SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee required]
For the transition period from ________________ to__________________
Commission File No. 0-28148
STAFF LEASING, INC.
(exact name of registrant as specified in its charter)
Florida 65-0735612
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 301 Blvd West, Suite 202
Bradenton, FL 34205
(Address of principal executive offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code): (941) 748-4540
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
The aggregate market value of the voting stock of Staff Leasing, Inc. held
by non-affiliates (based upon the March 20, 2000 $5.250 closing sale price for
the Common Stock on the Nasdaq National Market) was approximately $75.3 million.
Number of shares outstanding of the issuer's common stock, as of March 20,
2000: 21,709,542 shares of common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
PART III - Portions of Registrant's Proxy Statement relating to the annual
meeting of shareholders to be held May 22, 2000, are incorporated by reference
in Part III.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I.
<S> <C>
ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 4. Submission of Matters to a Vote of Security-Holders . . . . . . . . 15
PART II.
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . 15
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 17
ITEM 7 A. Quantitative and Qualitative Disclosures about Market Risk. . . . . 22
ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . . . 22
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . .22
PART III.
ITEM 10. Directors and Executive Officers of the Registrant . . . . . . . . . 22
ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 12. Security Ownership of Certain Beneficial Owners and Management . . . 22
ITEM 13. Certain Relationships and Related Transactions . . . . . . . . . . . 23
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 23
</TABLE>
2
<PAGE>
PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), Staff Leasing, Inc. (the
"Company") is hereby providing cautionary statements identifying important
factors that could cause the Company's actual results to differ materially from
those projected in forward-looking statements (as such term is defined in the
Reform Act) made by or on behalf of the Company herein or orally, whether in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussions as to, expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, through the
use of words or phrases such as "will result," "are expected to," "anticipated,"
"plans," "intends," "will continue," "estimated," and "projection") are not
historical facts and may be forward-looking and, accordingly, such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results or performance of the Company to
be materially different from any future results or performance expressed or
implied by such forward-looking statements. Such known and unknown risks,
uncertainties and other factors include, but are not limited to, the following:
(i)increased cost of workers' compensation coverage (ii) increased volatility of
profit generated from workers' compensation component of the Company's service
offering under the Company's loss sensitive workers' compensation program for
2000 (iii) the potential for additional subsidies for health benefit plans; (iv)
possible adverse application of certain Federal and state laws and the possible
enactment of unfavorable laws or regulation; (v) impact of competition from
existing and new professional employer organizations; (vi) risks associated with
expansion into additional states where the Company does not have a presence or
significant market penetration; (vii) risks associated with the Company's
dependence on key vendors; (viii) the possibility for client attrition; (ix)
risks associated with geographic market concentration and concentration of
clients in the construction industry; (x) the financial condition of clients;
(xi) the failure to properly manage growth and successfully integrate acquired
companies and operations; and (xii) other factors which are described in further
detail in the Company's filings with the Securities and Exchange Commission.
The Company cautions that the factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
ITEM 1. BUSINESS
GENERAL
Staff Leasing is the largest professional employer organization ("PEO") in
the United States. As of December 31, 1999, the Company served over 10,700
clients with approximately 133,000 worksite employees, primarily in Florida,
Texas, Georgia, Arizona, Minnesota, North Carolina, Tennessee and Alabama.
Through its operating subsidiaries, Staff Leasing provides its clients with a
broad range of services, including payroll administration, risk management,
benefits administration, unemployment services, and human resources consulting
services. The Company's clients are typically small to medium-sized businesses
with between two and 100 employees.
The Company's services are designed to improve the productivity and
profitability of its clients' businesses by:
o Allowing managers of these businesses to focus on revenue-producing
activities by relieving them of the time-consuming burdens associated
with employee administration;
o Helping these businesses to better manage certain employment-related
risks, including those associated with workers' compensation and state
unemployment taxes;
o Improving the cash management of these businesses with respect to
payroll-related expenses; and
o Enabling these businesses to attract and retain employees by providing
health and retirement benefits to worksite employees on a
cost-effective and convenient basis.
3
<PAGE>
In providing these services, the Company becomes a co-employer of the
worksite employees. Employment-related liabilities are contractually allocated
between the Company and the client. The Company assumes responsibility for and
manages the risks associated with: (i) worksite employee payroll; (ii) workers'
compensation insurance coverage; and (iii) compliance with certain
employment-related governmental regulations that can be effectively managed away
from the client's business. The client retains the worksite employees' services
in its business and remains responsible for compliance with other
employment-related governmental regulations that are more closely related to
worksite employee supervision. The Company charges its clients a service fee to
cover the cost of certain employment-related taxes, workers' compensation
insurance coverage and administrative and field services. This service fee is
invoiced together with the salaries and wages of the worksite employees and the
client's portion of health and retirement benefit plan costs.
References in this report to the "Company" or "Staff Leasing" include
Staff Leasing, Inc. and its consolidated subsidiaries. The Company was
originally organized in 1993. From November 5, 1993 to July 1, 1997, the Company
was a limited partnership (the "Partnership"), which was formed to acquire the
assets of a PEO business that had operated since 1984. Staff Leasing, Inc. was
formed in 1997 to acquire all of the limited partnership interests in the
Partnership held by various investors, including certain executive officers,
directors, and employees of the Company, pursuant to the reorganization (the
"Reorganization"). In the Reorganization, which was concluded in July 1997
simultaneously with the Company's initial public offering, Staff Leasing, Inc.
acquired all of the limited partnership interests in the Partnership, becoming
the sole limited partner and in effect incorporating the business of the
Company. As part of the Reorganization, Charles S. Craig, Chairman and Chief
Executive Officer of the Company and owner of all of the issued and outstanding
capital stock of Staff Acquisition, Inc., the general partner of the
Partnership, granted the Company an option to exchange the stock of Staff
Acquisition, Inc. for 417,900 shares of the Company's common stock. On September
30, 1997, the Company exercised this option and completed the exchange.
RECENT EVENTS
In August 1999, the Company's Board of Directors announced its decision to
explore various strategic alternatives available to the Company in order to
maximize shareholder value. Such alternatives could include a sale of the
Company or a recapitalization. The Board of Directors' Special Committee is
continuing to evaluate these alternatives. There can be no assurance that any
actions taken by the Company will result in a transaction or, if any such
transaction were to occur, as to the value to be obtained by the Company or its
shareholders.
In August 1999, the Company announced the completion of a new workers'
compensation program with CNA and the Texas Workers' Compensation Insurance Fund
("Texas Fund") which commenced on January 1, 2000. The Texas Fund will be the
provider of workers' compensation insurance for clients based in Texas. The
Texas Fund program is a guaranteed cost insurance arrangement with a term of one
year. The cost of the premium will be determined based on the industries
serviced by the Company in Texas. For the remainder of the country, the
Company's workers' compensation carrier will be CNA. This program is an insured
loss sensitive program for a term of one year. The Company anticipates that its
workers' compensation costs will increase beginning in 2000 as a result of these
workers' compensation arrangements. An accrual for the workers' compensation
costs for the first quarter of 2000 will be made based on prior loss experience,
the Company's business mix, including the percentage of business in Texas, and
actual claims for the first quarter. Accruals for subsequent periods will be
affected by further changes in the Company's business mix and actual claims
experience. The final costs of coverage will be determined by the actual claims
experience over time as claims close and by the administrative costs of the
program. The increased accruals for the cost of coverage in 2000 and future
years will have no impact on 1999 and prior year earnings.
PEO INDUSTRY
The PEO industry began to evolve in the early 1980s, largely in response
to the difficulties faced by small to medium-sized businesses in procuring
workers' compensation insurance coverage on a cost-effective basis and in
operating in an increasingly complex legal and regulatory environment. While
various service providers, such as payroll processing firms, benefits and safety
consultants and temporary staffing firms, were available to assist these
businesses with specific tasks, PEOs began to emerge as providers of a more
comprehensive outsourcing solution to these burdens.
Growth in the PEO industry has been significant. Staffing Industry
Analysts, Inc., an employment industry research firm, estimates that gross
revenues in the PEO industry grew from $5.0 billion in 1991 to $31.7 billion in
1999.
4
<PAGE>
The Company believes that the key factors driving demand for PEO services
include:
o The increasing complexity of employment-related governmental regulations
and the related costs of compliance;
o The size and growth of the small to medium-sized business community in
the United States;
o The increasing acceptance in the small to medium-sized business
community of outsourcing of non-core functions;
o The need to manage cash expenditures associated with payroll and
payroll-related expenses, including workers' compensation insurance; and
o The need to provide health and retirement benefits on a cost-effective
and convenient basis.
Another contributor to the recent growth of the PEO industry has been the
increasing recognition and acceptance by regulatory authorities of PEOs and the
co-employer relationship created by PEOs, with the development of licensing or
registration requirements at the state level. The Company and other industry
leaders, in concert with NAPEO, have worked with the relevant government
entities for the establishment of a regulatory framework that would clarify the
roles and obligations of the PEO and the client in the "co-employer"
relationship. This framework imposes financial responsibility on the PEO and its
controlling persons in order to promote the increased acceptance and further
development of the industry. See "Industry Regulation -- State Regulation."
While many states do not explicitly regulate PEOs, 21 states (including
four states where the Company has offices: Florida, Texas, Tennessee and
Minnesota) have enacted legislation containing licensing or registration
requirements and, currently, several states are considering such regulation.
Such laws vary from state to state but generally provide for monitoring the
fiscal responsibility of PEOs.
CLIENT SERVICES
The Company provides a broad range of services to its clients, including
payroll administration, risk management, benefits administration, unemployment
services and human resources consulting services. These services are offered by
the Company to its clients on a bundled basis, except for health and retirement
benefits, which are optional for worksite employees. The Company provides these
services to its clients through the following core activities:
PAYROLL ADMINISTRATION. As a co-employer, the Company is responsible for
payroll administration, which includes recordkeeping, making payroll tax
deposits, reporting payroll taxes and related matters. The Company's call center
in Bradenton, Florida is staffed by approximately 200 client service
representatives and supervisors that are organized into teams. Each team is
assigned to serve clients in specific sales branch offices in defined geographic
areas. These representatives receive payroll and employee-related information by
telephone, facsimile transmission and via the Internet from clients, and input
this data for processing. The call center generally handles approximately 40,000
inbound and outbound phone calls per week. The Company processed approximately
5.4 million payroll checks in 1999 and sent out approximately 303,000 W-2s at
the end of January 2000.
RISK MANAGEMENT. As part of its risk management services, the Company
conducts on-site safety inspections for its clients with high-risk profiles to
identify potential safety hazards. The Company's safety consultants meet with
clients to review their loss history, determine loss exposure, evaluate current
controls and recommend additional control options to reduce exposure to loss or
worker injury. These safety consultants continue to monitor worksite safety
concerns, as needed. The safety consultants are also trained to ensure the
proper workers' compensation classification of worksite employees. These risk
management services are designed to reduce workers' compensation claims and to
reduce other costs arising from workplace injury, such as costs of employee
turnover, employee retraining and recruiting and reduced employee morale. As of
December 31, 1999, the Company employed 41 safety consultants.
BENEFITS ADMINISTRATION. The Company offers its clients and worksite
employees optional health and dental insurance, life insurance, accidental death
and dismemberment insurance and long-term disability insurance. In addition, the
clients and worksite employees are offered a cafeteria plan which includes a
flexible spending account allowing for payment of certain health and dependent
care costs with pre-tax payroll dollars.
The Company also offers retirement benefits under a multiple employer
401(k) retirement plan, and through traditional and Roth payroll deducted IRAs
for worksite employees, including owners of clients. In addition to the 401(k)
retirement plan, the
5
<PAGE>
Company also provides numerous benefits-related human resources services to its
clients. These services for both health and retirement benefit plans include
client support for issues related to pre- and post-tax payroll deductions, plan
eligibility, Internal Revenue Code Section 125 and Employee Retirement Income
Security Act ("ERISA") requirements, Consolidated Omnibus Budget Reconciliation
Act of 1987 ("COBRA") administration for health benefit plans and investment
fund information for retirement benefit plans.
UNEMPLOYMENT SERVICES. The Company's unemployment services department is
responsible for processing all unemployment claims related to worksite
employees. Claims determined by the Company to be unwarranted are protested by
the Company under the appropriate regulatory procedures. The Company also offers
limited employment placement services to unemployed worksite employees and
attempts to place employees who request such services either with other clients
or other businesses.
HUMAN RESOURCES CONSULTING SERVICES. The Company provides certain
consulting services to assist its clients in the recruitment, selection,
development and retention of human capital in compliance with regulatory
requirements. The Company also provides human resources related forms, policies
and administrative functions, such as employment applications, employee
guidebooks and Family and Medical Leave Act of 1993 ("FMLA") administration.
Additionally, the Company conducts seminars for its clients and worksite
employees, including interviewing techniques, diversity awareness, sexual
harassment prevention and performance management training. Most of these
services can be customized to suit client needs. They are provided by a
dedicated team of human resources professionals and are utilized by client
companies of all sizes spanning a wide range of industries.
CLIENTS
OVERVIEW. As of December 31, 1999, the Company's customer base consisted
of over 10,700 client companies with an average of 12.4 employees. The Company
had clients classified in over 500 Standard Industrial Classification ("SIC")
codes. The Company's client distribution by major SIC code industry grouping for
1999 is:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
CATEGORY REVENUES
- --------- --------------
<S> <C>
Construction............................................. 33.0%
Services(1).............................................. 22.4
Manufacturing............................................ 11.5
Retail Trade............................................. 8.2
Restaurants.............................................. 7.7
Agriculture(2)........................................... 4.9
Finance/Insurance/Real Estate............................ 4.1
Wholesale Trade.......................................... 3.9
Transportation........................................... 3.7
Other.................................................... .6
----------
Total.......................................... 100.0%
==========
</TABLE>
(1) Services consist principally of clients in the following: business
services, automotive repair, health services, personal services (e.g.,
laundry and dry cleaning, beauty and barber shops), hotel and lodging
services, engineering, accounting and management services, recreational
services, social services and miscellaneous repair services.
(2) Agriculture consists primarily of landscaping and nursery services.
CLIENT SELECTION AND RETENTION STRATEGY. As part of its client selection
strategy, the Company offers its services to certain businesses within specified
SIC codes. All prospective clients are also evaluated individually on the basis
of total predicted profitability. This analysis takes into account workers'
compensation risk and claims history, unemployment history, payroll adequacy,
and credit status. With respect to potential clients operating in certain
industries believed by the Company to present a level of risk exceeding industry
norms, more rigorous approval requirements must be met before the Company enters
into a Client Services Agreement. This process may include an on-site inspection
and review of workers' compensation and unemployment claims experience for the
last three years. In addition, under the terms of the Company's agreement with
Liberty Mutual in 1999 and with CNA and the Texas Fund in 2000, potential
clients in certain industries or with historically high workers' compensation
insurance claims experience must also be approved by the insurance carrier
before a Client Services Agreement is executed.
6
<PAGE>
Historically, the Company's sales force has sold to all businesses within
its established workers' compensation risk parameters. As a result, the
Company's client base has contained significant segments of businesses with
fewer than five employees, start-up businesses and small construction businesses
that tend to be volatile and less likely to succeed than larger businesses with
long operating histories in less cyclical industries. The Company modified its
selection criteria for new clients during the first quarter of 2000 to restrict
the solicitation of businesses with fewer than five employees and those paying
wages substantially below average for their trade or business. At this time, the
Company modified its pricing model to take into account factors such as the size
of the client based on employee count, payroll volume and adequacy, and the
length of time the client has been in business when determining a service fee.
The Company determines a client's method of payment based on the client's credit
history.
The Company performs a detailed profitability and risk analysis of all its
clients. Based on the results of this analysis, the Company terminates certain
clients or increases prices to clients which the Company believes would
otherwise be detrimental to its long-term profitability.
The Company believes that the retention rate of its client base is
directly affected by the natural instability in the small to medium-sized
business market that it serves. The NAPEO standard for measuring client
retention is computed by dividing the number of clients at the end of the period
by the sum of the number of clients at the beginning of the period plus the
number of clients added during the period. The Company's client retention rate
decreased to 72% in 1999, down from 78% in 1998. Approximately 29% of the
clients that ceased to use the Company's services in 1999 were terminated at the
Company's option for reasons that include unacceptable risk, administrative
non-compliance and low profitability for the Company. An additional 43% ceased
to use the Company's services for reasons relating to their individual financial
condition, such as their business being closed or sold. The remaining 31% of
those clients stopped using the Company's services for other reasons, including
the cost of service and dissatisfaction with service.
In order to improve client retention with respect to those clients who
voluntarily stopped using the Company's services, the Company intends to
introduce several client care initiatives and to focus on improved client
service.
With regard to those clients who stopped using the Company's services as a
result of their individual financial condition, the Company's change in client
selection criteria is intended to improve client retention. The attrition rate
of clients with under five employees is significantly greater as a result of
their financial condition than for those clients with more than five employees.
CLIENT SERVICES AGREEMENT. All clients enter into Staff Leasing's Client
Services Agreement. The Client Services Agreement provides for an initial
one-year term, subject to termination by the Company or the client at any time
upon 30 days' prior written notice. After the initial term the contract may be
renewed, terminated or continued on a month-to-month basis. In most cases, such
contracts are continued on a month-to-month basis. The Company requires the
owners of substantially all of its clients to personally guarantee the clients'
obligations under the Client Services Agreement.
The service fee charged by the Company is invoiced along with each
periodic payroll delivered to the client. The service fee covers the cost of
certain employment-related taxes, workers' compensation insurance coverage and
administrative and field services provided by the Company to the client,
including payroll administration, recordkeeping and safety, human resources and
regulatory compliance consultation. The client's portion of health and
retirement benefit plan costs is charged separately and is not included in the
service fee. The component of the service fee related to administration varies
according to the size of the client, the amount and frequency of payroll
payments and the method of delivery of such payments. The component of the
service fee related to workers' compensation and unemployment insurance is
based, in part, on the client's historical claims experience.
Clients are required to pay amounts owed to the Company upon delivery of
the payroll checks to the client. The Company retains the ability to terminate
immediately the Client Services Agreement as well as its employment relationship
with the worksite employees upon non-payment by a client. The Company manages
its exposure for payment through this right to terminate, the periodic nature of
payroll, client credit checks, owner guarantees and the Company's client
selection process.
Employment-related liabilities are allocated between the Company and the
client pursuant to the Client Services Agreement, with the Company assuming
responsibility for worksite employee payroll and for compliance with certain
employment-related governmental regulations that can be effectively managed away
from the client's premises. The client remains responsible for compliance with
other employment-related governmental regulations that are more closely related
to the daily supervision of
7
<PAGE>
worksite employees. Certain responsibilities and liabilities are shared by Staff
Leasing and the client where joint responsibility is appropriate. The following
table summarizes the division of responsibilities for regulatory compliance
under the Client Services Agreement:
<TABLE>
<CAPTION>
STAFF LEASING CLIENT
------------- ------
<S> <C>
o All rules and regulations governing the o Occupational Safety and Health Act
reporting, collection and payment of ("OSHA") and related or similar Federal
and state payroll taxes on Federal, state or local regulations
wages, including:
(i) Federal income tax withholding o Government contracting requirements as
provisions of the Code; (ii) state regulated by, including, but not
and/or local income tax withholding limited to: (i) Executive Order 11246;
provisions; (iii) FICA; (iv) FUTA; and (ii) Vocational Rehabilitation Act of
(v) applicable state unemployment tax 1973; (iii) Vietnam Era Veterans'
provisions, including managing claims Readjustment Assistance Act of 1974;
(iv) Walsh-Healy Public Contracts Act;
o Applicable workers' compensation laws (v) Davis-Bacon Act; (vi) the Service
including, but not limited to: (i) Contract Act of 1965; and (vii) any and
procuring workers' compensation all similar, related, or like Federal,
insurance; and (ii) completing and state or local laws, regulations,
filing all required reports ordinances and statutes
o Professional licensing and liability
o Fair Labor Standards Act ("FLSA")*
o Fidelity bonding requirements
o COBRA continuation coverage for o Code Sections 414(m), (n) & (o)
employees covered under health plans relating to client maintained benefit
sponsored by Staff Leasing plans
o Section 1324a(b)(3) of the Immigration o Laws affecting the assignment and
Reform and Control Act ("IRCA") (main- ownership of intellectual property
tenance of employment eligibility rights including, but not limited to,
forms sent to Staff Leasing at request inventions, whether patentable or not and
of clients) patents resulting therefrom,
copyrights and trade secrets
o Laws governing the garnishment of wages,
including the Consumer Credit Protection
Act, Title III o Worker Adjustment and Retraining
Notification Act
o Family and Medical Leave Act of 1993
("FMLA")*, o Laws affecting the maintenance, storage
and disposal of hazardous materials
o All rules and regulations governing
administration, procurement and payment o FLSA*, Title VII (Civil Rights Act
of of all employee benefit plans elected 1964), FMLA,* IRCA, the Americans
with by the client or worksite employee Disabilities Act, the Age Discrimination
in Employment Act (including provisions
thereunder relating to client's premises)
o All other Federal, state, county, or
local laws, regulations, ordinances and
statutes which regulate employees' wage
and hour matters, prohibit discrimination
in the workplace or govern the
employer/employee relationship
</TABLE>
- ----------------
* Shared responsibility
SALES AND MARKETING
The Company markets its services through a direct sales force, which as of
December 31, 1999, consisted of approximately 250 sales persons and 440 other
sales and field service personnel. The Company uses a direct sales force rather
than selling through agents, because this allows the Company more control over
the client selection process. The Company's sales force is located throughout
its 45 branch offices, with five to twenty five sales persons in each branch
office. The Company plans to continue adding sales offices in the Western Middle
Atlantic and Midwest regions during the next few years. The Company's sales
persons are compensated by a combination of salary and commissions which has,
for top producers, exceeded $125,000 in annual compensation.
8
<PAGE>
The Company seeks to hire sales persons who have five years or more work
experience and two years or more sales experience in other business-to-business
sales positions. The Company provides at least one month of training for each
new sales person in the field, followed by a one week formal training program to
familiarize new sales persons with the Company's services, policies and
procedures. The Company requires sales persons to undergo training when new
services are offered by the Company.
The Company generates sales leads from various referral sources which
accounted for approximately 57.3% of the Company's new clients during 1999, as
well as from direct sales efforts and inquiries. Each sales person is required
to visit his or her clients periodically in order to maintain an ongoing
relationship and to benefit from referrals. The Company has focused its sales
efforts on client referrals and uses a client incentive program to encourage
increased referral activity from its clients. The Company also generates sales
leads through contacts produced by its telesales group, which makes calls to
potential clients identified from industry data, its internet site, purchased
lists and other sources.
eCOMMERCE STRATEGY
The Company is implementing a comprehensive eCommerce strategy which
includes continued development of StaffWEB, the Company's Internet-based service
platform, with a focus on providing on-line, personalized PEO services to the
Company's clients and worksite employees. At the end of 1999, over 19% of
worksite employees were having their payroll hours submitted over StaffWEB.
The Company's second major eCommerce initiative involves establishing a
business eCommerce portal. This will allow the Company to provide a wide range
of product and service offerings to it's clients and worksite employees. In
addition, the Company believes that the ability to provide added services to
clients will improve client retention. In connection with this initiative, the
Company has formed strategic alliances with DigitalWorks.com and
ServiceMagic.com and plans to operate co-branded websites in connection with
these companies.
The final initiative in the eCommerce strategy involves selling PEO
services over the Internet. Through the Company's website, businesses will be
identified as potential clients and marketed and sold PEO services.
VENDOR RELATIONSHIPS
The Company provides benefits to its worksite employees under arrangements
with a number of vendors. The Company's most significant vendor relationships
are as follows:
WORKERS' COMPENSATION. In 1999, the Company's workers' compensation
coverage was provided by Liberty Mutual. This program was initiated in March
1994, and renegotiated effective January 1, 1997, to, among other things, reduce
rates charged to the Company. This contract, which expired on December 31, 1999,
provided coverage on a guaranteed cost basis. Amounts due under this arrangement
were a fixed percentage of the Company's workers' compensation payroll and were
paid on a monthly basis. The Company had no liability in excess of such amounts
paid.
The Company has a new workers' compensation program with CNA and the Texas
Fund which commenced on January 1, 2000. The Texas Fund will be the provider of
workers' compensation insurance for clients based in Texas. The Texas Fund
program is a guaranteed cost insurance arrangement with a term of one year. The
cost of the premium will be determined based on the industries serviced by the
Company in Texas. For the remainder of the country, the Company's workers'
compensation insurance carrier will be CNA. This program is an insured loss
sensitive program, for a term of one year. The Company anticipates that its
workers' compensation costs will increase beginning in 2000 as a result of these
workers' compensation arrangements.
HEALTH INSURANCE. In 1999, the Company's group health benefit plans were
provided by Blue Cross and Blue Shield of Florida, Blue Cross and Blue Shield of
Texas, Blue Cross and Blue Shield of Georgia, United Healthcare of Arizona,
HealthPartners (Minnesota), Blue Cross and Blue Shield of North Carolina, and
Blue Cross and Blue Shield of Tennessee, under separate contracts in Florida,
Texas, Georgia, Arizona, Minnesota, North Carolina, and Tennessee, respectively.
Premiums paid by worksite employees, and the portion of premiums, if any, paid
by the client, vary depending on the coverage options selected and the place of
residence of the worksite employee.
The Company's policy with Blue Cross and Blue Shield of Florida is a
minimum premium arrangement initiated in January of 1997 and renewed as of
January 1, 2000 for an additional three years through December 31, 2002. The
administrative costs per covered employee associated with this policy were
negotiated for 2000, 2001, and 2002 and stop loss coverage per covered employee
is provided at the level of 115% of projected claims. Plans offered in Arizona,
Georgia, Minnesota, North Carolina,
9
<PAGE>
Tennessee and Texas provide the Company with guaranteed cost contracts, with the
Company's liability capped annually at fixed amounts.
INFORMATION TECHNOLOGY
The Company has invested and is continuing to invest significant capital
and resources in the development and enhancement of its information systems.
From 1996 through 1999, the Company invested approximately $30.4 million in its
technology infrastructure, including computer hardware and software and
telephony. This investment was made to better serve its increasing client base,
to maintain a high level of customer service at increasing volumes and to
increase operating leverage in its processing operations.
These systems provide the Company with the capability to promptly and
accurately deliver payroll and related services and generate in-depth management
reports. The Company's information systems manage all data relating to worksite
employee enrollment, payroll processing, benefits administration, management
information and other requirements of the Company's operations. The current
systems have high volume payroll processing capabilities which allow the Company
to produce and deliver weekly payrolls to its clients, each customized to the
needs of such clients. Currently, the Company processes approximately 100,000
payroll checks per week.
In 1998, the Company converted payroll for approximately 75,000 worksite
employees to Oracle's human resource and payroll application. In May 1999, the
payroll processing for the remainder of the company's worksite employees was
converted to the Oracle application. The Oracle system enables the Company to
effectively manage its existing operations and maintain appropriate controls
during its continued growth.
The Company intends to further automate its call center through the
deployment of Oracle Customer Relationship Management "CRM" System. A pilot of
the Oracle CRM product was rolled-out in 1999 to standardize and script customer
service functions and interactions.
The Company has introduced additional technology to its field staff
through the roll-out of a sales automation software system. This software will
allow for a more efficient processing of new business leads and sales proposals.
In 1999, the Company continued its aggressive development of StaffWEB, an
Internet interface with the Oracle payroll processing application. StaffWEB
allows clients to conveniently input their payroll data directly into the
Company's payroll applications via the Internet. Clients can regularly add or
delete employees, view reports, and change payroll information. StaffWEB allows
the Company to service its clients 24 hours a day with increased accuracy and
efficiency. StaffWEB is updated regularly to increase its functionality. At the
end of 1999, approximately 19% of worksite employees were having their payroll
hours submitted over the Internet. Usage of this new technology is expected to
continue to increase in 2000.
The Company's information technology staff consisted of 57 persons at
December 31, 1999. The Company believes that its information systems are
integral in achieving its growth objectives and intends to continue to invest in
its technology infrastructure.
YEAR 2000
The Company's primary internal computer applications were purchased from
Microsoft and Oracle. In 1999, the Company upgraded or migrated to certain
versions of their software that had been affirmed as Year 2000 compliant. The
Company completed an inventory of its computer hardware, supporting software,
and non-IT systems; assessed non-compliance issues; and upgraded or replaced as
necessary to ensure Year 2000 compliance. The approximate cost of Year 2000
remediation in 1999 was $.5 million and was expensed as incurred. The Company
did not experience any adverse effects on its financial condition or results of
operations related to any Year 2000 issues and does not expect that it will
experience any adverse effects in 2000.
COMPETITION
The PEO industry is highly fragmented. NAPEO estimates that there are
approximately 2,000 companies providing certain levels of PEO services. Most of
these companies have limited operations and fewer than 1,000 worksite employees.
However, there are several larger industry participants, and the Company
believes three other competitors have annualized PEO revenues in excess of $1
billion. The Company considers its primary competition to be PEOs, insurance
agents and fee-for-service providers, such as payroll processors and human
resources consultants. The market for PEO services is expected to become
increasingly competitive as larger companies, some of which have greater
financial resources than the Company and which have not traditionally operated
in this industry, enter the market.
10
<PAGE>
The key competitive factors in the PEO industry are breadth and quality of
services, price, reputation, financial stability, as well as choice, quality and
cost of benefits. The Company believes that it competes favorably in these
areas.
INTERNAL COMPANY EMPLOYEES
As of December 31, 1999, the Company had 1,358 internal employees with 671
employees located at the Company's Bradenton, Florida headquarters. The
remaining employees were located in the Company's branch offices. None of the
Company's internal employees are a party to a collective bargaining agreement.
INDUSTRY REGULATION
The Company's operations are affected by numerous Federal and state laws
and regulations relating to employment matters, benefit plans and taxes. By
entering into a co-employer relationship with its clients, the Company assumes
certain obligations and responsibilities as an employer under these laws.
Because many of these Federal and state laws were enacted before the development
of non-traditional employment relationships, such as PEOs, temporary employment
and other employment-related outsourcing arrangements, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
employers. In addition, the definition of "employer" under these laws is not
uniform.
Some governmental agencies that regulate employment have developed rules
that specifically address issues raised by the relationship among PEOs, clients
and worksite employees. Existing regulations are relatively new and, therefore,
their interpretation and application by administrative agencies and Federal and
state courts is limited or non-existent. The development of additional
regulations and interpretation of existing regulations can be expected to evolve
over time. In addition, from time to time, states have considered, and may in
the future consider, imposing certain taxes on gross revenues or service fees of
the Company and its competitors. The Company cannot predict with certainty the
nature or direction of the development of Federal, state and local regulations
or whether any states will impose such taxes.
The Company believes that its operations are currently in compliance in
all material respects with all applicable Federal and state statutes and
regulations.
Employee Benefit Plans
Effective April 1, 1997, the Company began to offer a new 401(k)
retirement plan, designed to be a "multiple employer" plan under Internal
Revenue Code Section 413(c). This plan enables owners of clients and highly
compensated worksite employees, as well as highly compensated internal employees
of the Company, to participate. These persons were excluded from the prior
401(k) retirement plan to avoid issues of discrimination in favor of highly
compensated employees. Generally, employee benefit plans are subject to
provisions of both the Internal Revenue Code of 1986, as amended ("the Code")
and ERISA. Effective January 1, 1999, the Company has expanded its retirement
plan offerings to include payroll-deducted traditional and Roth IRAs in addition
to implementing an enhanced array of over 20 investment options.
EMPLOYER STATUS. In order to qualify for favorable tax treatment under the
Code, the plans must be established and maintained by an employer for the
exclusive benefit of its employees. Generally, an entity is an "employer" of
certain workers for Federal employment tax purposes if an employment
relationship exists between the entity and the workers under the common law test
of employment. In addition, the officers of a corporation are deemed to be
employees of that corporation for Federal employment tax purposes. The common
law test of employment, as applied by the Internal Revenue Service ("IRS"),
involves an examination of many factors to ascertain whether an employment
relationship exists between a worker and a purported employer. That test is
generally applied to determine whether an individual is an independent
contractor or an employee for Federal employment tax purposes and not to
determine whether each of two or more companies is a "co-employer." Substantial
weight is typically given to the question of whether the purported employer has
the right to direct and control the details of an individual's work.
The IRS established the Market Segment Study for the purpose of
identifying specific compliance issues prevalent in certain segments of the PEO
industry. The Company was not one of the PEOs selected for the study. One issue
that has arisen from this study is whether a PEO can be a co-employer of
worksite employees, including officers and owners of client companies, for
various purposes under the Code, including participation in the PEO's 401(k)
retirement plan.
The Company is not able to predict either the timing or the nature of any
final decision that may be reached by the IRS with respect to the Market Segment
Study and the ultimate outcome of such decisions. Further, the Company is unable
to predict whether the Treasury Department will issue a policy statement with
respect to its position on these issues or, if issued, whether such a statement
would be favorable to
11
<PAGE>
the Company. The Company believes that the establishment of its multiple
employer plan under Code Section 413(c) eliminates the exposure as to
contributions to that plan resulting from an IRS determination that no employer
relationship exists between the sponsor of the plan and the plan participants.
Since this plan is co-sponsored by each participating client, the Company
believes that even if the IRS were to determine that the worksite employees were
not employees of the Company, it could not reach the same conclusion as to the
client co-sponsor. However, if an adverse conclusion by the IRS were applied
retroactively to disqualify the Company's former 401(k) retirement plan,
employees' vested account balances under the former 401(k) retirement plan would
become taxable, the Company's tax deductions would be allowed only as matching
contributions become vested, the former 401(k) retirement plan's trust would
become a taxable trust, and the Company would be subject to liability with
respect to its failure to withhold and pay taxes applicable to salary deferral
contributions by employees, including worksite employees. In such event, the
Company would also face the risk of client dissatisfaction and potential
litigation. A retroactive application by the IRS of an adverse conclusion would
have a material adverse effect on the Company's financial position and results
of operations. While the Company believes that a retroactive disqualification is
unlikely, there can be no assurance as to the ultimate resolution of these
issues by the IRS.
ERISA REQUIREMENTS. Employee pension and welfare benefit plans are also
governed by ERISA. ERISA defines "employer" as "any person acting directly as an
employer, or indirectly in the interest of an employer, in relation to an
employee benefit plan." ERISA defines the term "employee" as "any individual
employed by an employer." The United States Supreme Court has held that the
common law test of employment must be applied to determine whether an individual
is an employee or an independent contractor under ERISA. A definitive judicial
interpretation of "employer" in the context of a PEO or employee leasing
arrangement has not been established.
If the Company were found not to be an employer for ERISA purposes, its
former 401(k) retirement plan would not comply with ERISA and could be subject
to retroactive disqualification by the IRS. Further, the Company would be
subject to liabilities, including penalties, with respect to its cafeteria plan
for the failure to withhold and pay taxes applicable to salary deferral
contributions by its worksite employees. In addition, as a result of such
finding the Company and its plans would not enjoy, with respect to worksite
employees, the preemption of state laws provided by ERISA and could be subject
to varying state laws and regulation, as well as to claims based upon state
common laws.
Federal Employment Taxes
As an employer, the Company assumes responsibility and liability for the
payment of Federal and state employment taxes with respect to wages and salaries
paid to worksite employees. There are essentially three types of Federal
employment tax obligations: (i) withholding of income tax requirements governed
by Code section 3401, et seq.; (ii) obligations under the Federal Income
Contributions Act ("FICA"), governed by Code section 3101, et seq.; and (iii)
obligations under the Federal Unemployment Tax Act ("FUTA"), governed by Code
section 3101, et seq. Under these Code sections, employers have the obligation
to withhold and remit the employer portion and, where applicable, the employee
portion of these taxes.
The Market Segment Study discussed above examines, among other issues,
whether PEOs, such as the Company, are employers of worksite employees under the
Code provisions applicable to Federal employment taxes and, consequently,
responsible for payment of employment taxes on wages and salaries paid to such
worksite employees. Section 3401(d)(1) of the Code, which applies to Federal
income tax withholding requirements, contains an exception to the general common
law test applied to determine whether an entity is an "employer" for purposes of
Federal income tax withholding. Section 3401(d)(1) states that if the person for
whom services are rendered does not have control of the payment of wages, the
"employer" for this purpose is the person having control of the payment of
wages. The Treasury Regulations issued under section 3401(d)(1) state that a
third party can be deemed to be the employer of workers under this Section for
income tax withholding purposes where the person for whom services are rendered
does not have legal control of the payment of wages. While section 3401(d)(1)
has been examined by several courts, its ultimate scope has not been delineated.
Moreover, the IRS has to date relied extensively on the common law test of
employment in determining liability for failure to comply with Federal income
tax withholding requirements.
Accordingly, while the Company believes that it can assume the withholding
obligations for worksite employees, if the Company fails to meet these
obligations the client may be held jointly and severally liable. While this
interpretive issue has not, to the Company's knowledge, discouraged clients from
utilizing the Company's services, there can be no assurance that a definitive
adverse resolution of this issue would not do so in the future.
State Regulation
FLORIDA. In Florida, the Company's PEO operations are licensed under the
Florida Employee Leasing Licensing Act of 1991 (the "Florida Licensing Act").
The Florida Licensing Act requires PEOs and their controlling persons to be
licensed, mandates
12
<PAGE>
reporting requirements and allocates several employer responsibilities. The
Florida Licensing Act also requires licensed PEOs to submit annual audited
financial statements and maintain a tangible accounting net worth and positive
working capital. The Florida Licensing Act also requires PEOs to, among other
things: (i) reserve a right of direction and control over the leased employees;
(ii) enter into a written agreement with the client; (iii) pay wages to the
leased employees; (iv) pay and collect payroll taxes; (v) retain authority to
hire, terminate, discipline and reassign employees; (vi) reserve a right to
direct and control the management of safety, risk and hazard control at the
worksite, including responsibility to promulgate and administer employment and
safety policies and to manage workers' compensation claims.
TEXAS. The Texas Staff Leasing Act regulates and establishes a legal
framework for PEOs in Texas and has requirements similar to those of Florida for
a PEO's relationship with its clients. The Texas Staff Leasing Act, which became
effective on September 1, 1993, established mandatory licensing for PEOs and
expressly recognizes a licensed PEO as the employer of the worksite employee for
purposes of the Texas Unemployment Compensation Act. The Texas Staff Leasing Act
also provides, to the extent governed by Texas law, that a licensed PEO may
sponsor and maintain employee benefit plans for the benefit of worksite
employees. In addition, the Texas Staff Leasing Act not only provides that a PEO
may elect to obtain workers' compensation insurance coverage for its worksite
employees but also provides that, for workers' compensation insurance purposes,
a licensed PEO and its client are treated as co-employers. In order to obtain a
license, applicants must undergo a background check, demonstrate a history of
good standing with tax authorities and meet certain capitalization requirements
that increase with the number of worksite employees employed. The Texas Staff
Leasing Act specifies that the Texas Department of Licensing and Regulation is
responsible for enforcement of the Texas Staff Leasing Act and TDLR has adopted
regulations under the Texas Staff Leasing Act.
OTHER STATES. While many states do not explicitly regulate PEOs, 21
states including four states where the Company has offices (Florida, Texas,
Tennessee and Minnesota) have passed laws that have licensing, registration or
other compliance requirements for PEOs and several states are considering such
regulation. Such laws vary from state to state but generally provide for
monitoring the fiscal responsibility of PEOs. The Company holds licenses in
Florida, Texas, Tennessee and Minnesota, the Company holds licenses or is
registered or is otherwise compliant in 13 other states. Whether or not a state
has licensing, registration or other compliance requirements, the Company faces
a number of other state and local regulations that could impact its operations.
The Company's objective is to establish strong working relationships with state
regulatory authorities in states where it operates and the Company believes that
to date it has been able to do so.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), the information regarding executive
officers of the Company called for by Item 401(b) of Regulation S-K is hereby
included in Part I of this Form 10-K.
The following table sets forth certain information with respect to each
person who is or was an executive officer of the Company in 1999, as indicated
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles S. Craig .. . . . . ......... 49 Chairman of the Board and Chief Executive Officer
(resigned CEO position December 1999)
Richard A. Goldman . ................ 43 Office of Chief Executive, President and Director
John E. Panning. .................... 49 Office of Chief Executive, Chief Financial Officer
and Director
John Bilchak, Jr..................... 52 Senior Vice President, Benefits and Risk
Management (resigned January 2000)
Todd Davis ..................... 40 Senior Vice President, Service Center
Operations (resigned February 2000)
Lisa Harris ..................... 39 Senior Vice President, Chief Information Officer
Joyce Lillis McGill.................. 53 Senior Vice President, Sales (resigned May 1999)
</TABLE>
CHARLES S. CRAIG has served as Chairman of the Board of Directors since
November 1993. He assumed the additional position of Chief Executive Officer in
July 1995. He announced his resignation as Chief Executive Officer in December
1999. Mr. Craig has been a Managing Director of Craig Capital Corporation
("Craig Capital") since 1988. An investor group organized by Craig Capital
acquired Staff Leasing in 1993. He has served on the boards of CP Industries,
Inc., Curtis Industries, Inc., Sinclair & Valentine, LP (Chairman), Schuylkill
Metals Corporation, TCOM, LP, and NASCO, Inc.
13
<PAGE>
RICHARD A. GOLDMAN has served as President and been a member of the
three-person Office of the Chairman since January 1997. The Office of the
Chairman was disbanded in December 1999 and since then Mr. Goldman has been a
member of the Office of the Chief Executive. Mr. Goldman served as Senior Vice
President of Risk Management and General Counsel of Staff Leasing from July 1995
to January 1997. In May 1997, Mr. Goldman was appointed by the late Governor
Lawton Chiles to Florida's Board of Employee Leasing and in February 1998 was
appointed chairman of that board. Before joining Staff Leasing, Mr. Goldman was
a partner in the New York law firm of Dechert Price & Rhoads from April 1993 to
July 1995.
JOHN E. PANNING has served as Chief Financial Officer and as a member of
the three-person Office of the Chairman since January 1997. The Office of the
Chairman was disbanded in December 1999 and since then Mr. Panning has been a
member of the Office of the Chief Executive. From August 1996 to December 1996,
he served as Senior Vice President of Finance of Staff Leasing. Mr. Panning
served as Senior Vice President of Sales of Staff Leasing from January 1995 to
July 1996.
JOHN BILCHAK, JR. served as Senior Vice President of Benefits and Risk
Management from January 1997 until his resignation in January 2000. Mr. Bilchak
served as Vice President of Benefits from January 1996 to December 1996. Before
joining Staff Leasing, Mr. Bilchak served as a principal with Towers Perrin from
June 1992 to January 1996.
TODD DAVIS served as Senior Vice President of Service Center Operations
from January 1999 until his resignation in February 2000. He was Vice President
of Service Center Operations from July 1998 until January 1999. Before joining
Staff Leasing he was Vice President, Call Center Operations for the Home
Shopping Network from August 1997 to June 1998; Practice Leader, Global Call
Center Business Consulting for Lucent Technologies Business Communications
Systems from July 1996 to August 1997; and Regional Manager, Call Center
Applications for AT&T Business Communications Systems from October 1994 to June
1996.
LISA HARRIS has served as Senior Vice President and Chief Information
Officer since January 1999. Before joining the Company, she was Vice President,
Information Services of Precision Response Corporation from March 1996 to
December 1998; a director and senior director of Certified Vacations, Inc. from
December 1992 to February 1996.
JOYCE LILLIS MCGILL served as Senior Vice President of Sales from March
1997 until her resignation in May 1999. She previously served in various
positions for Compaq Computer Corporation, and was employed by that company as
Vice President-Eastern Region from April 1996 until becoming employed by the
Company. From February 1993 until April 1996, she was Regional Director of
Sales, Service & Operations, Northeast Region for Compaq.
ITEM 2. PROPERTIES
The Company's operations are conducted from its 102,957 square foot
corporate headquarters located in Bradenton, Florida. The Company leases this
facility under a lease which expires in November 2005, but which can be renewed,
at the option of the Company, for two additional five-year periods.
The Company also leases space for its 45 offices located in Florida,
Georgia, Texas, Arizona, Minnesota, North Carolina, Tennessee, and Alabama. The
Company believes that its branch office leases, which generally have terms of
three to five years, can either be renewed on acceptable terms or that other,
comparable space can be located upon the expiration of any branch office lease
without significant additional cost to the Company. The Company considers its
facilities to be adequate for its current and prospective operations.
ITEM 3. LEGAL PROCEEDINGS
Lawrence E. Egle v. Staff Leasing, Inc., et al. On April 30, 1999, the
plaintiff, a shareholder of the Company, brought a class action in the Twelfth
Judicial Division, Manatee County, Florida against the Company and certain of
its directors alleging that the directors and senior officers of the Company
breached their fiduciary duty to shareholders by failing to pursue a proposal
from Paribas Principal Partners to acquire the Company in order to entrench
themselves in the management of the Company. Plaintiff seeks injunctive relief
and unspecified damages including attorneys' and experts' fees. The Company has
moved to dismiss the action. To date, the parties have engaged in limited
discovery, and expect to continue discovery over the next several months. The
Company believes the lawsuit is without merit.
The Company is a party to certain pending claims which have arisen in the
normal course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the consolidated financial
position or results of operations if adversely resolved.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
Part II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. The Common Stock is traded on the Nasdaq National
Market under the symbol "STFF." The following table sets forth, for the quarters
indicated, the high and low sale prices of the Common Stock as reported on the
Nasdaq National Market.
