As filed with the Securities and Exchange Commission on September 2, 1999
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO SCHEDULE 13E-3
RULE 13e-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
WINSTON RESOURCES, INC.
(Name of Issuer)
WINSTON RESOURCES, INC.
SEYMOUR KUGLER
GREGG KUGLER
TODD KUGLER
ERIC KUGLER
1999 SY KAYE GRAT
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
975661109
(CUSIP Number of Class of Securities)
SEYMOUR KUGLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WINSTON RESOURCES, INC.
535 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 557-5000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
With a copy to:
JOEL A. KLARREICH, ESQ.
TANNENBAUM HELPERN
SYRACUSE & HIRSCHTRITT LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 508-6700
This statement is filed in connection with (check the appropriate box):
a. |_| The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. |_| The filing of a registration statement under the Securities Act of 1933.
c. [x] A tender offer.
d. |_| None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: |_|
|_| Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: Filing Party:
Form or Registration No: Date Filed:
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3") is being filed by Winston Resources, Inc., a Delaware corporation (the
"Company") and Seymour Kugler, Gregg Kugler, Todd Kugler, Eric Kugler and
the 1999 Sy Kaye GRAT, pursuant to Section 13(e) of the Securities Exchange
Act of 1934, as amended, and Rule 13e-3 thereunder in connection with the tender
offer by the Company for all of its issued and outstanding shares of common
stock, $.01 par value per share (the "Shares"), at a price of $4.625 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated September 1, 1999 (the "Offer to
Purchase") and the related Letter of Transmittal (which, together with the Offer
to Purchase, constitute the "Offer"), copies of which are filed as Exhibits (d)
(1) and (d) (2) hereto respectively.
The following Cross-Reference Sheet prepared pursuant to General
Instruction F to Schedule 13E-3 shows the location in the Issuer Tender Offer
Statement on Schedule 13E-4 filed by the Company (the "Schedule 13E-4") with the
Securities and Exchange Commission on the date hereof of the information
required to be included in this Schedule 13E-3. The information set forth in
Schedule 13E-4, including all Exhibits thereto, is expressly incorporated herein
by reference as set forth in the Cross- Reference Sheet and the responses in
this Schedule 13E-3, and such responses are qualified in their entirety by
reference to the information contained in the Offer to Purchase and the annexes
thereto.
CROSS-REFERENCE SHEET
<TABLE>
<S> <C>
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 13E-4
Item 1(a)............................................................................................... Item 1(a)
Item 1(b)............................................................................................... Item 1(b)
Item 1(c)............................................................................................... Item 1(c)
Item 1(d)...............................................................................................*
Item 1(e)...............................................................................................*
Item 1(f)...............................................................................................*
Item 2(a)...............................................................................................*
Item 2(b)...............................................................................................*
Item 2(c)...............................................................................................*
Item 2(d)...............................................................................................*
Item 2(e)...............................................................................................*
Item 2(f)...............................................................................................*
Item 2(g)...............................................................................................*
Item 3(a)...............................................................................................*
Item 3(b)...............................................................................................*
Item 4(a)...............................................................................................*
Item 4(b)...............................................................................................Item 5
Item 5..................................................................................................Item 3
Item 6(a)...............................................................................................Item 2(a)
Item 6(b)...............................................................................................*
Item 6(c)...............................................................................................Item2(b)
Item 6(d)...............................................................................................*
Item 7(a)...............................................................................................Item 3
Item 7(b)...............................................................................................*
2
<PAGE>
Item 7(c)...............................................................................................*
Item 7(d)...............................................................................................*
Item 8..................................................................................................*
Item 9..................................................................................................*
Item 10(a)..............................................................................................*
Item 10(b)..............................................................................................*
Item 11.................................................................................................Item 5
Item 12(a)..............................................................................................*
Item 12(b)..............................................................................................*
Item 13.................................................................................................*
Item 14.................................................................................................Item 7
Item 15(a)..............................................................................................*
Item 15(b)..............................................................................................Item 6
Item 16.................................................................................................*
Item 17.................................................................................................Item 9
</TABLE>
____________________
* The Item is located in Schedule 13E-3 only.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a)-(c) The response to Item 1(a)-(c) of Schedule 13E-4 is
incorporated herein by reference and the information set forth in the Offer to
Purchase under "The Tender Offer -- 6. Price Range of Shares; Dividends" is
incorporated herein.
(d) The information set forth in the Offer to Purchase under "The
Tender Offer -- 6. Price Range of Shares; Dividends" is incorporated herein by
reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND
This statement is filed by the issuer of the equity securities that are the
subject of the Rule 13e-3 transaction. This statement also is filed by Seymour
Kugler, founder and Chairman of the issuer, Gregg Kugler and Todd Kugler, each
of whom is an officer and director of the issuer, Eric Kugler, who is an officer
of the issuer and the 1999 Sy Kaye GRAT, a trust of which Kugler family members
are beneficiaries. Gregg, Todd and Eric Kugler are sons of Seymour Kugler. The
response to Item 1(a) of the Schedule 13E-4 is incorporated herein by reference.
The information set forth in Schedule I to the Offer to Purchase is incorporated
herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a) Not applicable.
(b) The information set forth in the Offer to Purchase under "Special
Factors -- 1. Purpose and Background of the Offer; Certain Effects of the Offer;
Plans of the Company after the Offer" is incorporated herein by reference.
3
<PAGE>
ITEM 4. TERMS OF THE TRANSACTION
(a) The information set forth in the Offer to Purchase on the cover
page thereof and under "Introduction," "Special Factors -- 1. Purpose and
Background of the Offer; Certain Effects of the Offer; Plans of the Company
after the Offer," "The Tender Offer -- 1. Terms of the Offer; Expiration Date,"
"The Tender Offer -- 2. Acceptance for Payment and Payment for Shares," "The
Tender Offer -- 3. Procedures for Accepting the Offer and Tendering Shares," "
The Tender Offer -- 4. Withdrawal Rights, " " The Tender Offer -- 9. Dividends
and Distributions," " The Tender Offer -- 11. Certain Conditions of the Offer, "
" The Tender Offer -- 12. Certain Legal Matters and Regulatory Approvals" and
"The Tender Offer -- 14. Miscellaneous" is incorporated herein by reference.
(b) The response to Item 5 of the Schedule 13E-4 is incorporated
herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a)-(g) The response to Item 3 of the Schedule 13E-4 is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) and (c) The response to Item 2 of the Schedule 13E-4 is
incorporated herein by reference.
(b) The information set forth in the Offer to Purchase in "Special
Factors -- 7. Fees and Expenses" and "The Tender Offer -- 13. Fees and Expenses"
is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a)-(d) The response to Item 3 of the Schedule 13E-4 is incorporated
herein by reference. The information set forth in the Offer to Purchase under
"Special Factors -- 4. Opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc." is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
(a)-(f) The information set forth in the Offer to Purchase under
"Introduction," "Special Factors -- 1. Purpose and Background of the Offer;
Certain Effects of the Offer; Plans of the Company after the Offer" and "Special
Factors -- 3. Recommendation of the Company's Board; Fairness of the Offer, "
and "Special Factors -- 4. Opinion of Houlihan Lokey Howard & Zukin Financial
Advisors, Inc." is incorporated herein by reference.
4
<PAGE>
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a)-(c) The information set forth in the Offer to Purchase under
"Special Factors -- 1. Purpose and Background of the Offer; Certain Effects of
the Offer; Plans of the Company after the Offer" "Special Factors -- 3.
Recommendation of the Company's Board; Fairness of the Offer," "Special Factors
- -- 4. Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc." "The
Tender Offer -- 8. Financing the Offer and the Second-Step Transaction" and in
Schedule II is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) The information set forth in the Offer to Purchase under "Special
Factors -- 6. Beneficial Ownership of Shares" and Schedule I is incorporated
herein by reference.
(b) On June 8, 1999, Seymour Kugler, the President and Chief Executive
Officer of the Company, transferred 245,000 shares held by him into the 1999 Sy
Kaye GRAT, a grantor retained annuity trust created on June 8, 1999, with such
shares to be held in trust for the benefit of Seymour Kugler and his
descendants.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO
THE ISSUER'S SECURITIES
The response to Item 5 of the Schedule 13E-4 is incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION
(a)-(b) The information set forth in the Offer to Purchase under
"Introduction," "Special Factors -- 1. Purpose and Background of the Offer;
Certain Effects of the Offer; Plans of the Company after the Offer," "Special
Factors -- 3. Recommendation of the Company's Board; Fairness of the Offer," "
Special Factors -- 5. Interests of Certain Persons in the Offer and the
Second-Step Transaction" and "Special Factors --6. Beneficial Ownership of
Shares" is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) The information set forth in the Offer to Purchase under "Special
Factors - 2. Rights of Stockholders in the Event of the Second-Step Transaction"
and in Schedule III is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
5
<PAGE>
ITEM 14. FINANCIAL INFORMATION
(a) The information set forth in the Offer to Purchase under "The Tender
Offer -- 7. Certain Information Concerning the Company" is incorporated herein
by reference. In addition, the Company's audited financial statements as of
December 31, 1998 and December 31, 1997 and for each of the three years in the
period ended December 31, 1998 are included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, which is included in the Offer
to Purchase as Schedule IV thereto and is incorporated herein by reference.
Also, the Company's unaudited financial statements for the six month period
ended June 30, 1999 are included in the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1999, which is incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) The information set forth in the Offer to Purchase under "Special
Factors -- 1. Purpose and Background of the Offer; Certain Effects of the Offer;
Plans of the Company after the Offer," "Special Factors -- 3. Recommendation of
the Company's Board; Fairness of the Offer and the Second-Step Transaction,"
"The Tender Offer -- 8. Financing of the Offer and the a Second-Step
Transaction," and "The Tender Offer -- 10. Effect of the Offer on the Market for
the Shares; Quotation and Exchange Act Registration" is incorporated herein by
reference.
(b) The response to Item 6 of the Schedule 13E-4 is incorporated
herein by reference.
ITEM 16. ADDITIONAL INFORMATION
The response to Item 8(e) of the Schedule 13E-4 is incorporated herein
by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
(a) Credit Agreement between the Company and The Bank of New York
dated August 31, 1999.
(b)(1) Opinion of Houlihan Lokey Howard & Zukin Financial Advisors,
Inc. ("Houlihan") dated June 16,1999.
(b)(2) Presentation of Houlihan to the Special Committee of the Board
of Directors dated June 16, 1999.
(b)(3) Discussion Materials prepared by Peter J. Solomon Company
Limited dated May, 1999.
(c) None.
6
<PAGE>
(d)(1) Form of the Offer to Purchase dated September 2, 1999.
(d)(2) Form of the Letter of Transmittal.
(d)(3) Form of Notice of Guaranteed Delivery.
(d)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(d)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(d)(7) Press Release Issued by the Company on June 16 , 1999.
(e) Text of Section 262 of the Delaware General Corporation Law.
(f) None.
7
<PAGE>
SIGNATURE
After due inquiry, and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Dated: September 2, 1999
WINSTON RESOURCES, INC.
By: /s/ Seymour Kugler
_________________________
Name: Seymour Kugler
Title: Chairman, President
And Chief Executive Officer
/s/ Seymour Kugler
__________________________
/s/ Gregg Kugler
__________________________
/s/ Todd Kugler
__________________________
/s/ Eric Kugler
__________________________
1999 SY KAYE GRAT
By: /s/ Joel A. Klarreich
____________________
Name: Joel A. Klarreich
Title: Trustee
8
<PAGE>
EXHIBIT INDEX
Description
(a) Credit Agreement between the Company and Bank of New York dated
August 31, 1999.
(b)(1) Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
("Houlihan") dated June 16, 1999*
(b)(2) Presentation of Houlihan to the Special Committee of the Board
of Directors dated June 16, 1999.
(b)(3) Discussion Materials prepared by Peter J. Solomon Company
Limited dated May, 1999.
(d)(1) Form of the Offer to Purchase dated September 2, 1999.
(d)(2) Form of the Letter of Transmittal.
(d)(3) Form of Notice of Guaranteed Delivery.
(d)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients.
(d)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(d)(7) Press Release Issued by the Company on June 16, 1999.**
(e) Text of Section 262 of the Delaware General Corporation Law.***
____________________
* Attached to the form of the Offer to Purchase, dated September 2, 1999,
as Schedule II.
** Filed as exhibit to Schedule 13E-3, which was filed with the Securities
and Exchange Commission on July 14, 1999.
*** Attached to the form of the Offer to Purchase, dated September 2, 1999,
as Schedule III.
<PAGE>
EXHIBIT (a)
CREDIT AGREEMENT
dated as of
August 31, 1999
between
WINSTON RESOURCES, INC.,
as Borrower
and
THE BANK OF NEW YORK
___________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. DEFINITIONS......................................................................1
SECTION 1.01. .....................................................................Defined Terms 1
SECTION 1.02. ............................................Classification of Loans and Borrowings 22
SECTION 1.03. ...................................................................Terms Generally 22
SECTION 1.04. ............................................................Accounting Terms; GAAP 23
ARTICLE 2. THE CREDITS.....................................................................23
SECTION 2.01. ................................................................Commitments; Notes 23
SECTION 2.02. ..............................................................Loans and Borrowings 24
SECTION 2.03. ...........................................................Requests for Borrowings 25
SECTION 2.04. .............................................................Funding of Borrowings 26
SECTION 2.05. ................................Termination and Reduction of Revolving Commitments 26
SECTION 2.06. ..............................................Repayment of Loans; Evidence of Debt 27
SECTION 2.07. ...............................................................Prepayment of Loans 28
SECTION 2.08. ..............................................................................Fees 29
SECTION 2.09. ..........................................................................Interest 30
SECTION 2.10. ................................................................Interest Elections 31
SECTION 2.11. ........................................................Alternate Rate of Interest 33
SECTION 2.12. .......................................................Increased Costs; Illegality 33
SECTION 2.13. ............................................................Break Funding Payments 34
SECTION 2.14. .............................................................................Taxes 35
SECTION 2.15. ...............................................................Payments Generally. 36
ARTICLE 3. REPRESENTATIONS AND WARRANTIES..................................................36
SECTION 3.01. ..............................................................Organization; Powers 36
SECTION 3.02. .....................................................Authorization; Enforceability 37
SECTION 3.03. ..............................................Governmental Approvals; No Conflicts 37
SECTION 3.04. ...................................Financial Condition; No Material Adverse Change 37
SECTION 3.05. ........................................................................Properties 38
SECTION 3.06. ..............................................Litigation and Environmental Matters 38
SECTION 3.07. ...............................................Compliance with Laws and Agreements 39
SECTION 3.08. .............................................Investment and Holding Company Status 39
SECTION 3.09. .............................................................................Taxes 39
SECTION 3.10. .............................................................................ERISA 39
SECTION 3.11. ........................................................................Disclosure 39
SECTION 3.12. ......................................................................Subsidiaries 40
SECTION 3.13. .........................................................................Insurance 40
<PAGE>
SECTION 3.14. .....................................................................Labor Matters 40
SECTION 3.15. ..........................................................................Solvency 40
SECTION 3.16. ................................................................Security Agreement 41
SECTION 3.17. .......................................................Federal Reserve Regulations 42
SECTION 3.18. ...................................................................Year 2000 Issue 42
SECTION 3.19. ..............................................................................Debt 43
SECTION 3.20. ............................................................Tender Offer Documents 43
ARTICLE 4. CONDITIONS PRECEDENT............................................................43
SECTION 4.01. ....................................................................Effective Date 43
SECTION 4.02. .................................................................Each Credit Event 48
ARTICLE 5. AFFIRMATIVE COVENANTS...........................................................49
SECTION 5.01. .............................Financial Statements and Other Information; Reporting 49
SECTION 5.02. ....................................................Existence; Conduct of Business 51
SECTION 5.03. ............................................................Payment of Obligations 51
SECTION 5.04. .........................................................Maintenance of Properties 52
SECTION 5.05. ...........................Books and Records; Inspection Rights; Collateral Audits 52
SECTION 5.06. ..............................................................Compliance with Laws 52
SECTION 5.07. ...................................................................Use of Proceeds 52
SECTION 5.08. .........................................................................Insurance 53
SECTION 5.09. ...................................................................Year 2000 Issue 53
ARTICLE 6. NEGATIVE COVENANTS..............................................................53
SECTION 6.01. ......................................................................Indebtedness 53
SECTION 6.02. .............................................................................Liens 54
SECTION 6.03. ...............................................................Fundamental Changes 55
SECTION 6.04. .........................Investments, Loans, Advances, Guarantees and Acquisitions 56
SECTION 6.05. .............................................................Disposition of Assets 57
SECTION 6.06. ..................................................Sale and Lease-Back Transactions 58
SECTION 6.07. .......................................Restricted Payments; Redeemable Securities. 58
SECTION 6.08. ......................................................Transactions with Affiliates 59
SECTION 6.09. ..................................................................Guaranties, Etc. 59
SECTION 6.10. ....................................................................Leverage Ratio 59
SECTION 6.11. ...........................................................Interest Coverage Ratio 60
SECTION 6.12. .......................................................Fixed Charge Coverage Ratio 60
SECTION 6.13. ..............................................................Capital Expenditures 60
SECTION 6.14. ...............................................................Business Activities 60
<PAGE>
SECTION 6.15. .........................................................Kaye Employment Agreement 61
ARTICLE 7. EVENTS OF DEFAULT...............................................................61
ARTICLE 8. MISCELLANEOUS...................................................................64
SECTION 8.01. ...........................................................................Notices 64
SECTION 8.02. ...............................................................Waivers; Amendments 65
SECTION 8.03. ................................................Expenses; Indemnity; Damage Waiver 65
SECTION 8.04. ............................................................Successors and Assigns 66
SECTION 8.05. ..........................................................................Survival 67
SECTION 8.06. ..........................................Counterparts; Integration; Effectiveness 68
SECTION 8.07. ......................................................................Severability 68
SECTION 8.08. ...................................................................Right of Setoff 68
SECTION 8.09. ........................Governing Law; Jurisdiction; Consent to Service of Process 69
SECTION 8.10. ..............................................................WAIVER OF JURY TRIAL 69
SECTION 8.11. ..........................................................................Headings 70
SECTION 8.12. ................................................................Further Assurances 70
SECTION 8.13. ..........................................................Interest Rate Limitation 70
SECTION 8.14. ..................................................Treatment of Certain Information 70
</TABLE>
EXHIBITS
Exhibit A-1 Revolving Credit Note
Exhibit A-2 Term Note
Exhibit B Borrowing Base Certificate
Exhibit C Guarantee Agreement
Exhibit D Security Agreement
Exhibit E Opinion of Counsel to Loan Parties
Exhibit F Solvency Certificate
Exhibit G Borrowing Request
SCHEDULES
Schedule 3.05(a) Existing Liens
Schedule 3.12 Subsidiaries
Schedule 3.13 Insurance
Schedule 6.01 Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.04 Certain Permitted Investments
<PAGE>
CREDIT AGREEMENT, dated as of August 31, 1999, between WINSTON RESOURCES,
INC., a Delaware corporation (the "Borrower") and THE BANK OF NEW YORK, a New
York corporation (the "Bank").
The parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.01. Defined Terms
As used in this Agreement, the following terms have the meanings specified
below:
"ABR" when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Accounts" means, at any date of determination, all accounts (as defined in
Section 9-106 of the New York Uniform Commercial Code or any other applicable
jurisdiction as in effect on the date hereof and any equivalent term under any
amendment of the Uniform Commercial Code) originated by the Borrower or any
Subsidiary in the course of its recruitment or placement advertising, permanent
placement or temporary staffing services, recruitment or placement operations or
personnel supply operations, but excluding accounts due from franchisees of the
Borrower or any Subsidiary. Any amendment of the Uniform Commercial Code shall
not limit the definition of Accounts as in effect on the date hereof.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary
to the next 1/16th of 1%) equal (a) to the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Affiliate" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate
due to a change in the Prime Rate or the Federal Funds Rate shall be effective
from and including the effective date of such change in the Prime Rate or the
Federal Funds Rate, respectively.
<PAGE>
"Applicable Margin" means, at all times during the applicable periods set
forth below: (a) with respect to ABR Revolving Borrowings, the percentages set
forth below under the heading "ABR Revolving Margin" and adjacent to such
period, (b) with respect to ABR Term Borrowings, the percentage set forth below
under the heading "ABR Term Margin" and adjacent to such period, (c) with
respect to Eurodollar Revolving Borrowings, the percentage set forth below under
the heading "Eurodollar Revolving Margin" and adjacent to such period, (d) with
respect to Eurodollar Term Borrowings, the percentage set forth below under the
heading "Eurodollar Term Margin" and adjacent to such period and (e) with
respect to the commitment fee payable under Section2.08, the percentage set
forth below under the heading "Fee Margin" and adjacent to such period:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
When the
Leverage
Ratio is ABR Eurodollar Eurodollar
greater than And Revolving ABR Term Revolving Term Fee
or equal to less than Margin Margin Margin Margin Margin
3.51:1.00 1.25% 1.50% 2.50% 2.75% 0.450%
3.00:1.00 3.51:1.00 1.00% 1.25% 2.25% 2.50% 0.400%
2.50:1.00 3.00:1.00 0.75% 1.00% 2.00% 2.25% 0.350%
2.00:1.00 2.50:1.00 0.50% 0.75% 1.75% 2.00% 0.300%
1.50:1.00 2.00:1.00 0.25% 0.50% 1.50% 1.75% 0.250%
1.00:1.00 1.50:1.00 0.00% 0.00% 1.25% 1.50% 0.200%
1.00:1.00 0.00% 0.00% 1.00% 1.25% 0.150%
</TABLE>
Changes in the Applicable Margin resulting from a change in the
Leverage Ratio shall be made quarterly based upon the certificate most recently
delivered under Section 5.01(d) and shall become effective on the date such
certificate is delivered to the Bank. Notwithstanding anything to the contrary
in this definition, if the Borrower shall fail to deliver to the Bank such a
certificate on or prior to any date required hereby, the Leverage Ratio shall be
deemed to be greater than 3.50:1.0 from and including such date to the date of
delivery to the Bank of such certificate. The Leverage Ratio for the period from
the Effective Date to the date of the delivery of the first certificate required
to be delivered under Section 5.01(d) after the Effective Date shall be based on
a certificate of the type required by Section 5.01(d) delivered on the Effective
Date reflecting the Effective Date Leverage Ratio (as calculated in accordance
with the definition of Leverage Ratio).
2
<PAGE>
"Asset Sale" means any sale, lease or other disposition (including any such
transaction effected by way of merger or consolidation) by the Borrower or any
of its Subsidiaries of any asset (including, without limitation, any
sale-and-leaseback transaction, whether or not involving a capital lease),
provided however, an "Asset Sale" shall not include any sale, disposition or
other transaction permitted under clauses (i), (ii), (iii), (iv), (v), (vi),
(vii) or (viii) of Section 6.05.
"Available Revolving Credit Commitment" means at any time, an amount equal
to (i) the lesser of (x) the total Revolving Commitment and (y) the Borrowing
Base Amount minus (ii) the Revolving Credit Exposure.
"Available Term Loan Commitment" means at any time, an amount equal to (i)
the Term Loan Commitment minus (ii) the Term Loan Exposure.
"BNY" means The Bank of New York.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America.
"Borrower" means Winston Resources, Inc. a Delaware corporation.
"Borrowing" means Revolving Loans or Term Loans, as applicable, of the same
Type made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in effect.
"Borrowing Base Amount" means, as of any date of determination, a sum equal
to the Borrowing Base Percentage of (a) the book value of Eligible Accounts
less, (b) without duplication, consolidated reserves of the Borrower in respect
of all Accounts of the Borrower and its Subsidiaries (but without reserves for
doubtful accounts)), based upon the Borrowing Base Certificate most recently
delivered to the Bank under Section5.01(g). For purposes of this definition,
"Borrowing Base Percentage" means (a) with respect to Eligible Accounts (other
than Permanent Placement Accounts), 85%, and (b) with respect to Eligible
Accounts that are Permanent Placement Accounts, 50%; in either case or such
lesser percentage as the Bank shall reasonably determine (and notify the
Borrower thereof in writing) based upon the overall credit quality from time to
time of the Accounts taken as a whole. Notwithstanding anything to the contrary
in this definition, if the Borrower shall fail to deliver to the Bank a
Borrowing Base Certificate on or prior to any date required hereby, the
Borrowing Base Amount shall be deemed to be zero ($0.00) from and including such
date to the date of delivery to the Bank of such Borrowing Base Certificate.
"Borrowing Base Certificate" means a certificate duly executed by a
Financial Officer of the Borrower in the form of Exhibit B.
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"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
remain closed, provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Buyout" means, collectively, the purchase pursuant to the Buyout
Transactions of up to 1,713,603 shares of Public Stock and the purchase by the
Borrower for cash of up to 597,009 Options pursuant to the Option Purchase
Documents.
"Buyout Transactions" shall mean the Buyout, the Tender Offer, the Option
Purchase Transactions and the Second Step Transactions.
"Capital Expenditures" of any Person means expenditures (whether paid in
cash or other consideration or accrued as a liability) for fixed or capital
assets (excluding any capitalized interest and any such asset acquired in
connection with normal replacement and maintenance programs properly charged to
current operations and excluding any replacement assets acquired with the
proceeds of insurance) made by such Person.
"Capital Lease Obligations" of any Person means the obligations of such
Person that are required to be classified and accounted for as capital leases on
a balance sheet of such Person under GAAP, and the amount of such obligations
shall be the capitalized amount thereof determined in accordance with GAAP.
"Casualty Proceeds" means (i) the aggregate insurance proceeds received by
the Borrower or any of its Subsidiaries in connection with one or more related
events under any casualty, hazard or business interruption insurance policy (but
not liability insurance) maintained by the Borrower or any of its Subsidiaries
covering losses with respect to tangible or intangible real or personal property
or improvements, or losses arising from business interruption or (ii) any award
or other compensation with respect to the condemnation of property (or any
transfer or disposition of property in lieu of condemnation) received by the
Borrower or any of its Subsidiaries, provided however, the proceeds of business
interruption insurance shall not be deemed to be Casualty Proceeds so long as no
uncured Default shall exist at the time of payment of the proceeds of business
interruption insurance to the Borrower.
"Change in Management" means if neither (a) Seymour Kugler shall be an
executive officer of the Borrower; nor (b) at least two of Greg Kaye, Todd Kaye
and Eric Kugler shall be executive officers of the Borrower.
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"Change in Law" means (a) the adoption of any law, rule or regulation after
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by the Bank (or, for purposes of
Section 2.12(b), by any lending office of the Bank or the Bank's holding
company) with any request, guideline or directive (whether or not having the
force of law) of any Governmental Authority made or issued after the date of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" has the meaning assigned to such term in the Security
Agreement.
"Consolidated EBITDA" means, for any period, net income for such period of
the Borrower and its Subsidiaries determined on a consolidated basis in
accordance with GAAP, plus, without duplication and to the extent deducted from
revenues in determining such net income, the sum of (a) Consolidated Interest
Expense for such period, (b) the aggregate amount of federal, state, local and
other income tax expense for such period, (c) the aggregate amount attributable
to depreciation and amortization for such period, (d) the aggregate amount of
extraordinary charges during such period, (e) the aggregate amount of non-cash
expenses during such period, (f) the aggregate amount of the fees, charges,
costs and expenses, including fees, charges, costs and expenses of attorneys,
accountants, investment bankers and other advisors and consultants and
Committees of the Board of Directors of the Borrower and/or any of the
Subsidiaries incurred or to be incurred by the Borrower and/or any of the
Subsidiaries in fiscal years 1998 and/or 1999 directly or indirectly related to
or in connection with the Borrower's compliance with the Securities Exchange Act
of 1934, as amended, applicable state securities laws, or the rules of any
exchange on which the Public Stock is listed for trading, (g) the aggregate
amount of the fees, charges, costs and expenses of the Borrower and/or any of
its Subsidiaries, including fees of independent directors and fees, charges,
costs and expenses of attorneys, accountants, investment bankers and other
advisors and consultants and Committees of the Board of Directors of the
Borrower and/or any of its Subsidiaries, incurred or to be incurred directly or
indirectly related to or in connection with the Buyout Transactions or the
negotiation, documentation and closing of the financing contemplated by this
Agreement in fiscal years 1998 and/or 1999, (h) the aggregate amount of
printing, marketing, transfer agent, depository and other fees, costs and
expenses incurred or to be incurred by the Borrower and/or any of its
Subsidiaries directly or indirectly related to or in connection with the matters
identified or referenced to in (e), (f) or (g) of this definition or the
definition of or related to Buy-Out Transactions and (i) the aggregate fees of
independent directors incurred or to be incurred by the Borrower during 1998
and/or 1999 minus, without duplication and to the extent added to revenues in
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<PAGE>
determining such net income for such period, the aggregate amount of
extraordinary gains during such period, all as determined on a consolidated
basis with respect to the Borrower and its Subsidiaries and, except as provided
in this definition, in accordance with GAAP.
"Consolidated Fixed Charges" means, for any period, the sum of each of the
following with respect to the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP: (a) Consolidated Interest Expense
for such period, (b) the aggregate amount of all cash taxes paid during such
period, and (c) the aggregate of all scheduled principal payments, including the
portion of any payments under Capital Lease Obligations that is allocable to
principal, during such period in respect of Indebtedness.
"Consolidated Interest Expense" means, for any period, the interest
expense, both expensed and capitalized (including the interest component in
respect of Capital Lease Obligations), accrued or paid by Borrower and its
Subsidiaries during such period, determined on a consolidated basis in
accordance with GAAP.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 8.02) and the
funding occurs of the first advance of the Term Loan and the portion of the
Revolving Loan necessary to fund the Buyout of not less than 662/3% of the
Public Stock and costs and expenses incurred by the Borrower and/or the
Subsidiaries in connection therewith.
"Eligible Account": means, at the time of any determination thereof, any
Account of the Borrower or any Subsidiary Guarantor (after deducting discounts,
credits and allowances (but not allowances for doubtful accounts)) as to which
each of the following requirements has been fulfilled to the reasonable
satisfaction of the Bank:
(a) the Borrower or such Subsidiary has lawful, absolute and marketable
title to such Account, subject to the Security Agreement and Permitted
Encumbrances that are subordinate to security interests granted to the
Bank;
(b) such Account is a valid, binding and legally enforceable obligation of
the Person who is obligated under such Account (the "Account Debtor"),
except for, with respect to Permanent Placement Accounts, setoffs,
deductions or rebates for Fall Offs during Guarantee Periods to the extent
expressly permitted by the terms of any Permanent Placement Account with
such Account Debtor;
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(c) such Account is not subject to any dispute, setoff, counterclaim or
other claim or defense on the part of the Account Debtor denying liability
under such Account in whole or in part, except for, with respect to
Permanent Placement Accounts, setoffs, deductions or rebates for Fall Offs
during Guarantee Periods to the extent expressly permitted by the terms of
any Permanent Placement Account;
(d) the Borrower or such Subsidiary has the full and unqualified right to
assign and grant a Lien in such Account to the Bank as security for the
obligations of the Borrower under the Loan Documents;
(e) such Account is subject to a fully perfected first priority security
interest in favor of the Bank to secure the obligations of the Borrower and
the Subsidiaries under the Loan Documents and is not subject to any Lien in
favor of any other Person except for Permitted Encumbrances that are
subordinate to security interests granted to the Bank;
(f) such Account is payable in Dollars and is evidenced by an invoice
rendered to the Account Debtor and is not evidenced by any Instrument or
chattel paper;
(g) such Account is a bona fide Account of the Borrower or such Subsidiary
arising in the ordinary course of the Borrower's or such Subsidiary's
business, and which, in the case of Accounts relating to the sale of
services, such services have been performed or completed;
(h) with respect to such Account, no Account Debtor is
(i) an Affiliate (including any Subsidiary) of the Borrower,
(ii) the subject of any reorganization, bankruptcy, receivership,
custodianship, insolvency or other condition analogous with respect to such
Account Debtor;
(i) such Account (1) for all Accounts other than Hospital Accounts are not
outstanding more than 90 days past the original invoice with respect
thereto, and (2) for Hospital Accounts, are not outstanding more than 120
days past the original invoice with respect thereto;
(j) with respect to the Account Debtor owing such Account, the Borrower or
such Subsidiary is not in default with respect to any amounts owing to such
Account Debtor for any goods provided or services rendered by such Account
Debtor or otherwise, provided however, the Borrower and any Subsidiary
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<PAGE>
shall not be deemed to be in default for purposes of this paragraph to the
extent of Account Debtor's exercise or potential exercise of rights with
respect to the applicable Account for Fall Offs during Guarantee Periods in
respect of previous Permanent Placement Accounts.
(k) such Account shall have had deducted therefrom the amount of the
aggregate indebtedness of the Borrower and the Subsidiaries to the account
debtor for any goods provided or services rendered by such account debtor
to the Borrower; excluding, for purposes of this subparagraph, the amount
of any Fall Offs under Permanent Placement Accounts during Guarantee
Periods;
(l) the Bank is, and continues to be, reasonably satisfied with the credit
standing of the account debtor in relation to the amount of credit
extended;
(m) such Account is from an account debtor resident of the United States or
which is subject to the jurisdiction of the Courts of any State of the
United States; and
(n) such Account was not purchased or otherwise acquired by the Borrower or
any Subsidiary other than in connection with an acquisition permitted under
this Agreement.
"Environmental Laws" means all laws, rules, regulations, codes, ordinances,
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to health
and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower directly or indirectly resulting from
or based upon (a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any Hazardous
Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
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"ERISA Affiliate" means any trade or business (whether or not incorporated)
that, together with the Borrower or any Subsidiary, is treated as a single
employer under Section 414(b) or (c) of the Code or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA Event" means (a) a reportable event, within the meaning of Section
4043 of ERISA, unless the 30-ay notice requirement with respect thereto has been
waived by the PBGC; (b) the provision by the administrator of any Plan of a
notice of intent to terminate such Plan, under Section 4041(a)(2) of ERISA
(including any such notice with respect to a plan amendment referred to in
Section 4041(e) of ERISA) but only in the event of a distress termination under
Section 4041(c) under ERISA; (c) the withdrawal by the Borrower or an ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (d) the failure
by the Borrower or an ERISA Affiliate to make a payment to a Plan in the
circumstances set forth in Section 302(f) (1) of ERISA or Section 412(n) of the
Code; (e) the adoption of an amendment to a Plan requiring the provision of
security to such Plan, under Section 307 of ERISA; or (f) the institution by the
PBGC of proceedings to terminate a Plan, under Section 4042 of ERISA, or the
occurrence of any event or condition which would reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article 7.
"Excluded Taxes" means, with respect to the Bank or any other recipient of
any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) Taxes imposed on (or measured by) its net income, net profits or
net gains or any component of any of the foregoing by the United States of
America or any State or political subdivision thereof (including the District of
Columbia), or by any other jurisdiction and (b) any branch profits or franchise
Taxes imposed by the United States of America or any State or political
subdivision thereof (including the District of Columbia) or any similar Tax
imposed by any other jurisdiction.
"Fall Off" shall mean, with respect to a Permanent Placement Account, the
circumstance when the placed employee is terminated during the applicable
Guarantee Period.
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"Federal Funds Rate" means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Bank from three Federal funds brokers of recognized standing
selected by it.
"Final Judgment" means a judgment of a court of competent jurisdiction as
to which no appeal has been taken and no motion to re-argue or reconsider such
judgment has been filed and the time to appeal or to move to re-argue or
reconsider has expired.
"Financial Officer" means the chief financial officer, principal accounting
officer, treasurer or controller of the Borrower.
"Financial Institution" means any commercial bank, savings banks, savings
and loan association, insurance company, investment company, mutual fund or
other entity that extends credit or buys loans in the ordinary course of
business.
"Fixed Charge Coverage Ratio" means, as of any day (the "determination
date"): the ratio of (i) Consolidated EBITDA minus Consolidated Capital
Expenditures for the four consecutive fiscal quarters of the Company and its
consolidated Subsidiaries most recently ended prior to such determination date
to (ii) Consolidated Fixed Charges for such period.
"Foreign Lender" means an entity that is organized under the laws of a
jurisdiction other than the United States, any state thereof or the District of
Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
10
<PAGE>
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation, provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement, substantially in the
form of Exhibit C, among the Subsidiaries and the Bank.
"Guarantee Period" shall mean, with respect to a Permanent Placement
Account, the period of time during which, if the employment of the placed
applicant terminates, either the Account Debtor would not be obligated to pay
the fee in respect of such placement, the Account Debtor would be entitled to a
refund of the fee if paid, or the Account Debtor would be entitled to a
replacement or another candidate, without additional fee.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos-containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hospital Account" means any Account with respect to which the Account
Debtor is a hospital.
"Inactive Subsidiaries" means Delta 10, Inc. and Winston Professional
Staffing, Inc.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are required to be paid, (d) all obligations of such
Person under conditional sale or other title-retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services, (f) all Indebtedness
secured by (or for which the holder of such Indebtedness has an existing right,
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contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby is
otherwise an obligation of such person, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any partnership in
which such Person is a general partner to the extent such Person is liable
therefor as a result of such Person's ownership interest in such entity, except
to the extent the terms of such Indebtedness provide that such Person is not
liable therefor. Notwithstanding anything in this Agreement, "Indebtedness"
shall not include (i) accounts payable and accrued expenses of any Person
incurred in the ordinary course of business and (ii) intercompany indebtedness
among the Borrower and/or any of its Subsidiaries, (iii) Guarantees of
obligations or liabilities where the underlying obligations or liabilities do
not constitute Indebtedness and (iv) obligations under leases that are not
Capital Leases.
"Indemnified Taxes" means Taxes (including Other Taxes) other than Excluded
Taxes.
"Indemnitee" has the meaning assigned to such term in Section 8.03(b).
"Instrument": means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) evidencing, representing, arising from or
existing in respect of, relating to, securing or otherwise supporting the
payment of, any of the Accounts, including (but not limited to) promissory
notes, drafts, bills of exchange and trade acceptances, now owned or hereafter
acquired by the Borrower or any Subsidiary.
"Interest Coverage Ratio" means, as of any day (the "determination
date"):the ratio of (i) Consolidated EBITDA for the four consecutive fiscal
quarters of the Company and its consolidated Subsidiaries ending most recently
ended prior to such determination date to (ii) Consolidated Interest Expense for
such period.
"Interest Election Request" has the meaning assigned to such term in
Section 2.10.
"Interest Payment Date" means (a) with respect to any ABR Loan, the last
day of each month, and (b) with respect to any Eurodollar Borrowing, the last
day of the Interest Period applicable thereto and, in the event such Interest
Period is longer than three months, at intervals of three months after the first
day thereof.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months,
thereafter, as the Borrower may elect, provided that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
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extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day, and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing.
"Kaye Employment Agreement" means the Amended and Restated Employment
Agreement dated as of January 1, 1997 between the Borrower and Seymour Kugler.
"Leverage Ratio" means, as of any day, the quotient of (i) the aggregate of
all Indebtedness of the Borrower and its Subsidiaries, on a consolidated basis,
as of the determination date divided by (ii) Consolidated EBITDA for the four
consecutive fiscal quarters most recently ended prior to such determination
date. Notwithstanding the foregoing for the period from the Effective Date
through November 30, 1999, the Leverage Ratio shall be the quotient of (i) the
aggregate of all Indebtedness of Borrower and its Subsidiaries on a consolidated
basis as of the determination date (which shall include, for determination of
the Leverage Ratio on the Effective Date, Loans outstanding on such date)
divided by (ii) Consolidated EBITDA for the four consecutive fiscal quarters
ending June 30, 1999. For purposes of this definition, the term Indebtedness
shall not include accrued interest on such Indebtedness unless more than thirty
(30) days past due.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the per annum rate determined by the Bank as follows: (a) the
Bank shall obtain the rate for deposits in Dollars for a period comparable to
such Interest Period which appears on the Telerate Page 3750 (or any replacement
page, if such page is replaced in the Telerate Service or such other service or
services as may be designated by the British Bankers Association for the purpose
of displaying the London Interbank Offered Rate for Dollar deposits as of 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period), and (b) if the Bank is not able to obtain quotations for the
determination of the LIBO Rate pursuant to the foregoing clause (a), the LIBO
Rate shall be the per annum rate of interest quoted by the Bank at which Dollar
deposits are offered by the Bank to prime banks in the London interbank market
at approximately 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period, which deposits are for a period equal to such
Interest Period and in an amount substantially equal to such Eurodollar
Borrowing.
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"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any
conditional-sale agreement, capital lease or title-retention agreement relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities. For purposes of
this Agreement, "Lien" shall not include (i) the rights of an Account Debtor in
respect of any Fall-Off during a Guarantee Period or (ii) the rights of a lessor
under a lease other than a Capital Lease.
"Loan Documents" means this Agreement, the Security Documents and each
other agreement, instrument (including any promissory note) or other document
executed or delivered pursuant to any of the foregoing.
"Loan Parties" means the Borrower and its Subsidiaries.
"Loans" means the loans made by the Bank to the Borrower pursuant to this
Agreement.
"Margin Stock" shall have the meaning assigned to such term in Regulation
U.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects, or financial condition, of the Borrower
and each of its Subsidiaries, taken as a whole, (b) the ability of the Loan
Parties, taken as a whole, to perform any of their obligations under any Loan
Document or (c) the rights of or benefits available to the Bank under any Loan
Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
without duplication of direct Indebtedness and Guarantees of such Indebtedness),
or obligations in respect of one or more Hedging Agreements, of any one or more
of the Borrower and the Subsidiaries in an aggregate outstanding principal
amount exceeding $100,000. For purposes of determining Material Indebtedness,
the "principal amount" of the obligations of any Loan Party or any other
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that such Loan Party
or such other Subsidiary would be required to pay if such Hedging Agreement were
terminated at such time.
"Multiemplover Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, which (i) is maintained for employees of the
Borrower or an ERISA Affiliate and at least one Person other than the Borrower
and its ERISA Affiliates or (ii) was so maintained and for which the Borrower or
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an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA if
such plan has been or were to be terminated.
"Net Proceeds" means, with respect to any Prepayment/Reduction Event, the
cash proceeds received in respect of such event, including any cash received in
respect of any non-cash proceeds, but only as and when received, net of (i) all
reasonable fees, commissions and out-of-pocket expenses paid or required to be
paid (including reasonable attorneys fees and expenses relating to the
Prepayment/Reduction Event) by the Borrower and/or its Subsidiaries to third
parties in connection with such Prepayment/Reduction Event and (ii) if such
Prepayment/Reduction Event is an Asset Sale or the receipt of Casualty Proceeds,
(a) the amount of any Indebtedness including interest and costs thereon (other
than the Loans) secured by a Lien on such asset, required to be discharged from
the proceeds thereof and so discharged when required to be discharged and (b)
the amount of all Taxes paid or payable by the Borrower and/or the Subsidiaries,
(as estimated by a Financial Officer of the Borrower, giving effect to the
overall tax position of the Borrower and its Subsidiaries) in respect of such
Asset Sale or the event giving rise to the receipt of Casualty Proceeds and (c)
and the amount of any reasonable reserve established by the Borrower and/or its
Subsidiaries in accordance with GAAP against any liabilities retained by the
Borrower or such Subsidiaries (other than Taxes deducted pursuant to the
foregoing clause (b)) associated with the assets disposed of in such Asset Sale
or the event giving rise to the receipt of Casualty Proceeds, provided that the
amount of any subsequent reduction of such reserve (other than in connection
with a payment in respect of a retained liability) shall constitute Net Proceeds
of a Prepayment/Reduction Event deemed to have occurred on the date of such
reduction and provided further that, if (i) the Borrower shall deliver a
certificate of a Financial Officer to the Bank within ten (10) Business Days of
such Prepayment/Reduction Event setting forth the Borrower's or the applicable
Subsidiary's intent to use any Casualty Proceeds to replace or repair the assets
giving rise to such Casualty Proceeds with other assets to be used in the same
line of business within 240 days of receipt of such proceeds, (ii) no Default
shall have occurred and shall be continuing at the time of the delivery of such
certificate or at the proposed time of the application of such proceeds, and
(iii) the Borrower commences and diligently pursues such repair and replacement
within 120 days of such receipt and completes the repair and replacement within
240 days of receipt such proceeds, such proceeds shall not constitute Net
Proceeds except to the extent not so used at the end of such 240 day period in
accordance with such certificate, at which time such proceeds shall be deemed
Net Proceeds.
"Note" means the Revolving Credit Note or the Term Note, as the context
requires, and "Notes" means the Revolving Credit Note and the Term Note.
"Obligations" has the meaning assigned to such term in the Guarantee
Agreement.
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"Option Purchase Documents" means the Winston Resources 1996 Stock Plan and
the 1990 Incentive Plan.
"Option Purchase Transaction" means the purchase by the Borrower (or a
permitted successor under Section 6.03(d)(vii)) of all existing Options,
including the Options owned beneficially by Seymour Kugler and members of his
family.
"Options" means vested and unvested incentive stock options issued by the
Borrower to employees and directors of the Borrower pursuant to the Option
Purchase Documents.
"Other Taxes" means any and all current or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, the Loan Documents.
"Participant" has the meaning assigned to such term in Section 8.04(c).
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permanent Placement Accounts" means Accounts which have arisen in
connection with the recruitment and placement of job candidates in positions
with employers which provide, or are expected to provide, permanent, full-time
employment and which include provisions for Fall Offs and Guarantee Periods;
provided however, Permanent Placement Accounts shall not include Accounts that
have arisen in connection with the recruitment and placement of job candidates
in positions with employees which are temporary and are convertible or converted
to permanent employment so long as the applicable Account is not subject to any
Fall Offs or Guarantee Periods.
"Permitted Encumbrances" means:
(a) the Liens set forth in Schedule 3.05(a);
(b) Liens imposed by law for Taxes that are not yet delinquent or
Taxes not to exceed $500,000 that are being diligently contested in good
faith and for which appropriate reserves have been established according to
GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's, landlord's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 30 days or are being contested in good faith and for which appropriate
reserves have been established according to GAAP and in respect of which no
execution or levy is sought against any Eligible Accounts;
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(d) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security or similar laws or regulations;
(e) pledges and deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds, insurance carriers and other obligations of a like
nature, in each case in the ordinary course of business;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on or exceptions to title relating to real property imposed by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property or materially interfere with the ordinary conduct of
business of the Borrower or any Subsidiary;
(g) Liens with respect to judgments to the extent such judgments do
not constitute an Event of Default;
(h) Liens securing Indebtedness of the Borrower and/or its
Subsidiaries permitted by subsection 6.01(e), provided that such Liens do
not at any time encumber any property other than the property financed by
such Indebtedness and the proceeds thereof; and
(i) rights of lessors under Capital Leases permitted by this
Agreement.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent that such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition,
investment grade credit ratings from Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, or any successor thereto, from
Moody's Investors Service, Inc. or any successor thereto or from Fitch IBCA
or any successor thereto;
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(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof that
has a combined capital and surplus and undivided profits of not less than
$500,000,000 at the date of acquisition;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above at the date of acquisition; and
(e) the investments listed in Schedule 6.04.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Borrower, any Subsidiary or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledged Securities" has the meaning assigned to such term in the Security
Agreement.
"Prepayment/Reduction Event" means (i ) any Asset Sale approved by the
Bank, (ii) the issuance by the Borrower of any equity securities which
constitute an interest in the equity of the Borrower which exceeds 5% of the
total equity of the Borrower as of the date of such issuance or (ii) the receipt
of Casualty Proceeds.
"Prime Rate" means the rate of interest per annum publicly announced from
time to time by BNY as its prime rate in effect at its principal office in New
York City; each change in the Prime Rate shall be effective from and including
the date such change is publicly announced as being effective.
"Public Stock" means the common stock of the Borrower registered pursuant
to the Securities Act of 1933, as amended, or freely tradable pursuant to Rule
144 promulgated thereunder, and listed for trading on the American Stock
Exchange excluding any shares of stock owned beneficially by the Remaining
Shareholders.
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"Regulation D" means Regulation D of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Redeemable Securities" has the meaning assigned to such term in Section
6.07(b).
"Regulation U" means Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents,
advisors and trustees of such Person and such Person's Affiliates.
"Remaining Shareholders" or "Remaining Stockholders" means Seymour Kugler
and members of his family who also beneficially own common stock of the
Borrower.
"Requirement of Law" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and all federal,
state and local laws, rules, regulations, orders, decrees or other
determinations of an arbitrator, court or other Governmental Authority,
including all disclosure and other requirements of ERISA, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Restricted Payment" means any dividend or other distribution by the
Borrower or any Subsidiary (whether in cash, securities or other property) with
respect to any shares of any class of equity securities of the Borrower or any
Subsidiary, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
shares of equity securities of the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such shares of equity securities
of the Borrower or any of its Subsidiaries. "Restricted Payment" shall not
include any dividend, distribution or payment made or to be made to effect the
Buyout Transactions.
"Revolving Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Revolving Maturity Date and
the date of termination of the Revolving Commitment.
"Revolving Commitment" means the commitment of the Bank to make Revolving
Loans hereunder, as such commitment may be reduced from time to time pursuant to
Section 2.05. The initial amount of the Revolving Commitment is $10,000,000.
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"Revolving Credit Exposure" means, at any time, the aggregate outstanding
principal amount of Revolving Loans at such time.
"Revolving Credit Note" has the meaning assigned to such term in Section
2.01(a).
"Revolving Loan" means a Loan referred to in Section 2.01(a) and made
pursuant to Section 2.04.
"Revolving Maturity Date" means September 30, 2005.
"Second Step Transactions" means, in the event less than all of the shares
of Public Stock are tendered pursuant to the Tender Offer, a merger,
consolidation or other combination between the Borrower and an entity to be
formed and wholly owned by the Remaining Shareholders or other form of corporate
transaction and/or a settlement of litigation (approved, to the extent required
by applicable law, by a court of competent jurisdiction) or a Final Judgment in
a litigation pursuant to which any Public Stock that was not tendered by the
Public Shareholders will be converted to a right to receive payment of the Offer
Price (as defined in the Tender Offer Documents) or damages in lieu of Offer
Price in cash, provided (a) the average Offer Price (by way of purchase price or
damages in lieu thereof) paid with respect to the Buy-Out Transactions,
including the Second Step Transactions and the purchase of the Options, does not
exceed $5.50 per share and (b) any approval of the stockholders of the Borrower
required to authorize the Second Step Transaction is obtained.
"Security Agreement" means the Security Agreement, substantially in the
form of Exhibit D, among the Borrower, the Subsidiaries and the Bank.
"Security Documents" means the Security Agreement and each other security
agreement, instrument or other document executed or delivered pursuant to
Section 5.10 or 5.11 to secure any of the Obligations.
"Solvency Certificate" means a certificate of the Chief Financial Officer
of the Borrower on behalf of the Borrower in the form attached hereto as Exhibit
F.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages required (including
any marginal, special, emergency or supplemental reserves) expressed as a
decimal established by the Board to which the Bank is subject for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D).
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Such reserve percentages shall include those imposed pursuant to Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
of which securities or other ownership interests representing more than 50% of
the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held by the parent or one or more subsidiaries of the
parent.
"Subsidiary" means any subsidiary of the Borrower.
"Taxes" means any and all current or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
"Tender Offer" means the offer of the Borrower to purchase for cash its
outstanding shares of its Common Stock pursuant to the Tender Offer Documents.
"Tender Offer Documents" means Schedule 13E-3 and 13E-4 filed by the
Borrower with the Securities and Exchange Commission and all other documents
governing or evidencing the Tender Offer, including, without limitation, all
filings with the Securities and Exchange Commission in connection with the
Tender Offer and all amendments, exhibits and schedules thereto, the Fairness
Opinion delivered in conjunction with Schedule 13E-4 and all documentation
provided by the depositary in connection with the Tender Offer.
"Term Availability Period" means the period from and including the
Effective Date to but excluding the earlier of (a) September 30, 2000 and (b)
the date of termination of the Term Loan Commitment.
"Term Loan Commitment" means, the commitment of the Bank to make a Term
Loan in the maximum principal amount equal to $6,500,000.
"Term Loan" means a Loan referred to in Section 2.01(b) and made pursuant
to Section 2.04.
"Term Loan Exposure" means, at any time, the aggregate outstanding
principal amount of Term Loans at such time.
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"Term Maturity Date" means September 30, 2005.
"Term Note" has the meaning assigned to such term in Section 2.01(b).
"Transactions" means (a) the execution, delivery and performance by each
Loan Party of each Loan Document to which it is a party, (b) the borrowing of
Loans and (c) the use of the proceeds of the Loans.
"Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
"Year 2000 Issue" means the failure of computer software, hardware and
firmware systems and equipment containing embedded computer chips to properly
receive, transmit, process, manipulate, store, retrieve, re-transmit or in any
other way utilize data and information due to the occurrence of the year 2000 or
the inclusion of dates on or after January 1, 2000.
SECTION 1.02. Classification of Loans and Borrowings
For purposes of this Agreement, Loans may be classified and referred to by
class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by
class and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by class and Type (e.g., a "Eurodollar
Revolving Borrowing", or a "Eurodollar Term Borrowing").
SECTION 1.03. Terms Generally
The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise,
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
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and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP
Except as otherwise expressly provided herein, all terms of an accounting
or financial nature shall be construed in accordance with GAAP, as in effect
from time to time, provided that, if the Borrower notifies the Bank that the
Borrower requests an amendment to any provision hereof to eliminate the effect
of any change occurring after the date hereof in GAAP or in the application
thereof to the operation of such provision (or if the Bank notifies the Borrower
that it requests an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in
GAAP or in the application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
ARTICLE 2. THE CREDITS
SECTION 2.01. Commitments; Notes
(a) (i) Subject to the terms and conditions set forth herein, the Bank
agrees to make Revolving Loans to the Borrower from time to time during the
Revolving Availability Period in an aggregate principal amount equal to the
amount requested but not in excess of the lesser of (1) an amount that will not
result in the Revolving Credit Exposure exceeding the Revolving Commitment and
(2) the Borrowing Base Amount minus, in the case of (2) for the period from the
Effective Date through the date on which any prepayment required under Section
2.07(e) hereof has been made, the amount by which the amount of the Term Loan
Exposure exceeds the sum of $5,100,000 and any amounts in excess of $4.62 per
share that the Borrower is required to pay to purchase any Public Stock in the
Buyout Transactions. Within the conditions set forth herein, the Borrower may
borrow, prepay and reborrow Revolving Loans.
(ii) The Revolving Loans shall be evidenced by a promissory note (the
"Revolving Credit Note") of the Borrower payable to the order of the Bank, dated
the Effective Date, in a principal amount equal to the Revolving Commitment and
substantially in the form of Exhibit A-1.
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(b) (i) Subject to the terms and conditions hereof, the Bank agrees to make
Term Loans to the Borrower on the Effective Date and on not more than five (5)
additional occasions thereafter during the Term Loan Availability Period in an
aggregate principal amount requested, which shall not exceed the Term Loan
Commitment. Term Loans which are prepaid or repaid, in whole or in part, may not
be reborrowed.
(ii) The Term Loans shall be evidenced by a promissory note (the "Term
Note") of the Borrower payable to the order of the Bank, dated the Effective
Date, in a principal amount equal to the Term Loan Commitment and substantially
in the form of Exhibit A-2.
(c) The Bank shall record the date, amount and Type of each Loan and the
date and amount of each payment of principal made by the Borrower with respect
thereto and may, if it so elects in connection with the transfer or enforcement
of any Note, endorse on the schedule forming a part thereof appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding, provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Such recordation or endorsement shall constitute
prima facie evidence of the existence and amounts of the obligations so recorded
or endorsed. The Bank is hereby irrevocably authorized by the Borrower so to
endorse the Notes and to attach to and make a part of any Note a continuation of
any such schedule as and when required.
SECTION 2.02. Loans and Borrowings
(a) Subject to Section 2.11, each Borrowing shall be comprised entirely of
(i) Revolving Loans or Term Loans, as applicable, and (ii) ABR Loans or
Eurodollar Loans, as applicable, in each case as the Borrower may request in
accordance herewith. The Bank at its option may make any Eurodollar Loan by
causing any domestic or foreign branch or Affiliate of the Bank to make such
Loan, provided that (a) any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement and (b) in the event the Bank exercises such option, the Bank
will, prior to and as a condition of exercising such option, provide the
Borrower with such forms as may be required under the Code to confirm that the
Borrower is not required to pay or withhold back-up withholding taxes.
(b) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is $100,000 or is
an integral multiple of $100,000. At the time that each ABR Borrowing is made,
such Borrowing shall be in an aggregate amount that is $100,000 or an integral
multiple of $100,000, provided that an ABR Revolving Borrowing may be in an
aggregate amount that is equal to the entire unused balance of the Revolving
Commitment. Borrowings of more than one Type may be outstanding at the same
time, provided that there shall not at any time be more than a total of seven
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(7) different Interest Periods applicable to Eurodollar Borrowings outstanding.
(c) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
(i) the Revolving Maturity Date, in the case of Revolving Loans, or (ii) the
Term Maturity Date, in the case of Term Loans.
SECTION 2.03. Requests for Borrowings
To request a Borrowing, the Borrower shall notify the Bank of such request
by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00
a.m., New York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New
York City time, on the date of the proposed Borrowing. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Bank of a written Borrowing Request in substantially
the form annexed hereto as Exhibit G and signed by the Borrower. Each such
telephonic and written Borrowing Request shall (subject to the last paragraph of
this Section) specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be a Revolving Borrowing or a Term
Borrowing;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.04.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month.
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SECTION 2.04. Funding of Borrowings
Subject to Section 4.01, the Bank shall make each Loan to be made by it
hereunder on the proposed date thereof by credit of immediately available funds
by 1:00 p.m., New York City time to an account of the Borrower maintained with
the Bank in New York City and designated by the Borrower in the applicable
Borrowing Request.
SECTION 2.05. Termination and Reduction of
Revolving Commitments
(a) Revolving Commitments
(i) Unless previously terminated, the Revolving Commitment shall
terminate on the Revolving Maturity Date.
(ii) The Borrower may at any time terminate, or the Borrower may from
time to time reduce, the Revolving Commitment, provided that (1) the
Borrower shall not terminate or reduce the Revolving Commitment if, after
giving effect to any concurrent prepayment of the Revolving Loans in
accordance with Section 2.07, the Revolving Credit Exposure would exceed
the Revolving Commitment, and (2) each such reduction shall be in an amount
that, when added to the amount of each such prepayment, is an integral
multiple of $100,000.
(iii) The Borrower shall notify the Bank of any election to terminate
or reduce the Revolving Commitment under paragraph (ii) of this Section
2.05(a) at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Each notice delivered by the Borrower pursuant to this Section
shall be irrevocable. Any termination or reduction of the Revolving
Commitment shall be permanent.
(iv) The Borrower may terminate or reduce the Revolving Commitment
without penalty, premium, fee or other payment, except for any principal
payments due under 2.07(c) in respect of the Revolving Loans, any fees due
under Section 2.08(a) in respect of the Revolving Commitment reduced or
terminated and any interest payments due under Section 2.09(d)(iii) in
respect of the Revolving Loan prepaid.
(b) Term Loan Commitments
(i) Unless previously terminated, the Term Loan Commitment shall
terminate on September 30, 2000.
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(ii) The Borrower may at any time terminate, or the Borrower may from
time to time reduce, the Term Loan Commitment, provided that (1) the
Borrower shall not terminate or reduce the Term Commitment if, after giving
effect to any concurrent prepayment of the Term Loans in accordance with
Section 2.07, the Term Loan Exposure would exceed the Term Loan Commitment,
and (2) each such reduction shall be in an amount that, when added to the
amount of each such prepayment, is an integral multiple of $100,000.
(iii) The Borrower shall notify the Bank of any election to terminate
or reduce the Term Loan Commitment under paragraph (ii) of this Section at
least three Business Days prior to the effective date of such termination
or reduction, specifying such election and the effective date thereof. Each
notice delivered by the Borrower pursuant to this Section shall be
irrevocable. Any termination or reduction of the Term Loan Commitment shall
be permanent.
(iv) The Borrower may terminate or reduce the Term Loan Commitment
without penalty, premium, fee or other payment, except for any principal
payments due under 2.07(c) in respect of the Term Loans, any fees due under
Section 2.08(b) in respect of the Term Loan Commitment reduced or
terminated and any interest payments due under Section 2.09(d)(ii) in
respect of the Term Loans prepaid.
SECTION 2.06. Repayment of Loans; Evidence of Debt
(a) The Borrower hereby unconditionally promises to pay to the Bank the
then unpaid principal amount of all Revolving Loans on the Revolving Maturity
Date.
(b) The Borrower hereby unconditionally promises to pay to the Bank
(i) The principal amount of the Term Loans in installments on each
date set forth below in the amount set forth adjacent to such date:
Date Amount
- ----------- -------------
March 31, 2000 $187,500
June 30, 2000 $187,500
September 30, 2000 $187,500
December 31, 2000 $187,500
March 31, 2001 $187,500
June 30, 2001 $187,500
September 30, 2001 $187,500
December 31, 2001 $250,000
March 31, 2002 $250,000
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Date Amount
- ----------- -------------
June 30, 2002 $250,000
September 30, 2002 $250,000
December 31, 2002 $312,500
March 31, 2003 $312,500
June 30, 2003 $312,500
September 30, 2003 $312,500
December 31, 2003 $312,500
March 31, 2004 $312,500
June 30, 2004 $312,500
September 30, 2004 $312,500
December 31, 2004 $421,700
March 31, 2005 $421,700
June 30, 2005 $421,700.
(ii) The then unpaid principal amount of the Term Loans on the Term
Maturity Date.
