanding
principal balance of this Note and all accrued and unpaid interest thereon to
be immediately due and payable.
In the event that any payment of any principal of or interest on this
Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of the Security Agreement, the
Trademark Assignment and/or the Pledge Agreement securing payment hereof, or
for representation of Lender in connection with bankruptcy or insolvency
proceedings relating hereto, the Borrower promises to pay, in addition to all
other amounts otherwise due hereon, the reasonable costs and expenses of such
collection, foreclosure and representation, including, without limitation,
reasonable attorneys' fees and expenses (whether or not litigation shall be
commenced in aid thereof). All parties hereto severally waive presentment for
payment, demand, protest, notice of protest and notice of dishonor.
This Note shall be governed by and construed according to the laws of
the State of Missouri.
This Note is an amendment, restatement and continuation of that
certain Reducing Revolver Note of Borrower dated January 6, 1997, and payable
to the order of Lender in the original principal amount of $6,900,000.00, and
is not a novation thereof. All interest evidenced by such prior note being
restated by this instrument shall continue to be due and payable until paid.
STAFFMARK, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
68
<PAGE> 38
Reducing Revolving Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount Amount of Unpaid
Prime of Principal Principal Notation
Date or LIBOR Loan Loan Repaid Balance Made By
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE> 39
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.
<TABLE>
<S> <C> <C>
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. Deferred Payment Obligations Paid $
---------------
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. Average Revolving Credit Loans outstanding $
---------------
2. Average Reducing Revolver Loans outstanding $
---------------
3. Face amount of Letters of Credit outstanding $
---------------
</TABLE>
70
<PAGE> 40
<TABLE>
<S> <C> <C>
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. Net Proceeds of Capital Stock issued subsequent to October , 1996 $
---- ---------------
5. Total Required Shareholders' Equity (sum of G2 through G4) $
---------------
</TABLE>
71
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1997
--------------------------- ---------------------------
Primary Fully Diluted Primary Fully Diluted
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net income $ 3,451,944 $ 3,451,944 $ 5,583,193 $ 5,583,193
=========== =========== =========== ===========
Weighted-average shares:
Shares outstanding at beginning of period 13,600,835 13,600,835 13,417,012 13,417,012
Shares issued in conjunction with acquisitions:
183,823 shares issued for Flexible in March 1997 - - 123,903 123,903
690,855 shares issued for Global in April 1997 690,855 690,855 347,336 347,336
23,263 shares issued for Kleven in June 1997 7,669 7,669 3,856 3,856
193,860 shares issued for Sterling in June 1997 63,910 63,910 32,131 32,131
Outstanding options considered common stock
equivalents 258,676 473,578 178,672 432,509
Other 55,431 55,431 55,351 55,351
----------- ----------- ----------- -----------
Total weighted-average shares 14,677,376 14,982,278 14,158,260 14,412,097
=========== =========== =========== ===========
Earnings per share $ 0.24 $ 0.23 $ 0.39 $ 0.39
=========== =========== =========== ===========
</TABLE>
Note: Reference is made to Note 5 of the Staffmark, Inc. Notes to Pro Forma
Statements of Income contained in this Form 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,640
<SECURITIES> 0
<RECEIVABLES> 41,938
<ALLOWANCES> 878
<INVENTORY> 0
<CURRENT-ASSETS> 46,559
<PP&E> 10,596
<DEPRECIATION> 3,933
<TOTAL-ASSETS> 141,908
<CURRENT-LIABILITIES> 22,471
<BONDS> 0
0
0
<COMMON> 145
<OTHER-SE> 75,330
<TOTAL-LIABILITY-AND-EQUITY> 141,908
<SALES> 96,123
<TOTAL-REVENUES> 96,123
<CGS> 74,676
<TOTAL-COSTS> 14,074
<OTHER-EXPENSES> 1,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 476
<INCOME-PRETAX> 5,851
<INCOME-TAX> 2,399
<INCOME-CONTINUING> 3,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,452
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