HIGH LOW
---- ---
FISCAL YEAR ENDED DECEMBER 31, 1998:
-----------------------------------
First Quarter $28.750 $18.625
Second Quarter $33.500 $26.000
Third Quarter $30.125 $9.750
Fourth Quarter $17.313 $8.500
FISCAL YEAR ENDED DECEMBER 31, 1999:
-----------------------------------
First Quarter $16.563 $9.875
Second Quarter $15.375 $10.375
Third Quarter $13.250 $9.000
Fourth Quarter $10.375 $7.625
HOLDERS. As of March 20, 2000, there were approximately 174 shareholders
of record of the Common Stock. This number does not include beneficial owners of
the Common Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
DIVIDENDS. The Company has not paid and does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. The Company
expects that it will retain all available earnings generated by the Company's
operations for the development and growth of its business. Any future
determination as to the payment of dividends will be made at the discretion of
the Board of Directors of the Company and will depend upon the Company's
operating results, financial condition, capital requirements, general business
conditions and such other factors as the Board of Directors deems relevant.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial and
operating data of the Company as of the dates and for the periods indicated. The
Company operated as a limited partnership for all periods before the
Reorganization on July 1, 1997, and as a C-corporation under the Code since the
Reorganization. The Reorganization was accounted for as a combination among
entities under common control and accordingly, for financial statement
presentation purposes, the Reorganization was treated as a pooling of interests
of the Company and Staff Capital, L.P. as of and for the periods presented. The
following selected financial data are qualified by reference to, and should be
read in conjunction with, the consolidated financial statements, related notes
and other financial information included as Part II, Item 8. of this Form 10-K,
as well as "Management's Discussion and Analysis of Financial Condition and
Results of Operations" which is included as Part II, Item 7.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ........................... $ 1,091,588 $ 1,432,131 $ 1,851,248 $ 2,375,522 $ 2,701,886
Gross profit ....................... $ 32,037 $ 59,505 $ 93,988 $ 112,915 $ 127,623
Operating income (loss) ............ $ (20,276) $ (441) $ 26,446 $ 34,342 $ 32,975
Net income (loss) (1)(2) ........... $ (24,942) $ (3,865) $ 30,783 $ 23,395 $ 21,650
Net income (loss) attributable
to common shareholders (1)(3) .... $ (24,942) $ (5,637) $ 28,392 $ 23,395 $ 21,650
Net income (loss) per share
attributable to common
shareholders(4)
- Basic .................... $ (1.27) $ (.29) $ 1.32 $ 1.01 $ .99
- Diluted .................. $ (1.27) $ (.29) $ 1.26 $ .97 $ .97
Weighted average
common shares (in
thousands)(4)
- Basic .................... 19,614 19,614 21,588 23,207 21,779
- Diluted .................. 19,614 19,614 22,459 24,092 22,210
STATISTICAL AND OPERATING DATA:
Worksite employees at period
end .............................. 73,116 86,000 107,885 127,470 133,197
Clients at period end .............. 6,490 7,511 9,233 10,751 10,740
Average number of worksite
employees per client at
period end ....................... 11.27 11.45 11.68 11.86 12.40
Capital expenditures ............... $ 1,619 $ 5,923 $ 7,100 $ 10,937 $ 10,911
BALANCE SHEET DATA:
Total assets ....................... $ 56,932 $ 65,982 $ 125,119 $ 139,778 $ 163,570
Long-term capital leases, including
current portion .................... $ 5,069 $ 3,746 $ -- $ -- $ --
Long-term borrowings, including
current portion .................. $ 26,450 $ 17,700 $ -- $ -- $ --
Redeemable preferred interests ..... $ 2,000 $ 17,674 $ -- $ -- $ --
Total shareholders' equity (deficit) $ (33,949) $ (35,680) $ 58,148 $ 62,789 $ 80,756
</TABLE>
- -----------------
(1) Before the Reorganization, the Company operated as a Partnership.
Accordingly, the tax effect of the Partnership's activities accrued to the
individual partners and no provision for income taxes was recognized.
(2) Included in income tax benefit for the year ended December 31, 1997 was
$10,172 of deferred tax benefit related to the reversal of the valuation
allowance for deferred tax assets. The deferred tax assets recognized
consist principally of assets with tax basis in excess of book basis,
reserves not currently deductible and tax loss carryforwards. The tax
benefit recorded is non-cash in nature (See Note 17 to the consolidated
financial statements).
(3) Fixed return on preferred interest represents the return paid on the Class
A and Class B Interests through July 1, 1997, the date of Reorganization.
The fixed return on preferred interest was $0, $1,772, $2,391, $0, and $0
for the years ended December 31, 1995, 1996, 1997, 1998 and 1999,
respectively.
(4) In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128,"Earnings Per Share"
(SFAS 128), as required. The previously reported earnings (loss) per share
have been restated as required by SFAS 128.
16
<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. The
Company's actual results could differ materially from those discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Form 10-K. See
Part 1, "Cautionary Note Regarding Forward-Looking Statements." The following
discussion should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this filing.
Historical results are not necessarily indicative of trends in operating results
for any future period.
OVERVIEW
The Company is the largest professional employer organization ("PEO") in
the United States. At December 31, 1999, the Company served over 10,700 clients
with approximately 133,000 worksite employees. With 45 branches located in
Florida, Texas, Georgia, Arizona, Minnesota, North Carolina, Tennessee, and
Alabama, the Company provides a broad range of services, including payroll
administration, risk management, benefits administration, unemployment services
and other human resources consulting services.
REVENUES. Revenues consist of charges by the Company for the salaries and
wages of the worksite employees (including the employee-paid portion of health
and other benefits), the service fee and the clients' portion of health and
retirement benefits provided to the worksite employees. These charges are
invoiced to the client at the time of each periodic payroll. The service fee
covers the cost of certain employment-related taxes, workers' compensation
insurance coverage and administrative and field services provided by the Company
to the client, including payroll administration and safety, human resources and
regulatory compliance consultation. Salaries and wages of worksite employees are
affected by inflation, including the effect of increases in the Federal minimum
wage, and by competition in the labor markets in which the Company operates.
Fluctuations in salaries and wages resulting from these factors have a
proportionate impact on the Company's service fee, which is invoiced as a
percentage of salaries and wages.
COST OF SERVICES. Cost of services includes salaries and wages of worksite
employees, payroll taxes, employee benefit costs, workers' compensation
insurance and state unemployment taxes.
Salaries, wages and payroll taxes consist of salaries and wages of
worksite employees, the employer's portion of amounts due with respect to FICA,
which includes Social Security and Medicare related taxes, and Federal
unemployment taxes. FICA and FUTA rates are fixed by the appropriate Federal
regulations. The amounts payable under FICA and FUTA are dependent on an
employee's wage levels, but are not affected by an employer's claims experience
or other employer-related criteria. These amounts are thus not subject to the
Company's control.
Employee benefit costs are comprised primarily of medical benefit costs,
but also include costs of other employee benefits such as dental, disability and
group life insurance. Worksite employee participation in the Company's health
benefit plans is optional, as is the client's contribution to the cost of such
plans. As of December 31, 1999, the Company's group health benefit plans were
under seven separate contracts in force in the states of Florida, Texas,
Georgia, North Carolina, and Tennessee, with the Blue Cross entities in each
state, with United Healthcare of Arizona, Inc. and Health Partners in Minnesota.
Plans offered in Texas, Georgia, Arizona, Minnesota and North Carolina are
provided to the Company under guaranteed cost arrangements, with the Company's
liability capped at fixed amounts. The Company's policy with Blue Cross and Blue
Shield of Florida is a three year minimum premium arrangement for 2000, 2001 and
2002, pursuant to which the Company is obligated to reimburse Blue Cross and
Blue Shield of Florida for the cost of the claims incurred by participants under
the plan, plus the cost of plan administration. The administrative costs
associated with this policy are fixed for stop loss coverage at the level of
115% of projected claims. The Company's policy with Blue Cross and Blue Shield
of Tennessee is also a minimum premium arrangement.
Workers' compensation costs are the amounts paid by the Company under its
guaranteed cost arrangement with Liberty Mutual, which expired on December 31,
1999. Effective January 1, 2000, new workers' compensation programs with CNA and
the Texas Fund commenced. Workers' compensation costs are anticipated to
increase beginning in 2000 as a result of these workers' compensation
arrangements.
17
<PAGE>
State unemployment tax rates vary from state to state and are based
upon the employer's claims history. The Company aggressively manages its state
unemployment tax exposure by contesting unwarranted claims and offering
re-employment services to unemployed workers.
OPERATING EXPENSES. Operating expenses consist primarily of salaries,
wages and commissions associated with the Company's internal employees, and
general and administrative expenses. Over the past several years, the Company
has experienced an increase in its operating expenses as the Company has
expanded its senior management, sales and marketing staff, payroll processing
operations, and client and worksite employee service functions. The Company
expects that future revenue growth will result in increased operating leverage,
as the Company's fixed operating expenses are leveraged over a larger revenue
base.
INCOME TAXES. The Company records income tax expense using the asset and
liability method of accounting for deferred income taxes. Before the
Reorganization, the Company operated through limited partnerships. Accordingly,
all earnings or losses were passed directly to the partners and no provision for
income taxes was required. In 1997, a non-recurring tax benefit with respect to
the Company's deferred tax asset was recognized in accordance with the
provisions of Statement of Financial Accounting Standards 109, "Accounting for
Income Taxes." This asset related primarily to assets with tax basis in excess
of book basis and certain reserves which will be deductible in future periods.
The Company's effective tax rate for 1999 was 37.2%. The Company's 1999
effective tax rate for financial reporting purposes differs from the statutory
Federal rate of 35% primarily because of state taxes and Federal tax credits.
PROFITABILITY. Profitability is largely dependent upon the Company's
success in managing revenues and costs that are within its control. These
controllable revenues and costs primarily relate to workers' compensation,
health benefits and state unemployment taxes. The Company manages these
controllable costs through its use of: (i) its workers' compensation
arrangements with well respected carriers, internal risk assessment and risk
management programs; (ii) appropriately designed health benefit plans that
encourage worksite employee participation, high managed care utilization and
efficient risk pooling; and (iii) aggressive management of its state
unemployment tax exposure.
HEALTH BENEFIT PLAN SUBSIDIES. In 1997, the Company implemented a plan
aimed at reducing its health benefit plan subsidies, which had been significant
in previous years.
The Company changed from a single national health care company to a series
of regional health care companies. These companies have extensive provider
networks and strong reputations in the markets in which the Company operates.
The Company believes health care is a regional business in the United States,
and as such, must align itself with regional health care companies.
These health care companies include Blue Cross and Blue Shield of Florida,
Blue Cross and Blue Shield of Texas, Blue Cross and Blue Shield of Georgia,
United Healthcare of Arizona, HealthPartners (Minnesota), Blue Cross and Blue
Shield of North Carolina, and Blue Cross and Blue Shield of Tennessee, under
separate contracts in Florida, Texas, Georgia, Arizona, Minnesota, North
Carolina, and Tennessee, respectively.
The Company's health care providers are able to offer health maintenance
organization ("HMO") coverage in addition to preferred provider organization
("PPO") coverage. The Company believes that the managed care services provided
by an HMO are more cost effective than those provided by a PPO. At the end of
1999, in excess of 70% of the Company's health plan participants received their
coverage through an HMO.
The Company's health care policy with Blue Cross and Blue Shield of Florida
is a minimum premium arrangement. The arrangement was initiated in 1997 and was
renewed as of January 1,2000 for an additional three years through December 31,
2002. The administrative costs per covered employee associated with this policy
were negotiated for 2000, 2001 and 2002 and stop loss coverage per covered
employee is provided at the level of 115% of projected claims.
Health care plans offered in Arizona, Georgia, Minnesota, North Carolina,
Tennessee and Texas provide the Company with guaranteed cost contracts and the
Company's liability is capped annually at fixed amounts.
In 1997, the Company experienced a surplus of $1.0 million in health plan
operations. This surplus would have been a subsidy of $2.5 million in 1997 had
the Company not reduced its estimates for 1996 health reserves due to favorable
experience in the maturation or run-out of 1996 health claims.
The Company had $1.1 million of net subsidy cost in its health plan
operations for 1998. The 1998 subsidy was $2.5 million, which was offset by an
adjustment to 1997 health reserves due to favorable experience in the maturation
or run-out of 1997 health claims.
18
<PAGE>
In 1999, the Company experienced a surplus of $0.6 million in health plan
operations. This surplus would have been a subsidy of $1.6 million in 1999 had
the Company not reduced its estimates for 1998 health reserves due to favorable
experience in the maturation or run-out of 1998 health claims.
RESULTS OF OPERATIONS
The following table presents the Company's results of operations for the
years ended December 31, 1997, 1998 and 1999, expressed as a percentage of
revenues:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0%
Cost of services:
Salaries, wages and payroll taxes........ 90.5 90.8 91.0
Benefits, workers' compensation, state
unemployment taxes and other costs.... 4.4 4.4 4.3
----- ----- -----
Total cost of services........... 94.9 95.2 95.3
----- ----- -----
Gross profit............................... 5.1 4.8 4.7
----- ----- -----
Operating expenses:
Salaries, wages and commissions.......... 2.3 2.1 2.2
Other general and administrative......... 1.1 0.9 1.0
Depreciation and amortization............ 0.3 0.3 0.3
----- ----- -----
Total operating costs............ 3.7 3.3 3.5
----- ----- -----
Operating income........................... 1.4 1.5 1.2
Interest income ........................... 0.1 0.1 0.1
Interest expense........................... 0.1 0.0 0.0
----- ----- -----
Income before income taxes................. 1.4 1.6 1.3
Income tax (provision) benefit........... 0.3 (0.6) ( .5)
----- ----- -----
Net income ............................ 1.7% 1.0% .8%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, revenues increased 13.7% over 1998,
totaling $2.7 billion, compared to $2.38 billion for 1998. This increase was due
primarily to an increased number of worksite employees. From 1998 to 1999, the
number of worksite employees increased 4.5%, from 127,470 to 133,197. Revenue
growth exceeded headcount growth by 9.2%, primarily due to wage inflation and
expansion in higher wage markets. The increase in the number of worksite
employees was the result of continuing sales and marketing efforts in existing
markets as well as the development of new markets. The Company opened a total of
five new sales offices in Tennessee, Alabama, and Georgia in 1999, compared to
eight new sales offices in 1998.
In January 1997 and January 1998, the Company reduced the service fees
charged on average to its Florida clients, in response to a reduction in
workers' compensation rates in Florida. While the Company believes this
reduction in service fees has not adversely affected the Company's profitability
to date because the Company has been able to offset the effect of this action by
controlling expenses, it is possible that future service fee reductions could
adversely affect the Company's operations.
Cost of services was $2.57 billion for 1999, compared to $2.26 billion for
1998, representing an increase of $311.7 million, or 13.8%. This increase was
due primarily to an increased number of worksite employees. Cost of services was
95.3% of revenues for 1999, compared to 95.2% for 1998.
Salaries, wages and payroll taxes of worksite employees were $2.46 billion
for 1999, compared to $2.16 billion for 1998, representing an increase of $300
million, or 13.9%. Salaries, wages and payroll taxes were 91.0% of revenues for
1999, compared to 90.8% for 1998.
Benefits, workers' compensation, state unemployment taxes and other costs
were $116.8 million for 1999, compared to $105.2 million for 1998, representing
an increase of $11.6 million, or 11.1%. Benefits, workers' compensation, state
unemployment taxes and other costs were 4.3% of revenues for 1999, compared to
4.4% in 1998. The health benefit plan subsidy was $1.65 million in 1999,
compared to $2.5 million in 1998. However, favorable experience on the
maturation or run-out of prior year health claims
19
<PAGE>
reduced this subsidy by $2.2 million in 1999 versus a reduction of $1.4 million
in 1998.
Gross profit was $127.6 million for 1999, compared to $112.9 million for
1998, representing an increase of $14.7 million, or 13%. Gross profit was 4.7%
of revenues for 1999, compared to 4.8% for 1998. Gross profit margin decreased
as a percentage of revenues due to continued expansion outside of Florida,
penetration of higher wage markets and downward pressure on workers'
compensation margins due to a competitive workers' compensation market.
Operating expenses were $94.6 million for 1999, compared to $78.6 million
for 1998, representing an increase of $16.1 million, or 20.5%. Operating
expenses were 3.5% of revenues for 1999, compared to 3.3% for 1998.
Salaries, wages and commissions were $59.5 million for 1999, compared to
$50.9 million for 1998, representing an increase of $8.6 million, or 16.9%. This
increase was due to an increase in corporate personnel hired to support the
Company's expanded operations and information technology conversions, and
additional sales and sales support personnel located at its branch offices.
Salaries, wages and commissions were 2.2% of revenues for 1999 compared to 2.1%
for 1998.
Other general and administrative expenses were $27.4 million for 1999,
compared to $21.7 million in 1998, representing an increase of $5.7 million, or
26.2%. This increase was primarily a result of administrative expenses to
support the opening of five new branch offices in 1999 and spending for
technology consulting for data conversion and testing of systems for year 2000
compliance. Other general and administrative expenses were 1.0% of revenues for
1999, compared to .9% for 1998.
Depreciation and amortization expenses increased by $1.8 million for 1999
compared to 1998, representing an increase of 29.6%. This increase was primarily
the result of the Company's investment in management information systems.
Interest income was $3.3 million for 1999, compared to $3.2 million for
1998, representing an increase of $.1 million.
Interest expense was $.1 million for 1999 and 1998. The Company had no
long-term debt obligations outstanding in 1999. Interest expense results from
letter of credit fees.
Other expense in 1999 was substantially due to an acquisition proposal
received from Paribas Principal Partners and expenses related to strategic
alternatives being explored by the Company.
Income before income taxes was $34.5 million for 1999, compared to income
before income taxes of $37.4 million for 1998, representing a decrease of $2.9
million, or 7.9%.
Income taxes of $12.8 million for 1999 represented a provision at an
effective tax rate of 37.2%.
Net income was $21.7 million for 1999, compared to $23.4 million for 1998,
representing a decease of $1.7 million, or 7.3%.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues were $2.38 billion for 1998, compared to $1.85 billion for 1997.
This increase was due primarily to an increased number of clients and worksite
employees. From 1997 to 1998, the number of clients increased 16.4% from 9,233
to 10,751. The number of worksite employees increased 18.2%, from 107,885 to
127,470. Revenue growth exceeded headcount growth by 10.1%, primarily due to
wage inflation and expansion in higher wage markets. The increase in the number
of worksite employees was the result of continuing sales and marketing efforts
in existing markets as well as the development of new markets. The Company
opened eight new sales offices in Florida, Texas, North Carolina and Tennessee
in 1998, compared to six new sales offices in 1997.
Cost of services was $2.26 billion for 1998, compared to $1.76 billion for
1997, representing an increase of $505.3 million, or 28.8%. This increase was
due primarily to an increased number of clients and worksite employees. Cost of
services was 95.2% of revenues for 1998, compared to 94.9% for 1997.
Salaries, wages and payroll taxes of worksite employees were $2.16 billion
for 1998, compared to $1.68 billion for 1997, representing an increase of $482
million, or 28.8%. Salaries, wages and payroll taxes were 90.8% of revenues for
1998, compared to 90.5% for 1997.
Benefits, workers' compensation, state unemployment taxes and other costs
were $105.2 million for 1998, compared to $81.9 million for 1997, representing
an increase of $23.3 million, or 28.5%. Benefits, workers' compensation, state
unemployment taxes and other costs were 4.4% of revenues for 1997 and 1998. The
health benefit plan
20
<PAGE>
subsidy was $2.5 million in both 1997 and 1998. However, favorable experience on
the maturation or run-out of prior year health claims reduced this subsidy by
$1.4 million in 1998 versus a reduction of $3.5 million in 1997.
Gross profit was $112.9 million for 1998, compared to $94.0 million for
1997, representing an increase of $18.9 million, or 20.1%. Gross profit was 4.8%
of revenues for 1998, compared to 5.1% for 1997. Gross profit margin decreased
as a percentage of revenues due to continued expansion outside of Florida,
penetration of higher wage markets and downward pressure on workers'
compensation margins due to a competitive workers' compensation market.
Operating expenses were $78.6 million for 1998, compared to $67.5 million
for 1997, representing an increase of $11.0 million, or 16.3%. Operating
expenses were 3.3% of revenues for 1998, compared to 3.7% for 1997.
Salaries, wages and commissions were $50.9 million for 1998, compared to
$42.1 million for 1997, representing an increase of $8.8 million, or 20.8%. This
increase was due primarily to a 26.9% increase in corporate personnel hired to
support the Company's expanded operations and additional sales and sales support
personnel located at its branch offices. This was partially offset by savings in
health benefits and employee bonus programs. Salaries, wages and commissions
were 2.1% of revenues for 1998, compared to 2.3% for 1997.
Other general and administrative expenses were $21.7 million for 1998,
compared to $20.9 million in 1997, representing an increase of $.9 million, or
4.2%. This increase was primarily a result of administrative expenses to support
the opening of eight new branch offices in 1998, versus six offices in 1997, and
expanded sales and marketing programs for 1998. Other general and administrative
expenses were .9% of revenues for 1998, compared to 1.1% for 1997.
Depreciation and amortization expenses increased by $1.4 million for 1998
compared to 1997, representing an increase of 30.6%. This increase was primarily
the result of the Company's investment in management information systems.
Amortization of capitalized software costs associated with the Company's
implementation of new payroll processing and management information systems
began July 1997, when the systems became operational. These software costs are
being amortized over a seven-year period.
Interest expense was $.1 million for 1998, compared to $2.1 million for
1997, representing a decrease of $2.0 million. The decrease was due primarily to
the repayment of the Company's long-term borrowings in the third quarter of
1997, partially offset by the write-off of unamortized debt issuance costs
associated with this debt. The Company had no long-term debt obligations
outstanding in 1998.
Interest income was $3.2 million for 1998, compared to $1.3 million for
1997, representing an increase of $1.9 million. The net change represents
interest income earned on the net proceeds of the Company's initial public
offering in July 1997 and net cash from operations.
Income before income taxes was $37.4 million for 1998, compared to income
before income taxes of $25.6 million for 1997, representing an increase of $11.8
million, or 46.4%.
Income taxes of $14.0 million for 1998 represented a provision at an
effective tax rate of 37.5%. Income taxes of $9.9 million for 1997 was reduced
by the recognition of deferred tax benefits, the tax benefit of allocation of
income to Staff Acquisition, and other items totaling $15.1 million, resulting
in a $5.2 million tax benefit for that year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $65.8 million in cash and cash equivalents, restricted
certificates of deposit and marketable securities at December 31, 1999. The
Company periodically evaluates its liquidity requirements, capital needs and
availability of capital resources in view of its plans for expansion, including
potential acquisitions, anticipated levels of health benefit plan subsidies and
other operating cash needs. The Company has in the past sought, and may in the
future seek, to raise additional capital or take other measures to increase its
liquidity and capital resources. The Company believes that its current balances
and cash flow from operations will be sufficient to meet its requirements
through 2000. The Company may rely on these same sources, as well as public or
private debt and/or equity financing to meet its long-term capital needs.
The Company repaid all of its long-term obligations during the third
quarter of 1997 utilizing the proceeds from its initial public offering and had
no long-term debt as of December 31, 1999. In July 1999, the Company entered
into an agreement with NationsBank for a $10 million revolving line of credit to
provide for intraday working capital needs. Borrowings under the credit facility
bear interest at variable rates based on the lenders' base rate or LIBOR. No
borrowings have been made against the credit line. At December 31, 1999, the
Company had working capital of $37.4 million.
21
<PAGE>
The Company's primary short-term capital requirements relate to the
payment of accrued payroll and payroll taxes of its internal and worksite
employees, accounts payable for capital expenditures and the payment of accrued
workers' compensation expense and health benefit plan premiums. As of December
31, 1999, the Company had $7.8 million of restricted certificates of deposit,
with original maturities of less than one year, as collateral for certain
standby letters of credit issued in connection with the Company's health benefit
plans.
Net cash provided from operations was $25.7 million for 1999. In 1999, the
Company invested $10.9 million in its facilities and technology infrastructure.
For 2000, the Company anticipates total capital expenditures of $8.5 million.
The Company's Board of Directors approved a program in August 1998 to
repurchase up to two million shares of the Company's common stock. Purchases may
be made from time to time depending upon the Company's stock price, and will be
made primarily in the open market, but may also be made through privately
negotiated transactions. In January 1999, the Company's Board of Directors
increased this share repurchase plan to three million shares. In 1998, the
Company repurchased 1.6 million shares of its common stock for a total cost of
$21.0 million. In 1999, the Company repurchased 411,725 shares at a cost of $4.3
million.
INFLATION
The Company believes that inflation in salaries and wages of worksite
employees has a positive impact on its results of operations as its service fee
is proportional to such changes in salaries and wages.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in interest
rates based on its investing and cash management activities. The Company
utilizes U.S. government agency and other corporate debt with fixed rates and
maturities of less than one year to manage its exposures to interest rates. (See
Note 4 to the Consolidated Financial Statements appearing elsewhere in this Form
10-K). The Company does not expect changes in interest rates to have a material
effect on income or cash flows in fiscal 2000, although there can be no
assurances that interest rates will not change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is contained in a separate section
of this Annual Report. See "Index to Consolidated Financial Statements and
Financial Statement Schedule" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICES OF THE REGISTRANT
The information regarding the Company's executive officers is included in
Item 1 of Part I under "Executive Officers of the Registrant." Other information
required by this Item 10 will be contained in the Company's Proxy Statement,
relating to the 2000 Annual Meeting of Shareholders to be held on May 22, 2000
(the "Proxy Statement") and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be contained in the Proxy
Statement and is incorporated herein by reference, provided that the
Compensation Committee Report and Performance Graph contained in the Proxy
Statement shall not be deemed to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 will be contained in the Proxy
Statement and is incorporated herein by reference.
22
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 will be contained in the Proxy
Statement and is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - The financial statements and independent
auditors' report are listed in the "Index to Financial Statements and
Financial Statement Schedule" on page F-1 and included on pages F-2
through F-21.
2. Financial Statement Schedules - The financial statement schedule
required by Item 14(a) (2) is included on page S-1.
3. Exhibits including those incorporated by reference:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger by and among SLI Transitory, L.P., Staff
Capital, L.P. and Staff Leasing, Inc. (filed as Exhibit 4.3 to the
Company`s registration statement no. 333-22933 and incorporated herein)
3.1 Articles of Incorporation of Staff Leasing, Inc. (filed as Exhibit 3.1
to the Company's registration statement no. 333-22933 and incorporated
herein)
3.2 Bylaws of Staff Leasing, Inc. (filed as Exhibit 3.2 to the Company's
registration statement no. 333-22933 and incorporated herein)
4.1 Specimen Common Stock Certificate (filed as Exhibit 4.1 to the
Company's registration statement no. 333-22933 and incorporated herein)
4.2 See Exhibits 3.1 and 3.2 for the provisions of Staff Leasing Inc.'s
Articles of Incorporation and Bylaws governing the rights of holders of
securities of Staff Leasing, Inc.
10.1 1997 Stock Incentive Plan of Staff Leasing, Inc. as amended through
November 19, 1998, incorporated by reference and filed as Exhibit 4.1
on Registration Statement Form S-8 filed with the Commission on
December 15, 1998. (Reg. No. 333-68929).*
10.2 Form of Indemnification Agreement dated March 3, 1997, between Staff
Leasing, Inc. and each of its directors and executive officers. (filed
as Exhibit 10.2 to the Company's registration statement no. 333-22933
and incorporated herein)*
10.3 Form of Executive Agreement between Staff Leasing, Inc. and its
executive officers. (filed as Exhibit 10.3 to the Company's
registration statement no. 333-22933 and incorporated herein)*
10.4 Voting Trust Agreement by and between Charles S. Craig and Staff
Leasing, Inc., together with related Voting Trust Certificate. (filed
as Exhibit 10.4 to the Company's registration statement no. 333-22933
and incorporated herein)*
10.5 Option to Purchase Agreement by and between Charles S. Craig and Staff
Leasing, Inc., relating to outstanding capital stock of Staff
Acquisition, Inc. (filed as Exhibit 10.5 to the Company's registration
statement no. 333-22933 and incorporated herein)*
10.6 Amended and Restated Credit Agreement among Staff Acquisition, Inc.,
Staff Capital, L.P., various banks and Banque Paribas, as Agent, dated
as of November 5, 1993 and Amended and Restated as of December 8, 1994,
together with First Amendment thereto dated as of June 29, 1995, Second
Amendment thereto dated as of April 26, 1996, Third Amendment thereto
dated as of August 31, 1996, Fourth Amendment thereto dated November
30, 1996, Fifth Amendment thereto dated as of March 5, 1997, and the
Sixth Amendment thereto dated as of May 29, 1997. (filed as Exhibit
10.6 to the Company's registration statement no. 333-22933 and
incorporated herein)
23
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.7 Agreement of Lease dated March 27, 1995 between Quixotic Investment
Holdings, Inc. (Landlord) and the Company for premises located at 600
301 Boulevard West, Suite 202, Bradenton, Florida 34205 (filed as
Exhibit 10.7 to the Company's registration statement no. 333-22933 and
incorporated herein)
10.8 Workers' Compensation and Employers' Liability Policy issued by Liberty
Mutual Insurance Company to Staff Leasing, effective January 1, 1997.
(filed as Exhibit 10.8 to the Company's registration statement no.
333-22933 and incorporated herein)
10.9 1993 Restricted Equity Plan, as Amended and Restated. (filed as Exhibit
10.9 to the Company's registration statement no. 333-22933 and
incorporated herein)
10.10 Credit Agreement dated as of December 11, 1997, among Staff Leasing,
Inc., its subsidiaries, the lenders named therein, and NationsBank,
N.A., as Agent (1) (filed as Exhibit 10.11 to the Company's annual
report on Form 10-K and incorporated herein).
10.11 Lease Agreement dated December 5, 1997, between Aldina, L.C. and Staff
Capital, L.P. (filed as Exhibit 10.12 to the Company's annual report on
Form 10-K and incorporated herein).
10.12 Credit Agreement dated July 26, 1999, among Staff Leasing, Inc. its
subsidiaries, the lenders named herein, and Nationsbank, N.A. as Agent.
10.13 Workers' Compensation and Employers' Liabliity Policy issued by Texas
Workers' Compensation Insurance Fund to Staff Leasing of Texas, L.P.,
effective January 1, 2000.
10.14 Finance Agreement for Paid Loss Workers' Compensation deductible dated
as of January 1, 2000, between Staff Leasing, Inc. and Continental
Casualty Company.
10.15 Workers' Compensation and Employers Liability Policy issued by
Continental Casualty Co. to Staff Leasing, Inc., effective January 1,
2000. (2)
21.1 List of Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent to Form S-8 (filed as registration
statement no. 333-68929 and incorporated herein).
27.1 Financial Data Schedule (for SEC use only).
- -------------
(1) Schedules to the Credit Agreement containing disclosure called for by
the agreement or various forms for loan activities under the agreement
are omitted and will be provided to the Commission upon request.
(2) Exhibits referenced in policy are omitted and will be provided to the
Commission upon request.
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Staff Leasing, Inc. has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
STAFF LEASING, INC.
Dated: March 30, 2000 /s/ Richard A. Goldman
- --------------------------------------------------------------------------------------
Richard A. Goldman
Office of the Chief Executive,
President and a Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: March 30, 2000 /s/ Charles S. Craig
- ---------------------------------------------------------------------------------------
Charles S. Craig
Chairman of the Board
Dated: March 30, 2000 /s/ John E. Panning
- ---------------------------------------------------------------------------------------
John E. Panning
Office of the Chief Executive,
Chief Financial Officer and a Director
Dated: March 30, 2000 /s/ George B. Beitzel
- ---------------------------------------------------------------------------------------
George B. Beitzel
Director
Dated: March 30, 2000 /s/ Melvin R. Laird
- ---------------------------------------------------------------------------------------
Melvin R. Laird
Director
Dated: March 30, 2000 /s/ Elliot B. Ross
- ---------------------------------------------------------------------------------------
Elliot B. Ross
Director
Dated: March 30, 2000 /s/ Jonathan H. Kagan
- ---------------------------------------------------------------------------------------
Jonathan H. Kagan
Director
Dated: March 30, 2000 /s/ Richard A. Goldman
- ---------------------------------------------------------------------------------------
Richard A. Goldman
Director
</TABLE>
25
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999.............................................................F-3
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1998, and 1999................................F-4
Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31,
1997, 1998, and 1999 ............................................F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998, and 1999................................F-6
Notes to Consolidated Financial Statements .........................F-7
Financial Statement Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
F-1
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Staff Leasing, Inc.
Bradenton, Florida
We have audited the accompanying consolidated financial statements and financial
statement schedule of Staff Leasing, Inc. (a Florida corporation) and
subsidiaries listed in the Index to Consolidated Financial Statements and
Financial Statement Schedule on page F-1 of the Annual Report on Form 10-K of
Staff Leasing, Inc. for the year ended December 31, 1999. These consolidated
financial statements and financial statement schedule are the responsibility of
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Staff Leasing, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
February 25, 2000
F-2
27
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
---------------------- ----------------------
(in $000's, except share and per share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,412 $ 23,081
Certificates of deposit - restricted 8,379 7,777
Marketable securities 32,022 34,914
Accounts receivable, net 38,637 41,631
Other current assets 6,182 11,494
---------------------- ----------------------
Total current assets 100,632 118,897
Property and equipment, net 25,071 28,833
Goodwill, net of accumulated amortization
of $3,779 and $4,513, respectively 10,892 10,159
Deferred tax asset 2,898 1,950
Other assets 285 3,731
---------------------- ----------------------
$ 139,778 $ 163,570
====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued insurance premiums and health
reserves $ 22,757 $ 22,724
Accrued payroll and payroll taxes 38,748 35,574
Deferred tax liability 5,729 8,770
Accounts payable and other accrued liabilities 5,515 10,888
Customer deposits and prepayments 2,741 3,523
---------------------- ----------------------
Total current liabilities 75,490 81,479
Other long-term liabilities 1,499 1,335
Commitments and contingencies (See notes)
Shareholders' equity:
Common stock, $.01 par value 221 217
Shares authorized: 100,000,000
Shares issued and outstanding:
1998 - 22,121,267
1999 - 21,709,542
Additional paid in capital 46,804 42,987
Retained earnings 16,051 37,701
Other (287) (149)
---------------------- ----------------------
Total shareholders' equity 62,789 80,756
---------------------- ----------------------
$ 139,778 $ 163,570
====================== ======================
</TABLE>
See notes to consolidated financial statements.
F-3
28
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1998 1999
----------------- ---------------- -----------------
(in $000's, except per share data)
-------------------------------------------------------
<S> <C> <C> <C>
Revenues $1,851,248 $2,375,522 $2,701,886
----------------- ---------------- -----------------
Cost of services:
Salaries, wages and payroll taxes 1,675,369 2,157,406 2,457,420
Benefits, workers' compensation, state
unemployment taxes and other costs 81,891 105,201 116,843
----------------- ---------------- -----------------
Total cost of services 1,757,260 2,262,607 2,574,263
----------------- ---------------- -----------------
Gross profit 93,988 112,915 127,623
----------------- ---------------- -----------------
Operating expenses:
Salaries, wages and commissions 42,147 50,905 59,529
Other general and administrative 20,853 21,738 27,435
Depreciation and amortization 4,542 5,930 7,684
----------------- ---------------- -----------------
Total operating expenses 67,542 78,573 94,648
----------------- ---------------- -----------------
Operating income 26,446 34,342 32,975
Interest income 1,345 3,154 3,269
Interest expense (2,138) (68) (61)
Other income (expense) (92) 4 (1,694)
----------------- ---------------- -----------------
Income before income taxes 25,561 37,432 34,489
Income tax provision (benefit) (5,222) 14,037 12,839
----------------- ---------------- ----------------
Net income 30,783 23,395 21,650
Return on preferred interests (2,391) -- --
----------------- ---------------- -----------------
Net income attributable to common shareholders $ 28,392 $ 23,395 $ 21,650
================= ================ =================
Net income per share attributable to common
shareholders
- Basic $ 1.32 $ 1.01 $ .99
================= ================ =================
- Diluted $ 1.26 $ .97 $ .97
================= ================ =================
Weighted average common shares outstanding
- Basic 21,588 23,207 21,799
================= ================ =================
- Diluted 22,459 24,092 22,210
================= ================ =================
</TABLE>
See notes to consolidated financial statements.
F-4
29
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998, 1999
<TABLE>
<CAPTION>
Accumulated
Other Retained
Common Additional Comprehensive Earnings/
Stock Common Paid In Income (Accumulated
(shares) Stock Capital Other (loss) Deficit) Total
--------------- ---------- ------------- ------------- ------------- ---------------- -----------
In $000's except for share data
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 19,196,472 $ 192 $ 3,506 $ (1,251) $ (38,127) $ (35,680)
Return on preferred interests (1,744) (1,744)
Repurchase of shareholder
interests (53,992) (612) 53 (559)
Issuance of common stock through
IPO, net 3,944,978 39 60,999 61,038
Issuance of common stock upon
exercise of Company option for
all capital stock of Staff
Acquisition, Inc. 417,900 4 137 141
Tax benefit of restricted stock
plan vesting 3,208 3,208
Capital contributions 324 (324) -
Other 59 902 961
Net income 30,783 30,783
--------------- -------- ------------- ------------- -------------- -------------- -----------
Balance, January 1, 1998 23,505,358 235 65,877 (620) (7,344) 58,148
Repurchase and retirement of
common stock (1,571,800) (16) (20,976) (20,992)
Issuance of common stock 10,000 - 257 257
Issuance of common stock through
exercise of warrants, net 177,709 2 835 837
Tax benefit of restricted stock
plan vesting 814 814
Other (3) 277 274
Comprehensive income:
Unrealized gain on marketable
securities $ 56
Net income 23,395
Total comprehensive income 23,451
--------------- -------- ------------- ------------- -------------- -------------- -----------
Balance, January 1, 1999 22,121,267 221 46,804 (343) 56 16,051 62,789
Repurchase and retirement of
common stock (411,725) (4) (4,287) (4,291)
Tax benefit of restricted stock
plan vesting 470 470
Other 234 234
Comprehensive income:
Unrealized loss on marketable
securities (96)
Net income 21,650
Total comprehensive income 21,554
--------------- -------- ------------- ------------- -------------- ------------- -----------
Balance, December 31, 1999 21,709,542 $ 217 $ 42,987 $ (109) $ (40) $ 37,701 $ 80,756
=============== ======== ============= ============= ============== ============= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
30
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1998 1999
-------------- ------------- -------------
(in $000's)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,783 $ 23,395 $ 21,650
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,542 5,930 7,684
Deferred taxes, net (5,222) 12,042 4,435
Amortization and write-off of debt issuance costs 957 - -
Provision for bad debts 820 720 306
Other 1,145 368 314
Changes in operating working capital:
Decrease(increase) in certificates of deposit -
restricted (8,406) 27 602
Increase in accounts receivable (1,678) (4,543) (3,300)
(Increase)decrease in other current assets 67 (4,819) (5,312)
(Decrease)increase in accounts payable and other
accrued liabilities (3,578) (1,020) 5,373
Increase (decrease) in accrued payroll and payroll
taxes 1,557 1,911 (3,174)
Increase(decrease) in accrued insurance premiums and
health reserves 6,263 2,797 (33)
Increase in customer deposits and prepayments 725 620 782
Increase in other long-term assets (89) (115) (3,446)
Decrease in other long-term liabilities (538) (19) (164)
-------------- ------------- -------------
Net cash provided by operating activities 27,348 37,294 25,717
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities classified as available for sale:
Purchases (19,701) (59,364) (71,691)
Sales - 19,992 5,995
Maturities - 27,140 62,703
Capital expenditures (7,100) (10,937) (10,911)
-------------- ------------- -------------
Net cash used in investing activities (26,801) (23,169) (13,904)
-------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common shares, net 61,038 1,094 -
Capital contributions, net of shareholder notes receivable and
issuance costs 370 - -
Repayment of Capital Leases (3,746) - -
Repayment of shareholders' notes receivable 877 134 7
Repurchase of common shareholders' interests (559) (20,992) (4,151)
Repurchase of shareholders' interests, including fixed return (19,788) - -
Repayments of long-term debt (17,700) - -
-------------- ------------- -------------
Net cash provided by (used in) financing activities 20,492 (19,764) (4,144)
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 21,039 (5,639) 7,669
Cash and cash equivalents - beginning of year 12 21,051 15,412
-------------- ------------- -------------
Cash and cash equivalents - end of year $ 21,051 $ 15,412 $ 23,081
============== ============= =============
Supplemental disclosure of cash flow information:
Income taxes paid $ - $ 3,787 $ 7,314
============== ============= =============
Interest paid $ 1,020 $ 77 $ 21
============== ============= =============
</TABLE>
See notes to consolidated financial statements.
F-6
31
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in $000's, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Staff Leasing Inc. and subsidiaries ("the
Company") is headquartered in Bradenton, Florida and operates as one business
segment which provides professional employer services to small to medium-sized
businesses primarily in the states of Florida, Texas, Georgia, Arizona,
Minnesota, North Carolina, Tennessee and Alabama. The Company, through its
subsidiaries, provides a broad range of services, including payroll
administration, risk management, benefits administration, unemployment services
and other human resources consulting services to their clients. The Company is
paid a service fee to cover the cost of certain employment related taxes,
workers' compensation insurance coverage and administration and field services,
plus a markup to cover overhead and to provide a profit.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Staff Leasing, Inc. and all of its
subsidiaries: Staff Acquisition, Inc.; Staff Insurance, Inc.; Staff Capital,
L.P.; and the operating limited partnerships ("OLPs") of Staff Capital, L.P.;
Staff Leasing, L.P.; Staff Leasing II, L.P.; Staff Leasing III, L.P.; Staff
Leasing IV, L.P.; Staff Leasing V, L.P.; Staff Leasing of Georgia, L.P.; Staff
Leasing of Georgia II, L.P.; Staff Leasing of Georgia III, L.P.; Staff Leasing
of Texas, L.P.; and Staff Leasing of Texas II, L.P. (collectively, the
"Company"). All intercompany balances and transactions have been eliminated. As
of December 31, 1998, Staff Capital, L.P. was dissolved, and its assets were
transferred to Staff Leasing, Inc. and its related entities.
BASIS OF PRESENTATION - Effective July 1, 1997, the Company completed a
reorganization (See Note 2) which was accounted for as a pooling of interests
among entities under common control. As a result, common stock, which replaced
previous preferred and common partnership interests, has been reflected in these
financial statements as being issued as of the earliest date presented. Before
the reorganization, the Company operated as Staff Capital, L.P.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company's most significant estimates relate to
the reserve for health benefit claims. Actual results could differ from those
estimates.
MARKETABLE SECURITIES - The Company accounts for marketable securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The Company
determines the appropriate classification of all marketable securities as
held-to-maturity, available-for-sale or trading at the time of purchase and
re-evaluates such classification as of each balance sheet date. At December 31,
1999, all of the company's investments in marketable securities are classified
as available-for-sale, and as a result, are reported at market value. Unrealized
gains and losses, net of tax, are reported as a separate component of
shareholders' equity and comprehensive income. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of discounts
from the date of purchase to maturity. Such amortization is included in interest
income as an addition to or deduction from the coupon interest earned on the
investments. The cost of investments sold is based on the average cost method,
and realized gains and losses are included in other income (expense).
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the lesser of the
remaining estimated useful lives of the related assets or lease terms, as
follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Automobiles................................................. 5
Computer hardware and software.............................. 3 to 7
Furniture and equipment..................................... 5 to 7
Leasehold improvements..................................... Life of lease
</TABLE>
GOODWILL - Goodwill is being amortized using the straight-line method over
a period of 20 years.
F-7
32
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
FAIR VALUE OF FINANCIAL INSTRUMENTS- The carrying values of cash and cash
equivalents, marketable securities, accounts receivable, and accounts payable
and other accrued liabilities approximate fair value.
VALUATION OF LONG-LIVED ASSETS - The Company periodically evaluates the
carrying value of long-lived assets, including goodwill and other intangible
assets, when events and circumstances warrant such a review. The carrying value
of a long-lived asset is considered impaired when indicators of impairment are
present and undiscounted cash flows estimated to be generated by the asset are
less than the asset's carrying amount. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
STATEMENT OF CASH FLOWS - The change in deferred taxes for 1997, 1998, and
1999 includes $3,208, $814, and $470, respectively, which relates to the vesting
of restricted stock. This amount was recorded to Additional Paid in Capital.
CASH EQUIVALENTS - Cash equivalents are defined as short-term investments
with original maturities of three months or less.
REVENUE RECOGNITION - Service revenues are recognized in the period in
which the worksite employee works. The accrual for payroll and payroll taxes
represents the portion of payroll paid subsequent to year end for which the
worksite employee worked prior to year end.
SALES AND MARKETING COMMISSIONS AND CLIENT REFERRAL FEES - Sales and
marketing commissions and client referral fees are expensed as incurred. Such
expenses are classified as salaries, wages and commissions in the consolidated
statement of operations.
WORKERS' COMPENSATION - Workers' compensation claims incurred by worksite
employees are fully insured through a guaranteed cost arrangement with Liberty
Mutual Insurance Company. This plan expired on December 31, 1999. New workers'
compensation contracts commenced January 1, 2000 with CNA and The Texas Fund.
The Texas Fund is a guaranteed cost plan based on a percentage of manual
premium. The CNA contract is an insured loss sensitive program that is based on
a percentage of manual premium. (See note 13)
HEALTH BENEFITS - Health benefit claims incurred by worksite employees
under the health benefit plans are expensed as incurred according to the terms
of each contract (See Note 9).
STOCK-BASED COMPENSATION - The Company has adopted only the pro forma
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
encourages, but does not require companies to record at fair value compensation
cost for stock-based employee compensation plans. The Company accounts for
equity-based compensation arrangements in accordance with the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Intrinsic value is the
amount by which the market price of the underlying stock exceeds the exercise
price of the stock option or award on the measurement date, generally the date
of grant.
INCOME TAXES - The Company records income tax expense using the asset and
liability method of accounting for deferred income taxes. Under such method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statements and the
income tax basis of the Company's assets and liabilities.