SECTION 2.07. Prepayment of Loans
(a) The Borrower shall have the right at any time and from time to time to
prepay any Revolving Loans or Term Loans in whole or in part, subject to the
requirements of this Agreement. Any voluntary prepayments made by the Borrower
shall, prior to the occurrence of a Default, shall be applied to Revolving Loans
or Term Loans and any Type of Loan, as selected by the Borrower.
(b) In the event and on each occasion that any Net Proceeds are received by
or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment/Reduction Event, then, within four Business Days after such Net
Proceeds are received, (i) the Borrower shall prepay the Term Loans in an amount
equal to such Net Proceeds, and (ii) and upon repayment of the Term Loan in
full, the Borrower shall prepay the Revolving Loans by an aggregate amount equal
to such Net Proceeds not applied to the Term Loan.
(c) In the event of any partial reduction or termination of the Revolving
Commitments, then (i) at or prior to the date of such reduction or termination,
the Bank shall notify the Borrower of the Revolving Credit Exposure after giving
effect thereto and (ii) if such amount would exceed the Revolving Commitment
after giving effect to such reduction or termination, then the Borrower shall,
on the date of such reduction or termination, reduce the Revolving Credit
Exposure in an amount sufficient to eliminate such excess.
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(d) If on any day prior to the Revolving Maturity Date, the Revolving
Credit Exposure shall exceed the Borrowing Base Amount, the Borrower shall,
within three (3) Business Days of such day (but in no event later than the
Revolving Maturity Date), prepay the Revolving Loans in an amount equal to such
excess.
(e) In the event that on or before September 30, 2000, the Borrower has not
used the proceeds of the Term Loan to purchase common stock pursuant to the
Tender Offer, the Option Purchase or the Second Step Transaction, then on or
before October 1, 2000, the Borrower shall prepay the Term Loan in an amount
equal to the proceeds of the Term Loan not used for such purposes.
(f) The Borrower shall notify the Bank by telephone (confirmed by telecopy)
of any prepayment hereunder (i) in the case of prepayment of a Eurodollar
Borrowing, not later than 11:00 a.m., New York City time, three Business Days
before the date of prepayment or (ii) in the case of prepayment of an ABR
Borrowing, not later than 11:00 a.m., New York City time, one Business Day
before the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid.
(g) Each partial prepayment of any Borrowing under Sections 2.07(a) shall,
when added to the amount of each concurrent prepayment and reduction of the
Revolving Commitments, if any, required under such Sections, be in the amount of
$100,000 or an integral multiple of $100,000. Prepayments shall be accompanied
by accrued interest and break funding payments to the extent required by Section
2.13. Each prepayment of Term Loans shall be applied ratably among the remaining
installments of principal required under Section 2.06(b).
(h) Any prepayments permitted or required under this Section 2.07 may be
made by the Borrower without any penalty, premium, fee or other payment, except
for any interest payments due under Section 2.09(d)(ii) and any break funding
payments due under Section 2.13.
SECTION 2.08. Fees
(a) The Borrower shall pay to the Bank a commitment fee, which shall accrue
at the applicable Fee Margin on the average daily amount of the unused Revolving
Commitment (as reduced from time to time in accordance with this Agreement)
during the period from and including the Effective Date to but excluding the
date on which the Revolving Commitment terminates. Accrued commitment fees shall
be payable in arrears on the last day of March, June, September and December of
each year and on the date on which the Revolving Commitment terminates,
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commencing on the first such date to occur after the Effective Date. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Borrower shall pay to the Bank a commitment fee, which shall accrue
at the applicable Fee Margin on the average daily amount of the unused Term Loan
Commitment (as reduced from time to time in accordance with this Agreement)
during the period from and including the Effective Date to but excluding the
first to occur of the date on which the Term Loan Commitment terminates and the
date on which the Borrower has borrowed the full amount of the Term Loan
Commitment. Amounts borrowed and paid, by way of prepayment or otherwise under
the Term Loan Commitment, may not be re-advanced and shall not constitute unused
Term Loan Commitment. Accrued commitment fees shall be payable in arrears on the
last day of March, June, September and December of each year and on the date on
which the Term Loan Commitment terminates, commencing on the first such date to
occur after the Effective Date. All commitment fees shall be computed on the
basis of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).
(c) On the Effective Date, the Borrower shall pay to the Bank a facility
fee in an amount equal to 1.4% of the sum of the Revolving Commitment and the
Term Loan Commitment, minus the $20,000 the Bank previously received on account
of the fees due under this Section 2.08(c).
(d) The Bank and the Borrower agree that there are no separate agreements
under which the Borrower is obligated to pay any fees with respect to the Loans,
the Revolving Commitment or the Term Loan Commitment. The Bank agrees that in
the event the Effective Date does not occur, no fees shall be due under this
Section 2.08, except that (i) the Bank may retain the $20,000 paid on account of
the fees described in Section 2.08(c), and (ii) the Borrower shall pay any
additional attorney's fees and expenses due to the Bank under this Agreement.
SECTION 2.09. Interest
(a) ABR Revolving Loans and ABR Term Loans shall bear interest at the
Alternate Base Rate plus the Applicable Margin.
(b) Eurodollar Revolving Loans and Eurodollar Term Loans shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Margin.
(c) Notwithstanding the foregoing, after the occurrence and during the
continuance of any Event of Default, any overdue amount payable by the Borrower
hereunder shall bear interest, after as well as before judgment, at a rate per
annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
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rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section (and subject to Section 2.09(d)) or (ii) in the case of any
other amount, 2% plus the Alternate Base Rate.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan, provided that (i) interest accrued pursuant
to paragraph (c) of this Section shall be payable on demand, (ii) in the event
of any repayment or prepayment of any Loan (other than a prepayment of an ABR
Loan pursuant to Section 2.07(b)), accrued interest on the principal amount
repaid or prepaid shall be payable on the date of such repayment or prepayment
and (iii) in the event of any conversion of any Eurodollar Loan prior to the end
of the current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate, Adjusted
LIBO Rate or LIBO Rate shall be determined by the Bank, and such determination
shall be conclusive absent manifest error.
SECTION 2.10. Interest Elections
(a) Each Borrowing initially shall be of the Type specified (or deemed
specified) in the applicable Borrowing Request and, in the case of a Eurodollar
Borrowing, shall have an initial Interest Period as specified (or deemed
specified) in such Borrowing Request. Thereafter, the Borrower may elect to
convert such Borrowing to a different Type or to continue such Borrowing and, in
the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as
provided in this Section (each, an "Interest Election Request"). The Borrower
may elect different options with respect to different portions of the affected
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall notify
the Bank of its election by telephone on or before 11:00 a.m., New York City
time, on three Business Days' notice:
(i) that all, or any portion in an aggregate minimum amount of
$100,000 and an integral multiple of $100,000 in excess of such amount, of
any Borrowing be converted from ABR Loans into Eurodollar Loans or from
Eurodollar Loans into ABR Loans; and
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(ii) on the expiration of the Interest Period applicable to any
Eurodollar Loans comprising all or part of any Borrowing, that all, or any
portion in an aggregate minimum amount of $100,000 and an integral multiple
of $100,000 in excess of such amount, of the outstanding principal amount
of such Eurodollar Loans be continued as Eurodollar Loans or be converted
into ABR Loans.
Each such telephonic Interest Election Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the Bank of a
written Interest Election Request in a form approved by the Bank and signed by
the Borrower.
(c) Each telephonic and written Interest Election Request shall specify the
following information in compliance with Section 2.03:
(i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day not less than three days
following the giving of the telephonic request provided for in clause (b)
above;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but
does not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month.
(d) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period, such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the Bank so notifies the Borrower, then, so
long as an Event of Default is continuing, (i) no outstanding Borrowing may be
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converted into or continued as a Eurodollar Borrowing and (ii) unless repaid,
each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of
the Interest Period applicable thereto.
(e) No portion of the outstanding principal amount of any Loan may be made
or continued as, or be converted into, a Eurodollar Loan if, after giving effect
to such action, the Interest Period applicable thereto shall extend beyond the
date of any scheduled repayment required by Section 2.06(b), unless a sufficient
principal amount of other Loans is being maintained as ABR Loans or Eurodollar
Loans having an Interest Period ending on or prior to the date of any such
scheduled repayment.
SECTION 2.11. Alternate Rate of Interest
If prior to the commencement of any Interest Period for a Eurodollar
Borrowing:
(a) the Bank determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining
the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest
Period; or
(b) the Bank determines that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to the Bank of making or maintaining its Loan included in such Borrowing
for such Interest Period;
then the Bank shall give notice thereof to the Borrower by telephone or
telecopy as promptly as practicable thereafter and, until the Bank notifies the
Borrower that the circumstances giving rise to such notice no longer exist, (i)
any Interest Election Request that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Borrowing shall be
ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing,
such Borrowing shall be made as an ABR Borrowing.
SECTION 2.12. Increased Costs; Illegality
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, the Bank (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on the Bank or the London interbank market any other
condition affecting this Agreement or any Eurodollar Loans made by the
Bank;
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and the result of any of the foregoing shall be to increase the cost to the
Bank of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by the Bank hereunder (whether of principal, interest or otherwise),
then the Borrower will pay to the Bank such additional amount or amounts as will
compensate the Bank for such additional costs incurred or reduction suffered.
(b) If the Bank determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on the
Bank's capital or on the capital of the Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by the Bank to a level below
that which the Bank or the Bank's holding company could have achieved but for
such Change in Law (taking into consideration the Bank's policies and the
policies of the Bank's holding company with respect to capital adequacy), then
from time to time the Borrower will pay to the Bank or the Bank's holding
company, as applicable, such additional amount or amounts as will compensate the
Bank or the Bank's holding company for any such reduction suffered.
(c) A certificate of the Bank setting forth the amount or amounts necessary
to compensate the Bank or its holding company, as the case may be, as specified
in paragraph (a) or (b) of this Section shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay the Bank the
amount shown as due on any such certificate within 10 days after receipt thereof
or receipt of a revised certificate correcting any absent manifest error in such
certificate.
SECTION 2.13. Break Funding Payments
In the event of (a) the payment of any principal of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto (including
as a result of an Event of Default), (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto or (c) the
failure to borrow, convert, continue or prepay any Eurodollar Loan on the date
specified in any notice delivered pursuant hereto, then, in any such event, the
Borrower shall compensate the Bank for the loss, cost and expense attributable
to such event. In the case of a Eurodollar Loan, such loss, cost or expense to
the Bank shall be deemed to include an amount determined by the Bank to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the
interest rate which the Bank would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
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banks in the eurodollar market. A certificate of the Bank setting forth any
amount or amounts that the Bank is entitled to receive pursuant to this Section
shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay the Bank the amount shown as due on any such
certificate within 10 days after receipt thereof or receipt of a revised
certificate correcting any manifest error in such certificate.
SECTION 2.14. Taxes
(a) Any and all payments by or on account of any obligation of the Borrower
hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes, provided that, if the Borrower shall be required to deduct
any Indemnified Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section), the Bank
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Bank, within 10 days after written
demand therefor, for the full amount of any Indemnified Taxes paid by the Bank
on or with respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto whether or not
such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment
or liability delivered to the Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Bank the
original or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Bank.
(e) If the Bank receives a refund in respect of any Indemnified Taxes as to
which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to this Section, it shall, within
30 days from the date of such receipt, pay over such refund to the Borrower (but
only to the extent of indemnity payments made or additional amounts paid by the
Borrower pursuant to this Section with respect to the Indemnified Taxes giving
rise to such refund), net of all out-of-pocket expenses of the Bank and without
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interest (other than interest paid by the relevant Governmental Authority with
respect to such refund); provided, however, that the Borrower, upon the request
of the Bank, agrees to repay the amount paid over to the Borrower (plus
penalties, interest or other charges imposed by the relevant Governmental
Authority) to the Bank in the event the Bank is required to repay such refund to
such Governmental Authority.
SECTION 2.15. Payments Generally.
(a) The Borrower shall make each payment required to be made by it
hereunder (whether of principal, interest or fees, or of amounts payable under
Section 2.12, 2.13 or 2.14, or otherwise) prior to 12:00 noon, New York City
time, on the date when due, in immediately available funds, without setoff or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Bank, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Bank at its office at One Wall Street, New York, New York.
If any payment hereunder shall be due on a day that is not a Business Day, the
date for payment shall be extended to the next succeeding Business Day, and, in
the case of any payment accruing interest, interest thereon shall be payable of
the period for such extension. All payments hereunder shall be made in Dollars.
(b) If at any time insufficient funds are received by and available to the
Bank to pay fully all amounts of principal, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, and (ii) second, towards payment of principal then
due hereunder.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank that:
SECTION 3.01. Organization; Powers
The Borrower and each Subsidiary is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and is
qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where any lack of power or
authority or failure to be so qualified or in good standing would not have a
Material Adverse Effect and would not affect the enforceability or
collectibility of any Eligible Account.
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SECTION 3.02. Authorization; Enforceability
The Transactions and the Buyout are within the corporate powers of the
Borrower and each Subsidiary to the extent it is a party thereto and have been
duly authorized by all necessary corporate, and if required, equityholder
action, other than action that may be required with respect to any Second Step
Transaction. Each Loan Document has been duly executed and delivered by the
Borrower and each Subsidiary to the extent it is a party thereto and constitutes
a legal, valid and binding obligation thereof, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts
The Transactions and the Buyout (a) do not require any consent or approval
of, registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and
effect or will be obtained or made and in full force and effect on or prior to
the Effective Date, and except for any registration, filing, approval, consent
or action that may be required with respect to any Second Step Transaction, (b)
will not violate any applicable law or regulation or the charter, by-laws or
other organizational documents of the Borrower or any of the Subsidiaries or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the Borrower or
any of the Subsidiaries or its assets, or, except as contemplated by the Buyout
Transaction, give rise to a right thereunder to require any payment to be made
by the Borrower or any of the Subsidiaries, and (d) will not result in the
creation or imposition of any Lien on any asset of the Borrower or any of the
Subsidiaries, except for Liens in favor of the Bank and securing the
Obligations.
SECTION 3.04. Financial Condition; No Material
Adverse Change
(a) The Borrower has heretofore furnished to the Bank the consolidated
balance sheet and statements of income, stockholders equity and cash flows of
the Borrower (i) as of and for the fiscal year ended on December 31, 1998,
reported on by Ernst & Young LLP, independent public accountants, and (ii) as of
and for the fiscal quarter ended on June 30, 1999, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
There are no liabilities of the Borrower or any Subsidiary, fixed or contingent,
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which are material but not reflected in the financial statements for the fiscal
quarter ended June 30, 1999 or the notes thereto, other than liabilities arising
in the ordinary course of business or liabilities arising in connection with the
Transactions or the Buyout Transactions since June 30, 1999.
(b) Since December 31, 1998, there has been no material adverse change in
the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and its Subsidiaries, either individually or taken as
a whole not reflected on the June 30, 1999 financial statements.
(c) As of the date hereof, the Inactive Subsidiaries (i) do not own any
assets, (ii) do not have any liabilities or obligations to any third parties or
to the Borrower or to any Subsidiary, (iii) are not parties to any agreements,
(iv) do not conduct or transact any business and (v) do not receive Property or
transfers of funds from the Borrower or any Subsidiary.
SECTION 3.05. Properties
(a) The Borrower and each Subsidiary has good title to, or valid leasehold
interests in, all its real and personal property material to its business,
except for (i) Permitted Encumbrances, (ii) minor defects in title that do not
interfere with its ability to conduct its business as currently conducted or to
utilize such properties for their intended purposes and (iii) the matters
described in Schedule 3.05(a).
(b) The Borrower and each Subsidiary owns, or is entitled to use, in the
jurisdictions, businesses and manner presently used in, all trademarks, trade
names, copyrights, patents and other intellectual property material to the lines
of business conducted by the Borrower and its Subsidiaries, and to the knowledge
of the Borrower and the Subsidiaries, the use thereof does not infringe upon the
rights of any other Person in such jurisdictions, business and manner and
neither the Borrower nor any Subsidiary has received any notice of a claim of
infringement.
SECTION 3.06. Litigation and Environmental Matters
(a) Except as disclosed by Borrower to Lender in writing on this date,
there are no actions, suits or proceedings by or before any arbitrator or
Governmental Authority pending against or, to the knowledge of the Borrower,
threatened against the Borrower or any of the Subsidiaries that, involve any
Loan Document or the Transactions or the Buyout.
(b) Neither the Borrower nor any of its Subsidiaries (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, (ii) has
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become subject to any Environmental Liability, (iii) has received notice of any
claim with respect to any Environmental Liability or (iv) knows of any basis for
any Environmental Liability, which, in any of the foregoing cases, individually
or in the aggregate would have a Material Adverse Effect.
SECTION 3.07. Compliance with Laws and Agreements
The Borrower and each of the Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property except where any non-compliance does not have a Material Adverse
Effect or affect the enforceability or collectibility of any Eligible Account.
No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status
Neither the Borrower nor any of the Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes
The Borrower and each Subsidiary has timely filed or caused to be filed all
Tax returns and reports required to have been filed and has paid or caused to be
paid all Taxes required to have been paid by it, except Taxes that are being
contested in good faith by appropriate proceedings and for which the Borrower or
such Subsidiary, as applicable, has set aside on its books adequate reserves in
accordance with GAAP.
SECTION 3.10. ERISA
No ERISA Event has occurred or is reasonably expected to occur with respect
to any Plan of the Borrower or an ERISA Affiliate.
SECTION 3.11. Disclosure
The Borrower has disclosed to the Bank all agreements, instruments and
corporate or other restrictions to which it or any of the Subsidiaries is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
None of the reports, financial statements, certificates or other information
furnished by or on behalf of the Borrower or any Subsidiary to the Bank in
connection with the negotiation of the Loan Documents or delivered thereunder
(as modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
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made, not misleading, provided that, with respect to projected financial
information, as modified by modifications thereof delivered to the Bank, the
Borrower represents only that such information was prepared in good faith based
upon assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries
Schedule 3.12 sets forth, as of the date hereof, the name and jurisdiction
of incorporation of, and the ownership interest of the Borrower in, each
Subsidiary. All outstanding capital stock of each Subsidiary has been validly
issued, is fully paid and non-assessable and is owned by the Borrower free and
clear of all liens.
SECTION 3.13. Insurance
Schedule 3.13 sets forth a copy of the certificates of insurance for all
insurance in effect on the date hereof and will be maintained by or on behalf of
the Borrower and the Subsidiaries as of the Effective Date. As of the Effective
Date, all premiums in respect of such insurance that are due and payable will
have been paid.
SECTION 3.14. Labor Matters
There are no strikes, lockouts or slowdowns against the Borrower or any
Subsidiary pending or, to the knowledge of the Borrower, threatened nor will
there be in the future, except such matters that would not have a Material
Adverse Effect. The hours worked by and payments made to employees of the
Borrower and the Subsidiaries have not been in material violation of the Fair
Labor Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters. All material payments due from the Borrower or any
Subsidiary, or for which any material claim may be made against the Borrower or
any Subsidiary, on account of wages and employee health and welfare insurance
and other benefits, have been paid or accrued as a liability on the books of the
Borrower or such Subsidiary. The consummation of the Transactions will not give
rise to any right of termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which the Borrower or any
Subsidiary is party or by which it is bound.
SECTION 3.15. Solvency
(a) The Borrower and its Subsidiaries on a consolidated basis are now
Solvent and the Borrower's and Subsidiaries incurrence of the various
obligations relating to the Loans and the consummation of the transactions
contemplated by the Tender Offer and the Option Purchase and, when and if
applicable, the Second Step Transactions, will not render the Borrower and its
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Subsidiaries Insolvent on a consolidated basis. "Insolvent" as used herein means
that the sum of the Borrower's and its Subsidiaries' assets, at their fair
valuation and based on their present fair saleable value, is less than the
amount of its debts, including contingent liabilities. "Solvent" as used in this
Section 3.15 means the sum of the Borrower's and its Subsidiaries' assets at
their fair valuation and based on their present fair saleable value exceeds the
amount of debts of Borrower and its Subsidiaries. "Fair saleable value" and
"fair valuation" are generally defined as the amount that may be realized if an
entity's aggregate assets (including goodwill) are sold as an entirety with
reasonable promptness in an arm's length transaction under present conditions
for the sale of comparable business enterprises. As used in this Section 3.15
the term "debt" means any liability on a claim, and "claim" as used herein means
(i) the right to payment, whether or not such right is reduced to judgment or is
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured, and (ii) the right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment or is fixed, contingent, matured, unmatured, disputed, undisputed,
secured or unsecured; provided, however, for such purposes, any contingent,
disputed or unmatured liability (such as pending litigation, Guarantees, pension
plans liabilities and claims for federal, state, local and foreign taxes, if
any) will be valued at the amount that, 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.
(b) After the incurrence of its obligations under the Credit Agreement and
the consummation of the Tender Offer and the Option Purchase and, when and if
applicable, the Second Step Transactions, the Borrower and its Subsidiaries on a
consolidated basis will not have incurred debts beyond the ability to pay such
debts as they mature, and the cash available to the Borrower and its
Subsidiaries, after taking into account all other anticipated uses of such cash,
is anticipated to be sufficient to pay all such amounts on or in respect of the
debts of the Borrower and its Subsidiaries, as the case may be, when such
amounts are required to be paid.
(c) After the incurrence of its obligations under the Credit Agreement and
the consummation of the Tender Offer and the Option Purchase and, when and if
applicable, the Second Step Transactions, the Borrower and its Subsidiaries on a
consolidated basis will have sufficient capital to conduct their present or
proposed business, and the Borrower and its Subsidiaries, on a consolidated
basis, will not be left with unreasonably small capital with which to conduct
their present or proposed business.
SECTION 3.16. Security Agreement
The Security Agreement is effective to create in favor of the Bank, a
valid, binding and enforceable security interest in the Collateral and, when (a)
the filings described in the Security Agreement are made and (b) the Pledged
Securities which are evidenced by certificates and Pledged Debt which are
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evidenced by instruments are delivered to the Bank, together with appropriate
stock powers and note powers, respectively, the Bank shall have a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the grantor thereunder in such Collateral, in each case prior in
right to any other person except for the rights, if any, of the holders of
Permitted Encumbrances and subject, where necessary, to the filing of
continuation statements and compliance with any amendment to any applicable
Uniform Commercial Code or to the extent other filings may be required under the
Uniform Commercial Code in effect in any applicable jurisdiction if the Borrower
or any Subsidiary or Collateral changes locations or if the Borrower or any
Subsidiary changes names or to the extent of any limitations with respect to
proceeds set forth in Section 9-306 of the applicable Uniform Commercial Code
(or any successor provision).
SECTION 3.17. Federal Reserve Regulations
(a) Neither the Borrower nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, for any purpose
that entails a violation of, or that is inconsistent with, the provisions of the
regulations of the Board, including Regulation U or X.
SECTION 3.18. Year 2000 Issue
The Borrower and its Subsidiaries have reviewed the effect of the Year 2000
Issue on the business critical computer software, business critical hardware and
business critical firmware systems and business critical equipment containing
embedded microchips owned or operated by or for the Borrower and each
Subsidiary, or used or relied upon in the conduct of their business (including
systems and equipment supplied by others or with which such computer systems of
the Borrower and its Subsidiaries interface). The costs to the Borrower and its
Subsidiaries of any reprogramming required as a result of the Year 2000 Issue to
permit the proper functioning of such systems and equipment and the proper
processing of data, and the testing of such reprogramming, and of the reasonably
foreseeable consequences of the Year 2000 Issue to the Borrower or any
Subsidiary (including reprogramming errors and the failure of systems or
equipment supplied by others) are not reasonably expected to result in a Default
or to have a Material Adverse Effect.
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SECTION 3.19. Debt
Schedule 3.19 is a complete and correct list of all credit agreements,
indentures, purchase agreements, guaranties, Capital Leases, and other
investments, agreements, and arrangements presently in effect providing for or
relating to extensions of credit (including agreements and arrangements for the
issuance of letters of credit or for acceptance financing) in respect of which
the Borrower or any Subsidiary is in any manner directly or contingently
obligated; and the maximum principal or face amounts of the credit in question,
which are outstanding and which can be outstanding, are correctly stated, and
all Liens of any nature given or agreed to be given as security therefor are
correctly identified in the agreements listed in such Schedule.
SECTION 3.20. Tender Offer Documents
The Tender Offer Documents required to be filed (except in connection with
any Second Step Transaction) have been accepted for filing by the Securities and
Exchange Commission. Except in connection with any Second Step Transaction, all
conditions to the effectiveness of the Tender Offer Documents and consummation
of the transactions contemplated thereby and by the Option Purchase Documents
will be satisfied upon the electronic filing of such documents with the
Securities and Exchange Commission except for the submission of the solicitation
to the holders of the Public Stock, the tendering of the Shares of the Public
Stock by the holders thereof, the surrender of the Options and the payment of
the purchase price.
ARTICLE 4. CONDITIONS PRECEDENT
SECTION 4.01. Effective Date
The Revolving Commitment and the Term Loan Commitment and the obligations
of the Bank to make Loans shall not become effective until the date, which may
not be later than December 15, 1999, on which each of the following conditions
is satisfied (or waived in accordance with Section 8.02):
(a) The Bank shall have received from the Borrower either (i) a counterpart
of this Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Bank (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart of
this Agreement.
(b) The Bank shall have received (i) a certificate, dated the date of the
initial Loans of the Secretary or an Assistant Secretary of the Borrower and
each Subsidiary
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(A) attaching resolutions of its Board of Directors, and, if
necessary, its shareholders then in full force and effect authorizing the
execution, delivery and performance of this Agreement, the Notes, Guarantee
Agreement, the other Loan Documents, and the related transactions
contemplated in connection herewith and therewith (but not the Second Step
Transactions),
(B) attaching the by-laws of the Borrower and each Subsidiary,
(C) certifying that no amendment or modification of the Borrower's or
any Subsidiary's Certificate of Incorporation has occurred since the date
of the certification thereof by the Secretary of State required by clause
(ii) below; and
(D) certifying as to the incumbency and signatures of those of its
officers authorized to act with respect to this Agreement, the Notes, the
Guarantee Agreement and each other Loan Document, upon which certificate
the Bank may conclusively rely until it shall have received a further
certificate of the Secretary of the Borrower and each Subsidiary canceling
or amending such prior certificate; (ii) a copy of the Borrower's and each
Subsidiary's Certificate of Incorporation, certified as of a recent date by
the Secretary of State of the state of its incorporation;
(iii) a so-called "good standing" certificate with respect to the
Borrower and each Subsidiary as of a recent date issued by the Secretary of
State of the state of its incorporation; and
(iv) certificates as of a recent date and issued by the appropriate
Governmental Authority as to the qualification of the Borrower to do
business (and good standing, where available) as a foreign corporation in
each of the States of where Borrower is qualified as a foreign corporation.
(c) The Bank shall have received all fees and other amounts due and payable
on or prior to the Effective Date under this Agreement, and, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses including the
Bank's attorneys' fees and expenses, required to be reimbursed or paid by the
Borrower hereunder less any amounts paid upon execution of this Agreement.
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(d) The Bank shall have received (i) from the Borrower, the Notes executed
by the Borrower and (ii) from each Subsidiary the Guarantee Agreement, executed
by such Subsidiary.
(e) The Bank shall have received a written opinion (addressed to the Bank,
and dated the Effective Date) from Tannenbaum Helpern Syracuse & Hirschritt LLP
on behalf of the Loan Parties, substantially in the form of Exhibit E. The
Borrower and each Subsidiary hereby requests such counsel to deliver such
opinion.
(f) The Bank shall have received such other documents and certificates as
the Bank or its counsel may reasonably request relating to the organization,
existence and good standing of each Loan Party, the authorization of the
Transactions and the Buyout, all in form and substance reasonably satisfactory
to the Bank and its counsel.
(g) The Available Revolving Credit Commitment (after giving effect to the
Revolving Loans to be made on the Effective Date) shall be not less than
$1,900,000.
(h) The Leverage Ratio for the Effective Date (as specified in the
definition of Leverage Ratio) shall not exceed 3.75:1.00.
(i) The Bank shall have received a copy of the Tender Offer Documents, in
the form accepted for filing by the Securities and Exchange Commission (to the
extent such documents are required to be filed with the Securities and Exchange
Commission), the Option Purchase Documents and the Kaye Employment Agreement,
each certified as being complete and in full force and effect as of the date of
the initial Loans by the Secretary or an Assistant Secretary of the Borrower,
(j) The Bank shall have received (i) evidence reasonably satisfactory to it
that at least 66-2/3% of the total number of issued and outstanding shares of
Public Stock have been validly tendered to the Borrower, that the average
purchase price per share then payable by the Borrower for the Public Stock and
Options does not exceed $5.50 and that such shares of Public Stock have been
validly tendered to the Borrower free and clear of all Liens and restrictions on
purchase imposed by applicable law, have not have been withdrawn and are
available for purchase in accordance with the terms and conditions of the
related offer to purchase, (ii) such information from the depositary in respect
of the Tender Offer regarding the number of shares tendered in the Tender Offer
(including any related documentation) as shall be reasonably requested by the
Bank, (iii) evidence
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that (1) the direct costs of the Buyout do not exceed $11,100,000 and (2)
the closing costs and fees associated with the Buyout do not exceed $1,000,000
and (iv) evidence confirming that the Remaining Shareholders have not and will
not tender their Public Stock in response to the Tender Offer.
(k) The Bank shall have received (i) a Solvency Certificate from the Chief
Financial Officer of the Borrower in the form annexed hereto as Exhibit E (with
the designated exhibits attached) and (ii) a copy of the fairness opinion
rendered to the Borrower with respect to the Tender Offer.
(l) The Bank shall have received a certificate, dated the Effective Date
and signed by the President, a Vice President or a Financial Officer of the
Borrower, confirming compliance with the conditions set forth in Section 4.02.
(m) The Bank shall have received (i) counterparts of the Security Agreement
signed on behalf of the Borrower and each Subsidiary together with all
instruments and other documents, including Uniform Commercial Code financing
statements, required by law or reasonably requested by the Bank to be filed,
registered or recorded to create or perfect the Liens intended to be created
under the Security Agreement and (ii) certified copies of Requests for
Information or Copies (Form UCC-11), or equivalent reports, listing all
effective financing statements which name the Borrower or any Subsidiary (in
each case under its present name and any previous name used in the last five
years) as debtor, together with copies of such other financing statements (none
of which, except for Permitted Encumbrances, shall cover the collateral
purported to be covered by the Security Agreement).
(n) The Bank shall have received (i) stock certificates representing all
the outstanding shares of capital stock of each Subsidiary owned by or on behalf
of the Borrower or any Subsidiary as of the Effective Date and any promissory
notes outstanding on the Effective Date payable to the Borrower or any
Subsidiary, except for any instruments evidencing loans to employees, the Demand
Promissory Note, dated September 10, 1998 made by E.G. Todd Physician Services,
Inc. and Richard Gleehan in favor of E.G. Todd Associates, Inc. in the amount of
$50,000 and the Secured Promissory Note, dated as of June 1, 1990 made by E.G.
Todd Physician Search, Inc. in favor of E.G. Todd Associates Inc. in the
original principal amount of $2,600,000 (such notes are collectively referred to
herein as the "Gleehan Notes"), (ii) stock powers, undated and endorsed in
blank, with respect to such stock certificates and appropriate instruments of
transfer with respect to any such promissory notes except for the notes
evidencing employee loans and the Gleehan Notes and (iii) except for instruments
evidencing loans to employees and the Gleehan Notes, all instruments and other
documents, including Uniform Commercial Code financing statements, required by
law or reasonably requested by the Bank to be filed, registered or recorded to
create or perfect the Liens in the Pledged Securities intended to be created
under the Security Agreement.
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(o) The Bank shall have received evidence satisfactory to it that the
insurance described in Section 3.13 is in effect.
(p) The Bank shall be reasonably satisfied that (i) there shall be no
litigation or administrative proceeding arising out of or relating to the Buyout
Transaction (1) in which the Bank is named a party that the Bank, after due
diligence and advice of counsel of its own selection, in its sole, reasonable
discretion determines would materially, adversely affect the Bank or (2) which
would challenge the validity or enforceability of, or the obligation of the
Borrower and its Subsidiaries to pay the Indebtedness and perform their
agreements under, the Loan Documents, and (ii) there shall be no other
litigation or administrative proceeding (i.e., not arising out of or relating to
the Buyout Transactions), or regulatory changes since the date of this Agreement
(including such change relating specifically to the temporary or permanent
personnel industry) that would reasonably be expected to have a Material Adverse
Effect.
(q) The performance by each Loan Party of its obligations under each Loan
Document shall not (i) violate any applicable law, statute, rule or regulation
or (ii) result in a default or event of default under, any material agreement of
any Loan Party.
(r) The Bank shall be reasonably satisfied in all respects with the tax
position and the contingent tax and other liabilities of, and with any tax
sharing agreements among, the Loan Parties and the other Subsidiaries, and with
the plans of the Borrower with respect thereto. The Bank acknowledges that it
has completed its review of and is satisfied with the position and contingent
tax and other liabilities of, and any tax sharing agreements among, the Borrower
and its Subsidiaries and with the plans of the Borrower with respect thereto.
(s) Since June 30, 1999, there shall have occurred no event that has or
would have a Material Adverse Effect. This condition shall not apply to a
litigation or administrative proceeding or claim arising out of or relating to
the Buy-Out Transactions. The condition relating to such matters, as applicable,
is governed by Section 4.01(p).
(t) The Bank shall have received the financial statements referred to in
Section 3.04(a) and there shall exist no liabilities of the Borrower or any
Subsidiary, fixed or contingent, which are material but not reflected in such
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financial statements or the notes thereto, other than liabilities arising in the
ordinary course of business since June 30, 1999 or in connection with the
Buy-Out Transactions or the Transactions.
(u) The Bank shall have completed its "due diligence" review of the
Borrower and its Subsidiaries and an audit of the Accounts and other collateral
covered by the Security Documents and the results of such review and audit shall
be satisfactory to the Bank. The Bank acknowledges that it has completed and is
satisfied with its "due diligence" and review and the audits and the results of
such review and audits.
SECTION 4.02. Each Credit Event
The obligation of the Bank to make a Loan on the occasion of any Borrowing,
is subject to the satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set forth in each
Loan Document shall be true and correct in all material respects on and as of
the date of such Borrowing; except for any representations and warranties made
specifically with respect to an earlier date, which representations and
warranties shall remain true and correct only as of such earlier date, and
except that the representations and warranties in Section3.06 shall be deemed
to be true and correct provided that the statements in Section4.01(p) (i) and
(ii) are true and correct.
(b) At the time of and immediately after giving effect to such Borrowing no
Default shall have occurred and be continuing.
(c) The Bank shall have received a Borrowing Base Certificate (the content
of which shall be in all respects reasonably satisfactory to the Bank) and after
giving effect to such Borrowing, the Revolving Credit Exposure shall not exceed
the Borrowing Base Amount.
(d) With respect to any Loan the proceeds of which will be used to
re-purchase Public Stock pursuant to any Second Step Transaction, the Bank shall
have received (i) a certificate, dated the date of the request for any such
Loans, attaching such approvals, consents and/or resolutions of the Board of
Directors and equity holders of the Borrower for the Second Step Transaction,
(ii) confirmation that the average price paid and to be paid per share
(including Public Stock and the Options) pursuant to the Buyout Transactions and
the Second Step Transaction has not and will not exceed $5.50 per share, (iii)
an opinion of counsel to the Borrower to the effect that all necessary action of
the Board of Directors and equity holders of the Borrower for the Second Step
Transaction has been obtained and (iv) a Solvency Certificate, substantially in
the form of Exhibit F, dated the date of the request for any such Loans.
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Each Borrowing shall be deemed to constitute a representation and warranty
by the Borrower on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE 5. AFFIRMATIVE COVENANTS
Until the Revolving Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees and other amounts payable
under the Loan Documents shall have been paid in full, the Borrower covenants
and agrees with the Bank that:
SECTION 5.01. Financial Statements and Other
Information; Reporting
The Borrower will furnish to the Bank:
(a) within 120 days after the end of each fiscal year of the Borrower, its
audited consolidated balance sheet and related statements of operations and cash
flows as of the end of and for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by
Ernst & Young, LLP or other independent public accountants reasonably acceptable
to the Bank (without any qualification or exception) to the effect that such
consolidated financial statements present fairly in all material respects the
financial condition and results of operations of the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
(b) within 120 days after the end of each fiscal year of the Borrower, its
internally prepared unaudited consolidating balance sheet and related
consolidating statements of operations as of the end of and for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, certified by one of its Financial Officers as presenting fairly in
all material respects the financial condition and results of operations of the
Borrower on a consolidating basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments and the absence of footnotes;
(c) within 60 days after the end of each of the first three fiscal quarters
of each fiscal year of the Borrower, its internally prepared, unaudited
consolidated balance sheet and related consolidated statements of operations and
cash flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
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balance sheet, corresponding dates of) the previous fiscal year, certified by
one of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower on a consolidated
basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements under clause
(a), (b), or (c) above, a certificate of a Financial Officer of the Borrower to
his knowledge, after appropriate inquiry and investigation (i) certifying as to
whether since the date of the last such certificate a Default has occurred and,
if a Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Sections 6.10, 6.11 and 6.12
as of the date of said balance sheet covering the immediately preceding four
fiscal quarters and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited financial
statements referred to in Section 3.04 and, if any such change has occurred,
specifying the effect of such change on the financial statements accompanying
such certificate;
(e) concurrently with any delivery of financial statements under clause (b)
or (c) above, a certificate of a Financial Officer of the Borrower setting forth
the Subsidiary Guarantors as of the date of such certificate;
(f) concurrently with any delivery of financial statements under clause (a)
above, a certificate of the accounting firm that reported on such financial
statements stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default (which certificate may
be limited to the extent required by accounting rules or guidelines);
(g) within 15 days after the end of each month, a Borrowing Base
Certificate together with a statement of the aging of all Accounts, in each
case, as of the last day of the previous month.
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, including statements of accounts payable, or
compliance with the terms of the Loan Documents, as the Bank may reasonably
request.
(i) prompt written notice of any of the following:
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(i) the occurrence of any Default of which the Borrower has knowledge;
(ii) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could in
the good faith opinion of the Borrower reasonably be expected to result in
a Material Adverse Effect;
(iii) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and the Subsidiaries in an aggregate
amount exceeding $100,000; and
(iv) any other development that results in, or, in the good faith
opinion of the Borrower, could reasonably be expected to result in, a
Material Adverse Effect.
(v) each notice delivered under this Section shall be accompanied by a
statement of a Financial Officer or other executive officer of the Borrower
setting forth the details of the event or development requiring such notice
and any action taken or proposed to be taken with respect thereto.
(vi) any representation or warranty in Section 3.04(c) with respect to
any Inactive Subsidiary is no longer correct.
SECTION 5.02. Existence; Conduct of Business
The Borrower will, and will cause each of its Subsidiaries (other than
Inactive Subsidiaries) to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence, except to
the extent permitted in Article 6 and the rights, licenses, permits, privileges
and franchises material to the conduct of its business.
SECTION 5.03. Payment of Obligations
The Borrower will, and will cause each of its Subsidiaries to, pay, before
the same shall become delinquent or in default, its obligations, including Tax
liabilities, that, if not paid, could result in a Material Adverse Effect,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and (c)
the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect.
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SECTION 5.04. Maintenance of Properties
The Borrower will, and will cause each of its Subsidiaries to, keep and
maintain all tangible property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted.
SECTION 5.05. Books and Records; Inspection
Rights; Collateral Audits
The Borrower will, and will cause each of its Subsidiaries to, keep books
of record and account in which true, correct and complete in all material
respects entries are made of all dealings and transactions in relation to its
business and activities. The Borrower will, and will cause each of its
Subsidiaries to, permit any representatives designated by the Bank, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, to discuss its affairs, finances and
condition with its officers and independent accountants, and to conduct audits
of the Collateral (subject to the restrictions on contacting Account Debtors
contained in Section 5(f) of the Security Agreement) and, except during the
continuance of a Default, at reasonable times during normal business hours and
not more frequently than four times in each fiscal year.
SECTION 5.06. Compliance with Laws
The Borrower will, and will cause each of its Subsidiaries to, comply with
all laws, rules, regulations and orders of any Governmental Authority applicable
to it or its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.07. Use of Proceeds
(a) The proceeds of the Revolving Loans will be used to pay any outstanding
indebtedness of the Borrower to the Bank incurred prior to the Effective Date
and to finance the Buyout Transactions, and the costs and expenses incurred by
the Borrower and/or its Subsidiaries in connection therewith, including
attorneys' fees and expenses, and for general corporate and working capital
purposes of the Borrower and its existing Subsidiaries and any Subsidiaries
created in accordance with Section 6.04;
(b) The proceeds of the Term Loan will be used to finance the Buyout
Transactions, and the costs and expenses incurred by the Borrower and/or its
Subsidiaries in connection therewith, including attorneys' fees and expenses;
(c) No part of the proceeds of any Loan will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the regulations
of the Board, including Regulations U and X.
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SECTION 5.08. Insurance
The Borrower will, and will cause each of its Subsidiaries to, maintain,
with financially sound and reputable insurance companies, adequate insurance for
its insurable properties, all to such extent and against such risks, including
fire, casualty and other risks insured against by extended coverage, as is
customary with companies in the same or similar businesses operating in the same
or similar locations.
SECTION 5.09. Year 2000 Issue
The Borrower will, and will cause each of its Subsidiaries to, take all
necessary action to complete by September 30, 1999, the reprogramming of
business critical computer software, business critical hardware and business
critical firmware systems and business critical equipment containing embedded
microchips owned or operated by or for the Borrower and the Subsidiaries or used
or relied upon in the conduct of their business (including systems and equipment
supplied by others or with which such systems of the Borrower and the
Subsidiaries interface) required as a result of the Year 2000 Issue to permit
the proper functioning of such computer systems and other equipment and the
testing of such systems and equipment, as so reprogrammed, except where the
failure to do so could not reasonably be expected to result in a Material
Adverse Effect. At the request of the Bank, the Borrower will, and will cause
each of the Subsidiaries to, provide to the Bank reasonable assurance of its
compliance with the preceding sentence.
ARTICLE 6. NEGATIVE COVENANTS
Until the Revolving Commitments have expired or terminated and the
principal of and interest on each Loan and all fees and other amounts payable
under the Loan Documents have been paid in full, the Borrower covenants and
agrees with the Bank that:
SECTION 6.01. Indebtedness
The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness created hereunder and under the other Loan Documents;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01
and extensions, renewals, replacements and refinancings of any such
Indebtedness, but not any voluntary prepayments or increases of any such
Indebtedness;
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(c) Indebtedness of the Borrower to any Subsidiary and of any Subsidiary to
the Borrower or any other Subsidiary;
(d) Indebtedness under Guarantees, to the extent permitted under Section
6.09;
(e) Indebtedness incurred to finance or refinance the purchase,
construction and/or completion of, or incurred under a Capital Lease for,
Property used or to be used in the business of the Borrower and/or its
Subsidiaries, provided however, that the aggregate principal amount outstanding
at any time under such Indebtedness shall not exceed $500,000; and
(f) Indebtedness secured by, and not to exceed the amounts described in the
definition of, Permitted Encumbrances.
(g) Indebtedness comprising the obligations of the Borrower to purchase the
Public Stock and/or Options arising from the Buy-Out Transaction, provided such
obligations do not exceed an average of $5.50 per share for the Buy-Out
Transactions.
SECTION 6.02. Liens
The Borrower will not, and will not permit any Subsidiary to, create,
incur, assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset (and proceeds thereof) of the
Borrower or any Subsidiary existing on the date hereof and set forth in Schedule
3.05(a), provided that (i) such Lien shall not apply to any other property or
asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only
those obligations which it secures on the date hereof and extensions, renewals
and replacements thereof that do not increase the outstanding principal amount
thereof; and
(d) Liens to secure Indebtedness permitted under Section 6.01(e), provided
the applicable Lien encumbers only the Property acquired with such Indebtedness
and proceeds thereof.
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SECTION 6.03. Fundamental Changes
The Borrower will not, and will not permit any Subsidiary to, (a) merge
with or into or consolidate with any other Person, or permit any other Person to
merge into or consolidate with it, (b) sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) all or
substantially all of its assets, or all or substantially all of the equity
securities of any Loan Party or any other Subsidiary (in each case, whether now
owned or hereafter acquired), (c) liquidate or dissolve or (d) create or form
any new Subsidiary except that (i) the Borrower and/or any Subsidiary (other
than an Inactive Subsidiary) may create or form a new Subsidiary to conduct
business in the same line of business as the Borrower and/or its Subsidiaries
and provided that (1) the Borrower shall give the Bank ten (10) Business Days
prior written notice of the creation or formation of such new Subsidiary, (2)
such new Subsidiary, at the time of creation and formation of such new
Subsidiary, the Borrower and such new Subsidiary, executes such certifications,
opinions, resolutions and documents as the Bank may require (consistent with the
requirements of this Agreement) to cause such new Subsidiary to become a party
to the Guarantee Agreement and to grant to the Bank a first security interest in
the Capital Stock and assets of such new Subsidiary, subject to the Permitted
Encumbrances , and (3) such new Subsidiary is included in all financial
statements and reports prepared by the Borrower, (ii) any Subsidiary (other than
an Inactive Subsidiary) of the Borrower may merge with or into or consolidate or
transfer its assets into any other Subsidiary (other than an Inactive
Subsidiary) of the Borrower, (iii) any Subsidiary (other than an Inactive
Subsidiary) of the Borrower may merge with or into or consolidate or transfer
its assets to the Borrower, (iv) the Borrower and any Subsidiary may make
acquisitions, dispositions or other transactions permitted under Section 6.04(e)
and/or 6.05(vii), (v) any Inactive Subsidiaries may be liquidated or dissolved,
(vi) the Capital Stock of any Subsidiary may be transferred to any other
Subsidiary (other than any Inactive Subsidiary), subject in each case, to the
security interests held by the Bank, and (vii) the Borrower may consummate the
Second Step Transaction provided that (1) the Borrower shall give the Bank ten
(10) Business Days prior written notice of the Second Step Transaction and (2)
in the event any new Subsidiary of the Borrower or of a Subsidiary or of the
Remaining Shareholders is formed to effect the Second Step Transaction, the
requirements of subsections 6.03(i) (2) and (3) (unless a Subsidiary of the
Remaining Stockholders is formed in which case it shall be satisfied upon
consummation of said Second Step Transaction are satisfied prior to or
concurrently with the consummation of the Second Step Transaction and, provided
that in the event the Borrower will not be the surviving entity, the Bank shall
have received, prior to the consummation of any Second Step Transaction, (1)
satisfactory evidence that (i) the entity which will be the surviving entity
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(the "Surviving Entity") is a newly created entity, (ii) all of the voting stock
of the Surviving Entity is owned and controlled by the Remaining Stockholders,
(iii) the Surviving Entity has no Indebtedness other than the Indebtedness under
the Loan Documents and Indebtedness otherwise permitted by this Agreement and
(iv) the security interests held by the Bank in the assets of the Borrower
and/or its Subsidiaries will remain a first priority security interest in the
assets of the Surviving Entity, subject to Permitted Encumbrances and (2) the
Surviving Entity shall have executed such agreement as the Bank may require to
assume all the Borrower's and/or the Subsidiaries' obligations under the Loan
Documents and to confirm and continue the security interests held by the Bank.
SECTION 6.04. Investments, Loans, Advances,
Guarantees and Acquisitions
The Borrower will not, and will not permit any of the Subsidiaries to,
purchase, hold or acquire (including pursuant to any merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in (including the funding of any operating
losses or capital expenditures), any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions (including pursuant to
any merger)) any assets of any other Person constituting a business unit,
except:
(a) Permitted Investments and the existing loans evidenced by the Gleehan
Notes;
(b) Loans to employees in the ordinary course of business (i) not to exceed
$100,000 in the aggregate outstanding at any time, (ii) loans in excess of
$100,000 but not more than $500,000 outstanding at any time may be made to
employees so long as after giving effect to any such loans at the times the
loans to employees are made, the Borrower shall have unused availability under
the Revolving Commitment of not less than $500,000;
(c) investments in Subsidiaries existing on the Effective Date and in any
subsidiaries permitted under Section 6.03;
(d) extensions of trade credit in the ordinary course of business of the
Borrower or such Subsidiary; and
(e) acquisitions (whether by purchase of stock or assets, merger or
consolidation) by the Borrower and/or its Subsidiaries not otherwise permitted
by this Section, provided that (i) such acquisition shall be within the same
industry and line of business as that conducted by, or contemplated to be
conducted by, the Borrower and/or the Subsidiaries on the Effective Date, (ii)
the aggregate consideration paid by the Borrower in connection with all such
acquisitions shall not exceed $500,000, (iii) the Borrower shall furnish the
Bank with written notice of such acquisition not less than thirty (30) days
prior to the closing of such acquisition; and in the event any acquisitions is
of stock, the requirements of subsections 6.03(i) (2) and (3) are satisfied
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prior to or concurrently with any such acquisition, (iv) the Borrower shall have
delivered to the Bank a certificate of a Financial Officer of the Borrower
demonstrating that, on a pro forma basis, after giving effect to such
acquisition, no Default or Event of Default shall exist and (v) the Borrower
and/or the applicable Subsidiary is the survivor of any merger, consolidation or
acquisition or, in the event the Borrower and/or its Subsidiary will not be the
surviving entity, the Bank shall have received, prior to the consummation of any
such transaction, (1) satisfactory evidence that (i) the voting stock of the
entity that will be the surviving entity (the "Surviving Entity") will be owned
and controlled by the Borrower and/or a Subsidiary, (ii) the Surviving Entity
has no Indebtedness other than Indebtedness under the Loan Documents and
Indebtedness otherwise permitted by this Agreement and (iii) the security
interest held by the Bank in the assets of the Borrower and/or its Subsidiaries
will remain a first priority security interest in the assets of the Surviving
Entity, subject to the Permitted Encumbrances, and (2) the Surviving Entity
shall have executed such agreement as the Bank may require to assume all the
Borrower's and/or the Subsidiaries' obligations under the Loan Documents and to
confirm and continue the security interest held by the Bank.
(f) granting of franchises to third parties by the Borrower and its
Subsidiaries in the ordinary course of business.
(g) investments required to consummate the Buyout Transactions that
otherwise comply with this Agreement.
(h) other transactions, without duplication, that are specifically
permitted by this Agreement.
SECTION 6.05. Disposition of Assets
The Borrower will not, and will not permit any of its Subsidiaries to,
sell, transfer, lease or otherwise dispose of (including pursuant to a merger)
any asset, including any equity securities, except for (i) dispositions to the
Borrower by any Subsidiary of the Borrower (other than Inactive Subsidiaries),
(ii) dispositions by any Subsidiary of the Borrower to any other Subsidiary of
the Borrower, (iii) dispositions of assets by the Borrower or any Subsidiary
that the Borrower or any Subsidiary determines in good faith are obsolete or no
longer used or useful in the business of the Borrower or such Subsidiary, (iv)
dispositions by the Borrower to any Subsidiary (other than an Inactive
Subsidiary) in the ordinary course of business, (v) dispositions of Permitted
Investments, (vi) the granting of franchises to third parties by the Borrower
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and its Subsidiaries in the ordinary course of business, (vii) dispositions of
assets (including, by way of merger, consolidation or stock sale) by the
Borrower or any Subsidiary for an aggregate consideration not to exceed
$1,000,000 (exclusive of any dispositions or other transactions otherwise
permitted under this Agreement), and (viii) without duplication, dispositions
specifically permitted under Sections 6.02, 6.03, 6.07 and 6.08.
SECTION 6.06. Sale and Lease-Back Transactions
The Borrower will not, and will not permit any of its Subsidiaries to,
enter into any arrangement, directly or indirectly, with any Person whereby it
shall sell or transfer any property, real or personal, used or useful in its
business, whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property that it intends to use for substantially the
same purpose or purposes as the property being sold or transferred.
SECTION 6.07. Restricted Payments;
Redeemable Securities.
(a) The Borrower will not, and will not permit any of its Subsidiaries to,
declare or make, or agree to pay for or make, directly or indirectly, any
Restricted Payment, except:
(i) Restricted Payments made in respect of the Buyout Transactions;
(ii) Restricted Payments made to the Borrower and Restricted Payments
made by any Subsidiary to any other Subsidiary;
(iii) the Borrower may, from and after the date on which it qualifies
for treatment under Subchapter S of the Code, and provided no monetary
Default or monetary Event of Default exists under this Agreement, declare
and pay cash dividends to shareholders in amounts and at times sufficient
to enable such shareholders to pay when due federal, state, local and other
taxes attributable to income of the Borrower reported and payable by such
shareholders; and
(iv) Restricted Payments consisting of repurchases of the Borrower's
stock from Persons other than the Remaining Shareholders in amounts not to
exceed $100,000 for any one re-purchase and $500,000 in the aggregate for
all such re-purchases.
(b) Neither the Borrower nor any Subsidiary shall (i) issue any equity
securities which are subject to mandatory redemption or redemption at the option
of the holder thereof or which otherwise obligate it (whether on a contingent or
absolute basis) to apply any of its funds, property or assets to the purchase,
redemption, sinking fund or other retirement of any such securities
(collectively, "Redeemable Securities"), (ii) issue any securities which are
convertible into Redeemable Securities, (iii) grant any options warrants or
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other rights to purchase or acquire Redeemable Securities or (iv) enter into any
put or other contractual arrangement which shall provide to any holder of equity
or convertible securities rights substantially equivalent to any of the
foregoing.
SECTION 6.08. Transactions with Affiliates
The Borrower will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise transfer (including pursuant to a merger) any property
or assets to, or purchase, lease or otherwise acquire (including pursuant to a
merger) any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates (other than the Borrower and its
Subsidiaries), except (a) in the ordinary course of business transactions
between the Borrower and any of its Subsidiaries and transactions between
Subsidiaries of the Borrower, (b) in the ordinary course of business
transactions with Affiliates at prices and on terms and conditions not less
favorable to the Borrower or such Subsidiary than could be obtained on an
arms-length basis from unrelated third parties, (c) any Restricted Payment
permitted by Section 6.07, (d) compensation paid and benefits provided pursuant
to the Kaye Employment Agreement and compensation paid and benefits provided to
other executive officers of the Borrower and its Subsidiaries, (e) Guarantees
and other transactions (without duplication) otherwise specifically permitted by
this Agreement and (f) transactions to effect the Buyout Transactions subject to
the satisfaction of any conditions set forth in this Agreement.
SECTION 6.09. Guaranties, Etc.
Assume, guarantee, endorse, or otherwise be or become directly or
contingently responsible or liable, or permit any Subsidiary to assume,
guarantee, endorse, or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, an agreement to purchase
any obligation, stock, assets, goods, or services, or to supply or advance any
funds, assets, goods, or services, or an agreement to maintain or cause such
Person to maintain a minimum working capital or net worth, or otherwise to
assure the creditors of any Person against loss) for obligations of any Person,
except (a) guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (b)
Guarantees required under this Agreement, and (c) Guarantees by the Borrower of
obligations of its Subsidiaries with respect to Capital Leases and other
obligations and Indebtedness of Subsidiaries to the extent the underlying
obligation or Indebtedness is otherwise permitted under this Agreement.
SECTION 6.10. Leverage Ratio
The Borrower will not permit the Leverage Ratio at any time to be greater
than the ratio set forth below with respect to the applicable period set forth
below:
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Period Ratio
Effective Date through September 29, 1999 3.75:1.00
September 30, 1999 through December 30, 1999 4.00:1.00
December 31, 1999 through December 30, 2000 3.25:1.00
December 31, 2000 through December 30, 2001 2.75:1.00
December 31, 2001 through December 30, 2002 2.25:1.00
December 31, 2002 through December 30, 2003 2.00:1.00
December 31, 2003 and thereafter 1.50:1.00
SECTION 6.11. Interest Coverage Ratio
The Borrower will not permit the Interest Coverage Ratio to be less than
3.50:1:00.
SECTION 6.12. Fixed Charge Coverage Ratio
The Borrower will not permit the Fixed Charge Coverage Ratio to be less
than 1.10:1:00.
SECTION 6.13. Capital Expenditures
The Borrower shall not make Capital Expenditures (including the incurrence
of Capital Lease Obligations) in an amount in excess of $300,000 during any
fiscal year, provided, that, any portion of such amount, if not expended in any
fiscal year, may be carried over to the following or any subsequent fiscal year
for expenditure (in addition to the expenditure of the $300,000 permitted in
such subsequent fiscal year) so long as immediately prior to and after the
expenditure of any amount carried over from a previous fiscal year or years no
Default shall exist. The amount, if any, that the Borrower is permitted to carry
over in any fiscal year shall be deemed to be last dollars expended in such
subsequent fiscal year to which such amount is carried over.
SECTION 6.14. Business Activities
The Borrower will not, and will not permit any Subsidiary to, engage
primarily in any line of business other than the lines of business conducted by
it or any of its Subsidiaries on the date hereof and such activities as may be
incidental or related thereto.
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SECTION 6.15. Kaye Employment Agreement
The Borrower will not terminate, modify, amend or accept a termination or
surrender of the Kaye Employment Agreement, except for a termination or
surrender of the Kaye Employment Agreement in connection with the retirement of
Seymour Kugler and except for amendments and modifications that do not increase
the compensation payable or benefits provided thereunder.
ARTICLE 7. EVENTS OF DEFAULT
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and as
the same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee,
commission or any other amount (other than an amount referred to in clause (a)
of this Article) payable under any Loan Document, when and as the same shall
become due and payable, and such failure shall continue unremedied for a period
of five days;
(c) any representation or warranty made or deemed made by or on behalf of
any Loan Party in or pursuant to any Loan Document or any amendment or
modification thereof or waiver thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to any Loan Document or
any amendment or modification thereof or waiver thereunder, shall prove to have
been incorrect in any material respect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition
or agreement contained in Section 5.01 for five days, in Sections 5.02 (with
respect to the Borrower's existence only), Sections 5.07 or 5.08, or in Article
6;
(e) any Loan Party shall fail to observe or perform any covenant, condition
or agreement contained in any Loan Document to which it is a party (other than
those specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after the Bank shall have
given the Borrower written notice thereof;
(f) any Loan Party shall fail to make any payment (whether of principal or
interest and regardless of amount) in respect of any Material Indebtedness, when
and as the same shall become due and payable (after giving effect to any
applicable grace period) except with respect to any Indebtedness that the
Borrower is permitted to contest under this Agreement (subject to the Borrower's
compliance with any applicable conditions under this Agreement);
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(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (after
the passage of any applicable grace period) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance of any amount constituting Material
Indebtedness, prior to its scheduled maturity (in each case after giving effect
to any applicable grace period) except for (i) Indebtedness that the Borrower is
permitted to contest under this Agreement (subject to the Borrower's compliance
with any applicable conditions under this Agreement) and (ii) for any event or
condition that is covered by insurance and the proceeds of insurance (plus any
deductible or shortfall paid by the Borrower or applicable Subsidiary) are
sufficient to pay and are used to pay such Material Indebtedness;
(h) (i) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking liquidation, reorganization or other relief in
respect of any Loan Party or its debts, or of a substantial part of its assets,
under any Federal, state or foreign bankruptcy, insolvency, reorganization,
receivership or similar law now or hereafter in effect and, in any such case,
such proceeding or petition shall be consented to or acquiesced in by such Loan
Party or shall continue undismissed and unstayed for 60 days or an order for
relief or an order or decree approving or ordering any of the foregoing shall be
entered or (ii) any Loan Party shall acquiesce in, permit or suffer to exist the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for any such Loan Party or for a substantial part of its
assets, and such receiver, trustee, custodian, sequestrator, conservator or
similar official shall not be discharged within 60 days,
(i) any Loan Party shall (i) voluntarily commence any proceeding or file
any petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, reorganization, receivership
or similar law now or hereafter in effect (or convert any such case or
proceeding not commenced by such Loan Party to a voluntary case), (ii) consent
to the institution of, or fail to contest in a timely and appropriate manner,
any proceeding or petition described in clause (h)(i) of this Article, (iii)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any such Loan Party or for a
substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing,
(j) any Loan Party is unable or shall admit in writing its inability or
fail generally to pay its debts as they become due;
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(k) one or more judgments for the payment of money in an aggregate amount
in excess of $100,000 shall be rendered against any Loan Party or any
combination thereof and (i) the same shall remain undischarged for a period of
60 consecutive days during which execution shall not be effectively stayed,
discharged, vacated or bonded, or (ii) any legal action shall be taken by a
judgment creditor to attach or levy upon any assets of any Loan Party to enforce
any such judgment, except for a judgment requiring the payment of money damages
arising out of the Buy-Out Transactions that solely requires the payment of a
purchase price (or damages in lieu thereof) that does not result in an average
purchase price (or damages in lieu thereof) of more than $5.50 per share for the
Public Stock and the Options;
(l) an ERISA Event shall have occurred that, in the opinion of the Bank,
when taken together with all other ERISA Events that have occurred, could
reasonably be expected to result in liability of the Loan Parties and the other
Subsidiaries in an aggregate amount exceeding (i) $50,000 in any year or (ii)
$100,000 for all periods;
(m) any Loan Document shall cease, for any reason, to be in full force and
effect, unless such default can be cured and is cured by the Borrower within
five (5) days of demand by the Bank or any Loan Party shall so assert in writing
or shall disavow any of its obligations thereunder, or any representation,
warranty or, covenant that, by its terms, is to survive for any period shall
cease, for any reason, so to survive;
(n) any Lien purported to be created under any Security Document shall
cease to be, or shall be asserted by any Loan Party not to be, a valid and
perfected Lien on any Collateral, with the priority required by the applicable
Security Document, except (i) as a result of the sale or other disposition of
the applicable Collateral in a transaction permitted under the Loan Documents or
otherwise consented to by the Bank or (ii) as a result of the Bank's failure to
maintain possession of any stock certificates, promissory notes or other
instruments delivered to it under the Security Agreement or to file any required
continuation statement, unless such default can be and is cured by the Borrower
within five (5) days of demand by the Bank; or
(o) a Change in Management shall occur;
then, and in every such event (other than an event described in clause (h)
or (i) of this Article), and at any time thereafter during the continuance of
such event, the Bank may, by notice to the Borrower, take either or both of the
following actions, at the same or different times: (i) terminate the Revolving
Commitments, and thereupon the Revolving Commitments shall terminate immediately
and (ii) declare the Loans then outstanding to be due and payable in whole (or
in part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of each Loan Party accrued under the
Loan Documents shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
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the Borrower; and in case of any event described in clause (h) or (i) of this
Article, the Revolving Commitments shall automatically terminate and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees and other obligations of each Loan Party accrued under the Loan
Documents shall automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
ARTICLE 8. MISCELLANEOUS
SECTION 8.01. Notices
Except in the case of notices and other communications expressly permitted
to be given by telephone, all notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail, postage prepaid, return receipt
requested, or sent by telecopy, as follows:
(a) if to the Borrower, to it at 535 Fifth Avenue, New York, New York
10017, Attention of Seymour Kugler, Chairman (Telephone No. (212) 557-5000;
Facsimile No. (212) 697-0824), with a copy to Tannenbaum Helpern Syracuse &
Hirschritt LLP, 900 Third Avenue, 13th Floor, New York, New York, Attention:
Joel A. Klarreich, Esq. (Telephone No. (212)508-6700; Facsimile No. (212)
371-1084); and
(b) if to the Bank, to it at The Bank of New York, 1290 Avenue of the
Americas, New York, New York, Attention of Adam S. Ostrach, Vice President
(Telephone No. (212) 408-4312; Facsimile No. (212) 408-4857).