EARNINGS PER SHARE - The Company computes and discloses earnings per share
in accordance with the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128").
RECLASSIFICATIONS - Certain reclassifications of prior years amounts have
been made in order to conform with current year presentations.
F-8
33
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
COMPREHENSIVE INCOME - Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" was adopted by the Company in
the first quarter of 1998. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components. It requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement or financial statement
footnote. Comprehensive income is defined as "the change in equity of a business
during a period from transactions and other events and circumstances from
non-owner sources." The only source of other comprehensive income (loss) was an
unrealized gain of $56, net of tax effect of $33, at December 31, 1998, and an
unrealized loss of $40, net of tax effect of $24 at December 31, 1999, resulting
from change in market value of marketable securities, which is reflected in the
Consolidated Statements of Changes in Shareholders' Equity/(Deficit).
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. Such
standard requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure these instruments at fair value.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends upon the intended use of the derivative and resulting
designation if used as a hedge. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company has
not evaluated whether this standard will have a material effect on its financial
position or results of operations.
2. REORGANIZATION AND INITIAL PUBLIC OFFERING:
Effective July 1, 1997, a reorganization (the "Reorganization") was
consummated whereby the Company became the sole limited partner of Staff
Capital, L.P. Staff Acquisition, Inc. ("Staff Acquisition") is the sole general
partner of Staff Capital, L.P. and each of the OLPs.
Pursuant to the Reorganization, all of the holders of the common limited
partnership interests in Staff Capital, L.P. exchanged their partnership
interests for 17,122,205 shares of common stock in the Company. Certain of the
preferred limited partnership interests were exchanged for 2,074,267 shares of
common stock in the Company and warrants to purchase an aggregate of 1,352,253
shares of common stock in the Company with an exercise price of $7.24 per share.
In addition, Charles S. Craig, the Chairman and CEO of the Company and
owner of all the issued and outstanding capital stock of Staff Acquisition, the
general partner of Staff Capital, granted to the Company an option to exchange
the stock of Staff Acquisition for 417,900 shares of the Company's common stock.
The number of shares of common stock issuable to Mr. Craig in connection with
the exercise of such option was determined on the same basis used to determine
the number of shares of common stock issued in exchange for the partnership
interests of Staff Capital, L.P. On September 30, 1997, the Company exercised
this option.
The Reorganization was accounted for as a combination among entities under
common control and accordingly, for financial statement presentation purposes,
the Reorganization was treated as a pooling of interests of the Company and
Staff Capital, L.P. as of and for the periods presented.
In conjunction with the Reorganization, on July 1, 1997, the Company
completed an initial public offering (the "IPO") of 3,500,000 shares of its
common stock. The Company subsequently issued an additional 444,978 shares
resulting from the exercise of certain overallotment provisions for a total
issuance of 3,944,978 shares. In conjunction with this offering, 655,022 shares
were sold on behalf of certain selling shareholders, for an aggregate offering
price of $11 million. The IPO expenses incurred by the Company totaled
approximately $6.0 million, including $4.7 million of underwriting discounts and
commissions, and approximately $1.3 million of other expenses.
Net proceeds raised from the IPO, including over allotment, amounted to
approximately $61,038. The net proceeds from the IPO were used to redeem
preferred partnership interests of $16,294, including accrued fixed return of
$2,552, and to repay outstanding long-term debt of $15,200. The remainder has
been allocated for general corporate purposes. Reorganization related expenses
as of July 1, 1997, included: (i) the write-off of $714 in unamortized deferred
financing costs associated with the repayment of the Company's long-term debt;
(ii) the write-off of $163 in unamortized organization costs associated with the
reorganization of the structure of the limited partnerships; and (iii) $962 of
accelerated accretion associated with the early redemption of the preferred
partnership interests.
F-9
34
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
3. CERTIFICATES OF DEPOSIT - RESTRICTED:
As of December 31, 1999, the Company had certificates of deposit, with
original maturities of less than one year, that serve as collateral for certain
standby letters of credit issued in connection with the Company's health benefit
plans. Due to the short maturity of these instruments, the carrying amount
approximates fair value. These interest-bearing certificates of deposit have
been classified as restricted in the accompanying consolidated balance sheets.
The interest earned on these certificates is recognized as interest income on
the Company's consolidated statement of operations.
4. MARKETABLE SECURITIES:
As of December 31, 1999, the Company had marketable securities with
contractual maturities of less than one year from the date of purchase. All of
the Company's investments in marketable securities are classified as
available-for-sale and are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
As of December 31, 1998: Cost Gains Losses Fair Value
(in 000's) (in 000's) (in 000's) (in 000's)
------- ----- ------ -------
<S> <C> <C> <C> <C>
Obligations of U.S. Government
Agencies $31,933 $ 92 $ (3) $32,022
------- ----- ------ -------
As of December 31, 1999:
- -------------------------------------
Obligations of U.S. Government
Agencies $28,478 $ 4 $ (68) $ 28,414
Certificate of Deposits 5,000 - - 5,000
Other 1,500 - - 1,500
------- ----- ------ -------
$34,978 $ 4 $ (68) $34,914
======= ===== ====== =======
</TABLE>
The unrealized gains and losses shown for 1999, net of tax effect of $24,
are reflected as comprehensive income in the Consolidated Statements of Changes
in Shareholders' Equity. For the years ended December 31, 1998 and 1999, gross
realized gains on sales of available-for-sale securities were $8 and $0,
respectively. For the years ended December 31, 1998 and 1999, gross realized
losses on sales of available-for-sale securities were $4 and $5, respectively.
At December 31, 1998 and 1999, the Company's marketable securities
included unamortized premiums of $101 and $4, respectively. At December 31, 1998
and 1999, the Company's marketable securities included unamortized discounts of
$81 and $60, respectively. During the year ended December 31, 1998, premium
amortization of $210 and discount accretion of $718 were included in interest
income. During the year ended December 31, 1999, premium amortization of $24 and
discount accretion of $566 were included in interest income.
5. ACCOUNTS RECEIVABLE
At December 31, 1998 and 1999, accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Billed to clients ...................................... $ 15,391 $ 11,391
Unbilled revenues ...................................... 24,048 30,980
-------- --------
39,439 42,371
Less: Allowance for doubtful accounts.................. (802) (740)
-------- --------
$38,637 $41,631
======== ========
</TABLE>
F-10
35
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
6. PROPERTY AND EQUIPMENT
At December 31, 1998 and 1999, property and equipment consisted of the
following:
<TABLE> 1998 1999
------- -------
<S> <C> <C>
Leasehold improvements...................................... $ 1,484 $ 1,832
Furniture and fixtures...................................... 2,508 2,944
Vehicles.................................................... 103 103
Equipment................................................... 1,799 2,803
Computer hardware and software.............................. 29,490 38,066
------- -------
Total property and equipment................................ 35,384 45,748
Less accumulated depreciation............................... (10,313) (16,915)
------- -------
$25,071 $28,833
======= =======
</TABLE>
For the years ended December 31, 1997, 1998, and 1999 depreciation expense
was $3,505, $5,125, and $6,946 respectively.
7. OTHER ASSETS AND AMORTIZATION
Included in other current assets as of December 31, 1998 and 1999 were
prepaid income taxes of $1,903 and $881, and prepaid workers compensation
insurance of $0 and $6,504, respectively. Also included in other current assets
were prepaid expenses, short-term deposits and other miscellaneous receivables.
For the years ended December 31, 1997, 1998 and 1999, total amortization
expense, including annual amortization of goodwill of $733 per year, was $1,038,
$805, and $738, respectively.
8. LONG-TERM DEBT
On July 26, 1999, the Company entered into a $10,000 credit agreement
with NationsBank, NA. No amounts have been borrowed under this facility since
its inception.
As of December 31, 1999, the Company had $7,777 in standby collateralized
letters of credit issued in conjunction with the Company's health benefit plans.
These letters of credit were unused as of December 31, 1999.
9. HEALTH BENEFITS
The Company currently provides health benefits to those worksite employees
electing coverage. For health benefit plans in Florida, the Company's ultimate
liability for its health benefit claims is capped at a factor based on premiums
as set forth in the Company's minimum premium agreement with its health
insurance carriers. The stop loss coverage per covered employee under the
Florida plan was capped at 115% of projected claims for the 1997, 1998, and 1999
plan years. For health benefit plans in Arizona, Colorado, Georgia, Minnesota,
North Carolina, Tennessee and Texas, the Company's health benefit liabilities
are equal to its premiums paid. Worksite employees who elect coverage are fully
insured subject to the terms of coverage under the health benefit plans.
In 1997 and 1998, the health benefit plan subsidy was $2,500 per year and
in 1999 it was $1,642. Favorable experience on the maturation or run-out of
health claims enabled the Company to reduce its reserve for health benefit
claims by $3,500 for 1996, $1,400 for 1997, and $2,192 for 1998 which were
recognized in 1997, 1998 and 1999, respectively.
Year-end liabilities for health benefit loss reserves were based upon
actuarial estimates of claims incurred but not reported under the health plans
at December 31, 1998 and 1999. The actual ultimate liability may differ from
these actuarial estimates. The accrual for these reserves at December 31, 1998
and 1999 totaled $8,413 and $8,275, respectively, of which $1,000 was classified
as long-term for both years.
F-11
36
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data
10. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company occupies office facilities and lease
office equipment under operating leases which expire in various years through
2005. Lease expense was $3,352, $3,729 and $4,309 for the years ended December
31, 1997, 1998, and 1999, respectively. Future minimum payments under
noncancelable operating leases as of December 31, 1999 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ -------
2000.................................................... $ 3,794
2001................................................... 3,040
2002................................................... 2,387
2003................................................... 2,185
2004................................................... 1,943
Thereafter ............................................ 1,620
-------
$14,969
=======
On April 30, 1999, a shareholder of the Company brought a class action in
the Twelfth Judicial Division, Manatee County, Florida against the Company and
certain of its directors alleging that the directors and senior officers of the
Company breached their fiduciary duty to shareholders by failing to pursue a
proposal from Paribae Principal Partners to acquire the Company in order to
entrench themselves in the management of the Company. Plaintiff seeks injunctive
relief and unspecified damages including attorneys' and experts' fees. The
Company has moved to dismiss the action. To date, the parties have engaged in
limited discovery, and expect to continue discovery over the next several
months. The Company believes the lawsuit is without merit.
The Company is a party to certain pending claims which have arisen in the
normal course of business, none of which, in the opinion of management, is
expected to have a material adverse effect on the consolidated financial
position or results of operations if adversely resolved.
The Company's employer and health care operations are subject to numerous
Federal, state and local laws related to employment, taxes and benefit plan
matters. Generally, these regulations affect all companies in the U.S. However,
the regulatory environment for professional employer organizations ("PEOs") is
an evolving area due to uncertainties resulting from the non-traditional
employment relationships. Many Federal and state laws relating to tax and
employment matters were enacted before the development of PEOs and do not
specifically address the obligations and responsibilities of these PEO
relationships. If the IRS concludes that PEOs are not "employers" of certain
worksite employees for purposes of the Internal Revenue Code of 1986, as amended
(the "Code"), the tax qualified status of the Company's 401(k) retirement plan
as in effect before April 1, 1997 could be revoked, its cafeteria plan may lose
its favorable tax status and the Company may no longer be able to assume the
client's Federal employment tax withholding obligations. Any adverse
developments in the above noted areas could have a material effect on the
Company's financial condition and future results of operations.
11. RELATED PARTIES
During 1997 and 1998, approximately $270 and $21, respectively, of lease
expense related to certain automobile leases was paid to an entity owned by a
shareholder. This arrangement terminated in 1998. The Company had also entered
into a five-year employment contract with a shareholder, which required annual
payments of $362. This agreement expired in November 1998. See "Shareholder
Notes Receivable" in Note 15.
F-12
37
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
12. RETIREMENT PLAN
The Company currently offers a defined contribution 401(k) retirement plan
to its internal employees as well as its external worksite employees. The
Company does not match any portion of such employees' elective contributions.
Effective April 1, 1997, the Company offered a new 401(k) plan to its employees
which is designed to be a "multiple employer" plan under the Internal Revenue
Code Section 413(c). This new plan enables employee-owners, as well as highly
compensated internal and external employees of the Company to participate. Such
persons were excluded from the former 401(k) plan to avoid issues of
discrimination in favor of highly compensated employees. Effective January 1,
1999, the Company expanded and enhanced its retirement plan offerings to include
payroll deducted traditional and Roth IRAs.
13. GEOGRAPHIC MARKET CONCENTRATION AND DEPENDENCE ON KEY VENDORS
Geographic Market Concentration - As of December 31, 1999, the Company had
offices in seven states and worksite employees in 46 states. The Company's
Florida client revenues accounted for 79%, 75% and 75% of the Company's total
revenues in 1997, 1998 and 1999, respectively. As a result of the size of the
Company's base of worksite employees in Florida and continued growth from its
Florida operations, the Company's profitability over the next several years is
expected to be largely dependent on economic and regulatory conditions in
Florida. Any adverse change in either of these conditions could have a material
adverse effect on the Company's profitability and growth prospects.
Dependence on Key Vendors - The maintenance of health insurance plans that
cover worksite employees is a significant part of the Company's business. The
current health contracts are provided by vendors, with some of which the Company
has recently established relationships, on terms that the Company believes to be
favorable. While the Company believes that replacement contracts could be
obtained on competitive terms with other carriers, such replacement could cause
a significant disruption to the Company's business resulting in a decrease in
client retention and general dissatisfaction with the Company's service
offering. This, in turn, could have a material adverse effect on the Company's
future results of operations or financial condition.
In 1999, the Company's workers' compensation coverage was provided by
Liberty Mutual. This program was initiated in March 1994, and renegotiated
effective January 1, 1997, to, among other things, reduce rates charged to the
Company. This contract, which expired on December 31, 1999, provided coverage on
a guaranteed cost basis. Amounts due under this arrangement are a fixed
percentage of the Company's workers' compensation payroll and were paid on a
monthly basis. The Company had no liability in excess of such amounts paid.
The Company has a new workers' compensation program with CNA and the Texas
Fund which commenced on January 1, 2000. The Texas Fund will be the provider of
workers' compensation insurance for clients based in Texas. The Texas Fund
program is a guaranteed cost insurance arrangement with a term of one year. The
cost of the premium will be determined based on the industries serviced by the
Company in Texas. For the remainder of the country, the Company's workers'
compensation carrier will be CNA. This program is an insured loss sensitive
program for a term of one year. The Company anticipates that its workers'
compensation costs will increase beginning in 2000 as a result of these workers'
compensation arrangements. An accrual for the workers' compensation costs for
the first quarter of 2000 will be made based on prior loss experience, the
Company's business mix, including the percentage of business in Texas, and
actual claims for the first quarter. Accruals for subsequent periods will be
affected by further changes in the Company's business mix and actual claims
experience. The final costs of coverage will be determined by the actual claims
experience over time as claims close and by the administrative costs of the
program. The increased accruals for the cost of coverage in 2000 and future
years will have no impact on 1999 and prior year earnings.
F-13
38
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
14. EQUITY
STOCK REPURCHASE PROGRAM
In August 1998, the Company's Board of Directors approved a program to
repurchase up to two million shares of the Company's common stock. In January
1999, the Company's Board of Directors increased this share repurchase plan to
three million shares. Purchases may be made from time to time depending upon the
Company's stock price, and will be made primarily in the open market, but may
also be made through privately negotiated transactions. In 1999, the Company
repurchased, for retirement, 412,000 shares of its common stock for a total cost
of approximately $4 million.
RESTRICTED STOCK PLAN
Certain members of the Company's management have purchased common shares
at prices based upon a formula derived from the original acquisition price of
the entities acquired by Staff Capital, L.P. in November, 1993. Before July
1995, such common shares could be sold only to the Company and were not freely
transferable. The sales price that the Company would pay was based upon the same
formula used to derive the original purchase price. In July 1995 the Company
enacted a vesting schedule whereby the above-noted restrictions generally would
lapse over a four-year vesting period commencing with the first anniversary
subsequent to the date of purchase. Accordingly, the Company obtained appraisals
in order to derive estimated fair values of the purchased common shares then
owned as of July 1995 and subsequently purchased and recorded deferred
compensation expense to the extent that the estimated fair values exceeded the
purchase prices. Deferred compensation is being amortized on a straight-line
basis over the vesting period. Compensation expense recorded for the years
ending December 31, 1997, 1998, and 1999 was $138, $145 and $90, respectively.
Deferred compensation was $282 at December 31, 1998 and $53 at December 31,
1999. Following the Reorganization, the Company ceased further grants under this
plan.
WARRANTS
Pursuant to the Reorganization (See Note 2), warrants to purchase
1,352,253 shares of common stock at the exercise price of $7.24 per share were
issued to redeem certain preferred limited partnership interests in July 1997.
These warrants were exercisable beginning June 25, 1997. In April 1998, 177,709
of these warrants were exercised as part of the Company's secondary offering.
Proceeds from this exercise, net of expenses of $450, totaled $837. As of
December 31, 1998, and 1999, 1,174,544 of these warrants remain outstanding. An
equivalent number of shares of stock are being held in reserve as of December
31, 1999 to meet this contractual commitment. The warrants expire on March 31,
2001.
EMPLOYEE STOCK OPTION PLAN
In 1997, the Company adopted the 1997 Stock Incentive Plan (the "Plan").
The Plan provides for options to be granted to key employees, officers, and
directors of Staff Leasing, for the purchase of up to 2,500,000 shares of common
stock. Options granted under the Plan generally have a vesting period of 4 or 5
years, and may not be exercised more than 10 years from the date of the grant,
except as noted below.
Due to the decline in the market price of the Company's common stock in
the third and fourth quarters of 1998, the Company took steps to ensure that the
options previously granted under the Plan would continue to provide a meaningful
incentive to its grantees. On August 19, 1998, the Company cancelled 59,000
options which had been granted to certain employees during the previous twelve
months, and reissued them at an exercise price equal to $18.0625, with all other
option terms and conditions remaining the same as those originally granted.
On December 14, 1998, the Company approved an option reissuance grant for
all non-executive employees currently participating in the Plan. The Company's
Directors and senior management, holding 158,500 options, were excluded from
this reissuance grant. Under the terms of the reissuance grant, employees were
offered the right to receive, in exchange for the surrender of their existing
options, nonqualified stock options with an exercise price equal to that day's
closing market price per common share of $11.625. The ratio for the exchange of
options was 110 new shares for each 100 existing shares surrendered. This ratio
was determined using the Black-Scholes option pricing model. The expiration date
for all new options issued under this reissuance grant is December 14, 2003. In
addition, previous vesting restrictions based on stock price performance were
removed. A total of 430,946 options were subject to this reissuance grant.
F-14
39
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
The following table summarizes the activity in the Plan for the years
ended December 31, 1998 and 1999:
Number of Weighted-Average
1998: Shares Price
------------------------------------------------------------------------
Granted 955,238 $12.56
Exercised 0 $ 0
Cancelled 604,026 $18.33
Options outstanding at end of year 1,002,438 $12.55
Options exercisable at end of year 35,956 $14.87
1999:
------------------------------------------------------------------------
Granted 494,856 $ 9.18
Exercised 0 $ 0
Cancelled 179,207 $12.27
Options outstanding at end of year 1,318,087 $11.33
Options exercisable at end of year 253,766 $13.00
Components of stock options under this Plan as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------- -------------------------------------
Weighted-Average
Number of Remaining Weighted-Average Number of Weighted-Average
Shares Contractual Life Exercise Price Shares Exercise Price
----------------- ----------------------- --------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
388,276 9.2 Years $ 8.44 0 $ 0
722,111 5.7 Years $ 11.57 195,695 $ 11.63
67,000 9.1 Years $ 12.59 0 $ 0
75,700 6.1 Years $ 16.95 24,321 $ 17.00
65,000 6.8 Years $ 18.06 33,750 $ 18.06
----------------- ----------------------- --------------------- ---------------- --------------------
1,318,087 7.0 Years $ 11.33 253,766 $ 13.00
================= ======================= ===================== =====================================
</TABLE>
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," the fair value of option
grants is estimated on the date of grant using the Black-Scholes option-pricing
model for proforma footnote purposes with the following weighted-average
assumptions:
Year Ended December 31,
1998 1999
--------------- ----------------
Risk-free interest rate 5.30% 6.65%
Expected dividend yield 0.00% 0.00%
Expected volatility 81.3% 73.4%
Expected option life (in years) 4.5 5.3
Using the Black-Scholes option-pricing model, the weighted-average fair
value was calculated to be $8.47 as of December 31, 1998 and $7.54 as of
December 31, 1999 for all options granted during each year.
F-15
40
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
As permitted by SFAS No. 123, the Company has elected to continue to
account for its Plan in accordance with the intrinsic value method prescribed by
APB Opinion 25 and related Interpretations in accounting. Accordingly, no
compensation cost has been recognized for the Plan. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant date consistent with the method prescribed by SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1998 1999
-------- --------
Net income attributable to
common shareholders As reported $ 23,395 $21,650
Pro forma $ 22,570 $20,087
Basic earnings per share As reported $1.01 $ .99
Pro forma $ .97 $ .92
Diluted earnings per share As reported $ .97 $ .97
Pro forma $ .94 $ .90
EMPLOYEE STOCK PURCHASE PLAN
Effective January 1, 1998, the Company adopted an employee stock purchase
plan. All full-time employees are eligible to participate after 90 days of
employment. Under the terms of this plan, employees can choose each year to have
up to 100% of their annual base earnings withheld to purchase the Company's
common stock on the open market. The Company absorbs all transaction costs and
administrative fees associated with stock purchases through this plan.
SHAREHOLDER NOTES RECEIVABLE
Shareholder notes receivable consisted of six notes in an aggregate amount
of $61 at December 31, 1998 and five notes in an aggregate amount of $57 at
December 31, 1999 from common shareholders. Principal under these notes is due
on March 31, 2001. Interest is payable at rates currently ranging from 6.36% to
7.50% per annum.
F-16
41
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
16. EARNINGS PER SHARE
The number of common stock equivalents included in weighted average shares
outstanding, for the twelve months ended December 31, 1997, 1998 and 1999,
related to the warrants issued in connection with the Reorganization was
842,804, 774,961 and 415,672, respectively, for the diluted earnings per share
calculation. The number of common stock equivalents included in weighted average
shares outstanding, for the twelve months ended December 31, 1997, 1998 and
1999, related to the options granted in connection with the Company's stock
option plan, was 28,264, 110,280 and 14,948, respectively, for diluted earnings
per share.
The reconciliation of net income attributable to common stock and shares
outstanding for the purposes of calculating basic and diluted earnings per share
for the three years ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- -------------
(in $000's) (in 000's)
<S> <C> <C> <C>
For the Year Ended 1997:
- ------------------------
Net income $ 30,783
Less: Return on preferred interests (2,391)
-----------------
BASIC EPS
Net income attributable to
Common shareholders $ 28,392 21,588 $ 1.32
=============
Effect of dilutive securities:
Warrants 843
Options 28
----------------- -----------------
DILUTED EPS
Net income attributable to common
shareholders and assumed conversions $ 28,392 22,459 $ 1.26
================= ================= =============
For the Year Ended 1998:
- ------------------------
Basic EPS
Net income $ 23,395 23,207 $ 1.01
=============
Effect of dilutive securities:
Warrants 775
Options 110
----------------- -----------------
DILUTED EPS
Net income attributable to common
shareholders and assumed conversions $ 23,395 24,092 $ .97
================= ================= =============
For the Year Ended 1999:
- ------------------------
Basic EPS
Net income $ 21,650 21,779 $ .99
=============
Effect of dilutive securities:
Warrants 416
Options 15
----------------- -----------------
DILUTED EPS
Net income attributable to common
shareholders $ 21,650 22,210 $ .97
================= ================= =============
</TABLE>
F-17
42
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
Options to purchase 37,500 shares of common stock at prices ranging from
$19.75 to $24.75 per share were outstanding during a portion of 1997, but were
not included in the computation of diluted EPS because the options' exercise
price was greater than the average market price for 1997 of $19.21 per common
share. These options were outstanding at the end of 1997.
As discussed in Note 15, all but 158,500 options outstanding in 1998 were
subject to re-pricing and as such, the antidilutive impact of various option
grants changed during the year. The following table represents the number and
exercise prices of the options which were not included in the computation of
diluted EPS by quarter for 1998 because the options' exercise price was greater
than the average market price:
<TABLE>
<CAPTION>
Antidilutive Options
Outstanding at End Range of Weighted-Average
of Period Shown Exercise Prices Stock Price
-------------------- -------------------- -------------------
<S> <C> <C> <C>
1st Quarter, 1998 -0- -0- $ 24.89
2nd Quarter, 1998 11,000 $28.88 - $29.50 28.57
3rd Quarter, 1998 59,500 $28.94 - $28.94 19.65
4th Quarter, 1998 158,500 $17.00 - $18.06 12.41
-------------------
$ 22.38
===================
</TABLE>
The following table represents the weighted average number and exercise
prices of the options which were not included in the computation of diluted EPS
by quarter for 1999 because the options' exercise price was greater than the
average market price:
<TABLE>
<CAPTION>
Antidilutive Options
Outstanding at End Range of Weighted-Average
of Period Shown Exercise Prices Stock Price
-------------------- ------------------ ----------------
<S> <C> <C> <C>
1st Quarter, 1999 213,200 $12.38 - $18.06 $ 12.11
2nd Quarter, 1999 152,700 $13.13 - $18.06 12.49
3rd Quarter, 1999 913,877 $11.31 - $18.06 11.29
4th Quarter, 1999 922,811 $10.19 - $18.06 9.00
----------------
$ 11.21
================
</TABLE>
17. INCOME TAXES:
The Company records income tax expense using the asset and liability
method of accounting for deferred income taxes. Under such method, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial statement and the income tax
bases of the Company's assets and liabilities. An allowance is recorded when it
is more likely than not that any or all of a deferred tax asset will not be
realized. The provision for income taxes includes taxes currently payable plus
the net change during the year in deferred tax assets and liabilities recorded
by the Company.
For the six months ended June 30, 1997, the Company operated through
limited partnerships. Accordingly, all earnings or losses were passed directly
to the partners and no provision for income taxes was required.
Before December 31, 1997, a valuation allowance had been recorded with
respect to the Company's deferred tax assets. As of December 31, 1997, such
valuation allowance was adjusted and the benefit of the deferred tax assets was
recognized in the income statement.
F -18
43
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
The provision (benefit) for income taxes for the year ended
December 31, 1997 is as follows:
Current Deferred Total
U.S. Federal tax $ 1,528 $(6,402) $(4,874)
State and local tax 109 (457) (348)
------- --------- --------
Total provision (benefit) $ 1,637 $(6,859) $(5,222)
======= ======== =======
The provision for income taxes for the year ended December 31, 1998 is as
follows:
Current Deferred Total
U.S. Federal tax $ 2,364 $ 9,660 $ 12,024
State and local tax 445 1,568 2,013
------- -------- -------
Total provision $ 2,809 $ 11,228 $ 14,037
======= ======== ======
The provision for income taxes for the year ended December 31, 1999 is as
follows:
Current Deferred Total
U.S. Federal tax $ 7,570 $ 3,440 $11,010
State and local tax 1,279 550 1,829
------ ------- ------
Total provision $ 8,849 $ 3,990 $12,839
======= ======== ======
The reconciliation of the statutory U.S. Federal rate to the effective tax
rate for the years ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal tax at 35% $ 8,946 $ 13,101 $ 12,071
Increase (reduction) from:
State income taxes, less Federal benefit 928 1,309 1,188
Recognition of deferred tax benefit (10,172) - -
Tax Benefit of income allocated
to Staff Acquisition, Inc. (4,551) - -
Tax credits (502) (504) (487)
Other, net 129 131 67
-------- --------- ---------
Income tax provision (benefit) $ (5,222) $ 14,037 $ 12,839
======== ========= ========
Effective tax rate (20.4%) 37.5% 37.2%
======== ========= ========
</TABLE>
The components of deferred tax assets and liabilities included on the
balance sheet at December 31, 1998 and 1999 are as follows:
1998 1999
---- ----
Deferred Tax Assets:
- -------------------
Tax basis in excess of book basis
of intangible assets $ 6,189 $ 5,452
Reserves not currently deductible 2,943 2,498
------ ------
Total deferred tax assets 9,132 7,950
------ ------
Deferred Tax Liabilities:
- ------------------------
Unearned revenue 9,292 11,927
Depreciation 2,671 2,843
------ ------
Total deferred tax liabilities 11,963 14,770
------ ------
Net deferred tax liability ($2,831) ($6,820)
======= =======
F-19
44
<PAGE>
STAFF LEASING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(in $000's, except per share data)
Balance Sheet Classification:
- ----------------------------
Current assets:
Deferred taxes $ - $ -
Current liabilities:
Deferred taxes (5,729) ( 8,770)
------- -------
Net current deferred tax liability (5,729) ( 8,770)
------- -------
Non-current assets:
Deferred taxes 2,898 1,950
Non-current liabilities:
Deferred taxes - -
------- -------
Net non-current deferred tax asset 2,898 1,950
------- -------
Net deferred tax liability ($2,831) ($6,820)
======= =======
The Company paid $7,314 of income taxes in 1999, and $3,787 of income
taxes in 1998. During 1998, the Company used $2,996 of net operating loss
carryforwards and $357 of tax credit carryforwards.
18. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table presents certain unaudited results of operations data
for the interim quarterly periods during the years ended December 31, 1998 and
1999. The Company believes that all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the results of operations in
accordance with generally accepted accounting principles, have been made. The
results of operations for any interim period are not necessarily indicative of
the operating results for a full year or any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
1998 1999
-------------------------------------------- ----------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
--------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $ 539,616 $ 582,211 $ 607,342 $ 646,353 $ 647,341 $ 664,264 $ 680,502 $ 709,778
Gross profit....... $ 26,233 $ 28,196 $ 28,776 $ 29,710 $ 30,633 $ 30,700 $ 33,433 $ 32,857
Gross profit
margin........... 4.9% 4.8% 4.7% 4.6% 4.7% 4.6% 4.9% 4.6%
Operating income....$ 7,887 $ 9,037 $ 8,986 $ 8,432 $ 8,492 $ 8,055 $ 9,349 $ 7,079
Net income .. $ 5,351 $ 6,154 $ 6,174 $ 5,716 $ 5,614 $ 4,989 $ 6,410 $ 4,638
Earnings per share
- Basic $ .23 $ .26 $ .26 $ .26 $ .26 $ .23 $ .30 $ .20
- Diluted $ .22 $ .25 $ .26 $ .25 $ .25 $ .22 $ .29 $ .21
</TABLE>
F-20
45
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- ------------------------------------------------------------------------------------
(IN THOUSANDS)
BALANCE PROVISION DETERMINED ACCOUNT BALANCE
JANUARY 1, 1999 FOR BAD DEBTS UNCOLLECTIBLE RECOVERIES DECEMBER 31, 1999
- --------------- ------------- ------------- ---------- -----------------
<S> <C> <C> <C> <C>
$ 802 $ 306 $ 737 $ 369 $ 740
=============== ============= ============= ========== =================
BALANCE PROVISION DETERMINED ACCOUNT BALANCE
JANUARY 1, 1998 FOR BAD DEBTS UNCOLLECTIBLE RECOVERIES DECEMBER 31, 1998
- --------------- ------------- ------------- ---------- -----------------
$ 835 $ 720 $ 931 $ 178 $ 802
=============== ============= ============= ========== =================
BALANCE PROVISION DETERMINED ACCOUNT BALANCE
JANUARY 1, 1997 FOR BAD DEBTS UNCOLLECTIBLE RECOVERIES DECEMBER 31, 1997
- --------------- ------------- ------------- ---------- -----------------
$ 440 $ 820 $ 604 $ 179 $ 835
=============== ============= ============= ========== =================
</TABLE>
S-1
46
CREDIT AGREEMENT
Dated as of July 26, 1999
among
STAFF LEASING, INC.
as Borrower,
THE SUBSIDIARIES OF THE BORROWER,
as Guarantors,
THE LENDERS
AND
NATIONSBANK, N.A.,
as Agent
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS..........................................................1
1.1 Definitions.......................................................1
1.2 Computation of Time Periods......................................21
1.3 Accounting Terms.................................................21
SECTION 2 CREDIT FACILITIES...................................................21
2.1 Revolving Loans..................................................21
2.2 Letter of Credit Subfacility.....................................23
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES......................28
3.1 Default Rate.....................................................28
3.2 Extension and Conversion.........................................28
3.3 Prepayments......................................................29
3.4 Fees.............................................................29
3.5 Capital Adequacy.................................................30
3.6 Inability To Determine Interest Rate.............................30
3.7 Illegality.......................................................31
3.8 Requirements of Law..............................................31
3.9 Taxes............................................................32
3.10 Indemnity.......................................................34
3.11 Pro Rata Treatment..............................................35
3.12 Sharing of Payments.............................................35
3.13 Payments, Computations, Etc.....................................36
3.14 Evidence of Debt................................................38
3.15 Replacement Lenders.............................................38
SECTION 4 GUARANTY............................................................39
4.1 The Guarantee....................................................39
4.2 Loans Unconditional..............................................40
4.3 Reinstatement....................................................41
4.4 Remedies.........................................................41
4.5 Rights of Contribution...........................................41
4.6 Continuing Guarantee.............................................42
SECTION 5 CONDITIONS..........................................................42
5.1 Conditions to Closing............................................42
5.2 Conditions to All Extensions of Credit...........................45
SECTION 6 REPRESENTATIONS AND WARRANTIES......................................46
6.1 Financial Condition..............................................46
6.2 No Changes or Restricted Payments................................46
6.3 Organization; Existence; Compliance with Law.....................46
6.4 Power; Authorization; Enforceable Loans..........................47
6.5 No Legal Bar.....................................................47
6.6 No Material Litigation...........................................47
6.7 No Default.......................................................48
i
<PAGE>
6.8 Ownership of Property; Liens.....................................48
6.9 Intellectual Property............................................48
6.10 No Burdensome Restrictions......................................48
6.11 Taxes...........................................................48
6.12 ERISA...........................................................49
6.13 Governmental Regulations, Etc...................................50
6.14 Purpose of Extensions of Credit.................................51
6.15 Environmental Matters...........................................51
6.16 Subsidiaries....................................................52
6.17 Year 2000 Compliance............................................52
SECTION 7 AFFIRMATIVE COVENANTS...............................................52
7.1 Financial Statements.............................................53
7.2 Certificates; Other Information..................................53
7.3 Notices..........................................................54
7.4 Payment of Loans.................................................56
7.5 Conduct of Business and Maintenance of Existence.................56
7.6 Maintenance of Property; Insurance...............................56
7.7 Inspection of Property; Books and Records; Discussions...........56
7.8 Environmental Laws...............................................57
7.9 Financial Covenants..............................................58
7.10 Use of Proceeds.................................................58
7.11 Additional Guaranties...........................................58
7.12 Subsidiaries....................................................58
7.13 Year 2000 Compliance............................................58
SECTION 8 NEGATIVE COVENANTS..................................................59
8.1 Indebtedness.....................................................59
8.2 Liens............................................................60
8.3 Nature of Business...............................................60
8.4 Consolidation, Merger, Sale or Purchase of Assets................60
8.5 Advances, Investments and Loans..................................61
8.6 Restricted Payments..............................................61
8.7 Transactions with Affiliates.....................................61
8.8 Fiscal Year......................................................61
8.9 Limitation on Restrictions.......................................62
8.10 Sale Leasebacks.................................................62
8.11 No Further Negative Pledges.....................................62
8.12 Capital Expenditures............................................62
8.13 Management......................................................62
8.14 Subordinated Debt...............................................63
SECTION 9 EVENTS OF DEFAULT...................................................63
9.1 Events of Default................................................63
9.2 Acceleration; Remedies...........................................66
SECTION 10 AGENCY PROVISIONS..................................................67
10.1 Appointment.....................................................67
10.2 Delegation of Duties............................................67
ii
<PAGE>
10.3 Exculpatory Provisions..........................................67
10.4 Reliance on Communications......................................68
10.5 Notice of Default...............................................68
10.6 Non-Reliance on Agent and Other Lenders.........................68
10.7 Indemnification.................................................69
10.8 Agent in its Individual Capacity................................70
10.9 Successor Agent.................................................70
SECTION 11 MISCELLANEOUS......................................................70
11.1 Notices.........................................................70
11.2 Right of Set-Off................................................70
11.3 Benefit of Agreement............................................71
11.4 No Waiver; Remedies Cumulative..................................73
11.5 Payment of Expenses, etc........................................73
11.6 Amendments, Waivers and Consents................................74
11.7 Counterparts....................................................75
11.8 Headings........................................................75
11.9 Survival........................................................75
11.10 Governing Law; Submission to Jurisdiction; Venue...............75
11.11 Severability...................................................76
11.12 Entirety.......................................................76
11.13 Binding Effect; Termination....................................76
11.14 Confidentiality................................................77
11.15 Time...........................................................77
11.16 Conflict.......................................................77
iii
<PAGE>
SCHEDULES
Schedule 1.1(a) Existing Material Shareholders Schedule 1.1(b) Investments
Schedule 1.1(c) Liens Schedule 1.1(d) Schedule of Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing Schedule 2.1(e) Form of
Revolving Note
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 6.2 Restricted Payments
Schedule 6.16 Subsidiaries
Schedule 7.2(b) Form of Officer's Compliance Certificate
Schedule 7.11 Form of Joinder Agreement
Schedule 8.1 Indebtedness
Schedule 8.7 Transactions with Affiliates
Schedule 11.1 Notices
Schedule 11.3(b) Form of Assignment and Acceptance
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of July 26, 1999 (the "Credit
Agreement"), is by and among STAFF LEASING, INC., a Florida corporation (the
"Borrower"), each of the Borrower's Subsidiaries (individually a "Guarantor" and
collectively the "Guarantors"), the lenders named herein and such other lenders
as may become a party hereto (the "Lenders"), and NATIONSBANK, N.A., as Agent
for the Lenders (in such capacity, the "Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a
$10,000,000 credit facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Credit Agreement, the following terms shall
have the meanings specified below unless the context otherwise requires:
"Affiliate" means, with respect to any Person, any other
Person (i) directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person or (ii) directly or
indirectly owning or holding five percent (5%) or more of the equity
interest in such Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative
to the foregoing.
"Agent" shall have the meaning assigned to such term in the
heading hereof, together with any successors or assigns.
"Applicable Percentage" means, for the Loans, the Unused Fee
and the Letter of Credit Fee, the appropriate applicable percentages
corresponding to the Leverage Ratio in effect as of the most recent
determination date as shown in the table below:
<PAGE>
<TABLE>
<CAPTION>
=============== ===================== ===================== ===================== ===================
PricingLevel LeverageRatio ApplicablePercentage ApplicablePercentage
ForEurodollarLoans ForBase RateLoans ApplicablePercentage
and Letter of ForUnused Fees
Credit Fee
- --------------- --------------------- --------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
I </= 1.0 to 1.0 1.00% 0% 0.175%
- --------------- --------------------- --------------------- --------------------- -------------------
II > 1.0 to 1.0 1.25% 0% 0.25%
but </= 1.5 to 1.0
- --------------- --------------------- --------------------- --------------------- -------------------
III > 1.5 to 1.0 but 1.50% 0% 0.30%
</= 2.0 to 1.0
- --------------- --------------------- --------------------- --------------------- -------------------
IV > 2.0 to 1.0 1.75% 0% 0.35%
=============== ===================== ===================== ===================== ===================
</TABLE>
The Applicable Percentages shall be determined and adjusted quarterly
on the date (each a "Calculation Date") five Business Days after the
date by which the Agent receives the officer's certificate provided by
the Borrower in accordance with the provisions of Section 7.2(b);
provided, however, that (i) the initial Applicable Percentages shall be
based on Pricing Level I until the first Calculation Date to occur
after the Closing Date, and, thereafter, the Applicable Percentages
shall be determined by the then current Leverage Ratio, and (ii) if the
Borrower fails to provide the officer's certificate to the Agent as
required by Section 7.2(b), the Applicable Percentages from the date
five Business Days after the date by which the Borrower should have
provided the officer's certificate required by Section 7.2(b) shall be
based on Pricing Level IV until such time as an appropriate officer's
certificate is provided, whereupon the Applicable Percentages shall be
determined by the then current Leverage Ratio. Except as set forth
above, each Applicable Percentage shall be effective from one
Calculation Date until the next Calculation Date. Any adjustment in the
Applicable Percentages shall be applicable to all existing Loans and
Letters of Credit as well as any new Loans and Letters of Credit made
or issued.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from
time to time.
"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
ordering the winding up or liquidation of its affairs; or (ii) there
shall be commenced against such Person an involuntary case under any
applicable
2
<PAGE>
bankruptcy, insolvency or other similar law now or hereafter in effect,
or any case, proceeding or other action for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such Person or for any substantial part of its
Property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged or unbonded for a period of sixty (60)
consecutive days; or (iii) such Person shall commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of such Person or for any
substantial part of its Property or make any general assignment for the
benefit of creditors; or (iv) such Person shall be unable to, or shall
admit in writing its inability to, pay its debts generally as they
become due.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%)
equal to the greater of (i) the Federal Funds Rate in effect on such
day plus 1/2 of 1% or (ii) the Prime Rate in effect on such day. If for
any reason the Agent shall have determined (which determination shall
be conclusive absent manifest error) that it is unable after due
inquiry to ascertain the Federal Funds Rate for any reason, including
the inability or failure of the Agent to obtain sufficient quotations
in accordance with the terms hereof, the Base Rate shall be determined
without regard to clause (i) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist.
Any change in the Base Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate
determined by reference to the Base Rate.
"Borrower" means Staff Leasing, Inc., a Florida corporation.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in Sarasota, Florida or Charlotte,
North Carolina are authorized or required by law to close, except that,
when used in connection with a Eurodollar Loan, such day shall also be
a day on which dealings between banks are carried on in U.S. dollar
deposits in London interbank market.
"Capital Expenditures" means all expenditures which in
accordance with GAAP would be classified as capital expenditures,
including, without limitation, Capital Leases.
"Capital Lease" means, as applied to any Person, any lease of
any Property (whether real, personal or mixed) by that Person as lessee
which, in accordance with GAAP, is or should be accounted for as a
capital lease on the balance sheet of that Person.
3
<PAGE>
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and
credit of the United States of America is pledged in support thereof)
having maturities of not more than twelve months from the date of
acquisition, (b) U.S. dollar denominated time deposits, certificates of
deposit or bankers' acceptances of (i) any Lender, or (ii) any domestic
commercial bank of recognized standing (y) having capital and surplus
in excess of $500,000,000 and (z) whose short-term commercial paper
rating from S&P is at least A-1 or the equivalent thereof or from
Moody's is at least P-1 or the equivalent thereof (any such Lender
being an "Approved Lender"), in each case with maturities of not more
than 364 days from the date of acquisition, (c) commercial paper and
variable or fixed rate notes issued by any Approved Lender (or by the
parent company thereof) and maturing within twelve months of the date
of acquisition, (d) repurchase agreements entered into by a Person with
a bank or trust company (including any of the Lenders) or recognized
securities dealer having capital and surplus in excess of $500,000,000
for direct obligations issued by or fully guaranteed by the United
States of America in which such Person shall have a perfected first
priority security interest (subject to no other Liens) and having, on
the date of purchase thereof, a fair market value of at least 100% of
the amount of the repurchase obligations, (e) obligations of any State
of the United States or any political subdivision thereof, the interest
with respect to which is exempt from federal income taxation under
Section 103 of the Code, having a long term rating of at least AA- or
Aa-3 by S&P or Moody's, respectively, and maturing within three years
from the date of acquisition thereof, (f) Investments in municipal
auction preferred stock (i) rated AAA (or the equivalent thereof) or
better by S&P or Aaa (or the equivalent thereof) or better by Moody's
and (ii) with dividends that reset at least once every 365 days and (g)
Investments, classified in accordance with GAAP as current assets, in
money market investment programs registered under the Investment
Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $100,000,000 and the
portfolios of which are limited to Investments of the character
described in the foregoing subdivisions (a), (b), (c), (e) and (f).
"Change of Control" means any Person (other than Existing
Material Shareholders) or two or more Persons acting in concert shall
have acquired beneficial ownership, directly or indirectly, of, or
shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in
its or their acquisition of, control over, Voting Stock of the Borrower
(or other securities convertible into such Voting Stock) representing
15% or more of the combined voting power of all Voting Stock of the
Borrower. As used herein, "beneficial ownership" shall have the meaning
provided in Rule 13d-3 of the Securities and Exchange Commission under
the Securities Exchange Act of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute thereto, as interpreted by the rules and
regulations issued thereunder, in each case as in effect from time to
time. References to sections of the Code shall be construed also to
refer to any successor sections.
4
<PAGE>
"Commitment" (i) with respect to each Lender, the Revolving
Commitment of such Lender and (ii) with respect to the Issuing Lender,
the LOC Commitment.
"Commitment Period" means the period from and including the
Closing Date to but not including the earlier of (i) the Maturity Date,
or (ii) the date on which the Commitments terminate in accordance with
the provisions of this Credit Agreement.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any material
agreement, instrument or undertaking to which such Person is a party or
by which it or any of its property is bound.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents and all other related
agreements and documents issued or delivered hereunder or thereunder or
pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
"Default" means any event, act or condition which with notice
or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at
such time, (i) has failed to make an Extension of Credit required
pursuant to the terms of this Credit Agreement, (ii) has failed to pay
to the Agent or any Lender an amount owed by such Lender pursuant to
the terms of the Credit Agreement or any other of the Credit Documents,
or (iii) has been deemed insolvent or has become subject to a
bankruptcy or insolvency proceeding or to a receiver, trustee or
similar proceeding.
"Dollars" and "$" means dollars in lawful currency of the
United States of America.
"Domestic Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is incorporated or organized under the
laws of any State of the United States or the District of Columbia.