All written notices and other communications to be given or delivered to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been so given or delivered : (i) if sent by certified or
registered mail, postage prepaid, return receipt requested, on the fifth
Business Day after such notice or communication, addressed as provided above, is
delivered to the United States Postal Service, and a receipt therefor is issued
thereby, (ii) if sent by any other means of physical delivery, when such notice
or communication is delivered to the appropriate address as provided above and
(iii) if sent by telecopier, when such notice or communication is transmitted to
the appropriate telecopier number as provided above and is received at such
number. Notwithstanding the foregoing, any notice, request or demand by the
Borrower to or upon the Bank pursuant to Section 2.03 or 2.05 shall not be
effective until received or receipt is refused. Any party hereto may change its
address or telecopy number for notices and other communications hereunder by
notice to the other parties hereto in accordance with this Section 8.01. Any
such notice shall be effective upon receipt or refusal of receipt.
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SECTION 8.02. Waivers; Amendments
(a) No failure or delay by the Bank in exercising any right or power under
any Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Bank under the Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of any Loan Document or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
be construed as a waiver of any Default, regardless of whether the Bank may have
had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision of any other Loan Document may
be waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Borrower and the Bank.
SECTION 8.03. Expenses; Indemnity; Damage Waiver
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses
incurred by the Bank, including the reasonable fees, charges and disbursements
of counsel for the Bank, in connection with the preparation and administration
of this Agreement or any amendments, modifications or waivers of the provisions
of any Loan Document (whether or not the transactions contemplated thereby shall
be consummated) and (ii) all out-of-pocket expenses incurred by the Bank,
including the reasonable fees, charges and disbursements of any counsel for the
Bank, in connection with the enforcement or protection of its rights in
connection with the Loan Documents, including its rights under this Section, or
in connection with the Loans made including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans. The reasonable fees, charges and disbursements of the Bank's counsel
incurred through August 16, 1999 shall be paid upon the execution of this
Agreement.
(b) The Borrower shall indemnify the Bank, its Affiliates and each of their
respective control persons, officers, directors, employees and agents (each, an
"Indemnitee") against, and hold each Indemnitee harmless from, (other than
Excluded Taxes) any and all losses, claims, damages, liabilities and related
65
<PAGE>
expenses, including the fees, charges and disbursements of any counsel for such
Indemnitee, incurred by or asserted against such Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of any Loan
Document or any agreement or instrument contemplated thereby, the performance by
the Loan Parties of their respective obligations thereunder or the consummation
by the Loan Parties of the Transactions or any other transactions contemplated
thereby, (ii) any Loan or the use of the proceeds from the Loan, (iii) any
actual or alleged presence or release of Hazardous Materials on or from any
property owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory and regardless of whether such Indemnitee is a party
thereto, provided that such indemnity shall not, as to such Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses arise from the prepayment of the Loans, reduction or
termination of the Revolving Commitments or Term Loan Commitments or are
determined by a court of competent jurisdiction by final and non-appealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee. The obligations of the Borrower under this Section 8.03 are
without duplication or amplification of the Borrower's obligations under any
other Section of the Agreement.
(c) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, any Loan Document or any agreement, instrument or other document
contemplated thereby, the Transactions or any Loan or the use of the proceeds
therefrom.
(d) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 8.04. Successors and Assigns
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that the Borrower may not assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
the Bank (and any attempted assignment or transfer by the Borrower without such
consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby and, to the
extent expressly contemplated hereby, the Related Parties of the Bank) any legal
or equitable right, remedy or claim under or by reason of any Loan Document.
66
<PAGE>
(b) The Bank may assign to one or more assignees that are Financial
Institutions all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Revolving or Term Loan Commitment and the
Loans at the time owing to it). From and after the effective date of such
assignment, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned, have the rights and obligations of the Bank under the
Loan Documents and the Bank shall, to the extent of the interest so assigned, be
released from its obligations under the Loan Documents (and, in the case of an
assignment covering all of the Bank's rights and obligations under the Loan
Documents, the Bank shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.12, 2.13, 2.14 and 8.03). In the event
that any assignee will be a Foreign Lender, the Bank or such Foreign Lender
shall furnish to the Borrower, prior to and as a condition of such assignments,
such forms as are required by the Code to confirm that the Borrower is not
subject to any withholding tax obligation.
(c) The Bank may, sell participations to one or more banks or other
entities (each such bank or other entity being called a "Participant") in all or
a portion of the Bank's rights and obligations under the Loan Documents
(including all or a portion of its Revolving Commitment and the Loans owing to
it). Subject to paragraph (d) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to
the same extent as if it were the Bank and had acquired its interest by
assignment pursuant to paragraph (b) of this Section.
(d) A Participant shall not be entitled to receive any greater payment
under Section 2.12 or 2.14 than the Bank would have been entitled to receive
with respect to the participation sold to such Participant, unless the sale of
the participation to such Participant is made with the Borrower's prior written
consent.
(e) The Bank may at any time pledge or assign a security interest in all or
any portion of its rights under the Loan Documents to secure obligations of the
Bank, including any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section shall not apply to any such pledge or assignment
of a security interest, provided that no such pledge or assignment of a security
interest or exercise of remedies with respect to such security interest shall
release the Bank from any of its obligations under the Loan Documents or
substitute any such pledgor or assignee for the Bank as a party hereto.
SECTION 8.05. Survival
All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the Bank and shall survive the execution and delivery of this
Agreement, the making of any Loans, regardless of any investigation made by the
67
<PAGE>
Bank or on its behalf and notwithstanding that the Bank may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under the Loan Documents is outstanding and unpaid and so
long as the Revolving Commitments have not expired or terminated. The provisions
of Sections 2.12, 2.13, 2.14, 8.03 and 8.13 shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans and the termination of the Revolving
Commitment or the termination of this Agreement or any provision hereof.
SECTION 8.06. Counterparts; Integration; Effectiveness
This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract. This
Agreement constitutes the entire contract among the parties relating to the
subject matter hereof and supersedes any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof, except
the line of credit letter between the Bank and the Borrower, which will remain
in effect in accordance with its terms until the Effective Date. This Agreement
shall become effective when it shall have been executed and delivered by the
Bank and the Borrower, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 8.07. Severability
Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability without
affecting the validity, legality and enforceability of the remaining provisions
hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 8.08. Right of Setoff
If an Event of Default shall have occurred and be continuing, the Bank is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by it to or for the credit or the account of the Borrower against
any and all of the obligations of the Borrower now or hereafter existing under
this Agreement held by it, irrespective of whether or not it shall have made any
demand under this Agreement and although such obligations may be unmatured. The
rights of the Bank under this Section are in addition to other rights and
remedies (including other rights of setoff) that it may have.
68
<PAGE>
SECTION 8.09. Governing Law; Jurisdiction; Consent
to Service of Process
(a) This Agreement shall be construed in accordance with and governed by
the law of the State of New York.
(b) The Borrower hereby submits, for itself and its property, to the
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the Bank
may otherwise have to bring any action or proceeding relating to this Agreement
against the Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
SECTION 8.10. WAIVER OF JURY TRIAL
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
69
<PAGE>
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
SECTION 8.11. Headings
Article and Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
SECTION 8.12. Further Assurances
The Borrower will, and will cause each Subsidiary to, execute any and all
further agreements, instruments and other documents and take all such further
actions that may be required under any applicable law, or which the Bank may
reasonably request, to effectuate the transactions contemplated by the Loan
Documents or to grant, preserve, protect or perfect the Liens created or
intended to be created by the Loan Documents or the validity or priority of any
such Lien, all at the expense of the applicable Loan Parties.
SECTION 8.13. Interest Rate Limitation
Notwithstanding anything herein to the contrary, if at any time the
interest rate applicable to any Loan, together with all fees, charges and other
amounts that are treated as interest on such Loan under applicable law
(collectively the "charges"), shall exceed the maximum lawful rate (the "maximum
rate") that may be contracted for, charged, taken, received or reserved by the
Bank in accordance with applicable law, the rate of interest payable in respect
of such Loan hereunder, together with all of the charges payable in respect
thereof, shall be limited to the maximum rate and, to the extent lawful, the
interest and the charges that would have been payable in respect of such Loan
but were not payable as a result of the operation of this Section shall be
cumulated, and the interest and the charges payable to the Bank in respect of
other Loans or periods shall be increased (but not above the maximum rate
therefor) until such cumulated, amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received
by the Bank.
SECTION 8.14. Treatment of Certain Information
The Bank agrees to use reasonable precautions to keep confidential, in
accordance with its customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by or on behalf of the Borrower or any of
its Subsidiaries pursuant to this Agreement or in connection with the
Transactions which is identified by the Borrower or any of its Subsidiaries as
70
<PAGE>
being confidential at the time the same is delivered to the Bank, except that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to
counsel to the Bank, (iii) to its bank examiners, auditors or accountants, (iv)
in connection with any litigation to which the Bank is a party involving or
relating to the Borrower and/or any of the Subsidiaries or (vi) to any assignee
or participant (or prospective assignee or participant) as contemplated in
Section 8.07 who agree to be bound by this Section 8.14; and provided that in no
event shall the Bank be obligated or required to return any materials furnished
by the Borrower.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK].
71
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
WINSTON RESOURCES, INC.
By: _____________________
Name: ___________________
Title: __________________
THE BANK OF NEW YORK
By: _____________________
Name: ___________________
Title: __________________
<PAGE>
EXHIBIT (b)(2)
[GRAPHIC] Presentation to the Special Committee
of the Board of Directors
of Winston Resources, Inc.
-------------------------------------------------------------------
June 16, 1999
HOULIHAN LOKEY HOWARD & ZUKIN
FINANCIAL ADVISORS, INC.
685 Third Avenue, 15th Floor
New York, NY 10017-4024
Tel. (917) 542-7500 o Fax: (917) 542-0150 o http://www.hlhz.com
New York |_| Los Angeles |_| Chicago |_| San Francisco |_|
Washington, D.C. |_| Minneapolis |_| Dallas |_| Atlanta |_| Toronto
|_| Seoul
<PAGE>
================================================================================
Winston Resources
================================================================================
Table of Contents
----------------------------------------------------------------------
Executive Summary.................................................. A
Scope of Engagement
Summary of Recent Trading Activity
Summary of Analysis Completed
Summary of Due Diligence
Limiting Conditions
Preliminary Conclusion
Determination of Fully Distributed Stock Price .................... B
Assessment of Winston Resources' Public Stock Price
Determination of Fully Distributed Stock Price
Control Premium Analysis .......................................... C
Determination of Control Value
Control Premium Analysis
Summary of Strategic Alternatives Considered ...................... D
Situation Overview
Status Quo
Sale to Strategic Buyer
Sale to a Financial Buyer
Liquidation
Supporting Material ............................................... E
=============================================Houlihan Lokey Howard & Zukin======
<PAGE>
================================================================================
Winston Resources
================================================================================
Executive Summary
----------------------------------------------------------------------
SCOPE OF ENGAGEMENTS
We understand that certain members of management (the "Management") of
Winston Resources, Inc. ("Winston Resources" or the "Company") have
made an offer to purchase all of the shares of common stock of the
Company not owned by the Management at a price of $4.625 per share.
Such transaction is referred to herein as the "Transaction." The
Management currently own approximately 46.3% of Winston Resources'
common stock. It is our understanding that the Board of Directors of
the Company has formed a special committee (the "Committee") to
consider certain matters relating to the Transaction. Houlihan Lokey
Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") has been
retained to act as financial advisors to the Committee, and to provide
an opinion (the "Opinion") as to whether the Transaction is fair, from
a financial point of view, to the Company's public shareholders. The
purpose of this presentation is to summarize our findings.
SUMMARY OF RECENT TRADING ACTIVITY
The following table highlights the recent trading activity for the
Company's common stock.
52 Week High $6.25
52 Week Low $2.13
Current Stock Price (1) $2.88
Thirty Day Average(1) $3.27
Stockholder Offer $4.63
SUMMARY OF ANALYSIS COMPLETED
In assessing the fairness of the Transaction from a financial point of
view, we have (i) analyzed the historical trading value of the
Company's publicly traded equity securities, (ii) independently valued
the common equity of the Company using widely accepted valuation
methodologies, and (iii) reviewed the valuation implications to the
Company's stockholders of various alternatives to the Transaction.
-----------------------
(1) As of June 15, 1999, the last trading day prior to announcement of
the Transaction.
=============================================Houlihan Lokey Howard & Zukin======
<PAGE>
================================================================================
Winston Resources
================================================================================
Executive Summary
----------------------------------------------------------------------
SUMMARY OF DUE DILIGENCE
In connection with this Opinion, we have made such reviews, analyses
and inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
1. reviewed the Company's audited financial statements on Form 10-K
for the three fiscal years ended December 31, 1998, the Form 10-Q
for the fiscal quarter ended March 31, 1999, and an internally
prepared income statement for the four months ended April 30,
1999, which the Company's management has identified as being the
most current financial statements available;
2. met with certain members of the senior management of the Company
to discuss the operations, financial condition, future prospects
and projected operations and performance of the Company;
3. visited certain business offices of the Company;
4. reviewed forecasts and projections dated May 24, 1999 prepared by
the Company's management with respect to the Company for the year
ended December 31, 1999;
5. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
6. reviewed certain other publicly available financial data for
certain companies that we deem comparable to the Company, and
publicly available prices and premiums paid in other transactions
that we considered similar to the Transaction; and
7. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
==========================================Houlihan Lokey Howard & Zukin===== 2
<PAGE>
================================================================================
Winston Resources
================================================================================
Executive Summary
----------------------------------------------------------------------
LIMITING CONDITIONS
We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
We understand that the terms and conditions of the Transaction have
not been finalized. Our analysis is necessarily based on the latest
available information as of the date of this presentation.
We have relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to us, and
adjusted based on discussions with management, have been reasonably
prepared and reflect the best currently available estimates of the
future financial results and condition of the Company, and that there
has been no material change in the assets, financial condition,
business or prospects of the Company since the date of the most recent
financial statements made available to us.
We have not independently verified the accuracy and completeness of
the information supplied to us with respect to the Company and do not
assume any responsibility with respect to it. We have not made any
physical inspection or independent appraisal of any of the properties
or assets of the Company. Our analysis is necessarily based on
business, economic, market and other conditions as they exist and can
be evaluated by us at the date of this presentation.
==========================================Houlihan Lokey Howard & Zukin===== 3
<PAGE>
================================================================================
Winston Resources
================================================================================
Executive Summary
----------------------------------------------------------------------
CONCLUSIONS
In our analysis of Winston's historical trading prices and volume, we
observed that (i) Winston trades at a significant discount to its
comparable companies as a multiple of revenues, earnings, and
cashflow, (ii) the discount has been relatively consistent over a long
period of time, and (iii) Winston has a relatively small float.
We completed an assessment of the theoretical trading value of Winston
on a fully distributed basis. This assessment (see Tab B) concluded in
a per share value of $4.30 per share to $4.90 per share, relative to
the actual thirty day average price for the period ending June 15,
1999 of $3.27 per share
Tab C summarizes our finding that the theoretical enterprise value of
Winston Resources is $4.70 to $5.20 per share. We also analyzed the
premiums paid in comparable squeeze out transactions. The median
one-week premium to unaffected stock price in these transactions was
28%. The offer price of $4.625 represents a one-week premium of 55%
for Winston.
In determining whether the Transaction is fair from a financial point
of view we gave consideration to (i) the actual and expected trading
value of Winston common stock, and (ii) the theoretical trading and
enterprise value of Wintson. The Transaction price of $4.625 per share
represents a substantial premium to trading price, a premium in excess
of the median premium for comparable squeeze out transactions,
approximately the same value as the midpoint of the theoretical
trading value, and a 15% discount from the midpoint of the theoretical
enterprise value. After consideration of these factors and the
analysis outlined herein we have determined that the Transaction is
fair to the minority public stockholders of Winston Resources from a
financial point of view.
==========================================Houlihan Lokey Howard & Zukin===== 4
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
ASSESSMENT OF WINSTON RESOURCES' PUBLIC STOCK PRICE
As part of its analysis, Houlihan Lokey analyzed the float and trading
volume of the Company's common stock. We calculated the Company's
public float as a percent of total shares outstanding. In addition, we
calculated the ratio of average daily trading volume (over the most
recent 90 days) to float and total shares outstanding. We then
compared the Company's ratios to similar ratios of comparable publicly
traded companies. Houlihan Lokey concluded that the Company's common
stock: (i) trades less actively than the comparable public companies
and (ii) has a smaller float than the mean and median of the
comparable public companies (as a percent of shares outstanding.) See
pages 6 to 13.
==========================================Houlihan Lokey Howard & Zukin===== 5
<PAGE>
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Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
<TABLE>
<CAPTION>
FLOAT ANALYSIS
Public Float/ Avg. Avg.
Avg. Daily Public Float Primary Shares Shares Daily Vol/ Daily Vol/
Volume (1) Estimate (2) Outstanding Outstanding Public Float Shares Out
---------- ------------------ ----------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Comparable Companies Tier
Barrett Business Services 8,649 3,410,000 7,573,000 45.03% 0.25% 0.11%
Joule, Inc. 3,298 1,020,000 3,674,000 27.76% 0.32% 0.09%
On Assignment, Inc. 86,526 10,890,000 11,074,000 98.34% 0.79% 0.78%
Personnel Group of America, Inc. 271,954 26,080,000 26,131,000 99.80% 1.04% 1.04%
Romac International, Inc. 426,851 38,610,000 46,520,000 83.00% 1.11% 0.92%
SOS Staffing, Inc. 40,672 9,880,000 12,691,000 77.85% 0.41% 0.32%
Westaff, Inc. 24,412 5,710,000 15,848,000 36.03% 0.43% 0.15%
- -------------------------------------------------------------------------------------------------------------------------------
High 426,851 38,610,000 46,520,000 99.80% 1.11% 1.04%
Low 3,298 1,020,000 3,674,000 27.76% 0.25% 0.09%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Mean 123,195 13,657,143 17,644,429 66.83% 0.62% 0.49%
Median 40,672 9,880,000 12,691,000 77.85% 0.43% 0.32%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Winston Resources, Inc. 2,429 1,730,000 3,233,521 53.50% 0.14% 0.08%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
(2) Source: Bloomberg.
==========================================Houlihan Lokey Howard & Zukin===== 6
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
----------------------------------------------------------
90 Day Average Daily Trading Volume(1)/Public Float(2)
Barrett 0.25%
Joule 0.32%
On Assignment 0.79%
Personnel Group 1.04%
Romac 1.11%
SOS Staffing 0.41%
Westaff 0.43%
Mean 0.62%
Median 0.43%
Winston 0.14%
-----------------------------------------------------------
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
(2) Source: Bloomberg.
==========================================Houlihan Lokey Howard & Zukin===== 7
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
----------------------------------------------------------
90 Day Average Daily Trading Volume(1)/Shares Outstanding
Barrett 0.11%
Joule 0.09%
On Assignment 0.78%
Personnel Group 1.04%
Romac 0.92%
SOS Staffing 0.32%
Westaff 0.15%
Mean 0.49%
Median 0.32%
Winston 0.08%
----------------------------------------------------------
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
==========================================Houlihan Lokey Howard & Zukin===== 8
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
----------------------------------------------------------
Public Float(1)/Primary Shares Outstanding
Barrett 45.03%
Joule 27.76%
On Assignment 98.34%
Personnel Group 99.80%
Romac 83.00%
SOS Staffing 77.85%
Westaff 36.03%
Mean 66.83%
Median 77.85%
Winston 53.50%
----------------------------------------------------------
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
==========================================Houlihan Lokey Howard & Zukin===== 9
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
FLOAT ANALYSIS - EXCLUDES MANAGEMENT BLOCKS OVER 5%
<TABLE>
<CAPTION>
Avg. Daily Public Float Primary Shares Public Float/ Avg. Daily Vol/ Avg. Daily Vol/
Volume (1) Estimate (2) Outstanding Shares Outstanding Public Float Shares Out
---------- ------------ ----------- ------------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Comparable Companies Tier
Barrett Business Services (3) 8,649 3,410,000 3,356,320 101.60% 0.25% 0.26%
Joule, Inc. (4) 3,298 1,020,000 1,016,586 100.34% 0.32% 0.32%
Westaff, Inc. (5) 24,412 5,710,000 5,710,000 100.00% 0.43% 0.43%
- ---------------------------------------------------------------------------------------------------------------------------------
High 24,412 5,710,000 5,710,000 101.60% 0.43% 0.43%
Low 3,298 1,020,000 1,016,586 100.00% 0.25% 0.26%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Mean 12,120 3,380,000 3,360,969 100.65% 0.33% 0.34%
Median 8,649 3,410,000 3,356,320 100.34% 0.32% 0.32%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Winston Resources, Inc. (6) 2,429 1,730,000 1,973,521 87.66% 0.14% 0.12%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
(2) Source: Bloomberg.
(3) Primary shares outstanding exclude 3,366,000 shares held by
management/insiders and 850,680 shares owned by the Rentschler
Family Trust.
(4) Primary shares outstanding exclude 2,657,414 shares held by
management/insiders.
(5) Primary shares outstanding exclude 10,138,000 shares held by
management/insiders.
(6) Primary shares outstanding exclude 1,260,000 shares held by
management/insiders.
==========================================Houlihan Lokey Howard & Zukin===== 10
<PAGE>
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Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
----------------------------------------------------------
90 Day Average Daily Trading Volume(1)/Public Float(2)
Barrett 0.25%
Joule 0.32%
Westaff 0.43%
Mean 0.33%
Median 0.32%
Winston 0.14%
----------------------------------------------------------
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
(2) Source: Bloomberg.
==========================================Houlihan Lokey Howard & Zukin===== 11
<PAGE>
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Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
----------------------------------------------------------
90 Day Average Daily Trading Volume(1)/Shares Outstanding
Barrett 0.26%
Joule 0.32%
Westaff 0.43%
Mean 0.34%
Median 0.32%
Winston 0.12%
----------------------------------------------------------
----------
(1) Based on 90-day average trading activity as of June 15, 1999.
==========================================Houlihan Lokey Howard & Zukin===== 12
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
----------------------------------------------------------
Public Float(1)/Primary Shares Outstanding
Barrett 101.60%
Joule 100.34%
Westaff 100.00%
Mean 100.65%
Median 100.34%
Winston 87.66%
----------------------------------------------------------
----------
(1) Source: Bloomberg.
==========================================Houlihan Lokey Howard & Zukin===== 13
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
----------------------------------------------------------------------
PERFORMANCE AGAINST COMPARABLES
Date BBSI JOL WSTF WRS
---- ---- --- ---- ---
15-Jun-99 70.96774 72.56637 30 53.48837
11-Jun-99 70.96774 72.56637 29 55.81395
4-Jun-99 68.8172 67.25664 35.33333 62.7907
28-May-99 68.8172 67.25664 35.33333 60.46512
21-May-99 70.96774 77.87611 38.83333 61.62791
14-May-99 66.12903 74.33628 37.33333 60.46512
7-May-99 60.21505 73.45133 40 62.7907
30-Apr-99 58.06452 79.64602 39.33333 62.7907
23-Apr-99 58.06452 84.95575 37.66667 59.30233
16-Apr-99 59.13978 84.95575 29.33333 56.97674
9-Apr-99 60.21505 77.87611 26.33333 59.30233
1-Apr-99 55.91398 77.87611 27.33333 60.46512
26-Mar-99 60.21505 106.1947 33.33333 61.62791
19-Mar-99 62.36559 107.9646 33.33333 52.32558
12-Mar-99 62.36559 109.7345 32 46.51163
5-Mar-99 67.2043 109.7345 32.33333 53.48837
26-Feb-99 66.66667 116.8142 33.33333 53.48837
19-Feb-99 70.43011 106.1947 34 56.97674
12-Feb-99 70.96774 116.8142 36 58.13953
5-Feb-99 75.80645 127.4336 38.66667 60.46512
29-Jan-99 75.80645 113.2743 42.66667 59.30233
22-Jan-99 72.04301 81.41593 40.66667 60.46512
15-Jan-99 73.11828 67.25664 36.83333 62.7907
8-Jan-99 76.34409 63.71681 42.66667 67.44186
31-Dec-98 73.11828 56.63717 33.33333 67.44186
24-Dec-98 75.26882 65.48673 32.66667 62.7907
18-Dec-98 75.26882 70.79646 34.33333 65.11628
11-Dec-98 75.26882 61.9469 33.33333 68.60465
4-Dec-98 76.34409 79.64602 38.66667 74.4186
27-Nov-98 75.26882 79.64602 39.33333 69.76744
20-Nov-98 76.34409 81.41593 47 67.44186
13-Nov-98 77.41935 77.87611 48.66667 69.76744
6-Nov-98 71.50538 85.84071 58.66667 67.44186
30-Oct-98 61.29032 84.0708 46 72.09302
23-Oct-98 62.36559 81.41593 47.33333 69.76744
16-Oct-98 60.21505 81.41593 53.33333 67.44186
9-Oct-98 54.83871 81.41593 45.33333 68.60465
2-Oct-98 65.5914 84.0708 60.66667 83.72093
25-Sep-98 69.89247 92.0354 65 83.72093
18-Sep-98 75.26882 92.0354 72.66667 83.72093
11-Sep-98 73.11828 92.0354 63 83.72093
4-Sep-98 73.65591 106.1947 64.66667 83.72093
28-Aug-98 77.41935 100.885 57.66667 90.69767
21-Aug-98 90.32258 106.1947 62.66667 102.3256
14-Aug-98 83.87097 102.6549 69 98.83721
7-Aug-98 81.72043 102.6549 74.33333 105.814
31-Jul-98 79.56989 106.1947 72 109.3023
24-Jul-98 87.09677 117.6991 66.66667 102.3256
17-Jul-98 93.54839 109.7345 100 89.53488
10-Jul-98 80.64516 91.15044 101.3333 90.69767
2-Jul-98 86.02151 102.6549 101.6667 90.69767
26-Jun-98 83.87097 102.6549 98.66667 100
19-Jun-98 100 100 100 100
==========================================Houlihan Lokey Howard & Zukin===== 14
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
----------------------------------------------------------------------
PERFORMANCE AGAINST COMPARABLES (CONT.)
Date PGA ROMC SOSS WRS
---- --- ---- ---- ---
15-Jun-99 54.87365 32.41525 30.44872 53.48837
11-Jun-99 54.51264 37.5 28.20513 55.81395
4-Jun-99 59.20578 44.49153 31.41026 62.7907
28-May-99 65.70397 48.72881 31.08974 60.46512
21-May-99 63.53791 46.61017 31.57051 61.62791
14-May-99 60.64982 45.76271 31.41026 60.46512
7-May-99 54.87365 39.83051 33.65385 62.7907
30-Apr-99 52.70758 38.13559 35.89744 62.7907
23-Apr-99 52.70758 33.68644 36.53846 59.30233
16-Apr-99 42.59928 36.22881 37.17949 56.97674
9-Apr-99 41.87726 31.99153 39.10256 59.30233
1-Apr-99 41.87726 29.02542 39.10256 60.46512
26-Mar-99 36.8231 29.44915 41.66667 61.62791
19-Mar-99 41.15523 24.36441 43.58974 52.32558
12-Mar-99 44.40433 28.17797 44.87179 46.51163
5-Mar-99 60.64982 30.08475 49.35897 53.48837
26-Feb-99 76.17329 40.67797 45.51282 53.48837
19-Feb-99 77.61733 40.04237 45.03205 56.97674
12-Feb-99 74.72924 45.76271 46.15385 58.13953
5-Feb-99 81.22744 50.63559 47.75641 60.46512
29-Jan-99 79.78339 55.9322 54.80769 59.30233
22-Jan-99 89.53069 58.68644 51.28205 60.46512
15-Jan-99 103.2491 67.37288 46.47436 62.7907
8-Jan-99 105.4152 79.66102 38.94231 67.44186
31-Dec-98 101.083 75.42373 37.17949 67.44186
24-Dec-98 93.50181 66.73729 35.89744 62.7907
18-Dec-98 92.77978 55.50847 39.10256 65.11628
11-Dec-98 88.80866 56.5678 37.82051 68.60465
4-Dec-98 89.53069 55.72034 40.38462 74.4186
27-Nov-98 94.94585 52.75424 39.10256 69.76744
20-Nov-98 91.69675 51.90678 39.74359 67.44186
13-Nov-98 92.41877 53.60169 44.23077 69.76744
6-Nov-98 90.97473 61.22881 46.79487 67.44186
30-Oct-98 89.53069 59.32203 43.26923 72.09302
23-Oct-98 78.33935 52.9661 38.78205 69.76744
16-Oct-98 64.25993 57.20339 71.15385 67.44186
9-Oct-98 50.90253 45.76271 61.53846 68.60465
2-Oct-98 64.98195 57.62712 70.51282 83.72093
25-Sep-98 74.72924 75.21186 87.82051 83.72093
18-Sep-98 72.92419 71.61017 92.94872 83.72093
11-Sep-98 68.23105 72.0339 66.66667 83.72093
4-Sep-98 71.11913 73.30508 66.34615 83.72093
28-Aug-98 73.64621 66.52542 77.24359 90.69767
21-Aug-98 86.6426 85.16949 78.84615 102.3256
14-Aug-98 92.41877 93.00847 97.4359 98.83721
7-Aug-98 98.19495 88.13559 102.5641 105.814
31-Jul-98 110.4693 87.28814 105.7692 109.3023
24-Jul-98 112.9964 92.79661 98.07692 102.3256
17-Jul-98 111.9134 98.94068 98.71795 89.53488
10-Jul-98 115.1625 98.30508 97.4359 90.69767
2-Jul-98 114.4404 100 93.58974 90.69767
26-Jun-98 98.55596 105.0847 97.4359 100
19-Jun-98 100 100 100 100
=========================================Houlihan Lokey Howard & Zukin===== 15
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
DETERMINATION OF FULLY DISTRIBUTED STOCK PRICE
The relatively small public float may result in the trading price of
the Company's common stock not reflecting its fully distributed value.
To assess this issue Houlihan Lokey completed an independent valuation
of the Company using the market multiple approach. This approach
involved the multiplication of various earnings and cash flow measures
by appropriate risk-adjusted multiples. Multiples were determined
through an analysis of certain publicly traded companies, selected on
the basis of operational and economic similarity with the principal
business operations of the Company. Earnings and cash flow multiples
were calculated for the comparable companies based upon daily trading
prices. A comparative risk analysis between the Company and the public
companies formed the basis for the selection of appropriate risk
adjusted multiples for the Company. The risk analysis incorporates
both quantitative and qualitative risk factors which relate to, among
other things, the nature of the industry in which the Company and the
comparable companies are engaged. For purposes of this analysis, we
selected seven publicly traded, employment and temporary agencies. The
companies include Barrett Business Services, Inc., Joule, Inc., On
Assignment, Inc., Personnel Group of America, Inc., Romac
International, Inc., SOS Staffing Services, Inc., and Westaff, Inc.
Because the market multiple approach is based upon publicly traded
prices of equity securities, the resulting valuation indications are
on a fully distributed, publicly traded equivalent basis. Houlihan
Lokey's market multiple approach produced indications of value for the
Company's common stock in the range of $4.30 to $4.90 per share, on a
fully distributed, publicly traded basis. See Pages 17 to 22. The
Company's common stock price was $2.88 per share on June 15, 1999.
==========================================Houlihan Lokey Howard & Zukin===== 16
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
CONCLUSION - FULLY DISTRIBUTED BASIS
($ in 000, except per share amounts)
<TABLE>
<CAPTION>
Low High
Indication Indication
TOTAL INVESTED CAPITAL CONCLUSIONS (1) ---------- ----------
<S> <C> <C> <C>
Market Multiple Approach $13,800 - $15,700
RESULTS SUMMARY
----------------------------------------------------------------------------------------------------------------------
Concluded TIC Value Range from Operations $13,800 - $15,700
----------------------------------------------------------------------------------------------------------------------
Add: Excess Cash (2) $0 - $0
--- --
----------------------------------------------------------------------------------------------------------------------
Concluded TIC Value Range (Rounded) $13,800 - $15,700
----------------------------------------------------------------------------------------------------------------------
Less: Capital Lease Obligations (2) ($31) - ($31)
----- -----
----------------------------------------------------------------------------------------------------------------------
Concluded Total Equity Value Range (Rounded) $13,800 - $15,700
----------------------------------------------------------------------------------------------------------------------
Shares Outstanding (3) 3,233,521 - 3,233,521
---------- ---------
----------------------------------------------------------------------------------------------------------------------
Concluded per Share Equity Value Range $4.30 - $4.90
----------------------------------------------------------------------------------------------------------------------
IMPLIED MULTIPLES
----------------------------------------------------------------------------------------------------------------------
TIC Value Range from Operations $13,800 - $15,700
----------------------------------------------------------------------------------------------------------------------
Implied LTM 1999 EBITDA Multiple 4.0 - 4.6
Implied Projected 1999 EBITDA Multiple 4.3 - 4.9
----------------------------------------------------------------------------------------------------------------------
Equity Value Range $13,800 - $15,700
----------------------------------------------------------------------------------------------------------------------
Implied FYE 1998 P/E Multiple 7.5 - 8.6
Implied Projected 1999 P/E Multiple 8.3 - 9.4
----------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Total Invested Capital ("TIC") represents market value of common
equity, plus liquidation value of preferred equity plus interest
bearing debt, less cash.
(2) As per management, the cash on the company's balance sheet as of
March 31, 1999 is necessary for ongoing operations.
(3) As of May 7, 1999 (as per the Form 10-Q.)
==========================================Houlihan Lokey Howard & Zukin===== 17
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
MARKET MULTIPLE APPROACH
<TABLE>
<CAPTION>
($ in 000)
Representative Add:
Level Multiple Range Debt Total Invested Capital
------------ ----------------------- ------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actual
LTM
03/31/99
- --------
TIC/Revenues $61,247 0.20 - 0.25 $12,249 - $15,312
TIC/EBITDA $3,437 4.5 - 5.0 $15,467 - $17,185
TIC/EBIT $3,229 5.0 - 5.5 $16,145 - $17,760
Price/Earnings $1,834 8.0 - 9.0 $31 $14,703 - $16,537
Projected
Fiscal Year Ended
12/31/99
- --------
TIC/EBITDA $3,221 4.0 - 4.5 $12,884 - $14,495
TIC/EBIT $3,042 4.5 - 5.0 $13,689 - $15,210
Price/Earnings $1,670 7.0 - 8.0 $31 $11,721 - $13,391
- ------------------------------------------------------------------------------------------------------------------------------
TIC Value Range $13,800 - $15,700
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
==========================================Houlihan Lokey Howard & Zukin===== 18
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
REPRESENTATIVE EARNINGS LEVEL
($ in 000)
<TABLE>
<CAPTION>
Actual Actual Projected
Fiscal Year Ended LTM Fiscal Year Ended
12/31/98 % 03/31/99 % 12/31/99 (1) %
------------- ------ ----------- ------- ------------ -------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $60,850 $61,247 $61,386
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Total Expenses (57,439) -94.4% (57,810) -94.4% (58,165) -94.8%
-------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
EBITDA $3,411 5.6% $3,437 5.6% $3,221 5.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Depreciation & Amortization (207) -0.3% (208) -0.3% (179) -0.3%
----- ----- -----
- ------------------------------------------------------------------------------------------------------------------------------------
EBIT $3,204 5.3% $3,229 5.3% $3,042 5.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Add: Other Non-Operating Income (Expense) $49 0.1% $33 0.1% $18 0.0%
Less: Interest Expense ($5) 0.0% ($5) 0.0% ($26) 0.0%
---- ---- -----
Earnings Before Taxes $3,248 5.3% $3,257 5.3% $3,034 4.9%
Taxes ($1,419) -2.3% ($1,423) -2.3% ($1,364) -2.2%
-------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted Net Income $1,829 3.0% $1,834 3.0% $1,670 2.7%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Projected FYE 1999 has been calculated by adding the draft
unaudited income statement for the three months ended 03/31/99 to
management's projections for the nine month period ended
12/31/99. The detail of this calculation is found on page 20.
==========================================Houlihan Lokey Howard & Zukin===== 19
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
CALCULATION OF PROJECTED FYE 1999
($ in 000s)
<TABLE>
<CAPTION>
----------------------------------------
Actual Projected
3 Months 9 Months Projected
Ended Ended FYE
03/31/99 12/31/99 12/31/99
----------- ------------------------- ---------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Revenues $14,806 $46,580 $61,386
- -----------------------------------------------------------------------------------------------------------------------------
Less: Cost of Goods Sold (11,816) (33,060) (44,876)
------- -------- --------
Gross Profit 2,990 13,520 16,510
Less: SG&A (2,276) (11,013) (13,289)
------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Representative EBITDA $714 $2,507 $3,221
- -----------------------------------------------------------------------------------------------------------------------------
Less: Depreciation & Amortization (45) (134) (179)
---- ----- -----
- -----------------------------------------------------------------------------------------------------------------------------
Representative EBIT $669 $2,373 $3,042
- -----------------------------------------------------------------------------------------------------------------------------
Less: Gross Interest Expense (7) (19) (26)
Add: Other Income/(Expense) 5 13 18
-- --- --
Pretax Income 667 2,367 3,034
Less: Income Taxes (307) (1,057) (1,364)
----- ------- -------
- -----------------------------------------------------------------------------------------------------------------------------
Representative Net Income $360 $1,310 $1,670
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Projected FYE 1999 has been calculated by adding the draft
unaudited income statement for the three months ended 03/31/99 to
management's projections for the nine month period ended
12/31/99. The detail of this calculation is found on page 20.
==========================================Houlihan Lokey Howard & Zukin===== 20
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
COMPARABLE PUBLIC COMPANY MULTIPLES
TIC/Revenue (1) Latest
Avail
12 Mths FYE
------- ---
Barrett Business Services 0.20 0.21
Joule, Inc. 0.23 0.24
On Assignment, Inc. (2) 1.61 1.69
Personnel Group of America, Inc. 0.58 0.64
Romac International, Inc. 0.57 0.60
SOS Staffing, Inc. 0.37 0.38
Westaff, Inc. 0.24 0.25
- ----------------------------------------------------------------
Median 0.31 0.32
Mean 0.37 0.39
- ----------------------------------------------------------------
Implied Multiples (3) 0.24 0.24
- ----------------------------------------------------------------
Winston Trading Multiples 0.11 0.11
- ----------------------------------------------------------------
TIC/EBITDA Latest
Projected Projected Avail
2000 1999 12 Mths FYE
---- ---- ------- ---
Barrett Business Services 4.9 5.7 6.4 6.9
Joule, Inc. NA NA 5.0 5.7
On Assignment, Inc. (2) 7.7 9.4 11.9 12.7
Personnel Group of America, Inc. 5.6 6.2 5.6 6.1
Romac International, Inc. 4.2 5.2 5.8 6.1
SOS Staffing, Inc. (3) NA 4.3 5.8 5.4
Westaff, Inc. 4.0 4.3 4.5 4.9
- ------------------------------------------------------------------------
Median 4.1 4.8 5.7 5.9
Mean 4.7 5.2 5.5 5.8
- ------------------------------------------------------------------------
Implied Multiples (3) NA 4.6 4.3 4.3
- ------------------------------------------------------------------------
Winston Trading Multiples NA NA 2.0 2.0
- ------------------------------------------------------------------------
Price/Earnings Latest
Projected Projected Avail
2000 1999 12 Mths FYE
---- ---- ------- ---
Barrett Business Services 9.7 11.8 13.7 14.8
Joule, Inc. NA NA 8.3 9.9
On Assignment, Inc. (2) 15.6 19.2 21.8 23.1
Personnel Group of America, Inc. 7.1 8.3 7.4 7.8
Romac International, Inc. 8.6 10.8 13.5 14.3
SOS Staffing, Inc. (3) NA 5.7 8.7 7.0
Westaff, Inc. 5.5 6.1 7.3 6.7
- -------------------------------------------------------------------------
Median 6.3 7.2 8.5 8.9
Mean 7.7 8.5 9.8 10.1
- -------------------------------------------------------------------------
Implied Multiples (3) NA 8.0 7.2 7.2
- -------------------------------------------------------------------------
Winston Trading Multiples NA NA 5.1 5.1
- -------------------------------------------------------------------------
TIC/EBIT Latest
Projected Projected Avail
2000 1999 12 Mths FYE
---- ---- ------- ---
Barrett Business Services 5.7 6.9 7.9 8.6
Joule, Inc. NA NA 6.4 7.6
On Assignment, Inc. (2) 8.0 9.9 12.6 13.4
Personnel Group of America, Inc. 7.1 8.0 7.1 7.6
Romac International, Inc. 4.7 5.9 6.8 7.1
SOS Staffing, Inc. (3) NA 5.4 8.1 7.0
Westaff, Inc. 5.0 5.6 5.9 6.3
- -------------------------------------------------------------------------
Median 4.9 5.8 6.9 7.3
Mean 5.6 6.4 7.0 7.4
- -------------------------------------------------------------------------
Implied Multiples (3) NA 4.8 4.6 4.6
- -------------------------------------------------------------------------
Winston Trading Multiples NA NA 2.1 2.1
- -------------------------------------------------------------------------
----------
(1) (Total Invested Capital) = market value of equity as of 06/14/99
plus preferred stock plus debt less cash.
(2) Not included in the mean or median.
(3) Projected EBITDA, EBIT and earnings are based on George K. Baum &
Co. research report dated 01/15/99.
==========================================Houlihan Lokey Howard & Zukin===== 21
<PAGE>
================================================================================
Winston Resources
================================================================================
Determination of Fully Distributed Stock Price
----------------------------------------------------------------------
LATEST TWELVE MONTH (LTM) RISK RANKING ANALYSIS
<TABLE>
<CAPTION>
=====================================================================================================================
Size Size
- ---------------------------------------------------------------------------------------------------------------------
(revenue in millions) (LTM EBITDA in millions)
<S> <C> <C> <C>
Personnel Group of America, Inc. $858.7 Personnel Group of America, Inc. $88.7
Romac International, Inc. 708.8 Romac International, Inc. 69.5
Westaff, Inc. 623.9 Westaff, Inc. 33.4
SOS Staffing, Inc. 344.2 SOS Staffing, Inc. 21.7
Barrett Business Services 304.8 On Assignment, Inc. 18.7
On Assignment, Inc. 139.0 Barrett Business Services 9.7
- ---------------------------------------------------------------------------------------------------------------------
Winston Resources 61.2 Winston Resources 3.4
- ---------------------------------------------------------------------------------------------------------------------
Joule, Inc. 58.4 Joule, Inc. 2.7
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Quality of Earnings Activity
- ---------------------------------------------------------------------------------------------------------------------
(depreciation to net income) (average collection period)
<S> <C> <C> <C>
SOS Staffing, Inc. 70.8% Barrett Business Services 27
Westaff, Inc. 61.6% SOS Staffing, Inc. 48
Personnel Group of America, Inc. 54.8% On Assignment, Inc. 48
Joule, Inc. 52.5% Westaff, Inc. 49
------------------------------------------------------
Barrett Business Services 39.6% Winston Resources 52
------------------------------------------------------
Romac International, Inc. 30.1% Personnel Group of America, Inc. 56
- -------------------------------------------------------
Winston Resources 11.3% Joule, Inc. 57
- -------------------------------------------------------
On Assignment, Inc. 8.3% Romac International, Inc. 62
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Growth Growth
- ---------------------------------------------------------------------------------------------------------------------
(annual rev) (annual EBITDA)
<S> <C> <C> <C>
Personnel Group of America, Inc. 64.8% Personnel Group of America, Inc. 75.5%
SOS Staffing, Inc. 57.9% Romac International, Inc. 63.9%
Romac International, Inc. 41.8% Westaff, Inc. 54.7%
- -------------------------------------------------------
Winston Resources 23.7% SOS Staffing, Inc. 47.1%
- -------------------------------------------------------
On Assignment, Inc. 23.1% On Assignment, Inc. 35.0%
------------------------------------------------------
Joule, Inc. 13.8% Winston Resources 25.8%
------------------------------------------------------
Westaff, Inc. 13.1% Barrett Business Services 19.0%
Barrett Business Services -0.8% Joule, Inc. -11.3%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Liquidity Quality of Earnings
- ---------------------------------------------------------------------------------------------------------------------
(current ratio) (depreciation to EBIT)
<S> <C> <C> <C>
On Assignment, Inc. 5.6 SOS Staffing, Inc. 39.2%
Romac International, Inc. 3.6 Westaff, Inc. 30.6%
SOS Staffing, Inc. 2.7 Joule, Inc. 28.5%
- -------------------------------------------------------
Winston Resources 2.3 Personnel Group of America, Inc. 25.5%
- -------------------------------------------------------
Personnel Group of America, Inc. 2.2 Barrett Business Services 23.3%
Westaff, Inc. 1.9 Romac International, Inc. 16.7%
--------------------------------------------------------------
Joule, Inc. 1.5 Winston Resources 6.4%
--------------------------------------------------------------
Barrett Business Services 1.5 On Assignment, Inc. 5.6%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Profitability Profitability
- ---------------------------------------------------------------------------------------------------------------------
(EBIT to sales) (EBITDA to sales)
<S> <C> <C> <C>
On Assignment, Inc. 12.8% On Assignment, Inc. 13.5%
Romac International, Inc. 8.4% Personnel Group of America, Inc. 10.3%
Personnel Group of America, Inc. 8.2% Romac International, Inc. 9.8%
- -------------------------------------------------------
Winston Resources 5.3% SOS Staffing, Inc. 6.3%
- -------------------------------------------------------
------------------------------------------------------
SOS Staffing, Inc. 4.5% Winston Resources 5.6%
------------------------------------------------------
Westaff, Inc. 4.1% Westaff, Inc. 5.4%
Joule, Inc. 3.6% Joule, Inc. 4.6%
Barrett Business Services 2.6% Barrett Business Services 3.2%
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Growth Growth
- ---------------------------------------------------------------------------------------------------------------------
(2 year rev) (five year EPS growth est. (1))
<S> <C> <C> <C>
Personnel Group of America, Inc. 79.4% Romac International, Inc. 32.0%
SOS Staffing, Inc. 55.8% SOS Staffing, Inc. 26.0%
Romac International, Inc. 50.2% Barrett Business Services 23.0%
- -------------------------------------------------------
Winston Resources 24.3% On Assignment, Inc. 23.0%
- -------------------------------------------------------
On Assignment, Inc. 22.7% Personnel Group of America, Inc. 12.0%
Westaff, Inc. 16.5% Westaff, Inc. 11.0%
------------------------------------------------------
Barrett Business Services 14.3% Winston Resources NA
------------------------------------------------------
Joule, Inc. 6.8% Joule, Inc. NA
=====================================================================================================================
</TABLE>
----------
(1) Five-year earnings estimates provided by January 1999 Standard &
Poor's Earnings Guide.
==========================================Houlihan Lokey Howard & Zukin===== 22
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
After estimating the fully distributed, publicly traded value of the
Company's common stock, Houlihan Lokey performed a two part analysis
to determine the value of Winston Resources on a controlling interest
basis. The first step consisted of an independent valuation utilizing
the comparable transaction approach. The second part of the analysis
involved a comparison of the control premium implied by Houlihan Lokey
controlling interest valuation (relative to its fully distributed,
publicly traded value) to (i) control premiums paid in acquisitions of
similar companies and (ii) premiums paid in similar "squeeze out"
transactions.
DETERMINATION OF CONTROL VALUE
To determine the controlling interest value of the Company's common
stock Houlihan Lokey utilized the comparable transaction approach.
Like the market multiple approach, the comparable transaction approach
involved multiples of earnings and cash flow. Multiples utilized in
this approach were determined through an analysis of acquisitions of
controlling interests in companies with operations deemed to be
comparable to the Company's principal business operations. For
purposes of this analysis Houlihan Lokey analyzed 36 completed
transactions between January 1, 1996 and June 10, 1999.
Based on the comparable transaction approach, Houlihan Lokey concluded
that the controlling interest value of the Company's common stock is
reasonably stated in the range of $4.70 to $5.20 per share. See pages
24 to 26.
Because the Stockholders of Winston Resources currently own 46.3% of
the issued and outstanding stock and 57% if options are exercised,
they are viewed as having effective control of the Company presently.
We have therefore given more weight to the Fully Distributed Analysis
in evaluating the fairness of the offer from a financial point of
view.
==========================================Houlihan Lokey Howard & Zukin===== 23
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
CONCLUSION - CONTROLLING INTEREST BASIS
($ in 000, except per share amounts)
<TABLE>
<CAPTION>
Low High
Indication Indication
---------- ----------
TOTAL INVESTED CAPITAL CONCLUSIONS (1)
<S> <C> <C>
Comparable Transaction Approach $15,200 - $16,700
RESULTS SUMMARY
-----------------------------------------------------------------------------------------------
Concluded TIC Value Range from Operations $15,200 - $16,700
-----------------------------------------------------------------------------------------------
Add: Excess Cash (2) $0 - $0
--- --
-----------------------------------------------------------------------------------------------
Concluded TIC Value Range (Rounded) $15,200 - $16,700
-----------------------------------------------------------------------------------------------
Less: Capital Lease Obligations (2) ($31) - ($31)
----- -----
-----------------------------------------------------------------------------------------------
Concluded Total Equity Value Range $15,200 - $16,700
-----------------------------------------------------------------------------------------------
Shares Outstanding (3) 3,233,521 - 3,233,521
---------- ---------
-----------------------------------------------------------------------------------------------
Concluded per Share Equity Value Range $4.70 - $5.20
-----------------------------------------------------------------------------------------------
IMPLIED MULTIPLES
-----------------------------------------------------------------------------------------------
TIC Value Range from Operations $15,200 - $16,700
-----------------------------------------------------------------------------------------------
Implied LTM 1999 EBITDA Multiple 4.4 - 4.9
Implied Projected 1999 EBITDA Multiple 4.7 - 5.2
-----------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Total Invested Capital ("TIC") represents market value of common
equity, plus liquidation value of preferred equity plus interest
bearing debt, less cash.
(2) As per management, the cash on the company's balance sheet as of
March 31, 1999 is necessary for ongoing operations.
(3) As of May 7, 1999 (as per the Form 10-Q.)
==========================================Houlihan Lokey Howard & Zukin===== 24
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
COMPARABLE TRANSACTION APPROACH
($ in 000)
<TABLE>
<CAPTION>
Representative Add Total Invested
Level Multiple Range Debt Capital
------------ -------------------- -------- -----------------------
LTM
12/31/99
- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TIC / Revenue (1) $60,850 0.30 - 0.35 $18,255 - $21,298
TIC / EBITDA $3,411 4.5 - 5.0 $15,350 - $17,055
TIC / EBIT $3,204 5.0 - 5.5 $16,020 - $17,622
Price/Earnings $1,829 8.5 - 9.0 $31 $15,078 - $16,492
- ----------------------------------------------------------------------------------------------------------
TIC Valuation Range $15,200 - $16,700
Implied Multiple LTM 1999 EBITDA 4.4 - 4.9
Implied Multiple Projected 1999 EDITDA 4.7 - 5.2
- ----------------------------------------------------------------------------------------------------------
</TABLE>
----------
LTM = Latest Twelve Months.
(1) Revenues are not relied upon as an indication of value.
==========================================Houlihan Lokey Howard & Zukin===== 25
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
COMPARABLE TRANSACTIONS - EMPLOYMENT HELP SERVICES INDUSTRY (1)
($ in 000)
<TABLE>
<CAPTION>
Market
Ann'cd TIC Value of
Date Target Business Acquirer Value Equity
TIC under $20 million
- ---------------------
<S> <C> <C> <C> <C> <C> <C>
04/05/99 Norman Roberts & Associates Pvd executive search svcs Maximus Inc $1.8 (2) NA
03/03/99 Hawtal Whiting Inc Pvd staffing svcs Rapid Design Service Inc 8.1 (2) NA
05/18/98 MidWest Temps Inc Employment agency OutSource International Inc 5.0 (2) NA
05/07/98 XXCAL Inc Pvd technical staffing svcs National Technical Systems Inc 12.1 (2) NA
04/15/98 Bolt Staffing Service-Ctn Asts Certain employment agncy asset Barrett Business Services Inc 0.7 (2) NA
04/14/98 Milestone Technologies Inc Pvd tech staffing svcs CH Heist Corp 6.6 (2) NA
01/27/98 Myriad Employment Services Inc Employment agency Firamada Inc 4.6 (2) NA
09/17/97 Aztec Consulting Services Inc Employment agency Select Appointments(Holdings) 7.2 (2) NA
09/16/97 H Allen & Co Employment agency StaffMark Inc 12.5 (2) NA
09/05/97 Workforce Strategies Inc Pvd human resources services Team America Corp 8.0 (2) NA
08/19/97 Execusoft Inc Pvd staffing services SOS Staffing Services Inc 8.5 (2) NA
08/04/97 Expert Business Systems Employment agency StaffMark Inc 8.5 (2) NA
04/30/97 Computec Intl Strategic Employment agency Data Processing Resources Corp 19.6 (2) NA
04/14/97 JRL Services Inc Pvd staffing svcs Barrett Business Services Inc 0.2 (2) NA
04/01/97 Advanced Staffing Solutions Employment agency Headway Corporate Resources 7.0 (2) NA
03/18/97 Flexible Personnel,HR America Employment agency StaffMark Inc 10.0 (2) NA
02/03/97 D&L Personnel Dept Specialists Employment agency Barrett Business Services Inc 1.8 (2) NA
11/27/96 Professional Software Pvd technical staffing svcs Data Processing Resources Corp 4.9 (2) NA
05/28/96 Co-Counsel Inc Pvd help supply services Olsten Corp 10.4 $11.9
02/22/96 Top Notch Temp Svcs,Multiforce Pvd temporary employment svcs Olsten Corp 11.0 (2) NA
02/20/96 Excel Temporary Services Inc Pvd temporary help services AccuStaff Inc 12.0 (2) NA
02/05/96 Progressive Personnel II Inc Employment agency Personnel Management Inc 0.3 (2) NA
01/18/96 AMSERV Healthcare Inc Pvd temp nursing employment Star Multi Care Services Inc 7.9 9.2
- ----------------------------------------------------------------------------------------------------------------------------
Median - under $20 million $7.9 $10.5
Mean - under $20 million $7.3 $10.5
- ----------------------------------------------------------------------------------------------------------------------------
TIC over $20 million
- --------------------
12/24/98 COHR Inc Pvd outsourcing svcs Investor Group $29.7 $41.8
12/03/98 Vincam Group Inc Provide temporary help svcs Automatic Data Processing, Inc 287.7 294.9
08/04/98 Staffing Edge Inc Employment agency ACSYS Inc 30.4 (2) NA
06/17/98 Gage Marketing-Fulfillment Pvd fulfillment services AHL Services Inc 81.1 (2) NA
06/16/98 Personnel Management Inc Employment agency Linsalata Capital Partners 37.5 34.9
02/02/98 Source Services Corp Provide help supply services Romac International Inc 431.1 454.8
10/27/97 Staffing Network Inc Pvd help supply services Vincam Group Inc 42.6 (2) NA
09/17/97 TAD Resources International Employment agency Adecco SA 387.5 (2) NA
08/14/97 Uniforce Services Inc Pvd temporary personnel svcs Comforce Corp 133.7 105.9
02/05/97 AimExecutive Holdings Inc Own,op employment agencies Interim Services Inc 32.9 (2) NA
09/26/96 General Physics Corp Provide training services National Patent Development 70.4 53.8
08/26/96 Career Horizons Inc Pvd temporary personnel svcs AccuStaff Inc 835.8 797.5
02/27/96 Brandon Systems Corp Personnel agency,consulting Interim Services Inc 162.7 164.6
- ----------------------------------------------------------------------------------------------------------------------------
High - Total $835.8 $797.5
Low - Total $0.2 $9.2
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Median - Total $10.2 $47.8
Mean - Total $72.3 $165.9
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ann'cd Implied Multiples
----------------------------------------
Date Target Sales EBITDA EBIT Earnings
TIC under $20 million
- ---------------------
<S> <C> <C> <C> <C> <C>
04/05/99 Norman Roberts & Associates 0.90 NA NA NA
03/03/99 Hawtal Whiting Inc 0.20 NA NA NA
05/18/98 MidWest Temps Inc 0.74 6.3 6.3 NA
05/07/98 XXCAL Inc 0.49 24.2 30.3 NA
04/15/98 Bolt Staffing Service-Ctn Asts 0.29 NA NA NA
04/14/98 Milestone Technologies Inc 0.73 6.0 6.0 NA
01/27/98 Myriad Employment Services Inc 0.10 NA NA NA
09/17/97 Aztec Consulting Services Inc 0.59 NA NA NA
09/16/97 H Allen & Co 2.16 NA NA NA
09/05/97 Workforce Strategies Inc 0.42 NEG NEG NA
08/19/97 Execusoft Inc 0.85 NA NA NA
08/04/97 Expert Business Systems 1.49 5.7 5.7 NA
04/30/97 Computec Intl Strategic 1.02 5.0 5.2 NA
04/14/97 JRL Services Inc 0.25 NA NA NA
04/01/97 Advanced Staffing Solutions 2.26 6.4 7.0 NA
03/18/97 Flexible Personnel,HR America 0.20 NA 10.0 NA
02/03/97 D&L Personnel Dept Specialists 0.42 NA NA NA
11/27/96 Professional Software 0.53 NA NA NA
05/28/96 Co-Counsel Inc 1.32 NEG NEG NEG
02/22/96 Top Notch Temp Svcs,Multiforce 0.30 NA NA NA
02/20/96 Excel Temporary Services Inc 0.39 NA NA NA
02/05/96 Progressive Personnel II Inc 0.06 NA NA NA
01/18/96 AMSERV Healthcare Inc 0.67 15.8 79.0 15.3
- --------------------------------------------------------------------------------------------------------
Median - under $20 million 0.53 6.3 6.6 15.3
Mean - under $20 million 0.71 9.9 18.7 15.3
- --------------------------------------------------------------------------------------------------------
TIC over $20 million
- --------------------
12/24/98 COHR Inc 0.29 NEG NEG NEG
12/03/98 Vincam Group Inc 0.24 19.7 24.6 32.4
08/04/98 Staffing Edge Inc 1.43 NMF NMF NA
06/17/98 Gage Marketing-Fulfillment 1.01 NA NA NA
06/16/98 Personnel Management Inc 0.47 10.1 13.4 15.2
02/02/98 Source Services Corp 1.46 21.1 24.2 34.7
10/27/97 Staffing Network Inc 0.37 NA NA NA
09/17/97 TAD Resources International 0.39 NA NA NA
08/14/97 Uniforce Services Inc 0.83 13.2 15.0 20.0
02/05/97 AimExecutive Holdings Inc 0.95 NA NA NA
09/26/96 General Physics Corp 0.65 10.3 14.1 14.5
08/26/96 Career Horizons Inc 2.85 NMF NMF NMF
02/27/96 Brandon Systems Corp 1.95 15.5 16.9 23.2
- --------------------------------------------------------------------------------------------------------
High - Total 2.85 24.2 79.0 34.7
Low - Total 0.06 5.0 5.2 14.5
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Median - Total 0.62 10.1 13.7 20.0
Mean - Total 0.80 11.7 17.7 22.2
- --------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Transaction study based on completed, controlling interest
transactions. Transactions with announcement dates between
01/01/96 and 06/10/99 for which purchase price multiples were
available were considered. Target companies had to have an SIC
code of 7361, 7363, 7389, 8741, or 8742. Sources include SDC,
Mergerstat, HLHZ Control Premium Study, Bloomberg and public
company filings.
(2) TIC not available, transaction value used. Transaction value is
the total value of consideration paid by the acquiror, excluding
fees and expenses. The dollar value includes the amount paid for
all common stock, common stock equivalents, preferred.