"EBITDA" means, for any period with respect to the Borrower
and its Subsidiaries on a consolidated basis, the sum of (a) Net Income
for such period (excluding the effect of any extraordinary or other
non-recurring gains or losses outside of the ordinary course of
business) plus (b) an amount which, in the determination of Net Income
for such period, has been deducted for (i) Interest Expense for such
period, (ii) Federal, state or other domestic and foreign income taxes
for such period and (iii) depreciation expense and amortization expense
for such period, in each case determined in accordance with GAAP
applied on a consistent basis. Except as expressly provided otherwise,
the applicable period shall be for the four consecutive quarters ending
as of the date of determination.
5
<PAGE>
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.3, the Borrower
(such approval not to be unreasonably withheld or delayed by the
Borrower and such approval to be deemed given by the Borrower if no
objection is received by the assigning Lender and the Agent from the
Borrower within five Business Days after written notice of such
proposed assignment has been provided by the assigning Lender to the
Borrower in accordance with Section 11.1); provided, however, that
neither the Borrower nor an Affiliate of the Borrower shall qualify as
an Eligible Assignee.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions,
grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges,
releases or threatened releases of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes.
"Equity Issuance" means any issuance by any Credit Party to
any Person which is not a Credit Party of (a) shares of its capital
stock, (b) any shares of its capital stock pursuant to the exercise of
options or warrants or (c) any shares of its capital stock pursuant to
the conversion of any debt securities to equity.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by
the rules and regulations thereunder, all as the same may be in effect
from time to time. References to sections of ERISA shall be construed
also to refer to any successor sections.
"ERISA Affiliate" means an entity which is under common
control with the Borrower within the meaning of Section 4001(a)(14) of
ERISA, or is a member of a group which includes the Borrower and which
is treated as a single employer under Sections 414(b) or (c) of the
Code.
"ERISA Event" means (i) with respect to any Plan, the
occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (ii) the
withdrawal by the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate from a Multiple Employer Plan during a plan year in which it
was a substantial employer (as such term is defined in Section
4001(a)(2) of ERISA), or the termination of a Multiple Employer Plan;
(iii) the distribution of a notice of intent to terminate or the actual
termination of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA;
(iv) the institution of proceedings to terminate or the actual
termination of a Plan by the PBGC under Section 4042 of ERISA; (v) any
event or condition which could reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; (vi) the complete or
partial withdrawal of the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate from a Multiemployer Plan; (vii) the conditions for
imposition of a lien under Section 302(f) of ERISA exist with respect
to any Plan; or (viii) the adoption of an amendment to any Plan
requiring the provision of security to such Plan pursuant to Section
307 of ERISA.
6
<PAGE>
"Eurodollar Loan" means any Loan bearing interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
determined pursuant to the following formula:
Interbank Offered Rate
Eurodollar Rate = ---------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended
from time to time or any successor regulation, as the maximum reserve
requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or
against any other category of liabilities that includes deposits by
reference to which the interest rate of Eurodollar Loans is
determined), whether or not a Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans
shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" means such term as defined in Section 9.1.
"Existing Material Shareholders" means the Persons identified
on Schedule 1.1(a).
"Extension of Credit" means, as to any Lender, the making of,
or participation in, a Loan by such Lender or the issuance or extension
of, or participation in, a Letter of Credit.
7
<PAGE>
"Fees" means all fees payable pursuant to Section 3.4.
"Federal Funds Rate" means, for any day, the rate of interest
per annum (rounded upwards, if necessary, to the nearest whole multiple
of 1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding
such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day and (ii) if no such rate is so
published on such next preceding Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to the Agent on such day
on such transactions as determined by the Agent.
"Fixed Charge Coverage Ratio" means, as of the end of each
fiscal quarter of the Borrower for the Borrower and its Subsidiaries on
a consolidated basis for the four consecutive quarters ending on such
date, the ratio of (a) the sum of EBITDA for such period plus lease and
rent expense for such period to (b) the sum of (i) Interest Expense for
such period plus (ii) lease and rent expense for such period plus (iii)
Scheduled Funded Debt Payments for such period, determined in each case
in accordance with GAAP applied on a consistent basis.
"Foreign Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is not Domestic Subsidiary of such
Person.
"Funded Debt" means, with respect to any Person, without
duplication, (i) all Indebtedness of such Person for borrowed money,
(ii) all purchase money Indebtedness of such Person, including without
limitation the principal portion of all obligations of such Person
under Capital Leases, (iii) all Guaranty Obligations of such Person
with respect to Funded Debt of another Person, (iv) the maximum
available amount of all standby letters of credit or acceptances issued
or created for the account of such Person not secured by cash or Cash
Equivalents, (v) all Funded Debt of another Person secured by a Lien on
any Property of such Person, whether or not such Funded Debt has been
assumed, provided that for purposes hereof the amount of such Funded
Debt shall be limited to the greater of (A) the amount of such Funded
Debt as to which there is recourse to such Person or (B) the fair
market value of the property which is subject to the Lien, (vi) the
principal balance outstanding under any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product to which such Person is a party, where such
transaction is considered borrowed money indebtedness for tax purposes
but is classified as an operating lease in accordance with GAAP. The
Funded Debt of any Person shall include the Funded Debt of any
partnership or joint venture in which such Person is a general partner
or joint venturer, but only to the extent to which there is recourse to
such Person for the payment of such Funded Debt.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.3 hereof.
8
<PAGE>
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guaranteed Obligations" means, as to each Guarantor, without
duplication, (i) all obligations of the Borrower to the Lenders and the
Agent, whenever arising, under this Credit Agreement, the Notes or the
Credit Documents relating to the Loans hereunder (including, but not
limited to, any interest accruing after the occurrence of a Bankruptcy
Event with respect to any Credit Party, regardless of whether such
interest is an allowed claim under the Bankruptcy Code), and (ii) all
liabilities and obligations, whenever arising, owing from the Borrower
to any Lender, or any Affiliate of a Lender, arising under any Hedging
Agreement relating to the Loans hereunder.
"Guarantors" means such term as defined in the first paragraph
hereof.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations of such Person (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guaranteeing or intended to
guarantee any Indebtedness of any other Person in any manner, whether
direct or indirect, and including without limitation any obligation,
whether or not contingent, (i) to purchase any such Indebtedness or any
Property constituting security therefor, (ii) to advance or provide
funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance
sheet condition of such other Person (including without limitation keep
well agreements, maintenance agreements, comfort letters or similar
agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder
of such Indebtedness, or (iv) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall (subject to any limitations
set forth therein) be deemed to be an amount equal to the outstanding
principal amount (or maximum principal amount, if larger) of the
Indebtedness in respect of which such Guaranty Obligation is made.
"Health Care Agreement" means that certain agreement between
Blue Cross and Blue Shield of Florida, Inc./Health Options, Inc. and
Staff Acquisition.
"Hedging Agreements" means any interest rate protection
agreement or foreign currency exchange agreement between the Borrower
and any Lender, or any Affiliate of a Lender.
9
<PAGE>
"Indebtedness" of any Person means (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (iii) all obligations of
such Person under conditional sale or other title retention agreements
relating to Property purchased by such Person (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (iv) all obligations
of such Person issued or assumed as the deferred purchase price of
Property or services purchased by such Person (other than trade debt
incurred in the ordinary course of business and due within six months
of the incurrence thereof) which would appear as liabilities on a
balance sheet of such Person, (v) all obligations of such Person under
take-or-pay or similar arrangements or under commodities agreements,
(vi) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on, or payable out of the proceeds of production
from, Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (vii) all Guaranty
Obligations of such Person, (viii) the principal portion of all
obligations of such Person under Capital Leases, (ix) all obligations
of such Person in respect of interest rate protection agreements,
foreign currency exchange agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price
hedging agreements (including, but not limited to, the Hedging
Agreements), (x) the maximum amount of all standby letters of credit
issued or bankers' acceptances facilities created for the account of
such Person and, without duplication, all drafts drawn thereunder (to
the extent unreimbursed), (xi) all preferred stock issued by such
Person and required by the terms thereof to be redeemed, or for which
mandatory sinking fund payments are due, by a fixed date, and (xii) the
principal balance outstanding under any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product to which such Person is a party, where such
transaction is considered borrowed money indebtedness for tax purposes
but is classified as an operating lease in accordance with GAAP. The
Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner
or a joint venturer, but only to the extent to which there is recourse
to such Person for payment of such Indebtedness.
10
<PAGE>
"Interbank Offered Rate" means, for the Interest Period for
each Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate
(rounded upwards, if necessary, to the nearest whole multiple of 1/100
of 1%) equal to the rate of interest, determined by the Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day
of such Interest Period), appearing on Telerate Page 3750 (or, if, for
any reason, Telerate Page 3750 is not available, the Reuters Screen
LIBO Page) as of approximately 11:00 A.M. (London time) two (2)
Business Days before the first day of such Interest Period. As used
herein, "Telerate Page 3750" means the display designated as page 3750
by Dow Jones Telerate, Inc. (or such other page as may replace such
page on that service for the purpose of displaying the British Bankers
Association London interbank offered rates) and "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank
offered rates of major banks).
"Interest Expense" means for any period with respect to the
Borrower and its Subsidiaries on a consolidated basis all interest
expense, including the amortization of debt discount and premium and
the interest component under Capital Leases, in each case determined in
accordance with GAAP applied on a consistent basis. Except as expressly
provided otherwise, the applicable period shall be for the four
consecutive quarters ending as of the date of determination.
"Interest Payment Date" means (i) as to any Base Rate Loan,
the last day of each fiscal quarter of the Borrower and the Maturity
Date and (ii) as to any Eurodollar Loan, the last day of each Interest
Period for such Loan and on the Maturity Date. If an Interest Payment
Date falls on a date which is not a Business Day, such Interest Payment
Date shall be deemed to be the next succeeding Business Day, except
that in the case of Eurodollar Loans where the next succeeding Business
Day falls in the next succeeding calendar month, then on the next
preceding Business Day.
"Interest Period" means a period of one, two or three month's
duration, as the Borrower may elect, commencing in each case, on the
date of the borrowing (including conversions, extensions and renewals);
provided, however, (a) if any Interest Period would end on a day which
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day (except that in the case of Eurodollar
Loans where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day),
(b) no Interest Period shall extend beyond the Maturity Date, and (c)
in the case of Eurodollar Loans, where an Interest Period begins on a
day for which there is no numerically corresponding day in the calendar
month in which the Interest Period is to end, such Interest Period
shall end on the last Business Day of such calendar month.
"Investment" means (a) any loan or advance to any Person, (b)
any purchase or other acquisition of any assets, capital stock,
warrants, rights, options, obligations or other securities of, or
equity interest in, any Person, (c) any capital contribution to any
Person or any other investment in such Person, including, without
limitation, any Guaranty Obligation incurred for the benefit of such
Person.
"Issuing Lender" means NationsBank.
"Issuing Lender Fees" shall have the meaning assigned to such
term in Section 3.4(c)(ii).
"Joinder Agreement" means a joinder agreement substantially in
the form of Schedule 7.11.
"Lenders" means each of the Persons identified as a "Lender"
on the signature pages hereto, and their successors and assigns.
11
<PAGE>
"Letter of Credit" means any letter of credit issued by the
Issuing Lender for the account of the Borrower in accordance with the
terms of Section 2.2.
"Letter of Credit Fee" shall have the meaning assigned to such
term in Section 3.4(b)(i).
"Leverage Ratio" means, as of the last day of any fiscal
quarter of the Borrower, with respect to the Borrower and its
Subsidiaries on a consolidated basis, the ratio of Funded Debt on such
day to EBITDA for the period of four consecutive fiscal quarters ending
as of such day.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any financing or similar statement or notice
filed under the Uniform Commercial Code as adopted and in effect in the
relevant jurisdiction or other similar recording or notice statute, and
any lease in the nature thereof).
"Loan" or "Loans" means the Revolving Loans (or a portion of
any Revolving Loan bearing interest at the Base Rate or the Eurodollar
Rate and referred to as a Base Rate Loan or a Eurodollar Loan),
individually or collectively, as appropriate.
"LOC Commitment" means the commitment of the Issuing Lender to
issue Letters of Credit in an aggregate face amount at any time
outstanding (together with the amounts of any unreimbursed drawings
thereon) of up to the LOC Committed Amount.
"LOC Committed Amount" shall have the meaning assigned to such
term in Section 2.2.
"LOC Documents" means, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or
providing for (i) the rights and obligations of the parties concerned
or at risk or (ii) any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (i) the
maximum amount which is, or at any time thereafter may become,
available to be drawn under Letters of Credit then outstanding,
assuming compliance with all requirements for drawings referred to in
such Letters of Credit plus (ii) the aggregate amount of all drawings
under Letters of Credit honored by the Issuing Lender but not
theretofore reimbursed by the Borrower.
12
<PAGE>
"Management Group" means collectively, the Chief Executive
Officer, the President, the Senior Vice President of Benefits and Risk
Management and the Chief Financial Officer of the Borrower.
"Material Adverse Change" means
(a) with respect to the Workers' Compensation Policy,
the Borrower's failure (prior to the termination of such
policy or any replacement policy thereof) to obtain a workers'
compensation policy satisfying the following conditions: (i)
such policy must be provided by an insurer with an A.M. Best
rating of "A" or better, (ii) such policy must have a term of
at least one year, (iii) such policy must contain a guaranteed
cost provision for the entire term of the policy and (iv) such
policy shall not provide for premium payments or potential
required premium payments in excess of $4.00 per $100.00 of
payroll;
(b) with respect to the Health Care Agreement, the
occurrence of any of the following events: (i) Staff
Acquisition's failure (prior to the termination of the Health
Care Agreement) to renew such Health Care Agreement with Blue
Cross and Blue Shield of Florida/Health Options, Inc. for a
term of at least one year; (ii) during the calendar year
ending December 31, 1999, the annual individual excess
liability limit per insured exceeds $3,409.00, (iii) during
the calendar year ending December 31, 2000, the annual
individual excess liability limit per insured exceeds
$3,750.00; (iv) during the calendar year ending December 31,
2001, the annual individual excess liability limit per insured
exceeds $4,125.00; or (v) the annual individual excess
liability limit per insured for any calendar year exceeds the
average premium per insured for such year (based on a
calculation performed annually following the annual
re-enrollment of insureds and final establishment of the
annual individual excess liability limit); and
(c) with respect to any Other Health Care Agreement,
the occurrence of any of the following events: (i) such Other
Health Care Agreement shall have a term less than one year;
(ii) for any calendar year, the annual individual excess
liability per insured is more than 110% of the amount of such
liability limit for the previous calendar year; or (iii) the
annual individual excess liability limit per insured for any
calendar year exceeds the average premium per insured for such
year (based on a calculation performed annually following the
annual re-enrollment of insureds and final establishment of
the annual individual excess liability limit).
"Material Adverse Effect" means a material adverse effect on
(i) the condition (financial or otherwise), operations, business,
assets, liabilities or prospects of the Borrower and its Subsidiaries
taken as a whole, (ii) the ability of the Borrower and its Subsidiaries
as a whole to perform any material obligation under the Credit
Documents to which it is a party or (iii) the rights and remedies of
the Lenders under the Credit Documents.
13
<PAGE>
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Laws,
including, without limitation, asbestos, polychlorinated biphenyls and
urea-formaldehyde insulation.
"Maturity Date" means July 26, 2001.
"Moody's" means Moody's Investors Service, Inc., or any
successor or assignee of the business of such company in the business
of rating securities.
"Multiemployer Plan" means a Plan which is a multiemployer
plan as defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate and at least one
employer other than the Borrower, any Subsidiary of the Borrower or any
ERISA Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N.A. and its successors.
"Net Income" means, for any period, the net income with
respect to the Borrower and its Subsidiaries on a consolidated basis as
determined in accordance with GAAP applied on a consistent basis.
"Non-Excluded Taxes" means such term as is defined in Section
3.9.
"Note" or "Notes" means any Revolving Note, as the context may
require.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Schedule 2.1(b)(i), as required by Section
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Schedule 3.2, as
required by Section 3.2.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed)
which is not a Capital Lease other than any such lease in which that
Person is the lessor.
"Other Health Care Agreement" means any health care agreement
of the Borrower or any of its Subsidiaries (other than the Health Care
Agreement) which does not contain a guaranteed cost provision
acceptable to the Required Lenders.
14
<PAGE>
"Participation Interest" means a purchase by a Lender of a
participation in Letters of Credit or LOC Obligations as provided in
Section 2.2 or in any Loans as provided in Section 3.12.
"PBGC" means the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereof.
"Permitted Acquisition" means an acquisition by the Borrower
or any Guarantor of all of the capital stock of another Person, or all
or substantively all of the assets of another Person, provided that
each of the following conditions are satisfied:
(a) the acquisition is consummated pursuant to a
negotiated acquisition agreement and involves the purchase of
(i) assets related to or used in a business similar to the
business of the Credit Parties as of the date hereof or (ii) a
business similar to the business of the Credit Parties as of
the date hereof;
(b) (i) such Person to be acquired or (ii) the Person
from whom the related assets are acquired, must have attained,
for the most recently ending twelve month period, earnings
before any deductions for interest expense, taxes paid,
depreciation or amortization for such period greater than
$1.00;
(c) the purchase price paid (i) for any one
acquisition shall not exceed (A) $5,000,000 in cash, assumed
indebtedness and seller financing and (B) $10,000,000 in total
consideration and (ii) for multiple acquisitions shall not
exceed $20,000,000 in total consideration for any twelve month
period;
(d) after giving effect to the acquisition, the
representations and warranties set forth in Section 6 hereof
shall be true and correct in all material respects on and as
of the date of such acquisition; and
(e) no Default or Event of Default exists and is
continuing or would result from such acquisition.
"Permitted Investments" means Investments which are either (i)
cash and Cash Equivalents, (ii) accounts receivable created, acquired
or made in the ordinary course of business and payable or dischargeable
in accordance with customary trade terms, (iii) Investments consisting
of stock, obligations, securities or other property received in
settlement of accounts receivable (created in the ordinary course of
business) from defaulting obligors or settlements of litigation
matters, (iv) Investments existing as of the Closing Date and set forth
on Schedule 1.1(b), (v) Investments in any Credit Party, (vi) advances
or loans to employees in the ordinary course of business not to exceed
$1,750,000 in the aggregate at any time outstanding, (vii) Permitted
Acquisitions, (viii) the purchases or acquisitions of property and
equipment in the ordinary course of business, except as otherwise
limited or prohibited hereunder and (viii) the repurchase by the
Borrower of up to 2,000,000 shares of its capital stock in the
aggregate during the term of this Credit Agreement.
15
<PAGE>
"Permitted Liens" means:
(i) Liens (other than Liens created or imposed under
ERISA) for taxes, assessments or governmental charges or
levies not yet due or Liens for taxes being contested in good
faith by appropriate proceedings for which adequate reserves
determined in accordance with GAAP have been established (and
as to which the Property subject to any such Lien is not yet
subject to foreclosure, sale or loss on account thereof);
(ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and suppliers
and other Liens imposed by law or pursuant to customary
reservations or retentions of title arising in the ordinary
course of business, provided that such Liens secure only
amounts not yet due and payable or, if due and payable, are
unfiled and no other action has been taken to enforce the same
or are being contested in good faith by appropriate
proceedings for which adequate reserves determined in
accordance with GAAP have been established (and as to which
the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);
(iii) Liens (other than Liens created or imposed
under ERISA) incurred or deposits made by the Borrower and its
Subsidiaries in the ordinary course of business in connection
with workers' compensation, health insurance, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, bids, leases,
government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for
the payment of borrowed money);
(iv) Liens in connection with attachments or
judgments (including judgment or appeal bonds) provided that
the judgments secured shall, within 45 days after the entry
thereof, have been discharged or execution thereof stayed
pending appeal, or shall have been discharged within 45 days
after the expiration of any such stay;
(v) easements, rights-of-way, restrictions (including
zoning restrictions), minor defects or irregularities in title
and other similar charges or encumbrances not, in any material
respect, impairing the use of the encumbered Property for its
intended purposes;
(vi) Liens securing purchase money Indebtedness
(including Capital Leases) to the extent permitted under
Section 8.1(f), provided that any such Lien attaches only to
the Property financed and such Lien attaches thereto
concurrently with or within 90 days after the acquisition
thereof;
16
<PAGE>
(vii) leases or subleases granted to others not
interfering in any material respect with the business of the
Borrower or any of its Subsidiaries;
(viii) any interest of title of a lessor under, and
Liens arising from UCC financing statements (or equivalent
filings, registrations or agreements in foreign jurisdictions)
relating to, leases permitted by this Credit Agreement;
(ix) normal and customary rights of setoff upon
deposits of cash in favor of banks or other depository
institutions;
(x) inchoate Liens arising under ERISA to secure
current service pension liabilities as they are incurred under
the provisions of any Plan;
(xi) Liens existing as of the Closing Date granted to
landlords pursuant to the terms of certain leases providing
for the use of office space by the Borrower or any of its
Subsidiaries provided that (a) such Liens attach only to the
tangible Property located at the applicable office space and
(b) such Liens do not attach to any of the Property located at
the chief executive office and principal place of business of
the Borrower set forth on Schedule 6.16;
(xii) Liens securing Indebtedness to the extent
permitted under Section 8.1(d); provided that any such Lien
does not attach to or encumber in any way any capital stock or
other equity interest of the Borrower or any of its
Subsidiaries;
(xiii) Liens on cash or Cash Equivalents securing
Indebtedness to the extent permitted under Section 8.1(h); and
(xiv) Liens existing as of the Closing Date and set
forth on Schedule 1.1(c); provided that no such Lien shall at
any time be extended to or cover any Property other than the
Property subject thereto on the Closing Date.
"Person" means any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or
other enterprise (whether or not incorporated) or any Governmental
Authority.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA) which is covered by ERISA and with respect to which the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is (or,
if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" within the meaning of Section 3(5)
of ERISA.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by NationsBank, N.A. as its prime rate in
effect at its principal office in Charlotte, North Carolina, with each
change in the Prime Rate being effective on the date such change is
publicly announced as effective (it being understood and agreed that
the Prime Rate is a reference rate used by NationsBank, N.A. in
determining interest rates on certain loans and is not intended to be
the lowest rate of interest charged on any extension of credit by
NationsBank, N.A. to any debtor).
17
<PAGE>
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Register" shall have the meaning given such term in Section
11.3(c).
"Regulation T, U, or X" means Regulation T, U or X,
respectively, of the Board of Governors of the Federal Reserve System
as from time to time in effect and any successor to all or a portion
thereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the environment (including the abandonment or
discarding of barrels, containers and other closed receptacles
containing any Materials of Environmental Concern).
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the
notice requirement has been waived by regulation.
"Required Lenders" means, at any time, Lenders which are then
in compliance with their obligations hereunder (as determined by the
Agent) and holding in the aggregate at least 51% of (i) the
Commitments, and (ii) if the Commitments have been terminated, the
outstanding Loans and Participation Interests (including the
Participation Interests of the Issuing Lender in any Letters of
Credit).
"Requirement of Law" means, as to any Person, the certificate
of incorporation and by-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its material property is subject.
"Responsible Officer" means the President, Chief Executive
Officer, the Chief Financial Officer, any Vice President or other duly
authorized officer.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender in an aggregate principal amount at any time
outstanding of up to such Lender's Revolving Commitment Percentage of
the Revolving Committed Amount as such amount may be reduced from time
to time, (i) to make Revolving Loans in accordance with the provisions
of Section 2.1(a) and (ii) to purchase Participation Interests in
Letters of Credit in accordance with the provisions of Section 2.2(c).
18
<PAGE>
"Revolving Commitment Percentage" means, for each Lender, the
percentage identified as its Revolving Commitment Percentage on
Schedule 1.1(d), as such percentage may be modified in connection with
any assignment made in accordance with the provisions of Section 11.3.
"Revolving Committed Amount" means TEN MILLION DOLLARS
($10,000,000).
"Revolving Loans" shall have the meaning assigned to such term
in Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory
notes of the Borrower in favor of each of the Lenders evidencing the
Revolving Loans in substantially the form attached as Schedule 2.1(e),
individually or collectively, as appropriate, as such promissory notes
may be amended, modified, supplemented, extended, renewed or replaced
from time to time.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., or any successor or assignee of the business of such
division in the business of rating securities.
"Scheduled Funded Debt Payments" means, as of the date of
determination, for the Borrower and its Subsidiaries on a consolidated
basis, the sum of all scheduled payments of principal on Funded Debt
for the applicable period ending on the date of determination
(including the principal component of payments due on Capital Leases
during the applicable period ending on the date of determination).
"Single Employer Plan" means any Plan which is covered by
Title IV of ERISA, but which is not a Multiemployer Plan or a Multiple
Employer Plan.
"Solvent" or "Solvency" means, with respect to any Person as
of a particular date, that on such date (i) such Person is able to
realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the
normal course of business, (ii) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature in their
ordinary course, (iii) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction,
for which such Person's Property would constitute unreasonably small
capital after giving due consideration to the prevailing practice in
the industry in which such Person is engaged or is to engage, (iv) the
fair value of the Property of such Person is greater than the total
amount of liabilities, including, without limitation, contingent
liabilities, of such Person and (v) the present fair saleable value of
the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as
they become absolute and matured. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
19
<PAGE>
"Staff Acquisition" means Staff Acquisition, Inc., a Delaware
corporation.
"Subordinated Indebtedness" means any unsecured Indebtedness
incurred by any Credit Party which is subordinated on terms and
conditions satisfactory to the Required Lenders.
"Subsidiary" means, as to any Person, (a) any corporation more
than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time, any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by
such Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than 50% of
the voting interests at any time. Unless otherwise identified,
"Subsidiary" or "Subsidiaries" shall mean Subsidiaries of the Borrower.
"Tangible Net Worth" means, as of any date, shareholders'
equity or net worth of the Borrower and its Subsidiaries on a
consolidated basis minus goodwill, patents, trade names, trademarks,
copyrights, franchises, organizational expense, deferred expenses and
other assets in each case as are shown as "intangible assets" on a
balance sheet of Borrower and its Subsidiaries on a consolidated basis,
as determined in accordance with GAAP.
"Total Liabilities" means total liabilities of the Borrower
and its Subsidiaries on a consolidated basis as determined in
accordance with GAAP.
"Unused Fee" shall have the meaning given such term in Section
3.4(a).
"Voting Stock" means, with respect to any Person, capital
stock issued by such Person the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of
directors (or persons performing similar functions) of such Person,
even though the right so to vote has been suspended by the happening of
such a contingency.
"Workers' Compensation Policy" means that certain Workers'
Compensation and Employees Liability policy no. WA1-65D-004110-297
issued by Liberty Mutual Insurance Company in favor of certain
Subsidiaries of the Borrower, as amended or modified from time to time.
"Year 2000 Compliant" shall have the meaning given to such
term in Section 6.17.
20
<PAGE>
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1
hereof (or, prior to the delivery of the first financial statements pursuant to
Section 7.1 hereof, consistent with the annual audited financial statements
referenced in Section 6.1); provided, however, if (a) the Borrower shall object
to determining such compliance on such basis at the time of delivery of such
financial statements due to any change in GAAP or the rules promulgated with
respect thereto or (b) the Agent or the Required Lenders shall so object in
writing within 30 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with the most recent financial
statements delivered by the Borrower to the Lenders as to which no such
objection shall have been made.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Commitment. During the Commitment Period, subject to the
terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (the "Revolving Loans") to the Borrower from time to time in the
amount of such Lender's Revolving Commitment Percentage of such Revolving Loans
for the purposes hereinafter set forth; provided that (i) with regard to the
Lenders collectively, the aggregate principal amount of Revolving Loans
outstanding at any time plus LOC Obligations outstanding at any time shall not
exceed the Revolving Committed Amount and (ii) with regard to each Lender
individually, such Lender's outstanding Revolving Loans shall not exceed such
Lender's Revolving Commitment Percentage of the Revolving Committed Amount.
Revolving Loans may consist of Base Rate Loans or Eurodollar Loans, or a
combination thereof, as the Borrower may request, and may be repaid and
reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
21
<PAGE>
(i) Notice of Borrowing. The Borrower shall request a
Revolving Loan borrowing by written notice (or telephone notice
promptly confirmed in writing) to the Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the date of the requested borrowing
in the case of Base Rate Loans, and on the third Business Day prior to
the date of the requested borrowing in the case of Eurodollar Loans.
Each such request for borrowing shall be irrevocable and shall specify
(A) that a Revolving Loan is requested, (B) the date of the requested
borrowing (which shall be a Business Day), (C) the aggregate principal
amount to be borrowed, and (D) whether the borrowing shall be comprised
of Base Rate Loans, Eurodollar Loans or a combination thereof, and if
Eurodollar Loans are requested, the Interest Period(s) therefor. If the
Borrower shall fail to specify in any such Notice of Borrowing (I) an
applicable Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of one
month, or (II) the type of Revolving Loan requested, then such notice
shall be deemed to be a request for a Base Rate Loan hereunder. The
Agent shall give notice to each Lender promptly upon receipt of each
Notice of Borrowing pursuant to this Section 2.1(b)(i), the contents
thereof and each such Lender's share of any borrowing to be made
pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan shall be in a
minimum aggregate principal amount of $500,000, in the case of
Eurodollar Loans, or $500,000 (or the remaining Revolving Committed
Amount, if less), in the case of Base Rate Loans, and integral
multiples of $100,000 in excess thereof.
(iii) Advances. Each Lender will make its Revolving Commitment
Percentage of each Revolving Loan borrowing available to the Agent for
the account of the Borrower as specified in Section 3.13(a), or in such
other manner as the Agent may specify in writing, by 1:00 P.M.
(Charlotte, North Carolina time) on the date specified in the
applicable Notice of Borrowing in Dollars and in funds immediately
available to the Agent. Such borrowing will then be made available to
the Borrower by the Agent (i) by crediting the account of the Borrower
on the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by
the Agent or (ii) as directed by the Borrower in writing in the
aggregate of the amounts made available to the Agent by the Lenders and
in like funds as received by the Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
and payable in full on the Maturity Date.
(d) Interest. Subject to the provisions of Section 3.1,
(i) Base Rate Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Base Rate Loans, such Base
Rate Loans shall bear interest at a per annum rate equal to the Base
Rate plus the Applicable Percentage;
(ii) Eurodollar Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Eurodollar Loans, such
Eurodollar Loans shall bear interest at a per annum rate equal to the
Eurodollar Rate plus the Applicable Percentage.
22
<PAGE>
Interest on Revolving Loans shall be payable in arrears on each
applicable Interest Payment Date (or at such other times as may be
specified herein).
(e) Revolving Notes. The Revolving Loans shall be evidenced by a duly
executed Revolving Note in favor of each Lender substantially in the form of
Schedule 2.1(e).
(f) Maximum Number of Eurodollar Loans. The Borrower will be limited to
a maximum number of ten (10) Eurodollar Loans outstanding at any time. For
purposes hereof, Eurodollar Loans with separate or different Interest Periods
will be considered as separate Eurodollar Loans even if their Interest Periods
expire on the same date.
2.2 Letter of Credit Subfacility.
(a) Issuance. During the Commitment Period, subject to the terms and
conditions hereof and of the LOC Documents, if any, and any other terms and
conditions which the Issuing Lender may reasonably require and in reliance upon
the representations and warranties set forth herein, the Issuing Lender agrees
to issue, and each Lender severally agrees to participate in the issuance by the
Issuing Lender of, standby and trade Letters of Credit in Dollars from time to
time from the Closing Date until the date five (5) days prior to the Maturity
Date as the Borrower may request, in a form acceptable to the Issuing Lender;
provided, however, that (i) the LOC Obligations outstanding shall not at any
time exceed FIVE MILLION DOLLARS ($5,000,000.00) (the "LOC Committed Amount")
and (ii) the sum of the aggregate outstanding principal amount of Revolving
Loans plus LOC Obligations shall not at any time exceed the Revolving Committed
Amount. No Letter of Credit shall (x) have an original expiry date more than one
year from the date of issuance or (y) as originally issued or as extended, have
an expiry date extending beyond the Maturity Date. Each Letter of Credit shall
comply with the related LOC Documents. The issuance and expiry dates of each
Letter of Credit shall be a Business Day.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted by the Borrower to the Issuing Lender at least three
(3) Business Days prior to the requested date of issuance. The Issuing Lender
will, at least quarterly and more frequently upon request, disseminate to each
of the Lenders a detailed report specifying the Letters of Credit which are then
issued and outstanding and any activity with respect thereto which may have
occurred since the date of the prior report, and including therein, among other
things, the beneficiary, the face amount and the expiry date, as well as any
payment or expirations which may have occurred.
(c) Participation. Each Lender, upon issuance of a Letter of Credit,
shall be deemed to have purchased without recourse a Participation Interest from
the Issuing Lender in such Letter of Credit and the obligations arising
thereunder and any collateral relating thereto, in each case in an amount equal
to its pro rata share of the obligations under such Letter of Credit (based on
the respective Revolving Commitment Percentages of the Lenders) and shall
absolutely, unconditionally and irrevocably assume and be obligated to pay to
the Issuing Lender and discharge when due, its pro rata share of the obligations
arising under such Letter of Credit. Without limiting the scope and nature of
each Lender's Participation Interest in any Letter of Credit, to the extent that
the Issuing Lender has not been reimbursed as required hereunder or under any
such Letter of Credit, each such Lender shall pay to the Issuing Lender its pro
rata share of such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing pursuant to the
provisions of subsection (d) below. The obligation of each Lender to so
reimburse the Issuing Lender shall be absolute and unconditional and shall not
be affected by the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or otherwise
impair the obligation of the Borrower to reimburse the Issuing Lender under any
Letter of Credit, together with interest as hereinafter provided.
23
<PAGE>
(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. Unless the
Borrower shall immediately notify the Issuing Lender that the Borrower intends
to otherwise reimburse the Issuing Lender for such drawing, the Borrower shall
be deemed to have requested that the Lenders make a Revolving Loan in the amount
of the drawing as provided in subsection (e) below on the related Letter of
Credit, the proceeds of which will be used to satisfy the related reimbursement
obligations. The Borrower promises to reimburse the Issuing Lender on the day of
drawing under any Letter of Credit (either with the proceeds of a Revolving Loan
obtained hereunder or otherwise) in same day funds. If the Borrower shall fail
to reimburse the Issuing Lender as provided hereinabove, the unreimbursed amount
of such drawing shall bear interest at a per annum rate equal to the Adjusted
Base Rate plus 2%. The Borrower's reimbursement obligations hereunder shall be
absolute and unconditional under all circumstances irrespective of any rights of
setoff, counterclaim or defense to payment the Borrower may claim or have
against the Issuing Lender, the Agent, the Lenders, the beneficiary of the
Letter of Credit drawn upon or any other Person, including without limitation
any defense based on any failure of the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or unenforceability
of the Letter of Credit. The Issuing Lender will promptly notify the other
Lenders of the amount of any unreimbursed drawing and each Lender shall promptly
pay to the Agent for the account of the Issuing Lender in Dollars and in
immediately available funds, the amount of such Lender's pro rata share of such
unreimbursed drawing. Such payment shall be made on the day such notice is
received by such Lender from the Issuing Lender if such notice is received at or
before 2:00 P.M. (Charlotte, North Carolina time) otherwise such payment shall
be made at or before 12:00 Noon (Charlotte, North Carolina time) on the Business
Day next succeeding the day such notice is received. If such Lender does not pay
such amount to the Issuing Lender in full upon such request, such Lender shall,
on demand, pay to the Agent for the account of the Issuing Lender interest on
the unpaid amount during the period from the date of such drawing until such
Lender pays such amount to the Issuing Lender in full at a rate per annum equal
to, if paid within two (2) Business Days of the date that such Lender is
required to make payments of such amount pursuant to the preceding sentence, the
Federal Funds Rate and thereafter at a rate equal to the Base Rate. Each
Lender's obligation to make such payment to the Issuing Lender, and the right of
the Issuing Lender to receive the same, shall be absolute and unconditional,
shall not be affected by any circumstance whatsoever and without regard to the
termination of this Credit Agreement or the Commitments hereunder, the existence
of a Default or Event of Default or the acceleration of the obligations of the
Borrower hereunder and shall be made without any offset, abatement, withholding
or reduction whatsoever. Simultaneously with the making of each such payment by
a Lender to the Issuing Lender, such Lender shall, automatically and without any
further action on the part of the Issuing Lender or such Lender, acquire a
Participation Interest in an amount equal to such payment (excluding the portion
of such payment constituting interest owing to the Issuing Lender) in the
related unreimbursed drawing portion of the LOC Obligation and in the interest
thereon and in the related LOC Documents, and shall have a claim against the
Borrower with respect thereto.
24
<PAGE>
(e) Repayment with Revolving Loans. On any day on which the Borrower
shall have requested, or been deemed to have requested, a Revolving Loan advance
to reimburse a drawing under a Letter of Credit, the Agent shall give notice to
the Lenders that a Revolving Loan has been requested or deemed requested by the
Borrower to be made in connection with a drawing under a Letter of Credit, in
which case a Revolving Loan advance comprised of Base Rate Loans (or Eurodollar
Loans to the extent the Borrower has complied with the procedures of Section
2.1(b)(i) with respect thereto) shall be immediately made to the Borrower by all
Lenders (notwithstanding any termination of the Commitments pursuant to Section
9.2) pro rata based on the respective Revolving Commitment Percentages of the
Lenders (determined before giving effect to any termination of the Commitments
pursuant to Section 9.2) and the proceeds thereof shall be paid directly to the
Issuing Lender for application to the respective LOC Obligations. Each such
Lender hereby irrevocably agrees to make its pro rata share of each such
Revolving Loan immediately upon any such request or deemed request in the
amount, in the manner and on the date specified in the preceding sentence
notwithstanding (i) the amount of such borrowing may not comply with the minimum
amount for advances of Revolving Loans otherwise required hereunder, (ii)
whether any conditions specified in Section 5.2 are then satisfied, (iii)
whether a Default or an Event of Default then exists, (iv) failure for any such
request or deemed request for Revolving Loan to be made by the time otherwise
required hereunder, (v) whether the date of such borrowing is a date on which
Revolving Loans are otherwise permitted to be made hereunder or (vi) any
termination of the Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any Revolving Loan
cannot for any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding under the
Bankruptcy Code with respect to the Borrower or any other Credit Party), then
each such Lender hereby agrees that it shall forthwith purchase (as of the date
such borrowing would otherwise have occurred, but adjusted for any payments
received from the Borrower on or after such date and prior to such purchase)
from the Issuing Lender such Participation Interests in the outstanding LOC
Obligations as shall be necessary to cause each such Lender to share in such LOC
Obligations ratably (based upon the respective Revolving Commitment Percentages
of the Lenders (determined before giving effect to any termination of the
Commitments pursuant to Section 9.2)), provided that at the time any purchase of
Participation Interests pursuant to this sentence is actually made, the
purchasing Lender shall be required to pay to the Issuing Lender, to the extent
not paid to the Issuer by the Borrower in accordance with the terms of
subsection (d) above, interest on the principal amount of Participation
Interests purchased for each day from and including the day upon which such
borrowing would otherwise have occurred to but excluding the date of payment for
such Participation Interests, at the rate equal to, if paid within two (2)
Business Days of the date of the Revolving Loan advance, the Federal Funds Rate,
and thereafter at a rate equal to the Base Rate.
(f) Designation of Credit Parties as Account Parties.
Notwithstanding anything to the contrary set forth in this Credit Agreement,
including without limitation Section 2.2(a), a Letter of Credit issued hereunder
may contain a statement to the effect that such Letter of Credit is issued for
the account of a Credit Party other than the Borrower, provided that
notwithstanding such statement, the Borrower shall be the actual account party
for all purposes of this Credit Agreement for such Letter of Credit and such
statement shall not affect the Borrower's reimbursement obligations hereunder
with respect to such Letter of Credit.
25
<PAGE>
(g) Renewal, Extension. The renewal or extension of any
Letter of Credit shall, for purposes hereof, be treated in all respects the same
as the issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Issuing Lender may
have the Letters of Credit be subject to The Uniform Customs and Practice for
Documentary Credits, as published as of the date of issue by the International
Chamber of Commerce (the "UCP"), in which case the UCP may be incorporated
therein and deemed in all respects to be a part thereof.
(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section
2.2, the Borrower hereby agrees to pay, and protect, indemnify and save
each Lender harmless from and against, any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that such Lender may incur or be subject to
as a consequence, direct or indirect, of (A) the issuance of any Letter
of Credit or (B) the failure of such Lender to honor a drawing under a
Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto government or
Governmental Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts,
omissions or misuse of any Letter of Credit by the beneficiary thereof.
No Lender (including the Issuing Lender) shall be responsible: (A) for
the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (B) for the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer
or assign any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher; (D)
for any loss or delay in the transmission or otherwise of any document
required in order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (E) for any consequences arising from causes
beyond the control of such Lender, including, without limitation, any
Government Acts. None of the above shall affect, impair, or prevent the
vesting of the Issuing Lender's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of
the specific provisions hereinabove set forth, any action taken or
omitted by any Lender (including the Issuing Lender), under or in
connection with any Letter of Credit or the related certificates, if
taken or omitted in good faith, shall not put such Lender under any
resulting liability to the Borrower or any other Credit Party. It is
the intention of the parties that this Credit Agreement shall be
construed and applied to protect and indemnify each Lender (including
the Issuing Lender) against any and all risks involved in the issuance
of the Letters of Credit, all of which risks are hereby assumed by the
Borrower (on behalf of itself and each of the other Credit Parties),
including, without limitation, any and all Government Acts. No Lender
(including the Issuing Lender) shall, in any way, be liable for any
failure by such Lender or anyone else to pay any drawing under any
Letter of Credit as a result of any Government Acts or any other cause
beyond the control of such Lender.
26
<PAGE>
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d)
above. The obligations of the Borrower under this subsection (i) shall
survive the termination of this Credit Agreement. No act or omission of
any current or prior beneficiary of a Letter of Credit shall in any way
affect or impair the rights of the Lenders (including the Issuing
Lender) to enforce any right, power or benefit under this Credit
Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (i), the Borrower shall have no obligation to indemnify any
Lender (including the Issuing Lender) in respect of any liability
incurred by such Lender (A) arising solely out of the gross negligence
or willful misconduct of such Lender, as determined by a court of
competent jurisdiction, or (B) caused by such Lender's failure to pay
under any Letter of Credit after presentation to it of a request
strictly complying with the terms and conditions of such Letter of
Credit, as determined by a court of competent jurisdiction, unless such
payment is prohibited by any law, regulation, court order or decree.
(j) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the Lenders are
only those expressly set forth in this Credit Agreement and that the Issuing
Lender shall be entitled to assume that the conditions precedent set forth in
Section 5.2 have been satisfied unless it shall have acquired actual knowledge
that any such condition precedent has not been satisfied; provided, however,
that nothing set forth in this Section 2.2 shall be deemed to prejudice the
right of any Lender to recover from the Issuing Lender any amounts made
available by such Lender to the Issuing Lender pursuant to this Section 2.2 in
the event that it is determined by a court of competent jurisdiction that the
payment with respect to a Letter of Credit constituted gross negligence or
willful misconduct on the part of the Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict between
this Credit Agreement and any LOC Document (including any letter of credit
application), this Credit Agreement shall control.
27
<PAGE>
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
3.1 Default Rate.
Upon the occurrence, and during the continuance, of an Event of
Default, (i) the principal of and, to the extent permitted by law, interest on
the Loans and any other amounts owing hereunder or under the other Credit
Documents shall bear interest, payable on demand, at a per annum rate 2.5%
greater than the rate which would otherwise be applicable (or if no rate is
applicable, whether in respect of interest, fees or other amounts, then 2.5%
greater than the Base Rate) and (ii) the Letter of Credit Fee shall accrue at a
per annum rate 2.5% greater than the rate which would otherwise be applicable.
3.2 Extension and Conversion.
Subject to the terms of Section 5.2, the Borrower shall have the
option, on any Business Day, to extend existing Loans into a subsequent
permissible Interest Period or to convert Loans into Loans of another interest
rate type; provided, however, that (i) except as provided in Section 3.7,
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar Loans, only if no Default
or Event of Default is in existence on the date of extension or conversion and
the conditions set forth in subsections (a), (b) and (c) of Section 5.2 have
been satisfied, (iii) Loans extended as, or converted into, Eurodollar Loans
shall be subject to the terms of the definition of "Interest Period" set forth
in Section 1.1 and shall be in such minimum amounts as provided in Section
2.1(b)(ii), and (iv) any request for extension or conversion of a Eurodollar
Loan which shall fail to specify an Interest Period shall be deemed to be a
request for an Interest Period of one month. Each such extension or conversion
shall be effected by the Borrower by giving a Notice of Extension/Conversion (or
telephone notice promptly confirmed in writing) to the Agent prior to 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day of, in the case of the
conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business
Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (a) through (c) of Section 5.2.
In the event the Borrower fails to request extension or conversion of any
Eurodollar Loan in accordance with this Section, or any such conversion or
extension is not permitted or required by this Section, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Agent shall give each Lender notice as
promptly as practicable of any such proposed extension or conversion affecting
any Loan.
28
<PAGE>
3.3 Prepayments.
(a) Voluntary Prepayments. Loans may be repaid in whole
or in part without premium or penalty; provided that (i) Eurodollar
Loans may not be prepaid other than at the end of the Interest Period
applicable thereto and only then on three (3) Business Days' prior
written notice to the Agent, (ii) any prepayment of Eurodollar Loans
will be subject to Section 3.10, (iii) Base Rate Loans may be prepaid
by the Borrower by giving notice to the Agent prior to 11:00 a.m.
(Charlotte, North Carolina time) on the date of the requested
prepayment, and (iv) each such partial prepayment shall be in a minimum
principal amount of $500,000, in the case of Eurodollar Loans, and
$500,000, in the case of Base Rate Loans, and in integral multiples of
$100,000 in excess thereof. Any such voluntary prepayments shall be
applied first to Base Rate Loans and then to Eurodollar Loans in direct
order of their Interest Period maturities.