==========================================Houlihan Lokey Howard & Zukin===== 26
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
CONTROL PREMIUM ANALYSIS
The following table shows the control premium implied by Houlihan
Lokey's controlling interest valuation of the Company's common stock.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Low High
----------------------------------------------------------------------------------------
<S> <C> <C>
Concluded Freely Traded Stock Price $4.30 - $4.90
Concluded Controlling Interest Stock Price $5.20 - $5.70
----------------------------------------------------------------------------------------
Implied Control Premium 20.9% - 16.3%
----------------------------------------------------------------------------------------
</TABLE>
After estimating the appropriate premium for control of the Company's
common stock, Houlihan Lokey compared the implied control premium to
premiums paid in acquisitions of company's with similar businesses as
the Company. This involved analyzing the control premiums paid in the
transactions utilized in the comparable transaction approach. Houlihan
Lokey also examined the premiums paid in "squeeze out" transactions. A
squeeze out transaction being defined as a transaction in which a
majority shareholder offers to purchase the shares held by the
minority shareholders. The control premiums for the employment help
supply transactions are summarized on page 28. The squeeze out
transactions are summarized on pages 29 to 31. The chart below
summarizes Houlihan Lokey's findings.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Low High
----------------------------------------------------------------------------------------
<S> <C> <C>
Offer Price to 30-Day Average Stock Price(1) 41.4% - 41.4%
Offer Price to 1-Day Stock Price(2) 60.9% - 60.9%
Implied Control Premium 20.9% - 16.3%
Employment Help Supply Transactions - Median 1 Week Control Premium 33.9% - 33.9%
Squeeze Out Transactions - Median 1 Week Control Premium 27.6% - 27.6%
----------------------------------------------------------------------------------------
</TABLE>
----------
(1) Based on an offer price of $4.625 and the 30-day average stock
price as of 06/15/99.
(2) Based on an offer price of $4.625 and the closing stock price as
of 06/15/99.
==========================================Houlihan Lokey Howard & Zukin===== 27
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
CONTROL PREMIUMS - EMPLOYMENT HELP SUPPLY INDUSTRY (1)
($ in 000)
<TABLE>
<CAPTION>
Ann'cd
Date Target Business Acquirer
<S> <C> <C> <C>
12/24/98 COHR Inc Pvd outsourcing svcs Investor Group
12/03/98 Vincam Group Inc Provide temporary help svcs Automatic Data Processing, Inc.
06/16/98 Personnel Management Inc Employment agency Linsalata Capital Partners
02/02/98 Source Services Corp Provide help supply service Romac International Inc
08/14/97 Uniforce Services Inc Pvd temporary personnel svc Comforce Corp
09/26/96 General Physics Corp Provide training services National Patent Development
08/26/96 Career Horizons Inc Pvd temporary personnel svc AccuStaff Inc
02/27/96 Brandon Systems Corp Personnel agency,consulting Interim Services Inc
01/18/96 AMSERV Healthcare Inc Pvd temp nursing employment Star Multi Care Services Inc
<CAPTION>
1-Day 1-Week 4-Week
Ann'cd Premium Premium Premium
Date TIC Prior to Prior to Prior to
Value Annc. Annc. Annc.
<S> <C> <C> <C> <C>
12/24/98 $29.7 66.4% 89.1% 116.7%
12/03/98 287.7 24.3% 26.4% 39.2%
06/16/98 37.5 25.5% 23.1% 23.1%
02/02/98 431.1 51.1% 56.7% 50.2%
08/14/97 133.7 37.6% 37.6% 52.6%
09/26/96 70.4 16.6% 31.6% 36.0%
08/26/96 835.8 34.4% 33.9% 64.0%
02/27/96 162.7 32.2% 39.4% 29.8%
01/18/96 7.9 14.6% 27.3% 20.6%
- ------------------------------------------------------------------
High $835.8 66.4% 89.1% 116.7%
Low $7.9 14.6% 23.1% 20.6%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Median $133.7 32.2% 33.9% 39.2%
Mean $221.8 33.6% 40.6% 48.0%
- ------------------------------------------------------------------
</TABLE>
----------
(1) Transaction study based on completed, controlling interest
transactions. Transactions with announcement dates between
01/01/96 and 06/10/99 for which purchase price multiples were
available were considered. Target companies had to have an SIC
code of 7361, 7363, 7389, 8741, or 8742. Sources include SDC,
Mergerstat, HLHZ Control Premium Study, Bloomberg and public
company filings.
==========================================Houlihan Lokey Howard & Zukin===== 28
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
SQUEEZE-OUT PREMIUM STUDY SUMMARY
($ in millions)
<TABLE>
<CAPTION>
Premium Prior
to Announcement % Increase
% of % Owned Day Stock Price From Initial
Value of Shares After -------------------------------- Offer to
% of Shares Acquired Transaction Acquired Transaction 1 Day 1 Week 1 Month Final Offer
-------------------- ----------- -------- ----------- ----- ------ ------- -----------
----------------------------------------------------------------------------------------------------------------------
Between 0% and 20%
(n=25)
<S> <C> <C> <C> <C> <C> <C> <C>
Mean $120.13 14.2% 100.0% 26.0% 29.5% 30.0% 10.3%
Median $99.50 15.0% 100.0% 27.6% 27.8% 30.9% 8.9%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Between 21% and 40%
(n=25)
Mean $358.94 31.0% 99.2% 31.0% 38.6% 41.5% 18.5%
Median $85.10 31.0% 100.0% 26.9% 28.5% 34.5% 12.5%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Between 41% and 60%
(n=29)
Mean $582.08 50.7% 99.6% 27.8% 30.8% 32.0% 10.3%
Median $242.60 50.6% 100.0% 20.0% 25.8% 29.7% 9.9%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
n= number of transactions.
(1) Based on transactions found on pages 30 and 31.
==========================================Houlihan Lokey Howard & Zukin===== 29
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
SQUEEZE-OUT PREMIUM STUDY
<TABLE>
<CAPTION>
%
% Held Owned Final
Value of at % of After Offer
Date Transaction Date Shares Trans- Price/
Announced Target Name (Division) Acquiror Name (Division) ($ mil) Ann. Acq. action Share
- --------- ---------------------- ------------------------ ----------- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
02/06/95 Rust International Inc WMX Technologies Inc $56.90 96 4 100 $16.35
01/07/94 Holnam Inc (Holdernam Inc) Holderbank Financiere Glarus $51.70 95 5 100 $7.65
09/29/98 Newmont Gold Co Newmont Mining Corp $264.80 94 6 100 $25.37
10/21/98 Capital Factors Holdings Inc Union Planters Bk Nat Assoc $22.20 92 8 100 $17.50
02/27/95 Bankers Life Holding Conseco Inc $120.80 91 10 100 $25.04
09/08/94 Contel Cellular Inc (Contel) GTE Corp $254.30 90 10 100 $25.50
03/29/96 Great American Mgmt & Invt Inc Equity Holdings, Chicago, IL $63.30 88 12 100 $50.00
11/02/94 Pacific Telecom (PacifiCorp) PacifiCorp $159.00 87 13 100 $30.00
02/17/94 Scripps Howard Broadcasting Co EW Scripps (Edward Scripps Tr) $115.90 86 14 100 $103.50
02/25/97 Fina Inc Petrofina SA $257.00 85 15 100 $64.75
06/12/97 Bally's Grand Inc Hilton Hotels Corp $42.60 85 15 100 $52.75
05/22/97 Chaparral Steel Co (Texas Ind) Texas Industries Inc $72.80 85 15 100 $15.50
01/21/97 Mafco Consolidated Grp (Mafco) Mafco Holdings Inc $116.80 85 15 100 $43.50
06/06/94 Ogden Projects Inc (Ogden Corp) Ogden Corp $110.30 84 16 100 $18.38
03/10/98 IP Timberlands Ltd IP Forest Resources Co $99.50 84 16 100 $13.63
09/24/96 WCI Steel Inc (Renco Group Inc) Renco Group Inc $56.50 84 16 100 $10.00
10/27/98 Citizens Corp (Hanover Ins Co) Allmerica Financial Corp $212.40 83 17 100 $33.25
08/24/98 Tele-Commun Intl (Tele-Commun) Liberty Media (Tele-Commun) $379.10 83 17 100 $22.00
04/16/97 Steck-Vaughn Publishing Corp Harcourt General Inc $40.30 83 17 100 $14.75
08/24/94 Castle & Cooke Homes Inc Dole Food Co Inc $81.50 83 17 100 $15.75
09/18/97 Guaranty National Corp Orion Capital Corp $117.20 81 19 100 $36.00
10/03/96 LXE (Electromagnetic Sciences) Electromagnetic Sciences Inc $14.80 81 19 100 $14.43
12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc, MA $188.10 81 19 100 $20.00
07/09/97 Seaman Furniture Co Investor Group $45.60 80 20 100 $25.05
09/26/95 SCOR US Corp (SCOR SA) SCOR $59.90 80 20 100 $15.25
07/28/94 Chemical Waste Management Inc WMX Technologies Inc $397.40 79 21 100 $8.85
05/19/95 BIC Corp (BIC SA) BIC SA $212.60 78 22 100 $40.50
07/06/95 Grand Gaming Corp Grand Casinos Inc $36.50 78 22 100 $5.17
04/29/96 Crocker Realty Trust Inc Highwoods Properties Inc $76.10 77 23 100 $11.05
04/07/97 North Carolina Railroad Co North Carolina $70.70 75 25 100 $66.00
01/08/98 Rayonier Timberlands LP Rayonier Inc $65.80 75 25 100 $13.00
05/24/96 SyStemix Inc (Novartis AG) Novartis AG $107.60 72 28 100 $19.50
04/05/95 Club Med Inc Club Mediterranee SA $153.40 71 29 100 $32.00
01/22/98 BT Office Products Intl Inc Buhrmann NV $138.10 70 30 100 $13.75
05/07/96 Guaranty National Corp Orion Capital Corp $85.10 50 31 80 $18.50
04/30/98 Mycogen Corp (Dow AgroSciences) Dow AgroSciences (Dow Chemical) $355.20 69 31 100 $28.00
02/15/95 IG Laboratories Inc Genzyme Corp $22.30 69 31 100 $7.00
09/13/94 LDB Corp Investor Group $4.30 69 31 100 $7.50
06/26/97 Rhone-Poulenc Rorer Inc Rhone-Poulenc SA $4,831.60 68 32 100 $97.00
01/21/98 NACT Telecommunications (GST) World Access Inc $53.10 67 33 100 $17.50
06/20/97 Wheelabrator Technologies Inc Waste Management Inc $869.70 67 33 100 $16.50
06/02/97 Acordia Inc (Anthem Inc) Anthem Inc $193.20 67 33 100 $40.00
01/13/97 Zurich Reinsurance Centre Zurich Versicherungs GmbH $319.00 66 34 100 $39.50
<CAPTION>
PREMIUM PRIOR
TO ANNOUNCE
DAY STOCK PRICE
--------------------- % Increase
Date Final Offer From Initial
Announced --------------------- Offer to
- --------- 1 DAY 1 WEEK 1 MONTH Final Offer
----- ------ ------- -----------
<S> <C> <C> <C> <C>
02/06/95 36.3% 39.1% 47.0% 16.8%
01/07/94 13.3% 15.5% 22.4% NA
09/29/98 -5.2% 13.4% 30.9% 4.5%
10/21/98 6.7% 7.7% 11.1% NA
02/27/95 35.4% 38.2% 31.8% 13.8%
09/08/94 43.7% 41.7% 43.7% 13.3%
03/29/96 6.7% 7.5% 7.2% NA
11/02/94 23.7% 18.8% 21.2% 7.1%
02/17/94 31.8% 29.4% 32.7% 20.3%
02/25/97 29.2% 26.3% 34.2% 7.9%
06/12/97 35.3% 34.4% 37.5% NA
05/22/97 20.4% 27.8% 26.5% 8.8%
01/21/97 60.4% 55.4% 53.3% 13.0%
06/06/94 5.8% 17.6% 21.5% 7.7%
03/10/98 33.0% 34.6% 4.9% NA
09/24/96 73.9% 86.0% 100.0% NA
10/27/98 20.6% 24.6% 31.4% 14.7%
08/24/98 4.8% 3.5% 9.5% NA
04/16/97 35.6% 35.6% 28.3% 5.4%
08/24/94 35.5% 44.8% 63.6% 12.5%
09/18/97 10.8% 30.9% 35.2% 5.9%
10/03/96 34.2% 42.5% 31.2% 9.9%
12/28/94 19.4% 21.2% -1.8% NA
07/09/97 27.6% 27.6% 21.5% 4.4%
09/26/95 11.9% 11.9% 5.2% 8.9%
07/28/94 10.6% -4.3% 1.1% 12.6%
05/19/95 13.3% 12.5% 29.6% 11.0%
07/06/95 37.9% 35.6% 50.4% NA
04/29/96 10.5% 11.9% 17.9% 0.0%
04/07/97 68.2% 67.1% 72.5% NA
01/08/98 11.2% 18.2% -3.3% NA
05/24/96 77.3% 62.5% 44.4% 14.7%
04/05/95 41.4% 39.9% 41.4% 21.9%
01/22/98 32.5% 83.3% 34.1% 31.0%
05/07/96 15.6% 19.4% 12.1% 5.7%
04/30/98 41.8% 47.4% 54.0% 36.6%
02/15/95 43.6% 133.3% 143.5% 47.1%
09/13/94 53.8% 53.8% 66.7% 36.4%
06/26/97 22.1% 19.9% 34.5% 5.4%
01/21/98 9.8% 11.1% 25.0% NA
06/20/97 26.9% 28.2% 30.7% 10.0%
06/02/97 12.7% 11.5% 26.5% NA
01/13/97 28.5% 28.5% 29.0% 9.7%
</TABLE>
==========================================Houlihan Lokey Howard & Zukin===== 30
<PAGE>
================================================================================
Winston Resources
================================================================================
Control Premium Analysis
----------------------------------------------------------------------
SQUEEZE-OUT PREMIUM STUDY (CONT.)
<TABLE>
<CAPTION>
%
% Held Owned Final
Value of at % of After Offer
Date Transaction Date Shares Trans- Price/
Announced Target Name (Division) Acquiror Name (Division) ($ mil) Ann. Acq. action Share
- --------- ---------------------- ------------------------ ----------- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
02/18/97 Contour Medical (Retirement) Sun Healthcare Group Inc $55.20 65 35 100 $8.50
11/27/96 Central Tractor Farm & Country JW Childs Equity Partners LP $56.70 65 36 100 $14.25
12/05/96 MaxServ Inc (Sears Roebuck) Sears Roebuck & Co $46.00 64 36 100 $7.75
07/29/94 Intergroup Healthcare Corp Foundation Health Corp $255.70 63 37 100 $65.00
06/03/97 Faulding Inc (FH Faulding & Co) FH Faulding & Co Ltd $77.30 62 38 100 $13.50
09/10/97 BET Holdings Inc Investor Group $462.30 60 39 99 $63.00
03/15/95 Ropak Corp LinPac Mouldings Ltd $28.50 57 40 100 $11.00
12/17/96 Allmerica Property & Casualty Allmerica Financial Corp $816.90 60 41 100 $33.00
08/08/96 Roto-Rooter Inc (Chemed Corp) Chemed Corp $93.60 58 42 100 $41.00
02/20/97 NHP Inc (Apartment Investment) Apartment Investment & Mgmt Co $114.50 55 45 100 $25.88
07/03/95 Jupiter National Inc (Johnston) Johnston Industries Inc $30.50 55 45 100 $33.97
01/28/97 Calgene Inc (Monsanto Co) Monsanto Co $242.60 55 45 100 $8.00
05/05/94 General Cable (Cie Gen de Eaux) Wassall PLC $35.90 54 46 100 $6.00
09/23/98 J&L Specialty Steel Inc Usinor SA $115.00 54 47 100 $6.38
07/14/95 REN Corp-USA (COBE Labs Inc) COBE Laboratories (Gambro AB) $182.10 53 47 100 $20.00
05/14/97 Enron Global Power & Pipelines Enron Corp $428.00 52 48 100 $35.00
09/25/96 General Physics Corp National Patent Development $26.10 52 48 100 $5.10
04/07/95 LIN Bdcstg (McCaw Cellular) McCaw Cellular Commun (AT&T) $3,209.40 52 48 100 $129.90
06/30/94 EB Inc (Parkway Co) Parkway Co $12.50 51 49 100 $17.66
08/25/95 GEICO Corp (Berkshire Hathaway) Berkshire Hathaway Inc $2,349.20 51 49 100 $70.00
08/29/97 Rexel Inc Rexel SA (Pinault-Printemps) $302.00 51 49 100 $22.50
02/27/95 CCP Insurance Inc Conseco Inc $273.70 49 51 100 $23.25
08/04/97 Perkins Family Restaurant LP Restaurant Co $76.30 48 52 100 $14.00
02/13/97 Reflectone Inc British Aerospace Holdings $41.10 48 52 100 $24.00
10/18/95 Applied Immune Sciences Inc Rhone-Poulenc Rorer Inc $84.60 46 53 99 $11.75
07/30/97 Plasti-Line Inc PL Holdings Corp $30.70 46 54 100 $14.50
09/12/97 Western National Corp American General Corp $1,215.00 46 54 100 $30.90
01/30/97 AST Research Inc Samsung Electronics Co Ltd $495.80 46 54 100 $5.40
05/22/95 Medical Management Inc Complete Management Inc $11.80 46 54 100 $7.00
12/11/97 TriMas Corp MascoTech Inc $911.70 45 55 100 $34.50
07/30/97 Amdahl Corp Fujitsu Ltd $924.80 42 55 97 $12.40
01/18/95 Arcadian Partners LP Arcadian Corp $428.40 45 55 100 $29.00
10/23/97 Ticketmaster Group Inc HSN Inc $413.20 45 55 100 $29.70
01/25/96 Charter Bancshares Inc NationsBank Corp, Charlotte, NC $94.70 42 58 100 $25.80
05/11/98 DeKalb Genetics Corp Monsanto Co $2,262.70 37 60 97 $100.00
04/06/96 Cellular Communications Inc AirTouch Communications $1,657.40 40 60 95 $55.00
<CAPTION>
PREMIUM PRIOR
TO ANNOUNCE
DAY STOCK PRICE
--------------------- % Increase
Final Offer From Initial
Date --------------------- Offer to
Announced 1 DAY 1 WEEK 1 MONTH Final Offer
- --------- ----- ------ ------- -----------
<C> <C> <C> <C> <C>
02/18/97 21.4% 41.7% 83.8% NA
11/27/96 17.5% 21.3% 21.3% NA
12/05/96 59.0% 63.2% 59.0% 10.7%
07/29/94 36.8% 74.5% 47.7% NA
06/03/97 25.6% 20.0% 52.1% 12.5%
09/10/97 50.4% 58.5% 60.0% 31.3%
03/15/95 6.0% 7.3% 3.5% NA
12/17/96 15.8% 15.8% 19.5% 13.8%
08/08/96 12.3% 17.1% 18.8% NA
02/20/97 68.3% 65.6% 67.0% 29.4%
07/03/95 25.8% 29.4% 46.9% 15.2%
01/28/97 62.0% 60.0% 45.5% 10.3%
05/05/94 17.1% 26.3% 29.7% NA
09/23/98 100.0% 112.5% 25.9% 2.0%
07/14/95 27.0% 20.3% 45.5% 11.1%
05/14/97 15.7% 17.2% 26.7% 9.4%
09/25/96 27.5% 36.0% 40.7% 2.0%
04/07/95 6.9% 6.7% 0.4% 1.9%
06/30/94 34.6% 38.5% 38.5% 21.1%
08/25/95 25.6% 23.1% 23.6% NA
08/29/97 19.2% 26.3% 23.3% 15.4%
02/27/95 20.0% 30.1% 14.1% 3.3%
08/04/97 28.7% 25.8% 31.8% 7.7%
02/13/97 20.0% 20.0% 33.3% NA
10/18/95 67.9% 56.7% 51.6% NA
07/30/97 36.5% 31.8% 36.5% 7.4%
09/12/97 9.8% 7.7% 10.3% 3.8%
01/30/97 16.8% 16.8% 21.7% 5.9%
05/22/95 47.4% 51.4% 49.3% 12.0%
12/11/97 12.7% 11.3% 17.9% NA
07/30/97 5.0% 24.0% 24.0% 3.3%
01/18/95 17.2% 20.8% 26.8% 11.5%
10/23/97 18.8% 30.5% 73.4% 18.8%
01/25/96 9.8% 20.0% 29.8% NA
05/11/98 29.9% 43.9% 49.5% NA
04/06/96 7.6% 7.6% 6.8% NA
</TABLE>
- -----------------------------------------------------------------
High 20.6% 133.3% 143.5% 47.1%
Low -5.2% -4.3% -3.3% 0.0%
Median 25.6% 27.6% 30.9% 10.7%
Mean 28.2% 32.9% 34.4% 12.8%
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Median - 1998 20.6% 24.6% 25.9% 14.7%
Median - 1997 25.6% 27.8% 33.3% 7.9%
Median - 1996 15.8% 20.0% 21.3% 9.9%
Median - 1995 26.4% 29.7% 36.6% 11.8%
Median - 1994 27.8% 27.8% 27.8% 13.0%
- -----------------------------------------------------------------
==========================================Houlihan Lokey Howard & Zukin===== 31
<PAGE>
================================================================================
Winston Resources
================================================================================
Summary of Strategic Alternatives Considered
----------------------------------------------------------------------
In evaluating the fairness of the Transaction, we considered the
expected value to the Company's stockholders of completing the
Transaction and certain alternatives to the Transaction. With regard
to each alternative our analysis qualitatively considered the
valuation implications to the Company's common stockholders, the
probability of successfully completing the alternative, and the cost
and time to implement. A summary of the Company's current situation
and the alternatives considered (other than the contemplated
Transaction) is described below.
SITUATION OVERVIEW
# The Company's most recent financial performance has been
negatively impacted by the loss of certain clients (e.g., the New
York Transit Authority), partially offset by the addition of
others. The first fiscal quarter ended March 31, 1999 was below
plan and management projects a flat year for 1999.
# Many of the Company's clients continue to be approached by the
Company's larger competitors.
# The Company's equity has limited analyst coverage.
# The Company's common stock has a small public float and is thinly
traded.
STATUS QUO
# The Company's stockholders retain the upside, and the risk, of
the Company's operations.
# While management has projected moderate growth for this year,
recent events have caused management concern over the ability to
achieve those results.
# The stock will continue to be thinly traded with little or no
research coverage.
==========================================Houlihan Lokey Howard & Zukin===== 32
<PAGE>
================================================================================
Winston Resources
================================================================================
Summary of Strategic Alternatives Considered
----------------------------------------------------------------------
SALE TO A STRATEGIC BUYER
# The industry has been and is expected to continue consolidating.
# The Company may not generate significant interest due to its
diverse product offering.
# The time required to find an alternative buyer and secure an
offer is uncertain.
# Given management's controlling interest in the Company's common
stock, a hostile bid is unlikely.
SALE TO A FINANCIAL BUYER
# The Company's relatively concentrated market position, coupled
with its weak near term expectations, makes it an unlikely
candidate for a financial buyer.
# It is unlikely a financial buyer would be able to operate the
company more profitability than current management.
# A financial buyer would be unlikely to pursue a transaction
without management and the controlling shareholder's support.
LIQUIDATION
# The Company does not have substantially undervalued or
non-operating assets whereby a sale would unleash hidden value.
# A liquidation of the Company's assets does not appear to maximize
shareholder value.
==========================================Houlihan Lokey Howard & Zukin===== 33
<PAGE>
================================================================================
Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
WINSTON RESOURCES, INC.
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 2.87500 2.000
6/14/99 2.87500 0.200
6/11/99 3.00000 1.200
6/10/99 3.00000 2.000
6/09/99 3.18750 --
6/08/99 3.25000 2.000
6/07/99 3.18750 3.600
6/04/99 3.37500 6.000
6/03/99 3.25000 --
6/02/99 3.25000 --
6/01/99 3.18750 --
5/28/99 3.25000 --
5/27/99 3.18750 0.600
5/26/99 3.25000 --
5/25/99 3.31250 10.000
5/24/99 3.31250 10.300
5/21/99 3.31250 0.200
5/20/99 3.31250 0.100
5/19/99 3.43750 --
5/18/99 3.25000 1.500
5/17/99 3.31250 0.200
5/14/99 3.25000 --
5/13/99 3.18750 2.300
5/12/99 3.25000 0.700
5/11/99 3.43750 0.100
5/10/99 3.37500 0.500
5/07/99 3.37500 0.100
5/06/99 3.37500 1.200
5/05/99 3.50000 0.300
5/04/99 3.25000 0.200
5/03/99 3.50000 0.200
4/30/99 3.37500 0.300
4/29/99 3.25000 1.500
4/28/99 3.50000 0.100
4/27/99 3.50000 8.800
4/26/99 3.18750 --
4/23/99 3.18750 0.300
4/22/99 3.25000 7.200
4/21/99 3.12500 1.000
4/20/99 3.18750 1.000
4/19/99 3.12500 12.500
4/16/99 3.06250 --
4/15/99 3.12500 0.200
4/14/99 3.00000 --
4/13/99 3.12500 1.300
4/12/99 3.12500 --
4/09/99 3.18750 --
4/08/99 3.25000 1.000
4/07/99 3.18750 1.300
4/06/99 3.12500 5.500
4/05/99 3.00000 3.200
4/01/99 3.25000 0.400
3/31/99 3.37500 9.800
3/30/99 3.31250 --
3/29/99 3.25000 5.200
3/26/99 3.31250 0.800
3/25/99 3.37500 12.700
3/24/99 2.87500 1.400
3/23/99 2.87500 --
3/22/99 2.87500 8.500
3/19/99 2.81250 18.300
3/18/99 2.62500 1.700
3/17/99 2.62500 6.000
3/16/99 2.62500 --
3/15/99 2.62500 2.400
3/12/99 2.50000 0.300
3/11/99 2.62500 12.200
3/10/99 2.75000 4.900
3/09/99 2.87500 --
3/08/99 2.93750 --
3/05/99 2.87500 12.000
3/04/99 2.87500 --
3/03/99 2.87500 --
3/02/99 2.87500 1.500
3/01/99 2.81250 2.200
2/26/99 2.87500 --
2/25/99 2.81250 23.600
2/24/99 3.06250 2.600
2/23/99 3.12500 0.300
2/22/99 3.00000 --
2/19/99 3.06250 --
2/18/99 3.00000 4.200
2/17/99 3.12500 --
2/16/99 3.12500 3.000
2/12/99 3.12500 --
2/11/99 3.12500 --
2/10/99 3.25000 1.100
2/09/99 3.25000 1.100
2/08/99 3.12500 3.500
2/05/99 3.25000 10.000
2/04/99 3.12500 --
2/03/99 3.06250 16.700
2/02/99 3.06250 14.000
2/01/99 3.18750 20.600
1/29/99 3.18750 6.200
1/28/99 3.12500 2.100
1/27/99 3.12500 4.200
1/26/99 3.18750 3.900
1/25/99 3.25000 1.700
1/22/99 3.25000 1.000
1/21/99 3.12500 11.300
1/20/99 3.25000 4.800
1/19/99 3.37500 0.200
1/15/99 3.37500 --
1/14/99 3.37500 --
1/13/99 3.50000 1.000
1/12/99 3.50000 --
1/11/99 3.50000 1.100
1/08/99 3.62500 0.600
1/07/99 3.62500 4.400
1/06/99 3.75000 1.000
1/05/99 3.75000 0.500
1/04/99 3.68750 1.600
12/31/98 3.62500 2.400
12/30/98 3.75000 1.300
12/29/98 3.50000 3.400
12/28/98 3.37500 0.100
12/24/98 3.37500 1.300
12/23/98 3.50000 --
12/22/98 3.50000 --
12/21/98 3.50000 --
12/18/98 3.50000 0.200
12/17/98 3.50000 4.000
12/16/98 3.37500 7.700
12/15/98 3.75000 9.500
12/14/98 3.68750 --
12/11/98 3.68750 --
12/10/98 3.62500 0.300
12/09/98 3.50000 11.300
12/08/98 3.87500 9.000
12/07/98 3.75000 2.000
12/04/98 4.00000 --
12/03/98 4.00000 2.000
12/02/98 4.12500 8.900
12/01/98 3.68750 --
11/30/98 3.75000 0.500
11/27/98 3.75000 --
11/25/98 3.75000 --
11/24/98 3.75000 77.100
11/23/98 3.62500 --
11/20/98 3.62500 0.100
11/19/98 3.75000 --
11/18/98 3.75000 --
11/17/98 3.68750 --
11/16/98 3.62500 1.000
11/13/98 3.75000 --
11/12/98 3.62500 0.100
11/11/98 3.62500 0.100
11/10/98 3.75000 0.600
11/09/98 3.75000 0.500
11/06/98 3.62500 1.200
11/05/98 3.75000 0.300
11/04/98 3.68750 --
11/03/98 3.68750 --
11/02/98 3.75000 0.200
10/30/98 3.87500 0.800
10/29/98 3.87500 1.700
10/28/98 4.00000 --
10/27/98 4.00000 0.600
10/26/98 3.87500 2.000
10/23/98 3.75000 0.500
10/22/98 3.62500 0.500
10/21/98 3.75000 2.000
10/20/98 3.50000 0.500
10/19/98 3.62500 --
10/16/98 3.62500 --
10/15/98 3.62500 --
10/14/98 3.50000 1.200
10/13/98 3.75000 1.000
10/12/98 3.75000 1.000
10/09/98 3.68750 4.600
10/08/98 3.75000 0.700
10/07/98 3.87500 0.700
10/06/98 4.00000 3.700
10/05/98 4.31250 1.700
10/02/98 4.50000 --
10/01/98 4.50000 --
9/30/98 4.50000 14.500
9/29/98 4.62500 --
9/28/98 4.62500 1.000
9/25/98 4.50000 --
9/24/98 4.50000 --
9/23/98 4.50000 1.000
9/22/98 4.62500 --
9/21/98 4.50000 --
9/18/98 4.50000 --
9/17/98 4.50000 --
9/16/98 4.62500 --
9/15/98 4.62500 1.000
9/14/98 4.50000 --
9/11/98 4.50000 --
9/10/98 4.50000 --
9/09/98 4.50000 --
9/08/98 4.56250 --
9/04/98 4.50000 --
9/03/98 4.50000 --
9/02/98 4.50000 4.600
9/01/98 4.62500 3.000
8/31/98 4.75000 0.400
8/28/98 4.87500 --
8/27/98 4.87500 --
8/26/98 4.87500 2.500
8/25/98 5.00000 1.900
8/24/98 5.37500 --
8/21/98 5.50000 2.000
8/20/98 5.37500 --
8/19/98 5.37500 --
8/18/98 5.50000 1.000
8/17/98 5.50000 1.000
8/14/98 5.31250 --
8/13/98 5.37500 1.700
8/12/98 5.50000 2.500
8/11/98 5.37500 0.100
8/10/98 5.50000 0.300
8/07/98 5.68750 --
8/06/98 5.75000 11.000
8/05/98 5.75000 --
8/04/98 5.75000 --
8/03/98 5.87500 0.200
7/31/98 5.87500 0.200
7/30/98 6.00000 19.400
7/29/98 6.25000 22.000
7/28/98 5.50000 --
7/27/98 5.50000 --
7/24/98 5.50000 1.300
7/23/98 5.62500 0.100
7/22/98 5.68750 9.200
7/21/98 5.12500 --
7/20/98 5.12500 10.400
7/17/98 4.81250 0.800
7/16/98 4.87500 --
7/15/98 5.00000 5.000
7/14/98 4.87500 1.200
7/13/98 4.87500 0.100
7/10/98 4.87500 --
7/09/98 4.87500 --
7/08/98 4.93750 0.100
7/07/98 4.87500 3.800
7/06/98 4.87500 --
7/02/98 4.87500 1.000
7/01/98 4.87500 1.500
6/30/98 5.25000 --
6/29/98 5.25000 0.200
6/26/98 5.37500 --
6/25/98 5.37500 --
6/24/98 5.31250 --
6/23/98 5.37500 --
6/22/98 5.37500 2.100
6/19/98 5.37500 2.000
6/18/98 5.50000 2.100
6/17/98 5.62500 --
6/16/98 5.75000 1.600
6/15/98 5.50000 4.000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS ARTICLES
- --------------------------------------------------------------------------------
03/19/99 - Winston reported net income of $0.52 per share for
fiscal year 1998 compared to $0.41 per share for
fiscal year 1997.
10/29/98 - Winston reported net income of $0.13 per share for the
3rd quarter compared to $0.12 per share for the same
period 1997.
07/29/98 - Winston reported net income of $0.13 per share for the
2nd quarter compared to $0.10 per share for the same
period 1997.
04/29/98 - Winston reported net income of $0.10 per share for the
1st quarter compared to $0.07 per share for the same
period 1997.
- --------------------------------------------------------------------------------
==========================================Houlihan Lokey Howard & Zukin===== 34
<PAGE>
===============================================================================
Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Barrett On
Business Joule, Assign- Personnel Romac SOS
Services Inc. ment Group Intl. Staffing Westaff
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(figures in millions,
except per EPS)
MARKET INFORMATION
Date of Quarter 03/99 03/99 03/99 03/99 03/99 03/99 04/99
Fiscal Year End 12/98 12/98 12/98 12/98 12/98 12/98 10/98
Stock Price as of 6/14/99 $8.250 $2.563 $23.625 $9.313 $9.563 $5.938 $5.813
Number of Shares Outstanding 7.666 3.674 11.074 26.131 46.520 12.691 15.874
Market Value of Equity ("MVE") 63.245 9.416 261.623 243.344 444.843 75.355 92.268
Debt & Preferred Less Cash (0.817) 3.943 (37.841) 257.068 (39.804) 51.017 59.672
Total Invested Capital ("TIC") 62.428 13.359 223.782 500.412 405.039 126.372 151.940
LATEST TWELVE MONTHS
INCOME STATEMENT
Sales - LTM $304.803 $58.410 $138.963 $858.726 $708.779 $344.212 $623.855
Operating Profit $7.853 $2.090 $17.741 $70.672 $59.544 $15.591 $25.593
EBITDA $9.682 $2.685 $18.736 $88.692 $69.475 $21.705 $33.425
EBIT $7.853 $7.853 $7.853 $7.853 $7.853 $7.853 $7.853
Net Income (Adjusted) $4.624 $1.134 $12.028 $32.888 $32.944 $8.641 $12.705
EPS 0.60 0.31 1.09 1.01 0.73 0.68 0.80
Projected Current FY Net Income $5.366 $0.000 $13.617 $29.214 $41.061 $9.722 $15.056
Projected Current FY Consensus EPS 0.70 0.00 1.23 1.12 0.88 0.77 0.95
Growth
Annual FY Sales Growth -0.8% 13.8% 23.1% 64.8% 41.8% 57.9% 13.1%
2 Year CAGR - Sales 30.7% 14.1% 50.5% 221.8% 125.5% 142.6% 35.7%
Annual FY EBITDA Growth 15.0% -4.9% 33.9% 75.9% 64.0% 62.2% 43.8%
2 Year CAGR - EBITDA 6.3% 0.0% 77.5% 337.3% 195.2% 211.2% 68.0%
Mergins
Operating Margin 2.6% 3.6% 12.8% 8.2% 8.4% 4.5% 4.1%
EBITDA Margin 3.2% 4.6% 13.5% 10.3% 9.8% 6.3% 5.4%
EBIT Margin 2.6% 13.4% 5.7% 0.9% 1.1% 2.3% 1.3%
Net Income Margin 1.5% 1.9% 8.7% 3.8% 4.6% 2.5% 2.0%
BALANCE SHEET AND RATIOS
Total Assets $57.105 $13.773 $68.839 $715.149 $315.594 $185.978 $192.215
Total Debt 0.896 4.100 0.000 258.062 0.979 52.396 64.317
Tangible Book Value 18.877 7.250 57.118 (165.910) 159.463 (9.297) 33.646
Total Debt / EBITDA 0.1x 1.5x 0.0x 2.9x 0.0x 2.4x 1.9x
Total Debt / MVE 1.4% 43.5% 0.0% 106.0% 0.2% 69.5% 69.7%
Return on Average Assets - FYE 8.2% 8.0% 21.2% 5.3% 10.1% 7.1% 7.8%
<CAPTION>
------------------- ---------
Winston
Mean Median Resources
------------------- ---------
<S> <C> <C> <C>
(figures in millions,
except per EPS)
MARKET INFORMATION
Date of Quarter 03/99
Fiscal Year End 12/98
Stock Price as of 6/14/99 $2.875
Number of Shares Outstanding 3.234
Market Value of Equity ("MVE") 170.013 92.268 9.296
Debt & Preferred Less Cash 41.891 3.943 (2.495)
Total Invested Capital ("TIC") 211.905 151.940 6.801
LATEST TWELVE MONTHS
INCOME STATEMENT
Sales - LTM $433.964 $344.212 $61.247
Operating Profit $28.441 $17.741 $3.229
EBITDA $34.914 $21.705 $3.437
EBIT $7.853 $7.853 $7.853
Net Income (Adjusted) $14.995 $12.028 $1.834
EPS 0.75 0.73 0.57
Projected Current FY Net Income $16.291 $13.617 $0.000
Projected Current FY Consensus EPS 0.81 0.88 0.00
Growth
Annual FY Sales Growth 30.5% 23.1% 23.7%
2 Year CAGR - Sales 88.7% 50.5% 54.5%
Annual FY EBITDA Growth 41.4% 43.8% 25.5%
2 Year CAGR - EBITDA 127.9% 77.5% 99.0%
Mergins
Operating Margin 6.3% 4.5% 5.3%
EBITDA Margin 7.6% 6.3% 5.6%
EBIT Margin 3.9% 2.3% 12.8%
Net Income Margin 3.6% 2.5% 3.0%
BALANCE SHEET AND RATIOS
Total Assets $221.236 $185.978 $12.953
Total Debt 54.393 4.100 0.031
Tangible Book Value 14.450 18.877 7.635
Total Debt / EBITDA 1.3x 1.5x 0.0x
Total Debt / MVE 41.5% 43.5% 0.3%
Return on Average Assets - FYE 9.7% 8.0% 16.4%
</TABLE>
==========================================Houlihan Lokey Howard & Zukin===== 35
<PAGE>
================================================================================
Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
COMPARABLE COMPANY DESCRIPTIONS AND RECENT STOCK PRICE PERFORMANCE
BARRETT BUSINESS SERVICE, INC.
Barrett Business Services, Inc. ("Barrett") provides staffing and
professional employer organization services to a diversified group of
customers through a network of 30 branch offices throughout Oregon,
Washington, Idaho, California, Arizona, Maryland, Delaware and
Michigan.
Barrett provides services in five major categories: payroll
processing, employee benefits and administration, workers'
compensation coverage, aggressive risk management and workplace safety
programs and human resource administration, which includes functions
such as recruiting, interviewing, drug testing, hiring, placement,
training and regulatory compliance. These services are typically
provided through a variety of contractual arrangements, as part of
either a traditional staffing service or a professional employer
organization service.
Barrett's business strategy focuses on growth through the acquisition
of additional personnel-related businesses, both in its existing
markets and other strategic geographic areas, together with the
expansion of operations at existing offices.
==========================================Houlihan Lokey Howard & Zukin===== 36
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Supporting Material
----------------------------------------------------------------------
BARRETT BUSINESS SERVICES, INC. (CONT.)
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 8.25000 3.900
6/14/99 8.25000 1.400
6/11/99 8.25000 0.300
6/10/99 8.62500 0.600
6/09/99 8.50000 1.800
6/08/99 8.18750 --
6/07/99 8.25000 12.800
6/04/99 8.00000 22.000
6/03/99 7.62500 2.600
6/02/99 8.00000 4.700
6/01/99 8.00000 2.200
5/28/99 8.00000 3.500
5/27/99 8.25000 3.300
5/26/99 8.50000 3.400
5/25/99 8.50000 6.100
5/24/99 8.75000 2.700
5/21/99 8.25000 3.000
5/20/99 8.00000 2.700
5/19/99 8.25000 2.900
5/18/99 7.75000 1.900
5/17/99 8.25000 0.100
5/14/99 7.68750 2.200
5/13/99 7.75000 1.000
5/12/99 7.50000 0.300
5/11/99 7.50000 5.500
5/10/99 7.50000 2.600
5/07/99 7.00000 2.600
5/06/99 7.00000 2.800
5/05/99 6.50000 4.200
5/04/99 6.75000 0.800
5/03/99 6.62500 0.700
4/30/99 6.75000 1.600
4/29/99 6.93750 1.400
4/28/99 6.68750 1.400
4/27/99 7.25000 0.300
4/26/99 6.75000 1.200
4/23/99 6.75000 2.600
4/22/99 6.50000 2.800
4/21/99 6.75000 --
4/20/99 6.37500 11.800
4/19/99 7.12500 12.300
4/16/99 6.87500 26.000
4/15/99 6.50000 29.300
4/14/99 6.75000 9.300
4/13/99 6.50000 2.100
4/12/99 7.12500 0.900
4/09/99 7.00000 6.500
4/08/99 6.12500 0.300
4/07/99 6.25000 4.700
4/06/99 6.25000 0.400
4/05/99 6.25000 0.400
4/01/99 6.50000 13.700
3/31/99 6.00000 47.000
3/30/99 6.75000 1.200
3/29/99 6.75000 0.500
3/26/99 7.00000 --
3/25/99 7.25000 0.200
3/24/99 7.25000 6.700
3/23/99 6.87500 --
3/22/99 6.75000 3.000
3/19/99 7.25000 2.000
3/18/99 6.93750 --
3/17/99 6.87500 191.400
3/16/99 6.81250 76.000
3/15/99 7.12500 0.600
3/12/99 7.25000 6.700
3/11/99 7.12500 1.100
3/10/99 7.59375 --
3/09/99 7.18750 0.100
3/08/99 7.25000 1.000
3/05/99 7.81250 2.500
3/04/99 7.87500 --
3/03/99 8.25000 0.100
3/02/99 7.87500 --
3/01/99 8.25000 0.200
2/26/99 7.75000 1.200
2/25/99 7.75000 10.200
2/24/99 7.93750 17.900
2/23/99 7.93750 14.000
2/22/99 8.37500 21.000
2/19/99 8.18750 1.000
2/18/99 8.00000 48.800
2/17/99 8.25000 15.500
2/16/99 8.25000 0.100
2/12/99 8.25000 2.400
2/11/99 8.75000 0.700
2/10/99 9.06250 0.300
2/09/99 9.00000 2.100
2/08/99 8.62500 0.400
2/05/99 8.81250 5.900
2/04/99 8.75000 3.700
2/03/99 9.00000 1.600
2/02/99 8.50000 1.500
2/01/99 9.00000 0.300
1/29/99 8.81250 5.400
1/28/99 8.81250 0.100
1/27/99 8.50000 1.200
1/26/99 8.50000 1.500
1/25/99 8.50000 0.700
1/22/99 8.37500 1.800
1/21/99 8.25000 --
1/20/99 8.12500 1.400
1/19/99 8.62500 1.900
1/15/99 8.50000 --
1/14/99 8.25000 0.100
1/13/99 8.56250 --
1/12/99 8.50000 1.200
1/11/99 8.87500 0.600
1/08/99 8.87500 15.900
1/07/99 9.00000 4.700
1/06/99 9.00000 2.400
1/05/99 8.75000 0.200
1/04/99 9.00000 0.300
12/31/98 8.50000 9.200
12/30/98 8.50000 8.600
12/29/98 8.50000 3.800
12/28/98 9.00000 2.200
12/24/98 8.75000 --
12/23/98 8.75000 --
12/22/98 8.75000 4.300
12/21/98 8.75000 2.100
12/18/98 8.75000 6.800
12/17/98 8.75000 4.500
12/16/98 8.75000 1.600
12/15/98 8.87500 1.400
12/14/98 8.75000 1.600
12/11/98 8.75000 0.500
12/10/98 8.75000 1.300
12/09/98 8.87500 7.600
12/08/98 8.75000 2.900
12/07/98 8.75000 0.100
12/04/98 8.87500 --
12/03/98 8.87500 --
12/02/98 9.00000 1.700
12/01/98 8.87500 11.100
11/30/98 8.87500 2.200
11/27/98 8.75000 0.200
11/25/98 8.75000 4.300
11/24/98 8.93750 1.400
11/23/98 9.12500 1.900
11/20/98 8.87500 3.300
11/19/98 9.00000 0.900
11/18/98 9.00000 --
11/17/98 9.25000 1.200
11/16/98 9.31250 1.700
11/13/98 9.00000 5.600
11/12/98 9.37500 2.100
11/11/98 9.00000 9.100
11/10/98 9.00000 15.900
11/09/98 8.75000 15.700
11/06/98 8.31250 41.600
11/05/98 8.50000 2.100
11/04/98 8.62500 14.900
11/03/98 7.93750 31.400
11/02/98 7.50000 3.500
10/30/98 7.12500 6.600
10/29/98 7.50000 4.800
10/28/98 7.06250 --
10/27/98 7.12500 4.800
10/26/98 7.06250 2.800
10/23/98 7.25000 1.800
10/22/98 7.00000 --
10/21/98 6.93750 --
10/20/98 7.00000 0.900
10/19/98 7.00000 0.700
10/16/98 7.00000 14.200
10/15/98 6.18750 17.700
10/14/98 6.75000 3.800
10/13/98 7.00000 4.800
10/12/98 6.18750 20.000
10/09/98 6.37500 2.000
10/08/98 6.37500 15.200
10/07/98 6.37500 5.900
10/06/98 7.50000 1.600
10/05/98 7.93750 --
10/02/98 7.62500 0.500
10/01/98 7.75000 2.200
9/30/98 7.87500 0.300
9/29/98 7.87500 2.700
9/28/98 8.12500 2.900
9/25/98 8.12500 1.100
9/24/98 8.12500 2.700
9/23/98 8.75000 --
9/22/98 8.00000 0.100
9/21/98 8.31250 --
9/18/98 8.75000 0.900
9/17/98 8.18750 --
9/16/98 8.37500 --
9/15/98 8.12500 1.000
9/14/98 8.00000 2.200
9/11/98 8.50000 7.900
9/10/98 8.25000 1.600
9/09/98 8.25000 0.600
9/08/98 8.68750 --
9/04/98 8.56250 --
9/03/98 8.12500 0.600
9/02/98 8.12500 6.700
9/01/98 9.00000 5.000
8/31/98 8.62500 6.500
8/28/98 9.00000 42.300
8/27/98 8.87500 8.300
8/26/98 9.87500 2.000
8/25/98 10.50000 0.400
8/24/98 10.00000 2.900
8/21/98 10.50000 0.500
8/20/98 10.37500 0.100
8/19/98 10.12500 4.100
8/18/98 9.87500 1.500
8/17/98 10.37500 2.100
8/14/98 9.75000 0.100
8/13/98 10.00000 1.300
8/12/98 10.00000 6.500
8/11/98 10.06250 2.600
8/10/98 10.37500 4.200
8/07/98 9.50000 11.400
8/06/98 8.87500 43.700
8/05/98 9.25000 2.100
8/04/98 9.25000 7.100
8/03/98 9.25000 2.800
7/31/98 9.25000 2.300
7/30/98 9.75000 0.100
7/29/98 9.25000 12.600
7/28/98 10.00000 1.100
7/27/98 10.00000 1.900
7/24/98 10.12500 0.200
7/23/98 10.56250 --
7/22/98 10.75000 1.000
7/21/98 10.25000 1.000
7/20/98 10.25000 1.200
7/17/98 10.87500 1.800
7/16/98 9.87500 0.800
7/15/98 10.62500 7.000
7/14/98 9.62500 373.600
7/13/98 9.50000 4.300
7/10/98 9.37500 0.500
7/09/98 10.00000 4.600
7/08/98 9.75000 15.800
7/07/98 9.56250 17.300
7/06/98 9.50000 1.400
7/02/98 10.00000 0.400
7/01/98 10.00000 4.100
6/30/98 9.87500 9.300
6/29/98 10.12500 0.100
6/26/98 9.75000 65.100
6/25/98 9.50000 39.800
6/24/98 10.75000 9.300
6/23/98 11.25000 5.000
6/22/98 11.87500 0.300
6/19/98 11.62500 7.100
6/18/98 12.06250 --
6/17/98 11.75000 2.000
6/16/98 11.75000 2.700
6/15/98 11.50000 3.700
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
RECENT NEWS
- ----------------------------------------------------------------------------
06/01/99 - Barrett announced the acquisition of TSU Staffing.
02/26/99 - Barrett adopted a new stock repurchase program and
authorized the purchase of up to 250,000 common shares.
02/10/99 - Barrett reported net income of $0.50 per share in fiscal
year 1998 compared to $0.49 per share in fiscal year
1997.
01/04/99 - Barrett announced the acquisition of privately-held
Temporary Staffing Systems.
11/04/98 - Barrett reported net income of $0.21 per share for the 3rd
quarter compared to $0.13 for the same period in 1997.
- ----------------------------------------------------------------------------
======================================Houlihan Lokey Howard & Zukin===== 37
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Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
JOULE, INC.
Joule Inc. ("Joule") provides temporary personnel and personnel on a
project basis through two business units: the Staffing Services
Business Unit, which handles hourly billing contracts, and the
Industrial Contracting Business Unit, which handles higher overhead
functions for customers on a turnkey basis. The Staffing Services
Business Unit operates under the trademarks, "Joule Technical Staffing
Services" and "Joule People Providers." The Industrial Contracting
Business Unit markets nationally using the trademark, "Joule
Industrial Contractors."
Joule Technical Staffing Services provides engineering and staffing to
augment customers' engineering staffs. The company's technical
employees include engineers, designers, draftsmen, information
technology personnel, scientists and lab technicians, who are
furnished on a project basis. Joule People Providers provides staffing
services, primarily on an hourly basis to supplement company staffs
during peak loan periods through seven offices in the greater New
Jersey region.
Joule Industrial Contractors provides industrial maintenance services
to manufacturing companies for maintaining and modernizing their
production facilities, primarily in the New York/Philadelphia region.
In addition to staffing, it furnishes supervision, equipment,
materials, and as required, facilities to operate entire departments
to a defined scope of work, on either a time and material, unit
measure or fixed price basis.
==========================================Houlihan Lokey Howard & Zukin===== 38
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Supporting Material
----------------------------------------------------------------------
JOULE, INC. (CONT.)
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 2.56250 0.300
6/14/99 2.62500 --
6/11/99 2.56250 --
6/10/99 2.59375 --
6/09/99 2.50000 2.600
6/08/99 2.50000 0.700
6/07/99 2.46875 --
6/04/99 2.37500 0.300
6/03/99 2.43750 --
6/02/99 2.50000 2.100
6/01/99 2.50000 0.800
5/28/99 2.37500 16.600
5/27/99 2.62500 3.000
5/26/99 2.62500 0.200
5/25/99 2.50000 2.000
5/24/99 2.50000 18.900
5/21/99 2.75000 1.500
5/20/99 2.87500 4.700
5/19/99 2.90625 --
5/18/99 2.87500 3.200
5/17/99 3.00000 16.700
5/14/99 2.62500 4.600
5/13/99 2.56250 3.000
5/12/99 2.75000 0.200
5/11/99 2.87500 2.500
5/10/99 2.59375 --
5/07/99 2.59375 --
5/06/99 2.68750 --
5/05/99 2.75000 --
5/04/99 2.75000 4.200
5/03/99 2.81250 --
4/30/99 2.81250 10.600
4/29/99 2.62500 22.400
4/28/99 3.00000 6.200
4/27/99 3.00000 --
4/26/99 3.00000 1.000
4/23/99 3.00000 --
4/22/99 3.12500 2.000
4/21/99 3.06250 --
4/20/99 3.12500 0.100
4/19/99 3.12500 0.100
4/16/99 3.00000 17.400
4/15/99 2.68750 --
4/14/99 2.62500 2.200
4/13/99 2.75000 0.600
4/12/99 2.62500 0.500
4/09/99 2.75000 8.200
4/08/99 2.78125 --
4/07/99 2.68750 1.000
4/06/99 2.56250 --
4/05/99 2.62500 7.200
4/01/99 2.75000 8.900
3/31/99 2.62500 30.900
3/30/99 3.75000 0.100
3/29/99 3.78125 --
3/26/99 3.75000 0.100
3/25/99 3.87500 0.300
3/24/99 3.84375 --
3/23/99 4.00000 0.800
3/22/99 3.78125 --
3/19/99 3.81250 --
3/18/99 3.75000 --
3/17/99 3.84375 --
3/16/99 3.81250 --
3/15/99 3.87500 5.700
3/12/99 3.87500 1.000
3/11/99 3.84375 --
3/10/99 3.87500 0.800
3/09/99 3.84375 --
3/08/99 3.87500 6.000
3/05/99 3.87500 18.300
3/04/99 4.12500 4.100
3/03/99 4.25000 2.700
3/02/99 4.25000 1.000
3/01/99 4.25000 0.500
2/26/99 4.12500 0.500
2/25/99 4.25000 6.200
2/24/99 3.75000 1.800
2/23/99 3.50000 --
2/22/99 3.31250 --
2/19/99 3.75000 0.400
2/18/99 3.87500 3.000
2/17/99 3.87500 50.000
2/16/99 4.00000 4.000
2/12/99 4.12500 2.100
2/11/99 3.96875 --
2/10/99 4.12500 0.200
2/09/99 4.25000 2.400
2/08/99 4.62500 5.100
2/05/99 4.50000 21.000
2/04/99 4.12500 5.000
2/03/99 4.00000 3.900
2/02/99 3.75000 1.000
2/01/99 4.00000 2.400
1/29/99 4.00000 28.300
1/28/99 3.50000 14.200
1/27/99 3.25000 19.900
1/26/99 2.87500 2.800
1/25/99 3.00000 4.800
1/22/99 2.87500 5.600
1/21/99 2.12500 0.300
1/20/99 2.25000 0.400
1/19/99 2.50000 0.400
1/15/99 2.37500 1.400
1/14/99 2.37500 3.400
1/13/99 2.25000 2.500
1/12/99 1.96875 --
1/11/99 2.25000 1.500
1/08/99 2.25000 2.900
1/07/99 2.25000 2.600
1/06/99 2.00000 1.500
1/05/99 2.12500 1.100
1/04/99 2.12500 0.700
12/31/98 2.00000 10.500
12/30/98 2.12500 0.400
12/29/98 2.25000 0.100
12/28/98 2.25000 2.000
12/24/98 2.31250 --
12/23/98 2.25000 0.600
12/22/98 2.15625 --
12/21/98 2.37500 2.400
12/18/98 2.50000 1.800
12/17/98 2.21875 --
12/16/98 2.31250 5.200
12/15/98 2.37500 0.400
12/14/98 2.50000 --
12/11/98 2.18750 --
12/10/98 2.50000 1.300
12/09/98 2.50000 8.200
12/08/98 2.62500 3.600
12/07/98 2.75000 2.300
12/04/98 2.81250 --
12/03/98 2.68750 --
12/02/98 2.75000 0.200
12/01/98 2.84375 --
11/30/98 2.81250 --
11/27/98 2.81250 --
11/25/98 2.75000 1.400
11/24/98 2.68750 --
11/23/98 2.75000 0.200
11/20/98 2.87500 1.100
11/19/98 2.65625 --
11/18/98 2.62500 0.300
11/17/98 2.75000 2.000
11/16/98 2.87500 3.000
11/13/98 2.75000 3.000
11/12/98 2.75000 1.000
11/11/98 2.87500 0.200
11/10/98 2.96875 --
11/09/98 2.93750 --
11/06/98 3.03125 --
11/05/98 3.03125 --
11/04/98 3.00000 0.300
11/03/98 3.12500 0.100
11/02/98 3.25000 0.100
10/30/98 2.96875 --
10/29/98 3.37500 1.000
10/28/98 3.25000 10.200
10/27/98 2.87500 0.500
10/26/98 2.84375 --
10/23/98 2.87500 1.000
10/22/98 2.87500 0.100
10/21/98 2.87500 1.400
10/20/98 2.78125 --
10/19/98 2.87500 --
10/16/98 2.87500 0.500
10/15/98 2.87500 0.200
10/14/98 2.75000 2.300
10/13/98 2.87500 --
10/12/98 2.75000 2.700
10/09/98 2.87500 5.600
10/08/98 2.87500 0.200
10/07/98 2.87500 0.200
10/06/98 3.00000 1.100
10/05/98 3.00000 1.300
10/02/98 2.96875 --
10/01/98 3.12500 0.200
9/30/98 3.00000 0.800
9/29/98 3.00000 0.200
9/28/98 2.87500 3.500
9/25/98 3.25000 --
9/24/98 3.21875 --
9/23/98 3.25000 0.500
9/22/98 3.37500 0.200
9/21/98 3.25000 --
9/18/98 3.25000 0.300
9/17/98 3.25000 0.700
9/16/98 3.25000 0.200
9/15/98 3.34375 --
9/14/98 3.37500 0.500
9/11/98 3.25000 0.200
9/10/98 3.12500 8.000
9/09/98 3.75000 0.300
9/08/98 3.62500 2.000
9/04/98 3.75000 0.300
9/03/98 3.75000 0.200
9/02/98 3.62500 0.200
9/01/98 3.68750 --
8/31/98 3.75000 0.500
8/28/98 3.56250 --
8/27/98 3.62500 0.500
8/26/98 3.87500 0.600
8/25/98 3.81250 0.200
8/24/98 3.71875 --
8/21/98 3.75000 0.200
8/20/98 3.56250 --
8/19/98 3.71875 --
8/18/98 3.75000 --
8/17/98 3.62500 --
8/14/98 3.62500 0.800
8/13/98 3.62500 --
8/12/98 3.75000 --
8/11/98 3.62500 --
8/10/98 3.62500 0.800
8/07/98 3.62500 --
8/06/98 3.75000 1.000
8/05/98 3.59375 --
8/04/98 3.68750 0.500
8/03/98 3.62500 1.000
7/31/98 3.75000 1.100
7/30/98 3.62500 0.500
7/29/98 3.62500 0.500
7/28/98 3.50000 8.000
7/27/98 4.00000 0.400
7/24/98 4.15625 --
7/23/98 4.09375 --
7/22/98 4.09375 --
7/21/98 4.12500 1.000
7/20/98 4.00000 0.500
7/17/98 3.87500 0.500
7/16/98 3.78125 --
7/15/98 3.75000 --
7/14/98 3.75000 3.500
7/13/98 3.62500 1.600
7/10/98 3.21875 --
7/09/98 3.50000 0.800
7/08/98 3.43750 --
7/07/98 3.62500 2.000
7/06/98 3.62500 1.500
7/02/98 3.62500 0.500
7/01/98 3.50000 3.000
6/30/98 3.50000 1.000
6/29/98 3.31250 --
6/26/98 3.62500 0.500
6/25/98 3.37500 --
6/24/98 3.43750 --
6/23/98 3.40625 --
6/22/98 3.62500 5.400
6/19/98 3.53125 --
6/18/98 3.87500 2.700
6/17/98 3.87500 3.200
6/16/98 3.93750 --
6/15/98 4.00000 1.200
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS
- --------------------------------------------------------------------------------
05/17/99 - Joule announced that it has acquired Ideal Technical
Services of Mobile, AL.
04/29/99 - Joule reported net income of $0.07 per share for the 2nd
quarter compared to $0.06 for the same period 1998.
01/27/99 - Joule reported net income of $0.10 per share for the 1st
quarter compared to $0.05 for the same period 1998.
01/20/99 - Joule announced the election of John G. Wellman, Jr. to the
position of President.
11/20/98 - Joule reported net income of $0.19 per share for fiscal
year 1998 compared to $0.29 per share for fiscal 1997.
- --------------------------------------------------------------------------------
==========================================Houlihan Lokey Howard & Zukin===== 39
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Winston Resources
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Supporting Material
----------------------------------------------------------------------
ON ASSIGNMENT, INC.
On Assignment, Inc. ("On Assignment") provides temporary and permanent
placement of scientific personnel with laboratories and other
institutions; and provides temporary and permanent placement of
credit, collection and medical billing professionals to the financial
services and healthcare industries.
On Assignment clients include firms in the biotechnology, chemical,
food and beverage, petrochemical and consumer products industries. The
company provides temporary and permanent placement of scientific
personnel with laboratories and other institutions; and provides
temporary and permanent placement of credit, collection and medical
billing professionals to the financial services and healthcare
industries.
==========================================Houlihan Lokey Howard & Zukin===== 40
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Winston Resources
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Supporting Material
----------------------------------------------------------------------
ON ASSIGNMENT, INC. (CONT.)