(b) Mandatory Prepayments.
(i) If at any time, the aggregate principal amount of
Revolving Loans plus LOC Obligations outstanding shall exceed
the Revolving Committed Amount, the Borrower shall immediately
make payment on the Revolving Loans and (after all Revolving
Loans have been repaid) cash collateralize the LOC
Obligations, in an amount sufficient to eliminate the excess.
Any such mandatory prepayments shall be applied first to Base
Rate Loans and then to Eurodollar Loans in direct order of
their Interest Period maturities. Amounts prepaid hereunder
may be reborrowed in accordance with the provisions hereof.
(ii) If at any time, the sum of the aggregate
principal amount of LOC Obligations outstanding shall exceed
the LOC Committed Amount, the Borrower immediately shall cash
collateralize the LOC Obligations in an amount sufficient to
eliminate such excess.
3.4 Fees.
(a) Unused Fee. In consideration of the Revolving Committed
Amount being made available by the Lenders, the Borrower agrees to pay
to the Agent, for the ratable benefit of the Lenders, an unused fee
(the "Unused Fee") equal to the Applicable Percentage for the Unused
Fee then in effect (calculated on the basis of actual number of days
elapsed in a year of 360 days) on the average daily unused portion of
the Revolving Committed Amount for the applicable period. The Unused
Fee shall be payable quarterly in arrears on the 15th day following the
last day of each calendar quarter for the immediately preceding quarter
(or portion thereof) beginning with the first such date to occur after
the Closing Date.
(b) Letter of Credit Fees.
29
<PAGE>
(i) Letter of Credit Issuance Fee. In consideration
of the issuance of Letters of Credit hereunder, the Borrower
promises to pay to the Agent for the account of each Lender a
fee (the "Letter of Credit Fee") on such Lender's Revolving
Commitment Percentage of the average daily maximum amount
available to be drawn under each such Letter of Credit
computed at a per annum rate for each day from the date of
issuance to the date of expiration equal to the Applicable
Percentage. The Letter of Credit Fee will be payable quarterly
in arrears on the last Business Day of each March, June,
September and December for the immediately preceding quarter
(or a portion thereof).
(ii) Issuing Lender Fees. In addition to the Letter
of Credit Fee payable pursuant to clause (i) above, the
Borrower promises to pay to the Issuing Lender for its own
account without sharing by the other Lenders (A) the customary
charges from time to time of the Issuing Lender with respect
to the issuance, amendment, transfer, administration,
cancellation and conversion of, and drawings under, such
Letters of Credit and (B) at such time as there is a minimum
of two (2) Lenders, a letter of credit fronting the fee of
0.125% of the face amount of each Letter of Credit
(collectively, the "Issuing Lender Fees").
3.5 Capital Adequacy.
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction. Each determination by any such Lender of amounts
owing under this Section shall, absent manifest error, be conclusive and binding
on the parties hereto.
3.6 Inability To Determine Interest Rate.
If prior to the first day of any Interest Period, the Agent shall have
determined (which determination shall be conclusive and binding upon the
Borrower) that, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for such Interest Period, the Agent shall give telecopy or telephonic notice
thereof to the Borrower and the Lenders as soon as practicable thereafter. If
such notice is given (a) any Eurodollar Loans requested to be made on the first
day of such Interest Period shall be made as Base Rate Loans and (b) any Loans
that were to have been converted on the first day of such Interest Period to or
continued as Eurodollar Loans shall be converted to or continued as Base Rate
Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar
Loans shall be made or continued as such, nor shall the Borrower have the right
to convert Base Rate Loans to Eurodollar Loans.
30
<PAGE>
3.7 Illegality.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Agent (which notice shall be withdrawn whenever such circumstances no
longer exist), (b) the commitment of such Lender hereunder to make Eurodollar
Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to
Eurodollar Loans shall forthwith be canceled and, until such time as it shall no
longer be unlawful for such Lender to make or maintain Eurodollar Loans, such
Lender shall then have a commitment only to make a Base Rate Loan when a
Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.10.
3.8 Requirements of Law.
If, after the date hereof, the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof applicable to
any Lender, or compliance by any Lender with any request or directive (whether
or not having the force of law) from any central bank or other Governmental
Authority, in each case made subsequent to the Closing Date (or, if later, the
date on which such Lender becomes a Lender):
(a) shall subject such Lender to any tax of any kind
whatsoever with respect to any Eurodollar Loans made by it or its
obligation to make Eurodollar Loans, or change the basis of taxation of
payments to such Lender in respect thereof (except for (i) Non-Excluded
Taxes covered by Section 3.9 (including Non-Excluded Taxes imposed
solely by reason of any failure of such Lender to comply with its
obligations under Section 3.9(b)) and (ii) changes in taxes measured by
or imposed upon the overall net income, or franchise tax (imposed in
lieu of such net income tax), of such Lender or its applicable lending
office, branch, or any affiliate thereof));
(b) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
31
<PAGE>
(c) shall impose on such Lender any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, upon notice to the
Borrower from such Lender, through the Agent, in accordance herewith, the
Borrower shall be obligated to promptly pay such Lender, upon its demand, any
additional amounts necessary to compensate such Lender for such increased cost
or reduced amount receivable, provided that, in any such case, the Borrower may
elect to convert the Eurodollar Loans made by such Lender hereunder to Base Rate
Loans by giving the Agent at least one Business Day's notice of such election,
in which case the Borrower shall promptly pay to such Lender, upon demand,
without duplication, such amounts, if any, as may be required pursuant to
Section 3.10. If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall provide prompt notice thereof to the
Borrower, through the Agent, certifying (x) that one of the events described in
this paragraph (a) has occurred and describing in reasonable detail the nature
of such event, (y) as to the increased cost or reduced amount resulting from
such event and (z) as to the additional amount demanded by such Lender and a
reasonably detailed explanation of the calculation thereof. Such a certificate
as to any additional amounts payable pursuant to this subsection submitted by
such Lender, through the Agent, to the Borrower shall be conclusive and binding
on the parties hereto in the absence of manifest error. This covenant shall
survive for a period of one year the termination of this Credit Agreement and
the payment of the Loans and all other amounts payable hereunder.
3.9 Taxes.
(a) Except as provided below in this subsection, all
payments made by the Borrower under this Credit Agreement and any Notes
shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any court, or governmental body, agency or other official,
excluding taxes measured by or imposed upon the overall net income of
any Lender or its applicable lending office, or any branch or affiliate
thereof, and all franchise taxes, branch taxes, taxes on doing business
or taxes on the overall capital or net worth of any Lender or its
applicable lending office, or any branch or affiliate thereof, in each
case imposed in lieu of net income taxes, imposed: (i) by the
jurisdiction under the laws of which such Lender, applicable lending
office, branch or affiliate is organized or is located, or in which its
principal executive office is located, or any nation within which such
jurisdiction is located or any political subdivision thereof; or (ii)
by reason of any connection between the jurisdiction imposing such tax
and such Lender, applicable lending office, branch or affiliate other
than a connection arising solely from such Lender having executed,
delivered or performed its obligations, or received payment under or
enforced, this Credit Agreement or any Notes. If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or
withholdings
32
<PAGE>
("Non-Excluded Taxes") are required to be withheld from any amounts
payable to the Agent or any Lender hereunder or under any Notes, (A)
the amounts so payable to the Agent or such Lender shall be increased
to the extent necessary to yield to the Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this
Credit Agreement and any Notes, provided, however, that the Borrower
shall be entitled to deduct and withhold any Non-Excluded Taxes and
shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the United States of
America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection whenever any
Non-Excluded Taxes are payable by the Borrower, and (B) as promptly as
possible thereafter the Borrower shall send to the Agent for its own
account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to
the Agent the required receipts or other required documentary evidence,
the Borrower shall indemnify the Agent and the Lenders for any
incremental taxes, interest or penalties that may become payable by the
Agent or any Lender as a result of any such failure. The agreements in
this subsection shall survive the termination of this Credit Agreement
and the payment of the Loans, LOC Obligations and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws
of the United States of America or a state thereof shall:
(X) (i) on or before the date of any payment by the
Borrower under this Credit Agreement or Notes to such Lender,
deliver to the Borrower and the Agent (A) two (2) duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case
may be, certifying that it is entitled to receive payments
under this Credit Agreement and any Notes without deduction or
withholding of any United States federal income taxes and (B)
an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be, certifying that it is
entitled to an exemption from United States backup withholding
tax;
(ii) deliver to the Borrower and the Agent two (2)
further copies of any such form or certification on or before
the date that any such form or certification expires or
becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously
delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be
requested by the Borrower or the Agent; or
33
<PAGE>
(Y) in the case of any such Lender that is not a
"bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, (i) represent to the Borrower (for the
benefit of the Borrower and the Agent) that it is not a bank
within the meaning of Section 881(c)(3)(A) of the Internal
Revenue Code, (ii) agree to furnish to the Borrower on or
before the date of any payment by the Borrower, with a copy to
the Agent two (2) accurate and complete original signed copies
of Internal Revenue Service Form W-8, or successor applicable
form certifying to such Lender's legal entitlement at the date
of such certificate to an exemption from U.S. withholding tax
under the provisions of Section 881(c) of the Internal Revenue
Code with respect to payments to be made under this Credit
Agreement and any Notes (and to deliver to the Borrower and
the Agent two (2) further copies of such form on or before the
date it expires or becomes obsolete and after the occurrence
of any event requiring a change in the most recently provided
form and, if necessary, obtain any extensions of time
reasonably requested by the Borrower or the Agent for filing
and completing such forms), and (iii) agree, to the extent
legally entitled to do so, upon reasonable request by the
Borrower, to provide to the Borrower (for the benefit of the
Borrower and the Agent) such other forms as may be reasonably
required in order to establish the legal entitlement of such
Lender to an exemption from withholding with respect to
payments under this Credit Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has
occurred after the date such Person becomes a Lender hereunder which
renders all such forms inapplicable or which would prevent such Lender
from duly completing and delivering any such form with respect to it
and such Lender so advises the Borrower and the Agent. Each Person that
shall become a Lender or a participant of a Lender pursuant to
subsection 11.3 shall, upon the effectiveness of the related transfer,
be required to provide all of the forms, certifications and statements
required pursuant to this subsection, provided that in the case of a
participant of a Lender the obligations of such participant of a Lender
pursuant to this subsection (b) shall be determined as if the
participant of a Lender were a Lender except that such participant of a
Lender shall furnish all such required forms, certifications and
statements to the Lender from which the related participation shall
have been purchased.
3.10 Indemnity.
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than through such Lender's gross negligence or willful misconduct) as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a
day which is not the last day of an Interest Period with respect thereto. With
respect to Eurodollar Loans, such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Eurodollar Loans provided for herein over (ii) the amount of
interest (as reasonably determined by such Lender) which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The covenants of
the Borrower set forth in this Section 3.10 shall survive for a period of one
year the termination of this Credit Agreement and the payment of the Loans, LOC
Obligations and all other amounts payable hereunder.
34
<PAGE>
3.11 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or (subject to the
terms of Section 3.3) prepayment of principal of any Loan or
reimbursement obligations arising from drawings under Letters of
Credit, each payment of interest on the Loans or reimbursement
obligations arising from drawings under Letters of Credit, each payment
of Unused Fees, each payment of the Letter of Credit Fee, each
reduction of the Revolving Committed Amount and each conversion or
extension of any Loan, shall be allocated pro rata among the Lenders in
accordance with the respective principal amounts of their outstanding
Loans and Participation Interests.
(b) Advances. Unless the Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not
make the amount that would constitute its ratable share of such
borrowing available to the Agent, the Agent may assume that such Lender
is making such amount available to the Agent, and the Agent may, in
reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Agent
by such Lender within the time period specified therefor hereunder,
such Lender shall pay to the Agent, on demand, such amount with
interest thereon at a rate equal to the Federal Funds Rate for the
period until such Lender makes such amount immediately available to the
Agent. A certificate of the Agent submitted to any Lender with respect
to any amounts owing under this subsection shall be conclusive in the
absence of manifest error.
3.12 Sharing of Payments.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of Title 11 of the United States Code or other security
or interest arising from, or in lieu of, such secured claim, received by such
Lender under any applicable bankruptcy, insolvency or other similar law or
otherwise, or by any other means, in excess of its pro rata share of such
payment as provided for in this Credit Agreement, such Lender shall promptly
purchase from the other Lenders a participation in such Loans, LOC Obligations
and other obligations in such amounts, and make such other adjustments from time
to time, as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this Credit
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall have shared the benefit of
such payment shall, by repurchase of a participation theretofore sold, return
its share of that benefit (together with its share of any accrued interest
payable with respect thereto) to each Lender whose payment shall have been
rescinded or otherwise restored. The Borrower agrees that any Lender so
purchasing such a participation may, to the fullest extent permitted by law,
exercise all rights of payment, including setoff, banker's lien or counterclaim,
with respect to such participation as fully as if such Lender were a holder of
such Loan, LOC Obligations or other obligation in the amount of such
participation. Except as otherwise expressly provided in this Credit Agreement,
if any Lender or the Agent shall fail to remit to the Agent or any other Lender
an amount payable by such Lender or the Agent to the Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made together with interest thereon for each date from the
date such amount is due until the date such amount is paid to the Agent or such
other Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.12 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.12 to share in the benefits of any recovery on such secured claim.
35
<PAGE>
3.13 Payments, Computations, Etc.
(a) Except as otherwise specifically provided herein, all
payments hereunder shall be made to the Agent in dollars in immediately
available funds, without offset, deduction, counterclaim or withholding
of any kind, at the Agent's office specified in Section 11.1 not later
than 2:00 P.M. (Charlotte, North Carolina time) on the date when due.
Payments received after such time shall be deemed to have been received
on the next succeeding Business Day. The Agent may (but shall not be
obligated to) debit the amount of any such payment which is not made by
such time to any ordinary deposit account of the Borrower maintained
with the Agent (with notice to the Borrower). The Borrower shall, at
the time it makes any payment under this Credit Agreement, specify to
the Agent the Loans, LOC Obligations, Fees, interest or other amounts
payable by the Borrower hereunder to which such payment is to be
applied (and in the event that it fails so to specify, or if such
application would be inconsistent with the terms hereof, the Agent
shall distribute such payment to the Lenders in such manner as the
Agent may determine to be appropriate in respect of obligations owing
by the Borrower hereunder, subject to the terms of Section 3.11(a)).
The Agent will distribute such payments to such Lenders, if such
payment is received prior to 12:00 Noon (Charlotte, North Carolina
time) on a Business Day in like funds as received prior to the end of
such Business Day and otherwise the Agent will distribute such payment
to such Lenders on the next succeeding Business Day. Whenever any
payment hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next
succeeding Business Day (subject to accrual of interest and Fees for
the period of such extension), except that in the case of Eurodollar
Loans, if the extension would cause the payment to be made in the next
following calendar month, then such payment shall instead be made on
the next preceding Business Day. Except as expressly provided otherwise
herein, all computations of interest and fees shall be made on the
basis of actual number of days elapsed over a year of 360 days, except
with respect to computation of interest on Base Rate Loans which
(unless the Base Rate is determined by reference to the Federal Funds
Rate) shall be calculated based on a year of 365 or 366 days, as
appropriate. Interest shall accrue from and include the date of
borrowing, but exclude the date of payment.
36
<PAGE>
(b) Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement to the
contrary, after the occurrence and during the continuance of an Event
of Default, all amounts collected or received by the Agent or any
Lender on account of the Loans or any other amounts outstanding under
any of the Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket
costs and expenses (including without limitation reasonable
attorneys' fees actually incurred) of the Agent in connection
with enforcing the rights of the Lenders under the Credit
Documents;
SECOND, to payment of any fees owed to the Agent;
THIRD, to the payment of all reasonable out-of-pocket
costs and expenses (including without limitation, reasonable
attorneys' fees actually incurred) of each of the Lenders in
connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Loans owing to such
Lender;
FOURTH, to the payment of all accrued interest and
fees on or in respect of the Loans;
FIFTH, to the payment of the outstanding principal
amount of the Loans and LOC Obligations (including the payment
or cash collateralization of the outstanding LOC Obligations);
SIXTH, to all other obligations which shall have
become due and payable under the Credit Documents or otherwise
and not repaid pursuant to clauses "FIRST" through "FIFTH"
above; and
SEVENTH, to the payment of the surplus, if any, to
whoever may be lawfully entitled to receive such surplus.
37
<PAGE>
In carrying out the foregoing, (i) amounts received shall be applied in
the numerical order provided until exhausted prior to application to
the next succeeding category; (ii) each of the Lenders shall receive an
amount equal to its pro rata share (based on the proportion that the
then outstanding Loans and LOC Obligations held by such Lender bears to
the aggregate then outstanding Loans and LOC Obligations) of amounts
available to be applied pursuant to clauses "THIRD", "FOURTH", "FIFTH"
and "SIXTH" above; and (iii) to the extent that any amounts available
for distribution pursuant to clause "FIFTH" above are attributable to
the issued but undrawn amount of outstanding Letters of Credit, such
amounts shall be held by the Agent in a cash collateral account and
applied (A) first, to reimburse the Issuing Lender from time to time
for any drawings under such Letters of Credit and (B) then, following
the expiration of all Letters of Credit, to all other obligations of
the types described in clauses "FIFTH" and "SIXTH" above in the manner
provided in this Section 3.13(b).
3.14 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts
evidencing each Loan made by such Lender to the Borrower from time to
time, including the amounts of principal and interest payable and paid
to such Lender from time to time under this Credit Agreement. Each
Lender will make reasonable efforts to maintain the accuracy of its
account or accounts and to promptly update its account or accounts from
time to time, as necessary.
(b) The Agent shall maintain the Register pursuant to
Section 11.3(c) hereof, and a subaccount for each Lender, in which
Register and subaccounts (taken together) shall be recorded (i) the
amount, type and Interest Period of each such Loan hereunder, (ii) the
amount of any principal or interest due and payable or to become due
and payable to each Lender hereunder and (iii) the amount of any sum
received by the Agent hereunder from or for the account of the Borrower
and each Lender's share thereof. The Agent will make reasonable efforts
to maintain the accuracy of the subaccounts referred to in the
preceding sentence and to promptly update such subaccounts from time to
time, as necessary.
(c) The entries made in the accounts, Register and
subaccounts maintained pursuant to subsection (b) of this Section 3.14
(and, if consistent with the entries of the Agent, subsection (a))
shall be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that
the failure of any Lender or the Agent to maintain any such account,
such Register or such subaccount, as applicable, or any error therein,
shall not in any manner affect the obligation of the Borrower to repay
the Loans made by such Lender in accordance with the terms hereof.
3.15 Replacement Lenders.
38
<PAGE>
At any time after the payment by the Borrower to any Lender of any
amount pursuant to Section 3.8 or 3.9 that the Borrower reasonably deems
material, the Borrower may, by writing addressed to the Agent and each Lender
that requested the payment of such amount, nominate or propose any bank or other
financial institution that is willing to become the assignee of the Commitment
and other obligations of such Lender (a "Replacement Lender") pursuant to
Section 11.3, and within fifteen (15) Business Days after receipt of such
proposal from the Borrower, each such Lender shall execute and deliver to the
Agent an assignment agreement whereby such Lender shall assign its entire
Commitment in favor of the proposed Replacement Lender in accordance with
Section 11.3 unless, prior to the expiration of such period, the Agent shall
have notified the Borrower and such Lender that the proposed Replacement Lender
is not reasonably acceptable to the Agent; provided, that in no event will (i)
any Lender be required to enter into an Assignment Agreement at a price less
than par plus accrued interest and prorated fees and other costs due hereunder
to the effective date thereof, (ii) the Agent or any Lender be obligated to
assist the Borrower in identifying any bank or other financial institution that
is willing to become such a Replacement Lender or (iii) any such assignment be
required if the consummation thereof conflicts with any Requirement of Law.
SECTION 4
GUARANTY
4.1 The Guarantee.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, to each Affiliate of a Lender that enters into a Hedging Agreement and
to the Agent as hereinafter provided the prompt payment of the Guaranteed
Obligations in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration, a mandatory cash collateralization or otherwise)
strictly in accordance with the terms thereof. The Guarantors hereby further
agree that if any of the Guaranteed Obligations are not paid in full when due
(whether at stated maturity, as a mandatory prepayment, by acceleration, as
mandatory cash collateralization or otherwise), the Guarantors will, jointly and
severally, promptly pay the same, without any demand or notice whatsoever, and
that in the case of any extension of time of payment or renewal of any of the
Guaranteed Obligations, the same will be promptly paid in full when due (whether
at extended maturity, as a mandatory prepayment, by acceleration or otherwise)
in accordance with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in
any other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of such Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
39
<PAGE>
4.2 Loans Unconditional.
The obligations of the Guarantors under Section 4.1 hereof are joint
and several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each Guarantor agrees that such Guarantor shall have no right of
subrogation, indemnity, reimbursement or contribution against the Borrower or
any other Guarantor of the Guaranteed Obligations for amounts paid under this
Guaranty until such time as the Lenders (and any Affiliates of Lenders entering
into Hedging Agreements) have been paid in full, all Commitments under the
Credit Agreement have been terminated and no Person or Governmental Authority
shall have any right to request any return or reimbursement of funds from the
Lenders in connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to
any Guarantor, the time for any performance of or compliance with any
of the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
any of the Credit Documents, any Hedging Agreement or any other
agreement or instrument referred to in the Credit Documents or Hedging
Agreements shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right under
any of the Credit Documents, any Hedging Agreement or any other
agreement or instrument referred to in the Credit Documents or Hedging
Agreements shall be waived or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Agent or any
Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected; or
(v) any of the Guaranteed Obligations shall be determined
to be void or voidable (including, without limitation, for the benefit
of any creditor of any Guarantor) or shall be subordinated to the
claims of any Person (including, without limitation, any creditor of
any Guarantor).
40
<PAGE>
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Agent or any Lender exhaust any right,
power or remedy or proceed against any Person under any of the Credit Documents,
any Hedging Agreement or any other agreement or instrument referred to in the
Credit Documents or Hedging Agreements, or against any other Person under any
other guarantee of, or security for, any of the Guaranteed Obligations.
4.3 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Guaranteed Obligations is rescinded
or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Agent or such Lender in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
4.4 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Agent and the Lenders, on the
other hand, the Guaranteed Obligations may be declared to be forthwith due and
payable as provided in Section 9.2 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in said Section 9.2)
for purposes of Section 4.1 hereof notwithstanding any stay, injunction or other
prohibition preventing such declaration (or preventing the Guaranteed
Obligations from becoming automatically due and payable) as against any other
Person and that, in the event of such declaration (or the Guaranteed Obligations
being deemed to have become automatically due and payable), the Guaranteed
Obligations (whether or not due and payable by any other Person) shall forthwith
become due and payable by the Guarantors for purposes of said Section 4.1.
4.5 Rights of Contribution.
The Guarantors hereby agree, as among themselves, that if any Guarantor
shall become an Excess Funding Guarantor (as defined below), each other
Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the
succeeding provisions of this Section 4.5), pay to such Excess Funding Guarantor
an amount equal to such Guarantor's Pro Rata Share (as defined below and
determined, for this purpose, without reference to the properties, assets,
liabilities and debts of such Excess Funding Guarantor) of such Excess Payment
(as defined below). The payment obligation of any Guarantor to any Excess
Funding Guarantor under this Section 4.5 shall be subordinate and subject in
right of payment to the prior payment in full of the obligations of such
Guarantor under the other provisions of this Section 4, and such Excess Funding
41
<PAGE>
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For purposes
hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations
arising under the other provisions of this Section 4 (hereafter, the "Guarantied
Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata
Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in
respect of any Guarantied Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and
(iii) "Pro Rata Share", for the purposes of this Section 4.5, shall mean, for
any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which
the aggregate present fair saleable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but excluding
the obligations of such Guarantor hereunder) to (b) the amount by which the
aggregate present fair saleable value of all assets and other properties of the
Borrower and all of the Guarantors exceeds the amount of all of the debts and
liabilities (including contingent, subordinated, unmatured, and unliquidated
liabilities, but excluding the obligations of the Borrower and the Guarantors
hereunder) of the Borrower and all of the Guarantors, all as of the Closing Date
(if any Guarantor becomes a party hereto subsequent to the Closing Date, then
for the purposes of this Section 4.5 such subsequent Guarantor shall be deemed
to have been a Guarantor as of the Closing Date and the information pertaining
to, and only pertaining to, such Guarantor as of the date such Guarantor became
a Guarantor shall be deemed true as of the Closing Date).
4.6 Continuing Guarantee.
The guarantee in this Section 4 is a continuing guarantee, and shall
apply to all Guaranteed Obligations whenever arising. Each Guarantor further
agrees that until such time as the Lenders (and any Affiliates of Lenders
entering into Hedging Agreements) have been paid in full, all Commitments under
the Credit Agreement have been terminated and no Person or Governmental
Authority shall have any right to request any return or reimbursement of funds
from the Lenders in connection with monies received under the Credit Documents
or Hedging Agreement, no Guarantor shall enforce any rights provided it under
any reimbursement or guaranty agreement between or among such Guarantor and any
of the other Guarantors.
SECTION 5
CONDITIONS
5.1 Conditions to Closing.
This Credit Agreement shall become effective, and the initial
Extensions of Credit may be made, upon the satisfaction of the following
conditions precedent:
(a) Execution of Credit Agreement and Credit Documents.
Receipt of (i) multiple counterparts of this Credit Agreement and (ii)
a Revolving Note for each Lender, executed by a duly authorized officer
of each party thereto and in each case conforming to the requirements
of this Credit Agreement.
42
<PAGE>
(b) Financial Information. Receipt of financial
information regarding the Borrower and its Subsidiaries, as may be
requested by, and in form and substance satisfactory to the Agent,
including without limitation, (i) the consolidated financial statements
of the Borrower and its Subsidiaries for the year ending December 31,
1998, including balance sheets and income and cash flow statements,
audited by nationally recognized independent public accountants
reasonably satisfactory to the Required Lenders and containing an
unqualified opinion of such firm that such statements present fairly,
in all material respects, the consolidated financial position and
results of operations of the Borrower, and are prepared in conformity
with GAAP and (ii) the company-prepared consolidated balance sheet of
the Borrower and its Subsidiaries for the fiscal quarter ending March
31, 1999 and related consolidated statements of income, retained
earnings, shareholders' equity and cash flows for such period, prepared
in conformity with GAAP.
(c) Absence of Legal Proceedings. The absence of any
action, suit, investigation or proceeding pending in any court or
before any arbitrator or governmental instrumentality which could
reasonably be expected to have a Material Adverse Effect on the
Borrower or any of its Subsidiaries.
(d) Legal Opinions. Receipt of opinions of counsel for
the Credit Parties relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to
the Agent and the Required Lenders.
(e) Corporate Documents. Receipt of the following for the
Borrower, Staff Acquisition, Inc. and Staff Insurance:
(i) Articles of Incorporation. Copies of the articles
of incorporation or charter documents certified to be true and
complete as of a recent date by the appropriate governmental
authority of the state of its incorporation.
(ii) Resolutions. Copies of resolutions of the Board
of Directors approving and adopting the respective Credit
Documents, the transactions contemplated therein and
authorizing the execution and delivery thereof, certified by a
secretary or assistant secretary as of the Closing Date to be
true and correct and in force and effect as of such date.
(iii) Bylaws. Copies of the bylaws certified by a
secretary or assistant secretary as of the Closing Date to be
true and correct and in force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of
certificates of good standing, existence or its equivalent
certified as of a recent date by the appropriate governmental
authorities of the state of incorporation and each other state
in which the failure to so qualify and be in good standing
would have a material adverse effect on the business or
operations in such state.
43
<PAGE>
(v) Incumbency. An incumbency certificate certified
by a secretary or assistant secretary to be true and correct
as of the Closing Date.
(f) Partnership Documents. Receipt of the following for each
of the Guarantors other than Staff Acquisition, Inc. and Staff
Insurance:
(i) Partnership Agreement. Copy of the partnership
agreement certified to be true and correct and in full force
and effect as of the Closing Date.
(ii) Resolutions. Copies of resolutions approving and
adopting the respective Credit Documents, the transactions
contemplated therein and authorizing the execution and
delivery thereof, certified to be true and correct and in full
force and effect as of the Closing Date.
(iii) Good Standing. Copies, where applicable, of
certificates of good standing, existence or its equivalent
certified as of a recent date by the appropriate governmental
authorities of the state of formation and each other state in
which the failure to so qualify and be in good standing would
have a material adverse effect on the business or operations
in such state.
(iv) Incumbency. An incumbency certificate certified
by an authorized representative to be true and correct as of
the Closing Date.
(g) Health Care Agreement. The Agent shall have received a
certified copy of the Health Care Agreement.
(h) Material Adverse Effect. There shall not have occurred a
change since December 31, 1998 that has had or could reasonably be
expected to have a Material Adverse Effect (including matters related
to litigation, tax, accounting, labor, insurance and pension
liabilities).
(i) Officer's Certificate. The Agent shall have received a
certificate or certificates executed by the chief financial officer of
the Borrower as of the Closing Date stating that (A) the Borrower and
each of the Borrower's Subsidiaries are in compliance with all existing
financial obligations, (B) all governmental, shareholder and third
party consents and approvals, if any, with respect to the Credit
Documents and the transactions contemplated thereby have been obtained,
(C) no action, suit, investigation or proceeding is pending or, to the
best of his knowledge, threatened in any court or before any arbitrator
or governmental instrumentality that purports to affect any transaction
contemplated by the Credit Documents, or could have or might be
reasonably expected to have a Material Adverse Effect, and (D)
immediately after giving effect to this Credit Agreement, the other
Credit Documents and all the transactions contemplated herein or
therein to occur on such date, (1) the Borrower and each of the
Borrower's Subsidiaries is Solvent, (2) no Default or Event of Default
exists, (3) all representations and warranties contained herein and in
the other Credit Documents are true and correct in all material
respects, and (4) the Borrower is in compliance with each of the
financial covenants set forth in Section 7.9.
44
<PAGE>
(j) Fees. Payment by the Borrower to the Agent of an upfront
fee equal to 0.50% of the Revolving Committed Amount.
(k) Additional Matters. All other documents and legal matters
in connection with the transactions contemplated by this Credit
Agreement shall be reasonably satisfactory in form and substance to the
Agent and the Required Lenders.
5.2 Conditions to All Extensions of Credit.
The obligation of each Lender to make any Extension of Credit hereunder
(including the initial Extension of Credit to be made hereunder) is subject to
the satisfaction of the following conditions precedent on the date of making
such Extension of Credit:
(a) Notice of Borrowing. The Borrower shall have
delivered (i) in the case of any new Revolving Loan, a Notice of
Borrowing, duly executed and completed in accordance with the terms
hereof, (ii) in the case of any extension or conversion of a Loan, a
duly executed and completed Notice of Extension/Conversion by the time
specified in Section 3.2. or (iii) in the case of any Letter of Credit,
the Issuing Lender shall have received an appropriate request for
issuance in accordance with the provisions of Section 2.2(b).
(b) Representations and Warranties. The representations
and warranties made by the Borrower herein or in any other Credit
Documents or which are contained in any certificate furnished at any
time under or in connection herewith shall be true and correct in all
material respects on and as of the date of such Extension of Credit as
if made on and as of such date (except for those which expressly relate
to an earlier date).
(c) No Default or Event of Default. No Default or Event
of Default shall have occurred and be continuing on such date or after
giving effect to the Extension of Credit to be made on such date unless
such Default or Event of Default shall have been waived in accordance
with this Credit Agreement.
(d) No Material Adverse Effect. No circumstances, events
or conditions shall have occurred since the date of the audited
financial statements referenced in Section 6.1 which would have a
Material Adverse Effect.
(e) Immediately after giving effect to the making of such
Extension of Credit (and the application of the proceeds thereof), (i)
the sum of the aggregate outstanding principal amount of Revolving
Loans plus LOC Obligations shall not exceed the Revolving Committed
Amount, and (ii) the LOC Obligations shall not exceed the LOC Committed
Amount.
45
<PAGE>
Each request for Extension of Credit (including extensions and
conversions) and each acceptance by the Borrower of an Extension of Credit
(including extensions and conversions) shall be deemed to constitute a
representation and warranty by the Borrower as of the date of such Extension of
Credit that the applicable conditions in paragraphs (a), (b), (c), (d) and (e)
of this subsection have been satisfied.
SECTION 6
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Credit Agreement and to make
Extensions of Credit herein provided for, each Credit Party hereby represents
and warrants to the Agent and to each Lender that:
6.1 Financial Condition.
The financial statements delivered to the Agent pursuant to Section
5.1(b) have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, are complete and correct in all material
respects and present fairly the financial condition and results from operations
of the entities and for the periods specified, subject in the case of interim
company-prepared statements to normal year-end adjustments.
6.2 No Changes or Restricted Payments.
Since the date of the audited financial statements referenced
in Section 6.1, (a) there has been no circumstance, development or event
relating to or affecting the Borrower or any of its Subsidiaries which has had
or would be reasonably expected to have a Material Adverse Effect, and (b)
except as permitted herein or as identified on Schedule 6.2, (i) no dividends or
other distributions have been declared, paid or made upon the capital stock or
other equity interest in a Credit Party, (ii) no capital stock or other equity
interest in a Credit Party has been redeemed, retired, purchased or otherwise
acquired and (iii) nor has there been any prepayment, redemption, defeasance or
acquisition for value, or refund, refinance or exchange of any Funded Debt.
6.3 Organization; Existence; Compliance with Law.
The Borrower and each of its Subsidiaries (a) is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the legal or other necessary power and
authority, and the legal right to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not, in the aggregate, have a Material
Adverse Effect, and (d) is in compliance with all Requirements of Law, except to
the extent that the failure to comply therewith would not, in the aggregate, be
reasonably expected to have a Material Adverse Effect.
46
<PAGE>
6.4 Power; Authorization; Enforceable Loans.
Each Credit Party has the legal or other necessary power and authority,
and the legal right, to make, deliver and perform the Credit Documents to which
it is a party and has taken all necessary legal action to authorize the
execution, delivery and performance by it of the Credit Documents to which it is
a party. No consent or authorization of, filing with, notice to or other act by
or in respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery or
performance of any Credit Documents by any Credit Party (other than those which
have been obtained) or with the validity or enforceability of any Credit
Document against such Credit Party (except such filings as are necessary in
connection with the perfection of the Liens created by such Credit Documents).
Each Credit Document to which it is a party constitutes a legal, valid and
binding obligation of each Credit Party enforceable against such Credit Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
6.5 No Legal Bar.
The execution, delivery and performance of the Credit Documents, the
borrowings hereunder and the use of the Extensions of Credit will not violate
any Requirement of Law (including, without limitation, Regulation U or
Regulation X) or any Contractual Obligation of any Credit Party or any of its
Subsidiaries (except those as to which waivers or consents have been obtained,
and will not result in, or require, the creation or imposition of any Lien on
any of their respective properties or revenues pursuant to any Requirement of
Law or Contractual Obligation other than the Liens arising under or contemplated
in connection with the Credit Documents). None of the Credit Parties nor any of
its Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which would reasonably be expected to have a Material
Adverse Effect.
6.6 No Material Litigation.
No claim, litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the best knowledge of any
Credit Party, threatened by or against, the Borrower or any of its Subsidiaries
or against any of their respective properties or revenues which (a) relate to
the Credit Documents or any of the transactions contemplated hereby or thereby,
or (b) if adversely determined, would reasonably be expected to have a Material
Adverse Effect.
47
<PAGE>
6.7 No Default.
No Default or Event of Default has occurred and is continuing.
6.8 Ownership of Property; Liens.
The Borrower and each of its Subsidiaries has good record and
marketable title in fee simple to, or a valid leasehold interest in, all its
material real property, and good title to, or a valid leasehold interest in, all
its other material property, and none of such property is subject to any Lien,
except for Permitted Liens.
6.9 Intellectual Property.
The Borrower and each of its Subsidiaries owns, or has the legal right
to use, all United States trademarks, tradenames, copyrights, technology,
know-how and processes, if any, necessary for each of them to conduct its
business as currently conducted (the "Intellectual Property") except for those
the failure to own or have such legal right to use would not be reasonably
expected to have a Material Adverse Effect. No claim has been asserted and is
pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, nor does any Credit Party know of any such claim, and the use of such
Intellectual Property by the Borrower or any of its Subsidiaries does not
infringe on the rights of any Person, except for such claims and infringements
that in the aggregate, would not be reasonably expected to have a Material
Adverse Effect.
6.10 No Burdensome Restrictions.
No Requirement of Law or Contractual Obligation of the Borrower or any
of its Subsidiaries would be reasonably expected to have a Material Adverse
Effect.
6.11 Taxes.
The Borrower and each of its Subsidiaries (a) has filed or caused to be
filed all United States federal income tax returns and all other material tax
returns which, to the best knowledge of the Credit Parties, are required to be
filed and (b) has paid (i) all taxes shown to be due and payable on said
returns, (ii) all taxes shown to be due and payable on any assessments of which
it has received notice made against it or any of its property and (c) all other
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any (x) taxes, fees or other charges with
respect to which the failure to pay, in the aggregate, would not have a Material
Adverse Effect or (y) taxes, fees or other charges the amount or validity of
which are currently being contested and with respect to which reserves in
conformity with GAAP have been provided on the books of such Person), and no tax
Lien has been filed, and, to the best knowledge of the Credit Parties, no claim
is being asserted, with respect to any such tax, fee or other charge.
48
<PAGE>
6.12 ERISA
Except as would not reasonably be expected to have a Material Adverse
Effect:
(a) During the five-year period prior to the date on
which this representation is made or deemed made: (i) no ERISA Event
has occurred, and, to the best knowledge of the Credit Parties, no
event or condition has occurred or exists as a result of which any
ERISA Event could reasonably be expected to occur, with respect to any
Plan; (ii) no "accumulated funding deficiency," as such term is defined
in Section 302 of ERISA and Section 412 of the Code, whether or not
waived, has occurred with respect to any Plan; (iii) each Plan has been
maintained, operated, and funded in compliance with its own terms and
in material compliance with the provisions of ERISA, the Code, and any
other applicable federal or state laws; and (iv) no lien in favor of
the PBGC or a Plan has arisen or is reasonably likely to arise on
account of any Plan.
(b) The actuarial present value of all "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA), whether or
not vested, under each Single Employer Plan, as of the last annual
valuation date prior to the date on which this representation is made
or deemed made (determined, in each case, in accordance with Financial
Accounting Standards Board Statement 87, utilizing the actuarial
assumptions used in such Plan's most recent actuarial valuation
report), did not exceed as of such valuation date the fair market value
of the assets of such Plan.
(c) Neither the Borrower, nor any of its Subsidiaries nor
any ERISA Affiliate has incurred, or, to the best knowledge of the
Credit Parties, could be reasonably expected to incur, any withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer
Plan. Neither the Borrower, nor any of its Subsidiaries nor any ERISA
Affiliate would become subject to any withdrawal liability under ERISA
if the Borrower, any of its Subsidiaries or any ERISA Affiliate were to
withdraw completely from all Multiemployer Plans and Multiple Employer
Plans as of the valuation date most closely preceding the date on which
this representation is made or deemed made. Neither the Borrower, nor
any of its Subsidiaries nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization (within
the meaning of Section 4241 of ERISA), is insolvent (within the meaning
of Section 4245 of ERISA), or has been terminated (within the meaning
of Title IV of ERISA), and no Multiemployer Plan is, to the best
knowledge of the Credit Parties, reasonably expected to be in
reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility has occurred with respect to a Plan which has
subjected or may subject the Borrower, any of its Subsidiaries or any
ERISA Affiliate to any liability under Sections 406, 409, 502(i), or
502(l) of ERISA or Section 4975 of the Code, or under any agreement or
other instrument pursuant to which the Borrower, any of its
Subsidiaries or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability.
49
<PAGE>
(e) Neither the Borrower, nor any of its Subsidiaries,
nor any ERISA Affiliates has any material liability with respect to
"expected post-retirement benefit obligations" within the meaning of
the Financial Accounting Standards Board Statement 106. Each Plan which
is a welfare plan (as defined in Section 3(1) of ERISA) to which
Sections 601-609 of ERISA and Section 4980B of the Code apply has been
administered in compliance in all material respects of such sections.
6.13 Governmental Regulations, Etc.
(a) No part of the Letters of Credit or proceeds of the
Loans will be used, directly or indirectly, for the purpose of
purchasing or carrying any "margin stock" within the meaning of
Regulation U, or Regulation X. If requested by any Lender or the Agent,
the Borrower will furnish to the Agent and each Lender a statement to
the foregoing effect in conformity with the requirements of FR Form U-1
referred to in said Regulation U. No indebtedness being reduced or
retired out of the proceeds of the Loans was or will be incurred for
the purpose of purchasing or carrying any margin stock within the
meaning of Regulation U or any "margin security" within the meaning of
Regulation T. None of the transactions contemplated by this Credit
Agreement (including, without limitation, the direct or indirect use of
the proceeds of the Loans) will violate or result in a violation of the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, or regulations issued pursuant thereto, or Regulation
T, U or X.
(b) Neither the Borrower, nor any of its Subsidiaries, is
subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act or the Investment Company Act of 1940, each
as amended. In addition, neither the Borrower, nor any of its
Subsidiaries, is (i) an "investment company" registered or required to
be registered under the Investment Company Act of 1940, as amended, and
is not controlled by such a company, or (ii) a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(c) The Borrower and each of its Subsidiaries has
obtained all material licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its
respective Property and to the conduct of its business.
(d) Neither the Borrower, nor any of its Subsidiaries is
in violation of any applicable statute, regulation or ordinance of the
United States of America, or of any state, city, town, municipality,
county or any other jurisdiction, or of any agency thereof (including
without limitation, environmental laws and regulations), which
violation could reasonably be expected to have a Material Adverse
Effect.
(e) The Borrower and each of its Subsidiaries is current
with all material reports and documents, if any, required to be filed
with any state or federal securities commission or similar agency and
is in full compliance in all material respects with all applicable
rules and regulations of such commissions.
50
<PAGE>
6.14 Purpose of Extensions of Credit.
The Loans will be used solely (a) for working capital and (b) to
reimburse the Issuing Lender for any drawing under any Letter of Credit. The
Letters of Credit shall be used only for or in connection with appeal bonds,
reimbursement obligations arising in connection with surety and reclamation
bonds, reinsurance, domestic or international trade transactions and obligations
not otherwise aforementioned relating to transactions entered into by the
applicable account party in the ordinary course of business.
6.15 Environmental Matters.
Except as would not reasonably be expected to have a Material Adverse
Effect:
(a) To the best knowledge of each of the Credit Parties, each
of the facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") and all
operations at the Properties are in compliance with all applicable
Environmental Laws, and there is no violation of any Environmental Law
with respect to the Properties or the businesses operated by the
Borrower or any of its Subsidiaries (the "Businesses"), and there are
no conditions relating to the Businesses or Properties that could give
rise to liability under any applicable Environmental Laws.
(b) To the best knowledge of each of the Credit Parties, none
of the Properties contains, or has previously contained, any Materials
of Environmental Concern at, on or under the Properties in amounts or
concentrations that constitute or constituted a violation of, or could
give rise to liability under, Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has
received any written or verbal notice of, or inquiry from any
Governmental Authority regarding, any violation, alleged violation,
non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard
to any of the Properties or the Businesses, nor does the Borrower or
any of its Subsidiaries have knowledge or reason to believe that any
such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Properties, or generated, treated,
stored or disposed of at, on or under any of the Properties or any
other location, in each case by or on behalf of the Borrower or any of
its Subsidiaries in violation of, or in a manner that would be
reasonably likely to give rise to liability under, any applicable
Environmental Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the best knowledge of the Credit Parties,
threatened, under any Environmental Law to which the Borrower or any of
its Subsidiaries is or will be named as a party, nor are there any
consent decrees or other decrees, consent orders, administrative orders
or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Borrower or
any of its Subsidiaries, the Properties or the Businesses.
51
<PAGE>
(f) To the best knowledge of each of the Credit Parties, there
has been no release or, threat of release of Materials of Environmental
Concern at or from the Properties, or arising from or related to the
operations (including, without limitation, disposal) of the Borrower or
any of its Subsidiaries in connection with the Properties or otherwise
in connection with the Businesses, in violation of or in amounts or in
a manner that could give rise to liability under Environmental Laws.
6.16 Subsidiaries.
Set forth on Schedule 6.16 is a complete and accurate list of all
Subsidiaries of each Credit Party. Information on Schedule 6.16 includes
jurisdiction of incorporation or organization, the number of shares of each
class of capital stock outstanding, the number and percentage of outstanding
shares of each class owned (directly or indirectly) by such Credit Party; and
the number and effect, if exercised, of all outstanding options, warrants,
rights of conversion or purchase and all other similar rights with respect
thereto. The outstanding capital stock of all such Subsidiaries is validly
issued, fully paid and non-assessable and is owned by each such Credit Party,
directly or indirectly, free and clear of all Liens.
6.17 Year 2000 Compliance.
Each of the Credit Parties has (i) initiated a review and assessment of
all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications may not be able to recognize and properly perform date-sensitive
functions after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem, and (iii) to date, implemented that plan in
accordance with that timetable. Based on the foregoing, each Credit Party has no
reason not to believe that all computer applications (including those of its
suppliers, vendors and customers) that are material to its or any of its
Subsidiaries' business and operations are reasonably expected before January 1,
2000 to be able to perform properly date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000 Compliant"), except to
the extent that a failure to do so would not reasonably be expected to have a
Material Adverse Effect.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that on the Closing Date, and so
long as this Credit Agreement is in effect and until the Commitments have been
terminated, no Loans remain outstanding and all amounts owing hereunder or in
connection herewith have been paid in full, the Borrower and each of its
Subsidiaries shall:
52
<PAGE>
7.1 Financial Statements.
Furnish, or cause to be furnished, to each of the Lenders:
(a) Audited Financial Statements. As soon as available, but in
any event within 120 days after the end of each fiscal year, an audited
consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of the fiscal year and the related consolidated statements of
income, retained earnings, shareholders' equity and cash flows for the
year, audited by independent certified public accountants of nationally
recognized standing reasonably acceptable to the Required Lenders,
setting forth in each case in comparative form the figures for the
previous year, reported without a "going concern" or like qualification
or exception, or qualification indicating that the scope of the audit
was inadequate to permit such independent certified public accountants
to certify such financial statements without such qualification.
(b) Company-Prepared Financial Statements. As soon as
available, but in any event within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, a company-prepared
consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such quarter and related company-prepared consolidated
statements of income, retained earnings, shareholders' equity and cash
flows for such period and for the fiscal year to date in a format and
with detail sufficient to calculate the applicable financial covenants
setting forth in comparative form the consolidated figures for the
corresponding period or periods of the preceding fiscal year or the
portion of the fiscal year ending with such period, as applicable, in
each case subject to normal recurring year-end audit adjustments.
All such financial statements to be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring
year-end audit adjustments) and to be prepared in reasonable detail and, in the
case of the annual and quarterly financial statements provided in accordance
with subsections (a) and (b) above, in accordance with GAAP applied consistently
throughout the periods reflected therein) and further accompanied by a
description of, and an estimation of the effect on the financial statements on
account of, a change in the application of accounting principles as provided in
Section 1.3.
7.2 Certificates; Other Information.
Furnish, or cause to be furnished, to the Agent for distribution to the
Lenders:
(a) Accountant's Certificate and Reports. Concurrently with
the delivery of the financial statements referred to in subsection
7.1(a) above, a certificate of the independent certified public
accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such
certificate.
53
<PAGE>
(b) Officer's Certificate. Concurrently with the delivery of
the financial statements referred to in Sections 7.1(a) and 7.1(b)
above, a certificate of a Responsible Officer in the form of Schedule
7.2(b), (i) demonstrating compliance with the financial covenants
contained in Section 7.9 and (ii) stating that, to the best of such
Responsible Officer's knowledge and belief, (i) the financial
statements fairly present in all material respects the financial
condition of the parties covered by such financial statements, (ii)
during such period the Borrower and its Subsidiaries have observed or
performed the covenants and other agreements hereunder and under the
other Credit Documents relating to them, and satisfied the conditions
contained in this Credit Agreement to be observed, performed or
satisfied by them and (iii) such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in
such certificate.
(c) Accountants' Reports. Promptly upon receipt, a copy of any
final (as distinguished from a preliminary or discussion draft)
"management letter" or other similar report submitted by independent
accountants or financial consultants to the Borrower or any of its
Subsidiaries in connection with any annual, interim or special audit.
(d) Public Information. Within thirty days after the same are
sent, copies of all reports (other than those otherwise provided
pursuant to subsection 7.1) and other financial information which the
Borrower or any of its Subsidiaries sends to its public stockholders,
and within thirty days after the same are filed, copies of all
financial statements and non-confidential reports which the Borrower or
any of its Subsidiaries may make to, or file with, the Securities and
Exchange Commission or any successor or analogous Governmental
Authority.
(e) Actuarial Reports. Promptly upon receipt, a copy of any
actuarial report submitted by the Borrower's independent actuarial firm
to the Borrower or any of its Subsidiaries relating to healthcare plans
for any state for which the Borrower or any of its Subsidiaries does
not have a guaranteed cost healthcare plan.
(f) Other Information. Promptly, such additional financial and
other information as the Agent, at the request of any Lender, may from
time to time reasonably request.
7.3 Notices.
Give notice to the Agent (which shall promptly transmit such notice to
each Lender) of:
(a) Defaults. Immediately after any Credit Party knows or has
reason to know thereof, the occurrence of any Default or Event of
Default.
54
<PAGE>
(b) Contractual Loans. Promptly, the initiation of any default
or event of default under any Contractual Obligation of the Borrower or
any of its Subsidiaries which would reasonably be expected to have a
Material Adverse Effect.
(c) Legal Proceedings. Promptly, any litigation, or any
investigation or proceeding (including without limitation, any
environmental proceeding) known to the Borrower or any of its
Subsidiaries, or any material development in respect thereof, affecting
the Borrower or any of its Subsidiaries which, if adversely determined,
would reasonably be expected to have a Material Adverse Effect.
(d) ERISA. Promptly, after any Responsible Officer of any
Credit Party knows or has reason to know of (i) any event or condition,
including, but not limited to, any Reportable Event, that constitutes,
or might reasonably lead to, an ERISA Event; (ii) with respect to any
Multiemployer Plan, the receipt of notice as prescribed in ERISA or
otherwise of any withdrawal liability assessed against any of their
ERISA Affiliates, or of a determination that any Multiemployer Plan is
in reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due
date (including extensions) thereof of all amounts which the Borrower
or any of its Subsidiaries or any ERISA Affiliate are required to
contribute to each Plan pursuant to its terms and as required to meet
the minimum funding standard set forth in ERISA and the Code with
respect; or (iv) any change in the funding status of any Plan that
reasonably could be expected to have a Material Adverse Effect;
together with a description of any such event or condition or a copy of
any such notice and a statement by the chief financial officer of the
Credit Parties briefly setting forth the details regarding such event,
condition, or notice, and the action, if any, which has been or is
being taken or is proposed to be taken by the Credit Parties with
respect thereto. Promptly upon request, the Borrower or any of its
Subsidiaries shall furnish the Agent and the Lenders with such
additional information concerning any Plan as may be reasonably
requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section 3(39)
of ERISA).
(e) Guarantee Cost Provision. Immediately after the
cancellation or termination of any guaranteed cost provision contained
in any healthcare agreement of the Borrower or any of its Subsidiaries.
(f) Other. Promptly, any other development or event which a
Responsible Officer determines could reasonably be expected to have a
Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Credit Parties propose to take with respect thereto.
55
<PAGE>
7.4 Payment of Loans.
Pay, discharge or otherwise satisfy at or before maturity or before
they become delinquent, as the case may be, in accordance with prudent business
practice (subject, where applicable, to specified grace periods) all material
obligations of the Borrower or any of its Subsidiaries of whatever nature
(including without limitation all taxes, assessments and governmental charges or
levies) and any additional costs that are imposed as a result of any failure to
so pay, discharge or otherwise satisfy such obligations, except when the amount
or validity of such obligations and costs is currently being contested in good
faith by appropriate proceedings and reserves, if applicable, in conformity with
GAAP with respect thereto have been provided on the books of the Borrower or any
of its Subsidiaries, as the case may be.
7.5 Conduct of Business and Maintenance of Existence.
(a) Continue to engage in business of the same general type as now
conducted by it on the date hereof, (b) preserve, renew and keep in full force
and effect its legal existence, (c) maintain all material rights, material
privileges, material licenses and material franchises necessary or desirable in
the normal conduct of its business and (d) comply with all Contractual
Obligations and Requirements of Law applicable to it except to the extent that
failure to comply therewith would not, in the aggregate, have a Material Adverse
Effect.
7.6 Maintenance of Property; Insurance.
Keep all material property useful and necessary in its business in
reasonably good working order and condition (ordinary wear and tear excepted);
maintain with financially sound and reputable insurance companies casualty,
liability and such other insurance (which may include plans of self-insurance)
with such coverage and deductibles, and in such amounts as may be consistent
with prudent business practice and in any event consistent with normal industry
practice (except to any greater extent as may be required by the terms of any of
the other Credit Documents); and furnish to the Agent, upon written request,
full information as to the insurance carried.
7.7 Inspection of Property; Books and Records; Discussions.
(a) Keep proper books of records and accounts in which full,
true and correct entries in conformity with GAAP and all Requirements
of Law shall be made of all dealings and transactions in relation to
its businesses and activities; and permit, during regular business
hours and upon reasonable notice by the Agent, the Agent to visit and
inspect any of its properties and examine and make abstracts (including
photocopies) from any of its books and records at any reasonable time,
and to discuss the business, operations, properties and financial and
other condition of the Borrower and any of its Subsidiaries with
officers and employees of the Borrower and any of its Subsidiaries and
with their independent certified public accountants. The cost of the
inspection referred to in the preceding sentence shall be for the
account of the Lenders, unless an Event of Default has occurred and is
continuing, in which case the cost of such inspection shall be for the
account of the Credit Parties.
56
<PAGE>
(b) In addition to the foregoing subsection (a), permit the
Agent to have agents or representatives conduct a "field audit" of its
inventory and accounts, including inspection of the inventory and
account records and a right to examine and make abstracts (including
photocopies) from its books and records relating to its inventory and
accounts on an annual basis, and more frequently after the occurrence
of an Event of Default. The cost of such "field audits" will be for the
account of, and will be promptly paid by, the Borrower.
7.8 Environmental Laws.
(a) Comply in all material respects with, and take reasonable
actions to ensure compliance in all material respects by all tenants and
subtenants of the Borrower or any of its Subsidiaries, if any, with, all
applicable Environmental Laws and obtain and comply in all material
respects with and maintain, and take reasonable actions to ensure that
all such tenants and subtenants obtain and comply in all material
respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable
Environmental Laws except to the extent that failure to do so would not
reasonably be expected to have a Material Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all
lawful orders and directives of all Governmental Authorities regarding
Environmental Laws except to the extent that the same are being
contested in good faith by appropriate proceedings and the failure to do
or the pendency of such proceedings would not reasonably be expected to
have a Material Adverse Effect; and
(c) Defend, indemnify and hold harmless the Agent and the
Lenders, and their respective employees, agents, officers and directors,
from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind
or nature known or unknown, contingent or otherwise, arising out of, or
in any way relating to the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the
Borrower or any of its Subsidiaries or the Properties, or any orders,
requirements or demands of Governmental Authorities related thereto,
including, without limitation, reasonable attorney's and consultant's
fees, investigation and laboratory fees, response costs, court costs and
litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party
seeking indemnification therefor. The agreements in this paragraph shall
survive repayment of the Loans and all other amounts payable hereunder,
and termination of the Commitments.
57
<PAGE>
7.9 Financial Covenants.
(a) Leverage Ratio. There shall be maintained with respect to
the Borrower and its Subsidiaries on a consolidated basis as of the end
of each fiscal quarter to occur through the Maturity Date, a Leverage
Ratio of not greater than 2.5 to 1.0.
(b) Fixed Charge Coverage Ratio. There shall be maintained
with respect to the Borrower and its Subsidiaries on a consolidated
basis as of the end of each fiscal quarter to occur through the
Maturity Date, a Fixed Charge Coverage Ratio of at least 2.5 to 1.0.
(c) Total Liabilities to Tangible Net Worth. There shall be
maintained with respect to the Borrower and its Subsidiaries on a
consolidated basis, as of the end of each fiscal quarter to occur
through the Maturity Date, a ratio of Total Liabilities to Tangible Net
Worth of not greater than 2.5 to 1.0.
(d) Liquidity. At all times the Borrower and its Subsidiaries
shall maintain a balance of cash and Cash Equivalents of at least
$1,000,000.
7.10 Use of Proceeds.
Extensions of Credit will be used solely for the purposes provided in
Section 6.14.
7.11 Additional Guaranties.
At any time any Person becomes a Domestic Subsidiary of the
Borrower, the Borrower will promptly notify the Agent thereof and cause
such Domestic Subsidiary (i) to become a Guarantor hereunder by (A)
execution of a Joinder Agreement and (B) delivery of supporting
resolutions, incumbency certificates, corporation formation and
organizational documentation and opinions of counsel as the Agent may
reasonably request.
7.12 Subsidiaries.
The Borrower shall, directly or indirectly, own at all times the
capital stock or partnership interest, as applicable, of each of its
Subsidiaries in the percentage as set forth on Schedule 6.16 (or such greater
percentage as may be hereafter acquired by the Borrower to the extent permitted
hereunder).
7.13 Year 2000 Compliance.
The Credit Parties will promptly notify the Agent in the event any
Credit Party discovers or determines that any computer application (including
those of its suppliers, vendors and customers) that is material to its or any of
its Subsidiaries' business and operations will not be Year 2000 Compliant,
except to the extent that such failure would not reasonably be expected to have
a Material Adverse Effect.
58
<PAGE>
SECTION 8
NEGATIVE COVENANTS
Each Credit Party covenants and agrees that on the Closing Date, and so
long as this Credit Agreement is in effect and until the Commitments have been
terminated, no Loans remain outstanding and all amounts owing hereunder or in
connection herewith, have been paid in full, neither the Borrower nor any of its
Subsidiaries shall:
8.1 Indebtedness.
Contract, create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness arising or existing under this Credit
Agreement and the other Credit Documents;
(b) Indebtedness set forth in Schedule 8.1, and renewals,
refinancings and extensions thereof on terms and conditions no less
favorable to the Borrower or any of its Subsidiaries, as appropriate,
than such existing Indebtedness;
(c) Indebtedness owing by one Credit Party to another Credit
Party;
(d) Indebtedness assumed in connection with a Permitted
Acquisition (so long as such Indebtedness (i) has been fully disbursed
by the lender and cannot be reborrowed following repayment and (ii) was
not incurred in anticipation of or in connection with the respective
acquisition) and renewals, refinancings and extensions thereof on terms
and conditions no less favorable to the Borrower or any of its
Subsidiaries, as appropriate, than the terms and conditions of the
Credit Agreement and the other Credit Documents, all of which
Indebtedness permitted by this Section 8.1(d), (A) in the case of
unsecured Indebtedness shall not exceed the aggregate principal amount
of $5,000,000 at any one time and (B) in the case of secured
Indebtedness, together with the Indebtedness permitted by Section
8.1(f), shall not exceed the aggregate principal amount of $1,000,000
at any one time;
(e) Subordinated Indebtedness owed to the seller in connection
with any acquisition permitted by Section 8.5 constituting part of the
purchase price thereof (so long as no more than twenty-five percent
(25%) of the principal amount of such Subordinated Indebtedness shall
be required to be repaid prior to the Maturity Date), all of which
Subordinated Indebtedness permitted by this Section 8.1(e) together
with the Indebtedness permitted by Section 8.1(d) shall not exceed the
aggregate principal amount of $10,000,000 at any one time;
59
<PAGE>
(f) Indebtedness with respect to Capital Leases, purchase
money Indebtedness or other unsecured Indebtedness which does not
exceed together with the secured Indebtedness permitted by Section
8.1(d), the aggregate principal amount of $500,000 at any time;
(g) Indebtedness and obligations owing under Hedging
Agreements entered into in the ordinary course of business to manage
existing or anticipated risks and not for speculative purposes; and
(h) (i) Indebtedness in respect of letters of credit issued by
NationsBank and (ii) indebtedness in respect of letters of credit
issued by financial institutions other than NationsBank to secure
excess liability obligations of the Borrower and its Subsidiaries in an
aggregate principal amount up to $500,000 at any one time outstanding.
8.2 Liens.
Contract, create, incur, assume or permit to exist any Lien with
respect to any of their respective property or assets of any kind (whether real
or personal, tangible or intangible), whether now owned or hereafter acquired,
except for Permitted Liens.
8.3 Nature of Business.
Alter the character of their business from that, or substantially
similar to that, conducted as of the Closing Date or engage in any business
other than the business conducted as of the Closing Date.
8.4 Consolidation, Merger, Sale or Purchase of Assets.
(a) Dissolve, liquidate or wind up their affairs or enter into
any transaction of merger or consolidation; provided, however that (i)
the Borrower may merge or consolidate with any Subsidiary of the
Borrower so long as the Borrower shall be the continuing or surviving
corporation and (ii) any Credit Party other than the Borrower may merge
or consolidate with any other Credit Party;
(b) Sell, lease, transfer or otherwise dispose of any Property
(including without limitation pursuant to any sale/leaseback
transaction) except (a) any Credit Party may sell, transfer or
otherwise dispose of any or all of its assets to another Credit Party;
(b) for the sale or other disposition of any Property that, in the
reasonable judgment of the Borrower has become uneconomic, obsolete or
worn out, and which is sold or disposed of in the ordinary course of
business; and (c) the sale or other disposition of any Property the
aggregate amount of net proceeds received in respect of which shall not
exceed $2,000,000 during the term of this Credit Agreement; and
60
<PAGE>
(c) Purchase or otherwise acquire (in a single transaction or
a series of related transactions) all or substantially all of the
assets or business of any Person except for Permitted Acquisitions.
8.5 Advances, Investments and Loans.
Lend money or extend credit or make advances to any Person, or purchase
or acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, or otherwise make an Investment in, any Person
except for Permitted Investments.
8.6 Restricted Payments.
Directly or indirectly, (a) declare or pay any dividends or make any
other distribution upon any shares of its capital stock of any class or other
equity interest other than (i) stock dividends and (ii) dividends by
Subsidiaries of the Borrower to the Borrower or another Credit Party, as
applicable, (b) purchase, redeem or otherwise acquire or retire or make any
provisions for redemption, acquisition or retirement of any shares of its
capital stock of any class or other equity interest or any warrants, options or
other rights to purchase any such shares or equity interest other than (i)
Permitted Investments and (ii) a repurchase or redemption by the Borrower of
shares of its capital stock owned by employees or former employees of the
Borrower so long as such repurchases or redemptions of capital stock shall not
exceed $1,500,000 in the aggregate during the term of this Credit Agreement; or
(c) except with respect to the Loans as permitted hereunder, make any
prepayment, redemption, defeaseance or acquisition for value of (including
without limitation, by way of depositing money or securities with the trustee
with respect thereto before due for the purpose of paying when due), or refund,
refinance or exchange of any Funded Debt.
8.7 Transactions with Affiliates.
Except as set forth on Schedule 8.7 and except for (a) loans or
advances to employees in the ordinary course of business (to the extent
permitted by clause (vi) of the definition of "Permitted Investments"), (b) the
performance of the Borrower's or any Subsidiary's obligations under any
employment contract or any other similar arrangement heretofore or hereafter
entered into in the ordinary course of business, (c) the payment of compensation
to employees, officers or directors in the ordinary course of business , (d)
customary fees or expenses paid to directors in the ordinary course of business
and (e) any repurchase or redemption of capital stock that is permitted by
Section 8.6, enter into or permit to exist any transaction or series of
transactions, whether or not in the ordinary course of business, with any
officer, director, shareholder, Subsidiary or Affiliate other than where such
transactions are on terms and conditions substantially as favorable as would be
obtainable in a comparable arm's-length transaction with a Person other than an
officer, director, shareholder, Subsidiary or Affiliate.
8.8 Fiscal Year.
Change its fiscal year.
61
<PAGE>
8.9 Limitation on Restrictions.
Create or permit to exist any restriction of any kind on the ability of
any Subsidiary to (i) pay dividends or make any other distributions to the
Borrower or any Credit Party, (ii) pay Indebtedness owed to the Borrower, (iii)
make loans or advances to the Borrower or (iv) except for any lease of a
Subsidiary with respect to office space, transfer any of its properties or
assets to the Borrower.
8.10 Sale Leasebacks.
Directly or indirectly, become or remain liable as lessee or as
guarantor or other surety with respect to any lease, whether an Operating Lease
or a Capital Lease, of any Property (whether real or personal or mixed), whether
now owned or hereafter acquired, (i) which such Person has sold or transferred
or is to sell or transfer to any other Person other than the Borrower or (ii)
which such Person intends to use for substantially the same purpose as any other
Property which has been sold or is to be sold or transferred by such Person to
any other Person in connection with such lease.
8.11 No Further Negative Pledges.
Except with respect to prohibitions against other encumbrances on
specific Property encumbered to secure payment of particular Indebtedness (which
Indebtedness relates solely to such specific Property, and improvements and
accretions thereto, and is otherwise permitted hereby), enter into, assume or
become subject to any agreement prohibiting or otherwise restricting the
creation or assumption of any Lien upon its properties or assets, whether now
owned or hereafter acquired, or requiring the grant of any security for such
obligation if security is given for some other obligation.
8.12 Capital Expenditures.
Make or incur Capital Expenditures in excess of $12,000,000 during any
fiscal year of the Borrower.
8.13 Management.
Make or permit to occur more than one change in the makeup of the
Management Group as of the Closing Date, except as may be approved in writing in
advance by the Required Lenders; provided, however, in the event of the death of
two or more members of the Management Group, the Borrower shall have a period of
30 days to replace such deceased members of the Management Group with
individuals satisfactory to the Required Lenders, in their sole discretion,
before the Borrower shall be deemed to have violated this Section 8.13.
62
<PAGE>
8.14 Subordinated Debt.
Effect or permit any change in or amendment to any document or
instrument pertaining to the subordination, or terms of payment of any
Subordinated Indebtedness, effect or permit any change in or amendment to any
document or instrument pertaining to the events of default of any Subordinated
Indebtedness if the effect of any such change or amendment is to make such
events of default more restrictive on the applicable Credit Party, or make any
payment of principal of or interest on or in redemption, retirement or
repurchase of any Subordinated Indebtedness, except for (a) the scheduled
payments of interest with respect to the Subordinated Indebtedness and (b) the
principal payments permitted by Section 8.1(e) so long as immediately before and
after giving effect to any of such payments, no Default or Event of Default
exists.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. The Borrower shall
(i) default in the payment when due of any principal
of any of the Loans or of any reimbursement obligations
arising from drawings under Letters of Credit, or
(ii) default, and such defaults shall continue for
three (3) or more Business Days, in the payment when due of
any interest on the Loans or on any reimbursement obligations
arising from drawings under Letters of Credit, or of any Fees
or other amounts owing hereunder, under any of the other
Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement
of the Borrower or any Subsidiary made or deemed to be made herein, in
any of the other Credit Documents, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto shall
prove untrue in any material respect on the date as of which it was
deemed to have been made; or
(c) Covenants.
(i) a default in the due performance or observance of
any term, covenant or agreement contained in Section 7.5(a),
7.5(b), 7.9, 7.10 or 8.1 through 8.14, inclusive,
63
<PAGE>
(ii) default in the due performance or observance of
any term, covenant or agreement contained in Section 7.3(a) or
7.3(e) and such default shall continue unremedied for a period
of at least 5 days after a Responsible Officer becoming aware
of such default, or
(iii) a default in the due performance or observance
by it of any term, covenant or agreement (other than those
referred to in subsections (a), (b), or (c)(i) or (c)(ii) of
this Section 9.1) contained in this Credit Agreement and such
default shall continue unremedied for a period of at least 30
days after the earlier of a Responsible Officer of the
Borrower becoming aware of such default or notice thereof by
the Agent; or
(d) Other Credit Documents. (i) Any Credit Party shall default
in the due performance or observance of any term, covenant or agreement
in any of the other Credit Documents (subject to applicable grace or
cure periods, if any), or (ii) any Credit Document shall fail to be in
full force and effect or to give the Agent and/or the Lenders any
material part of the Liens, rights, powers and privileges purported to
be created thereby; or
(e) Bankruptcy, etc. Any Bankruptcy Event shall occur with
respect to the Borrower or any of its Subsidiaries; or
(f) Defaults under Other Agreements.
(i) The Borrower or any of its Subsidiaries shall
default in the performance or observance (beyond the
applicable grace period with respect thereto, if any) of any
obligation or condition of any contract or lease resulting in
liability of $250,000 or more in the aggregate for the
Borrower or any of its Subsidiaries; or
(ii) With respect to other Indebtedness (other than
Indebtedness outstanding under this Credit Agreement) of the
Borrower or any of its Subsidiaries in an aggregate principal
amount in excess of $250,000, (A) (1) the Borrower or any of
its Subsidiaries shall default in any payment (beyond the
applicable grace period with respect thereto, if any) with
respect to any such Indebtedness, or (2) the occurrence and
continuance of a default in the observance or performance
relating to such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the
effect of which default or other event or condition is to
cause, or permit, the holder or holders of such Indebtedness
(or trustee or agent on behalf of such holders) to cause
(after the giving of notice or lapse of time if required), any
such Indebtedness to become due prior to its stated maturity;
or (B) any such Indebtedness shall be declared due and
payable, or required to be prepaid other than by a regularly
scheduled required prepayment, prior to the stated maturity
thereof; or
64
<PAGE>
(g) Judgments. One or more judgments or decrees shall be
entered against one or more of the Credit Parties involving a liability
of $250,000 or more in the aggregate (to the extent not paid or fully
covered by insurance provided by a carrier who has acknowledged
coverage and has the ability to perform) and any such judgments or
decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 45 days from the entry thereof; or
(h) ERISA. Any of the following events or conditions, if such
event or condition could reasonably be expected to have a Material
Adverse Effect: (1) any "accumulated funding deficiency," as such term
is defined in Section 302 of ERISA and Section 412 of the Code, whether
or not waived, shall exist with respect to any Plan, or any lien shall
arise on the assets of the Borrower or any of its Subsidiaries or any
ERISA Affiliate in favor of the PBGC or a Plan; (2) an ERISA Event
shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Agent, likely to result in the termination of
such Plan for purposes of Title IV of ERISA; (3) an ERISA Event shall
occur with respect to a Multiemployer Plan or Multiple Employer Plan,
which is, in the reasonable opinion of the Agent, likely to result in
(i) the termination of such Plan for purposes of Title IV of ERISA, or
(ii) the Borrower or any of its Subsidiaries or any ERISA Affiliate
incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or
insolvency of (within the meaning of Section 4245 of ERISA) such Plan;
or (4) any prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility shall occur which may subject the Borrower or any of its
Subsidiaries or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which the Borrower
or any of its Subsidiaries or any ERISA Affiliate has agreed or is
required to indemnify any person against any such liability; or
(i) Ownership. There shall occur a Change of Control.
(j) Workers Compensation. There shall occur a Material Adverse
Change to the Workers' Compensation Policy.
(k) Health Care Agreement. There shall occur a Material
Adverse Change to the Health Care Agreement.
(l) Cafeteria Plan. Any of the following events shall occur:
(a) the revocation by the Internal Revenue Service of the tax qualified
status of the Borrower's 401(k) retirement plan and/or (b) the Internal
Revenue Service determines that the "cafeteria plan" of the Borrower
does not meet the requirements of Section 125 of the Code.
(m) Other Health Care Agreements. There shall occur a Material
Adverse Change to any Other Health Care Agreement.
65
<PAGE>
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter
unless and until such Event of Default has been waived in writing by the
Required Lenders (or the Lenders as may be required hereunder), the Agent shall,
upon the request and direction of the Required Lenders, by written notice to the
Borrower take any of the following actions:
(i) Termination of Commitments. Declare the Commitments
terminated whereupon the Commitments shall be immediately terminated.
(ii) Acceleration. Declare the unpaid principal of and any
accrued interest in respect of all Loans, any reimbursement obligations
arising from drawings under Letters of Credit and any and all other
indebtedness or obligations of any and every kind owing by the Borrower
to the Agent and/or any of the Lenders hereunder to be due whereupon the
same shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by
the Borrower.
(iii) Cash Collateral. Direct the Credit Parties to pay (and
the Credit Parties agree that upon receipt of such notice, or upon the
occurrence of an Event of Default under Section 9.1(e), they will
immediately pay) to the Agent additional cash, to be held by the Agent,
for the benefit of the Lenders, in a cash collateral account as
additional security for the LOC Obligations in respect of subsequent
drawings under all then outstanding Letters of Credit in an amount equal
to the maximum aggregate amount which may be drawn under all Letters of
Credits then outstanding.
(iv) Enforcement of Rights. Enforce any and all rights and
interests created and existing under the Credit Documents and all
rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(e) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations arising from drawings under Letters of
Credit, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Agent and/or any of the Lenders
hereunder automatically shall immediately become due and payable without
presentment, demand, protest or the giving of any notice or other action by the
Agent or the Lenders, all of which are hereby waived by the Borrower.
66
<PAGE>
SECTION 10
AGENCY PROVISIONS
10.1 Appointment.
Each Lender hereby designates and appoints NationsBank, N.A. as Agent
(in such capacity, the "Agent") of such Lender to act as specified herein and
the other Credit Documents, and each such Lender hereby authorizes the Agent as
the Agent for such Lender, to take such action on its behalf under the
provisions of this Credit Agreement and the other Credit Documents and to
exercise such powers and perform such duties as are expressly delegated by the
terms hereof and of the other Credit Documents, together with such other powers
as are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere herein and in the other Credit Documents, the Agent shall not
have any duties or responsibilities, except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Credit Agreement or any of the other Credit Documents, or
shall otherwise exist against the Agent. The provisions of this Section are
solely for the benefit of the Agent and the Lenders and the Borrower shall have
any rights as a third party beneficiary of the provisions hereof. In performing
its functions and duties under this Credit Agreement and the other Credit
Documents, the Agent shall act solely as Agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation or relationship of
agency or trust with or for the Borrower or any of its Affiliates.
10.2 Delegation of Duties.
The Agent may execute any of its duties hereunder or under the other
Credit Documents by or through agents or attorneys-in-fact and shall be entitled
to advice of counsel concerning all matters pertaining to such duties. The Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions.
The Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report, document,
financial statement or other written or oral statement referred to or provided
for in, or received by the Agent under or in connection herewith or in
connection with the other Credit Documents, or enforceability or sufficiency
therefor of any of the other Credit Documents, or for any failure of the
Borrower to perform its obligations hereunder or thereunder. The Agent shall not
be responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Credit Agreement, or any
of the other Credit Documents or for any representations, warranties, recitals
or statements made herein or therein or made by the Borrower in any written or
oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Agent to the Lenders or by or on behalf of the Borrower
to the Agent or any Lender or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained herein or therein or as to the use of the proceeds of
the Loans or of the existence or possible existence of any Default or Event of
Default or to inspect the properties, books or records of the Borrower or its
Affiliates.
67
<PAGE>
10.4 Reliance on Communications.
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower, independent accountants and other experts
selected by the Agent with reasonable care). The Agent may deem and treat the
Lenders as the owner of their respective interests hereunder for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Agent in accordance with Section 11.3(b) hereof. The
Agent shall be fully justified in failing or refusing to take any action under
this Credit Agreement or under any of the other Credit Documents unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder or under any
of the other Credit Documents in accordance with a request of the Required
Lenders (or to the extent specifically provided in Section 11.6, all the
Lenders) and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders (including their successors and
assigns).
10.5 Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the Agent has
received notice from a Lender or the Borrower referring to the Credit Document,
describing such Default or Event of Default and stating that such notice is a
"notice of default." In the event that the Agent receives such a notice, the
Agent shall give prompt notice thereof to the Lenders. The Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders.
10.6 Non-Reliance on Agent and Other Lenders.
Each Lender expressly acknowledges that each of the Agent and its
officers, directors, employees, agents, attorneys-in-fact or affiliates has not
made any representations or warranties to it and that no act by the Agent or any
affiliate thereof hereinafter taken, including any review of the affairs of the
Borrower or any of its Affiliates, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower or its Affiliates and made its own decision to
make its Loans hereunder and enter into this Credit Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Credit Agreement, and to
make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower and its Affiliates. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial or other
conditions, prospects or creditworthiness of the Borrower or its respective
Affiliates which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
68
<PAGE>
10.7 Indemnification.
The Lenders agree to indemnify the Agent in its capacity as such (to
the extent not reimbursed by the Borrower and without limiting the obligation of
the Borrower to do so), ratably according to their respective Commitments (or if
the Commitments have expired or been terminated, in accordance with the
respective principal amounts of outstanding Loans and Participation Interests of
the Lenders), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following the final payment of all of the obligations of the Borrower
hereunder and under the other Credit Documents) be imposed on, incurred by or
asserted against the Agent in its capacity as such in any way relating to or
arising out of this Credit Agreement or the other Credit Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the Agent. If any
indemnity furnished to the Agent for any purpose shall, in the opinion of the
Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this Section shall
survive the repayment of the Loans, LOC Obligations and other obligations under
the Credit Documents and the termination of the Commitments hereunder.
69
<PAGE>
10.8 Agent in its Individual Capacity.
The Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower, its Subsidiaries
or their respective Affiliates as though the Agent were not the Agent hereunder.
With respect to the Loans made by and all obligations of the Borrower hereunder
and under the other Credit Documents, the Agent shall have the same rights and
powers under this Credit Agreement as any Lender and may exercise the same as
though it were not the Agent, and the terms "Lender" and "Lenders" shall include
the Agent in its individual capacity.
10.9 Successor Agent.
The Agent may, at any time, resign upon twenty (20) days' written
notice to the Borrower and the Lenders. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Required Lenders, and shall have accepted
such appointment within 30 days after the notice of resignation, then the
retiring Agent shall select a successor Agent provided such successor is a
Lender hereunder or a commercial bank organized under the laws of the United
States of America or of any State thereof and has a combined capital and surplus
of at least $400,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations as Agent, as appropriate, under this Credit Agreement and the other
Credit Documents and the provisions of this Section 10.9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Credit Agreement.
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (i) when
delivered, (ii) when transmitted via telecopy (or other facsimile device) with
receipt confirmed, to the number set out below, (iii) the day following the day
on which the same has been delivered prepaid to a reputable national overnight
air courier service, or (iv) the third Business Day following the day on which
the same is sent by certified or registered mail, postage prepaid, in each case
to the respective parties at the address or telecopy numbers set forth on
Schedule 11.1 or at such other address as such party may specify by written
notice to the other parties hereto.
11.2 Right of Set-Off.
70
<PAGE>
In addition to any rights now or hereafter granted under applicable law
or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender is authorized at any time and
from time to time, without presentment, demand, protest or other notice of any
kind (all of which rights being hereby expressly waived), to set-off and to
appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by such Lender (including, without
limitation branches, agencies or Affiliates of such Lender wherever located) to
or for the credit or the account of the Borrower against obligations and
liabilities of such Person to such Lender hereunder, under the Notes, the other
Credit Documents or otherwise, irrespective of whether such Lender shall have
made any demand hereunder and although such obligations, liabilities or claims,
or any of them, may be contingent or unmatured, and any such set-off shall be
deemed to have been made immediately upon the occurrence of an Event of Default
even though such charge is made or entered on the books of such Lender
subsequent thereto. Any Person purchasing a participation in the Loans and
Commitments hereunder pursuant to Section 3.12 or Section 11.3(d) may exercise
all rights of set-off with respect to its participation interest as fully as if
such Person were a Lender hereunder.
11.3 Benefit of Agreement.
(a) This Credit Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties
may assign or transfer any of its interests and obligations without
prior written consent of the Lenders; provided further that the rights
of each Lender to transfer, assign or grant participations in its
rights and/or obligations hereunder shall be limited as set forth in
this Section 11.3.
(b) Each Lender may assign to one or more Eligible Assignees
all or a portion of its rights and obligations under this Credit
Agreement (including, without limitation, all or a portion of its
Loans, its Notes, and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible
Assignee;
(ii) except in the case of an assignment to another
Lender or an assignment of all of a Lender's rights and
obligations under this Credit Agreement, any such partial
assignment shall be in an amount at least equal to $5,000,000
(or, if less, the remaining amount of the Commitment being
assigned by such Lender) or an integral multiple of $1,000,000
in excess thereof;
(iii) each such assignment by a Lender shall be of a
constant, and not varying, percentage of all of its rights and
obligations under this Credit Agreement and the Notes; and
(iv) the parties to such assignment shall execute and
deliver to the Agent for its acceptance an Assignment and
Acceptance in the form of Exhibit 11.3(b) hereto, together
with any Note subject to such assignment and a processing fee
of $3,500.
71
<PAGE>
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits
of a Lender hereunder and the assigning Lender shall, to the extent of
such assignment, relinquish its rights and be released from its
obligations under this Credit Agreement. Upon the consummation of any
assignment pursuant to this Section 11.3(b), the assignor, the Agent
and the Borrower shall make appropriate arrangements so that, if
required, new Notes are issued to the assignor and the assignee. If the
assignee is not incorporated under the laws of the United States of
America or a state thereof, it shall deliver to the Borrower and the
Agent certification as to exemption from deduction or withholding of
Taxes in accordance with Section 3.11.
(c) The Agent shall maintain at its address referred to in
Section 11.1 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of
the Loans owing to, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agent and the
Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Credit Agreement. The
Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed
by the parties thereto, together with any Note subject to such
assignment and payment of the processing fee, the Agent shall, if such
Assignment and Acceptance has been completed and is in substantially
the form of Exhibit 11.3(b) hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the parties thereto.
(e) Each Lender may sell participations to one or more Persons
in all or a portion of its rights, obligations or rights and
obligations under this Credit Agreement (including all or a portion of
its Commitment or its Loans); provided, however, that (i) such Lender's
obligations under this Credit Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) the participant shall be
entitled to the benefit of the yield protection provisions contained in
Sections 3.7 through 3.12, inclusive, and the right of set-off
contained in Section 11.2, and (iv) the Borrower shall continue to deal
solely and directly with such Lender in connection with such Lender's
rights and obligations under this Credit Agreement, and such Lender
shall retain the sole right to enforce the obligations of the Borrower
relating to its Loans and its Notes and to approve any amendment,
modification, or waiver of any provision of this Credit Agreement
(other than amendments, modifications, or waivers decreasing the amount
of principal of or the rate at which interest is payable on such Loans
or Notes, extending any scheduled principal payment date or date fixed
for the payment of interest on such Loans or Notes, or extending its
Commitment).
72
<PAGE>
(f) Notwithstanding any other provision set forth in this
Credit Agreement, any Lender may at any time assign and pledge all or
any portion of its Loans and its Notes to any Federal Reserve Bank as
collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release
the assigning Lender from its obligations hereunder.
(g) Any Lender may furnish any information concerning the
Borrower or any of its Subsidiaries in the possession of such Lender
from time to time to assignees and participants (including prospective
assignees and participants), subject, however, to the provisions of
Section 11.14 hereof.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Agent or any Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Agent or any Lender and the
Borrower shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agent or any Lender would otherwise have. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Agent or the Lenders to any other or further action in any circumstances
without notice or demand.
11.5 Payment of Expenses, etc.
The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and
expenses (A) of the Agent in connection with the negotiation, preparation,
execution and delivery and administration of this Credit Agreement and the other
Credit Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and expenses of Moore & Van
Allen, PLLC, special counsel to the Agent, subject to the limitation contained
in a separate agreement between the Agent and the Borrower) and any amendment,
waiver or consent relating hereto and thereto including, but not limited to, any
such amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Borrower under
this Credit Agreement and (B) after the occurrence of a Default or Event of
Default, of the Agent and the Lenders in connection with enforcement of the
Credit Documents and the documents and instruments referred to therein
(including, without limitation, in connection with any such enforcement, the
reasonable fees and disbursements of counsel for the Agent and each of the
Lenders); (ii) pay and hold each of the Lenders harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Lender, its officers, directors, employees, representatives and
Agents from and hold each of them harmless against any and all losses,
liabilities, claims, damages or expenses incurred by any of them as a result of,
or arising out of, or in any way related to, or by reason of (A) any
investigation, litigation or other proceeding (whether or not any Lender is a
party thereto) related to the entering into and/or performance of any Credit
Document or the use of proceeds of any Loans (including other extensions of
credit) hereunder or the consummation of any other transactions contemplated in
any Credit Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding or (B) the presence or Release of any Materials
of Environmental Concern at, under or from any Property owned, operated or
leased by the Borrower or any of its Subsidiaries, or the failure by the
Borrower or any of its Subsidiaries to comply with any Environmental Law (but
excluding, in the case of either of clause (A) or (B) above, any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of
gross negligence or willful misconduct on the part of the Person to be
indemnified).
73
<PAGE>
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any of the other Credit Documents,
nor any of the terms hereof or thereof may be amended, changed, waived,
discharged or terminated unless such amendment, change, waiver, discharge or
termination is in writing entered into by, or approved in writing by, the
Required Lenders and the Borrower, provided, however, that:
(a) no such amendment, change, waiver, discharge or
termination shall, without the consent of each Lender directly affected
thereby, (i) reduce the rate or extend the time of payment of interest
(other than as a result of waiving the applicability of any
post-default increase in interest rates) thereon or fees hereunder,
(ii) extend the final maturity of any Loan or of any reimbursement
obligation, or any portion thereof, arising from drawings under Letters
of Credit, or (iii) reduce or waive the principal amount on any Loan or
of any reimbursement obligation, or any portion thereof, arising from
drawings under Letters of Credit;
(b) no such amendment, change, waiver, discharge or
termination shall, without the consent of each Lender affected thereby,
(i) increase the Commitment of the Lenders over the amount thereof in
effect (it being understood and agreed that a waiver of any Default or
Event of Default or of a mandatory reduction in the Commitments shall
not constitute a change in the terms of any Commitment of any Lender),
(ii) release all or substantially all of the Guarantors from the
Guaranty Obligations hereunder (iii) amend, modify or waive any
provision of this Section 11.6 or Section 3.5, 3.9, 3.10, 3.11, 3.12,
9.1(a), 11.2, 11.3, 11.5 or 11.9, (iv) reduce any percentage specified
in, or otherwise modify, the definition of "Required Lenders," or (v)
consent to the assignment or transfer by the Borrower of any of its
rights and obligations under (or in respect of) the Credit Documents to
which it is a party;
(c) no provision of Section 10 may be amended without the
consent of the Agent; and
74
<PAGE>
(d) without the consent of the Issuing Lender, no provision of
Section 2.2 may be amended.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Survival.
All indemnities set forth herein, including, without limitation, in
Section 3.8 (subject to the limitation set forth in such Section 3.8), Section
3.10 (subject to the limitation set forth in such Section 3.10), Section 10.7 or
Section 11.5 shall survive the execution and delivery of this Credit Agreement,
the making of the Loans, the issuance of the Letters of Credit, the repayment of
the Loans, LOC Obligations and other obligations under the Credit Documents and
the termination of the Revolving Commitments hereunder, and all representations
and warranties made by the Borrower herein shall survive delivery of the Notes
and the making of the Loans hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF FLORIDA. Any legal action or proceeding with
respect to this Credit Agreement or any other Credit Document may be
brought in the courts of the State of Florida, or of the United States
located in the State of Florida, and, by execution and delivery of this
Credit Agreement, the Borrower hereby irrevocably accepts for itself
and in respect of its property, generally and unconditionally, the
nonexclusive jurisdiction of such courts. The Borrower further
irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to
it at the address set out for notices pursuant to Section 11.1, such
service to become effective three (3) Business Days after such mailing.
Nothing herein shall affect the right of the Agent to serve process in
any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against the Borrower in any other jurisdiction.
75
<PAGE>
(b) The Borrower hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with
this Credit Agreement or any other Credit Document brought in the
courts referred to in subsection (a) hereof and hereby further
irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE AGENT, THE
LENDERS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 Entirety.
This Credit Agreement together with the other Credit Documents
represent the entire agreement of the parties hereto and thereto, and supersede
all prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.13 Binding Effect; Termination.
(a) This Credit Agreement shall become effective at such time
on or after the Closing Date when it shall have been executed by the
Borrower and the Agent, and the Agent shall have received copies hereof
(telefaxed or otherwise) which, when taken together, bear the
signatures of each Lender, and thereafter this Credit Agreement shall
be binding upon and inure to the benefit of the Borrower, the Agent and
each Lender and their respective successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans,
LOC Obligations or any other amounts payable hereunder or under any of
the other Credit Documents shall remain outstanding, no Letters of
Credit shall be outstanding, all of the obligations hereunder have been
irrevocably satisfied in full and all of the Commitments hereunder
shall have expired or been terminated.
76
<PAGE>
11.14 Confidentiality.
The Agent and the Lenders agree to keep confidential (and to cause
their respective affiliates, officers, directors, employees, agents and
representatives to keep confidential) all information, materials and documents
furnished to the Agent or any such Lender by or on behalf of the Borrower
(whether before or after the Closing Date) which relates to the Borrower or any
of its Subsidiaries (the "Information"). Notwithstanding the foregoing, the
Agent and each Lender shall be permitted to disclose Information (i) to its
affiliates, officers, directors, employees, agents and representatives in
connection with its participation in any of the transactions evidenced by this
Credit Agreement or any other Credit Documents or the administration of this
Credit Agreement or any other Credit Documents; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any Governmental Authority; (iii) to the extent such Information
(A) becomes publicly available other than as a result of a breach of this Credit
Agreement or any agreement entered into pursuant to clause (iv) below, (B)
becomes available to the Agent or such Lender on a non-confidential basis from a
source other than the Borrower or (C) was available to the Agent or such Lender
on a non-confidential basis prior to its disclosure to the Agent or such Lender
by the Borrower; (iv) to any assignee or participant (or prospective assignee or
participant) so long as such assignee or participant (or prospective assignee or
participant) first specifically agrees in a writing furnished to and for the
benefit of the Borrower to be bound by the terms of this Section 11.14; or (v)
to the extent that the Borrower shall have consented in writing to such
disclosure. Nothing set forth in this Section 11.14 shall obligate the Agent or
any Lender to return any materials furnished by the Borrower.
11.15 Time
All references to time herein shall be references to Eastern Standard
Time or Eastern Daylight Time, as the case may be, unless specified otherwise.
11.16 Conflict.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
77
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: STAFF LEASING, INC.,
a Florida corporation
By:
-----------------------------------------
Name: John Panning
Title: Chief Financial Officer
GUARANTORS: STAFF ACQUISITION, INC.,
a Delaware corporation
By:
-----------------------------------------
Name: John Panning
Title: Senior Vice President
STAFF INSURANCE, INC., a Florida corporation
By:
-----------------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING OF TEXAS II, L.P.,
a Delaware limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
(Signatures Continue)
<PAGE>
STAFF LEASING, L.P., a Delaware
limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING II, L.P., a Delaware
limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING III, L.P., a Delaware
limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
(Signatures Continue)
<PAGE>
STAFF LEASING IV, L.P., a Delaware
limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING V, L.P., a Delaware
limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING OF GEORGIA, L.P.,
a Delaware limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
(Signatures Continue)
<PAGE>
STAFF LEASING OF GEORGIA II, L.P.,
a Delaware limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING OF GEORGIA III, L.P.,
a Delaware limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
STAFF LEASING OF TEXAS, L.P.,
a Delaware limited partnership
By its sole general partner:
Staff Acquisition, Inc.,
a Delaware corporation
By:
---------------------------------
Name: John Panning
Title: Senior Vice President
(Signatures Continue)
<PAGE>
LENDERS: NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Agent
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE>
STATE OF
---------------------
COUNTY OF
--------------------
The foregoing instrument was acknowledged before me this _____ day of
June__, 1999 by _______________________________, as an officer of the companies
set forth on the signature pages attached hereto. He/she personally appeared
before me and is personally known to me or produced ___________________ as
identification.