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 23.56250 375.500
6/14/99 23.81250 96.100
6/11/99 23.87500 44.600
6/10/99 24.12500 165.400
6/09/99 24.25000 114.000
6/08/99 25.12500 33.100
6/07/99 25.87500 38.400
6/04/99 26.12500 28.600
6/03/99 26.12500 85.300
6/02/99 26.50000 23.400
6/01/99 26.25000 19.800
5/28/99 25.62500 56.000
5/27/99 26.00000 116.300
5/26/99 26.56250 9.500
5/25/99 26.87500 47.600
5/24/99 27.62500 22.600
5/21/99 26.50000 24.300
5/20/99 27.00000 16.700
5/19/99 26.75000 7.200
5/18/99 27.12500 10.500
5/17/99 27.68750 35.800
5/14/99 27.93750 30.500
5/13/99 28.12500 11.500
5/12/99 27.93750 18.400
5/11/99 28.00000 111.400
5/10/99 28.25000 9.400
5/07/99 28.25000 3.200
5/06/99 28.87500 5.500
5/05/99 28.81250 86.600
5/04/99 30.93750 79.600
5/03/99 31.87500 165.500
4/30/99 30.31250 105.000
4/29/99 28.50000 119.800
4/28/99 27.00000 87.400
4/27/99 25.25000 88.900
4/26/99 25.00000 60.100
4/23/99 24.50000 59.100
4/22/99 22.87500 86.200
4/21/99 23.25000 149.200
4/20/99 22.25000 30.300
4/19/99 23.37500 190.500
4/16/99 23.37500 145.700
4/15/99 21.87500 89.800
4/14/99 21.56250 182.200
4/13/99 21.56250 100.700
4/12/99 21.93750 177.300
4/09/99 21.87500 185.800
4/08/99 22.00000 161.300
4/07/99 23.93750 22.300
4/06/99 24.43750 18.200
4/05/99 25.00000 115.700
4/01/99 24.75000 65.300
3/31/99 25.62500 53.900
3/30/99 26.00000 12.800
3/29/99 25.25000 150.800
3/26/99 25.12500 37.600
3/25/99 25.37500 156.100
3/24/99 24.50000 57.800
3/23/99 24.50000 237.900
3/22/99 24.00000 312.700
3/19/99 23.93750 183.300
3/18/99 25.62500 198.700
3/17/99 28.31250 10.800
3/16/99 28.50000 47.100
3/15/99 29.25000 31.600
3/12/99 30.75000 90.600
3/11/99 31.87500 41.300
3/10/99 32.12500 35.600
3/09/99 31.75000 30.600
3/08/99 32.62500 63.100
3/05/99 33.50000 250.400
3/04/99 35.37500 13.500
3/03/99 35.00000 7.200
3/02/99 37.00000 33.000
3/01/99 35.50000 105.600
2/26/99 35.50000 61.600
2/25/99 36.12500 30.800
2/24/99 34.37500 15.600
2/23/99 33.25000 30.300
2/22/99 32.37500 6.900
2/19/99 32.50000 6.300
2/18/99 32.62500 21.000
2/17/99 31.75000 14.000
2/16/99 31.87500 12.400
2/12/99 32.09375 3.900
2/11/99 32.31250 83.700
2/10/99 32.50000 13.600
2/09/99 31.50000 22.600
2/08/99 32.87500 92.100
2/05/99 34.87500 2.700
2/04/99 36.31250 34.800
2/03/99 35.87500 27.700
2/02/99 35.37500 73.500
2/01/99 36.25000 47.800
1/29/99 36.87500 27.600
1/28/99 36.50000 34.800
1/27/99 36.87500 72.300
1/26/99 37.25000 125.100
1/25/99 38.50000 142.700
1/22/99 36.68750 87.200
1/21/99 34.50000 16.800
1/20/99 33.81250 100.000
1/19/99 33.00000 7.100
1/15/99 33.00000 8.000
1/14/99 32.00000 5.300
1/13/99 31.00000 11.800
1/12/99 31.75000 44.600
1/11/99 32.25000 47.300
1/08/99 31.37500 23.700
1/07/99 33.12500 15.900
1/06/99 34.00000 48.600
1/05/99 33.12500 20.100
1/04/99 33.25000 14.500
12/31/98 34.50000 139.100
12/30/98 32.62500 133.700
12/29/98 33.00000 73.400
12/28/98 31.75000 45.700
12/24/98 31.25000 8.700
12/23/98 32.00000 50.700
12/22/98 31.62500 19.900
12/21/98 30.50000 82.900
12/18/98 31.56250 37.200
12/17/98 31.87500 229.200
12/16/98 31.75000 253.700
12/15/98 32.25000 34.300
12/14/98 33.25000 3.900
12/11/98 34.00000 71.500
12/10/98 34.68750 38.500
12/09/98 32.43750 141.000
12/08/98 31.12500 16.800
12/07/98 32.62500 29.100
12/04/98 33.81250 35.600
12/03/98 34.75000 20.600
12/02/98 35.37500 12.000
12/01/98 35.25000 15.500
11/30/98 35.56250 20.300
11/27/98 35.50000 0.200
11/25/98 35.37500 39.400
11/24/98 36.50000 65.400
11/23/98 36.62500 6.900
11/20/98 36.75000 36.100
11/19/98 37.50000 87.100
11/18/98 36.00000 7.000
11/17/98 35.75000 10.300
11/16/98 35.87500 53.300
11/13/98 36.25000 8.200
11/12/98 36.50000 88.400
11/11/98 36.75000 32.500
11/10/98 35.25000 16.100
11/09/98 35.12500 20.500
11/06/98 35.12500 5.100
11/05/98 35.00000 6.900
11/04/98 34.50000 29.600
11/03/98 34.37500 57.500
11/02/98 35.25000 55.400
10/30/98 34.00000 128.100
10/29/98 32.12500 16.000
10/28/98 32.75000 40.700
10/27/98 32.00000 15.300
10/26/98 31.25000 18.000
10/23/98 30.50000 13.400
10/22/98 29.93750 59.700
10/21/98 30.62500 64.600
10/20/98 31.50000 46.300
10/19/98 32.25000 114.200
10/16/98 32.00000 169.800
10/15/98 26.50000 20.400
10/14/98 26.87500 3.700
10/13/98 26.00000 4.000
10/12/98 25.50000 25.100
10/09/98 23.00000 21.400
10/08/98 22.62500 157.400
10/07/98 25.12500 230.200
10/06/98 25.00000 169.900
10/05/98 28.00000 188.200
10/02/98 32.75000 113.500
10/01/98 35.37500 14.400
9/30/98 37.00000 31.400
9/29/98 36.25000 23.700
9/28/98 35.93750 11.400
9/25/98 35.37500 15.600
9/24/98 35.50000 36.400
9/23/98 34.87500 37.200
9/22/98 34.75000 124.800
9/21/98 34.00000 28.200
9/18/98 35.00000 70.700
9/17/98 35.00000 90.400
9/16/98 37.00000 42.600
9/15/98 37.75000 43.500
9/14/98 37.62500 84.600
9/11/98 37.50000 38.500
9/10/98 36.18750 51.900
9/09/98 36.37500 81.600
9/08/98 36.50000 105.400
9/04/98 32.25000 41.700
9/03/98 32.37500 48.400
9/02/98 32.50000 9.700
9/01/98 33.00000 65.900
8/31/98 32.25000 109.300
8/28/98 32.06250 48.800
8/27/98 33.00000 70.800
8/26/98 33.18750 18.100
8/25/98 33.12500 14.000
8/24/98 32.75000 14.300
8/21/98 34.12500 11.800
8/20/98 34.00000 10.000
8/19/98 35.00000 6.400
8/18/98 35.06250 15.700
8/17/98 35.12500 61.700
8/14/98 33.50000 32.300
8/13/98 34.25000 18.300
8/12/98 34.62500 53.000
8/11/98 33.37500 71.600
8/10/98 34.75000 7.600
8/07/98 34.03125 29.800
8/06/98 34.00000 50.400
8/05/98 34.50000 35.700
8/04/98 33.87500 53.900
8/03/98 34.06250 30.800
7/31/98 35.87500 18.600
7/30/98 36.50000 51.400
7/29/98 36.00000 21.100
7/28/98 35.12500 64.400
7/27/98 36.00000 57.400
7/24/98 36.12500 23.300
7/23/98 36.62500 146.500
7/22/98 36.50000 74.300
7/21/98 36.37500 28.700
7/20/98 36.75000 21.400
7/17/98 35.62500 53.800
7/16/98 36.75000 231.200
7/15/98 35.87500 25.400
7/14/98 35.62500 10.700
7/13/98 35.50000 0.700
7/10/98 35.87500 4.000
7/09/98 36.12500 25.000
7/08/98 36.37500 33.100
7/07/98 35.00000 18.800
7/06/98 35.75000 90.600
7/02/98 36.50000 105.800
7/01/98 36.12500 113.000
6/30/98 34.93750 60.600
6/29/98 34.75000 37.200
6/26/98 33.62500 46.500
6/25/98 34.00000 52.500
6/24/98 33.25000 44.900
6/23/98 31.75000 49.000
6/22/98 30.62500 99.300
6/19/98 30.25000 173.400
6/18/98 31.37500 114.900
6/17/98 32.62500 40.100
6/16/98 32.37500 6.700
6/15/98 32.12500 85.000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS
- --------------------------------------------------------------------------------
06/10/99 - On Assignment was rated "buy" in new coverage at Salomon
Smith Barney. The 12-month target price is $35 per share.
04/21/99 - On Assignment was raised to "strong buy" from "buy" at CE
Unterberg Towbin.
04/12/99 - On Assignment was raised to "buy" from "neutral" at Dain
Rauscher Wessels. The 12-month target price is $30 per
share.
03/17/99 - On Assignment was reiterated "buy" at NationsBanc
Montgomery Securities.
03/16/99 - On Assignment announced that it will be opening several
branch offices in the UK for its flagship Lab Support
division.
- --------------------------------------------------------------------------------
==========================================Houlihan Lokey Howard & Zukin===== 41
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Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
PERSONNEL GROUP OF AMERICA, INC.
Personnel Group of America, Inc. ("PGA") provides personnel staffing
services in selected markets throughout the U.S. to businesses, as
well as professional and governmental organizations. PGA's staffing
services include temporary staffing, placement of full-time employees,
on-site management of temporary employees, training and testing of
temporary and permanent workers, and information technology
consulting. As of July 1998, Personnel Group operated through a
network of 142 company-owned, franchised and licensed offices in 25
states and the District of Columbia.
Services include general office and administrative services, word
processing and desktop publishing, office automation, records
management, production/assembly/distribution, telemarketing, finance,
accounting and other staffing services. Certain offices also provide
full-time placement and payrolling services. The division operates
under 17 different brand names, most of which have been established
for more than 16 years.
The company entered the information technology staffing segment with
the acquisition of five companies in 1996. This segment provides
information technology professionals and consulting services through
12 brand names operating a total of 31 offices in 17 states and the
District of Columbia as of February 1998. The unit places programmers,
systems designers, software engineers, LAN administrators, systems
integrators, helpdesk staff and technology specialists. Personnel
Group of America, Inc. (Cont.)
==========================================Houlihan Lokey Howard & Zukin===== 42
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Supporting Material
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PERSONNEL GROUP OF AMERICA, INC.
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 9.50000 103.400
6/14/99 9.12500 39.600
6/11/99 9.43750 49.900
6/10/99 9.43750 100.700
6/09/99 9.68750 65.100
6/08/99 9.93750 108.000
6/07/99 10.12500 43.000
6/04/99 10.25000 127.800
6/03/99 10.62500 86.300
6/02/99 10.75000 241.500
6/01/99 11.31250 216.200
5/28/99 11.37500 27.800
5/27/99 11.62500 283.500
5/26/99 11.50000 253.300
5/25/99 11.00000 88.100
5/24/99 11.25000 190.800
5/21/99 11.00000 108.900
5/20/99 10.81250 131.300
5/19/99 10.25000 48.700
5/18/99 10.25000 184.000
5/17/99 10.31250 159.500
5/14/99 10.50000 335.700
5/13/99 10.25000 402.200
5/12/99 9.25000 96.800
5/11/99 9.50000 115.400
5/10/99 9.18750 414.600
5/07/99 9.50000 86.400
5/06/99 9.68750 132.200
5/05/99 9.50000 162.000
5/04/99 9.25000 98.400
5/03/99 9.31250 154.500
4/30/99 9.12500 123.000
4/29/99 9.06250 150.600
4/28/99 9.75000 274.600
4/27/99 9.87500 246.000
4/26/99 9.37500 281.200
4/23/99 9.12500 458.100
4/22/99 8.31250 511.800
4/21/99 7.12500 135.500
4/20/99 7.25000 244.500
4/19/99 7.50000 203.800
4/16/99 7.37500 94.300
4/15/99 7.12500 232.500
4/14/99 7.18750 317.300
4/13/99 7.06250 599.800
4/12/99 7.12500 414.900
4/09/99 7.25000 192.500
4/08/99 7.25000 630.600
4/07/99 6.81250 85.300
4/06/99 7.00000 497.200
4/05/99 7.25000 961.000
4/01/99 7.25000 447.600
3/31/99 7.18750 524.600
3/30/99 6.93750 343.700
3/29/99 6.50000 222.300
3/26/99 6.37500 438.700
3/25/99 6.31250 403.200
3/24/99 6.00000 1,298.500
3/23/99 6.37500 664.900
3/22/99 6.93750 295.900
3/19/99 7.12500 269.100
3/18/99 7.43750 362.600
3/17/99 7.87500 354.400
3/16/99 7.62500 515.000
3/15/99 7.75000 226.400
3/12/99 7.68750 426.300
3/11/99 7.93750 1,655.300
3/10/99 6.81250 3,884.000
3/09/99 9.43750 464.200
3/08/99 10.12500 741.800
3/05/99 10.50000 315.900
3/04/99 11.50000 433.100
3/03/99 12.25000 120.500
3/02/99 12.87500 48.600
3/01/99 12.87500 124.400
2/26/99 13.18750 38.500
2/25/99 13.18750 95.000
2/24/99 13.25000 47.900
2/23/99 13.50000 106.800
2/22/99 13.87500 109.400
2/19/99 13.43750 161.700
2/18/99 13.75000 134.300
2/17/99 13.37500 130.800
2/16/99 13.50000 180.800
2/12/99 12.93750 143.700
2/11/99 13.25000 241.300
2/10/99 13.12500 143.600
2/09/99 13.75000 156.500
2/08/99 14.00000 234.600
2/05/99 14.06250 139.700
2/04/99 14.06250 286.700
2/03/99 14.75000 258.800
2/02/99 13.93750 70.400
2/01/99 14.31250 301.400
1/29/99 13.81250 356.300
1/28/99 13.62500 233.100
1/27/99 14.50000 213.700
1/26/99 14.93750 229.800
1/25/99 14.87500 225.200
1/22/99 15.50000 168.400
1/21/99 15.68750 107.700
1/20/99 16.43750 172.700
1/19/99 17.62500 75.800
1/15/99 17.87500 74.900
1/14/99 17.43750 64.400
1/13/99 17.93750 52.100
1/12/99 18.12500 39.000
1/11/99 18.37500 68.100
1/08/99 18.25000 113.700
1/07/99 17.87500 55.800
1/06/99 17.87500 110.200
1/05/99 18.00000 249.500
1/04/99 17.75000 141.800
12/31/98 17.50000 114.700
12/30/98 17.12500 101.200
12/29/98 16.75000 37.100
12/28/98 16.25000 49.900
12/24/98 16.18750 31.700
12/23/98 16.31250 196.500
12/22/98 16.62500 46.200
12/21/98 16.81250 86.800
12/18/98 16.06250 119.300
12/17/98 16.25000 121.400
12/16/98 16.25000 84.000
12/15/98 16.37500 127.500
12/14/98 15.37500 101.900
12/11/98 15.37500 62.200
12/10/98 15.43750 110.000
12/09/98 16.31250 256.000
12/08/98 15.87500 47.700
12/07/98 15.68750 161.900
12/04/98 15.50000 66.500
12/03/98 15.56250 45.500
12/02/98 16.06250 178.600
12/01/98 16.31250 162.600
11/30/98 16.50000 78.100
11/27/98 16.43750 31.400
11/25/98 16.37500 23.700
11/24/98 16.56250 79.100
11/23/98 16.25000 60.600
11/20/98 15.87500 68.600
11/19/98 16.50000 216.500
11/18/98 17.25000 272.500
11/17/98 16.56250 102.500
11/16/98 16.50000 87.800
11/13/98 16.00000 163.200
11/12/98 16.00000 129.200
11/11/98 15.62500 143.500
11/10/98 15.87500 26.400
11/09/98 15.87500 102.500
11/06/98 15.75000 132.200
11/05/98 15.37500 94.300
11/04/98 15.37500 211.600
11/03/98 15.37500 290.100
11/02/98 16.25000 175.300
10/30/98 15.50000 248.300
10/29/98 14.00000 100.100
10/28/98 13.93750 118.100
10/27/98 13.62500 181.800
10/26/98 13.75000 122.800
10/23/98 13.56250 147.600
10/22/98 13.43750 289.000
10/21/98 12.87500 198.100
10/20/98 12.18750 298.900
10/19/98 12.00000 219.200
10/16/98 11.12500 296.200
10/15/98 11.93750 150.200
10/14/98 11.81250 259.100
10/13/98 9.93750 88.800
10/12/98 10.68750 233.900
10/09/98 8.81250 212.500
10/08/98 8.62500 136.800
10/07/98 8.93750 262.600
10/06/98 8.93750 239.300
10/05/98 9.37500 181.400
10/02/98 11.25000 141.700
10/01/98 11.87500 240.000
9/30/98 12.31250 109.000
9/29/98 12.37500 129.100
9/28/98 11.93750 238.100
9/25/98 12.93750 26.800
9/24/98 13.50000 123.500
9/23/98 13.37500 593.800
9/22/98 12.43750 350.500
9/21/98 11.93750 61.400
9/18/98 12.62500 91.700
9/17/98 12.62500 32.600
9/16/98 13.00000 189.600
9/15/98 12.37500 169.900
9/14/98 12.00000 207.000
9/11/98 11.81250 76.800
9/10/98 12.06250 58.500
9/09/98 12.37500 156.300
9/08/98 12.93750 192.500
9/04/98 12.31250 155.100
9/03/98 11.87500 155.700
9/02/98 11.00000 245.300
9/01/98 11.37500 258.800
8/31/98 11.31250 110.600
8/28/98 12.75000 148.100
8/27/98 13.75000 105.900
8/26/98 14.50000 225.200
8/25/98 14.37500 253.100
8/24/98 14.87500 74.500
8/21/98 15.00000 200.100
8/20/98 15.56250 39.300
8/19/98 16.00000 44.100
8/18/98 15.87500 221.500
8/17/98 15.93750 172.300
8/14/98 16.00000 71.200
8/13/98 16.25000 173.800
8/12/98 16.62500 258.700
8/11/98 16.37500 29.400
8/10/98 16.62500 33.900
8/07/98 17.00000 203.300
8/06/98 17.37500 532.200
8/05/98 15.75000 637.700
8/04/98 16.00000 514.100
8/03/98 18.37500 86.600
7/31/98 19.12500 146.000
7/30/98 19.12500 33.600
7/29/98 18.81250 116.100
7/28/98 18.37500 155.000
7/27/98 19.00000 127.200
7/24/98 19.56250 128.600
7/23/98 20.00000 127.800
7/22/98 20.12500 117.500
7/21/98 20.75000 251.300
7/20/98 20.12500 321.700
7/17/98 19.37500 71.000
7/16/98 19.93750 190.400
7/15/98 19.25000 263.200
7/14/98 19.75000 28.900
7/13/98 19.31250 71.300
7/10/98 19.93750 61.200
7/09/98 19.87500 206.900
7/08/98 19.31250 74.000
7/07/98 19.37500 57.300
7/06/98 19.68750 220.900
7/02/98 19.81250 138.600
7/01/98 20.00000 533.500
6/30/98 20.00000 355.100
6/29/98 17.93750 138.300
6/26/98 17.06250 151.600
6/25/98 17.81250 97.100
6/24/98 17.87500 169.500
6/23/98 18.37500 403.700
6/22/98 17.00000 261.400
6/19/98 17.31250 460.300
6/18/98 18.18750 250.300
6/17/98 19.18750 143.900
6/16/98 19.62500 131.300
6/15/98 19.25000 58.700
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS
- --------------------------------------------------------------------------------
04/22/99 - PGA reported net income of $0.21 per share for the 1st
quarter compared to $0.20 for the same period 1997.
03/25/99 - PGA announced the expansion of its existing share
repurchase program to repurchase up to $52.0 million of
its common stock.
03/15/99 - PGA was downgraded to "buy" from "strong buy" at J.C.
Bradford & Co.
03/11/99 - PGA was downgraded to "hold" from "buy" at NationsBanc
Montgomery Securities.
03/11/99 - PGA was downgraded to "market perform" from "outperform" at
Legg Mason Wood Walker, Inc.
- --------------------------------------------------------------------------------
==========================================Houlihan Lokey Howard & Zukin===== 43
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Winston Resources
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Supporting Material
----------------------------------------------------------------------
ROMAC INTERNATIONAL, INC.
Romac International, Inc. ("Romac") provides temporary, contract, and
permanent placement of professional and technical personnel. Romac's
main areas of specialization include information technology, finance
and accounting and human resources.
In information technology, Romac supplies workers who are qualified to
handle system upgrades, training, installation and implementation, and
development. Through its Solutions Group, Romac offers IT strategy,
networking and systems services, data services, application services,
education services and industry services. Source EDP provides
experienced information technology professionals. Romac also furnishes
consultants and consulting services to assist clients with a variety
of projects with definable life spans, such as software development,
IT design and implementation review.
Through its Romac Executive Solutions division, Romac provides senior-
and executive-level accounting and finance professionals for project
and interim staffing engagements. Romac also provides accounting and
finance professionals to help companies with changing work
environments, such as accounting system conversions and disclosure and
reporting. Romac also fills temporary accounting and financial
positions with individuals ranging from bookkeepers to tax specialists
and controllers.
==========================================Houlihan Lokey Howard & Zukin===== 44
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Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
ROMAC INTERNATIONAL, INC. (CONT.)
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 9.56250 567.100
6/14/99 10.25000 963.900
6/11/99 11.06250 236.100
6/10/99 11.75000 547.700
6/09/99 10.75000 950.000
6/08/99 12.12500 709.100
6/07/99 13.06250 383.300
6/04/99 13.12500 188.700
6/03/99 13.00000 304.000
6/02/99 13.00000 320.800
6/01/99 14.75000 277.300
5/28/99 14.37500 374.700
5/27/99 14.50000 125.300
5/26/99 14.81250 333.700
5/25/99 14.75000 425.300
5/24/99 14.31250 234.800
5/21/99 13.75000 99.000
5/20/99 13.31250 278.900
5/19/99 13.93750 193.400
5/18/99 13.37500 60.700
5/17/99 13.25000 217.100
5/14/99 13.50000 153.700
5/13/99 13.87500 346.100
5/12/99 12.87500 233.500
5/11/99 11.43750 371.500
5/10/99 12.00000 184.400
5/07/99 11.75000 137.500
5/06/99 11.62500 118.600
5/05/99 12.00000 231.400
5/04/99 12.31250 371.600
5/03/99 11.50000 390.300
4/30/99 11.25000 226.600
4/29/99 11.87500 523.500
4/28/99 10.81250 863.000
4/27/99 9.25000 132.700
4/26/99 9.62500 149.000
4/23/99 9.93750 189.800
4/22/99 9.81250 305.900
4/21/99 9.65625 472.400
4/20/99 10.18750 72.300
4/19/99 10.50000 171.000
4/16/99 10.68750 346.100
4/15/99 12.25000 455.600
4/14/99 9.93750 318.200
4/13/99 9.56250 174.500
4/12/99 9.87500 297.800
4/09/99 9.43750 244.800
4/08/99 9.12500 932.900
4/07/99 8.68750 444.400
4/06/99 8.43750 1,198.500
4/05/99 8.87500 270.900
4/01/99 8.56250 101.000
3/31/99 8.50000 355.600
3/30/99 8.25000 630.200
3/29/99 8.62500 388.100
3/26/99 8.68750 451.900
3/25/99 8.37500 976.600
3/24/99 7.50000 570.900
3/23/99 7.12500 728.100
3/22/99 7.25000 1,011.200
3/19/99 7.18750 572.200
3/18/99 7.87500 549.500
3/17/99 7.06250 1,806.000
3/16/99 7.31250 1,126.100
3/15/99 7.93750 358.500
3/12/99 8.31250 840.000
3/11/99 8.43750 786.600
3/10/99 8.43750 678.900
3/09/99 7.87500 2,936.600
3/08/99 7.93750 2,584.400
3/05/99 8.87500 4,674.200
3/04/99 10.75000 774.700
3/03/99 11.68750 294.500
3/02/99 12.37500 723.700
3/01/99 12.25000 208.600
2/26/99 12.00000 141.400
2/25/99 11.56250 691.200
2/24/99 11.43750 418.600
2/23/99 11.12500 535.200
2/22/99 11.93750 3,158.900
2/19/99 11.81250 1,038.000
2/18/99 12.43750 308.300
2/17/99 12.93750 64.500
2/16/99 13.43750 161.300
2/12/99 13.50000 261.500
2/11/99 13.81250 512.300
2/10/99 13.87500 834.200
2/09/99 13.93750 980.700
2/08/99 13.37500 489.300
2/05/99 14.93750 264.700
2/04/99 14.37500 567.000
2/03/99 15.06250 251.300
2/02/99 17.00000 77.100
2/01/99 17.18750 146.000
1/29/99 16.50000 83.100
1/28/99 16.00000 117.900
1/27/99 17.00000 150.000
1/26/99 17.31250 219.800
1/25/99 17.37500 494.900
1/22/99 17.31250 125.400
1/21/99 17.62500 210.500
1/20/99 18.87500 131.100
1/19/99 19.06250 225.500
1/15/99 19.87500 199.400
1/14/99 21.43750 230.600
1/13/99 20.43750 235.500
1/12/99 20.50000 398.900
1/11/99 20.75000 457.800
1/08/99 23.50000 781.900
1/07/99 20.62500 123.500
1/06/99 19.43750 191.200
1/05/99 20.06250 273.800
1/04/99 20.50000 242.600
12/31/98 22.25000 250.500
12/30/98 21.87500 194.800
12/29/98 21.00000 110.600
12/28/98 20.96875 166.400
12/24/98 19.68750 39.200
12/23/98 19.50000 367.700
12/22/98 20.25000 811.900
12/21/98 17.43750 538.800
12/18/98 16.37500 793.800
12/17/98 16.43750 272.400
12/16/98 16.43750 190.200
12/15/98 16.00000 145.900
12/14/98 16.37500 269.400
12/11/98 16.68750 199.500
12/10/98 17.50000 300.500
12/09/98 17.93750 275.600
12/08/98 17.25000 221.900
12/07/98 17.12500 313.900
12/04/98 16.43750 277.700
12/03/98 15.43750 304.900
12/02/98 14.87500 550.000
12/01/98 14.68750 356.000
11/30/98 13.93750 399.300
11/27/98 15.56250 35.900
11/25/98 15.43750 428.600
11/24/98 15.37500 154.300
11/23/98 15.37500 265.900
11/20/98 15.31250 163.600
11/19/98 15.12500 157.200
11/18/98 15.00000 305.800
11/17/98 14.43750 267.200
11/16/98 15.12500 241.100
11/13/98 15.81250 663.900
11/12/98 15.50000 382.300
11/11/98 16.50000 163.500
11/10/98 17.12500 176.100
11/09/98 18.43750 259.800
11/06/98 18.06250 159.700
11/05/98 18.56250 121.200
11/04/98 18.75000 293.400
11/03/98 19.00000 328.200
11/02/98 17.87500 748.100
10/30/98 17.50000 1,508.000
10/29/98 17.50000 415.400
10/28/98 15.50000 1,427.300
10/27/98 14.75000 410.400
10/26/98 15.50000 447.800
10/23/98 15.62500 242.800
10/22/98 15.68750 394.100
10/21/98 15.56250 237.200
10/20/98 16.75000 380.000
10/19/98 17.06250 404.900
10/16/98 16.87500 598.600
10/15/98 15.75000 820.000
10/14/98 13.87500 340.400
10/13/98 13.00000 243.700
10/12/98 13.75000 367.100
10/09/98 13.50000 832.700
10/08/98 12.75000 1,090.900
10/07/98 15.50000 333.400
10/06/98 15.87500 846.800
10/05/98 14.87500 487.800
10/02/98 17.00000 237.000
10/01/98 17.93750 883.900
9/30/98 18.00000 488.100
9/29/98 18.75000 470.300
9/28/98 21.18750 235.100
9/25/98 22.18750 176.100
9/24/98 23.37500 488.500
9/23/98 23.00000 705.400
9/22/98 21.56250 407.800
9/21/98 20.00000 147.900
9/18/98 21.12500 119.500
9/17/98 19.37500 170.400
9/16/98 20.12500 304.400
9/15/98 21.87500 133.000
9/14/98 20.87500 243.900
9/11/98 21.25000 302.100
9/10/98 21.00000 557.800
9/09/98 22.81250 375.000
9/08/98 24.00000 261.100
9/04/98 21.62500 232.500
9/03/98 22.00000 98.100
9/02/98 22.00000 188.200
9/01/98 22.87500 570.300
8/31/98 18.75000 474.700
8/28/98 19.62500 329.200
8/27/98 21.56250 471.900
8/26/98 22.93750 277.000
8/25/98 25.25000 188.800
8/24/98 24.93750 142.600
8/21/98 25.12500 205.600
8/20/98 25.50000 267.900
8/19/98 25.75000 216.200
8/18/98 26.75000 208.100
8/17/98 27.81250 266.000
8/14/98 27.43750 161.100
8/13/98 26.37500 213.000
8/12/98 26.81250 248.200
8/11/98 25.18750 552.500
8/10/98 26.87500 55.000
8/07/98 26.00000 69.500
8/06/98 26.12500 270.200
8/05/98 26.50000 133.100
8/04/98 26.62500 216.400
8/03/98 25.87500 251.100
7/31/98 25.75000 223.200
7/30/98 27.25000 274.200
7/29/98 26.75000 259.600
7/28/98 25.31250 349.800
7/27/98 25.81250 171.500
7/24/98 27.37500 177.600
7/23/98 27.25000 295.300
7/22/98 28.00000 354.800
7/21/98 29.81250 89.900
7/20/98 29.87500 103.800
7/17/98 29.18750 96.300
7/16/98 29.12500 165.000
7/15/98 28.87500 112.500
7/14/98 29.87500 257.400
7/13/98 28.87500 83.500
7/10/98 29.00000 158.700
7/09/98 29.06250 130.700
7/08/98 28.87500 140.100
7/07/98 29.68750 150.900
7/06/98 30.06250 243.800
7/02/98 29.50000 116.100
7/01/98 29.37500 315.400
6/30/98 30.37500 523.200
6/29/98 31.25000 111.500
6/26/98 31.00000 57.200
6/25/98 30.87500 52.700
6/24/98 31.12500 337.400
6/23/98 31.25000 166.400
6/22/98 31.50000 361.700
6/19/98 29.50000 102.500
6/18/98 29.12500 351.500
6/17/98 29.37500 459.500
6/16/98 28.00000 203.000
6/15/98 27.43750 62.100
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS
- --------------------------------------------------------------------------------
04/28/99 - Romac reported net income of $0.20 per share for
the 1st quarter compared to $0.16 for the same
period 1998.
04/05/99 - Romac announced that William Sanders has been
appointed CFO.
03/11/99 - Romac has authorized the repurchase of up to $50 million of
its common stock that would represent approximately 12.7%
of Romac's outstanding stock.
03/08/99 - Romac said that 1st quarter earnings could miss
expectations after the integration of a recent
acquisition.
02/10/99 - Romac reported net income of $0.33 per share for the fiscal
year 1998 compared to $0.52 per share for fiscal year
1997.
- --------------------------------------------------------------------------------
==========================================Houlihan Lokey Howard & Zukin===== 45
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Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
SOS STAFFING SERVICES, INC.
SOS Staffing Services, Inc. ("SOS") provides staffing services in the
western U.S. through over 140 offices in 18 states. Services include
clerical, light industrial, industrial, construction, manufacturing,
accounting and technical services.
During the 52 weeks ended December 31, 1998, the company provided
78,000 staffing employees to more than 10,000 businesses, professional
and service organizations, and government agencies. The company also
provides consulting services and outsourcing services, and has plans
to expand its on-site employee management and staffing services.
==========================================Houlihan Lokey Howard & Zukin===== 46
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Winston Resources
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Supporting Material
----------------------------------------------------------------------
SOS STAFFING SERVICES, INC. (CONT.)
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 5.93750 10.400
6/14/99 6.00000 6.100
6/11/99 5.50000 14.400
6/10/99 5.50000 66.300
6/09/99 5.50000 53.900
6/08/99 5.75000 22.600
6/07/99 5.75000 15.400
6/04/99 6.12500 8.400
6/03/99 5.75000 48.600
6/02/99 6.00000 19.800
6/01/99 6.00000 17.100
5/28/99 6.06250 17.300
5/27/99 6.09375 20.800
5/26/99 6.18750 24.400
5/25/99 6.12500 6.700
5/24/99 6.21875 14.100
5/21/99 6.15625 22.700
5/20/99 6.12500 29.300
5/19/99 5.93750 9.700
5/18/99 6.00000 29.400
5/17/99 6.06250 29.600
5/14/99 6.12500 83.100
5/13/99 6.00000 122.100
5/12/99 6.06250 53.300
5/11/99 6.00000 67.100
5/10/99 6.18750 67.300
5/07/99 6.56250 74.900
5/06/99 6.62500 36.400
5/05/99 6.75000 14.300
5/04/99 6.75000 30.500
5/03/99 7.00000 4.500
4/30/99 7.00000 47.300
4/29/99 6.87500 26.300
4/28/99 6.75000 124.600
4/27/99 6.62500 367.200
4/26/99 7.25000 38.300
4/23/99 7.12500 3.900
4/22/99 7.25000 7.700
4/21/99 7.09375 17.500
4/20/99 7.12500 42.800
4/19/99 7.00000 51.300
4/16/99 7.25000 29.500
4/15/99 7.18750 34.800
4/14/99 7.25000 28.100
4/13/99 7.31250 35.000
4/12/99 7.25000 34.500
4/09/99 7.62500 22.300
4/08/99 7.31250 6.000
4/07/99 7.87500 35.900
4/06/99 7.62500 28.700
4/05/99 7.62500 14.700
4/01/99 7.62500 23.600
3/31/99 7.65625 16.900
3/30/99 7.81250 25.500
3/29/99 7.87500 26.000
3/26/99 8.12500 4.000
3/25/99 8.00000 38.400
3/24/99 8.31250 4.300
3/23/99 8.43750 21.500
3/22/99 8.31250 47.500
3/19/99 8.50000 70.700
3/18/99 8.53125 249.300
3/17/99 8.56250 37.100
3/16/99 8.62500 14.500
3/15/99 8.62500 27.500
3/12/99 8.75000 39.700
3/11/99 8.93750 9.000
3/10/99 8.87500 5.400
3/09/99 8.87500 66.600
3/08/99 8.87500 7.900
3/05/99 9.62500 13.600
3/04/99 9.25000 33.300
3/03/99 9.25000 13.000
3/02/99 9.00000 33.300
3/01/99 8.87500 6.900
2/26/99 8.87500 43.900
2/25/99 8.00000 18.200
2/24/99 8.62500 29.300
2/23/99 8.50000 17.100
2/22/99 8.62500 10.700
2/19/99 8.78125 17.900
2/18/99 8.75000 54.300
2/17/99 8.25000 43.600
2/16/99 8.62500 35.800
2/12/99 9.00000 48.900
2/11/99 9.00000 48.900
2/10/99 9.25000 61.200
2/09/99 8.75000 188.300
2/08/99 9.37500 51.700
2/05/99 9.31250 50.500
2/04/99 9.62500 177.500
2/03/99 10.50000 37.200
2/02/99 10.75000 43.900
2/01/99 10.68750 61.700
1/29/99 10.68750 30.900
1/28/99 10.75000 121.400
1/27/99 10.62500 214.200
1/26/99 9.93750 46.200
1/25/99 9.75000 50.100
1/22/99 10.00000 122.800
1/21/99 9.25000 119.200
1/20/99 9.12500 84.300
1/19/99 9.00000 58.900
1/15/99 9.06250 143.100
1/14/99 8.50000 86.800
1/13/99 8.50000 165.800
1/12/99 7.93750 132.900
1/11/99 7.50000 118.900
1/08/99 7.59375 84.200
1/07/99 7.46875 91.200
1/06/99 7.37500 50.700
1/05/99 7.25000 48.400
1/04/99 7.12500 125.600
12/31/98 7.25000 220.900
12/30/98 6.93750 217.000
12/29/98 6.81250 101.700
12/28/98 6.93750 87.800
12/24/98 7.00000 24.900
12/23/98 6.87500 181.000
12/22/98 7.00000 150.500
12/21/98 7.06250 196.300
12/18/98 7.62500 163.300
12/17/98 7.37500 103.300
12/16/98 7.12500 30.600
12/15/98 7.25000 39.700
12/14/98 7.25000 40.100
12/11/98 7.37500 61.000
12/10/98 7.50000 61.500
12/09/98 7.25000 76.800
12/08/98 7.84375 38.600
12/07/98 7.84375 48.000
12/04/98 7.87500 26.000
12/03/98 7.87500 91.700
12/02/98 7.93750 61.600
12/01/98 7.50000 99.600
11/30/98 7.43750 156.000
11/27/98 7.62500 43.600
11/25/98 7.68750 136.400
11/24/98 7.81250 211.600
11/23/98 7.78125 102.400
11/20/98 7.75000 93.500
11/19/98 8.00000 83.100
11/18/98 8.25000 148.200
11/17/98 8.25000 94.200
11/16/98 8.25000 48.700
11/13/98 8.62500 71.800
11/12/98 9.18750 67.700
11/11/98 9.18750 84.200
11/10/98 9.12500 86.100
11/09/98 9.31250 180.700
11/06/98 9.12500 149.200
11/05/98 9.18750 145.100
11/04/98 9.12500 164.500
11/03/98 9.31250 309.400
11/02/98 8.93750 551.600
10/30/98 8.43750 329.600
10/29/98 8.62500 417.000
10/28/98 7.93750 176.100
10/27/98 7.75000 174.400
10/26/98 7.62500 404.000
10/23/98 7.56250 308.600
10/22/98 7.25000 479.100
10/21/98 7.43750 1,215.900
10/20/98 7.93750 2,680.200
10/19/98 13.37500 50.900
10/16/98 13.87500 148.800
10/15/98 11.81250 39.900
10/14/98 11.75000 18.800
10/13/98 11.62500 2.500
10/12/98 11.87500 31.600
10/09/98 12.00000 56.900
10/08/98 12.00000 19.300
10/07/98 12.06250 29.600
10/06/98 12.12500 48.200
10/05/98 12.00000 54.300
10/02/98 13.75000 26.200
10/01/98 14.62500 12.300
9/30/98 14.62500 26.700
9/29/98 15.12500 72.100
9/28/98 16.68750 53.600
9/25/98 17.12500 35.400
9/24/98 18.00000 44.000
9/23/98 17.50000 29.800
9/22/98 17.50000 22.300
9/21/98 17.75000 49.700
9/18/98 18.12500 85.900
9/17/98 16.50000 36.900
9/16/98 17.00000 56.300
9/15/98 14.62500 24.500
9/14/98 13.50000 11.300
9/11/98 13.00000 32.900
9/10/98 13.00000 20.400
9/09/98 13.50000 22.400
9/08/98 13.25000 30.300
9/04/98 12.93750 24.900
9/03/98 12.75000 39.400
9/02/98 13.00000 81.500
9/01/98 13.12500 80.300
8/31/98 13.18750 103.400
8/28/98 15.06250 48.300
8/27/98 15.50000 56.000
8/26/98 16.00000 25.300
8/25/98 15.87500 99.300
8/24/98 15.75000 40.300
8/21/98 15.37500 60.000
8/20/98 16.37500 252.100
8/19/98 18.00000 17.300
8/18/98 17.75000 30.900
8/17/98 18.62500 14.300
8/14/98 19.00000 36.100
8/13/98 19.50000 96.500
8/12/98 19.00000 33.700
8/11/98 18.75000 25.800
8/10/98 19.37500 30.700
8/07/98 20.00000 12.400
8/06/98 19.75000 24.100
8/05/98 20.06250 176.200
8/04/98 20.18750 98.700
8/03/98 20.12500 23.700
7/31/98 20.62500 20.500
7/30/98 20.81250 37.700
7/29/98 20.62500 241.800
7/28/98 20.87500 94.300
7/27/98 20.00000 106.500
7/24/98 19.12500 47.900
7/23/98 19.37500 103.900
7/22/98 19.06250 57.600
7/21/98 19.31250 59.000
7/20/98 19.00000 11.100
7/17/98 19.25000 93.300
7/16/98 18.87500 93.600
7/15/98 18.93750 14.200
7/14/98 19.00000 40.000
7/13/98 18.87500 79.300
7/10/98 19.00000 63.300
7/09/98 18.62500 41.500
7/08/98 18.56250 184.800
7/07/98 18.37500 109.600
7/06/98 18.56250 22.200
7/02/98 18.25000 39.900
7/01/98 18.62500 87.800
6/30/98 17.56250 79.100
6/29/98 19.00000 20.300
6/26/98 19.00000 39.300
6/25/98 19.31250 62.900
6/24/98 19.12500 26.400
6/23/98 19.25000 15.600
6/22/98 19.25000 21.700
6/19/98 19.50000 38.900
6/18/98 19.75000 92.000
6/17/98 19.50000 27.700
6/16/98 18.00000 47.400
6/15/98 17.12500 86.800
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS
- --------------------------------------------------------------------------------
04/28/99 - SOS was reiterated "buy" at CE Unterberg Towbin.
04/27/99 - SOS reported net income of $0.03 per share for the 1st
quarter compared to $0.19 for the same period 1998.
02/09/99 - SOS reported net income of $0.77 per share for fiscal year
1998 compared to $0.77 for fiscal [OBJECT OMITTED] year
1997.
01/15/99 - SOS was upgraded to "buy" from "neutral" at George K. Baum
& Co.
10/30/99 - SOS announced that JoAnn Wagner, chairman of the board, has
been named CEO of SOS.
10/22/99 - SOS has been downgraded to "buy" from "strong buy" at CE
Unterberg Towbin.
==========================================Houlihan Lokey Howard & Zukin===== 47
<PAGE>
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Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
WESTAFF, INC.
Westaff, Inc. ("Westaff") (formerly Western Staff Services, Inc.)
provides traditional temporary staffing services to businesses,
government agencies and health care organizations in regional and
local markets in the U.S. and selected international markets. Through
a network of company-owned, franchise agent and licensed offices,
Westaff offers a range of temporary staffing solutions, including
replacement, supplemental and on-site programs. At FY 98 (Oct.)
year-end, it operated over 370 business services offices in 45 states,
the District of Columbia, Guam and five foreign countries. Of these
offices, approximately 71% were owned, 22% were franchised and 7% were
licensed.
The business services segment provides personnel to serve light
industrial, clerical and light technical staffing needs of customers
through a network of offices. In the light industrial segment,
Westaff's temporary personnel perform light-duty, labor intensive
tasks, such as unskilled and semi-skilled assembly, packaging and
warehousing, and mail-house support. Temporary clerical personnel
typically perform tasks such as telemarketing, customer service, word
processing, copying, data entry and reception. Temporary personnel in
the light technical segment provide services such as help desk
support, laboratory testing and support and quality control.
International operations consist of 59 offices (23 in the U.K., 20 in
Australia, 6 in New Zealand, 4 in Denmark and 6 in Norway, through
which Westaff offers temporary personnel in the light industrial and
clerical support areas. International offices also supply permanent
employment placements. In FY 98, revenues generated from foreign
markets increased 19% to about 12% of aggregate sales.
==========================================Houlihan Lokey Howard & Zukin===== 48
<PAGE>
================================================================================
Winston Resources
================================================================================
Supporting Material
----------------------------------------------------------------------
WESTAFF, INC. (CONT.)
---------------------------------------------------------
DAILY STOCK PRICE AND VOLUME
---------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Price Volume
---- ----- ------
6/15/99 5.62500 56.700
6/14/99 5.75000 5.700
6/11/99 5.43750 71.400
6/10/99 5.06250 62.100
6/09/99 6.25000 39.900
6/08/99 6.81250 5.600
6/07/99 6.56250 32.600
6/04/99 6.62500 92.300
6/03/99 6.62500 5.300
6/02/99 6.62500 18.600
6/01/99 6.68750 19.400
5/28/99 6.62500 12.800
5/27/99 6.87500 6.300
5/26/99 6.81250 40.900
5/25/99 6.75000 11.700
5/24/99 7.25000 30.200
5/21/99 7.28125 11.000
5/20/99 7.31250 44.700
5/19/99 7.50000 15.100
5/18/99 7.50000 10.100
5/17/99 7.50000 11.800
5/14/99 7.00000 10.800
5/13/99 7.31250 4.700
5/12/99 7.50000 2.300
5/11/99 7.12500 18.900
5/10/99 7.37500 29.700
5/07/99 7.50000 21.000
5/06/99 7.00000 6.900
5/05/99 6.75000 19.300
5/04/99 7.00000 10.000
5/03/99 7.00000 78.200
4/30/99 7.37500 28.700
4/29/99 7.37500 27.200
4/28/99 7.12500 11.500
4/27/99 7.50000 18.500
4/26/99 7.12500 22.200
4/23/99 7.06250 15.100
4/22/99 7.06250 44.500
4/21/99 6.50000 38.300
4/20/99 6.87500 33.600
4/19/99 6.12500 24.700
4/16/99 5.50000 15.300
4/15/99 5.53125 13.500
4/14/99 5.37500 9.200
4/13/99 5.37500 28.900
4/12/99 5.12500 30.400
4/09/99 4.93750 21.600
4/08/99 4.68750 31.200
4/07/99 5.00000 8.600
4/06/99 4.68750 16.100
4/05/99 5.12500 9.100
4/01/99 5.12500 18.100
3/31/99 5.18750 93.200
3/30/99 6.00000 95.400
3/29/99 6.06250 16.700
3/26/99 6.25000 16.300
3/25/99 5.75000 12.400
3/24/99 6.00000 3.700
3/23/99 6.25000 8.700
3/22/99 6.50000 9.000
3/19/99 6.25000 13.100
3/18/99 5.93750 4.500
3/17/99 6.00000 13.300
3/16/99 6.06250 9.300
3/15/99 6.00000 18.900
3/12/99 6.00000 55.400
3/11/99 6.37500 4.400
3/10/99 6.00000 11.900
3/09/99 6.12500 12.400
3/08/99 6.50000 1.800
3/05/99 6.06250 67.500
3/04/99 6.12500 5.400
3/03/99 6.12500 16.100
3/02/99 6.75000 18.500
3/01/99 6.50000 18.400
2/26/99 6.25000 35.000
2/25/99 6.50000 5.200
2/24/99 6.00000 75.300
2/23/99 6.37500 10.800
2/22/99 6.37500 25.400
2/19/99 6.37500 19.800
2/18/99 6.28125 7.900
2/17/99 6.25000 24.200
2/16/99 6.68750 43.100
2/12/99 6.75000 47.400
2/11/99 7.12500 10.400
2/10/99 6.50000 10.900
2/09/99 6.62500 17.200
2/08/99 7.00000 15.200
2/05/99 7.25000 14.200
2/04/99 8.25000 36.600
2/03/99 7.12500 20.600
2/02/99 7.00000 62.600
2/01/99 7.50000 10.100
1/29/99 8.00000 20.600
1/28/99 7.75000 21.600
1/27/99 7.62500 7.800
1/26/99 7.68750 19.200
1/25/99 7.37500 6.800
1/22/99 7.62500 11.500
1/21/99 7.50000 17.500
1/20/99 7.87500 42.000
1/19/99 7.00000 39.500
1/15/99 6.90625 8.900
1/14/99 6.81250 29.000
1/13/99 7.00000 45.500
1/12/99 7.37500 44.700
1/11/99 8.00000 41.400
1/08/99 8.00000 48.200
1/07/99 7.75000 21.600
1/06/99 7.25000 41.700
1/05/99 6.62500 47.500
1/04/99 6.37500 42.600
12/31/98 6.25000 99.300
12/30/98 6.12500 53.000
12/29/98 5.93750 96.200
12/28/98 6.12500 39.500
12/24/98 6.12500 6.300
12/23/98 6.00000 42.800
12/22/98 5.93750 135.800
12/21/98 6.12500 12.600
12/18/98 6.43750 37.900
12/17/98 6.25000 70.400
12/16/98 6.25000 75.200
12/15/98 6.50000 23.400
12/14/98 6.00000 40.100
12/11/98 6.25000 278.000
12/10/98 6.00000 65.000
12/09/98 6.50000 34.000
12/08/98 6.50000 87.200
12/07/98 6.87500 37.900
12/04/98 7.25000 26.000
12/03/98 7.25000 140.500
12/02/98 6.18750 121.500
12/01/98 6.00000 82.800
11/30/98 6.62500 48.600
11/27/98 7.37500 31.900
11/25/98 7.25000 132.800
11/24/98 7.75000 36.900
11/23/98 8.87500 25.200
11/20/98 8.81250 14.000
11/19/98 8.62500 8.100
11/18/98 8.75000 16.500
11/17/98 8.50000 4.900
11/16/98 9.12500 12.800
11/13/98 9.12500 30.800
11/12/98 10.00000 29.700
11/11/98 10.62500 29.100
11/10/98 11.62500 14.400
11/09/98 11.50000 8.100
11/06/98 11.00000 22.800
11/05/98 11.06250 12.400
11/04/98 10.50000 8.100
11/03/98 10.50000 19.200
11/02/98 10.12500 27.800
10/30/98 8.62500 18.600
10/29/98 10.00000 17.900
10/28/98 8.75000 7.800
10/27/98 8.00000 34.700
10/26/98 8.25000 41.800
10/23/98 8.87500 3.200
10/22/98 8.62500 10.500
10/21/98 10.50000 8.900
10/20/98 10.50000 27.500
10/19/98 11.25000 18.100
10/16/98 10.00000 33.300
10/15/98 10.00000 13.300
10/14/98 8.50000 3.000
10/13/98 8.12500 2.900
10/12/98 8.50000 3.600
10/09/98 8.50000 14.800
10/08/98 8.50000 16.900
10/07/98 8.00000 25.400
10/06/98 9.25000 42.800
10/05/98 9.62500 18.100
10/02/98 11.37500 2.100
10/01/98 11.81250 4.300
9/30/98 13.00000 10.900
9/29/98 12.00000 27.100
9/28/98 12.18750 26.700
9/25/98 12.18750 15.300
9/24/98 11.87500 4.300
9/23/98 12.50000 6.700
9/22/98 12.50000 15.400
9/21/98 13.50000 3.600
9/18/98 13.62500 41.100
9/17/98 11.43750 6.700
9/16/98 11.62500 18.400
9/15/98 11.31250 3.500
9/14/98 12.00000 17.600
9/11/98 11.81250 26.700
9/10/98 11.87500 9.200
9/09/98 12.50000 19.800
9/08/98 13.00000 44.500
9/04/98 12.12500 29.600
9/03/98 11.87500 13.800
9/02/98 11.62500 6.100
9/01/98 11.50000 56.100
8/31/98 9.50000 32.800
8/28/98 10.81250 78.900
8/27/98 10.62500 37.800
8/26/98 12.50000 15.400
8/25/98 13.00000 49.500
8/24/98 12.50000 24.600
8/21/98 11.75000 21.600
8/20/98 13.00000 17.200
8/19/98 13.25000 132.800
8/18/98 13.00000 58.300
8/17/98 13.37500 103.300
8/14/98 12.93750 47.000
8/13/98 14.00000 19.300
8/12/98 14.00000 14.800
8/11/98 14.00000 24.800
8/10/98 14.12500 77.100
8/07/98 13.93750 18.500
8/06/98 13.75000 15.500
8/05/98 13.12500 7.300
8/04/98 13.12500 54.200
8/03/98 13.37500 42.300
7/31/98 13.50000 20.900
7/30/98 13.87500 57.500
7/29/98 14.37500 46.100
7/28/98 13.87500 42.000
7/27/98 13.12500 88.100
7/24/98 12.50000 144.300
7/23/98 13.18750 95.500
7/22/98 14.00000 170.100
7/21/98 15.75000 276.600
7/20/98 18.25000 29.200
7/17/98 18.75000 37.100
7/16/98 18.93750 89.900
7/15/98 18.87500 158.800
7/14/98 19.00000 27.400
7/13/98 18.75000 21.600
7/10/98 19.00000 86.500
7/09/98 19.87500 37.200
7/08/98 19.25000 23.100
7/07/98 19.37500 179.700
7/06/98 19.31250 171.400
7/02/98 19.06250 6.300
7/01/98 18.93750 85.800
6/30/98 18.50000 79.200
6/29/98 18.43750 15.100
6/26/98 18.50000 175.600
6/25/98 17.00000 47.900
6/24/98 18.25000 25.900
6/23/98 19.50000 24.100
6/22/98 20.25000 21.600
6/19/98 18.75000 10.300
6/18/98 19.00000 50.800
6/17/98 19.00000 121.000
6/16/98 18.87500 65.200
6/15/98 18.50000 41.600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT NEWS
- --------------------------------------------------------------------------------
04/07/99 - Westaff said it has approved the repurchase of up to
100,000 shares of its outstanding common stock for
use in Westaff's employee stock purchase plan and stock
option plan.
03/24/99 - Westaff announced that it has sold its Northern California
medical offices.
02/25/99 - Westaff was reiterated "buy" at CE Unterberg Towbin.
02/23/99 - Westaff reported net income of $0.15 per share for the 1st
quarter compared to $0.13 for the same period 1998.
12/15/98 - Westaff reported net income from continuing operations of
$0.87 per share compared to $0.60 for the same period
1997.
==========================================Houlihan Lokey Howard & Zukin===== 49
<PAGE>
EXHIBIT (b)(3)
================================================================================
PROJECT STAFF
Discussion Materials
May 1999
PETER J. SOLOMON COMPANY
LIMITED
767 Fifth Avenue, 26th Floor o New York, NY 10153
TEL: 212.508.1600 o FAX: 212.508.1633 o E-MAIL: [email protected]
================================================================================
<PAGE>
Table of Contents
================================================================================
Tab Page
- --- ----
1. Summary Overview of Peter J. Solomon Company ("PJSC") 2
2. Review of Financial Performance of Staff 4
3. Valuation Analysis of Staff 8
4. Valuation Conclusions 19
Appendix 1 Summary Analysis of Selected Comparable Companies
Appendix 2 Summary Analysis of Selected Precedent Transactions
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 1
<PAGE>
PROJECT STAFF
================================================================================
------------------------------
SUMMARY OVERVIEW OF PJSC
------------------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 2
<PAGE>
Summary Overview of Peter J. Solomon
================================================================================
o Peter J. Solomon Company ("PJSC") is a leading independent investment
banking firm.
o Since its formation in 1989, PJSC has successfully completed over 100
advisory assignments.
o PJSC advised on over $15 billion of completed transactions for the quarter
ended 3/31/99 ranking it as the 11th leading M&A advisor for this period.
o PJSC has over 35 investment banking professionals.
o PJSC recently hired a group of investment banking professionals to focus on
providing capital raising and advisory services to middle market companies.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 3
<PAGE>
PROJECT STAFF
================================================================================
----------------------------------------
REVIEW OF FINANCIAL PERFORMANCE OF STAFF
----------------------------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 4
<PAGE>
Review of Financial Performance of Staff
================================================================================
<TABLE>
<CAPTION>
($ thousands) Three Months Ended TTM Ended FYE
Fiscal Years Ended December 31, March 31, March 31, Dec. 31,
--------------------------------------------- ------------------- ---------- --------
1995 1996 1997 1998 1998 1999 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $30,989 $ 39,390 $ 49,199 $ 60,850 $14,409 $ 14,806 $61,247 $ 61,388
EBITDA 1,129(2) 1,714 2,719 3,411 688 714 3,437 3,226
EBIT 721(2) 1,585 2,547 3,204 644 669 3,229 3,047
Net Income 241 1,138 1,444 1,829 355 360 1,834 1,641
- ----------------------------------------------------------------------------------------------------------------------------
Revenue Growth Rate -- 27.1% 24.9% 23.7% -- 2.8% -- 0.9%
EBITDA Margin 3.6% 4.4% 5.5% 5.6% 4.8% 4.8% 5.6% 5.3%
Operating Income Margin 2.3% 4.0% 5.2% 5.3% 4.5% 4.5% 5.3% 5.0%
Net Income Margin 0.8% 2.9% 2.9% 3.0% 2.5% 2.4% 3.0% 2.7%
Net Income Growth -- 371.8% 26.9% 26.7% -- 1.4% -- -10.3%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
o Rate of sales growth declining for each fiscal year since 1996.
o First quarter 1999 showed virtually no growth in sales and earnings versus
comparable period of prior year.
o Full year 1999 sales are projected to increase by less than 1.0% and
earnings are projected to decline 10.3% as compared to 1998.
o Relatively low historical EBITDA margins are projected to decline in 1999.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 5
<PAGE>
Preliminary Valuation of Staff
================================================================================
PJSC's valuation analysis of the Company is based upon a review of the
following:
o Historical financial performance;
o Projected financial performance;
o Analysis of trading multiples and characteristics of selected comparable
companies;
o Analysis of multiples from comparable merger and acquisition transactions;
and
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 6
<PAGE>
Qualitative Factors Affecting Value
================================================================================
o Liquidity for shareholders;
o Declining growth;
o Quality of earnings:
- 15% of sales to advertising company;
- Large component of permanent placement business;
o Lack of control premium; and
o Limited alternatives for shareholders to realize value.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 7
<PAGE>
PROJECT STAFF
================================================================================
---------------------------
VALUATION ANALYSIS OF STAFF
---------------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 8
<PAGE>
Liquidity Analysis
================================================================================
Shareholders of Staff have substantially less ability to realize liquidity than
shareholders of comparable companies.
30 Day
Avg. Daily
Volume (1)
----------------
Romac International Inc. 271,765
Personnel Group of America Inc. 209,235
Headway Corporate Resources, Inc. 64,430
On Assignment, Inc. 59,643
SOS Staffing 56,826
Hall, Kinion & Associates, Inc. 45,687
COMFORCE Corporation 32,804
Westaff, Inc. 21,761
Joule, Inc. 3,764
Barrett Business Services Inc. 2,027
- --------------------------------------------------------------------------------
Staff 1,165
- --------------------------------------------------------------------------------
Public
Float
----------------
Romac International Inc. 38,870,000
Personnel Group of America Inc. 32,840,000
On Assignment, Inc. 10,890,000
SOS Staffing 9,880,000
COMFORCE Corporation 7,780,000
Headway Corporate Resources, Inc. 6,520,000
Westaff, Inc. 5,730,000
Hall, Kinion & Associates, Inc. 3,510,000
Barrett Business Services Inc. 3,410,000
- --------------------------------------------------------------------------------
Staff 1,740,000
- --------------------------------------------------------------------------------
Joule, Inc. 1,020,000
Avg. Daily
Volume/
Float
----------------
Hall, Kinion & Associates, Inc. 1.30%
Headway Corporate Resources, Inc. 0.99%
Romac International Inc. 0.70%
Personnel Group of America Inc. 0.64%
SOS Staffing 0.58%
On Assignment, Inc. 0.55%
COMFORCE Corporation 0.42%
Westaff, Inc. 0.38%
Joule, Inc. 0.37%
- --------------------------------------------------------------------------------
Staff 0.07%
- --------------------------------------------------------------------------------
Barrett Business Services Inc. 0.06%
Avg Daily
Volume/
Shares
Outstanding
----------------
Personnel Group of America Inc. 0.63%
Headway Corporate Resources, Inc. 0.62%
Romac International Inc. 0.58%
On Assignment, Inc. 0.54%
Hall, Kinion & Associates, Inc. 0.48%
SOS Staffing 0.45%
COMFORCE Corporation 0.20%
Westaff, Inc. 0.14%
Joule, Inc. 0.10%
- --------------------------------------------------------------------------------
Staff 0.04%
- --------------------------------------------------------------------------------
Barrett Business Services Inc. 0.03%
(1) Average daily volume between 4/21/99 and 5/21/99.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 9
<PAGE>
Historical and Projected Earnings Growth Analysis
================================================================================
Staff's projected growth in earnings lags behind its public comparables
<TABLE>
<CAPTION>
===========================================================================================
Growth Between Fiscal Year Ends
------------------------------- Avg.Growth
1998-1999 1999-2000 1998-2000
--------- --------- ---------
<S> <C> <C> <C>
Romac International Inc. 58.2% 40.1% 49.1%
Hall, Kinion & Associates, Inc. 36.5% 32.1% 34.3%
Personnel Group of America Inc. 34.2% 25.7% 30.0%
Barrett Business Services Inc. 28.2% 23.9% 26.0%
On Assignment, Inc. 22.8% 22.8% 22.8%
Headway Corporate Resources, Inc. 8.5% 14.4% 11.5%
Westaff, Inc. 9.8% 11.3% 10.6%
- -------------------------------------------------------------------------------------------
Staff -2.3% na -2.3%
- -------------------------------------------------------------------------------------------
SOS Staffing -32.2% 0.4% -15.9%
COMFORCE Corporation na na na
Joule, Inc. na na na
-------------------------------------------------------
Median 22.8% 23.4% 22.8%
-------------------------------------------------------
===========================================================================================
</TABLE>
* Earnings estimates for comparables as per IBES - Bloomberg. Estimate for
Staff as per management projection.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 10
<PAGE>
EBITDA Margin Analysis
================================================================================
Staff's EBITDA margin is in the lower end of the range compared to its public
comparables.
TTM
EBITDA
Margins
-------
On Assignment, Inc. 13.48%
Personnel Group of America Inc. 10.33%
Romac International Inc. 9.99%
Hall, Kinion & Associates, Inc. 7.89%
COMFORCE Corporation 6.74%
SOS Staffing 6.31%
Headway Corporate Resources, Inc. 6.22%
- --------------------------------------------------------------------------------
Staff 5.61%
- --------------------------------------------------------------------------------
Westaff, Inc. 5.26%
Joule, Inc. 4.57%
Barrett Business Services Inc. 3.18%
- --------------------------------------------------------------------------------
Median 6.31%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 11
<PAGE>
Market Value & Sales Comparison
================================================================================
Staff is substantially smaller than its public comparables.