Notary:
------------------------------
[NOTARIAL SEAL] Print Name:
--------------------------
Notary Public, State of
--------------
<PAGE>
STATE OF
---------------------
COUNTY OF
--------------------
The foregoing instrument was acknowledged before me this _____ day of
June__, 1999 by _______________________________, _________________ of
NationsBank, N.A., a national banking association. He/she personally appeared
before me and is personally known to me or produced ___________________ as
identification.
Notary:
------------------------------
[NOTARIAL SEAL] Print Name:
--------------------------
Notary Public, State of
--------------
<PAGE>
Schedule 1.1(d)
to
Credit Agreement
LENDERS AND COMMITMENT PERCENTAGES
----------------------------------
Revolving Loan
Revolving Commitment Commitment
Contact Committed Amount Percentage
------- ---------------- ----------
NationsBank, N.A. $10,000,000 100%
101 East Kennedy Blvd.
5th Floor
Tampa, Florida 33602
Attn: Joseph Caballero
Tel: (813) 225-8545
Fax: (813) 225-8537
Total $10,000,000 100%
<PAGE>
Schedule 2.1(b)(i)
to
Credit Agreement
FORM OF
NOTICE OF BORROWING
TO: NATIONSBANK, N.A., as Agent
101 East Kennedy Blvd., 5th Floor
Tampa, Florida 33602
RE: Credit Agreement dated as of July 26, 1999 among Staff Leasing, Inc.
(the "Borrower"), the Domestic Subsidiaries of the Borrower,
NationsBank, N.A., as Agent and the Lenders party thereto (as the same
may be amended, modified, extended or restated from time to time, the
"Credit Agreement")
DATE: _____________, ____
- --------------------------------------------------------------------------------
1. This Notice of Borrowing is made pursuant to the terms of the Credit
Agreement. All capitalized terms used herein unless otherwise defined
shall have the meanings set forth in the Credit Agreement.
2. Please be advised that the Borrower is requesting Revolving Loans in
the amount of $_______________ to be funded on ____________, ____ at
the interest rate option set forth in paragraph 3 below. Subsequent to
the funding of the requested Revolving Loans, the aggregate amount of
Revolving Loans plus LOC Obligations outstanding will be
$_______________, which is less than or equal to the Revolving
Committed Amount.
3. The interest rate option applicable to the requested Revolving Loans
shall be:
a. ________ the Base Rate plus Applicable Percentage
b. ________ the Eurodollar Rate plus Applicable Percentage for an
Interest Period of:
________ one month
________ two months
________ three months
<PAGE>
4. The representations and warranties made by the Borrower in any Credit
Document are true and correct in all material respects at and as if
made on the date hereof except to the extent they expressly relate to
an earlier date.
5. As of the date hereof, no Default or Event of Default has occurred and
is continuing or would be caused by this Notice of Borrowing.
6. No Material Adverse Effect has occurred since the Closing Date.
STAFF LEASING, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
Schedule 2.1(e)
to
Credit Agreement
FORM OF
REVOLVING NOTE
$
--------------------- ----------------------,--------
FOR VALUE RECEIVED, Staff Leasing, Inc., a Florida corporation (the
"Borrower"), hereby promises to pay to the order of ___________, its successors
and assigns (the "Lender"), at the office of NationsBank, N.A. (the "Agent") as
set forth in that certain Credit Agreement dated as of June__, 1999 between the
Borrower, the Domestic Subsidiaries of the Borrower, the Lenders party thereto
(including the Lender) and NationsBank, N.A., as Agent (as amended, modified,
extended or restated from time to time, the "Credit Agreement"), the principal
sum of _________ Dollars ($__________) (or such lesser amount as shall equal the
aggregate unpaid principal amount of the Revolving Loans made by the Lender to
the Borrower under the Credit Agreement), in lawful money of the United States
of America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Revolving Loan, at such office, in like money and
funds, for the period commencing on the date of such Revolving Loan until such
Revolving Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit
Agreement and evidences Revolving Loans made by the Lender thereunder.
Capitalized terms used in this Revolving Note and not otherwise defined shall
have the respective meanings assigned to them in the Credit Agreement and the
terms and conditions of the Credit Agreement are expressly incorporated herein
and made a part hereof.
The Credit Agreement provides for the acceleration of the maturity of
the Revolving Loans evidenced by this Revolving Note upon the occurrence of
certain events (and for payment of collection costs in connection therewith) and
for prepayments of Revolving Loans upon the terms and conditions specified
therein. In the event this Revolving Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorney fees.
The date, amount, type, interest rate and duration of Interest Period
(if applicable) of each Revolving Loan made by the Lender to the Borrower, and
each payment made on account of the principal thereof, shall be recorded by the
Lender on its books; provided that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing hereunder or under this Revolving
Note in respect of the Revolving Loans to be evidenced by this Revolving Note,
and each such recordation or endorsement shall be conclusive and binding absent
manifest error.
<PAGE>
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF FLORIDA.
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
executed as of the date first above written.
STAFF LEASING, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
Schedule 3.2
to
Credit Agreement
FORM OF
NOTICE OF EXTENSION/CONVERSION
TO: NATIONSBANK, N.A., as Agent
101 East Kennedy Blvd., 5th Floor
Tampa, Florida 33602
RE: Credit Agreement dated as of July 26, 1999 among Staff Leasing, Inc.
(the "Borrower"), the Domestic Subsidiaries of the Borrower,
NationsBank, N.A., as Agent and the Lenders party thereto (as the same
may be amended, modified, extended or restated from time to time, the
"Credit Agreement")
DATE: _____________, ____
1. This Notice of Extension/Conversion is made pursuant to the terms of
the Credit Agreement. All capitalized terms used herein unless
otherwise defined shall have the meanings set forth in the Credit
Agreement.
2. Please be advised that the Borrower is requesting that a portion of the
current outstanding Revolving Loans in the amount of $________________
currently accruing interest at __________ be continued or converted as
of _____________ at the interest rate option set forth in paragraph 3
below.
3. The interest rate option applicable to the extension or conversion of
all or part of the existing Revolving Loans shall be:
a. ________ the Base Rate plus Applicable Percentage
<PAGE>
b. ________ the Eurodollar Rate plus Applicable Percentage for an
Interest Period of:
________ one month
________ two months
________ three months
STAFF LEASING, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE>
Schedule 7.2(b)
to
Credit Agreement
FORM OF
OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, ____.
I, ______________________, chief financial officer of Staff Leasing,
Inc. (the "Borrower") hereby certify on behalf of the Borrower and not in my
individual capacity that, with respect to that certain Credit Agreement dated as
of July 26, 1999 (as it may be amended, modified, extended or restated from time
to time, the "Credit Agreement"; all of the defined terms in the Credit
Agreement are incorporated herein by reference) among the Borrower, the Domestic
Subsidiaries of the Borrower, the Lenders party thereto and NationsBank, N.A.,
as Agent:
a. Attached hereto as Schedule 1 are calculations
demonstrating compliance by the Borrower with the financial covenants
contained in Section 7.9 of the Credit Agreement as of the end of the
fiscal period referred to above.
b. No Default or Event of Default has occurred under the
Credit Agreement1.
c. The Borrower - prepared quarterly financial statements
which accompany this certificate fairly present in all material
respects the financial condition of the Borrower and its Subsidiaries
and has been prepared in accordance with GAAP, subject to changes
resulting from normal year-end audit adjustments.
This ______ day of ___________, ____.
STAFF LEASING, INC.
By:
---------------------------------
Name:
-------------------------------
Title: Chief Financial Officer
- ----------
1 If a Default or Event of Default shall have occurred an explanation of such
Default or Event of Default shall be provided on a separate page together with
an explanation of the action taken or proposed to be taken by the Borrower with
respect thereto.
<PAGE>
Schedule 7.11
to
Credit Agreement
FORM OF
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement"), dated as of _____________,
199_, is entered into between _____________________, a ___________________ (the
"New Subsidiary") and NATIONSBANK, N.A., in its capacity as Agent (the "Agent")
under that certain Credit Agreement, dated as of July 26, 1999 among Staff
Leasing, Inc. (the "Borrower"), the Domestic Subsidiaries of the Borrower, the
Lenders party thereto and the Agent (as the same may be amended, modified,
extended or restated from time to time, the "Credit Agreement"). All capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Credit Agreement.
The New Subsidiary and the Agent, for the benefit of the Lenders,
hereby agree as follows:
1. The New Subsidiary hereby acknowledges, agrees and confirms that, by
its execution of this Agreement, the New Subsidiary will be deemed to be a
Credit Party under the Credit Agreement and a "Guarantor" for all purposes of
the Credit Agreement and shall have all of the obligations of a Guarantor
thereunder as if it had executed the Credit Agreement. The New Subsidiary hereby
ratifies, as of the date hereof, and agrees to be bound by, all of the terms,
provisions and conditions contained in the Credit Agreement, including without
limitation (a) all of the representations and warranties of the Credit Parties
set forth in Section 6 of the Credit Agreement, (b) all of the affirmative and
negative covenants set forth in Sections 7 and 8 of the Credit Agreement and (c)
all of the guaranty obligations set forth in Section 4 of the Credit Agreement.
Without limiting the generality of the foregoing terms of this paragraph 1, the
New Subsidiary hereby guarantees, jointly and severally with the other
Guarantors, to the Agent and the Lenders, as provided in Section 4 of the Credit
Agreement, the prompt payment and performance of the Guaranteed Obligations in
full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise) strictly in accordance with the terms thereof and
agrees that if any of the Guaranteed Obligations are not paid or performed in
full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise), the New Subsidiary will, jointly and severally
together with the other Guarantors, promptly pay and perform the same, without
any demand or notice whatsoever, and that in the case of any extension of time
of payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, as a mandatory
prepayment, by acceleration or otherwise) in accordance with the terms of such
extension or renewal.
<PAGE>
3. The address of the New Subsidiary for purposes of Section 11.1 of
the Credit Agreement is as follows:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
4. The New Subsidiary hereby waives acceptance by the Agent and the
Lenders of the guaranty by the New Subsidiary under the Credit Agreement upon
the execution of this Agreement by the New Subsidiary.
5. This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument.
6. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF FLORIDA.
IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be
duly executed by its authorized officer, and the Agent, for the benefit of the
Lenders, has caused the same to be accepted by its authorized officer, as of the
day and year first above written.
[NEW SUBSIDIARY]
By:___________________________
Name:_________________________
Title:________________________
Acknowledged and accepted:
NATIONSBANK, N.A., as Agent
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Schedule 11.1
to
Credit Agreement
NOTICES
Notices:
For any Credit Party to:
[name of Credit Party]
c/o Staff Leasing, Inc.
600 301 Boulevard West
Bradenton, FL 34205
Attention: John Panning
Phone: (941) 741-4618
Fax: (941) 741-4651
Agent:
NationsBank, N.A.
101 East Kennedy Blvd., 5th Floor
Tampa, Florida 33602
Attn: Joseph Caballero
Phone: (813) 225-8545
Fax: (813) 225-8537
Lenders:
See addresses on Schedule 1.1(d)
<PAGE>
Schedule 11.3(b)
to
Credit Agreement
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to that certain Credit Agreement dated as of July 26,
1999 among Staff Leasing, Inc. (the "Borrower"), the Subsidiaries of the
Borrower, the Lenders party thereto and NationsBank, N.A., as Agent (as the same
may be amended, modified, extended or restated from time to time, the "Credit
Agreement"). All capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Credit Agreement.
1. The Assignor (as defined below) hereby sells and assigns, without
recourse, to the Assignee (as defined below), and the Assignee hereby purchases
and assumes, without recourse, from the Assignor, effective as of effective date
of the assignment as designated below (the "Effective Date"), the interests set
forth below (the "Assigned Interest") in the Assignor's rights and obligations
under the Credit Agreement, including, without limitation, (a) the interests set
forth below in the Revolving Commitment Percentage of the Assignor on the
Effective Date and (b) the Loans owing to the Assignor in connection with the
Assigned Interest which are outstanding on the Effective Date. The purchase of
the Assigned Interest shall be at par and periodic payments made with respect to
the Assigned Interest which (i) accrued prior to the Effective Date shall be
remitted to the Assignor and (ii) accrue from and after the Effective Date shall
be remitted to the Assignee. From and after the Effective Date, the Assignee, if
it is not already a Lender under the Credit Agreement, shall become a "Lender"
for all purposes of the Credit Agreement and the other Credit Documents and, to
the extent of such assignment, the assigning Lender shall be relieved of its
obligations under the Credit Agreement.
2. The Assignor represents and warrants to the Assignee that it is the
holder of the Assigned Interest, and the Loans and Participation Interests
related thereto, and it has not previously transferred or encumbered such
Assigned Interest, Loans or Participation Interests.
3. The Assignee represents and warrants to the Assignor that it is an
Eligible Assignee.
4. This Assignment shall be effective only upon (a) the consent of the
Borrower and the Agent to the extent required under Section 11.3(b) of the
Credit Agreement and (b) delivery to the Agent of this Assignment Agreement
together with the transfer fees, if applicable, set forth in Section 11.3(b) of
the Credit Agreement.
5. This Assignment shall be governed by and construed in accordance
with the laws of the State of Florida.
<PAGE>
6. Terms of Assignment
(a) Date of Assignment __________________
(b) Legal Name of Assignor __________________
(c) Legal Name of Assignee __________________
(d) Effective Date of Assignment __________________
(e) Revolving Commitment
Percentage assigned _____________%
(f) Total Revolving Loans
outstanding as of Effective Date $______________
(g) Principal Amount of Revolving
Loans assigned on Effective
Date (the amount set forth
in (f) multiplied by the
percentage set forth in (e)) $______________
(h) Revolving Committed Amount $______________
(i) Principal Amount of Revolving
Committed Amount Assigned on
the Effective Date (the amount
set forth in (h) multiplied by
the percentage set forth in (e)) $______________
<PAGE>
The terms set forth above are hereby agreed to:
____________________________ , as Assignor
By:________________________________
Name:______________________________
Title:_____________________________
____________________________ , as Assignee
By:________________________________
Name:______________________________
Title:_____________________________
CONSENTED TO (if applicable):
STAFF LEASING, INC.
By:________________________________
Name:______________________________
Title:_____________________________
NATIONSBANK, N.A., as
Agent
By:________________________________
Name:______________________________
Title:_____________________________
<TABLE>
<CAPTION>
<S> <C>
[LOGO] TEXAS WORKERS'
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE [X]
FUND
221 W 6TH STREET, SUITE 300 AUSTIN, TEXAS 78701-3403 INFORMATION PAGE
- --------------------------------------------------------------------------------------------------------------------------
ITEM 1 STAFF LEASING OF TEXAS, LP (See INSURED NAME EXTENDED pg)
800 301 BLVD WEST STE 202
BRADENTON, FL 34205
INSURED POLICY NUMBER
NAME AND TSF-0001093150 20000101
ADDRESS Federal Tax ID 650735612
Bureau Number 917648190
OTHER WORKPLACES NOT SHOWN ABOVE: Branch 00000
see attached schedule of operation Renewal of NEW
Entity CORPORATION
PRODUCER TEXAS WORKERS COMPENSATION INS Interim Adjustment MONTHLY - 15% 1
221 W 6TH ST #300 Group
00002 AUSTIN, TX 78701-3403
- --------------------------------------------------------------------------------------------------------------------------
ITEM 2 The Policy Period is from: 1-01-2001 To: 1-01-2001 12:01 A.M. standard time at the insured's mailing address
- --------------------------------------------------------------------------------------------------------------------------
ITEM 3 A. Workers' Compensation Insurance: Part One of the policy applies to the Workers' Compensation Law of the
states listed here: TEXAS
B. Employers Liability Insurance: Part Two of the policy applies to work in each state listed in item 3A.
The limits of our Liability under Part Two are:
Bodily Injury by Accident $1,000,000 Each Accident
Bodily Injury by Disease $1,000,000 Each Employee
Bodily Injury by Disease $1,000,000 Policy Limit
C. Other States Insurance: Part three of the policy applies to the states, if any, listed here: NOT APPLICABLE
D. This policy includes these endorsements and schedules:
See Schedule of Endorsements attached
- --------------------------------------------------------------------------------------------------------------------------
ITEM 4 The premium for this policy will be determined by our manuals of Rules, Classifications, Rates and Rating Plans.
All information required below is subject to verification and change by audit.
TOTAL ESTIMATED STANDARD PREMIUM 11,573,949.00
WAIVER OF SUBROGATION.............................................: .00
INCREASED LIMITS..................................................: 231,479.00
TOTAL PREMIUM SUBJECT TO MODIFICATIONS............................: 11,805,428.00
PREMIUM ADJ WITH EXP MOD -- See Schedule of Operations............: 538,470.00
PREMIUM MODIFIED TO REFLECT SCHEDULE RATING OF (.77)..............: 2,839,097.00-
DEDUCTIBLE PREMIUM................................................: .00
ADM/FELA OR USL&H MINIMUM.........................................: .00
PREMIUM DISCOUNT, IF APPLICABLE (10.90)...........................: 1,036,023,00-
EXPENSE CONSTANT CHARGE...........................................: 150.00
.00
TOTAL ESTIMATED ANNUAL PREMIUM 8,468,923.00
MINIMUM PREMIUM 250.00
DEPOSIT PREMIUM 1,270,339.00
Countersigned by /s/ Illegible
------------------------------------
Issue Date: 1-26-2000
- --------------------------------------------------------------------------------------------------------------------------
The Texas Workers' Compensation Insurance Fund is required by law to provide its policyholders with certain accident
prevention services as required by Texas Labor Code Section 411.066 at no additional charge. If you would like more
information call 1-800-859-5995 or (512) 322-3800. If you have any questions about this requirement, call the Division of
Workers' Health and Safety, Workers' Compensation Commission at 1-800-462-9695.
- --------------------------------------------------------------------------------------------------------------------------
WC000001 (ED. 01-94)
</TABLE>
<PAGE>
IMPORTANT NOTICE
TO OBTAIN INFORMATION OR MAKE A COMPLAINT:
You may contact your agent.
You may call the Texas Workers' Compensation Insurance Fund's toll-free
telephone number for information or to make a complaint at:
1-800-859-5995
You may write the Texas Workers' Compensation Insurance Fund at:
221 West 6th Street
Suite 300
Attn: Information Services Center
Austin, TX 78701
FAX# 1-800-359-0650
You may contact the Texas Department of Insurance to obtain information on
companies, coverages, rights or complaints at:
1-800-252-3439
You may write the Texas Department of Insurance at:
P.O. Box 149104
Austin, TX 78714-9104
FAX# (512) 475-1771
PREMIUM OR CLAIM DISPUTES:
Should you have a dispute concerning your premium or about a claim you should
contact the agent or the company first. If the dispute is not resolved, you may
contact the Texas Department of Insurance.
ATTACH THIS NOTICE TO YOUR POLICY:
This notice is for information only and does not become a part or condition of
the attached document.
AVISO IMPORTANTE
Para obtener informacion o parra someter una queja:
Puede comunicarse con su agente.
Usted puede llamar al numero de telefono gratis del Texas Workers' Compensation
Insurance Fund para informacion o para someter una queja al:
1-800-859-5995
Puede escribir al Texas Workers' Compensation Insurance Fund a:
221 west 6th Street
Suite 300
Attn: Information Services Center
Austin, TX 78701
FAX # 1-800-359-0650
Puede comunicarse con el Departamento de Seguros de Texas para obtener
informacion acerca de companias, derechos o quejas al:
1-800-252-3439
Peude escribir al Departamento de Seguros de Texas a:
P.O. Box 149104
Austin, TX 78714-9104
FAX# (512) 475-1771
DISPUTAS SOBRE PRIMAS O RECLAMOS:
Si tiene una disputa concerniente a su prima o a un reclamo, debe comunicarse
con el agente o la compania primero. Si no se resuelve la disputa, puede
entonces comunicarse con el departamento (TDI).
UNA ESTE AVISO A SU POLIZA:
Este aviso es solo para proposito de informacion y no se convierte en parte o
condicion del documento adjunto.
<PAGE>
[LOGO] TEXAS WORKERS'
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND [X] INSURED NAME EXTENDED
- --------------------------------------------------------------------------------
PAGE 2 EXTENSION OF INFORMATION PAGE
POLICY NUMBER
TSF-0001093150 20000101
ISSUE DATE
1-26-2000
ITEM 1 **INSURED NAME EXTENDED**
STAFF LEASING OF TEXAS, LP;
STAFF LEASING OF TEXAS II, LP;
STAFF LEASING, LP;
STAFF LEASING IV, LP
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-0001093160 20000101 of the Texas Workers' Compensation Insurance
Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ Illegible
---------------------------
Authorized Representative
WC000001 (ED. 1-94)
INSURED'S COPY TXAMADOR 1-26-2000
<PAGE>
[LOGO] TEXAS WORKERS'
COMPENSATION TEXAS WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY POLICY
INSURANCE
FUND [X] TWCIF-1997
- --------------------------------------------------------------------------------
THE NAMED INSURED RATIFIES AND ACCEPTS THE TERMS AND CONDITIONS OF THE POLICY TO
WHICH THIS ENDORSEMENT IS ATTACHED AS WELL AS THE TERMS LISTED BELOW.
1. Policies that are on an interim reporting basis may not be financed. The
Fund may cancel coverage if it determines that interim reports have been
financed in violation of this prohibition.
2. The named insured certifies that the payroll established by classification
codes in the application for coverage is a true and reasonable estimate for the
period of coverage requested and will promptly report any material change in
payroll exposures to the Fund. The Fund may adjust premium for the policy upon
receipt of such information.
3. The named insured and its affiliates permit the Fund access to all of their
employment information and records filed with the Texas Workforce Commission,
and hereby waive the confidentiality of such information and records.
4. All obligations of the named insured are performable in Travis County, Texas
and said county will be the legal venue for any suit arising from this contract.
Maintenance of an action in Travis County, Texas does not work an injustice to
the named insured and is in the interest of the parties, and transfer of the
action would work an injustice to the parties. Any suits must be filed in Travis
County, Texas.
5. If the insured defaults on payment of any premiums due under any policy
issued, then all premiums due and unpaid shall become due and payable at the
offices of the Fund in Austin, Travis County, Texas.
6. All information supplied to the Fund by the named insured or its agent in the
application for insurance or otherwise is true and complete; nothing material
regarding its operations has been omitted; and the named insured intended the
Fund to rely on such information in issuing this policy. The named insured
assumed the duty of full disclosure of such information and that the Fund has no
duty to inquire further regarding such information. The named insured is not
violating any provision of Texas Workers' Compensation Act and is not
subcontracting any work to a subcontractor with the intent to avoid liability an
employer.
7. The named insured will not cause any certificate of insurance to be issued
for the purpose of satisfying the workers' compensation insurance requirements
of any third party, including any governmental entity, unless the remuneration
paid to the individual workers performing such work is disclosed to the Fund and
included in the premium calculation of the named insured. If the named insured
causes a certificate of insurance to be issued for the purpose of allowing the
employees of a person other than the named insured to perform work at any job
site where workers' compensation required, and such workers are not covered by
workers' compensation insurance, such action by the named insured is a material
breach of this insurance policy and constitutes fraud upon the Fund.
8. The named insured has appointed the agent whose name appears on the
application as its agent in fact and agrees that any representations made on its
behalf by that agent are the representations of the named issured.
9. Acceptance of this policy with all endorsements and lender of the deposit
premium constitute the insured's agreement with all of the terms and conditions
thereof, and the insured's acknowledgement of the obligation to pay all premiums
due for this policy.
This endorsement changes the policy in which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement effective on at 12:01 A.M. standard time,
forms a part of
Policy No.-TSF-0001093150 20000101 of the Texas Workers' Compensation Insurance
Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ Illegible
---------------------------
Authorized Representative
TWCIF (ED. 01/22/98)
INSURED'S COPY TXAMADOR 1-26-2000
<PAGE>
[LOGO] TEXAS WORKERS
COMPENSATION TEXAS WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY POLICY
INSURANCE
FUND [X] WC 00 00 00 A
- --------------------------------------------------------------------------------
In return to the payment of the premium and subject to all terms of this policy,
we agree with you as follows:
GENERAL SECTION
A. THE POLICY
This policy includes at its effective date the information Page and all
endorsements and schedules listed there. It is a contract of insurance
between you (the employer named in Item 1 of the information Page) and us
(the insurer named on the information Page). The only agreements relating
to this insurance are stated in this policy. The terms of this policy may
not be changed or waived except by endorsement issued by us to be part of
this policy.
B. WHO IS INSURED
You are insured if you are an employer named in item 1 of the information
Page. If that employer is a partnership, and if you are one of its
partners, you are insured, but only in your capacity as an employer of the
partnership's employees.
C. WORKERS COMPENSATION LAW
Workers Compensation Law means the workers or workmen's compensation law
and occupational disease law of each state or territory named in Item 3.A.
of the information Page. It includes any amendments to that law which are
in effect during the policy period. It does not include any federal workers
or workmen's compensation law, any federal occupational disease law or the
provisions of any law that provide nonoccupational disability benefits.
D. STATE
State means any state of the United States of America, and the District of
Columbia.
E. LOCATIONS
This policy covers all of your workplaces listed in Items 1 or 4 of the
information Page; and it covers all other workplaces in Item 3.A. states
unless you have other insurance or are self-insured for such workplaces.
PART ONE - WORKERS COMPENSATION INSURANCE
A. HOW THIS INSURANCE APPLIES
This workers compensation insurance applies to bodily injury by accident or
bodily injury by disease. Bodily injury includes resulting death.
1. Bodily injury by accident must occur during the policy period.
2. Bodily injury by disease must be caused or aggravated by the
conditions of your employment. The employee's last day of last
exposure to the conditions causing or aggravating such bodily injury
by disease must occur during the policy period.
B. WE WILL PAY
We will pay promptly when due the benefits required of you by the workers
compensation law.
C. WE WILL DEFEND
We have the right and duty to defend at our expense any claim, proceeding
or suit against you for benefits payable by this insurance. We have the
right to investigate and settle these claims, proceedings or suits.
We have no duty to defend a claim, proceeding or suite that is not covered
by this insurance.
D. WE WILL ALSO PAY
We will also pay these costs, in addition to other amounts payable under
this insurance, as part of any claim, proceeding or suit we defend:
1. reasonable expenses incurred at our request, but not loss of earnings;
2. premiums for bonds to release attachments and for appeal bonds in
bond amounts up to the amount payable under this insurance;
3. litigation costs taxed against you;
4. interest on a judgment as required by law until we offer the amount
due under this insurance; and
5. expenses we incur.
E. OTHER INSURANCE
We will not pay more than our share of benefits and costs covered by this
insurance and other insurance or self-insurance. Subject to any limits of
liability that may apply, all shares will be equal until the loss is paid.
If any insurance or self-insurance is exhausted, the shares of all
remaining insurance will be equal until the loss is paid.
WC000000A (ED. 11/04/95) 1 of 5
<PAGE>
F. PAYMENTS YOU MUST MAKE
You are responsible for any payments in excess of the benefits regularly
provided by the workers compensation law including those required because:
1. of your serious and willful misconduct;
2. you knowingly employ an employee in violation of law;
3. you fail to comply with a health or safety law or regulation; or
4. you discharge, coerce or otherwise discriminate against any employee
in violation of the workers compensation law.
If we make any payments in excess of the benefits regularly provided by the
workers compensation law on your behalf, you will reimburse us promptly.
G. RECOVERY FROM OTHERS
We have your rights, and the rights of persons entitled to the benefits of
this insurance, to recover our payments from anyone liable for the injury.
You will do everything necessary to protect those rights for us and to help
us enforce them.
H. STATUTORY PROVISIONS
These statements apply where they are required by law.
1. As between an injured worker and us, we have notice of the injury when
you have notice.
2. Your default or the bankruptcy or insolvency of you or your estate
will not relieve us of our duties under this insurance after an injury
occurs.
3. We are directly and primarily liable to any person entitled to the
benefits payable by this insurance. Those persons may enforce our
duties; so may an agency authorized by law. Enforcement may be against
us or against you and us.
4. Jurisdiction over you is jurisdiction over us for purposes of the
workers compensation law. We are bound by decisions against you under
that law, subject to the provisions of this policy that are not in
conflict with that law.
5. This insurance conforms to the parts of the workers compensation law
that apply to:
a. benefits payable by this insurance;
b. special taxes, payments into security or other special funds, and
assessments payable by us under that law.
6. Terms of this insurance that conflict with the worker's compensation
law are changed by this statement to conform to that law.
Nothing in these paragraphs relieves you of your duties under this policy.
PART TWO - EMPLOYERS LIABILITY INSURANCE
A. HOW THIS INSURANCE APPLIES
This employers liability insurance applies to bodily injury by accident or
bodily injury by disease. Bodily injury includes resulting death.
1. The bodily injury must arise out of and in the course of the injured
employee's employment by you.
2. The employment must be necessary or incidental to your work in a state
or territory listed in Item 3.A. of the Information Page.
3. Bodily injury by accident must occur during the policy period.
4. Bodily injury by disease must be caused or aggravated by the
conditions of your employment. The employee's last day of last
exposure to the conditions causing or aggravating such bodily injury
by disease must occur during the policy period.
5. If you are sued, the original suit and any related legal actions for
damages for bodily injury by accident or by disease must be brought in
the United States of America, its territories or possessions, or
Canada.
B. WE WILL PAY
We will pay all sums you legally must pay as damages because of bodily
injury to your employees, provided the bodily injury is covered by this
employers liability insurance.
The damages we will pay, where recovery is permitted by law, include
damages:
1. for which you are liable to a third party by reason of a claim or suit
against you by that third party to recover the damages claimed against
such third party as a result of injury to your employee;
2. for care and loss of services; and
3. for consequential bodily injury to a spouse, child, parent, brother or
sister of the injured employee;
provided that these damages are the direct consequence of bodily injury
that arises out of and in the course of the injured employee's employment
by you; and
4. because of bodily injury to your employee that arises out of and in
the course of employment, claimed against you in a capacity other than
as employer.
WC000000A (ED. 11/04/95) 2 of 5
<PAGE>
C. EXCLUSIONS
This insurance does not cover:
1. liability assumed under a contract. This exclusion does not apply to a
warranty that your work will be done in a workmanlike manner;
2. punitive or exemplary damages because of bodily injury to an employee
employed in violation of law;
3. bodily injury to an employee while employed in violation of law with
your actual knowledge or the actual knowledge of any of your executive
officers;
4. any obligation imposed by a workers compensation, occupational
disease, unemployment compensation, or disability benefits law, or any
similar law;
5. bodily injury intentionally caused or aggravated by you;
6. bodily injury occurring outside the United States of America, its
territories or possessions, and Canada. This exclusion does not apply
to bodily injury to a citizen or resident of the United States of
America or Canada who is temporarily outside these countries;
7. damages arising out of coercion, criticism, demotion, evaluation,
reassignment, discipline, defamation, harassment, humiliation,
discrimination against or termination of any employee, or any
personnel practices, policies, acts or omissions;
8. bodily injury to any person in work subject to the Longshore and
Harbor Workers' Compensation Act (33 USC Sections 901-950), the
Nonappropriated Fund Instrumentalities Act (5 USC Sections 8171-8173),
the Outer Continental Shelf Lands Act (43 USC Sections 1331-1356), the
Defense Base Act (42 USC Sections 1651-1654), the Federal Coal Mine
Health and Safety Act of 1969 (30 USC Sections 901-942), any other
federal workers or workmen's compensation law or other federal
occupational disease law, or any amendments to these laws;
9. bodily injury to any person in work subject to the Federal Employers'
Liability Act (45 USC Sections 51-60), any other federal laws
obligating an employer to pay damages to an employee due to bodily
injury arising out of or in the course of employment, or any
amendments to those laws;
10. bodily injury to a master or member or the crew of any vessel;
11. fines or penalties imposed for violation of federal or state law; and
12. damages payable under the Migrant and Seasonal Agricultural Worker
Protection Act (29 USC Sections 1801-1872) and under any other federal
law awarding damages for violation of those laws or regulations issued
thereunder, and any amendments to those laws.
D. WE WILL DEFEND
We have the right and duty to defend, at our expense, any claim, proceeding
or suit against you for damages payable by this insurance. We have the
right to investigate and settle these claims, proceedings and suits.
We have no duty to defend a claim, proceeding or suit that is not covered
by this insurance. We have no duty to defend or continue defending after
we have paid our applicable limit of liability under this insurance.
E. WE WILL ALSO PAY
We will also pay these costs, in addition to other amounts payable under
this insurance, as part of any claim, proceeding, or suit we defend:
1. reasonable expenses incurred at our request, but not loss of earnings;
2. premiums for bonds to release attachments and for appeal bonds in bond
amounts up to the limit of our liability under this insurance;
3. litigation costs taxed against you;
4. interest on a judgment as required by law until we offer the amount
due under this insurance; and
5. expenses we incur.
F. OTHER INSURANCE
We will not pay more than our share of damages and costs covered by this
insurance and other insurance or self-insurance. Subject to any limits of
liability that apply, all shares will be equal until the loss is paid. If
any insurance or self-insurance is exhausted, the shares of all remaining
insurance and self-insurance will be equal until the loss is paid.
G. LIMITS OF LIABILITY
Our liability to pay for damages is limited. Our limits of liability are
shown in Item 3.B. of the Information Page. They apply as explained below.
1. Bodily Injury by Accident. The limit shown for "bodily injury by
accident each accident" is the most we will pay for all damages
covered by this insurance because of bodily injury to one or more
employees in any one accident.
A disease is not bodily injury by accident unless it results directly
from bodily injury by accident.
2. Bodily Injury by Disease. The limit shown for "bodily injury by
disease policy limit" is the most we will pay for all damages covered
by this insurance and arising out of bodily injury by disease,
regardless of the number of employees who sustain bodily injury by
disease. The limit shown for "bodily injury by disease each employee"
is the most we will pay for all damages because of bodily injury by
disease to any one employee.
Bodily injury by disease does not include disease that results
directly from a bodily injury by accident.
WC000000A (ED. 11/04/95) 3 of 5
<PAGE>
3. We will not pay any claims for damages after we have paid the
applicable limit of our liability under this insurance.
RECOVERY FROM OTHERS
We have your rights to recover our payment from anyone liable for an injury
covered by this insurance. You will do everything necessary to protect
those rights for us and to help us enforce them.
I. ACTIONS AGAINST US
There will be no right of action against us under this insurance unless:
1. You have complied with all the terms of this policy; and
2. The amount you owe has been determined with our consent or by actual
trial and final judgment.
This insurance does not give anyone the right to add us as a defendant in
an action against you to determine your liability.
The bankruptcy or insolvency of you or your estate will not relieve us of
our obligations under this Part.
PART THREE - OTHER STATES INSURANCE
A. HOW THIS INSURANCE APPLIES
1. This other states insurance applies only if one or more states are
shown in Item 3.C. of the Information Page.
2. If you begin work in any one of those states after the effective date
of this policy and are not insured or are not self-insured for such
work, all provisions of the policy will apply as though that state
were listed in Item 3.A. of the Information Page.
3. We will reimburse you for the benefits required by the workers
compensation law of that state if we are not permitted to pay the
benefits directly to persons entitled to them.
4. If you have work on the effective date of this policy in any state not
listed in Item 3.A. of the Information Page, coverage will not be
afforded for that state unless we are notified within thirty days.
B. NOTICE
Tell us at once if you begin work in any state listed in Item 3.C. of the
Information Page.
PART FOUR - YOUR DUTIES IF INJURY OCCURS
Tell us at once if injury occurs that may be covered by this policy. Your
other duties are listed here.
1. Provide for immediate medical and other services required by the
workers compensation law.
2. Give us or our agent the names and addresses of the injured persons
and of witnesses, and other information we may need.
3. Promptly give us all notices, demands and legal papers related to the
injury, claim, proceeding or suit.
4. Cooperate with us and assist us, as we may request, in the
investigation, settlement or defense of any claim, proceeding or suit.
5. Do nothing after an injury occurs that would interfere with our right
to recover from others.
6. Do not voluntarily make payments, assume obligations or incur
expenses, except at your own cost.
PART FIVE - PREMIUM
A. OUR MANUALS
All premium for this policy will be determined by our manuals of rules,
rates, rating plans and classifications. We may change our manuals and
apply the changes to this policy if authorized by law or a governmental
agency regulating this insurance.
B. CLASSIFICATIONS
Item 4 of the Information Page shows the rate and premium basis for certain
business or work classifications. These classifications were assigned based
on an estimate of the exposures you would have during the policy period. If
your actual exposures are not properly described by those classifications,
we will assign proper classifications, rates and premium basis by
endorsement to this policy.
C. REMUNERATION
Premium for each work classification is determined by multiplying a rate
times a premium basis. Remuneration is the most common premium basis. This
premium basis includes payroll and all other remuneration paid or payable
during the policy period for the services of:
1. all your officers and employees engaged in work covered by this
policy; and
2. all other persons engaged in work that could make us liable under Part
One (Workers Compensation Insurance) of this policy. If you do not
have payroll records for these persons, the contract price for their
services and materials may be used as the premium basis. This
paragraph 2 will not apply if you give us proof that the employers of
these persons lawfully secured their workers compensation obligations.
WC000000A (ED. 11/04/95) 4 of 5
<PAGE>
D. Premium Payments
You will pay all premium when due. You will pay the premium even if part or
all of a workers compensation law is not valid.
E. Final Premium
The premium shown on the Information Page, schedules, and endorsements is
an estimate. The final premium will be determined after this policy ends by
using the actual, not the estimated, premium basis and the proper
classifications and rates that lawfully apply to the business and work
covered by this policy. If the final premium is more than the premium you
paid to us, you must pay the balance. If it is less, we will refund the
balance to you. The final premium will not be less than the highest minimum
premium for the classifications covered by this policy.
If this policy is canceled, final premium will be determined in the
following way unless our manuals provide otherwise:
1. If we cancel, final premium will be calculated pro rata based on the
time this policy was in force. Final premium will not be less than
the pro rata share of the minimum premium.
2. If you cancel, final premium will be more than pro rata; it will be
based on the time this policy was in force, and increased by our short
rate cancelation table and procedure. Final premium will not be less
than the minimum premium.
F. Records
You will keep records of information needed to compute premium. You will
provide us with copies of those records when we ask for them.
G. Audit
You will let us examine and audit all your records that relate to this
policy. These records include ledgers, journals, registers, vouchers,
contracts, tax reports, payroll and disbursement records, and programs for
storing and retrieving data. We may conduct the audits during regular
business hours during the policy period and within three years after the
policy period ends. Information developed by audit will be used to
determine final premium. Insurance rate service organizations have the same
rights we have under this provision.
PART SIX - CONDITIONS
A. Inspection
We have the right, but are not obliged to inspect your workplaces at any
time. Our inspections are not safety inspections. They relate only to the
insurability of the workplaces and the premiums to be charged. We may give
you reports on the conditions we find. We may also recommend changes. While
they may help reduce losses, we do not undertake to perform the duty of any
person to provide for the health or safety of your employees or the public.
We do not warrant that your workplaces are safe or healthful or that they
comply with laws, regulations, codes or standards. Insurance rate service
organizations have the same rights we have under this provision.
B. Long Term Policy
If the policy period is longer than one year and sixteen days, all
provisions of this policy will apply as though a new policy were issued on
each annual anniversary that this policy is in force.
C. Transfer of Your Rights and Duties
Your rights or duties under this policy may not be transferred without our
written consent.
If you die and we receive notice within thirty days after your death, we
will cover your legal representative as insured.
D. Cancelation
1. You may cancel this policy. You must mail or deliver advance notice
to us stating when the cancelation is to take effect.
2. We may cancel this policy. We must mail or deliver to you not less
than ten days advance written notice stating when the cancelation is
to take effect. Mailing that notice to you at your mailing address
shown in Item 1 of the Information Page will be sufficient to prove
notice.
3. The policy period will end on the day and hour stated in the
cancelation notice.
4. Any of these provisions that conflicts with a law that controls the
the cancelation of the insurance in this policy is changed by this
statement to comply with the law.
E. Sole Representative
The insured first named in Item 1 of the Information Page will act on
behalf of all insureds to change this policy, receive return premium, and
give or receive notice of cancellation.
5 of 5
INSURED'S COPY
WC000000A (ED. 11/04/95)
<PAGE>
[LOGO] TEXAS WORKERS'
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND [X]
WC 00 03 01
- --------------------------------------------------------------------------------
ALTERNATE EMPLOYER ENDORSEMENT
This endorsement applies only with respect to bodily injury to your employees
while in the course of special or temporary employment by the alternate
employer in the state named in the Schedule. Part One (Workers Compensation
Insurance) and Part Two (Employers Liability Insurance) will apply as though the
alternate employer is insured.
Under Part One (Workers Compensation Insurance) we will reimburse the alternate
employer for the benefits required by the workers compensation law if we are not
permitted to pay the benefits directly to the persons entitled to them.
The insurance afforded by this endorsement is not intended to satisfy the
alternate employer's duty to secure its obligations under the workers
compensation law. We will not file evidence of this Insurance on behalf of the
alternate employer with any government agency.
We will not ask any other insurer of the alternate employer to share with us a
loss covered by this endorsement.
Premium will be charged for your employees while in the course of special or
temporary employment by the alternate employer.
The policy may be canceled according to its terms without sending notice to the
alternate employer.
Part Four (Your Duties If Injury Occurs) applies to you and the alternate
employer. The alternate employer will recognize our right to defend under Parts
One and Two and our right to inspect under Part Six.
Schedule
State of Special or
Alternate Employer Address Temporary Employment
- ------------------ ------- --------------------
ALL OR ANY TEXAS
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-0001093150 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
WC000501 (ED. 1-94)
<PAGE>
[LOGO] TEXAS WORKERS'
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND [X]
WC 00 04 06
- --------------------------------------------------------------------------------
PREMIUM DISCOUNT ENDORSEMENT
The premium for this policy and the policies, if any, listed in Item 3 of the
Schedule may be eligible for a discount. This endorsement shows your estimated
discount in Item 1 or 2 of the Schedule. The final calculation of premium
discount will be determined by our manuals and your premium basis as determined
by audit. Premium subject to retrospective rating is not subject to premium
discount.
Schedule
Estimated Eligible Premium
--------------------------
First Next Next Balance
1. State $5,000 $95,000 $400,000
TEXAS 0.00 8.40 10.60 11.00
2. Average percentage discount 10.90
-----
3. Other Policies:
4. If there are no entries in Items 1, 2, and 3 of the Schedule see the
Premium Discount Endorsement attached to your policy number:
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-0001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
NC000408 (ED. 1-94)
<PAGE>
[LOGO] TEXAS WORKERS'
COMPENSATION TEXAS WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY POLICY
INSURANCE
FUND [X]
WC 42 03 01 F
- --------------------------------------------------------------------------------
TEXAS AMENDATORY ENDORSEMENT
This endorsement applies only to the insurance provided by the policy because
Texas is shown in Item 3.A. of the Information Page.
GENERAL SECTION
B. Who is Insured is amended to read:
You are insured if you are an employer named in Item 1 of the Information
Page. If that employer is a partnership or joint venture, and if you are
one of its partners or members, you are insured, but only in your capacity
as an employer of the partnership's or joint venture's employees.
D. State is amended to read:
State means any state or territory of the United States of America, and the
District of Columbia.
PART ONE - WORKERS' COMPENSATION INSURANCE
E. Other insurance is amended by adding this sentence:
This section only applies if you have other insurance or are self-insured
for the same loss.
F. Payments You Must Make
This section is amended by deleting the words "workers' compensation" from
number 4.
H. Statutory Provisions
This section is amended by deleting the words "after an injury occurs" from
number 2.
PART TWO - EMPLOYERS LIABILITY INSURANCE
C. Exclusions
Sections 2 and 3 are amended to add:
This exclusion does not apply unless the violation of law caused or
contributed to the bodily injury.
Section 6 is amended to read:
6. Bodily injury occurring outside the United States of America, its
territories or possessions, and Canada. This exclusion does not apply
to bodily injury to a citizen or resident of the United States of
America, Mexico or Canada who is temporarily outside these countries.
D. We Will Defend
This section is amended by deleting the last sentence.
Page 1 of 3
WC420301F (1-01-2000)
<PAGE>
PART FOUR - YOUR DUTIES IF INJURY OCCURS
Number 6 of this part is amended to read:
6. Texas law allows you to make weekly payments to an injured employee in
certain instances. Unless authorized by law, do not voluntarily make
payments, assume obligations or incur expenses, except at your own
cost.
PART FIVE - PREMIUM
A. Our Manuals are amended by adding the sentence:
In this part, "our manuals" means manuals approved or prescribed by the
State Board of Insurance.
C. Renumeration
Number 2 is amended to read:
2. All other persons engaged in work that would make us liable under
Part One (Workers' Compensation Insurance) of this policy. This
paragraph 2 will not apply if you give us proof that the
employers of these persons lawfully secured workers' compensation
insurance.
E. Final Premium
Number 2 is amended to read:
2. If you cancel, final premium will be calculated pro rata based on the
time this policy was in force. Final premium will not be less than
the pro rata share of the minimum premium.
PART SIX - CONDITIONS
A. Inspection is amended by adding this sentence:
Your failure to comply with the safety recommendations made as a result of
an inspection may cause the policy to be cancelled by us.
C. Transfer of Your Right and Duties is amended to read:
Your rights and duties under this policy may not be transferred without our
written consent. If you die, coverage will be provided for your surviving
spouse or your legal representative. This applies only with respect to
their acting in the capacity as an employer and only for the workplaces
listed in Items 1 and 4 on the Information Page.
D. Cancellation is amended to read:
1. You may cancel this policy. You must mail or deliver advance notice to
us stating when the cancellation is to take effect.
2. We may cancel this policy. We may also decline to renew it. We must
give you written notice of cancellation or nonrenewal. That notice
will be sent certified mail or delivered to you in person. A copy
of the written notice will be sent to the Texas Workers' Compensation
Commission.
3. Notice of cancellation or nonrenewal must be sent to you not later
than the 30th day before the date on which the cancellation or
nonrenewal become effective, except that we may send the notice
not later than the 10th day before the date on which the cancellation
or nonrenewal becomes effective if we cancel or do not renew because
of:
a. Fraud in obtaining coverage;
b. Misrepresentation of the amount of payroll for purposes of
premium calculation;
c. Failure to pay a premium when payment was due;
Page 2 of 3
WC 420301F (1-01-2000)
<PAGE>
d. An increase in the hazard for which you seek coverage that
results from an action or omission and that would produce an
increase in the rate, including an increase because of failure
to comply with reasonable recommendations for loss control or
to comply within a reasonable period with recommendations
designed to reduce a hazard that is under your control;
e. A determination by the Commissioner of Insurance that the
continuation of the policy would place us in violation of the
law, or would be hazardous to the interests of subscribers,
creditors, or the general public.
4. If another insurance company notifies the Texas Workers' Compensation
Commission that it is insuring you as an employer, such notice shall
be a cancellation of this policy effective when the other policy
starts.
Part Seven has been added as follows:
PART SEVEN - OUR DUTY TO YOU FOR CLAIM NOTIFICATION
A. Claims Notification
We are required to notify you of any claim that is filed against your
policy. Thereafter we shall notify you of any proposal to settle a claim
or, on receipt of a written request from you, of an administrative or
judicial proceeding relating to the resolution of a claim, including a
benefit review conference conducted by the Texas Workers' Compensation
Commission. You may, in writing, elect to waive this notification
requirement.
We shall, on the written request from you, provide you with a list of
claims charged against your policy, payments made and reserves established
on each claim, and a statement explaining the effect of claims on your
premium rates. We must furnish the requested information to you in writing
no later than the 30th day after the date we receive your request. The
information is considered to be provided on the date the information is
received by the United States Postal Service or is personally delivered.
COMPLAINT NOTICE: SHOULD ANY DISPUTE ARISE ABOUT YOUR PREMIUM OR ABOUT A CLAIM
THAT YOU HAVE FILED, CONTACT THE AGENT OR WRITE TO THE COMPANY THAT ISSUED THE
POLICY. IF THE PROBLEM IS NOT RESOLVED, YOU MAY ALSO WRITE THE TEXAS DEPARTMENT
OF INSURANCE, P.O. BOX 149091, AUSTIN, TEXAS 78714-9091, FAX # (512) 475-1771.
THIS NOTICE OF COMPLAINT PROCEDURE IS FOR INFORMATION ONLY AND DOES NOT BECOME A
PART OR CONDITION OF THIS POLICY.
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-0001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
Page 3 of 3
INSURED'S COPY TXAMADOR 1-26-2000
WC 420301F (1-01-2000)
<PAGE>
[LOGO] TEXAS WORKERS'
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND
WC 42 03 08
- --------------------------------------------------------------------------------
PARTNERS, OFFICERS AND OTHERS EXCLUSION ENDORSEMENT
The policy does not cover bodily injury to any person described in the Schedule.
The premium basis for the policy does not include the remuneration of such
persons.
You will reimburse us for any payment we must make because of bodily injury to
such persons
Schedule
Officer(s) CHARLES CRAIG, CEO
RICHARD GOLDMNA, PRES
JOYCE LILLIS, SVP
JOHN PANNING, SVP
JOHN BIKKAK, SVP
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-0001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
<PAGE>
[LOGO] TEXAS WORKERS
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND
WC 42 04 06 B
- --------------------------------------------------------------------------------
TEXAS EMPLOYEE PROVIDER/CLIENT COMPANY ENDORSEMENT
This endorsement is to be used for each client company of an employee provider
firm as those terms are defined in Part E of Rule IX of the Texas Basic Manual
of Rules, Classifications and Experience Rating Plan for Workers' Compensation
and Employers' Liability Insurance. This endorsement shall be notarized and
sworn to as true and correct by the owner, partner, officer or any other
representative authorize to bind the client company.
The purposes of this endorsement are to curtail abuses to the workers'
compensation insurance rating system of the State of Texas perpetrated by
employee leasing arrangements; to prevent employee provider firms from assisting
employers in evading proper premium and other charges for workers' compensation
insurance through employee leasing arrangements; to ensure that incurred
experience is used in ratings; to ensure that premium is paid commensurate with
exposure and anticipated claims experience.
This endorsement does not purport to make any determination that an employee
provider firm is or is not the employer of a leased worker for any purposes
whatsoever, nor does the Texas Department of Insurance in approving this
endorsement make any such determination. This endorsement is of no significance
in regard to the employer/employee relationship under Texas law or with regard
to determinations about the payment of benefits to injured workers. The purpose
of this endorsement is limited to those purposes stated above.
Terms not otherwise defined here are defined in Part E of Rule IX of the Texas
Basic Manual of Rules, Classifications and Experience Rating Plan for Workers'
Compensation and EMployers' Liability Insurance. Attach continuation pages where
space provided is inadequate for answers.
I, __________________________________ ________________________________am the
_____________________________________ of _______________________________________
Officer or Title Full Company Name
The "Company"), and am authorized to legally bind the Company. I hereby swear
upon penalty of perjury that the following information and statements are true
and accurate and may be relied on by the insurer issuing this endorsement:
1. Name, address and telephone number of Company:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
2. Owner(s) of Company and percentage of ownership:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
1 of 3
<PAGE>
3. Officers, managers, and affiliates of persons authorized to bind Company,
along with their titles and respective Social Security numbers:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
4. Date of contract with employee provider firm: _____________________________
5. For the preceding five (5) years, any other name(s) or assumed name(s)
under which the Company has done business or operated and each mailing
address it has used and a copy of the Company's most recent Form 941 or
its equivalent filed with the Internal Revenue Service by the Company:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
6. Company's experience modifier most recently issued by the Department
before the Company entered into any employee leasing agreement:
___________________________________________________________________________
7. Classifications and payroll of leased workers:
___________________________________ $__________________________________
___________________________________ $__________________________________
___________________________________ $__________________________________
___________________________________ $__________________________________
___________________________________ $__________________________________
___________________________________ $__________________________________
8. The policy number and carrier for each workers' compensation policy
issued to the Company under each and every name under which the Company
has done business in the preceding five (5) years are:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
9. The names of every other employee provider firm from which the Company
has ever leased workers (and the effective dates for each such contract)
are:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
10. If coverage is with the Fund: the Company and each officer, director and
affiliate of and any entity with an ownership interest in the Company is
in good faith eligible to receive workers' compensation insurance, or,
if coverage is with the voluntary market: the Company, its officers,
directors and affiliates and any entity with an ownership interest in
the Company do not owe any workers' compensation premium to any current
or prior insurer.
2 of 3
<PAGE>
11. The Company acknowledges that the Insurer has the same rights of audit
that the Insurer has with regard to the employee provider firm with
which the Company has an employee leasing arrangement; and further
understands that the insurer may make any adjustments in premium
calculations as a result of such audits.
12. The Company acknowledges that premiums will be calculated based on the
methods described in Paragraph 3 of Part E of Rule IX of the Texas
Basic Manual of Rules, Classifications and Experience Rating Plan for
Workers' Compensation and Employers' Liability Insurance. The Company
will abide by any rules and regulations of the Texas Workers' Compensation
Commission, and the Department that are now or may become in the future
applicable to it or to employee provider firms.
NOTICE: Before executing this form, you may wish to review Section 32.54 of the
Texas Penal Code entitled, "Penalty for Fraudulently Obtaining Workers'
Compensation Insurance Coverage."
____________________________________ ______________________________________
Name of Client Company Signature of Authorized Representative
of Client Company
Sworn and Subscribed to before me this ________ day of _______________, 199____.
______________________________________
Notary Public
My Commission Expires: _______________
3 of 3
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
<PAGE>
[LOGO] TEXAS WORKERS
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND
WC 42 06 01
- --------------------------------------------------------------------------------
TEXAS NOTICE OF MATERIAL CHANGE ENDORSEMENT
The endorsement applies only to the insurance provided by the policy because
Texas is shown in Item 3.A. of the Information Page.
In the event of cancellation or other material change of the policy, we will
advance notice to the person or organization named in the Schedule. The number
of days advance notice is shown in the Schedule.
This endorsement shall not operate directly or indirectly to benefit anyone not
named in the Schedule.
Schedule
1. Number of days advance notice: 30
2. Notice will be mailed to:
ALL CERTIFICATE HOLDERS
TX
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
<PAGE>
[LOGO] TEXAS WORKERS
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND
WC 99 03 01
- --------------------------------------------------------------------------------
GENERAL CHANGE ENDORSEMENT
The policy to which this endorsement is attached is amended as shown below:
THE .72 (420037806) EXPERIENCE MODIFIER IS AMENDED TO 1.09
(917648190) FOR LOCATION #00513.
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ Endorsement No.
/s/ (Signature Illegible)
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
<PAGE>
[LOGO] TEXAS WORKERS
COMPENSATION WORKERS' COMPENSATION AND
------------- EMPLOYERS LIABILITY INSURANCE POLICY
INSURANCE
FUND
WC 99 03 01
- --------------------------------------------------------------------------------
GENERAL CHANGE ENDORSEMENT
The policy to which this endorsement is attached is amended as shown below:
THE 1.09 EXPERIENCE MODIFIER IS ADDED TO LOCATION #00583
BROWNIE'S CARD & GIFT SHOPS.
<TABLE>
<CAPTION>
<S> <C>
This endorsement reflects a net annual premium change of........ 419.00
Below is the policy summary as amended with this endorsement
TOTAL ESTIMATED STANDARD PREMIUM................................ 11,573,949.00
WAIVER OF SUBROGATION........................................... .00
INCREASED LIMITS................................................ 231,479.00
TOTAL PREMIUM SUBJECT TO MODIFICATIONS.......................... 11,805,428.00
PREMIUM ADJ WITH EXP MOD--See Schedule of Operations............ 640,376.00
PREMIUM MODIFIED TO REFLECT SCHEDULE RATING OF (.77)............ 2,839,636.00-
DEDUCTIBLE PREMIUM.............................................. .00
ADM/FELA OR USL&H MINIMUM....................................... .00
PREMIUM DISCOUNT, IF APPLICABLE (10.90)......................... 1,036,183.00-
EXPENSE CONSTANT CHARGE......................................... 150.00
.00
TOTAL ESTIMATED ANNUAL PREMIUM.................................. 8,470,236.00
</TABLE>
THIS POLICY IS SUBJECT TO FINAL AUDIT
This endorsement changes the policy to which it is attached effective on the
inception date of the policy unless a different date is indicated below.
(The following "attaching clause" need be completed only when this endorsement
is issued subsequent to preparation of the policy.)
This endorsement, effective on at 12:01 A.M. standard time,
forms a part of
Policy No. TSF-001093160 20000101 of the Texas Workers' Compensation
Insurance Fund
Issued to STAFF LEASING OF TEXAS, LP
Premium $ 83.00 Endorsement No. 14 **
**
/s/ (Signature Illegible) **
------------------------------
Authorized Representative
INSURED'S COPY TXAMADOR 1-26-2000
EXHIBIT 10.14
FINANCE AGREEMENT
PAID LOSS WC DEDUCTIBLE
This Finance Agreement ("Agreement") is effective as of January 1, 2000 and is
made by and between Staff Leasing, Inc. ("Insured") and Continental Casualty
Company ("Insurer").
Insurer has issued to Insured certain insurance policies (together with any
endorsements, individually and collectively the "Policies") which are set forth
in Schedule A, which is attached to and made a part of this Agreement; and
Losses incurred under the Policies are subject to a deductible ("Workers'
Compensation Deductible Plan" or "Insurance Plan") as set forth in Schedule A;
and
Insured has agreed to pay Insurer premiums and reimburse Insurer for losses and
paid Allocated Loss Adjustment Expenses as defined in the Policies ("ALAE"),
according to the terms and conditions of the Policies and Article 6 of this
Agreement; and
Insured agrees to fully perform and satisfy each and every duty, obligation and
liability that arises under the Policies, Insurance Plan and this Agreement
(individually and collectively "Insured's Obligations").
In consideration of the covenants and undertakings of the parties contained in
this Agreement, and other good and valuable consideration, Insurer and Insured
agree as follows:
1. ESTIMATED PREMIUM -- Insured agrees to pay Insurer the estimated Deductible
Plan premium of $4,900,200 ("Estimated Premium"). Insured will pay the Estimated
Premium in twelve equal monthly installments ("Estimated Installment Premium")
in the amounts and times stated in the Installment Endorsement(s) to the
Policies.
The Estimated Installment Premium will include the retention, premium tax,
excess loss premium (if any), residual market charge, deductible policy premium
and any regulatory assessments identified in the Confirmation Letter dated
December 27, 1999, and any subsequent amendments.
2. PREMIUM AUDIT -- Premium audits will be performed to determine actual
exposure incurred under the Policies. Such audits may result in adjustments to
the Estimated Premium. An interim audit will be conducted as of October 31,
2000. Insurer will provide Insured notice of the results of any such audit. The
amount billed or refunded as a result of such audits will be limited to net
deductible premiums and any regulatory assessments.
3. ADMINISTRATIVE FEE - Insured agrees to pay Insurer a non-adjustable
administrative fee of $500,000 ("Administrative Fee") in installments in the
amounts and times stated in Schedule A of this Agreement after which time the
Administrative Fee shall be considered past due and interest will accrue to the
benefit of the Insurer as described in the Payment Terms Article. The
Administrative Fee is fully earned when due and no part thereof shall be
refunded.
4. LOSS REIMBURSEMENT -- As of the inception date of the Policies, Insured will
remit to Insurer a minimum and deposit loss fund of $3,500,000 ("WC Loss Fund"
or "Loss Fund"). Insurer will bill Insured monthly for the prior calendar
month's losses paid and ALAE paid pursuant to the
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -1- January 1, 2000
<PAGE>
Policies, unpaid claims handling expenses earned (if any) by a claims
administrator (collectively "Losses and Expenses"), and, if applicable, either
bill Insured for the Interest in Lieu of Charge or remit payment to Insured of
the Loss Fund Deposit Credit. In the event of any default in payment by Insured,
Insurer has the option to draw upon the Loss Fund or on any other collateral
securing Insured's Obligations under this Agreement.
The Interest in Lieu of Charge compensates Insurer for the loss of use of its
funds for paying the Losses and Expenses on behalf of Insured prior to being
reimbursed on a monthly basis for same by Insured. The Loss Fund Deposit Credit
compensates Insured for the loss of use its funds comprising the Loss Fund.
The Interest in Lieu of Charge will be two times the Losses and Expenses
multiplied by one-twelfth (1/12) (or the applicable pro-rata amount thereof
based upon the number of months, or portion thereof, for which such charge is
being calculated) of the ninety (90) day commercial paper dealer rate in effect
on the first Friday(s) of the month(s) being billed for that calendar quarter as
set forth in the Money Rates section (or any successor section) of the Midwest
Edition of THE WALL STREET JOURNAL. The Loss Fund Deposit Credit will be two
times the Loss Fund multiplied by one-twelfth (1/12) (or the applicable pro-rata
amount thereof based upon the number of months, or portion thereof, for which
such charge is being calculated) of the ninety (90) day commercial paper dealer
rate in effect on the first Friday(s) of the month(s) being billed as set forth
in the Money Rates section (or any successor section) of the Midwest Edition of
THE WALL STREET JOURNAL.
The difference in the Interest in Lieu of Charge and the Loss Fund Deposit
Credit will either be billed to or payment remitted to Insured by Insurer.
Insured will pay Insurer any amounts billed to it under this Article within
fifteen (15) days of the billing date (as defined in the Payment Terms Article
of this Agreement).
5. PAID LOSS ADJUSTMENT -- Insurer may prepare an adjustment for the Deductible
Plan ("Deductible Adjustment") six (6) months after the expiration or
termination of the Policies and annually thereafter ("Evaluation Date") until
final settlement. Each Deductible Adjustment will equal the sum of:
A. Amounts past due under the Loss Reimbursement Article, Accrued Interest (as
defined in the Payment Terms Article), and amounts due under the Additional
Amounts Article; plus
B. As of the Evaluation Date the sum of: Paid Losses, paid ALAE, claim handling
expenses (if any) due under this Agreement; minus
C. Amounts paid to Insurer under this Agreement (exclusive of any Deductible
Plan policy premiums, premium audit adjustments, Accrued Interest payments,
and amounts arising under the Additional Amounts Article).
Upon completion of each Deductible Adjustment Insurer will prepare and send an
invoice to Insured, or remit a refund to Insured, as appropriate.
6. MAXIMUM INCURRED LOSSES -- The maximum Aggregate Retention (including all
ALAE paid) Insured will be obligated to pay under the Insurance Plan, excluding
any amounts due Insurer under the Payment Terms Article, Claims Administration
Article, and the Additional Amounts Article of this Agreement, will be
$26,000,000 ("Maximum Incurred Losses" or "Aggregate
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -2- January 1, 2000
<PAGE>
Limit"), which is an estimate; provided, however, the Maximum Incurred Losses
Insured will be obligated to pay (including ALAE) for any one accident or
occurrence will be $10,000,000. Upon the completion of each Deductible
Adjustment , the Maximum Incurred Losses shall be computed for such period based
on the rate of $148.57 per $1,000 of Manual Workers' Compensation Premium, with
premium subject to a minimum Aggregate Retention of $20,800,000. The Maximum
Incurred Losses calculated as a result of any interim audit shall be increased
pro rata to 366 days.
7. COLLATERAL/EXPERIENCE ACCOUNT -- Insofar as collateral is necessary to
protect the interests of Insurer under the Insurance Plan, both parties agree as
follows:
A. The Insured's Obligations under this Agreement will be secured as follows:
1.) Insured will deposit or cause to be deposited cash or certain classes
of investment instruments ("Eligible Investments") in a Collateral Trust
Account ("Collateral Trust Account") for the sole benefit of Insurer to
secure the Insured's Obligations. The Collateral Trust Account required
hereunder shall be established as set forth in Appendix A, which is
attached to this Agreement and incorporated by reference herein. In lieu of
directly establishing such a Collateral Trust Account, Insured may opt to
purchase insurance coverage to satisfy its obligations hereunder, provided:
(i) any such insurance coverage is secured from an insurance company
satisfactory to Insurer; and (ii) such insurance company establishes a
Collateral Trust Account in an amount as required by Insurer, in its sole
discretion, to secure Insured's Obligations. The Collateral Trust Account
required hereunder shall be established and funded by Insured or Insured's
insurance company as Grantor and with Insurer named as Beneficiary
thereunder, in accordance with the provisions of Appendix A. For purposes
of monitoring collateral requirements hereunder, the Trust Assets
comprising the Collateral Trust Account will be treated as collateral
securing Insured's Obligations under this Agreement.
2.) As of the inception date of the Policies, Insured will deliver to
Insurer by certified mail (return receipt requested) or overnight mail a
surety bond (hereinafter referred to as the "bond") in a form acceptable to
Insurer, in its sole discretion, issued by an institution acceptable to
Insurer in the initial amount of $39,000,000. The bond, and the obligation
of the surety thereunder shall be unconditional, irrevocable, absolute and
shall remain in full force and effect for an initial period of one (1) year
and will be automatically renewable for terms of twelve (12) months until
Insured has fully satisfied and been discharged of all Insured's
Obligations and upon mutual agreement. The Issuing Institution must agree,
in the terms of the bond, to provide Insurer with written notice at least
sixty (60) days prior to expiration of the bond in the event the bond will
not be renewed. Insured agrees to cause the term of the bond to be extended
until such time as payment is made to Insurer. No claim will be made or
presented against the surety bond required as partial collateral by this
Paragraph A.2. of this Article 7. of the Agreement until Insurer has drawn
against all other available collateral securing Insured's Obligations under
this Agreement.
As of each Deductible Adjustment, the amount of the bond will be adjusted
to equal the difference between: (i) Ultimate Loss Amount (as defined in
the Remedies Article below) subject to the Deductible Plan as calculated by
Insurer, less (ii) the cumulative amounts of paid losses for which Insurer
has been previously reimbursed, and less (iii) the balance of the
Experience Account. The results of each Adjustment will be furnished to
Insured.
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -3- January 1, 2000
<PAGE>
Insured agrees to amend the value of the bond to such amount within thirty
(30) days of notification thereof through any one, or combination, of the
following actions:
a. the value of the existing bond is amended to the revised
requirement; or
b. the receipt of an additional surety bond (hereinafter referred to as
"surety bond") from an institution, and in a form acceptable to
Insurer, in its sole discretion, for an amount sufficient to bring the
overall required bond amount to the required level; or
c. the receipt of a clean, unconditional, and irrevocable letter of
credit (hereinafter referred to as "LOC"), from an institution and in a
form acceptable to Insurer, sufficient to bring the overall required
bond balance to the required level.
Any amounts that may be due Insured may be held by Insurer until such
amendment to the bond is received. Any reference to, or any obligation or
duty arising under any other documents referred to herein shall have no
effect on the surety's obligation under any bond provided to secure
Insured's Obligations.
B. Insurer will establish an Experience Account as specified in Appendix B,
which is attached to and incorporated by reference herein to this Agreement,
as a means of monitoring the adequacy of the collateral required by Insurer
to secure the Insured's Obligations under Paragraph A. of this Article 7.
of the Agreement.
8. MATERIAL CHANGE IN OWNERSHIP -- Insurer will have the right to require
Insured to increase the Collateral Trust Account or bond by an amount not to
exceed the Maximum Incurred Losses if there is a Material Change In Ownership of
Insured. Insured will increase the Collateral Trust Account or bond to the
required amount within ten (10) days of notification thereof. For purpose of
this Agreement, a "Material Change in Ownership" occurs when: (i) an investor or
a group of affiliated investors acquires more than 30% of the voting shares of
Insured, or (ii) Insured's board of directors authorizes: a merger,
consolidation, reorganization, or liquidation of Insured, the sale of
substantially all of Insured's assets, or a distribution of assets to
shareholders in excess of 25% of Insured's assets.
9. EVENTS OF DEFAULT -- Any of the following will be an Event of Default under
this Agreement:
A. Insured does not pay any amount due Insurer when due under the terms of the
Policies, the Insurance Plan and/or this Agreement; or
B. Insured does not establish, deliver or adjust the Collateral Trust Account or
bond as required in this Agreement; or
C. Insurer receives written notice from (i) the Issuing Institution, that the
bond will not be renewed, or (ii) the Trustee, that the Collateral Trust
Agreement will be terminated, and Insurer is not in possession of a satisfactory
successor Trustee or replacement bond thirty (30) days prior to termination of
the Collateral Trust Account or expiration of the bond; or
D. The financial condition of the Issuing Institution becomes such that, in
Insurer's sole opinion, the Issuing Institution may be unable to pay any draw
upon the bond; or
E. Insured ceases doing business as a going concern, makes an assignment for the
benefit of creditors, generally does not pay its debts as they become due or
admits in writing its inability to pay its debts as they become due, files a
petition commencing a voluntary case under any chapter of the Bankruptcy Code,
11 U.S.C. Sec. 101 et seq. ("Bankruptcy Code"), is adjudicated an insolvent,
files a petition seeking for itself a reorganization, arrangement, composition,
readjustment, rehabilitation, liquidation, dissolution or similar
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -4- January 1, 2000
<PAGE>
arrangement under the Bankruptcy Code or any other present or future statute,
law, rule or regulation, whether domestic or foreign; or a case, proceeding or
other action either results in such entry, adjudication, relief or issuance or
entry of any other order of judgment having a similar effect, or remains
undismissed for thirty (30) days; or
F. Insured cancels any of the Policies; or
G. Insured fails to execute any further documentation relative to the
Insurance Plan as Insurer, in its reasonable business judgment, may require
within thirty (30) days after Insurer delivers such documentation to
Insured.
Any termination or cancellation of this Agreement by Insurer will not release
Insured from any of Insured's Obligations. Insurer's right to apply any Remedies
set forth below, should an Event of Default occur, will not be affected by any
such termination or cancellation, including without limitation the right to draw
upon the collateral in any amount, as long as Insured remains liable for any
Insured's Obligations.
10. REMEDIES -- If any Event of Default occurs, Insurer may exercise any or all
of the remedies set forth below:
A. Insurer may terminate the Policies after giving written notice of
termination to Insured as set forth in the Policies (or any greater period
of written notice as may be required by applicable law). If the event
specified in paragraph E of the Event of Default Article occurs, Insurer
may terminate the Policies immediately without the requirement of any
action by Insurer or notice given to Insured (unless prior notice is
required by applicable law). Upon termination of any of the Policies, all
installments of premium and other sums that may become payable by Insured
under the Policies, the Insurance Plan or this Agreement will become
immediately due and payable, and Insurer will have no further liability
under the Policies.
B. Insurer may: (i) perform an Adjustment using Incurred Losses with the
entire balance so computed becoming immediately due and payable; and/or
(ii) perform a final Adjustment using the Ultimate Loss Amount as set forth
in this Article with the entire balance so computed becoming immediately
due and payable; and/or (iii) draw upon the Collateral in the full or any
lesser amount.
C. Insurer may offset any account surplus, credit obligation, refund, dividend
or any other amount that is due or may become due Insured under the
Policies, the Insurance Plan or this Agreement and apply such amount
against any amount that is due or may become due Insurer from Insured under
the Policies, the Insurance Plan or this Agreement.
D. If the event specified in paragraph E of the Event of Default Article
occurs, Insurer may claim and recover, in addition to all other sums which
may become payable by Insured to Insurer, the full amount of the Ultimate
Loss Amount as set forth in this Article for all projected amounts which
may become due and payable under the Policies or this Agreement.
E. In the event that Insurer draws upon the Collateral, any proceeds received by
Insurer shall be applied first, to the payment or reimbursement of the costs,
expenses and fees for collection provided for in the Payment Terms Article
below; second, to the payment of interest provided for in the Payment Terms
Article below; third, to the payment of all past
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -5- January 1, 2000
<PAGE>
due Estimated Installment Premium; fourth, to the payment of any other
premium or other amount currently due under this Agreement; fifth, to the
payment of future amounts due with respect to the Ultimate Loss Amount as
defined below; sixth, any amounts remaining will be paid to Insured after all
amounts owing pursuant to Insured's Obligations have been finally and fully
calculated, paid and discharged.
F. Insurer may apply the proceeds of any draw(s) upon the Collateral to any
outstanding amounts owed to Insurer at any time.
The "Ultimate Loss Amount" will be determined by Insurer in its sole discretion
through the use of generally accepted actuarial methods which will take into
consideration, without limitation, Insured's expected loss ratio at the time of
quotation, loss development factors generally used by Insurer, and loss
development factors based on Insured's individual loss history. Insurer's
determination of the Ultimate Loss Amount shall be conclusive and binding upon
Insured.
11. PAYMENT TERMS -- Unless otherwise expressly provided, Insured will pay any
invoice submitted by Insurer within thirty (30) days of the billing date after
which time such amount will be considered past due. Insurer will have the option
to accrue interest on any undisputed outstanding amounts past due under this
Agreement at a rate that is equal to the ninety (90) day commercial paper dealer
rate in effect on the first Friday of each month as set forth in the Money Rates
section (or any successor section) of the Midwest Edition of THE WALL STREET
JOURNAL plus five per cent (5%) per annum. Interest will compound daily until
full payment is received ("Accrued Interest"). All Accrued Interest will be
billed as soon as practicable and will be payable within fifteen (15) days of
the billing date. In the event Insurer undertakes any efforts to collect any
amounts due from Insured under this Agreement, Insured will indemnify Insurer
for the reasonable costs, expenses and fees of such collection efforts,
including attorneys' fees, if any. Any amounts due under this Article will be in
addition to the Maximum Incurred Losses.
12. CLAIMS ADMINISTRATION -- Insured will select a third party administrator or
claim service provider ("Claim Service Provider") to service claims that arise
under the Policies ("Claims"). Insurer reserves the right to periodically review
and approve any Claim Service Provider selected by Insured. Such approval will
not be unreasonably withheld. If Insured does not select a Claim Service
Provider or Insurer does not approve of Insured's selection, Insurer may select
a Claims Service Provider to service the Claims. Insured will promptly reimburse
Insurer for all amounts paid by Insurer to the Claims Service Provider.
13. ADDITIONAL AMOUNTS -- Insured will reimburse Insurer for all taxes, fees or
assessments (including any interest and penalties levied) related to Policies,
Insurance Plan, or this Agreement whenever imposed or assessed upon Insurer or
any of its affiliates and/or subsidiaries by any governmental body, any
insurance guarantee fund association or any residual market facility. Any
amounts due under this Article will be in addition to the Maximum Incurred
Losses.
14. TERM OF AGREEMENT -- This Agreement will remain in full force and effect
until terminated. The parties will modify certain terms and conditions of this
Agreement, as determined solely by Insurer, by written addendum upon each
successive anniversary date ("Annual Addendum").
15. TERMINATION -- This Agreement may be immediately terminated by either party
upon notice in the event of fraud, abandonment, gross or willful misconduct,
insolvency, or lack of legal
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -6- January 1, 2000
<PAGE>
capacity to act by the other party. If this Agreement is terminated, Insured
will not be released from any obligation under this Agreement, including without
limitation, the obligation to maintain the Collateral; and Insurer will continue
to have the option to enforce any of the Remedies available to it.
16. ASSIGNMENT -- This Agreement will be binding upon and inure to the benefit
of the parties and their successors and assigns. Neither party may assign this
Agreement without the prior written consent of the other party, such consent not
to be unreasonably withheld.
17. NO REMEDY EXCLUSIVE -- No remedy conferred upon or reserved to any party is
intended to be exclusive of any other available remedy, but each and every
remedy will be cumulative and will be in addition to every other remedy given
under this Agreement, or now or hereafter existing at law or in equity.
18. NOTICES -- Unless otherwise expressly provided, all notices required under
this Agreement will be confirmed in writing to the other party and sent by
United States mail to the other party addressed as follows:
IF TO INSURER: IF TO INSURED:
------------- -------------
Continental Casualty Company Staff Leasing, Inc.
CNA Plaza 600 301 Boulevard West,
Chicago, IL 60685 Suite 202
Attn.: Director, Contract Bradenton, FL 34205
Administration - 30 S Attn.: Mr. John Bilchak,
CNA Risk Management Sr. Vice President
Fax No.: 312/817-3348 Benefits & Risk Management
Fax No.: 941/741-4333
20. WAIVER -- The failure of any party to insist upon strict performance of any
duty or responsibility of any other party under this Agreement will not be
deemed a waiver of such duty or responsibility or create an estoppel against any
party to this Agreement.
21. SURVIVAL -- The rights, remedies and covenants of Insurer and Insured under
this Agreement, including without limitation those set forth in the Collateral,
Events of Default and Remedies Articles, will survive any termination of the
Policies, the Insurance Plan, or this Agreement.
22. ENTIRE UNDERSTANDING -- This Agreement sets forth the entire Agreement and
understanding between the parties with respect to the subject matter of this
Agreement. All parties have participated in the drafting of this Agreement. No
term or provision set forth herein which may be considered ambiguous will be
presumptively interpreted against any party as the drafter of this Agreement.
Unless otherwise expressly set forth in this Agreement, this Agreement may only
be amended in writing signed by officers of both parties.
23. SEVERABILITY -- If any provision of this Agreement is adjudged by any court
of law to be void or unenforceable in whole or in part, such adjudication will
not be deemed to affect the validity of the remainder of this Agreement. Each
provision of this Agreement is declared to be severable from every other
provision and constitutes a separate and distinct covenant.
24. GOVERNING LAW -- This Agreement will be construed and governed by the laws
of the State of Illinois.
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -7- January 1, 2000
<PAGE>
IN WITNESS WHEREOF, Insurer and Insured have caused this Agreement to be
executed by the persons duly authorized to act in their respective names in
multiple originals effective as of the date and year first above stated.
INSURED INSURER
Staff Leasing, Inc. Continental Casualty Company
- ----------------------------------------- -----------------------------------
(Legal Name of Insured) (Legal Name of Insurer)
By: _______________________________ By: _______________________________
(Signature of Officer) (Signature of Officer)
Name: ____________________________ Name: ____________________________
(Name of Officer) (Name of Officer)
Title: ____________________________ Title: Vice-President
Date: _______________ Date: _______________
Attest: ___________________________
Title: Asst. Secretary
By: _______________________________
(Signature of Officer)
Name: ____________________________
(Name of Officer)
Title: ____________________________
Date: _______________
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -8- January 1, 2000
<PAGE>
SCHEDULE A
PART I. DESCRIPTION OF POLICIES
Policy Limits: (a) Workers' Compensation: $10,000,000 Each Accident
(b) Employer's Liability:
Bodily Injury by Accident $10,000,000 Each Accident
Bodily Injury by Disease $10,000,000 Policy Limit
Bodily Injury by Disease $10,000,000 Each Employee
WORKERS' COMPENSATION DEDUCTIBLE PLAN:
POLICY NUMBER EFFECTIVE DATE UNDERWRITING COMPANY
- ----------------- ----------------- ------------------------------
WC 189165165 January 1, 2000 Continental Casualty Company
PART II. ADMINISTRATIVE FEE INSTALLMENT SCHEDULE
Installment
Due Date Installment Amount
------------------ --------------------------
1-1-2000 $41,674
2-1-2000 $41,666
3-1-2000 $41,666
4-1-2000 $41,666
5-1-2000 $41,666
6-1-2000 $41,666
7-1-2000 $41,666
8-1-2000 $41,666
9-1-2000 $41,666
10-1-2000 $41,666
11-1-2000 $41,666
12-1-2000 $41,666
Total $500,000
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -9- January 1, 2000
<PAGE>
APPENDIX A
COLLATERAL TRUST ACCCOUNT REQUIREMENTS
1. The Collateral Trust Account required to be established pursuant to Article
7.A. of this Agreement will be funded with Trust Assets that will amount to at
least $49,000,000 (subject to audit) during the initial term of this Agreement
and shall consist only of those classes of Eligible Investments as defined in
the applicable trust instrument.
2. Upon execution of this Agreement, the funding of the Collateral Trust Account
will consist of an initial deposit (on or before the first business day of
January, 2000) of Eligible Investments in an amount equal to $4,083,333,
followed by eleven monthly payments in the same amount. All Collateral Trust
Account monthly fundings will be made on or before the first business day of
each month such funding amount is due.
No one class of Trust Assets may comprise more than 50% of the total value of
the Trust Assets for a period in excess of 30 days without the written consent
of Insurer.
3. The investment return on the Equities class of Trust Assets shall be valued
by Insurer (or the Investment Manager of the Trust Assets) on a quarterly
calendar basis utilizing the market price of the Equities as of the close of the
New York Stock Exchange, American Stock Exchange or other recognized United
States or international exchange on the first Friday of each calendar quarter.
In the event Insurer is not collateralized to ultimate premium due under the
Insurance Program, and, Insurer determines, in its sole discretion at any time
following the completion of the initial annual funding of the Collateral Trust
Account, that the market value of any combination of common stocks or mutual
funds ("Equities") comprising the Eligible Investments has decreased by the
greater of $3,000,000, or twenty percent (20%) or more from a market valuation
of $16,333,334 (or any subsequent amount as may be revised on a pro rata basis
with respect to the total value of the Trust Assets), Insured shall, upon 3
business days notice from the Insurer, increase this class of Trust Assets by an
amount necessary to restore the market valuation of the Equities by the
deficient amount. Alternatively, Insured may increase the other classes of
Eligible Investments in an amount necessary to correct any shortcoming in the
market valuation of the Equities class of Trust Assets.
4. (a) In the event the aggregate Incurred Losses exceed the Loss Amount
calculated pursuant to subparagraph (c) below, Insured shall pay, or cause to be
paid, to Insurer an Additional Premium calculated as 80% of the amount of
Incurred Losses (paid losses, reserved losses and ALAE) which exceed that Loss
Amount. Such Additional Premium shall be adjusted and billed quarterly for 6
years from the inception date of the Policy Period and annually thereafter until
all claims under the Policies are closed or Insured and Insurer mutually agree
to a final calculation of the Additional Premium.
The amount of any such Additional Premium due hereunder shall be deposited
immediately into the Collateral Trust Account upon receipt of an invoice from
Insurer. Provided, if the Additional Premium calculated as the result of any
adjustment other than the final adjustment is less than $100,000, that
Additional Premium shall be deferred until, and payable by Insured at, the next
adjustment.
(b) If the Experience Account established pursuant to Article 6. and
Appendix B of the Agreement (excluding any investment income earned on any
Additional Premium(s) paid pursuant to subparagraph (a) above) is exhausted by
payment of Paid Losses before such Paid
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -10- January 1, 2000
<PAGE>
Losses total the Loss Amount calculated pursuant to paragraph (c). below,
Insured shall pay to Insurer an Additional Premium.
Any Additional Premium due under this subparagraph (b) shall be calculated as
$5,000,000 plus accrued interest of 7% per annum. This $5,000,000 amount,
exclusive of accrued interest, is an estimated amount, adjustable at audit based
upon a rate of $28.571 per $1,000 of Manual Workers' Compensation Premium. In no
event, except as outlined below, shall this estimated amount be adjusted at
audit to be an amount less than $4,000,000 plus accrued interest of 7% per
annum. Interest shall accrue on any such amount due hereunder from January 1,
2000 until full payment of the Additional Premium is received by Insurer.
Provided, however, such Additional Premium calculated under this subparagraph
(b) shall not exceed the difference between:
(i) The Loss Amount calculated pursuant to subparagraph (c) below;
and
(ii) The total Paid Losses as of the date the Experience Account
is exhausted.
(c) The Loss Amount, as used in this Paragraph 4, is estimated to be
$87,000,000. This Loss Amount is adjustable at audit based on a rate of $497.14
per $1,000 of Manual Workers' Compensation Premium. In no event shall the Loss
Amount be less than $69,600,000.
Any Additional Premium(s) due under this Paragraph 4. shall be deposited into
the Collateral Trust Account as additional Trust Assets upon receipt of an
invoice from Insurer and shall be payable by or for the benefit of Insured in
addition to the Estimated Premium due under the Policies. Any such infusion of
additional Trust Assets into the Collateral Trust Account may be made to any or
all of the classes of Eligible Investments comprising the Trust Assets as
permitted herein.
5. If the cumulative investment yield on the Trust Assets comprising the
Collateral Trust Account is not at least a minimum of 7% per annum ("Investment
Credit"), as determined by Insurer on or before January 31, 2001 (and every year
thereafter during which time the Collateral Trust Account remains in effect), by
multiplying the average daily balance of the Collateral Trust Account for such
annual period by 7.00%, an additional infusion of Trust Assets will be made in
an amount to bring the value of the Collateral Trust Account to an amount that
it would have achieved had a 7% per annum yield had been realized. The
cumulative Investment Credit applicable to the Collateral Trust Account as
required under this Paragraph 5. shall be equal to the sum of the Investment
Credit for the initial term of this Agreement and each consecutive 12-month
period thereafter (or portion thereof) following the Effective Date of this
Agreement.
Any such infusion of additional Trust Assets required under this Paragraph 5.
shall be immediately due and deposited in the Collateral Trust Account upon
receipt of notice from Insurer. No infusion of additional Trust Assets will be
required hereunder in the event that the initial and cumulative Investment
Credit equals or exceeds 7.00% per annum.
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -11- January 1, 2000
<PAGE>
APPENDIX B
EXPERIENCE ACCOUNT
As required by Article 7.C. of the Agreement, Insurer shall establish and
maintain an Experience Account as follows:
a. The next business day after receipt of each installment of the
Estimated Installment Premium by Insurer, the Experience Account shall
be credited with such Estimated Installment Premium.
b. The Experience Account shall be credited, as received, with the
investment income earned with respect to the Trust Assets or earned on
any monies in the Experience Account. As used herein, the term
"investment income" will not include any investment income attributable
to the Loss Fund as specified in Article 3. of the Agreement.
c. The Experience Account shall be debited at the time and in the amounts
set forth below:
(1) On a quarterly basis, by the amount of Paid Losses paid by Insurer
hereunder; and
(2) Within five (5) days after receipt of any Additional Premium(s)
due pursuant to Paragraph 4. of Appendix A of this Agreement.
- --------------------------------------------------------------------------------
Staff Leasing, Inc. -12- January 1, 2000
[CNA LETTERHEAD]
STANDARD WORKERS COMPENSATION
AND EMPLOYERS LIABILITY POLICY
<TABLE>
<CAPTION>
INFORMATION PAGE - NEW POLICY
<S> <C> <C> <C> <C>
POLICY NUMBER FROM POLICY PERIOD TO COVERAGE IS PROVIDED BY AGENCY
WC 1 89165165 01/01/00 01/01/01 CONTINENTIAL CASUALTY CO. 333508904
NAMED INSURED AND ADDRESS AGENT
ITEM STAFF LEASING, INC. MARSH INC
1. 600 - 301 BOULEVARD WEST
SUITE 202 1166 AVENUE OF THE AMERICAS
BRADENTON, FL NEW YORK, NY 10036
34205
- ------------------------------------------------------------------------------------------
FEIN NUMBER: 650735612 NCCI CARRIER CODE NO: 10243
OTHER WORK PLACES NOT SHOWN ABOVE: SEE ATTACHED SCHEDULE(S)
YOU ARE A - CORPORATION/S
2. POLICY PERIOD- 01/01/00 TO 01/01/01 12:01 AM STANDARD TIME AT THE
INSUREDS MAILING ADDRESS.
3A. PART ONE OF THIS POLICY APPLIES TO EMLOYERS LIABILITY INSURANCE FOR WORK
IN EACH STATE LISTED IN ITEM 3A: THE LIMITS OF LIABILITY ARE:
BODILY INJURY BY ACCIDENT $1,000,000 EACH ACCIDENT
BODILY INJURY BY DISEASE $1,000,000 POLICY LIMIT
BODILY INJURY BY DISEASE $1,000,000 EACH EMPLOYEE
3C. PART THREE OF THIS POLICY APPLIES TO OTHER STATES. IF ANY, LISTED HERE:
ALL STATES EXCEPT NV, ND, OH, WA, WV, WY,
AND STATES LISTED IN ITEM 3A OF THE INFORMATION PAGE.
3D. THIS POLICY INCLUDES THESE ENDORSEMENTS AND SCHEDULES: SEE ATTACHED SCHEDULES
- ------------------------------------------------------------------------------------------
4. THE PREIUM FOR THIS POLICY WILL BE DETERMINED BY OUR MANUAL OF RULES
CLASSIFICATIONS, RATES, AND RATING PLANS. ALL INFORMATION REQUIRED BELOW IS
SUBJECT TO VERIFICATION AND CHANGE BY AUDIT.
ADJUSTMENT OF PREMIUM SHALL BE MADE: AT POLICY EXPIRATION
CLASSIFICATION OF OPERATIONS EST ANNUAL
SEE ATTACHED PREMIUM
$3,700,045
PREMIUM DISCOUNT 0
EXPENSE CONSTANT 220
MINIMUM PREMIUM $2,170 TOTAL ESTIMATED ANNUAL PREMIUM $3,700,265
TOTAL STATE TAXES/ASESSMENTS/SURCHARGES $39,558
TOTAL ESTIMATED COST $3,739,823
DEPOSIT PREMIUM $3,700,265
ACCOUNT NUMBER: 0106167303
DATE OF ISSUE: 01/21/00
POLICY ISSUING OFFICE: HO MAJOR ACCTS
COUNTERSIGNED 2/16/00 BY [ILLEGIBLE]
------- -------------------------
DATE AUTHORIZED AGENT
WO000001 P-33398-E (ED. 6/87)
</TABLE>
EXHIBIT 21.1
SUBSIDIARIES
Staff Acquisition, Inc.
Staff Insurance, Inc.
Staff Leasing, L.P.
Staff Leasing II, L.P.
Staff Leasing III, L.P.
Staff Leasing IV, L.P.
Staff Leasing V, L.P.
Staff Leasing of Georgia, L.P.
Staff Leasing of Georgia II, L.P.
Staff Leasing of Georgia III, L.P.
Staff Leasing of Taxas, L.P.
Staff Leasing of Texas II, L.P.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-68929 of Staff Leasing, Inc. on Form S-8 of our report dated February 25,
2000, appearing in this Annual Report on Form 10-K of Staff Leasing, Inc. for
the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Certified Public Accounts
Tampa, Florida
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF STAFF LEASING, INC. FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1999 INCLUDED IN FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 23,081
<SECURITIES> 34,914
<RECEIVABLES> 42,371
<ALLOWANCES> 740
<INVENTORY> 0
<CURRENT-ASSETS> 118,897
<PP&E> 45,748
<DEPRECIATION> 16,915
<TOTAL-ASSETS> 163,570
<CURRENT-LIABILITIES> 81,479
<BONDS> 0
0
0
<COMMON> 217
<OTHER-SE> 80,539
<TOTAL-LIABILITY-AND-EQUITY> 163,570
<SALES> 2,701,886
<TOTAL-REVENUES> 2,701,886
<CGS> 0
<TOTAL-COSTS> 2,574,263
<OTHER-EXPENSES> 94,648
<LOSS-PROVISION> 306
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 34,489
<INCOME-TAX> 12,839
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,650
<EPS-BASIC> .99
<EPS-DILUTED> .97
</TABLE>