($ in thousands)
Market
Value
--------
Romac International Inc. $640,709
Personnel Group of America Inc. 365,167
On Assignment, Inc. 293,185
Westaff, Inc. 116,121
SOS Staffing 78,129
Hall, Kinion & Associates, Inc. 75,624
Barrett Business Services Inc. 62,667
COMFORCE Corporation 48,606
Headway Corporate Resources, Inc. 45,636
----------------------------------------------------------------------------
Staff 10,694
----------------------------------------------------------------------------
Joule, Inc. 10,505
----------------------------------------------------------------------------
Median $75,624
----------------------------------------------------------------------------
================================================================================
================================================================================
($ in thousands)
TTM
Sales
---------
Personnel Group of America Inc. $858,726
Romac International Inc. 708,779
Westaff, Inc. 609,543
COMFORCE Corporation 454,090
SOS Staffing 344,212
Headway Corporate Resources, Inc. 326,238
Barrett Business Services Inc. 304,803
On Assignment, Inc. 138,963
Hall, Kinion & Associates, Inc. 133,158
----------------------------------------------------------------------------
Staff 61,247
----------------------------------------------------------------------------
Joule, Inc. 60,332
----------------------------------------------------------------------------
Median $326,238
----------------------------------------------------------------------------
================================================================================
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 12
<PAGE>
Summary of Comparable Company Ranking
================================================================================
Staff is at or near the bottom of many quantitative comparative analyses
between it and its comparable public companies.
================================================================================
Comparison Rank (1)
--------------------------------------------------- ----------
Public Float 10
30 Day Avg. Daily Volume 11
Avg. Daily Volume/Float 10
Avg. Daily Volume/Shares Outstanding 10
Avg. Growth in Earnings 1998-2000(2) 8
TTM EBITDA Margin 8
Market Value 10
TTM Sales 10
================================================================================
(1) Rank as compared to11 of Staff's public comparables.
(2) Rank for Average Growth in Earnings 1998-2000 as compared to 9 data points.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 13
<PAGE>
Summary Public Comparables Trading Analysis
================================================================================
Summary Statistics
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Aggregate Value as a Multiple of: Equity Value as a Multiple of:
================================= ==============================
Aggregate TTM Net TTM TTM TTM 1999E 2000E
Company Value (1) Sales EBITDA EBIT EPS EPS EPS
- ------- --------- ----- ------ ---- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Staff $8,389 0.1x 2.4x 2.6x 5.9x 6.6x na
Barrett Business Services Inc. 59,002 0.2 6.1 7.5 13.2 11.1 9.3
COMFORCE Corporation 225,244 0.5 7.4 9.4 nm na na
Hall, Kinion & Associates, Inc. 69,504 0.5 6.6 8.2 14.0 11.1 8.7
Headway Corporate Resources, Inc. 113,447 0.3 5.6 6.9 8.7 9.2 7.6
Joule, Inc. 13,792 0.2 5.0 6.5 8.2 na na
On Assignment, Inc. 252,578 1.8(2) 13.5(2) 14.2(2) 24.6(2) 21.3(2) 17.4(2)
Personnel Group of America Inc. 595,262 0.7 6.7 8.4 10.0 9.0 7.6
Romac International Inc. 582,046 0.8 8.2(2) 9.6(2) 21.2(2) 14.8(2) 12.0(2)
SOS Staffing 125,577 0.4 5.8 8.1 8.7 10.3 7.0
Westaff, Inc. 168,434 0.3 5.3 6.8 7.4 6.9 6.1
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Average 0.4x 6.1x 7.7x 10.0x 9.6x 7.7x
Median 0.4 5.9 7.8 8.7 9.8 7.6
Maximum 0.8 7.4 9.4 14.0 11.1 9.3
Minimum 0.2 5.0 6.5 7.4 6.9 6.1
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
(1) Market value of common stock plus all debt, less cash.
(2) Excluded from calculation of average, median, maximum and minimum as
significant outliers.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 14
<PAGE>
Valuation of Staff: M&A Transactions
================================================================================
M&A multiples are significantly lower for smaller cap transactions.(1)
Summary Analysis of Selected Precedent Transactions
(Enterprise Value > $25.0 million)
<TABLE>
<CAPTION>
===========================================================================================================
Enterprise Value as a
Enterprise Value as aMultiple of: Equity Value as a
----------------------------------------------------- Multiple of:
LTM LTM LTM LTM Net
Sales EBITDA EBIT Income
----------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Average 0.7 x 16.0 x 19.3 x 25.6 x
--------------------------------------------------------------
Median 0.7 16.5 19.6 26.2
--------------------------------------------------------------
===========================================================================================================
</TABLE>
M&A multiples are significantly lower for smaller cap transactions.(1)
Summary Analysis of Selected Precedent Transactions
(Enterprise Value < $25.0 million)
<TABLE>
<CAPTION>
===========================================================================================================
Enterprise Value as a
Enterprise Value as aMultiple of: Equity Value as a
----------------------------------------------------- Multiple of:
LTM LTM LTM LTM Net
Sales EBITDA EBIT Income
----------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Average 0.6 x 5.9 x 6.0 x na
--------------------------------------------------------------
Median 0.5 6.0 6.0 na
--------------------------------------------------------------
===========================================================================================================
</TABLE>
(1) Based on Houlihan Lokey report.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 15
<PAGE>
Valuation of Staff: Multiple Analysis for TTM Results
================================================================================
($ in thousands except per share data)
<TABLE>
<CAPTION>
Current
Share Price
- --------------------------------------- -------------------------------------------------------------------------------
Share Price $3.38 $3.89 $4.00 $4.25 $4.50 $4.75 $5.00 $5.25
- --------------------------------------- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premium/(discount) to Current Price -- 15.3% 18.5% 25.9% 33.3% 40.7% 48.1% 55.6%
Equity Value $10,896 $12,559 $12,914 $13,721 $14,528 $15,335 $16,143 $16,950
Total Cash $2,526
Total Debt $31
Enterprise Value 8,401 10,064 10,419 11,226 12,033 12,840 13,648 14,455
Enterprise Value as a Multiple of:
- --------------------------------------- -------------------------------------------------------------------------------
TTM Sales $61,247 0.1x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x
TTM EBITDA $3,437 2.4x 2.9x 3.0x 3.3x 3.5x 3.7x 4.0x 4.2x
TTM EBIT $3,229 2.6x 3.1x 3.2x 3.5x 3.7x 4.0x 4.2x 4.5x
- --------------------------------------- -------------------------------------------------------------------------------
Equity Value as a Multiple of:
- --------------------------------------- -------------------------------------------------------------------------------
TTM Sales $61,247 0.2x 0.2x 0.2x 0.2x 0.2x 0.3x 0.3x 0.3x
TTM EBITDA $3,437 3.2x 3.7x 3.8x 4.0x 4.2x 4.5x 4.7x 4.9x
TTM EBIT $3,229 3.4x 3.9x 4.0x 4.2x 4.5x 4.7x 5.0x 5.2x
TTM Net Income $1,834 5.9x 6.8x 7.0x 7.5x 7.9x 8.4x 8.8x 9.2x
1999 Net Income $1,641 6.6x 7.7x 7.9x 8.4x 8.9x 9.3x 9.8x 10.3x
- --------------------------------------- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 16
<PAGE>
Valuation of Staff: Multiple Analysis for Projected 1999 Results
================================================================================
<TABLE>
<CAPTION>
($ in thousands except per share data)
Current Share Price
- --------------------------------------- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Share Price $3.38 $3.89 $4.00 $4.25 $4.50 $4.75 $5.00 $5.25
- --------------------------------------- -------------------------------------------------------------------------------
Premium/(discount) to Current Price -- 15.3% 18.5% 25.9% 33.3% 40.7% 48.1% 55.6%
Equity Value $10,896 $12,559 $12,914 $13,721 $14,528 $15,335 $16,143 $16,950
Total Cash $2,526
Total Debt $31
Enterprise Value 8,401 10,064 10,419 11,226 12,033 12,840 13,648 14,455
Enterprise Value as a Multiple of:
- --------------------------------------- -------------------------------------------------------------------------------
1999 Sales $61,388 0.1x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x
1999 EBITDA $3,226 2.6x 3.1x 3.2x 3.5x 3.7x 4.0x 4.2x 4.5x
1999 EBIT $3,047 2.8x 3.3x 3.4x 3.7x 3.9x 4.2x 4.5x 4.7x
- --------------------------------------- -------------------------------------------------------------------------------
Equity Value as a Multiple of:
- --------------------------------------- -------------------------------------------------------------------------------
1999 Sales $61,388 0.2x 0.2x 0.2x 0.2x 0.2x 0.2x 0.3x 0.3x
1999 EBITDA $3,226 3.4x 3.9x 4.0x 4.3x 4.5x 4.8x 5.0x 5.3x
1999 EBIT $3,047 3.6x 4.1x 4.2x 4.5x 4.8x 5.0x 5.3x 5.6x
1999 Net Income $1,641 6.6x 7.7x 7.9x 8.4x 8.9x 9.3x 9.8x 10.3x
- --------------------------------------- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 17
<PAGE>
Control Premium Analysis
================================================================================
o Concept of control premium not relevant as control is already possessed by
stockholder group.
o However, median squeeze-out premium identified by Houlihan Lokey for public
transactions in which between 41% and 60% of outstanding shares are
purchased is only 32.2%.
o This premium translates to a stock price of $4.46 based on Staff stock
price of $3.38 on June 4, 1999.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 18
<PAGE>
PROJECT STAFF
================================================================================
---------------------
VALUATION CONCLUSIONS
---------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 19
<PAGE>
Valuation Issues
================================================================================
o Intrinsic value of Staff should be at a significant discount to public
comparables.
- Small size.
- Reduced growth prospects.
- Lower than average margins.
o Low enterprise value multiples of Staff are artificially inflated due to
higher than normal cash positions at current time.
- Staff currently trading at 6.6x projected net income.
o Extreme liquidity constraints make it highly unlikely for Staff
shareholders to realize comparable value for their shares.
o Squeeze-out premium is only 32% in comparable situations.
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 20
<PAGE>
PROJECT STAFF
================================================================================
-----------------------------------------
APPENDIX 1 - Summary
Analysis of Selected Comparable Companies
-----------------------------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 21
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
Summary Statistics
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Price @ Book Value Shares Market Aggregate TTM 1999E 2000E
Company June-4 per share Outstanding Value Value (1) EPS (2) EPS (3) EPS (3)
- ------- ------ --------- ----------- ----- --------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Staff $ 3.38 $ 2.36 3,229 $ 10,896 $ 8,389 $ 0.57 $ 0.51 na
Barrett Business Services Inc. 7.88 4.46 7,596 59,819 59,002 0.60 0.71 $ 0.85
COMFORCE Corporation 3.00 2.68 16,202 48,606 225,244 0.00 na na
Hall, Kinion & Associates, Inc. 6.50 3.88 9,603 62,420 69,504 0.46 0.59 0.75
Headway Corporate Resources, Inc. 4.69 4.10 10,419 48,840 113,447 0.54 0.51 0.62
Joule, Inc. 2.50 1.97 3,820 9,550 13,792 0.31 na na
On Assignment, Inc. 26.25 5.27 11,064 290,419 252,578 1.07 1.23 1.51
Personnel Group of America Inc. 10.19 11.28 33,197 338,194 595,262 1.02 1.13 1.33
Romac International Inc. 13.19 5.50 46,597 614,498 582,046 0.62 0.89 1.10
SOS Staffing 5.88 9.06 12,691 74,560 125,577 0.68 0.57 0.85
Westaff, Inc. 6.63 4.39 15,948 105,656 168,434 0.90 0.96 1.08
---------------------------------------
Average
Median
Maximum
Minimum
---------------------------------------
<CAPTION>
Aggregate Value as a Equity Value as a
Multiple of: Multiple of:
----------------------- ------------------------
TTM Net TTM TTM TTM 1999E 2000E
Company Sales EBITDA EBIT EPS EPS EPS
- ------- ----- ------ ---- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Staff 0.1x 2.4x 2.6x 5.9x 6.6x na
Barrett Business Services Inc. 0.2 6.1 7.5 13.2 11.1 9.3x
COMFORCE Corporation 0.5 7.4 9.4 nm na na
Hall, Kinion & Associates, Inc. 0.5 6.6 8.2 14.0 11.1 8.7
Headway Corporate Resources, Inc. 0.3 5.6 6.9 8.7 9.2 7.6
Joule, Inc. 0.2 5.0 6.5 8.2 na na
On Assignment, Inc. 1.8 13.5 14.2 24.6 21.3 17.4
Personnel Group of America Inc. 0.7 6.7 8.4 10.0 9.0 7.6
Romac International Inc. 0.8 8.2 9.6 21.2 14.8 12.0
SOS Staffing 0.4 5.8 8.1 8.7 10.3 7.0
Westaff, Inc. 0.3 5.3 6.8 7.4 6.9 6.1
--------------------------------------------------------------------------------------------
Average 0.4x 6.1x 7.7x 10.0x 9.6x 7.7x
Median 0.4 5.9 7.8 8.7 9.8 7.6
Maximum 0.8 7.4 9.4 14.0 11.1 9.3
Minimum 0.2 5.0 6.5 7.4 6.9 6.1
--------------------------------------------------------------------------------------------
</TABLE>
(1) Market value of common stock plus all debt, less cash.
(2) Most recent quarterly or annual fiscal year end earnings announcement used
to calculate TTM.
(3) Source: Bloomberg - IBES estimates.
(4) EPS estimate for Staff as per Company projection of net income of $1.4
million. Share count assumed to be 3.2 million shares outstanding.
(5) Excluded from calculation of average, median, maximum and minimum as
significant outliers.
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 1: Summary
- ------------------------------------------------------------------------------------------------------------------------------------
52 Week
Last Shares Price Range
Ticker Fiscal TTM O/S Price @ ----------------- Price in
Company Symbol Year Date (000s) June-4 High Low Range
- --------- ------ ------ ------ ------ ------- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Staff Dec-98 Mar-99 3,229 $3.38 $6.25 $2.50 23.33%
Barrett Business Services Inc. BBSI Dec-98 Mar-99 7,596 7.88 12.88 5.25 34.43%
COMFORCE Corporation CFS Dec-98 Mar-99 16,202 3.00 11.50 2.63 4.23%
Hall, Kinion & Associates, Inc. HAKI Dec-98 Mar-99 9,603 6.50 15.38 4.50 18.38%
Headway Corporate Resources, Inc. HDWY Dec-98 Mar-99 10,419 4.69 12.75 3.25 15.13%
Joule, Inc. JOL Sep-98 Mar-99 3,820 2.50 4.63 1.88 22.73%
On Assignment, Inc. ASGN Dec-98 Mar-99 11,064 26.25 39.50 21.31 27.15%
Personnel Group of America Inc. PGA Dec-98 Mar-99 33,197 10.19 21.50 5.88 27.60%
- ------------------------------- --- ------ ------ ------ ----- ----- ---- ------
Romac International Inc. ROMC Dec-98 Mar-99 46,597 13.19 32.13 6.88 25.00%
SOS Staffing SOSS Dec-98 Mar-99 12,691 5.88 21.63 5.75 0.79%
Westaff, Inc. WSTF Oct-98 Jan-99 15,948 6.63 20.50 4.50 13.28%
---------------------------------
Average 22.96%
Median 23.86%
High 34.43%
Low 13.28%
---------------------------------
</TABLE>
Source: Bloomberg and company 10K and 10Q.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 2: Earnings Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Fully Diluted Earnings Per Share (1) Price-Earnings Ratios
------------------------------------ ---------------------
Company 1996 1997 1998 TTM (2) 1999E 2000E TTM 1999E 2000E
- ------- ---- ---- ---- ------- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Staff $0.34 $0.41 $0.52 $0.57 $0.51 (3) na 5.9x 6.6x na
Barrett Business Services Inc. 0.65 0.50 0.55 0.60 0.71 $0.85 13.2 11.1 9.3x
COMFORCE Corporation 0.10 0.23 0.05 0.00 na na nm na na
Hall, Kinion & Associates, Inc. 0.22 0.25 0.43 0.46 0.59 0.75 14.0 11.1 8.7
Headway Corporate Resources, Inc. 0.34 0.58 0.47 0.54 0.51 0.62 8.7 9.2 7.6
Joule, Inc. 0.28 0.29 0.25 0.31 na na 8.2 na na
On Assignment, Inc. 0.54 0.75 1.00 1.07 1.23 1.51 24.6 21.3 17.4
Personnel Group of America Inc. 0.41 0.63 0.84 1.02 1.13 1.33 10.0 9.0 7.6
Romac International Inc. 0.34 0.52 0.56 0.62 0.89 1.10 21.2 14.8 12.0
SOS Staffing 0.63 0.78 0.84 0.68 0.57 0.85 8.7 10.3 7.0
Westaff, Inc. 0.19 0.60 0.87 0.90 0.96 1.08 7.4 6.9 6.1
------------------------------------------------
Average (4) 10.0x 9.6x 7.7x
Median (4) 8.7 9.8 7.6
High (4) 14.0 11.1 9.3
Low (4) 7.4 6.9 6.1
------------------------------------------------
</TABLE>
(1) Net income for FYE 1995-1997 assumes a tax effect of 39% .
(2) TTM calculated by dividing TTM net income by the simple average of weighted
avg. shrs. o/s for 1) prior year 2) prior qtr. and 3) current qtr. TTM
excludes: extraordinary gains or losses, cumulative effect of acccounting
changes, and restructuring or non-recurring charges.
(3) EPS estimate for Staff as per Company projection of net income of $1.4
million. Share count assumed to be million shares outstanding.
(4) Excludes significant outliers.
Source: Company 10K and 10Q and IBES estimates per Bloomberg.
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 3: Growth Rates
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year Growth Rates (1) 2 Year Growth Rates (2)
----------------------------------------------- ------------------------------------------------
Company Revenues EBIT Net Income EPS Est. EPS Revenues EBIT Net Income EPS Est. EPS
- ------- -------- ---- ---------- --- -------- -------- ---- ---------- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Staff 23.68% 25.80% 26.66% 26.83% -2.25% 24.29% 42.18% 26.78% 23.67% na
Barrett Business Services Inc. -0.82% 6.69% 10.43% 10.17% 28.16% 14.30% -5.71% -7.55% -7.93% 23.87%
COMFORCE Corporation 112.00% 263.06% -75.55% -80.18% na 186.64% 221.39% -25.22% -33.84% na
Hall, Kinion & Associates, Inc. 33.72% 77.96% 75.61% 72.00% 36.51% 56.67% 97.45% 55.02% 41.24% 32.07%
Headway Corporate Resources, Inc. 103.93% 98.78% 14.02% -18.97% 8.51% 133.59% 101.18% 94.70% 17.48% 14.39%
Joule, Inc. 13.81% -11.35% -15.58% -15.72% na 6.84% -4.22% -6.35% -6.61% na
On Assignment, Inc. 23.08% 35.04% 36.90% 33.62% 22.85% 22.69% 37.43% 39.14% 36.63% 22.85%
Personnel Group of America Inc. 64.82% 75.49% 74.35% 33.20% 34.25% 79.39% 107.05% 93.27% 44.10% 25.68%
Romac International Inc. 41.76% -10.82% 20.50% 7.63% 58.16% 50.17% 26.79% 46.15% 29.23% 40.08%
SOS Staffing 57.86% 35.85% 41.41% 7.96% -32.23% 55.76% 58.16% 57.45% 15.04% 0.41%
Westaff, Inc. 13.14% 54.74% 49.27% 45.96% 9.80% 16.51% 32.14% 124.61% 114.52% 11.32%
- -----------------------------------------------------------------------------------------------------------------------------------
Average 35.46% 55.81% 40.31% 18.52% 23.35% 31.85% 50.39% 49.44% 30.62% 21.69%
Median 33.72% 54.74% 39.15% 10.17% 25.50% 22.69% 37.43% 50.58% 32.93% 23.36%
High 64.82% 77.96% 75.61% 33.62% 36.51% 56.67% 97.45% 57.45% 44.10% 32.07%
Low 13.14% 35.04% 10.43% 7.63% 8.51% 6.84% 26.79% 39.14% 15.04% 11.32%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents growth rate from the prior fiscal year to the most recent full
fiscal year. Est. EPS rate represents growth rate from most recent full
fiscal year to 1999 fiscal year estimate.
(2) Represents growth rate from two fiscal years prior to the most recent full
fiscal year. Est. EPS rate represents growth rate from most recent full
fiscal year to 2000 fiscal year estimate.
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 4: Margin Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Margin EBITDA Margin
------------ -------------
Company 1997 1998 TTM 1997 1998 TTM
- ------- ---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Staff 23.30% 20.80% 20.63% 5.53% 5.61% 5.61%
Barrett Business Services Inc. 10.28% 10.57% 10.68% 2.56% 2.73% 3.18%
COMFORCE Corporation 13.89% 18.77% 18.83% 4.04% 6.83% 6.74%
Hall, Kinion & Associates, Inc. 41.00% 44.36% 43.83% 6.10% 7.84% 7.89%
Headway Corporate Resources, Inc. 26.92% 22.76% 22.88% 6.76% 6.20% 6.22%
Joule, Inc. 18.74% 18.13% 18.81% 5.03% 4.20% 4.57%
On Assignment, Inc. 30.69% 31.67% 31.98% 12.24% 13.32% 13.48%
Personnel Group of America Inc. 26.49% 27.96% 28.21% 9.84% 10.50% 10.33%
Romac International Inc. 47.03% 42.87% 42.79% 8.49% 5.98% 9.99%
SOS Staffing 22.32% 23.37% 23.71% 6.93% 6.70% 6.31%
Westaff, Inc. 20.14% 21.16% 21.28% 4.06% 5.16% 5.26%
- -----------------------------------------------------------------------------------------
Average (1) 24.41% 23.07% 23.29% 6.43% 6.45% 6.52%
Median (1) 24.41% 23.07% 23.29% 6.43% 6.45% 6.52%
High 47.03% 44.36% 43.83% 12.24% 13.32% 13.48%
Low 10.28% 10.57% 10.68% 2.56% 2.73% 3.18%
- -----------------------------------------------------------------------------------------
EBIT Margin Net Margin
----------- ----------
Company 1997 1998 TTM 1997 1998 TTM
- ------- ---- ---- --- ---- ---- ----
Staff 5.18% 5.27% 5.27% 2.94% 3.01% 2.99%
Barrett Business Services Inc. 1.99% 2.14% 2.58% 1.26% 1.40% 1.51%
COMFORCE Corporation 3.17% 5.43% 5.25% 1.43% 0.16% 0.02%
Hall, Kinion & Associates, Inc. 4.71% 6.27% 6.35% 2.70% 3.55% 3.59%
Headway Corporate Resources, Inc. 5.18% 5.05% 5.03% 4.06% 2.27% 2.26%
Joule, Inc. 4.10% 3.19% 3.54% 2.19% 1.63% 1.86%
On Assignment, Inc. 1.49% 12.60% 12.77% 7.66% 8.52% 8.66%
Personnel Group of America Inc. 7.94% 8.45% 8.23% 3.74% 3.96% 3.83%
Romac International Inc. 7.28% 4.58% 8.59% 4.60% 3.91% 4.12%
SOS Staffing 5.90% 5.08% 4.53% 3.63% 3.25% 2.53%
Westaff, Inc. 2.93% 4.01% 4.08% 1.74% 2.29% 2.31%
- --------------------------------------------------------------- ------------------------
Average (1) 4.71% 5.05% 5.03% 3.17% 2.29% 2.31%
Median (1) 4.71% 5.05% 5.03% 3.17% 2.29% 2.31%
High 7.94% 8.45% 8.59% 7.66% 3.96% 4.12%
Low 1.99% 2.14% 2.58% 1.26% 0.16% 0.02%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Excludes negative margins.
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 5: Company Profile ($000s)
- ------------------------------------------------------------------------------------------------------------------------------------
TTM TTM TTM TTM TTM Market Aggregate
Company Revenues EBITDA EBIT Net Income Net Worth Cash Total Debt Cap Value
- ------- -------- ------ ---- -------------------- ---- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Staff $ 61,247 $ 3,437 $ 3,229 $ 1,834 $ 7,635 $ 2,526 $ 19 $ 10,896 $ 8,389
Barrett Business Services Inc. 304,803 9,682 7,853 4,599 33,845 1,713 896 59,819 59,002
COMFORCE Corporation 454,090 30,602 23,862 72 43,408 2,261 178,899 48,606 225,244
Hall, Kinion & Associates, Inc. 133,158 10,507 8,456 4,779 37,259 15 7,099 62,420 69,504
Headway Corporate Resources, Inc. 326,238 20,298 16,417 7,375 42,684 3,038 67,645 48,840 113,447
Joule, Inc. 60,332 2,755 2,133 1,125 7,513 202 4,444 9,550 13,792
On Assignment, Inc. 138,963 18,736 17,741 12,028 58,309 37,841 0 290,419 252,578
Personnel Group of America Inc. 858,726 88,692 70,672 32,888 374,505 994 258,062 338,194 595,262
Romac International Inc. 708,779 70,796 60,865 29,234 256,182 40,783 8,331 614,498 582,046
SOS Staffing 344,212 21,705 15,591 8,709 114,971 1,379 52,396 74,560 125,577
Westaff, Inc. 609,543 32,066 24,853 14,085 69,992 5,011 67,789 105,656 168,434
</TABLE>
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 6: Balance Sheet Data ($000s)
- ------------------------------------------------------------------------------------------------------------------------------------
Tangible
Net Total Current Total Total Book Book
Company PP&E Assets Liabilities Debt Liabilities Value Value
- -------------- ----------- ---------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Staff $ 649 $ 12,953 $ 5,064 $ 19 $ 5,318 $ 7,635 $ 7,635
Barrett Business Services Inc. 5,532 57,105 19,625 896 23,260 33,845 18,877
COMFORCE Corporation 9,968 253,072 34,155 178,899 209,664 43,408 (95,317)
Hall, Kinion & Associates, Inc. 6,306 56,718 12,155 7,099 19,459 37,259 11,478
Headway Corporate Resources, Inc. 4,728 138,326 26,425 67,645 95,642 42,684 (26,641)
Joule, Inc. 3,754 14,592 7,079 4,444 7,079 7,513 7,438
On Assignment, Inc. 2,624 68,839 10,530 0 10,530 58,309 57,118
Personnel Group of America Inc. 22,350 715,149 67,313 258,062 340,644 374,505 (165,910)
Romac International Inc. 22,278 315,594 49,145 8,331 59,412 256,182 159,463
SOS Staffing 8,243 185,978 19,316 52,396 71,007 114,971 (9,297)
Westaff, Inc. 22,850 193,056 67,857 67,789 123,064 69,992 31,457
</TABLE>
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 7: Operating Data
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues Gross Profit EBITDA
------------------------------ ------------------------------ ---------------------------
Company 1997 1998 TTM 1997 1998 TTM 1997 1998 TTM
- ------------ ---- ---- --- ---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Staff $ 49,199 $ 60,850 $ 61,247 $ 11,464 $ 12,659 $ 12,633 $ 2,719 $ 3,411 $ 3,437
Barrett Business Services Inc. 305,531 303,029 304,803 31,414 32,024 32,565 7,836 8,262 9,682
COMFORCE Corporation 216,521 459,022 454,090 30,066 86,145 85,523 8,748 31,341 30,602
Hall, Kinion & Associates, Inc. 92,831 124,132 133,158 38,062 55,066 58,368 5,662 9,727 10,507
Headway Corporate Resources, Inc. 142,842 291,303 326,238 38,446 66,310 74,635 9,658 18,074 20,298
Joule, Inc. 48,590 55,301 60,332 9,105 10,028 11,346 2,445 2,324 2,755
On Assignment, Inc. 107,849 132,741 138,963 33,101 42,036 44,443 13,202 17,676 18,736
Personnel Group of America Inc. 475,620 783,925 858,726 126,004 219,214 242,262 46,788 82,277 88,692
Romac International Inc. 479,743 680,086 708,779 225,611 291,581 303,312 40,735 40,669 70,796
SOS Staffing 209,251 330,327 344,212 46,711 77,196 81,601 14,507 22,137 21,705
Westaff, Inc. 530,076 599,709 609,543 106,742 126,926 129,695 21,535 30,972 32,066
EBIT Net Income
----------------------------- -----------------------------
Company 1997 1998 TTM 1997 1998 TTM
- ------------ ---- ---- --- ---- ---- ---
Staff $ 2,547 $ 3,204 $ 3,229 $ 1,444 $ 1,829 $ 1,834
Barrett Business Services Inc. 6,071 6,477 7,853 3,845 4,246 4,599
COMFORCE Corporation 6,865 24,924 23,862 3,092 756 72
Hall, Kinion & Associates, Inc. 4,373 7,782 8,456 2,509 4,406 4,779
Headway Corporate Resources, Inc. 7,405 14,720 16,417 5,805 6,619 7,375
Joule, Inc. 1,992 1,766 2,133 1,066 900 1,125
On Assignment, Inc. 12,387 16,728 17,741 8,266 11,316 12,028
Personnel Group of America Inc. 37,751 66,248 70,672 17,790 31,017 32,888
Romac International Inc. 34,941 31,162 60,865 22,071 26,596 29,234
SOS Staffing 12,350 16,777 15,591 7,593 10,737 8,709
Westaff, Inc. 15,523 24,020 24,853 9,210 13,748 14,085
</TABLE>
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 7: Operating Data (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures/Sales EBITDA/Capital Expenditures
------------------------------- -----------------------------
Company 1997 1998 TTM 1997 1998 TTM
- ------- ---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Staff 0.82% 0.52% 0.47% 6.8x 10.8x 11.9x
Barrett Business Services Inc. 0.49% 0.36% 0.36% 5.2 7.7 8.9
COMFORCE Corporation 0.38% 1.35% 1.30% 10.5 5.1 5.2
Hall, Kinion & Associates, Inc. 2.09% 1.37% 1.59% 2.9 5.7 5.0
Headway Corporate Resources, Inc. 0.49% 0.60% 0.59% 13.9 10.3 10.6
Joule, Inc. 0.59% 1.09% 1.02% 8.5 3.9 4.5
On Assignment, Inc. 1.09% 0.90% 0.79% 11.2 14.8 17.0
Personnel Group of America Inc. 1.09% 1.28% 1.41% 9.1 8.2 7.3
Romac International Inc. 1.39% 1.74% 2.22% 6.1 3.4 4.5
SOS Staffing 0.87% 1.34% 1.40% 7.9 5.0 4.5
Westaff, Inc. 1.10% 1.49% 1.79% 3.7 3.5 2.9
- -------------------------------------------------------------------------------------------------------------
Average 0.83% 1.15% 1.25% 7.1x 5.3x 5.9x
Median 0.87% 1.31% 1.35% 7.0 5.0 5.0
High 1.39% 1.74% 2.22% 11.2 8.2 10.6
Low 0.38% 0.36% 0.36% 2.9 3.4 2.9
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 8: Ratio Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Activity Ratios Profitability Ratios
------------------------------------- -------------------------
A/R A/P Asset
Company Days Days Turnover ROE ROA
- -------------- ----------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Staff 50.7 37.9 4.7x 24.02% 14.16%
Barrett Business Services Inc. 28.2 1.5 5.3 13.59% 8.05%
COMFORCE Corporation 72.7 9.5 1.8 0.17% 0.03%
Hall, Kinion & Associates, Inc. 59.0 13.7 2.3 12.83% 8.43%
Headway Corporate Resources, Inc. 63.3 3.9 2.4 17.28% 5.33%
Joule, Inc. 62.8 7.4 4.1 14.97% 7.71%
On Assignment, Inc. 48.0 2.1 2.0 20.63% 17.47%
Personnel Group of America Inc. 56.3 3.0 1.2 8.78% 4.60%
Romac International Inc. 66.2 8.8 2.2 11.41% 9.26%
SOS Staffing 47.7 2.0 1.9 7.57% 4.68%
Westaff, Inc. 47.3 32.2 3.2 20.12% 7.30%
- ---------------------------------------------------------------------------------------------------------
Average 55.2 4.8 2.6x 14.13% 6.92%
Median 57.7 3.4 2.3 13.59% 7.50%
High 72.7 9.5 5.3 20.63% 9.26%
Low 28.2 1.5 1.2 7.57% 4.60%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 8: Ratio Analysis (Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquidity Ratios Coverage Ratios
------------------------------------- ---------------------------------------------------
Total
Defensive (TTM EBITDA Debt/
Current Acid Test Interval TTM EBITDA/ TTM EBIT/ - CapEx.)/ Total
Company Ratio Ratio Ratio Interest Interest Interest Capital
- -------------- ----------- ---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Staff 2.3x 2.2x 69.4x 491.0x 461.3x 449.6x 0.25%
Barrett Business Services Inc. 1.5 1.3 31.0 69.2 56.1 61.4 2.58%
COMFORCE Corporation 2.9 2.7 78.7 1.4 1.1 1.1 80.47%
Hall, Kinion & Associates, Inc. 2.0 1.8 63.1 41.2 33.2 32.9 16.00%
Headway Corporate Resources, Inc. 2.3 2.3 69.8 4.1 3.3 3.7 61.31%
Joule, Inc. 1.5 1.5 66.3 9.7 7.5 7.5 37.17%
On Assignment, Inc. 5.6 5.3 169.0 nm nm nm 0.00%
Personnel Group of America Inc. 2.2 2.0 61.8 6.5 5.1 5.6 40.80%
Romac International Inc. 3.6 3.4 91.9 327.8 281.8 255.0 3.15%
SOS Staffing 2.7 2.4 51.3 8.4 6.0 6.5 31.31%
Westaff, Inc. 1.8 1.2 52.4 17.5 13.5 11.5 49.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Average 2.3x 2.1x 59.3x 7.9x 6.1x 6.0x 34.89%
Median 2.2 2.0 62.5 7.4 5.6 6.0 37.17%
High 3.6 3.4 78.7 17.5 13.5 11.5 49.20%
Low 1.5 1.2 31.0 1.4 1.1 1.1 16.00%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
SELECTED COMPARABLE COMPANIES - STATISTICS & VALUATION PETER J. SOLOMON COMPANY
================================================================================
Diversified Commercial Services Industry
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SECTION 9: Other Valuation Parameters
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate Value/
------------------------------------- Price/ Price/ Book Value
Company TTM Rev TTM EBITDA TTM EBIT Tgble Bk Val Val Book Val per Share
- ------- ------- ---------- -------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Staff 0.1x 2.4x 2.6x 1.4x 1.4x $ 2.36
Barrett Business Services Inc. 0.2 6.1 7.5 3.2 1.8 4.46
COMFORCE Corporation 0.5 7.4 9.4 nm 1.1 2.68
Hall, Kinion & Associates, Inc. 0.5 6.6 8.2 5.4 1.7 3.88
Headway Corporate Resources, Inc. 0.3 5.6 6.9 nm 1.1 4.10
Joule, Inc. 0.2 5.0 6.5 1.3 1.3 1.97
On Assignment, Inc. 1.8 13.5 14.2 5.1 5.0 5.27
Personnel Group of America Inc. 0.7 6.7 8.4 nm 0.9 11.28
Romac International Inc. 0.8 8.2 9.6 3.9 2.4 5.50
SOS Staffing 0.4 5.8 8.1 nm 0.6 9.06
Westaff, Inc. 0.3 5.3 6.8 3.4 1.5 4.39
- ----------------------------------------------------------------------------------------------------------------------
Average 0.4x 6.1x 7.7x 3.7x 1.5x $ 4.03
Median 0.4 5.9 7.8 3.6 1.4 4.24
High 0.8 7.4 9.4 5.4 2.4 5.50
Low 0.2 5.0 6.5 1.3 0.9 1.97
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PROJECT STAFF
================================================================================
-------------------------------
APPENDIX 2 - Summary Analysis of
Selected Precedent Transactions
-------------------------------
- --------------------------------------------------------------------------------
PETER J. SOLOMON COMPANY 22
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT STAFF
- --------------------------------------------------------------------------------
Summary Analysis of Selected Precedent Transactions
(Enterprise Value > $25.0 million)
($ in millions)
<TABLE>
<CAPTION>
Enterprise Value as a
Enterprise Value as a Multiple of: Equity Value as a
------------------------------------- Multiple of:
Date Acquiror Name LTM LTM LTM Equity LTM Net
Annc'd Target Name Sales EBITDA EBIT Value Income
- ----------- ----------------------------- ------------------------------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dec-98 Investor Group 0.3 x nm nm $41.8 nm
COHR Inc.
Dec-98 Automatic Data Processing, Inc. 0.2 19.7 x 24.6 x 294.9 32.4 x
Vincam Group Inc.
Aug-98 ACSYS Inc. 1.4 nm nm na na
Staffing Edge, Inc.
Jun-98 AHL Services Inc. 1.0 na na na na
Gage Marketing-Fulfillment
Jun-98 Linsalata Capital Partners 0.5 10.1 13.4 34.9 15.2
Personnel Management Inc.
Feb-98 Romac International Inc. 1.5 21.1 24.2 454.8 34.7
Source Services Corp.
Oct-97 Vincam Group Inc. 0.4 na na na na
Staffing Network Inc.
Sep-97 Adecco SA 0.4 na na na na
TAD Resources International
Aug-97 Comforce Corp. 0.8 13.2 15.0 105.9 20.0
Uniforce Services Inc.
Feb-97 Interim Services Inc. 1.0 na na na na
AimExecutive Holdings Inc.
---------------------------------------------------------------------------------------
Average 0.7 x 16.0 x 19.3 x 25.6 x
Median 0.7 16.5 19.6 26.2
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PETER J. SOLOMON COMPANY
PROJECT STAFF
- --------------------------------------------------------------------------------
Summary Analysis of Selected Precedent Transactions
(Enterprise Value > $25.0 million)
($ in millions)
<TABLE>
<CAPTION>
Enterprise Value as a
Enterprise Value as aMultiple of: Equity Value as a
---------------------------------- Multiple of:
Date Acquiror Name Enterprise LTM LTM LTM Equity LTM Net
Annc'd Target Name Value Sales EBITDA EBIT Value Income
- ----------- ----------------------------- ---------- ---------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Apr-99 Maximus Inc. $1.8 0.9 x na na na na
Norman Roberts & Associates
Mar-99 Rapid Design Services Inc. 8.1 0.2 na na na na
Hawtal Whiting Inc.
May-98 OutSource International Inc. 5.0 1.4 6.3 x 6.3 x na na
MidWest Temps Inc.
May-98 National Technical Systems Inc. 12.1 0.5 24.2 30.3 na na
XXCAL Inc.
Apr-98 Barrett Business Services Inc. 0.7 0.3 na na na na
Bolt Staffing Service-Ctn Asts
Apr-98 CH Heist Corp. 6.6 0.7 6.0 6.0 na na
Milestone Technologies Inc.
Jan-98 Firamada Inc. 4.6 0.1 na na na na
Myriad Employment Services, Inc.
Sep-97 Select Appointments (Holdings) 7.2 0.6 na na na na
Aztec Consulting Services Inc.
Sep-97 StaffMark Inc. 12.5 2.2 na na na na
H Allen & Co.
Sep-97 Team America Corp. 8.0 0.4 nm nm na na
Workforce Strategies Inc.
Aug-97 SOS Staffing Services Inc. 8.5 0.9 na na na na
Execusoft Inc.
Aug-97 StaffMark, Inc. 8.5 1.5 5.7 5.7 na na
Expert Business Systems
Apr-97 Data Processing Resources Cor. 19.6 1.0 5.0 5.2 na na
Computec Intl Strategic
Apr-97 Barrett Business Services Inc. 0.2 0.3 na na na na
JRL Services Inc.
Apr-97 Headway Corporate Resources 7.0 2.3 6.4 7.0 na na
Advanced Staffing Solutions
Mar-97 StaffMark Inc. 10.0 0.2 na na na na
Flexible Personnel, HR America
Feb-97 Barrett Business Services Inc. 1.8 0.4 na na na na
D&L Personnel Dept. Specialists
-----------------------------------------------------------------------------------------------------------------
Average 0.6 x 5.9 x 6.0 x
Median 0.5 6.0 6.0
Maximum 1.5 6.4 7.0
Minimum 0.1 5.0 5.2
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (d)(1)
Offer To Purchase For Cash by
WINSTON RESOURCES, INC.
All Outstanding Shares of its Common Stock, $.01 par value per Share,
at
$4.625 Net Per Share
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 PM., NEW YORK CITY TIME, ON MONDAY, OCTOBER 4, 1999,
UNLESS THE OFFER IS EXTENDED.
Winston Resources, Inc., a Delaware corporation (the "Company"), hereby
offers to purchase all of its issued and outstanding shares of common stock,
$.01 par value per share (the "Shares"), at a price of $4.625 per Share, net to
the seller in cash (the "Offer Price"), without interest thereon, upon the terms
and subject to the conditions set forth in this Offer to Purchase, dated
September 2, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with this Offer to Purchase, constitutes the
"Offer"). The Offer is being made to all holders of Shares, including Seymour
Kugler, the Chairman of the Board of Directors (hereinafter, the "Board of
Directors" or the "Board"), President and Chief Executive Officer of the
Company, and certain members of his family owning Shares and a trust of which
Kugler family members are the beneficiaries (collectively, the "Remaining
Stockholders"). The Company has been advised that none of the Remaining
Stockholders intends to tender any Shares pursuant to the Offer. See "The Tender
Offer - 1. Terms of the Offer; Expiration Date."
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined herein) not
less than 66-2/3% of the then outstanding Shares, on a fully diluted basis,
other than Shares beneficially owned by the Remaining Stockholders (the "Public
Shares"), or 1,142,403 Public Shares (the "Minimum Condition"), and the Company
obtaining the Debt Financing (as defined herein). See "Introduction" and "The
Tender Offer - 11. Certain Conditions of the Offer."
The Shares are traded on the American Stock Exchange ("AMEX") and are
quoted under the ticker symbol "WRS". On June 15, 1999, the last trading day
before the Company announced the Offer, the last reported bid price was $2.875
per share.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE SHARES.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Information Agent for the Offer is:
MORROW & CO., INC.
September 2, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
INTRODUCTION......................................................................................................2
SPECIAL FACTORS...................................................................................................7
1. PURPOSE AND BACKGROUND OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS OF THE COMPANY AFTER
THE OFFER ................................. 7
2. RIGHTS OF STOCKHOLDERS IN THE EVENT OF THE SECOND-STEP TRANSACTION ........................... 21
3. RECOMMENDATION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER ................................. 22
4. OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC. ........................... 26
5. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE SECOND-STEP TRANSACTION ................... 30
6. BENEFICIAL OWNERSHIP OF SHARES.................................................................31
7. FEES AND EXPENSES..............................................................................36
THE TENDER OFFER.................................................................................................37
1. TERMS OF THE OFFER; EXPIRATION DATE............................................................37
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES..................................................38
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES .....................................39
4. WITHDRAWAL RIGHTS..............................................................................43
5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES...................................................43
6. PRICE RANGE OF SHARES; DIVIDENDS...............................................................46
7. CERTAIN INFORMATION CONCERNING THE COMPANY.....................................................47
8. FINANCING OF THE OFFER AND THE SECOND-STEP TRANSACTION.........................................55
9. DIVIDENDS AND DISTRIBUTIONS....................................................................56
10. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; QUOTATION AND EXCHANGE ACT REGISTRATION .....57
11. CERTAIN CONDITIONS OF THE OFFER................................................................58
12. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.................................................59
13. FEES AND EXPENSES..............................................................................62
14. MISCELLANEOUS..................................................................................63
i
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY........................................................I-1
SCHEDULE II
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN
FINANCIAL ADVISORS, INC...............................................................................II-1
SCHEDULE III
TEXT OF SECTION 262 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE.........................................................................III-1
SCHEDULE IV
ANNUAL REPORT ON FORM 10-K OF THE COMPANY FOR
THE YEAR ENDED DECEMBER 31, 1998......................................................................IV-1
</TABLE>
ii
<PAGE>
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH
STOCKHOLDER'S SHARES SHOULD EITHER (1) COMPLETE AND SIGN THE LETTER OF
TRANSMITTAL (OR A FACSIMILE THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE
LETTER OF TRANSMITTAL AND MAIL OR DELIVER IT AND ANY OTHER REQUIRED DOCUMENTS TO
CONTINENTAL STOCK TRANSFER & TRUST COMPANY (THE "DEPOSITARY") (AT THE
DEPOSITARY'S ADDRESS SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE) AND
EITHER DELIVER THE CERTIFICATE(S) EVIDENCING THE TENDERED SHARES TO THE
DEPOSITARY ALONG WITH THE LETTER OF TRANSMITTAL OR DELIVER SUCH SHARES PURSUANT
TO THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH IN THIS OFFER TO PURCHASE
UNDER "THE TENDER OFFER - 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING
SHARES" OR (2) REQUEST SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER. ANY
STOCKHOLDER WHOSE SHARES ARE REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH STOCKHOLDER
DESIRES TO TENDER SUCH SHARES.
ANY STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
EVIDENCING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH
THE PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH SHARES
BY FOLLOWING THE PROCEDURE FOR GUARANTEED DELIVERY SET FORTH IN "THE TENDER
OFFER - 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES."
QUESTIONS OR REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO THE INFORMATION
AGENT AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS
OFFER TO PURCHASE. ADDITIONAL COPIES OF THIS OFFER TO PURCHASE, THE LETTER OF
TRANSMITTAL AND THE NOTICE OF GUARANTEED DELIVERY MAY ALSO BE OBTAINED FROM THE
INFORMATION AGENT OR FROM BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES.
1
<PAGE>
To the Stockholders of Winston Resources, Inc.:
INTRODUCTION
Winston Resources, Inc., a Delaware corporation (the "Company"), hereby
offers to purchase all of its issued and outstanding shares of common stock,
$.01 par value per share (the "Shares"), at a price of $4.625 per Share, net to
the seller in cash (the "Offer Price"), without interest thereon, upon the terms
and subject to the conditions set forth in this Offer to Purchase, dated
September 2, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with this Offer to Purchase, constitutes the
"Offer"). The Offer is being made to all holders of Shares, including Seymour
Kugler, the Chairman of the Board of Directors (hereinafter, the "Board of
Directors" or the "Board"), President and Chief Executive Officer of the
Company, certain members of his family including Gregg Kugler, Todd Kugler and
Eric Kugler, all officers of the Company, and a trust for the benefit of Kugler
family members, the 1999 Sy Kaye GRAT, (collectively, the "Remaining
Stockholders"). The Company has been advised that none of the Remaining
Stockholders intends to tender any Shares pursuant to the Offer. See "The Tender
Offer - 1. Terms of the Offer; Expiration Date."
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the Company's purchase of the
Shares pursuant to the Offer. The Company will pay all charges and expenses of
Continental Stock Transfer & Trust Company, which is acting as the depositary
for the Offer (the "Depositary"), and Morrow & Co., Inc., which is acting as the
information agent for the Offer (the "Information Agent"), incurred in
connection with the Offer. See "Special Factors-Fees and Expenses" and "The
Tender Offer - 13. Fees and Expenses."
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined herein) not
less than 66 2/3% of the then outstanding Shares, on a fully diluted basis,
other than Shares beneficially owned by the Remaining Stockholders (the "Public
Shares"), or 1,142,403 Public Shares (the "Minimum Condition"), and the Company
obtaining the Debt Financing (as defined herein). See "The Tender Offer - 11.
Certain Conditions of the Offer," which sets forth in full the conditions of the
Offer.
The Shares are currently listed and traded on AMEX under the symbol
"WRS". On June 15, 1999, the last full day of trading prior to the announcement
of the Offer, the closing sale price of the Shares on AMEX was $2.875 per Share.
Stockholders are urged to obtain a current market quotation for the Shares.
The Company believes that the public trading market for the Shares has
been and will continue to be characterized by low prices and low trading volume.
For this reason, and because of the small stockholder base and certain other
factors described in this Offer to Purchase, the Company currently intends, to
2
<PAGE>
the extent possible, to seek to delist its common stock from trading on AMEX and
terminate the registration of the Shares under the Securities Exchange Act of
1934, as amended (the "Exchange Act") following consummation of the Offer or, if
necessary, the Second-Step Transaction (as defined herein). The purpose of the
Offer is thus to provide the holders of the Public Shares (the "Public
Stockholders") with liquidity for their Shares in light of the Company's
intentions at a price which the Company's Board of Directors has determined to
be fair, while at the same time, enable the Remaining Stockholders to retain the
entire equity interest in the Company. See "The Tender Offer - 10. Effect of the
Offer on the Market for Shares; Quotation and Exchange Act Registration."
At June 30, 1999, there were (i) 3,233,521 Shares issued and
outstanding, (ii) no Shares held in the treasury of the Company, and (iii)
597,009 Shares reserved for future issuance to certain key employees and
directors of the Company pursuant to outstanding stock options under the
Company's 1996 Stock Plan and 1990 Incentive Program (the "Stock Options"),
including Stock Options currently exercisable for 147,009 Public Shares. Prior
to the announcement of the Offer, there were approximately 101 holders of record
of the issued and outstanding Shares. As of June 30, 1999, the Remaining
Stockholders beneficially owned 1,519,918 Shares, or 47% of the outstanding
Shares, and the Company's directors and executive officers, other than those
which are also Remaining Stockholders, as a group, beneficially owned 157,037
Shares, or 4.9% of the Shares outstanding as of such date. The Company has been
informed by such directors and executive officers that they intend either to
tender all Shares beneficially owned by them to the Company pursuant to the
Offer or to vote such Shares in favor of the Second-Step Transaction.
On July 7, 1999, the Company received an unsolicited letter from
American Claims Evaluation, Inc. ("American"), a Nasdaq listed company,
indicating that American was interested in purchasing 51% or more of the
Company's common stock for $5.25 per Share in cash, and further indicating that
American wanted to meet with the Company. On July 9, 1999, a special meeting of
the Board of Directors was called to consider and evaluate American's letter. At
such meeting, Seymour Kugler confirmed to the Board of Directors that none of
the Remaining Stockholders were interested in pursuing the proposal set forth in
American's letter and would not accept any offer from American of $5.25 per
Share in cash. At the special meeting, Seymour Kugler undertook to deliver, and
subsequently delivered, a letter on behalf of the Remaining Stockholders
confirming these statements. In addition, certain officers holding Shares
indicated their unwillingness to accept American's proposal, which they
subsequently confirmed to the Board in writing. Since such stockholders held in
the aggregate in excess of 56% of the Shares (assuming the exercise of currently
exerciseable stock options), it was apparent to the Board that the terms set
forth in American's letter could not be met by virtue of the unavailability for
purchase of at least 51% of the Company's Shares by American. The Company
advised American in writing to this effect and the Company's counsel confirmed
such advice in a telephone conversation with American's management on July 12,
1999. The Company has received no further communication from American since that
date. In light of the foregoing facts and circumstances, the Board of Directors
concluded that because American's inquiry represented an interest in purchasing
4
<PAGE>
control of the Company and since holders of 56% of the Shares had indicated that
they would not accept any offer from American of $5.25 per Share, the conditions
for success of American's proposal could not be satisfied, and therefore there
was no reason for the Independent Committee (as defined herein) or Houlihan
Lokey (as defined herein) to conduct any further assessment of fairness as a
result of the American offer. Accordingly, the Board did not refer the American
proposal to the Independent Committee for review. The recommendation of the
Offer by the Independent Committee and the opinion of its financial advisor,
Houlihan Lokey, were received prior to the receipt of the American letter and
none of the Board of Directors, the Independent Committee or its financial
advisor have confirmed their fairness assessments following receipt of the
American letter. See "SPECIAL FACTORS - 1. Purpose and Background of the Offer;
Certain Effects of the Offer; Plans of the Company after the Offer - Letter
Received from American Claims Evaluation, Inc."
Pursuant to the Offer, the Company seeks to acquire all Shares which are
held by the Public Stockholders. If less than all of the Shares owned by the
Public Stockholders are tendered pursuant to the Offer, the Company may merge,
consolidate or otherwise combine with an entity to be formed, which would be
wholly owned by the Remaining Stockholders (the "Merger"), or effect some other
form of corporate transaction such that the Shares not tendered by the Public
Stockholders will be converted into only the right to receive the Offer Price in
cash (the Merger or such other form of corporate transaction, the "Second-Step
Transaction"). If necessary, the Company will seek stockholder approval of the
Second-Step Transaction in accordance with applicable laws. The Remaining
Stockholders, who currently own 47% of the outstanding Shares, as well as the
directors and executive officers of the Company who are not Remaining
Stockholders and who do not tender their Shares, intend to vote all of their
Shares in favor of the Second-Step Transaction if a stockholder vote is
required. Following completion of the Second-Step Transaction, there would be
few, if any, Public Stockholders of the Company.
As part of the Transactions (as defined herein), all Stock Options held
by individuals other than the Remaining Stockholders, whether or not vested (the
"Public Stock Options"), will be surrendered in exchange for payment from the
Company (subject to any applicable withholding taxes) in cash equal to the
product of (x) the total number of Shares subject to any such Public Stock
Option and (y) the excess of the Offer Price over the exercise price per Share
subject to such Public Stock Option, without any interest thereon. None of the
Remaining Stockholders will be surrendering Stock Options owned by them in
connection with the Transactions, but the Remaining Stockholders may, in the
future, following the consummation of the Transactions (as defined herein),
cause the Company to convert such Stock Options into cash in the same manner as
Public Stock Options surrendered and exchanged pursuant to the Offer.
Except as otherwise agreed to in writing by the Company and the
Remaining Stockholders, the Stock Options and any other equity plans, and the
provisions in any other plan, program or arrangement providing for the issuance
or grant of any other interest in the capital stock of the Company, will be
terminated as part of the Transactions.
4
<PAGE>
In determining whether to approve the Offer, the Independent Committee
and Board of Directors considered a number of factors, several of which are
listed below (see "Special Factors - Position of the Company's Board; Fairness
of the Offer"):
- - The Company currently has a very small stockholder base for an
exchange-traded public company as indicated by its stockholders of
record, a number substantially below the 300 minimum which triggers the
obligation to file periodic financial reports and other information
pursuant to the Exchange Act.
- - The market for the Company's common stock provides limited liquidity for
stockholders to liquidate or add to their investments. Additionally,
because of the limited liquidity available, the Company has been unable
to utilize the public equity capital markets effectively as a source of
financing.
- - There are considerable costs associated with remaining a public company.
In addition to the time expended by the Company's management, the legal,
accounting and other expenses involved in the preparation, filing and
dissemination of annual and other periodic reports is considerable.
- - The reporting requirements of public companies can lead to disclosure of
sensitive information, resulting in a competitive disadvantage in the
marketplace.
- - The stated desire of the Remaining Stockholders not to consider a sale
of the Company or their interest in the Company, which made pursuit of
other potential alternatives (such as a sale of the Company as a going
concern) impracticable. (This factor may be deemed to have limited the
options available to the Independent Committee in exploring alternatives
that might benefit the unaffiliated Stockholders.)
In determining whether the Offer Price to be paid to the Company's
Public Stockholders is fair, the Independent Committee relied on the written
opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc., its financial
advisor ("Houlihan Lokey"), that a cash consideration of $4.625 net per share to
the Public Stockholders is fair to the Public Stockholders from a financial
point of view. See "Special Factors-Opinion of Houlihan Lokey Howard & Zukin
Financial Advisors, Inc." for further information concerning the opinion of
Houlihan Lokey. Such opinion was delivered prior to receipt of the American
letter and has not been confirmed since its delivery.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD"), BY UNANIMOUS VOTE
OF ALL DIRECTORS PRESENT AND VOTING, BASED UPON, AMONG OTHER THINGS, THE
UNANIMOUS RECOMMENDATION AND APPROVAL OF THE DIRECTORS OF THE COMPANY WHO ARE
NOT OFFICERS OF THE COMPANY, HAS DETERMINED THAT THE OFFER IS FAIR TO, AND IN
5
<PAGE>
THE BEST INTERESTS OF, THE PUBLIC STOCKHOLDERS, AND RECOMMENDS THAT THE PUBLIC
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Company has filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Exchange Act an Issuer Tender Offer Statement on
Schedule 13E-4 ("Schedule 13E-4") and a Rule 13e-3 Transaction Statement on
Schedule 13E-3. The term, "Expiration Date," means 5:00 p.m., Eastern Daylight
Time, on October 4, 1999, unless and until the Company, in its sole discretion,
shall have extended the period during which the Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date at which the
Offer, as so extended by the Company, shall expire. See "The Tender Offer - 1.
Terms of the Offer; Expiration Date."
Winston Resources, Inc. is the successor to a personnel recruitment and
placement service business founded in 1967 by Seymour Kugler, its President and
Chief Executive Officer. The Company and its subsidiaries together provide a
wide range of personnel supply services to businesses, institutions and
governmental agencies, through their own offices and through offices operated by
independent franchisees under licenses from the Company. The Company also
provides recruitment advertising services to businesses and other institutions.
Through its own offices, the Company recruits and places employees in
entry-to-high-level full-time salaried positions in the New York City
metropolitan area (consisting of New York City, Nassau, Suffolk and Westchester
Counties, New York and parts of northern New Jersey and southern Connecticut)
and in the Fort Lauderdale area of Florida. Such services are provided on a
contingent fee basis under which the Company collects a fee only if it
successfully places a job candidate with a client. Through its Fisher-Todd
Associates division, the Company also provides services for business and
industry clients across the United States, recruiting upper level executives on
a retainer fee basis and on a contingency fee basis.
The Company also supplies temporary employees with professional,
secretarial, clerical, medical, allied health, nursing, light industrial,
information technology and word processing skills, to business clients and
governmental agencies in the New York City, Long Island and New Jersey areas, as
well as in Florida's Fort Lauderdale area. Temporary employees perform services
at the client's premises under the client's supervision and direction. For each
temporary employee, the client is charged an hourly rate that includes the
employee's direct labor rate, associated labor costs (such as payroll taxes and
insurance) and a mark-up to cover the Company's overhead and profit.
In addition to services furnished through its own offices, the Company
licenses independent franchisees to provide personnel services under the trade
names and service marks owned by the Company. Franchisees of the Company provide
full-time placement and executive search services under the name "Roth Young",
6
<PAGE>
permanent personnel recruitment and placement services under the names "Division
10", "Alpha" and "Winston Personnel" and temporary office support personnel
under the names "Division 10 Temps" and "Alpha Temps" in a total of sixteen
cities and towns across the United States.
This Offer to Purchase and the accompanying documents contain
information required to be disclosed by the Exchange Act and the rules and
regulations promulgated thereunder, including financial information regarding
the Company, a description of the terms, conditions and background of the Offer,
and the procedures for tendering Shares for purchase.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
SPECIAL FACTORS
1. PURPOSE AND BACKGROUND OF THE OFFER; CERTAIN EFFECTS OF THE OFFER; PLANS
OF THE COMPANY AFTER THE OFFER
Purpose of the Offer. The Company has determined that it is in its best
interests and those of its stockholders to terminate the Company's status as a
public reporting company by delisting its common stock from AMEX and terminating
the registration of the Shares under the Exchange Act. Management believes that
the public trading market for the Shares has been and will continue to be
characterized by low prices and low trading volumes. As a result, there is a
limited market for the Shares and low trading volumes make it difficult for
stockholders to sell large blocks of Shares. Low prices mean stockholders who
wish to sell a small number of Shares may receive only a nominal return after
payment of commissions. The purpose of the Offer is to provide the Public
Stockholders with liquidity for their Shares prior to the intended delisting of
the Shares and the termination of Exchange Act registration by enabling them to
sell their Shares at a fair price and at a premium over recent market prices.
Completion of the Offer also would result in the Remaining Stockholders
retaining the entire equity interest in the Company. All Shares purchased in the
Offer will be held in the treasury of the Company until the completion of the
Second-Step Transaction, if necessary, at which time the Shares will be retired.
If less than all of the Shares owned by the Public Stockholders are
tendered pursuant to the Offer, the Company may seek to effect the Second-Step
Transaction. If necessary, the Company will seek stockholder approval of the
Second-Step Transaction in accordance with applicable laws. The Remaining
Stockholders, who currently own 47% of the outstanding Shares, as well as the
directors and executive officers of the Company who are not Remaining
Stockholders and who do not tender their Shares pursuant to the Offer, intend to
vote all of their Shares in favor of the Second-Step Transaction if a
stockholder vote is required. It is contemplated that the consideration which
would be payable to the Public Stockholders in the Second-Step Transaction would
be cash in an amount equal to the Offer Price. The net result of the Offer and
7
<PAGE>
the Second-Step Transaction (together, the "Transactions") would be that the
Company would become a private company, owned entirely or almost entirely by the
Remaining Stockholders with few, if any, Public Stockholders. See "The Tender
Offer - 10. Effect of the Offer on the Market for the Shares; Quotation and
Exchange Act Registration."
Consummation of the Transactions will permit the Remaining Stockholders
to receive all of the benefits that result from ownership of the entire equity
interest in the Company. Such benefits include management and investment
discretion with regard to the future conduct of the business of the Company, the
benefits of the profits generated by operations and any increase in the
Company's value. Similarly, the Remaining Stockholders will also bear the risk
of any decrease in the value of the Company.
Under the Delaware General Corporation Law (the "DGCL"), the approval of
the Board and the affirmative vote of the holders of a majority of the
outstanding Shares would be required to approve the Merger through a meeting of
the stockholders. Unless such Merger is consummated pursuant to the short-form
merger provisions of DGCL, as described below, the only other required corporate
action by the Company is the approval and adoption of the Merger by the
affirmative vote of the holders of a majority of the Shares. The Remaining
Stockholders have expressed an intention to vote all of their Shares in favor of
the Second-Step Transaction if a stockholder's vote is required, should such a
Second-Step Transaction be implemented.
Under the DGCL, an entity which owns 90% or more of a subsidiary entity
may effect a merger with such entity without submitting the merger to a vote of
the other stockholders of such entity (a "a short-form merger"). Accordingly, if
the Remaining Stockholders own 90% or more of the Shares that remain outstanding
after completion of the Offer, the Merger may be effected as a short-form
merger, without a vote of the Company's other stockholders. In such event, the
Remaining Stockholders and the Company intend to take all necessary and
appropriate action to cause the Merger to become effective in accordance with
the DGCL as promptly as practicable after consummation of the Offer, without a
meeting of the stockholders of the Company. If, however, the percentage of
ownership of the Remaining Stockholders after completion of the Offer is less
than 90% of the Shares then outstanding, a vote of the Company's stockholders
will be required under the applicable laws, and a significantly longer period of
time may be required to effect the Merger. See "Special Factors-Rights of
Stockholders in the Event of the Merger." Following consummation of the Offer
and, if necessary, the Second-Step Transaction, the Company will seek to delist
the Shares such that the Shares will no longer be quoted on AMEX, and the
registration of the Shares under the Exchange Act will be terminated.
Accordingly, following the Offer and, if necessary, the Second-Step Transaction,
there will be no publicly traded equity securities of the Company outstanding
and the Company will no longer be required to file periodic reports with the
Commission. See "The Tender Offer - Effect of the Offer on the Market for
Shares; Quotation and Exchange Act Registration."
8
<PAGE>
Reversion of the Company to private ownership will eliminate the
substantial general and administrative costs attendant to the Company's status
as a reporting company under the Exchange Act. In addition to the time expended
by Company management, the legal, accounting and other expenses involved in the
preparation of annual and other periodic reports are considerable. The Company
estimates that its total out-of-pocket expenses associated with maintaining its
public status are approximately $150,000 per year. These costs include the
review of periodic reports to the Securities and Exchange Commission (such as
Form 10-K and Form 10-Q), legal and accounting fees relating to such matters,
annual fees for the Company's transfer agent, fees relating to the listing of
its common stock on AMEX, directors' fees and costs associated with
communications with stockholders. These costs do not include the salaries and
time of employees of the Company who devote attention to these matters.
Additionally, the Company's management believes that required public disclosures
under the Exchange Act may have given its competitors, many of which are not
similarly burdened, certain information and insights about the Company's
operations which have helped them in competing with the Company.
Since becoming a public company in 1987, the Shares generally have
remained very thinly traded and have provided little liquidity for stockholders,
particularly those stockholders with larger equity positions in the Company. The
Company has been unable to utilize the Shares effectively for acquisitions or
financing because of its low market price and low trading volume and the
relatively higher valuation the marketplace has accorded many of the Company's
larger public competitors, which has enabled such competitors to finance
acquisitions and operations with relatively "cheaper" equity, and so has been
unable to realize one of the principal benefits of public ownership.
Background To The Offer. From time to time, the Company has considered
various approaches to enhancing stockholder value by improving the market price
for the Company's common stock. Such approaches have included, among other
things, stock splits, stock dividends, cash dividends, reverse stock splits and
various combinations of the foregoing. In each instance, these alternatives have
been rejected on the basis of the Board's conclusion that, given the low price
of the Company's common stock, the small float for its shares, the limited
number of public holders, the complete absence of research coverage, the virtual
lack of institutional following and the likely expense to be incurred, none of
such approaches would have the desired effect or could justify the expense of
implementation. The Board considered implementing stock dividends and stock
splits on several occasions between 1996 and 1998. In each instance, such action
was rejected for the reason that the effect of implementing such a stock split
or stock dividend might be to reduce the price of the Company's common stock to
a level at which the Company would be viewed as a "penny stock", thereby making
it even less attractive to new stockholders. The Company also considered
declaring and paying a cash dividend on several occasions, but decided not to do
9
<PAGE>
so because of the uncertainty of the Company's ability to sustain cash dividends
at a level that would maximize value to the Company's Stockholders. At no time
did the Board consider sale of the Company to a third party, since the Company's
Chairman and other members of his family, including certain officers and
directors of the Company, who in the aggregate 47% of the Shares, repeatedly
indicated that they were not interested in any such sale. As the Company's
operating performance continued to improve from 1996 through 1998, and the
Company's stock price increased, reflecting both such improved performance and
the improvement of stock prices of publicly held staffing industry companies,
the Board felt that the most prudent course of action was to defer any decision
about a stock split or dividend until the price of the Company's stock had
further increased to a level where a meaningful stock split could be
implemented.
The Company's management has been increasingly frustrated, since
mid-1998, at the continuing decline in the price of the Company's common stock
in the face of continuing reported record increases in the net operating results
of the Company. Following the release of results for the third quarter of fiscal
1998, in which the Company reported a 12% increase in net earnings and a 10%
increase in revenues, the price of the Company's common stock dropped from 6 1/4
on the date of release of such report to 3 3/4. Likewise, following the release
of results for the fourth quarter of fiscal 1998, in which the Company reported
a 22% increase in net earnings and a 26% increase in revenues, the price of the
Company's common stock dropped from 3? on the date of release of such report to
3.
Given the recent deterioration in the Company's operating performance,
in which both revenues and net income declined in the most recent quarter from
the prior year's levels, and are anticipated to decline for the current fiscal
year from the prior year's levels, and also given the recent changes adversely
affecting the staffing industry and the resulting dramatic reduction in share
prices of many publicly held staffing industry companies, the Board now believes
that it is unlikely, in the foreseeable future, that the Company's share price
would increase to a level that would permit a stock split or a stock dividend to
be implemented.
As recently reported in a leading staffing industry publication,
Staffing Industry Report ("SIR"), shares of publicly held staffing industry
companies, which enjoyed considerable gains during most of 1998, have
significantly underperformed the market in recent months. After reaching an all
time high in April 1998, SIR's index of staffing industry stocks declined to a
three year low by March, 1999. By comparison, major market averages, including
the Standard & Poor's 500 and the Dow Jones Industrials, have surged to new
highs. Among those factors which SIR cited as a basis for such declines are the
trend of investors to avoid small cap stocks, a category which includes many
public staffing industry companies, and a slowing of staffing industry growth,
caused in large part by a tight labor market. One industry analyst, Matthew V.
Roswell of Legg Mason Wood Walker, Inc., points to the growing commoditization
of staffing services and believes that staffing companies will be faced with
further margin contraction, a more difficult operating environment and reduced
profitability. Mr. Roswell also predicts that employers will increasingly
utilize the internet to bypass staffing companies altogether in addressing
staffing needs.
10
<PAGE>
In light of the foregoing and communications by the Company with
stockholders of the Company, including those unaffiliated with the Remaining
Stockholders, in which such stockholders requested that the Company consider
ways in which it could enhance stockholder value, the Company's founder,
Chairman of the Board of Directors, and principal stockholder, Seymour Kugler,
in late 1998, decided to investigate the feasibility of making an offer to
purchase all of the Company's shares not held by Mr. Kugler or members of his
family. On January 19, 1999 the Company contacted The Bank of New York ("BONY"),
its principal lender, regarding the availability of financing for the Company to
purchase all of the Public Shares. On February 24, 1999, BONY informally advised
the Company that, subject to satisfying customary conditions, BONY would commit
to provide the Company with financing in order to fund the Offer.
On February 24, 1999, the Company's Board of Directors held a special
meeting at which Mr. Kugler proposed that the Company make a cash tender offer
(the "Proposal") to stockholders for the purpose of taking the Company private
at a price 15% above the market price for the Company's common stock at the time
of commencement of such offer. Based on the last trade of the Company's common
stock on AMEX on February 23, 1999, at a price of $3.125 per share, the price
per share of the Proposal would have equaled $3.59 per share. Mr. Kugler noted
that, overall, since the Company went public in 1987, the public market had not
responded to sustained profitability of the Company and its common stock had
remained thinly traded and had provided very little liquidity for stockholders.
He further noted that the Company had been unable to use its stock effectively
for acquisitions, financing or employee incentives because of low market price
and low trading volume. He stated his belief that if the Company reverted to
private ownership, it could eliminate substantial general and administrative
costs of being a reporting Company under the securities laws, and noted that the
diversion of management's time and attention to matters of public reporting and
the expenses of legal, accounting and transfer agent activities involved in
remaining public were considerable.
Following such remarks, Mr. Kugler recommended that the Board appoint a
committee (the "Independent Committee") composed of the Board's independent
directors, Martin Wolfson, Martin Fischer, Martin Simon and Norton Sperling to
consider the Proposal on behalf of the Public Stockholders and make a
recommendation to the Board. After the Board unanimously approved the
Independent Committee, Mr. Kugler requested that Newman Tannenbaum Helpern
Syracuse & Hirschtritt LLP (which changed its name effective July 1, 1999 to
Tannenbaum Helpern Syracuse & Hirschtritt LLP), counsel to the Company ("Newman
Tannenbaum"), advise the directors, and, in particular, the Independent
Committee, of their responsibilities in connection with the Proposal. Newman
Tannenbaum thereupon advised the Board that the Independent Committee should
report back to management once they had met and selected independent counsel and
an independent financial advisor so that the activities of such counsel and
financial advisor could be coordinated and expedited.
Newman Tannenbaum recommended that the Independent Committee meet
separately for the purposes of reviewing and evaluating the transaction and that
at such meeting, the Independent Committee should consider the factors leading
11
<PAGE>
to the proposal to take the Company private, including the costs to the Company
of being a public entity, lack of an active trading market for the Company's
common stock and resulting lack of liquidity for Stockholders. Newman Tannenbaum
also recommended that the Committee review, among other things, the Company's
financial condition, conditions generally in the staffing industry, and the
prospects for the future of the Company, including whether it was practical or
probable that the Company would be able to achieve future acquisitions either
with Company stock or to use Company stock to raise cash for such acquisitions.
Newman Tannenbaum also stressed that the Independent Committee should
understand that there were no limitations imposed upon its review of the
proposal, or on the investigations or procedures to be followed in reaching a
conclusion regarding fairness, provided that the Independent Committee should
understand that the Kugler family was unwilling to consider a sale of their
interest in the Company and that it would therefore be unnecessary for the
Independent Committee to consider the possibility of seeking alternative values
for shareholders by soliciting offers to purchase the Company or its assets from
third parties.
Following the Board meeting, the Independent Committee held a meeting
and decided on a process for identification and engagement of independent
counsel and independent financial advisors to the Independent Committee. The
Independent Committee also elected Martin Wolfson as Chairman.
On March 10, 1999, Newman Tannenbaum corresponded with the members of
the Independent Committee providing an explanation for the terms of the
Company's Proposal, noting that the 15% premium over market price was based on
the Company's own research regarding recent cash tender offers by other public
companies, believed to be comparable to the Company.
During March 1999, the Independent Committee interviewed several law
firms and investment banking firms to serve as legal and financial advisors to
the Independent Committee. On March 15, 1999, the Independent Committee retained
Paul, Hastings, Janofsky & Walker LLP ("Paul Hastings"), as counsel to the
Independent Committee, and in April 1999, retained Houlihan Lokey as financial
advisor to the Independent Committee.
On April 28, 1999, Martin Wolfson advised Newman Tannenbaum that
Houlihan Lokey was in the process of completing its due diligence investigation
of the Company and had a scheduled visit with the Company to review certain
financial information. He indicated that, based on his conversations with
Houlihan Lokey, the Committee might receive Houlihan Lokey's preliminary report
as early as the following week but that at that time he had no indication what
Houlihan Lokey's conclusions would be.
12
<PAGE>
During the week of May 10, 1999, Mr. Wolfson advised Newman Tannenbaum
that the Committee expected to receive a preliminary report from Houlihan Lokey
during that week and requested that a special meeting of the Board of Directors
be convened immediately following the meeting of the Board scheduled for May 19,
1999, immediately following the Company' s annual meeting of stockholders.
On May 12, 1999, the Independent Committee met with representatives of
Houlihan Lokey and Paul Hastings to discuss the results of Houlihan's analysis
of the Proposal. Houlihan Lokey presented its report to the Independent
Committee, describing the procedures used to evaluate the Proposal price,
including, among other things, analysis of the Company's stock price and the
premium reflected in the Proposal. Based on the analysis performed, Houlihan
Lokey's report concluded that the Proposal was not fair to the Public
Stockholders from a financial point of view. The Independent Committee agreed to
present the results of the Houlihan Lokey report to management.
On May 19, 1999, the Board met with representatives of Paul Hastings.
Martin Wolfson, as Chairman of the Independent Committee, reviewed the basis for
Houlihan Lokey's assessment of the Company's stock price, as well as certain
analysis done by Houlihan Lokey of a variety of bases for valuation and certain
comparative analysis of the valuation of other public companies in the staffing
industry. Based on its analysis, Houlihan Lokey concluded that a 15% premium
over the then current market price for the Company's common stock would not be a
fair price for the Proposal from a financial point of view. During the course of
such presentation, management indicated that because of recent changes adversely
affecting the staffing industry, generally, and the Company, specifically,
including the loss of a significant volume of business from certain of its major
customers, the Company had revised the projections for 1999 given to Houlihan
Lokey, which projections had been developed in October 1998 (the " Fall 1998
projections"), to more closely reflect the recent deterioration in operating
results.
The Fall 1998 projections were prepared as part of the Company's
normal year-end budget forecasting. Information utilized to prepare the
projections is compiled and finalized in the fall of each year in order to
provide an opportunity for each of the Company's business units to identify
their goals for the forthcoming year. The forecasted information is derived
solely from sales and gross profit forecasts, anticipated staffing levels and
anticipated commissions. Based upon either actual or historical information
available and compiled in the ordinary course of business, management then
derives other general and administrative costs and expenses. Those involved in
the forecasting process include the Company's Chairman, Seymour Kugler, Vice
Presidents Todd Kugler, Gregg Kugler, Alan Wolf, Michael Gallo, Douglas Russell
and Raymond McCourt, the President of the Company's advertising division, Bruce
Papkin, the Company's Secretary, Eric Kugler, and the Company's Chief Financial
Officer, Jesse Ulezalka, and Assistant Controller, Anthony Fata.
The Company revised its projections (the "Revised Projections") in
May, 1999, when it became apparent that, based upon actual year-to-date results,
revenue growth was slowing so that the Fall 1998 projections were not
achievable. Subsequent to the completion of the Fall 1998 projections, the
Company lost four significant accounts representing, in the aggregate,
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<PAGE>
approximately $5,000,000 of annual revenues which had been included by the
Company in preparing the Fall 1998 projections. In one instance, the contract
was opened to competitive bidding and the Company was not the successful bidder.
In another, a project ended and was not repeated, as anticipated by the Company.
In another instance, the client consolidated all of its temporary staffing
activities through another vendor where such services previously had been
provided by a number of staffing companies including the Company. In the final
case, the business was lost due to consolidation following a corporate merger.
While the Company has been successful in generating new clients accounting for
revenues equal to the revenues that the lost accounts represented as well as
revenues which had been generated through other customers which no longer
utilize the Company's services (which additional revenues were contemplated in
the Fall 1998 projections and the Revised Projections), in general the revenues
generated under the new contracts have lower profit margins than the lost
revenues from the older client relationships.
The following is a summary comparison of the Fall 1998 projections and
the Revised Projections, showing the variances between the two, as well as a
summary comparison of the Revised Projections for the six month period ending
June 30, 1999 and actual results for such six month period, showing variances
between such projections and actual results. As is clearly indicated, the
variances between the Fall 1998 projections and the Revised Projections are
significant, while the Revised Projections for the six month period ending June
30, 1999 closely approximate the actual results for such period.
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Revised Fall 1998 Projections Actual Six Revised Proj.
Projections FY 1999 Months ended Six Months ended
FY 1999 Variance June 30, 1999 June 30, 1999 Variance
Revenue:
Placement fees and related income $61,388,000 $73,874,000 $(12,486,000) $29,773,000 $29,984,000 $(211,000)
Operating Expenses:
Compensation and other benefits 48,428,000 56,465,000 (8,037,000) 23,739,000 23,711,000 28,000
Selling, general & administrative 9,913,000 12,478,000 (2,565,000) 4,592,000 4,861,000 (269,000)
Income from Operations 3,047,000 4,931,000 (1,884,000) 1,442,000 1,412,000 30,000
Interest Expense 8,000 60,000 (52,000) 4,000 4,000 0
Income before provision for income taxes 3,039,000 4,871,000 (1,832,000) 1,438,000 1,408,000 30,000
Provision for income taxes 1,398,000 2,238,000 (840,000) 661,000 648,000 13,000
Net Income $1,641,000 $2,633,000 $(992,000) $777,000 $760,000 $17,000
==============================================================================================
</TABLE>
15
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The Revised Projections prepared in May, 1999, were prepared by
Seymour Kugler, Gregg Kugler, Todd Kugler, Eric Kugler, Jesse Ulezalka and
Anthony Fata. The primary difference in the Revised Projections from the Fall
1998 projections was that revenue projections were not being attained as a
result of a loss of significant business from some of the Company's clients and
new business was sufficient merely to offset, rather than augment, such lost
revenues, and that, based on actual year-to-date results, current revenues were
being attained at lower margin percentages because of heightened competition and
increased pricing pressures in the marketplace. As a response to the foregoing
factors, the Company has reduced certain costs in general and administrative
expenses in contemplation of lower revenue results and certain expenses have
been reduced as a direct result of decreased revenues, primarily bonuses,
commissions and related payroll taxes and fringe benefits. The Company has
increased compensation for new salespeople, and increased investment in new
business development in order to sustain revenue levels in a market of increased
competition. The net result of these trends and actions has been a decline in
both net income and cash flow. The Company believes this trend will continue for
the remainder of the current fiscal year, putting pressure on results.
At the conclusion of the May 19 meeting, the Independent Committee
indicated that it would ask Houlihan Lokey to apply the necessary due diligence
procedures to the new projections in order to determine if their report to the
Independent Committee should be revised. The Independent Committee also asked
the Company to consider (i) increasing the offer in light of the Houlihan Lokey
report and (ii) retaining an investment banking firm to advise the Company in
connection with its evaluation of any revised offer.
Following such Board meeting, the Company engaged the investment
banking firm of Peter J. Solomon Co. Ltd. ("Solomon") as the financial advisor
to the Company, to work with the Company to formulate an offer acceptable to the
Independent Committee and to act as an intermediary with Houlihan Lokey in order
to assist such firm in completing its valuation of the Company for the
Independent Committee.
The Company selected Solomon to be its financial advisor in connection
with the Offer because Solomon is a prominent investment banking and financial
advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions. Solomon has had no prior
investment advisory or corporate finance relationship with the Company or the
Remaining Stockholders. Pursuant to the terms of a letter agreement dated May
27, 1999 between Solomon and the Company, the Company agreed to pay Solomon
$50,000 upon the execution of the letter agreement and an additional fee of
$50,000 upon the earlier of (i) initial approval of the Offer by the Special
Committee or (ii) if earlier, commencement of the Offer. In addition, the
Company also agreed to reimburse Solomon for its reasonable out-of-pocket
expenses up to a maximum of $2,000. The Company also agreed to indemnify Solomon
and its affiliates, counsel and other professional advisors, and the respective
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directors, officers, controlling persons, agents and employees of each of the
foregoing against certain liabilities related to or arising out of the
engagement of Solomon under the letter agreement or any transaction or conduct
in connection therewith.
Solomon initiated conversations with Houlihan Lokey in late May
discussing Solomon's role in the potential transaction. Solomon defined its role
to Houlihan Lokey as giving its perspective as to the value of the Company.
Solomon also pointed out that the projections used by Houlihan Lokey in their
analysis of the Proposal had been revised as described above and may not
accurately reflect the Company's recent performance and prospects. A
representative of Houlihan Lokey indicated that Houlihan Lokey would undertake a
due diligence investigation of the new projections. Houlihan Lokey indicated
that it would advise Paul Hastings and the Independent Committee of its
discussions with Solomon and subsequently arrange a meeting with Solomon.
On June 4, 1999 a meeting was held at the offices of Houlihan Lokey
among representatives of Houlihan Lokey and Solomon. Solomon presented to
Houlihan Lokey at the meeting its perspective as to the value of the Company.
Solomon noted that the implied multiple of the Company's net income for the
trailing 12 months based on the initial proposal price of $3.59 was close to the
net income multiples of public companies in comparable businesses of much larger
size and whose securities trade with significantly greater liquidity than those
of the Company. Solomon also stressed the magnitude of the premium being offered
over the market price of the Company's stock on the date preceding the offer.
Houlihan Lokey responded that it was focused more on the intrinsic value of the
Company. As one method of determining intrinsic value, Houlihan Lokey applied a
traditional leverage buyout analysis to determine the ability of the Company to
finance an offer at a higher price, and they indicated that they believed, based
on such valuation analysis, a higher price could be financed. Solomon responded
that such an analysis needed to take into account the recent deterioration in
the Company's results and concerns about current economic conditions. Solomon
and Houlihan Lokey also discussed and reviewed the Revised Projections. Given
the scope of the role of both Solomon and Houlihan Lokey, the discussion was
focused more on the appropriate methodologies for valuing the Company's offer
than on negotiation of offer price, since neither Solomon nor Houlihan Lokey was
authorized to engage in such negotiations at this time.
Houlihan Lokey indicated at the conclusion of the meeting that they
would review their analysis and then meet with the Independent Committee to
discuss Houlihan Lokey's conclusion regarding valuation in light of the new
financial information and the meeting with Solomon.
Between June 5 and June 10, 1999, Solomon held conversations with
Houlihan Lokey, and during those conversations, Solomon relayed to Houlihan
Lokey that Mr. Kugler might consider a revised offer of $4.50 per share.
On June 10, 1999, the Company formally presented the Independent
Committee with a new offer, to purchase all outstanding shares of the Company's
common stock not held by the Kugler family at a price of $4.50 per share.
Following delivery of such proposal, Mr. Wolfson contacted Mr. Kugler on June
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11, 1999, to arrange a meeting of the Board of Directors of the Company on June
16, 1999 to discuss the new proposal.
On June 15, 1999, the Independent Committee convened a telephonic
meeting with representatives of Houlihan Lokey and Paul Hastings to discuss the
revised offer and Houlihan Lokey's review of the revised projections prepared by
the Company's management. Houlihan Lokey indicated that they had conducted
sufficient procedures to conclude that the revised projections prepared by the
Company's management were appropriate to use as a basis for their analysis of
the revised offer. Notwithstanding the use of the revised projections, Houlihan
Lokey indicated that the revised offer of $4.50 per Share was below the midpoint
of its concluded range of prices that would be fair to the Public Stockholders
from a financial point of view.
On June 16, 1999, the Board of Directors met with representatives of
Houlihan Lokey, Paul Hastings, Solomon and Newman Tannenbaum to discuss the
Company's revised proposal. Mr. Wolfson, on behalf of the Independent Committee,
thanked the Company for substantially increasing the proposed offer, but
indicated that the Committee believed that a higher offer was appropriate.
Representatives of Solomon and Houlihan then outlined for the Independent
Committee and the other directors those variables which they believed to be most
important in determining a fair valuation of the Company. A representative of
Solomon reiterated that industry multiples used in a comparable company
valuation analysis to calculate the intrinsic value of the Company must be
discounted to the extent the comparables are larger companies with more liquid
trading markets than the Company. It was further pointed out that all industry
valuations had deteriorated significantly, reflecting the deterioration in
business prospects for staffing companies, generally, as a result of increased
competition, consolidation and resulting reductions of operating margin and
projected growth. At this point, the meeting recessed so that the parties could
meet with their respective financial and legal advisors to discuss the current
status of the negotiations. After some discussions, representatives of Solomon
and Houlihan Lokey met to discuss a possible mutually agreeable transaction.
Houlihan Lokey then met with the Independent Committee to indicate that they
believed the Company would be willing to increase its offer to $4.625 per share
and that Houlihan Lokey was prepared to opine that this increased offer would be
fair to the Public Stockholders from a financial point of view. After the Board
reconvened, Mr. Kugler stated that the Company would be willing to increase the
offer to $4.625 and, if the Independent Committee would approve an offer at
$4.625 per share, he would recommend to the Board of Directors that it authorize
the Company to proceed with such an offer. Following such statement, the
Independent Committee unanimously agreed, based in part on the opinion of
Houlihan Lokey, that an offer of $4.625 per share was fair from a financial
point of view to, and in the best interests of the Public Stockholders and
recommended that the Board approve the Offer.
Following the action of the Independent Committee, the Board, by
unanimous vote of all Directors present and voting, based in part on unanimous
recommendation and approval of the Independent Committee, determined that the
Offer is fair to and in the best interests of the Public Stockholders of the
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Company and recommended that all Public Stockholders accept the Offer and tender
their Shares pursuant to the Offer, and the Company issued a press release
regarding the Offer.
During the course of its engagement, Solomon prepared discussion
materials which it utilized in its meeting with Houlihan Lokey on June 4, 1999.
Solomon did not prepare any other analysis or report or deliver any opinion in
connection with its engagement. A copy of Solomon's discussion materials is
available for inspection and copying at the principal executive offices of the
Company during its regular business hours by any interested stockholder of the
Company or any representative of such stockholder who has been so designated in
writing. A copy of such discussion materials will be transmitted by the Company
to any such stockholder or representative upon written request and at the
expense of the requesting stockholder.
In preparing its discussion materials and preparing for its
assignment, Solomon reviewed the financial performance of the Company as well as
both the Fall 1998 projections and the Revised Projections. In addition, Solomon
undertook a series of valuation analyses which considered, among other things,
(i) the liquidity of the Company's securities, in which it determined that the
stockholders of the Company have substantially less ability to realize liquidity
than shareholders of public companies of larger size engaged in similar
businesses, (ii) the Company's earnings growth, in which it determined that the
Company's projected growth rate and earnings lags behind its public comparables,
(iii) the Company's EBITDA margin, in which it determined that the Company's
EBITDA margin is in the lower end of the range compared to its public
comparables and (iv) the market value and sales of the Company, in which it
determined that the Company is substantially smaller than other public companies
in the staffing industry. Solomon also analyzed typical multiples for mergers
and acquisitions involving "small cap" companies and multiples paid in small
"going private" transactions. As a result of these analyses, Solomon concluded
that the appropriate multiple for acquisition of the Company should be at a
discount to the trading multiples of larger public staffing companies as well as
the multiples for acquisitions of larger companies engaged in the staffing
business.
Letter Received From American Claims Evaluation, Inc.: On July 7, 1999
the Company received an unsolicited letter from American, which identified
itself as a Nasdaq (National Association of Securities Dealers, Inc. Automated
Quotation System)/Small Cap listed company. The letter indicated that American
was interested in purchasing 51% or more of the Company's common stock for $5.25
per share in cash and wanted to meet with the Company. On July 9, 1999 a special
meeting of the Board of Directors was called to consider and evaluate American's
letter. The telephonic meeting was attended by all members of the Board of
Directors, including those members comprising the Independent Committee, as well
as by representatives of Houlihan Lokey, Solomon, Paul Hastings and Newman
Tannenbaum. At the meeting, Seymour Kugler confirmed to the Board of Directors
that, consistent with their earlier statement that they were unwilling to
consider a sale of their interests in the Company, none of the Remaining
Stockholders were interested in pursuing the proposal set forth in American's
letter and would not accept an offer from American of $5.25 per Share in cash.
In addition, two officers holding Shares, Alan E. Wolf and David Silver,
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indicated their unwillingness to accept the American proposal, which they
subsequently confirmed to the Board in writing, thereby making, together with
the Shares beneficially held by the Remaining Stockholders, in excess of 56%
(including currently exercisable Stock Options) of the Shares unavailable for
purchase in connection with American's proposal. After deliberation, the Board
concluded that since the terms set forth in American's letter could not be met
by virtue of the unavailability for purchase of Shares owned by the Remaining
Stockholders and certain officers, the Company should respond in writing to
American's letter advising it that stockholders holding more than 51% of the
Shares had advised the Board that they were not interested in pursuing
American's proposal and would not accept an offer from American of $5.25 per
Share in cash. The Company responded accordingly by letter dated July 9, 1999.
On July 12, 1999, the Company's counsel confirmed the advice set forth in the
Company's July 9, 1999 response in a telephone conversation with American's
management. The Company has received no further communications from American
since that date.
In the Board's view, American's proposal was not a "firm offer," but
rather an informal inquiry of interest, with no follow-up whatsoever once it
became evident to American that control could not be acquired. In addition, the
American inquiry was made after the determination of fairness by the Independent
Committee and the Board. It also should be borne in mind that the American
inquiry must have been based solely on an examination of the Company's public
filings, since American was not privy to either the Fall 1998 projections, the
Revised Projections or any other non-public information about the Company.
Consequently, the American inquiry was determined by the Board as subject to
change based on the extensive and time consuming due diligence a purchaser would
have undertaken in connection with an acquisition of the Company. The Board's
determination of fairness of the Offer was based upon an analysis of precisely
these kinds of factors. In addition, the Board recognized that the American
inquiry did reflect, to some degree, a control premium which American was
willing to pay in order to gain control of the Company. Taking all of the
foregoing factors into account, and also taking into account that, given the
unwillingness of the Remaining Stockholders and certain other officers to
consider selling their interests in the Company, American's inquiry could never
mature into a firm offer, the Board confirmed its prior determination that the
Offer was fair to the shareholders. Given the circumstances, i.e., that
American's inquiry could not possibly result in the purchase of shareholders'
stock by American and that American made no further attempt to contact the
Company following its becoming aware that it could not acquire control, the
Board did not feel that it was necessary to engage in any further detailed
analysis of the American situation.
Certain Effects of the Offer; Plans of the Company after the Offer.
The Remaining Stockholders have informed the Independent Committee that,
assuming the completion of the Transactions, they have no present intention to
cause the Company to change its fundamental business, sell or otherwise dispose
of any material part of its business, merge, liquidate or otherwise wind-up its
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business. Nevertheless, the Remaining Stockholders may initiate a review of the
Company and its assets, corporate structure, capitalization, operations,
properties and personnel to determine what changes, if any, might then be
desirable.
Management believes that consummation of the Transactions will result
in substantially greater flexibility for the Company in the utilization of
assets and in the planning of its future. If the Offer, and, if necessary, the
Second-Step Transaction are completed, the Remaining Stockholders will be
permitted to receive the benefits that result from the ownership of all, or a
significant amount, of the equity interest in the Company, but will also bear
the risk of any decrease in the value of the Company. As a result of the
borrowing incurred in connection with the financing of the Offer and, if
necessary, the Second-Step Transaction, the consolidated indebtedness of the
Company will be substantially greater. See "The Tender Offer - 8. Financing of
the Offer and the Second-Step Transaction."
The Company anticipates that the Remaining Stockholders will replace
all of the current directors comprising the Independent Committee as soon as
practicable as directors of the Company following the consummation of the Offer
and, if necessary, the Second-Step Transaction. The persons who are presently
officers of the Company will continue in their same positions following
consummation of the Offer and, if necessary, the Second-Step Transaction.
Following consummation of the Second-Step Transaction, the Shares will
no longer be traded on AMEX, and the registration of the Shares under the
Exchange Act will be terminated and, accordingly, the Company will no longer be
required to file periodic reports with the Commission.
2. RIGHTS OF STOCKHOLDERS IN THE EVENT OF THE SECOND-STEP
TRANSACTION
No appraisal rights are available in connection with the Offer.
However, if the Second-Step Transaction is consummated, stockholders who have
not tendered their Shares will have certain rights to dissent and demand
appraisal of, and to receive payment in cash of the fair value of their Shares.
If a dissenting stockholder were to exercise such appraisal rights in
connection with the Second-Step Transaction, and if the Company and such
stockholder were unable to agree on the fair value of the Shares, a court would
determine the fair value of the Shares, as of the day prior to the date on which
the stockholders' vote was taken approving the Second-Step Transaction. The fair
value of the Shares would be paid in cash to such dissenting stockholder. In
determining the fair value of the Shares, the court is required to take into
account all relevant factors. Accordingly, such determination could be based
upon considerations other than, or in addition to, the market value of the
Shares, including, among other things, asset values and earning capacity.
Therefore, the value so determined in any appraisal proceeding could be the same
as, or more or less than, the price received in the Second-Step Transaction.
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The foregoing summary of the rights of dissenting stockholders does
not purport to be a complete statement of the procedures to be followed by
stockholders desiring to exercise any available appraisal rights and is
qualified in its entirety by reference to the full text of Section 262 of the
DGCL included in Schedule III attached hereto. The preservation and exercise of
appraisal rights are conditioned on strict adherence to such Section 262.
3. RECOMMENDATION OF THE COMPANY'S BOARD; FAIRNESS OF THE OFFER
Recommendation of the Company's Board. On June 16, 1999, the Board, by
unanimous vote of all directors present and voting, based in part on the
unanimous recommendation and approval of the Independent Committee, determined
that the Offer is fair to and in the best interests of the Public Stockholders
of the Company, subject only to receipt of a firm commitment from the Company's
principal lender to provide the Debt Financing (as defined herein). The Board,
by a unanimous vote of all directors present and voting, has recommended that
all Public Stockholders accept the Offer and tender their Shares pursuant to the
Offer.
Fairness of the Offer. In reaching its determinations referred to
immediately above, the Board considered the following factors, each of which, in
the view of the Independent Committee as well as the other members of the Board,
supported such determinations. In addition, in concluding that the Offer is
fair, the Board, as well as the Independent Committee and the Remaining
Shareholders, adopted the analysis of Houlihan Lokey described below under
captions "Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc."
a. The Independent Committee considered the historical market prices
and recent trading activity of the Shares, including the fact that the $4.625
net per Share cash consideration to be paid to the Public Stockholders in the
Offer represents a premium of approximately 61% per Share over the last reported
sales price on June 15, 1999, the last full trading day preceding the public
announcement of the Offer, and a premium of approximately 44% and 51% over the
average closing price for the one-month and three-month periods, respectively,
preceding such date and the fact that such price would be payable in cash, thus
eliminating any uncertainties in valuing the consideration to be received by the
Company's Public Stockholders. The Company's common stock briefly traded during
1998 at a price higher than the price offered, but such circumstance was of
limited duration and came at a time when the prices of all publicly traded
staffing industry companies spiked to historic highs, from which virtually all
such companies rapidly declined by the first quarter of 1999. In addition, the
Company has posted weaker operating results since that time, which also have
adversely affected the Company's stock price.
b. The Independent Committee considered the opinion of Houlihan Lokey
that the consideration to be offered to the Public Stockholders is fair to such
stockholders from a financial point of view and the report and analysis
presented by Houlihan Lokey, which included discussion and analysis of
historical trading volume and market prices, multiples of historical and
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forecasted net income from operations, cash flow from operations, book value and
various other factors. With respect to the matters contained in the opinion of
Houlihan Lokey, the Independent Committee reviewed the report and the analysis
contained therein and considered the other factors set forth herein in
determining that the Offer is fair.
c. The Independent Committee reviewed the market price for the Shares
as compared to the performance of the Company.
d. The Independent Committee reviewed the nature of the Company's
business and the industry in which the Company operates, including information
received by the Board regarding trends in the permanent and temporary staffing
industries and various uncertainties associated with current and potential
future industry and market conditions. The Company operates in a cyclical
industry that has just enjoyed several years of continuous expansion, outlasting
most prior upward cycles. The Company has recently begun to experience a
softening in demand in certain markets which it serves, a reduction in the rate
of growth from recent quarters in other markets and more competitive pricing for
new business, resulting in erosion of profit margins. Each of these factors
could be expected to put further pressure on the price of the Company's shares
for the foreseeable future. See "Special Factors - Purpose and Background of the
Offer; Certain Effects of the Offer; Plans of the Company after the Offer."
e. The Independent Committee considered the opportunity provided by
the Offer for a substantial number of stockholders to realize a premium for
their Shares in the near future as compared to market prices that, absent the
Offer and, if necessary, the Second-Step Transaction, are likely to continue to
be significantly below the Offer price.
f. The Independent Committee considered the structure of the
transaction, which is designed, among other things, to result in the receipt by
the Public Stockholders of cash consideration at the earliest practicable time
without any brokerage fees.
g. The Independent Committee considered the stated desire of the
Remaining Stockholders not to consider a sale of their majority interest in the
Company, which made pursuit of other potential alternatives (such as a sale of
the Company as a going concern) impracticable.
h. The Independent Committee considered the intention of the Remaining
Stockholders to continue the business as a going concern, which makes any
consideration of liquidation of the Company or values that ultimately might be
obtained from such a liquidation highly speculative.
i. The Independent Committee considered the availability of
dissenters' rights under the DGCL in the event of the Second-Step Transaction.
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j. In addition, the Independent Committee and the Board considered
that, while the prices paid for staffing industry companies in 1998 in
acquisitions may have reflected higher valuations than the offer price, the
prices paid at that time similarly reflected the same market factors which
caused staffing industry companies' stock prices to spike higher. Since the
fall-off in stock prices of staffing industry companies, the prices offered in
going concern purchases have dropped so dramatically that the volume of such
transactions, particularly for non-specialized staffing firms, has significantly
dropped off. Based upon the prices being offered in the marketplace today for
potential acquisitions, the Independent Committee and the Board concluded that
going concern value for the Company would not indicate a value higher than the
value of the consideration offered to unaffiliated security holders in the
proposed transactions.
The members of the Board, including the Independent Committee,
evaluated the various factors listed above in light of their knowledge of the
business, financial condition and prospects of the Company and considered
Houlihan Lokey's analysis and opinion. In light of the number and variety of
factors that the Board and the Independent Committee considered in connection
with their evaluation of the Offer, neither the Board nor the Independent
Committee found it practicable to assign relative weights to the foregoing
factors, and, accordingly, neither the Board nor the Independent Committee did
so. The Independent Committee and the Board, however, gave significant weight to
the factors specified in clauses (a) through (f), inclusive, above.
In addition to the factors listed above, the Board and the Independent
Committee each had considered the fact that consummation of the Offer would
eliminate the opportunity of the Public Stockholders to participate in any
potential future growth in the value of the Company, but determined that this
loss of opportunity was ameliorated in part by the price of $4.625 net per Share
to be paid in the Offer. See "Special Factors - Purpose and Background of the
Offer; Certain Effects of the Offer; Plans of the Company after the Offer."
Neither the Board nor the Independent Committee considered the
American letter in assessing the fairness of the Offer for the following
reasons: American's proposal was not a "firm offer," but rather an informal
inquiry of interest, with no follow-up whatsoever once it became evident to
American that control could not be acquired. In addition, the American inquiry
was made after the determination of fairness by the Independent Committee and
the Board. It also should be borne in mind that the American inquiry must have
been based solely on an examination of the Company's public filings, since
American was not privy to either the Fall 1998 projections, the Revised
Projections or any other non-public information about the Company. Consequently,
the American inquiry was determined by the Board as subject to change based on
the extensive and time consuming due diligence a purchaser would have undertaken
in connection with an acquisition of the Company. The Board's determination of
fairness of the Offer was based upon an analysis of precisely these kinds of
factors. In addition, the Board recognized that the American inquiry did
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reflect, to some degree, a control premium which American was willing to pay in
order to gain control of the Company. Taking all of the foregoing factors into
account, and also taking into account that, given the unwillingness of the
Remaining Stockholders and certain other officers to consider selling their
interests in the Company, American's inquiry could never mature into a firm
offer, the Board confirmed its prior determination that the Offer was fair to
the shareholders. Given the circumstances, i.e., that American's inquiry could
not possibly result in the purchase of shareholders' stock by American and that
American made no further attempt to contact the Company following its becoming
aware that it could not acquire control, the Board did not feel that it was
necessary to engage in any further detailed analysis of the American situation.
In addition, the Independent Committee and the Remaining Stockholders
determined that the Offer is procedurally fair to the stockholders of the
Company because, among other things (i) the Independent Committee, consisting
entirely of independent directors, was formed to evaluate and negotiate the
terms of the Offer on behalf of the Public Stockholders, (ii) the Independent
Committee retained Houlihan Lokey to render a fairness opinion with respect to
the Offer, (iii) there were deliberations pursuant to which the Independent
Committee evaluated the Offer, (iv) a $1.035 per Share increase in the initial
offer price resulted from active arm's-length bargaining between the Independent
Committee and its representatives and the Remaining Stockholders, and (v) at
least two-thirds of the shares held by the Public Stockholders must be tendered
for the Offer to be consummated.
Because the range of alternatives available to the Board, and
therefore the Independent Committee, did not involve a sale of the Company to a
third party, the options available for the Independent Committee to explore on
behalf of the unaffiliated shareholders may have been limited. The Independent
Committee, in its May 12, 1999 meeting with Houlihan Lokey, did, however,
discuss the feasibility of various strategic alternatives, including the
following:
o Sale to a strategic buyer - The Company's diverse product offering may
have made it a less attractive candidate for sale to a strategic
buyer. In addition, it would be difficult to find a strategic buyer
and secure an offer on a timely basis in the face of the Remaining
Stockholders' unwillingness to sell its interest.
o Sale to a financial buyer - In addition to many of the reasons cited
above, a sale to a financial buyer was not likely. In particular, a
financial buyer would be unlikely to pursue a transaction without
management support.
o Liquidation of the Company - Because the Company does not have
substantially undervalued assets, a liquidation would not provide
"unrealized value" to the Public Stockholders.
o Continue to operate as a public company - The poor performance of the
stock price made continuation as a public company an unattractive
alternative. In addition, it was foreseeable that the stock would
continue to be thinly traded with little or no research coverage by
analysts. Based substantially on these factors, the Independent
Committee concluded that the acquisition of the Shares held by the
Public Stockholders by the Company was the most promising alternative
to maximize stockholder value.
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The Remaining Stockholders, as the largest stockholders of the
Company, have an obligation to deal fairly with the Public Stockholders although
they do not have any obligation to the Public Stockholders to accept any offer
to purchase their Shares.
4. OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
Introduction. The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to partial analysis or summary description.
The following is a brief summary and general description of the valuation
methodologies utilized by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgements made
or the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised the Board, that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all factors
and analyses, could create an incomplete view of the process underlying its
analyses and opinions.
The Company retained Houlihan Lokey on behalf of the Independent
Committee of the Board of Directors to render an opinion as to the fairness,
from a financial point of view, of the Offer to the Public Stockholders. At the
June 16, 1999 meeting of the Board, Houlihan Lokey presented its analysis as
hereinafter described and delivered its written opinion that as of such date and
based on the matters described therein, the Offer is fair to the Public
Stockholders from a financial point of view.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED HERETO AS
SCHEDULE II. THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH OPINION. THE STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY HOULIHAN LOKEY.
Houlihan Lokey's opinion to the Independent Committee addresses only the
fairness from a financial point of view of the Offer, and does not constitute a
recommendation to the Public Stockholders as to how such stockholders should
vote at a meeting of the Stockholders should one be necessary. Houlihan Lokey's
opinion does not address the Company's underlying business decision to effect
the Offer. Houlihan Lokey has not been requested to, and did not, solicit third
party indications of interest in acquiring all or part of the Company.
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In connection with the preparation of its opinion, Houlihan Lokey made
such reviews, analyses and inquiries as they deemed necessary and appropriate
under the circumstances. Among other things, Houlihan Lokey: (i) reviewed the
Company's audited financial statements on Form 10-K for the three fiscal years
ended December 31, 1998, the Form 10-Q for the fiscal quarter ended March 31,
1999, and an internally prepared income statement for the four months ended
April 30, 1999, which the Company's management has identified as being the most
current financial statements available; (ii) met with certain members of senior
management of the Company to discuss the operations, financial condition, future
prospects and projected operations and performance of the Company; (iii)
reviewed forecasts and projections dated May 24, 1999 prepared by the Company's
management with respect to the Company for the year ended December 31, 1999;
(iv) reviewed the historical market prices and trading volume for the Company's
publicly traded securities; (v) reviewed publicly available financial data for
certain companies that it deemed comparable to the Company, and publicly
available prices and premiums paid in other transactions that it considered
similar to the Offer; and (vi) conducted such other studies, analyses and
inquiries as it deemed appropriate.
In assessing the financial fairness of the Offer to the Company's Public
Stockholders Houlihan Lokey: (i) analyzed the reasonableness of the trading
value of the Company's publicly traded equity securities; (ii) independently
valued the common equity of the Company using widely accepted valuation
methodologies; (iii) analyzed the reasonableness of the consideration being
offered in the Offer; and (v) reviewed the valuation implications to the
Company's Public Stockholders of various alternatives to the Offer.
Valuation of the Company.
Assessment of Winston Resources' Public Stock Price. As part of its
analysis, Houlihan Lokey analyzed the trading price and volume of the Company's
common stock.
Changes in the Company's common stock price over the last twelve
months have followed a similar pattern to changes in common stock prices of a
group of comparable public companies. The Company's 30 day average stock price
prior to announcement of the Offer was $3.27, which was 52.3% of its high price
over the preceding twelve months. The composite 30 day average price of the
group of comparable public companies was 52.2% of the composite high price over
the preceding twelve months. The Company's closing price the day prior to the
announcement was $2.875, which is 46.0% of the high price over the preceding
twelve months, as compared to 47.5% for the group of comparable public
companies.
Houlihan Lokey calculated the ratio of the Company's average daily
volume (over the most recent 90 days) for the Company's common stock to its
float and total shares outstanding. Houlihan Lokey then compared the Company's
ratios to similar ratios of comparable publicly traded companies.
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<PAGE>
Based on these analyses, it was Houlihan Lokey's opinion that the
Company's common stock (i) has traded in a similar fashion to the group of
comparable public companies, (ii) has a smaller public float than the comparable
public companies, (iii) does not trade as actively as the comparable public
companies, and (iv) has less analyst coverage than most of the comparable public
companies.
Estimation of the Company's Fully Distributed Stock Price. Houlihan
Lokey completed an independent valuation of the Company using the market
multiple approach. This approach involved the multiplication of various earnings
and cash flow measures by appropriate risk-adjusted multiples. Multiples were
determined through an analysis of certain publicly traded companies, selected on
the basis of operational and economic similarity with the principal business
operations of the Company. Earnings and cash flow multiples were calculated for
the comparable companies based upon daily trading prices. A comparative risk
analysis between the Company and the public companies formed the basis for the
selection of appropriate risk adjusted multiples for the Company. The risk
analysis incorporated both quantitative and qualitative risk factors which
relate to, among other things, the nature of the industry in which the Company
and the comparable companies are engaged.
For purposes of this analysis, Houlihan Lokey selected seven publicly
traded, domestic companies involved in the personnel staffing industry. The
companies included Barrett Business Services, Inc., Joule, Inc., On Assignment,
Inc., Personnel Group of America, Inc., Romac International, Inc., SOS Staffing
Services, Inc., and Westaff, Inc. Houlihan Lokey informed the Board that,
because the market multiple approach is based upon publicly traded prices of
equity securities, the resulting valuation indications are on a fully
distributed, publicly traded equivalent basis. Houlihan Lokey's market multiple
approach produced indications of value for the Company's common stock in the
range of $4.30 to $4.90 per share, on a fully distributed, freely traded basis.
Fairness of Consideration.
Acquisition Premium Analysis. Houlihan Lokey analyzed the acquisition
premiums (the difference between the acquisition price and unaffected trading
price) paid in nine acquisitions of controlling interest of companies in the
personnel staffing industry that occurred between January 1, 1996 and June 10,
1999. Houlihan Lokey noted that the four-week acquisition premiums ranged from a
low of 20.6% to a high of 116.7% with a mean of 48.0% and a median of 39.2%.
Houlihan Lokey noted that the acquisition premium implied by the Purchase Offer
was (i) 60.9% relative to the Company's stock price of $2.88 on June 15, 1999,
(ii) 41.4% relative to the Company's four-week average stock price, (iii) 117.7%
relative to the 52 week low price and (iv) a 35.1% discount to the 52 week high
price. Based on this analysis, Houlihan Lokey noted that it was their conclusion
that the Offer represents a reasonable acquisition premium.
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<PAGE>
Houlihan Lokey further noted that the Company's stock price achieved its
52 week high on July 29, 1998, and that this was approximately the same period
that the companies deemed by Houlihan Lokey to be comparable to the Company
reached their respective highs. Due to the significant amount of time between
the 52 week high and the date of the Offer, Houlihan Lokey concluded that the 52
week high was not relevant to the current value of the Company. Houlihan Lokey
concluded that the more relevant indications were the 30 day average closing
price prior to the Offer ($3.27 per share), the 60 day average closing price
prior to the Offer ($3.21 per share) and the 90 day average closing price prior
to the Offer ($3.12 per share). The Offer represents 41.4%, 44.1% and 48.2%
premiums over the 30, 60 and 90 day average closing prices, respectively.
In addition to assessing the acquisition premium implied by the Offer in
the transaction, Houlihan Lokey performed an independent valuation analysis to
determine the value of the Company on a controlling interest basis.
Comparable Transaction Multiples. The comparable sales approach involved
multiples of earnings and cash flow. Multiples utilized in this approach were
determined through an analysis of acquisitions of controlling interests in
companies with operations deemed to be reasonably comparable to the Company's
principal business operations. For purposes of this analysis Houlihan Lokey
analyzed 36 completed transactions between January 1, 1996 and June 10, 1999.
Based on the foregoing, Houlihan Lokey concluded that the controlling
interest value of the Company's common stock was reasonably stated in the range
of $4.70 to $5.20 per share which Houlihan Lokey noted was more than the Offer
Price of $4.625 per share. Houlihan Lokey noted that while the theoretical
controlling interest value was above the Offer Price, the Offer Price
represented a substantial premium to actual trading value and theoretical fully
distributed trading value. Houlihan Lokey gave more weight to the premium to
actual trading price and fully distributed analysis in evaluating the fairness
of the Offer from a financial point of view.
Assessment of Winston Resources' Strategic Alternatives to the Purchase
Offer. In evaluating the fairness of the Offer, from a financial point of view,
Houlihan Lokey considered the expected value to the Company's Public
Stockholders of completing the Offer and certain alternatives to the Offer. With
regard to each alternative, Houlihan Lokey's analysis qualitatively considered
the valuation implications to the Company's Public Stockholders, the probability
of successfully completing each alternative, and the cost and time to implement.
For purposes of this analysis Houlihan Lokey considered the following
strategic alternatives: (i) status quo, (ii) sale or merger with a strategic
buyer, (iii) sale to a financial buyer, (iv) liquidation of business units, and
(v) the Offer. Houlihan Lokey noted that of the strategic alternatives
considered, the Offer appears to provide the greatest value to the Company's
Public Stockholders on a present value, risk-adjusted basis. Houlihan was not
asked to evaluate the American letter, which was received after Houlihan had
delivered its report, or to reconsider its evaluation in light of such letter.
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<PAGE>
Houlihan Lokey relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to them, and as adjusted
based on their discussions with management, were reasonably prepared and
reflected the best currently available estimates of the future financial results
and condition of the Company, and that there had been no material change in the
assets, financial condition, business or prospects of the Company since the date
of the most recent financial statements made available to them.
Houlihan Lokey has not independently verified the accuracy and completeness
of the information supplied to them with respect to the Company and does not
assume any responsibility with respect to it. The Company has not made any
independent appraisal of any of the properties or assets of the Company.
Houlihan Lokey's opinion was necessarily based on business, economic, market and
other conditions as they existed and could be evaluated by them at the date of
their letter.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes. The Independent Committee selected Houlihan Lokey because of its
experience and expertise in performing valuation and fairness analysis. Houlihan
Lokey does not beneficially own nor has it ever beneficially owned any interest
in the Company.
Fees and Expenses. Pursuant to an agreement dated April 26, 1999, Houlihan
Lokey was retained by the Company to analyze the fairness of the Offer to the
Public Stockholders of the Company, from a financial point of view. The Company
has agreed to pay Houlihan Lokey a fee of $125,000 plus its reasonable
out-of-pocket expenses incurred in connection with the rendering of a fairness
opinion. The Company has further agreed to indemnify Houlihan Lokey against
certain liabilities and expenses in connection with the rendering of its
services.
5. INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE SECOND-STEP TRANSACTION
In considering the recommendation of the Board and the Independent
Committee with respect to the Offer and the fairness of the consideration to be
received in the Offer and the Second-Step Transaction (if necessary),
stockholders should be aware that certain officers and directors of the Company
have interests in the Offer that are described below and which may present them
with certain potential conflicts of interest. As of June 30, 1999, the Remaining
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<PAGE>
Stockholders, who informed the Company that they would not tender any Shares in
the Offer, as a group and including shares issuable to them under currently
exercisable Stock Options had a 52.31% beneficial ownership interest, or
1,879,919 Shares. Even if no Shares are tendered in the Offer, the Remaining
Stockholders, together, own more than a majority of the outstanding Shares and,
if acting together, will be able to control all matters requiring approval of
the Company's stockholders, including the election of directors.
In connection with the Independent Committee's consideration of the Offer
on behalf of the Public Stockholders, the Company and the Independent Committee
have agreed that each member of the Independent Committee will receive a base
fee of $5,000 plus an additional fee of $500 for each meeting involving the
Independent Committee attended by such member. As of the date of this Offer to
Purchase, the members of the Independent Committee have earned, in the
aggregate, fees equal to $34,500.
The Board was aware of these actual and potential conflicts of interest and
considered them along with the other matters described under "Special Factors
- -Recommendation of the Company's Board; Fairness of the Offer." The Company
expects that employees of the Company who are not affiliated with the Remaining
Stockholders will tender their Shares pursuant to the Offer.
Under the DGCL, corporations organized under the laws of the State of
Delaware are permitted to indemnify their current and former directors,
officers, employees and agents under certain circumstances against certain
liabilities and expenses incurred by them by reason of their serving in such
capacities. The Company's by-laws provide that each director and officer will be
indemnified by the Company against liabilities and expenses incurred in
connection with any threatened, pending or completed legal action or proceeding
to which he or she may be made a party or threatened to be made a party by
reason of being a director of the Company or a predecessor company, or serving
any other enterprise as a director or officer at the request of the Company. The
Company also has purchased directors' and officers' liability insurance for the
benefit of these persons.
6. BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information, as of June 30, 1999,
regarding the ownership of Shares by each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Shares, each director of the
Company, the Chief Executive Officer of the Company, the other executive
officers of the Company, and all executive officers and Directors of the Company
as a group:
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<PAGE>
<TABLE>
<S> <C> <C>
Number of Percentage of
Name and Address Shares (1) Outstanding Shares
Directors and Officers
Seymour Kugler (2)(3)
c/o Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017................................ 1,145,456 33.91%
Joel A. Klarreich, Esq., as trustee (4)
c/o Newman Tannenbaum Helpern
Syracuse & Hirschtritt LLP
900 Third Avenue 245,000 7.25%
New York, New York 10022............................
Gregg Kugler (3)(5)
c/o Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017................................ 206,729 6.22%
Todd Kugler(3)(6)
c/o Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017............................. 180,691 5.45%
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<PAGE>
Number of Percentage of
Name and Address Shares (1) Outstanding Shares
Alan E. Wolf (3)(7)
c/o Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017................................ 138,291 4.24%
David Silver (3)(8)
c/o Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017................................ 49,900 1.54%
Eric Kugler (3)(9)
c/o Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017................................ 102,043 3.12%
Martin Wolfson (10)
c/o Concord Fabrics Inc.
1359 Broadway
New York, New York 10018................................ 4,667 *
Martin A. Fischer (11)
West Center Associates
30-00 47 Avenue
Long Island City, New York 11101........................ 9,667 *
Martin J. Simon (12)
360 Merrick Road
Lynbrook, New York 11563 ............................... 10,667 *
Norton W. Sperling 0 *
1025 Seawane Drive
Hewlett Harbor, New York 11557
All directors and executive officers as
A group (10 persons) (13)............................... 2,093,111 57.20%
Other Beneficial Owners
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, Wisconsin 53202 ............................. 301,600 9.33%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 ............................ 288,900 8.94%
</TABLE>
* Represents less than 1% of outstanding shares.
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<PAGE>
(1) All shares are beneficially owned and, unless otherwise stated, the sole
voting power and investment power is held by the persons named.
(2) The amount set forth above includes 145,001 shares currently issuable
upon the exercise of stock options.
(3) For the year ended December 31, 1998 such person was a "Named Executive
Officer" of the Company within the meaning of Item 402(a)(3) of
Regulation S-K of the Securities Act of 1933, as amended (the
"Securities Act").
(4) Represents Shares held in trust for the benefit of Seymour Kugler and
his descendants, with respect to which Mr. Klarreich, a partner at the
law firm of Newman Tannenbaum Helpern Syracuse & Hirschtritt LLP, which
changed its name effective July 1, 1999 to Tannenbaum Helpern Syracuse &
Hirschtritt LLP, as sole trustee. Under the Trust Agreement, Mr.
Klarreich has voting and dispositive power, subject only to the
beneficiary's right to withdraw the Shares under certain circumstances.
(5) The amount set forth above includes 90,000 shares currently issuable
upon the exercise of stock options. Mr. Gregg Kugler disclaims
beneficial ownership of 36,000 shares owned by his children.
(6) The amount set forth above includes 85,000 shares currently issuable
upon the exercise of stock options issued to Mr. Todd Kugler and his
wife. Mr. Todd Kugler disclaims beneficial ownership of 9,500 shares
owned by his child.
(7) The amount set forth above includes 25,334 shares currently issuable
upon the exercise of stock options.
(8) The amount set forth includes 16,800 shares currently issuable upon the
exercise of stock options.
(9) The amount set forth includes 40,000 shares currently issuable upon the
exercise of stock options.
(10) The amount set forth includes 4,667 shares currently issuable upon the
exercise of stock options.
(11) The amount set forth above includes 2,687 shares currently issuable upon
the exercise of stock options.
(12) The amount set forth above includes 6,667 shares currently issuable upon
the exercise of stock options.
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<PAGE>
(13) The amount set forth above includes 416,156 shares currently issuable
upon the exercise of stock options.
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<PAGE>
7. FEES AND EXPENSES
The following is an estimate of expenses incurred or to be incurred in
connection with the Offer. Also see "The Tender Offer - 13. Fees and Expenses."
<TABLE>
<S> <C>
Legal Fees....................................................................... $ 371,000
Printing and Mailing............................................................. 15,000
Filing Fees...................................................................... 1,586
Depositary Fees and Expenses..................................................... 5,000
Information Agent Fees and Expenses.............................................. 15,000
Investment Bankers' Fees......................................................... 225,000
Accountants' Fees................................................................ 10,000
Financing Fees................................................................... 217,000
Fees of the Independent Committee................................................ 34,500
Miscellaneous.................................................................... 50,000
Total............................................................................ $ 944,086
</TABLE>
The Company will be responsible for all expenses incurred in connection
with the Offer, whether or not the Offer is consummated.
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<PAGE>
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), the Company will accept for payment, and will pay for, all Shares
validly tendered prior to the Expiration Date (as hereinafter defined) and not
withdrawn as permitted by "The Tender Offer - 4. Withdrawal Rights." The term
"Expiration Date" means 5:00 p.m., New York City time, on October 4, 1999,
unless and until the Company, in its sole discretion shall have extended the
period during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by the
Company, shall expire.
The Company expressly reserves the right, in its sole discretion, at any
time and from time to time, to extend for any reason the period of time during
which the Offer is open, including the occurrence of any of the conditions
specified in "The Tender Offer - 11. Certain Conditions of the Offer," by giving
oral or written notice of such extension to the Depositary. During any such
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering stockholder to withdraw such
stockholder's Shares. See "The Tender Offer - 4. Withdrawal Rights."
Subject to the applicable regulations of the Commission, the Company also
expressly reserves the right, in its sole discretion, at any time and from time
to time, (i) to delay acceptance for payment of, or, regardless of whether such
Shares were theretofore accepted for payment, payment for, any Shares, pending
receipt of any regulatory approval specified in "The Tender Offer - 12. Certain
Legal Matters and Regulatory Approvals," (ii) to terminate the Offer and not
accept for payment any Shares upon the occurrence of any of the conditions
specified in "The Tender Offer - 11. Certain Conditions of the Offer" and (iii)
to waive any condition, extend the offer period or otherwise amend the Offer in
any respect, by giving oral or written notice of such delay, termination, waiver
or amendment to the Depositary and by making a public announcement thereof. The
Company acknowledges that (i) Rule 13e-4(f) under the Exchange Act requires the
Company to pay the consideration offered or return the Shares tendered promptly
after the termination or withdrawal of the Offer and (ii) the Company may not
delay acceptance for payment of, or payment for (except as provided in clause
(i) of the first sentence of this paragraph), any Shares upon the occurrence of
any of the conditions specified in "The Tender Offer - 11. Certain Conditions of
the Offer" without extending the period of time during which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
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<PAGE>
If the Company makes a material change in the terms of the Offer or other
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by Rules
13e-3(e)(2), 13e-4(e)(2) and 13e-4(f) under the Exchange Act.
If, prior to the Expiration Date, the Company should decide to decrease the
number of Shares being sought or to increase or decrease the consideration being
offered in the Offer, such decrease in the number of Shares being sought or such
increase or decrease in the consideration being offered will be applicable to
all stockholders whose Shares are accepted for payment pursuant to the Offer
and. if at the time notice of any such decrease in the number of Shares being
sought or such increase or decrease in the consideration being offered is first
published, sent or given to holders of such Shares, the Offer is scheduled to
expire at any time earlier than the period ending on the tenth business day from
and including the date that such notice is first so published, sent or given,
the Offer will be extended at least until the expiration of such ten business
day period. For purposes of this Offer, a "business day" means any day other
than a Saturday, Sunday or Federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, New York City time.
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares whose names appear on the Company's stockholder list
and will be furnished, for subsequent transmittal to beneficial owners of
Shares, to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Company will accept for payment, and will pay for promptly
after the Expiration Date, all Shares validly tendered prior to the Expiration
Date and not properly withdrawn in accordance with "The Tender Offer - 11.
Certain Conditions of the Offer." Subject to applicable rules of the Commission,
the Company expressly reserves the right to delay acceptance for payment of, or
payment for, Shares pending receipt of any regulatory approvals specified in
"The Tender Offer - 12. Certain Legal Matters and Regulatory Approvals" or in
order to comply in whole or in part with any other applicable law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company
(hereinafter referred to as the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in "The Tender Offer - 3. Procedures for Accepting the
Offer and Tendering Shares," (ii) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees or, in the case of a book-entry transfer, an Agent's Message (as
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<PAGE>
defined below) in lieu of the Letter of Transmittal, and (iii) any other
documents required under the Letter of Transmittal.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when the Company gives oral or written notice to the
Depositary of the Company's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Company
and transmitting such payments to tendering stockholders whose Shares have been
accepted for payment. Under no circumstances will interest on the purchase price
for Shares be paid, regardless of any delay in making such payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure
set forth in "The Tender Offer - 3. Procedures for Accepting the Offer and
Tendering Shares," such Shares will be credited to an account maintained at such
Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
If, prior to the Expiration Date, the Company shall increase the
consideration offered to any holders of Shares pursuant to the Offer, such
increased consideration will be paid to all holders of Shares that are purchased
pursuant to the Offer, whether or not, such Shares were tendered prior to such
increase in consideration.
The Company reserves the right to transfer or assign, in whole or from time
to time in part, to one or more of its affiliates, the right to purchase all or
any portion of the Shares tendered pursuant to the Offer, but any such transfer
or assignment will not relieve the Company of its obligations under the Offer
and will in no way prejudice the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES
In order for a holder of Shares to validly tender Shares pursuant to the
Offer, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees (or, in the
case of a book-entry transfer, an Agent's Message (as defined below) in lieu of
the Letter of Transmittal) and any other documents required by the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase and either (i) the Share
Certificates evidencing tendered Shares must be received by the Depositary at
such address or such Shares must be tendered pursuant to the procedure for
book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary (including an Agent's Message if the tendering
39
<PAGE>
stockholder has not delivered a Letter of Transmittal), in each case prior to
the Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedures described below. The term "Agent's Message" means
a message, transmitted by a Book-Entry Transfer Facility to, and received by,
the Depositary and forming a part of a Book-Entry Confirmation, which states
that such Book-Entry Transfer Facility has received an express acknowledgment
from the participant in such Book-Entry Confirmation, that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Company may enforce such agreement against such participant.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN SUCH DOCUMENTS ARE ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will establish accounts with respect to
the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of Book-Entry Transfer Facility
may make a book-entry delivery of Shares by causing such Book-Entry Transfer
Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at a Book-Entry Transfer Facility,
either the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or the tendering stockholder must comply with the guaranteed
delivery procedure described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a member of the Medallion Signature Guarantee
Program, or by any other "eligible guarantor institution," as such term is
defined in Rule l7Ad-15 under the Exchange Act (each of the foregoing referred
to as an "Eligible Institution"), except in cases where Shares are tendered (i)
by a registered holder of Shares who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be returned, to a person other than the registered holder(s), then the Share
Certificate must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s) appear on
the Share Certificate, with the signature(s) on such Share Certificate or stock
powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the
Letter of Transmittal.
40
<PAGE>
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and the Share Certificates evidencing such stockholder's Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
i. such tender is made by or through an Eligible Institution;
ii. a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company is
received prior to the Expiration Date by the Depositary as provided
below; and
iii. the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees, and
any other documents required by the Letter of Transmittal are received
by the Depositary within three AMEX trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by the Company.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by the Letter of Transmittal.
Determination Of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Company in its sole discretion, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. The Company also reserves the absolute right to waive any
condition of the Offer or any defect or irregularity in the tender of any Shares
of any particular stockholder, whether or not similar defects or irregularities
are waived in the case of other stockholders. No tender of Shares will be deemed
to have been validly made until all defects and irregularities have been cured
or waived. Neither the Company, the Depositary, the Information Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. The Company's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal and the instructions thereto)
will be final and binding.
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<PAGE>
Other Requirements. By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Company as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the letter of transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by the Company (and with respect to any and all Shares or other
securities issued or issuable in respect of such Shares on or after June 16,
1999). All such proxies shall be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, the Company accepts such Shares for payment. Upon such acceptance for
payment, all prior proxies given by such stockholder with respect to such Shares
(and such other Shares and securities) will be revoked without further action,
and no subsequent proxies may be given nor any subsequent written consent
executed by such stockholder (and, if given or executed, will not be deemed to
be effective) with respect thereto. The designees of the Company will, with
respect to the Shares for which the appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof, by written consent in
lieu of any such meeting or otherwise.
The acceptance for payment by the Company of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions of the Offer.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO
CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S
CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY
PAYMENTS MADE TO SUCH STOCKHOLDER. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
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4. WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Company pursuant to the Offer,
may also be withdrawn at any time after October 4, 1999. If the Company extends
the Offer, is delayed in its acceptance for payment of Shares or is unable to
accept Shares for payment pursuant to the Offer, the Depositary may,
nevertheless, on behalf of the Company, retain tendered Shares, and such Shares
may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as described in this Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover page of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in the "The Tender Offer - 3. Procedures for
Accepting the Offer and Tendering Shares," any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Shares.
All questions as to the form and validity (including the time of receipt)
of any notice of withdrawal will be determined by the Company, in its sole
discretion, whose determination will be final and binding. Neither the Company,
the Information Agent nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in "The Tender Offer - 3. Procedures for Accepting the
Offer and Tendering Shares."
5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares by stockholders pursuant to the Offer will be taxable
transactions for federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign and other tax laws. The
Federal income tax consequences to a stockholder may vary depending upon the
stockholder's particular facts and circumstances. Under section 302 of the
Internal Revenue Code of 1986, as amended (the "Code"), a sale of Shares
pursuant to the Offer will, as a general rule, be treated as a sale or exchange
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<PAGE>
if the receipt of cash upon such sale (a) is "substantially disproportionate"
with respect to the stockholder, (b) results in a "complete redemption" of the
stockholder's interest in the Company or (c) is "not essentially equivalent to a
dividend" with respect to the stockholder. If any of those three tests is
satisfied, a tendering stockholder will recognize gain or loss equal to the
difference between the amount of cash received by the stockholder pursuant to
the Offer and the stockholder's tax basis in the Shares sold pursuant to the
Offer. Recognized gain or loss will be capital gain or loss, assuming the Shares
are held as capital assets, which will be long-term capital gain or loss if the
Shares are held for more than one year.
Net capital gain recognized by an individual upon the sale of, or otherwise
attributable to, a capital asset that has been held for more than one year will
generally be subject to tax at a rate not to exceed 20%. Capital gain recognized
from the sale of, or otherwise attributable to, a capital asset held for one
year or less will be subject to tax at the ordinary income tax rates. In
addition, capital gain recognized by a corporate taxpayer will continue to be
subject to tax at the ordinary income tax rates applicable to corporations. The
deductibility of capital losses is subject to certain limitations.
In determining whether any of the tests under Section 302 of the Code is
satisfied, stockholders must take into account not only the shares of common
stock they actually own, but also any shares of common stock they are deemed to
own pursuant to the constructive ownership rules of Section 318 of the Code.
Pursuant to those constructive ownership rules, a stockholder is deemed to own
common stock actually owned, and in some cases constructively owned, by certain
related individuals or entities, and any common stock that the stockholder has
the right to acquire by exercise of an option or by conversion or exchange of a
security. The receipt of cash will be "substantially disproportionate" with
respect to a stockholder if, among other things, the percentage of the
outstanding common stock actually and constructively owned by the stockholder
immediately following the sale of Shares pursuant to the Offer (treating as no
longer outstanding all Shares purchased pursuant to the Offer) is less than 80%
of the percentage of the outstanding common stock actually and constructively
owned by such stockholder immediately before the sale of Shares pursuant to the
Offer (treating as outstanding all Shares purchased pursuant to the Offer).
Stockholders should consult their tax advisors with respect to the application
of the "substantially disproportionate" test to their particular facts and
circumstances.
The receipt of cash by a stockholder will result in a "complete redemption"
of the stockholder's interest in the Company if either (a) all the common stock
actually and constructively owned by the stockholder is sold pursuant to the
Offer or otherwise or (b) all the common stock actually owned by the stockholder
is sold pursuant to the Offer or otherwise and the stockholder is eligible to
waive and does effectively waive attribution of all Common Stock constructively
owned by the stockholder in accordance with Section 302(c) of the Code.
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<PAGE>
Even if the receipt of cash by a stockholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, such
stockholder may nevertheless satisfy the "not essentially equivalent to a
dividend" test, if the stockholder's sale of Shares pursuant to the Offer
results in a "meaningful reduction" in the stockholder's proportionate interest
in the Company. Whether the receipt of cash by a stockholder will be "not
essentially equivalent to a dividend" will depend upon the individual
stockholder's facts and circumstances. In certain circumstances, even a small
reduction in a stockholder's proportionate interest may satisfy this test. For
example, the Internal Revenue Service ("IRS") has indicated in a published
ruling that a 3.3% reduction in the proportionate interest of a small minority
exercises no control over corporate affairs constitutes such a "meaningful
reduction." Stockholders expecting to rely upon the "not essentially equivalent
to a dividend" test should, therefore, consult their tax advisors as to its
application in their particular situations. If none of the three tests under
Section 302 is satisfied then, to the extent the Company has sufficient earnings
and profits, the tendering stockholder will be treated as having received a
dividend includible in gross income (and treated as ordinary income) in an
amount equal to the entire amount of cash received by the stockholder pursuant
to the Offer (without regard to gain or loss, if any).
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, the dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Shares or if the Shares are
treated as "debt financed portfolio stock" within the meaning of Section 246A(c)
of the Code. Generally, if a dividends-received deduction is available, it is
expected that the dividend will be treated as an "extraordinary dividend" under
Section 1059(a) of the Code, in which case such corporate stockholder's tax
basis in Shares retained by such stockholder would be reduced, but not below
zero, by the amount of the nontaxed portion of the dividend. Any amount of the
nontaxed portion of the dividend in excess of the stockholder's basis will
generally be treated as capital gain and will be recognized in the taxable year
in which the extraordinary dividend is received. If a redemption of Shares from
a corporate stockholder pursuant to the Offer is treated as a dividend as a
result of the stockholder's constructive ownership of other common stock that it
has an option or other right to acquire, the portion of the extraordinary
dividend not otherwise taxed because of the dividends-received deduction would
reduce the stockholder's adjusted tax basis only in its Shares sold pursuant to
the Offer, and any excess of such non-taxed portion over such basis would be
currently taxable as gain on the sale of such Shares. Corporate stockholders
should consult their tax advisors as to the availability of the
dividends-received deduction and the application of Section 1059 of the Code.
"Backup withholding" at a rate of 31% will apply to payments made to
stockholders pursuant to the Offer unless the stockholder has furnished its
taxpayer identification number in the manner prescribed in applicable Treasury
regulations, has certified that such number is correct, has certified as to no
loss of exemption from backup withholding and meets certain other conditions.
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Any amounts withheld from a stockholder of Shares under the backup withholding
rules generally will be allowed as a refund or a credit against such
stockholder's United States federal income tax liability, provided the required
information is furnished to the IRS. The foregoing discussion may not apply to
Shares acquired pursuant to certain compensation arrangements with the Company.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING BROKER-DEALERS, STOCKHOLDERS WHO ACQUIRED SHARES
PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN
CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW STOCKHOLDERS ARE URGED TO CONSULT
THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFER TO
THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND
STATE, LOCAL AND FOREIGN TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares are listed and principally traded on AMEX under the ticker
symbol "WRS". The following table sets forth the high and low sales prices per
Share during the quarters indicated:
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<PAGE>
<TABLE>
<S> <C> <C>
High Low
Year Ended December 31, 1997:
First Quarter: 4 1/4 3 1/8
Second Quarter: 4 3 1/8
Third Quarter: 6 3/8 3 3/8
Fourth Quarter: 6 3/4 5 1/4
Year Ended December 31, 1998:
First Quarter: 6 3/8 4 1/2
Second Quarter: 6 9/16 5 1/8
Third Quarter: 6 1/4 4 1/2
Fourth Quarter: 4 3/8 3 1/4
Year Ended December 31, 1999:
First Quarter 3 3/4 2 1/2
Second Quarter (through June 15, 1999) 3 1/2 2 7/8
</TABLE>
The foregoing figures, which were obtained from AMEX monthly statistical
reports, do not reflect retail markups or markdowns and may not represent actual
trades. At June 16, 1999, the Shares were held by 101 stockholders of record.
The Company has not paid any dividends since becoming a public company and
has no plans to do so in the near term. The Company currently intends to retain
any future earnings for the development of its business, subject to any future
Federal and state tax planning considerations. Payments of dividends in the
future will be within the discretion of the Board of Directors and will depend
upon, among other factors, earnings and the operating and financial condition of
the business.
On June 15, 1999, the last full trading day prior to the announcement of
the Offer, the closing price per Share as reported on the AMEX was $2.875 per
share. Stockholders are urged to obtain a current market quotation for the
Shares.
7. CERTAIN INFORMATION CONCERNING THE COMPANY
Except as otherwise set forth herein, the information concerning the
Company contained in this Offer to Purchase, including financial information,
has been furnished by the Company.
General. The Company is a Delaware corporation with its principal
executive offices located at 535 Fifth Avenue, New York, New York 10017. The
Company, founded in 1967, is an integrated network of companies dedicated to
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assisting their clientele in the recruitment of staff in all disciplines.
Working together, the Company's various divisions form one of the most
comprehensive recruitment organizations in the United States.
Recent Developments. For the six months ended June 30, 1999, the Company
reported that revenues increased by 1% to $29,773,000 and net income decreased
by 3% to $777,000 as compared to the six months ended June 30, 1998. For the
quarter ended June 30, 1999, net income was $417,000 on revenues of $14,967,000,
as compared to net income for the second quarter of 1998 of $445,000, a decrease
of approximately 6%, on revenues for such period of $15,098,800, a decrease of
approximately 1%. Selling, general and administrative expenses decreased
slightly as compared to the corresponding period in 1998. Interest expense net
of interest income increased slightly in 1999. There were no borrowings under
the Company's credit facility in 1999 and 1998.
The decrease in revenues in the quarter ended June 30, 1999 is primarily
due to a decrease in advertising and placement fee revenue offset by an increase
in temporary staffing revenue as compared to the corresponding periods in 1998.
The decrease in net income reflects decreased revenues being partially offset by
a decrease in operating expenses. Profitability was affected by increased
compensation for new hires, including additional sales people and investment in
new business development. Results reflect an overall deterioration in recent
operating results arising from the Company's loss of a significant volume of
business from a portion of its major customers, certain of which the Company has
found, and anticipates will be, difficult to replace with business at comparable
margins.
Financial Information. Set forth below is certain selected financial
information relating to the Company which has been excerpted or derived from the
audited financial statements contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (the "Form 10-K") and the unaudited
financial statements contained in the Company's report on Form 10-Q for the six
months ended June 30, 1999 (the "Form 10-Q"). More comprehensive financial
information is included in the Form 10 K and Form 10-Q (including management's
discussion and analysis of financial condition and results of operations) and
other documents filed by the Company with the Commission. The financial
information that follows is qualified in its entirety by reference to such
reports and other documents, including the financial statements and related
notes contained therein. Such reports and other documents may be examined and
copies may be obtained from the offices of the Commission in the manner set
forth below. In addition, Schedule IV attached hereto sets forth the Form 10-K.
The Company is subject to the informational filing requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Information as of particular
dates concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
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required to be disclosed in proxy statements distributed to the Company's
stockholders and filed with the Commission. Such reports, proxy statements and
other information should be available for inspection at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W,
Washington, D.C. 20549, and also should be available for inspection at the
Commission's regional offices located at Seven World Trade Center, 13th Floor,
New York, New York 10048 and the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may also be obtained by
mail, upon payment of the Commission's customary fees, by writing to its
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. These
materials filed by the Company with the Commission are also available at the web
site of the Commission at http:"www.sec.gov". The information is also available
for inspection at the American Stock Exchange, 86 Trinity Place, New York, New
York 10006.
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SELECTED FINANCIAL INFORMATION
<TABLE>
<S> <C> <C> <C> <C>
Year ended December 31 Six months ended June 30
Income Statement Data: 1998 1997 1999 1998
(In thousands, except for per share data)
Revenue:
Placement fees and related income $60,850 $49,199 $29,773 $29,506
Operating expenses:
Compensation and other benefits 48,191 37,735 23,739 23,197
Selling, general and administrative 9,455 8.917 4,592 4,857
57,646 46,652 28,331 28,054
Income from operations 3,204 2,547 1,442 1,452
Interest expense (income) net 44 33 4 (30)
Income before provision for income taxes 3,248 2,580 1,438 1,482
Provision for income taxes 1,419 1,136 661 682
Net income 1,829 1,444 777 800
Basic earnings per share $.57 $.45 $0.24 $0.25
Diluted earnings per share $.52 $.41 $0.23 $0.23
Balance Sheet Data: December 31 June 30
1998 1997 1999
(In thousands, except for per share data)
Working Capital $6,296 $4,696 $ 6,821
Total assets 12,919 9,451 13,319
Long-term debt 17 35 7
Stockholders' equity 7,287 5,404 8,083
Stockholders' equity per share $2.26 $1.68 $2.50
</TABLE>
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Certain Projections Prepared By The Company. In June, 1999, the
Company's management provided Solomon and Houlihan Lokey with certain
information about the Company which is not publicly available. The information
provided included projections of operations for the 1999 fiscal year. Two
different projections were prepared, the first in the Fall of 1998, and the
second in May, 1999.
The Fall 1998 projections were prepared as part of the Company's
normal year-end budget forecasting. Information utilized to prepare the
projections is compiled and finalized in the fall of each year in order to
provide an opportunity for each of the Company's business units to identify
their goals for the forthcoming year. The forecasted information is derived
solely from sales and gross profit forecasts, anticipated staffing levels and
anticipated commissions. Based upon either actual or historical information
available and compiled in the ordinary course of business, management then
derives other general and administrative costs and expenses. Those involved in
the forecasting process include the Company's Chairman, Seymour Kugler, Vice
Presidents Todd Kugler, Gregg Kugler, Alan Wolf, Michael Gallo, Douglas Russell
and Raymond McCourt, the President of the Company's advertising division, Bruce
Papkin, the Company's Secretary, Eric Kugler, and the Company's Chief Financial
Officer, Jesse Ulezalka, and Assistant Controller, Anthony Fata.
The Company revised its projections (the "Revised Projections") in
May, 1999, when it became apparent that, based upon actual year-to-date results,
revenue growth was slowing so that the Fall 1998 projections were not
achievable. Subsequent to the completion of the Fall 1998 projections, the
Company lost four significant accounts representing, in the aggregate,
approximately $5,000,000 of annual revenues which had been included by the
Company in preparing the Fall 1998 projections. In one instance, the contract
was opened to competitive bidding and the Company was not the successful bidder.
In another, a project ended and was not repeated, as anticipated by the Company.
In another instance, the client consolidated all of its temporary staffing
activities through another vendor where such services previously had been
provided by a number of staffing companies including the Company. In the final
case, the business was lost due to consolidation following a corporate merger.
While the Company has been successful in generating new clients accounting for
revenues equal to the revenues that the lost accounts represented as well as
revenues which had been generated through other customers which no longer
utilize the Company's services (which additional revenues were contemplated in
the Fall 1998 projections and the Revised Projections), in general the revenues
generated under the new contracts have lower profit margins than the lost
revenues from the older client relationships.
The following is a summary comparison of the Fall 1998 projections and
the Revised Projections, showing the variances between the two, as well as a
summary comparison of the Revised Projections for the six month period ending
June 30, 1999 and actual results for such six month period, showing variances
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between such projections and actual results. As is clearly indicated, the
variances between the Fall 1998 projections and the Revised Projections are
significant, while the Revised Projections for the six month period ending June
30, 1999 closely approximate the actual results for such period.
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Revised Fall 1998 Projections Actual Six Revised Proj.
Projections FY 1999 Months ended Six Months ended
FY 1999 Variance June 30, 1999 June 30, 1999 Variance
Revenue:
Placement fees and related income $61,388,000 $73,874,000 $(12,486,000) $29,773,000 $29,984,000 $(211,000)
Operating Expenses:
Compensation and other benefits 48,428,000 56,465,000 (8,037,000) 23,739,000 23,711,000 28,000
Selling, general & administrative 9,913,000 12,478,000 (2,565,000) 4,592,000 4,861,000 (269,000)
Income from Operations 3,047,000 4,931,000 (1,884,000) 1,442,000 1,412,000 30,000
Interest Expense 8,000 60,000 (52,000) 4,000 4,000 0
Income before provision for income taxes 3,039,000 4,871,000 (1,832,000) 1,438,000 1,408,000 30,000
Provision for income taxes 1,398,000 2,238,000 (840,000) 661,000 648,000 13,000
Net Income $1,641,000 $2,633,000 $(992,000) $777,000 $760,000 $17,000
==============================================================================================
</TABLE>
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The Revised Projections prepared in May, 1999, were prepared by
Seymour Kugler, Gregg Kugler, Todd Kugler, Eric Kugler, Jesse Ulezalka and
Anthony Fata. The primary difference in the Revised Projections from the Fall
1998 projections was that revenue projections were not being attained as a
result of a loss of significant business from some of the Company's clients and
new business was sufficient merely to offset, rather than augment, such lost
revenues, and that, based on actual year-to-date results, current revenues were
being attained at lower margin percentages because of heightened competition and
increased pricing pressures in the marketplace. As a response to the foregoing
factors, the Company has reduced certain costs in general and administrative
expenses in contemplation of lower revenue results and certain expenses have
been reduced as a direct result of decreased revenues, primarily bonuses,
commissions and related payroll taxes and fringe benefits. The Company has
increased compensation for new salespeople, and increased investment in new
business development in order to sustain revenue levels in a market of increased
competition. The net result of these trends and actions has been a decline in
both net income and cash flow. The Company believes this trend will continue for
the remainder of the current fiscal year, putting pressure on results.
Special Cautionary Notice Regarding Forward-Looking Statements. The
Company does not, as a matter of course, publicly disclose forward-looking
information (such as the financial forecasts referred to above) as to future
revenues, earnings or other financial information. Forecasts of this type are
based on estimates and assumptions that are inherently subject to significant
economic, industry and competitive uncertainties and contingencies, all of which
are difficult to predict and many of which are beyond the control of the
Company. Accordingly, there can be no assurance that the forecasted results
would be realized or that actual results would not be significantly higher or
lower than those forecasted. In addition, these forecasts were prepared by the
Company solely for internal use and not for publication or with a view to
complying with the published guidelines of the Commission regarding projections
or with guidelines established by the American Institute of Certified Public
Accountants for prospective financial statements and are included in this Offer
to Purchase only because they have been furnished to certain third parties in
connection with the Offer. The financial forecasts necessarily make numerous
assumptions with respect to industry performance, general business and economic
conditions, access to markets, availability of personnel and sales people and
other matters, all of which are inherently subject to significant risks,
uncertainties and contingencies and many of which are beyond the Company's
control. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. One cannot predict whether the assumptions made in preparing the
financial forecasts will be accurate, and actual results may be materially
higher or lower than those contained in the forecasts. The inclusion of this
forward-looking information
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<PAGE>
should not be regarded as fact or an indication that the Company, the
Independent Committee, the Remaining Stockholders or anyone who received this
information considered it a reliable predictor of future results, and this
information should not be relied on as such. Neither the Company's independent
auditors, nor any other independent accountants or financial advisors, have
compiled, examined, or performed any procedures with respect to the prospective
financial information contained herein, nor have they expressed any opinion or
any form of assurance on such information or its achievability, and to assume no
responsibility for, and disclaim any association with, the prospective financial
information.
8. FINANCING OF THE OFFER AND THE SECOND-STEP TRANSACTION
The total amount of funds required by the Company to consummate the Offer
and, if necessary, the Second-Step Transaction (and to pay related fees and
expenses estimated to be approximately $944,086), assuming that 1,713,603 Shares
are validly tendered and not withdrawn and Stock Options, exercisable for
Shares at a price below the Offer Price, are exercised, is approximately
$10,203,000. The Company plans to finance the Offer and the Second-Step
Transaction, if necessary, through borrowings (the "Debt Financing") from The
Bank of New York ("BONY") under a $6.5 million term loan (the "Term Loan") and a
$10 million revolving line of credit facility (the "Revolving Credit Loan") (the
Term Loan and the Revolving Credit Loan are referred to collectively as the
"BONY Loans"). The Company plans to repay the BONY Loans from funds generated
from its operations.
BONY is not required to fund the BONY Loans unless certain objective and
subjective conditions precedent have been satisfied. There can be no assurance
that such conditions will be satisfied or that the BONY Loans will be funded.
The BONY Loans will be guaranteed by all of the Company's existing and
future subsidiaries (the "Guarantors"), and will be secured by a "first
priority" security interest in substantially all of the assets of the Company
and each of the Guarantors.
Advances under the Revolving Credit Loan are not to exceed the lesser of
$10 million or the sum of up to 85% of the book value (minus reserves other than
for doubtful accounts) of eligible accounts receivable ("Eligible Accounts") of
the Company and/or the Guarantors other than those arising out of permanent
placements, plus up to 50% of the book value (minus reserves other than for
doubtful accounts) of Eligible Accounts of the Company and/or the Guarantors
arising out of permanent placements. Up to $1,400,000 may be deducted from the
aforementioned borrowing base under certain circumstances and at certain times,
all as more specifically described in the BONY loan documents. The BONY loan
documents expressly exclude amounts due from franchisees and certain other
accounts from the definition of Eligible Accounts. BONY has substantial
discretion in determining what constitutes an Eligible Account and also has the
ability to reduce advance rates based on the overall credit quality of the
accounts. There can be no assurance that there will be sufficient availability
to fund the Offer or the Second-Step Transaction.
Unless sooner paid or sooner required to be paid under the BONY loan
documents, the BONY Loans mature on September 30, 2005. Interest on the BONY
Loans is due and payable no less frequently than quarterly and could, depending
on the interest period selected by the Company, be payable as frequently as
monthly. Interest is also due and payable upon any prepayment of BONY Loans.
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Only interest on the Term Loan is due and payable until March 29, 2000.
Commencing on March 30, 2000, the Term Loan shall be repaid in quarterly
installments of principal as described in the BONY credit agreement. The BONY
credit agreement mandates that the BONY Loans be prepaid upon the receipt of
proceeds in connection with certain asset sales, equity issuances and casualties
and under certain other circumstances.
Pre-default interest on the BONY Loans shall accrue at an interest rate
equal to either, as selected by the Company, (a) the one, two, three or six-
month London Interbank Offered Rate (LIBOR) chosen by the Company (and as
adjusted for Federal Reserve Board reserve requirements) plus the Applicable
Margin or (b) the Applicable Margin plus the greater of the federal funds rate
plus 1/2% or the BONY prime rate. LIBOR, the prime rate and federal funds rate
shall be determined by BONY pursuant to the criteria set forth in the BONY
credit agreement. The Applicable Margin shall range from 2.75% to 1% for LIBOR
Loans and 1.50% to 0% for prime/federal funds loans depending upon the Leverage
Ratio of the Company and the Guarantors at the applicable time, on a
consolidated basis (the ratio of (x) indebtedness and certain contingent and
other obligations of the Company and the Guarantors to (y) Consolidated EBITDA
of the Company and the Guarantors for the four most recent fiscal quarters with
respect to which earning figures are available) (as defined in the BONY
documents). In certain cases specified in the BONY credit agreement, LIBOR
borrowings may be unavailable to the Company. In addition, the Company will have
to indemnify BONY for changes in law which reduce BONY's return or result in
increased costs in connection with LIBOR loans. The Company will also pay an
annual fee until maturity or the earlier termination of the Revolving Credit
Loan and Term Loan commitment ranging from .45% to .150% on the unused portion
of the Revolving Credit Loan and Term Loan commitment (depending on the Leverage
Ratio), and a facility fee on the BONY Loans of $231,000 payable in full at
closing (minus the $20,000 previously paid in respect of the facility fee).
The BONY loan documents contain restrictive covenants which impose on the
Company and the Guarantors limitations on, among other things: (i) indebtedness;
(ii) the creation of mortgages, security interests and other liens; (iii) the
making of loans, guaranties, advances and investments; (iv) transactions with
affiliates; (v) dividends and purchases and redemptions of stock; (vi) capital
expenditures; (ix) acquisitions of the assets of any person; (viii) mergers;
(ix) dispositions of assets; (x) creation or acquisition of subsidiaries; and
(xi) certain significant changes of control of the Company. Under the BONY loan
documents, the Company and the Guarantors are required to maintain certain
specified minimum ratios relating to their ability to cover fixed charges and
debt service payments. The BONY Loans also contain various event of default
provisions, covering, among other things, default in payment of principal or
interest on the BONY Loans, material misrepresentations, default in compliance
with other terms of the BONY Loans, bankruptcy of the Company or any Guarantor,
default in other indebtedness, failure to satisfy or stay certain judgments or
orders entered against the Company or the Guarantors, the occurrence of certain
events with respect to employee benefit plans, and certain changes in senior
management.
9. DIVIDENDS AND DISTRIBUTIONS
If, on or after June 16, 1999, the Company should declare or pay any
dividend on the Shares or make any other distribution (including the issuance of
additional shares of capital stock pursuant to a stock dividend or stock split,
the issuance of other securities or the issuance of rights for the purchase of
any securities) with respect to the Shares that is payable or distributable to
stockholders of record on a date prior to the transfer to the name of the
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Company on the Company's stock transfer records of the Shares purchased pursuant
to the Offer, then, without prejudice to the Company's rights under "The Tender
Offer - 11. Certain Conditions of the Offer," (i) the purchase price per Share
payable by the Company pursuant to the Offer will be reduced to the extent any
such dividend or distribution is payable in cash; and (ii) any non-cash
dividend, distribution or right shall be received and held by the tendering
stockholder for the account of the Company and will he required to be promptly
remitted and transferred by each tendering stockholder to the Depositary for the
account of the Company, accompanied by appropriate documentation of transfer. No
such dividends are contemplated.
10. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; QUOTATION AND
EXCHANGE ACT REGISTRATION
The purchase of Shares by the Company pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and will reduce the number
of holders of Shares, which could adversely affect the liquidity and market
value of the remaining Shares held by the public. If consummated, the Offer
alone, or the Offer followed by the Second-Step Transaction, if necessary, would
also result in a change in the capitalization of the Company.
The Shares are currently listed for trading on AMEX. As of June 30, 1999,
there were 3,233,521 Shares issued and outstanding and 101 holders of record of
the outstanding Shares. Pursuant to AMEX's published guidelines, shares of
common stock are not eligible to be included for listing if, among other things,
the number of shares publicly held falls below 250,000, the number of record and
beneficial holders of shares falls below 300 or the aggregate market value of
such publicly held shares is less than $1,000,000. In addition, under Section
12(g) of the Exchange Act, registration under the Exchange Act may be terminated
by the issuer if there are fewer than 300 holders of record of a class of
security. At June 15, 1999, the Company had only 101 holders of record of its
Shares. Accordingly, even before commencing the Offer, the Company could delist
the Shares from AMEX because of the failure to meet the listing requirement and
could cause the termination of registration of the Shares under the Exchange
Act. Shares held directly or indirectly by an officer or director of the issuer
or by any beneficial owner of more than 5% of the shares of the issuer will
ordinarily not be considered as being publicly held for this purpose. In the
event the Shares were no longer listed on AMEX, price quotations might still be
available from other sources. The extent of the public market for the Shares and
the availability of such quotations would, however, depend upon the number of
holders of Shares remaining at such time, the interest in maintaining a market
in the Shares on the part of securities firms, the termination of registration
under the Exchange Act as described below and other factors.
The Shares are currently "margin securities" under the rules of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). Among
other things, this has the effect of allowing brokers to extend credit on the
collateral of such Shares. Depending upon factors similar to those described
above regarding listing and market quotations, it is likely that, following the
tender and purchase of the Shares pursuant to the Offer, the Shares will no
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<PAGE>
longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations. In such event, Shares could no longer be used as
collateral for margin loans made by brokers.
The Shares are currently registered under the Exchange Act, which requires,
among other things, that the Company furnish certain information to its
stockholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of the Company's stockholders. Registration of the
Shares under the Exchange Act will be terminated upon application by the Company
to the Commission if the Shares are not listed on a national securities exchange
and there are fewer than 300 holders of record of the Shares.
The termination of the registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by the
Company to its stockholders and to the Commission and would render inapplicable
certain provisions of the Exchange Act, including requirements that the Company
file periodic reports (including financial statements), the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that the Company's officers, directors and ten-percent stockholders
file certain reports concerning ownership of the Company's equity securities and
provisions that any profit by such officers, directors and stockholders realized
through purchases and sales of the Company's equity securities within any
six-month period may be recaptured by the Company. In addition, the ability of
"affiliates" of the Company and other persons to dispose of Shares which are
"restricted securities" under Rule 144 under the Securities Act may be impaired
or eliminated. If registration of the Shares under the Exchange Act were
terminated, the Shares would no longer be "margin securities" or eligible for
listing on AMEX. Except as disclosed in this section and elsewhere in this Offer
to Purchase, the Company has no other present plans or proposals that relate to
or would result in (i) the acquisition by any person of additional securities of
the Company, or the disposition of securities of the Company, (ii) any
extraordinary corporate transaction, such as a merger, reorganization,
liquidation or sale or transfer of a material amount of assets, involving the
Company, (iii) any material change in the present dividend policy or
indebtedness or capitalization of the Company, (iv) any other material change in
the Company's corporate structure or business, or (v) any change in the
Company's certificate of incorporation, by-laws or instruments corresponding
thereto or any other actions which may impede the acquisition of control of the
Company by any person.
The Company anticipates that following the Offer and, if necessary, the
Second-Step Transaction, the Remaining Stockholders will cause the Company to
change the composition of the Board of Directors to include only certain of the
Remaining Stockholders who are also officers of the Company. The persons who are
presently officers of the Company will continue in their same positions
following consummation of the Offer and, if necessary, the Second-Step
Transaction.
11. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, and in addition to the
conditions that the Minimum Condition has been satisfied and the Public Stock
Options have been surrendered and exchanged, as described herein, the Company
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shall not be required to accept for payment or pay for any Shares tendered
pursuant to the Offer, and may terminate or amend the Offer and may postpone the
acceptance for payment of, and payment for, Shares tendered, if prior to the
Expiration Date, any of the following conditions exist:
a. the Company shall not have received the proceeds from the Debt Financing
sufficient to finance the Offer and the Second-Step Transaction, if necessary;
b. an order shall have been entered in any action or proceeding before any
federal or state court or governmental agency or other regulatory body or a
permanent injunction by any federal or state court of competent jurisdiction in
the United States shall have been issued and remain in effect making illegal the
purchase of, or payment for, any Shares by the Company;
c. there shall have been any federal or state statute, rule or regulation
enacted or promulgated on or after the date of the Offer that could reasonably
be expected to result, directly or indirectly, in any of the consequences
referred to in paragraph (a) above;
d. there shall have occurred and be remaining in effect (i) any general
suspension of, or limitation on prices for, trading in securities of the Company
on AMEX, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) a commencement of a war
or armed hostilities or other national or international calamity, directly or
indirectly, involving the United States or (iv) in the case of any of the
foregoing existing on the date hereof, a material acceleration or worsening
thereof; and
e. the Company (with the approval of a majority of the Independent
Committee) shall have agreed that the Company shall terminate the Offer or
postpone the acceptance for payment of or payment for Shares thereunder; which,
in the reasonable judgment of the Company in any such case, and regardless of
the circumstances giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment; and
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
12. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
General. The Company is not aware of any license or other regulatory permit
that appears to be material to the business of the Company that might be
adversely affected by the acquisition of Shares by the Company pursuant to the
Offer. Should any such approval or other action be required, it is the Company's
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present intention to seek such approval or action. There can be no assurance
that any such approval or other action, if needed, would be obtained without
substantial conditions or that adverse consequences might not result to the
business of the Company, or that certain parts of the businesses of the Company,
might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or other action or in
the event that such approval was not obtained or such other action was not
taken. The Company's obligation under the Offer to accept for payment and pay
for Shares is subject to certain conditions, including conditions relating to
the legal matters discussed in this Section 12. See "The Tender Offer - Section
11. Certain Conditions of the Offer."
State Takeover Laws.
Delaware Business Combination Statute. Section 203 of Delaware General
Corporation Law (the "DGCL"), in general, prohibits a Delaware corporation such
as the Company, from engaging in a "Business Combination" (defined as a variety
of transactions, including mergers, as set forth below) with an "Interested
Stockholder" (defined generally as a person that is the beneficial owner of 15%
or more of a corporation's outstanding voting stock) for a period of three years
following the date that such person became an Interested Stockholder unless (i)
prior to the date such person became an Interested Stockholder, the board of
directors of the corporation approved either the Business Combination or the
transaction that resulted in the stockholder becoming an Interested Stockholder,
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding stock held by directors who are also officers
of the corporation and employee stock ownership plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer or (iii) on or
subsequent to the date such person became an Interested Stockholder, the
Business Combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things (a) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203; (b)
the corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed by
Section 203, provided that, in addition to any other vote required by law, such
amendment of the certificate of incorporation or by-laws must be approved by the
affirmative vote of a majority of the shares entitled to vote, which amendment
would not be effective until 12 months after the adoption of such amendment and
would not apply to any Business Combination between the corporation and any
person who became an Interested Stockholder of the corporation on or prior to
the date of such adoption (a bylaw amendment adopted pursuant to this paragraph
shall not be further amended by the board of directors); (c) the corporation
does not have a class of voting stock that is (i) listed on a national
securities exchange, (ii) authorized for quotation on an inter-dealer quotation
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system of a registered national securities association or (iii) held of record
by more than 2,000 stockholders, unless any of the foregoing results from action
taken, directly or indirectly, by an Interested Stockholder or from a
transaction in which a person became an Interested Stockholder; or (d) a
stockholder became an Interested Stockholder and thereafter divests itself of a
sufficient number of shares so that such stockholder ceases to be an Interested
Stockholder. Under Section 203, the restrictions described above also do not
apply to certain Business Combinations proposed by an Interested Stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
Interested Stockholder during the previous three years or who became an
Interested Stockholder with the approval of a majority of the corporation's
directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (a) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock of
a corporation; (b) any transaction which results in the issuance or transfer by
the corporation or by certain subsidiaries thereof of any stock of the
corporation or such subsidiaries to the Interested Stockholder, except pursuant
to a transaction that effects a pro rata distribution to all stockholders of the
corporation; (c) any transaction involving the corporation or certain
subsidiaries thereof which has the effect of increasing the proportionate share
of the stock of any class or series, or securities convertible into the stock of
any class or series, of the corporation or any such subsidiary which is owned
directly or indirectly by the Interested Stockholder (except as a result of
immaterial changes due to fractional share adjustments); or (d) any receipt by
the Interested Stockholder of the benefit (except proportionately as a
stockholder of such corporation) of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation. The Board of
Directors has approved the Offer and the execution of one or more transactions
constituting the Second-Step Transaction, if necessary, so that the provisions
of Section 203 of the DGCL will not apply to the Transactions.
Other State Takeover Laws. A number of states have adopted laws and
regulations applicable to attempts to acquire securities of corporations which
are incorporated, or have substantial assets, stockholders, principal executive
offices or principal places of business, or whose business operations otherwise
have substantial economic effects, in such states. In Edgar v. MITE Corp., the
Supreme Court of the United States invalidated on constitutional grounds the
Illinois Business Takeover Statute, which, as a matter of state securities law,
made takeovers of corporations meeting certain requirements more difficult.
However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court
held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
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affairs of a target corporation without the prior approval of the remaining
stockholders. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of stockholders in the state
and were incorporated there.
The Company conducts business in a number of other states throughout the
United States, some of which have enacted takeover laws and regulations. The
Company does not know whether any or all of these takeover laws and regulations
will by their terms apply to the Offer, and, except as set forth above with
respect to Section 203 of the DCCL, the Company has not currently complied with
any other state takeover statute or regulation. The Company reserves the right
to challenge the applicability or validity of any state law purportedly
applicable to the Offer and nothing in this Offer to Purchase or any action
taken in connection with the Offer is intended as a waiver of such right. If it
is asserted that any state takeover statute is applicable to the Offer and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer, the Company might be required to file certain information
with, or to receive approvals from, the relevant state authorities, and the
Company might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or may be delayed in consummating the Offer. In such
case, the Company may not be obligated to accept for payment or pay for any
Shares tendered pursuant to the Offer.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
and the rules that have been promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice and the FTC and certain waiting period requirements have
been satisfied. The acquisition of Shares by the Company pursuant to the Offer,
however, is not subject to such requirements. See "The Tender Offer-Section 2.
Acceptance for Payment and Payment for Shares."
Litigation. To the best knowledge of the Company, no lawsuits have been
filed relating to the Offer or the Second-Step Transaction since June 16, 1999,
the date of the announcement by the Company that it proposed to acquire the
Shares from the Public Stockholders.
13. FEES AND EXPENSES
Except as set forth below, the Company will not pay any fees or commissions
to any broker, dealer or other person for soliciting tenders of Shares pursuant
to the Offer.
The Company has retained Morrow & Co., Inc., as the Information Agent, and
Continental Stock Transfer & Trust Company, as the Depositary, in connection
with the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telecopy, telegraph and personal interview and may request banks,
brokers, dealers and other nominee stockholders to forward materials relating to
the Offer to beneficial owners.
As compensation for acting as Information Agent in connection with the
Offer, Morrow & Co., Inc. will be paid estimated fees and expenses of $15,000.
The Information Agent will also be reimbursed for certain of its out-of-pocket
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expenses and may be indemnified against certain liabilities and expenses in
connection with the Offer, including certain liabilities under the Federal
securities laws. The Company will pay the Depositary fees and expenses of
approximately $2,000 for its services in connection with the Offer, plus
reimbursement for its out-of-pocket expenses, and will indemnify the Depositary
against certain liabilities and expenses in connection therewith, including
certain liabilities under the Federal securities laws. Brokers, dealers,
commercial banks and trust companies will be reimbursed by the Company for
customary handling and mailing expenses incurred by them in forwarding material
to their customers.
14. MISCELLANEOUS
The Company is not aware of any jurisdiction in which the making of the
Offer is prohibited by any administrative or judicial action pursuant to any
valid state statute. If the Company becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of Shares pursuant
thereto, the Company will make a good faith effort to comply with any such state
statute. If, after such good faith effort, the Company cannot comply with any
such state statute, the Offer will not be made to (nor will tenders be accepted
from or on behalf of) the holders of Shares in such state. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Company by one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY NOT CONTAINED IN THIS OFFER TO PURCHASE
OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Pursuant to Rule 13e-3 and Rule 13e-4 of the General Rules and Regulations
under the Exchange Act, the Company has filed with the Commission the Schedule
13E-3 and the Schedule 13E-4 together with exhibits, furnishing additional
information with respect to the Offer and may file amendments thereto. Such
statements, including exhibits and any amendments thereto, which furnish certain
additional information with respect to the Offer, may he inspected at, and
copies may he obtained from, the same places and in the same manner as set forth
in "The Tender Offer - 7. Certain Information Concerning the Company" (except
that they will not be available at the regional offices of the Commission).
WINSTON RESOURCES, INC.
September 2, 1999
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SCHEDULE I
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the executive
officers of the Company as of June 30, 1999 and the year in which they were
first elected. Each executive officer of the Company serves at the pleasure of
the Board of Directors. The business address for each executive officer is 535
Fifth Avenue, New York, New York 10017. Each individual listed below is a
citizen of the United States.
<TABLE>
<S> <C> <C>
Year Became an
Name and Age Position Executive Officer
Seymour Kugler Chairman, President 1967
62 and Chief Executive Officer
Jesse Ulezalka Chief Financial Officer 1995
50
Alan E. Wolf Vice President 1974
54
Todd Kugler Vice President 1995
33
Gregg S. Kugler Vice President 1993
36
David Silver Vice President 1992
67
Eric Kugler Vice President and Secretary 1998
39
</TABLE>
1
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DIRECTORS
The following sets forth the names and ages of the members of the Board of
Directors as of June 30, 1999 and the year in which they were first elected
directors of the Company. All directors of the Company hold office until the
next Annual Meeting of the Stockholders and until the election and qualification
of their successors. Each individual listed below is a citizen of the United
States.
Name, Address* and Age Year Became a Director
Seymour Kugler 1967
62
Alan E. Wolf 1974
54
Gregg S. Kugler 1992
36
Norton Sperling 1998
1025 Seawane Drive
Hewlett Harbor, New York 11557
64
Todd Kugler 1998
33
Martin Wolfson 1987
1359 Broadway
New York, New York 10018
63
Martin A. Fischer 1987
30-00 47th Avenue
Long Island City, New York 11101
62
Martin J. Simon 1992
360 Merrick Road
Lynbrook, New York 11563
79
______________
*If not 535 Fifth Avenue, New York, New York 10017
2
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BIOGRAPHICAL INFORMATION
Certain information about the executive officers and the directors of the
Company is set forth below. This information has been furnished to the Company
by the individuals named.
Mr. Seymour Kugler, who is generally known to employees of the Company as
Sy Kaye, founded the Company in 1967 and has been its Chief Executive Officer
since that time.
Mr. Ulezalka has been the Chief Financial Officer of the Company since
August 4, 1995. Prior thereto he was Chief Financial Officer of Consultants for
Architects, Inc. from April 1995 - August 1995, a financial consultant from
April 1994 - April 1995, CFO, Vice President - Finance of ECCO Staffing
Services, Inc. from March 1992 - April 1994.
Mr. Wolf has been a Vice President of the Company since September 17, 1987
and has been an Executive Vice President of the Company's permanent placement
division since 1974.
Mr. Todd Kugler (who is known generally to clients and employees of the
Company as Todd Kaye) has been employed by the Company since 1988. He became a
Vice President of the Company and its temporary staffing division on November
23, 1995. Mr. Kugler is Sy Kaye's son.
Mr. Gregg Kugler (who is known generally to clients and employees of the
Company as Gregg Kaye) has been employed by the Company since 1983. He became a
Vice President of the Company on August 12, 1993 and is President of its
permanent placement division. Mr. Kugler is Sy Kaye's son.
Mr. Silver has been Vice President - Administration/Human Resources of the
Company since November 1987. Mr. Silver also served as Secretary of the Company
from December 1991 until May 1998.
Mr. Eric Kugler (who is known generally to clients and employees of the
Company as Eric Kaye) has been employed by the Company since April, 1994. He
became Vice President of Corporate Development in April, 1994 and became
Secretary of the Company in May 1998. Mr. Kugler is Sy Kaye's son.
Mr. Wolfson, a certified public accountant, is Senior Vice President, Chief
Financial Officer and a director of Concord Fabrics, Inc., New York, New York,
which develops, designs, styles and produces woven and knitted fabrics for sale
to clothing manufacturers and fabric retailers. He has been employed by that
corporation since 1966, has been an officer and a director since 1973 and was
first elected to his present offices in 1981.
Mr. Fischer is a member of the Board of Trustees of Brooklyn Law School. He
is an attorney and is Vice Chairman and a member of the Board of Directors of
the Berkshire Bank, New York. Mr. Fischer was counsel to the law firm of Warshaw
Burstein Cohen Schlesinger & Kuh from 1986 to 1997.
3
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Mr. Simon served as the Chairman of the Board and President of First
Central Financial Corporation and First Central Insurance Company from August
1985 and August 1980, respectively, through February, 1997, at which time he
resigned from such positions. Mr. Simon is counsel to the law firm of Dienst &
Serrins, LLP and also serves as a consultant to DBP International, an
international freight forwarding operation and to Simon Agency NY, Inc., a
managing general insurance agency. Mr. Simon also serves as Secretary of the
Board of Trustees of Brookdale University Hospital and Medical Center.
Mr. Sperling was President of Finity Apparel Group from 1997 to 1998, when
he retired. He was President and Vice Chairman of Norton McNaughton from 1981 to
1997. Finity and Norton McNaughton are makers of fine moderately priced women's
sportswear, dresses and casual knitwear. Mr. Sperling was a founder of Norton
McNaughton.
4
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SCHEDULE II
June 16, 1999
To The Board of Directors
Winston Resources, Inc.
Gentlemen:
We understand that Winston Resources, Inc. ("Winston Resources" or the
"Company") is making an offer to purchase all of the shares of common stock of
the Company not owned by Seymour Kugler and members of his family at a price of
$4.625 per share. Such transaction is referred to herein as the "Transaction."
It is our understanding that the Board of Directors of the Company has formed a
special committee (the "Committee") to consider certain matters relating to the
Transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan
Lokey") has been retained to act as financial advisors to the Committee, and to
provide an opinion (the "Opinion") as to whether the Transaction is fair, from a
financial point of view, to the Company's public stockholders (the "Public
Stockholders").
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's audited financial statements on Form 10-K for
the three fiscal years ended December 31, 1998, the Form 10-Q for the
fiscal quarter ended March 31, 1999, and an internally prepared income
statement for the four months ended April 30, 1999, which the
Company's management has identified as being the most current
financial statements available;
2. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and
projected operations and performance of the Company;
3. visited certain business offices of the Company;
4. reviewed forecasts and projections dated May 24, 1999 prepared by the
Company's management with respect to the Company for the year ended
December 31, 1999;
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5. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
6. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction; and
7. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
The Company, like other companies and any business entities analyzed by Houlihan
Lokey or which are otherwise involved in any manner in connection with this
Opinion, could be materially affected by complications that may occur, or may be
anticipated to occur, in computer-related applications as a result of the year
change from 1999 to 2000 (the "Y2K Issue"). In accordance with long-standing
practice and procedure, Houlihan Lokey's services are not designed to detect the
likelihood and extent of the effect of the Y2K Issue, directly or indirectly, on
the financial condition and/or operations of a business. Further, Houlihan Lokey
has no responsibility with regard to the Company's efforts to make its systems,
or any other systems (including its vendors and service providers), Year 2000
compliant on a timely basis. Accordingly, Houlihan Lokey shall not be
responsible for any effect of the Y2K Issue on the matters set forth in this
Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the Public Stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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SCHEDULE III
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Section 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of such stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to section 251 (other than a merger effected pursuant to
section 251(g) of this title), section 252, section 254, section 257, section
258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
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a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for the approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
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as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to section 228 or
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. If such notice did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent corporation shall send
a second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
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the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
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Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(l) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's appraisal rights as provided in
subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
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The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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SCHEDULE IV
ANNUAL REPORT ON FORM 10-K OF THE COMPANY
FOR THE YEAR ENDED DECEMBER 31, 1998.
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SCHEDULE IV
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the transition period ________________________ to _________________________
Commission File No. 1-9629
WINSTON RESOURCES, INC.
(Name of small business issuer in its charter)
Delaware 13-3134278
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
535 Fifth Avenue, New York, New York 10017
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (212) 557-5000
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $.01 par value American Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: None
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 in this form, and no disclosure will
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. [ ]
On March 19, 1999, (i) the aggregate market value of Common Stock held
by non-affiliates of the registrant was approximately $4,387,115 and (ii) there
were 3,228,521 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(i) Part III, Definitive Proxy Statement of the registrant to be filed
with the Commission on or before April 30, 1999.
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PART I
Item 1. Business
Winston Resources, Inc., a Delaware corporation (the "Company"), is
the successor to a personnel recruitment and placement service business founded
in 1967. The Company and its subsidiaries (collectively, the "Company" or the
"Winston Companies") together provide a wide range of personnel supply services
to businesses, institutions and governmental agencies, through their own offices
and through offices operated by independent franchisees under licenses from the
Company. The Company also provides recruitment advertising services to
businesses and other institutions.
Through its own offices, the Company recruits and places employees in
entry-to-high-level permanent salaried positions in the New York City
metropolitan area (consisting of New York City, Nassau, Suffolk and Westchester
Counties, New York and parts of northern New Jersey and southern Connecticut)
and in the Fort Lauderdale area of Florida. Such services are provided on a
contingent fee basis under which the Company collects a fee only if it
successfully places a job candidate with a client. Through its Fisher- Todd
Associates division, the Company also provides services for business and
industry clients across the United States, recruiting upper level executives on
a retainer fee basis and on a contingency fee basis.
The Company also supplies temporary employees with professional,
secretarial, clerical, medical, allied health, nursing, light industrial,
information technology and word processing skills, to business clients and
governmental agencies in the New York City, Long Island and New Jersey areas, as
well as in Florida's Fort Lauderdale area. Temporary employees perform services
at the client's premises under the client's supervision and direction. For each
temporary employee, the client is charged an hourly rate that includes the
employee's direct labor rate, associated labor costs (such as payroll taxes and
insurance) and a mark-up to cover the Company's overhead and profit.
In addition to services furnished through its own offices, the Company
licenses independent franchisees to provide personnel services under the trade
names and service marks owned by the Company. Franchisees of the Company provide
permanent placement and executive search services under the name "Roth Young",
permanent personnel recruitment and placement services under the names "Division
10", "Alpha" and "Winston Personnel" and temporary office support personnel
under the names "Division 10 Temps" and "Alpha Temps" in a total of sixteen
cities and towns across the United States.
The Company does not have any client which accounts for more than ten
percent of its net revenues.
Permanent Recruitment and Placement Services
The Company provides recruitment and placement services for
entry-level to high-level professional and management positions at all salary
levels on a contingent fee basis.
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The Company employs placement counselors who specialize in recruiting
and placing job candidates in particular industries or professions. The Company
provides permanent placement services in all major industries, however, the
Company primarily recruits and places personnel with skills in accounting,
finance, office support, information technology and health care services and
recruits and places executives and professionals with skills in banking,
insurance, publishing, real estate, securities, human resources, marketing and
market research, management services, corporate facilities and architecture, as
well as lawyers and paralegals.
The Company creates and maintains a data-base of qualified job
candidates based on interviewing and screening procedures. Upon receiving a job
order from a client, the Company attempts to match the specifications required
by the client with qualified candidates from its data base and also recruits
additional qualified candidates. It then arranges interviews between the client
and qualified candidates. If the Company successfully places a candidate, it
charges a fee as a percentage of the candidate's estimated annual salary for the
first year of his or her employment. The fees are always paid by the employer.
During the year ended December 31, 1998, the Company placed applicants
in permanent positions with approximately 700 clients. Approximately fifty
percent of the Company's contingent fee permanent placement clients during that
year were repeat customers.
Through its Fisher-Todd Associates (executive search) division, the
Company specializes in recruiting executives to meet specific requirements of
clients on both a contingent and retainer basis. Fisher- Todd Associates
specializes in recruiting candidates for upper level executive positions,
generally at salaries in excess of $65,000 per year. The division employs
recruiting specialists who work closely with each client to define the
requirements of the position and establish candidate specifications. The Company
then contacts appropriate candidates who are identified through extensive
research, networking, data base searches and, where required, advertisements.
Such candidates are screened through interviews and other procedures and those
most qualified are referred to the clients. The Company assists the client in
evaluating each candidate, in determining an appropriate compensation package
and, in some cases, negotiating the final agreement.
Temporary Staffing Services
The Company furnishes to businesses, on a temporary basis, the
services of individuals with accounting, legal and paralegal, banking,
secretarial, clerical, office support, word processing, informational
technology, health care, light industrial and other professional skills.
Temporary staffing assignments usually last from one day to several months, and
often longer. Such assignments are generally made to fill vacancies in a
client's permanent work force or to supplement the client's normal work force to
meet peak work loads, handle special projects or provide special expertise. In
all cases, the work is performed at the client's facilities under the client's
supervision and direction. The client is charged an hourly rate comprised of the
direct labor rate of the personnel provided, associated labor costs (such as
payroll taxes and insurance) and a mark-up to cover the Company's overhead and
profit. All employees on temporary assignment to the Company's clients are on
the Company's payroll only during the periods of their assignments. Clients that
hire a temporary employee on a permanent basis pay a fee to the Company.
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By using the Company's temporary staffing services, clients are able
to shift to the Company the cost and inconvenience associated with the
employment of temporary personnel, including advertising, interviewing,
screening, testing, record keeping, payroll taxes and insurance. The Company is
able to absorb such costs more effectively than its clients because its
employees, once recruited, are generally assigned to a succession of temporary
positions with different clients.
The Company screens its temporary personnel through personal
interviews, testing, certificate and licensing verification and other procedures
and maintains continuously updated records on job performance. These procedures
enable it to classify its temporary personnel by preference for job location,
hours of employment and work environment and by suitability for particular types
of assignments. Persons who do temporary work usually are registered with more
than one temporary help firm at any one time.
During 1998, the Company provided the services of temporary employees
to approximately 1400 clients. The Company believes that a majority of the
clients to whom it supplied temporary staffing during 1998 were repeat
customers.
Franchise Operations
The Company also has eighteen franchised offices which provide
permanent placement and executive search services under the name "Roth Young",
permanent recruitment and placement services under the names "Division 10",
"Alpha" and "Winston Personnel", and temporary office support personnel under
the names "Division 10 Temps" and "Alpha Temps".
At March 19, 1999, there were fourteen Roth Young, one Division 10,
one Division 10 Temps, one Alpha and one Winston franchise in a total of sixteen
cities in the United States.
All franchisees operate their businesses autonomously, subject to the
requirements of their respective franchise agreements. The agreements provide
for monthly payments of royalties to the Company based on the franchise's cash
collections and generally cover a specified term renewable at the franchisee's
option. Each franchisee pays the Company royalties for the license of the
Company's know-how and tradenames. The Company is not currently actively engaged
in the marketing of new franchises and has no current plans to do so.
Franchisees operating under Roth Young licenses generally provide
permanent placement and executive search services, principally to the food,
drug, hospitality, retail and health care industries, although licensees are
encouraged to expand their services to other industries.
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The Company believes that its relationship with its independent
franchisees generally is satisfactory.
Recruitment Advertising
The Company's recruitment advertising division places recruitment
advertisements in publications on behalf of the Company, the Company's clients
and other third parties. The Company believes that the services offered by this
division enhances its competitive position in the temporary staffing and
permanent placement markets by broadening the scope of the services it offers to
clients. For the year ended December 31, 1998, the Company served approximately
250 clients through this division.
Marketing
The Company's marketing efforts for its temporary staffing services
and for most permanent recruitment and placement services are largely
concentrated within the areas contiguous to its offices. The services of the
Company's executive search division are marketed nationally. The Company relies
primarily on telephone and direct visit solicitation to existing and prospective
clients and, to a lesser extent, on direct mail, and advertising.
Recruiting
The Company recruits qualified applicants for permanent positions and
temporary employees primarily through direct recruitment, referrals from other
applicants and newspaper advertising.
Competition
The staffing industry is highly competitive, with clients generally
using more than one company to satisfy their personnel requirements. In the
permanent recruitment and placement market, the Company and its franchisees
compete with numerous local and regional firms and, to a lesser extent, a small
number of national firms. In the temporary staffing industry there is intense
competition from national temporary staffing service firms as well as from local
and regional firms. All of the national and many of the regional firms have
substantially greater resources than the Company.
The principal competitive factors in the personnel services industry
are the availability and quality of permanent job applicants and temporary
staff, the level and integrity of the service provided by individual offices
and, to varying degrees, the prices of such services. The Company believes that
its ability to offer a fully integrated personnel service, providing temporary
help, permanent recruitment and placement services, executive recruitment and
recruitment advertising, enhances its competitive position in those markets.
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<PAGE>
Regulation
The Company's operations are, in some states, subject to state laws
and regulations which may require employment agencies and/or temporary help
services to be licensed. The principal requirements of such laws and regulations
are satisfactory prior experience and good moral character. The Company has
obtained all necessary licenses and registrations in the states where it
conducts business.
Trademarks and Service Marks
The Company owns a number of trademarks, service marks and tradenames,
including the names, "Winston", "Winston Resources", "Winston Personnel" (with
its logo consisting of a sunburst design and stylized letter W), "Win-Temps",
"Roth Young" and "Division 10", which are registered with the U.S. Patent and
Trademark Office.
Employees
At December 31, 1998, the Company employed approximately 123 permanent
employees, including 39 placement counsellors for its permanent placement
services, in its headquarters and branch offices, not including temporary
employees on assignment to clients. The Company is responsible for all workers'
compensation and disability insurance, state and Federal unemployment taxes,
social security taxes, and fringe benefits for its temporary employees. As a
service business, the Company depends to a material degree on its ability to
hire and retain skilled and motivated personnel.
Item 2. Properties
The Company leases a total of approximately 19,000 square feet in an
office building at 535 Fifth Avenue, New York, New York. The lease was entered
into in August 1990 and renegotiated in 1992, 1993 and 1997, and expires in
2003. The Company also leases office space in Rutherford, Edison and Parsippany,
New Jersey, in Westbury, New York and in Fort Lauderdale, Florida, under leases
expiring between 1999 and 2002.
Item 3. Legal Proceedings
NONE
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended December 31, 1998.
-6-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company is traded principally on the American
Stock Exchange (ticker symbol "WRS"). The following table shows, for each
quarter of the Company's last two fiscal years and through March 19, 1999, the
high and low sales prices of the common stock of the Company as reported on the
American Stock Exchange.
<TABLE>
<S> <C> <C>
Price Range
High Low
1999
First Quarter $ 3 3/4 $ 2 1/2
1998
First Quarter $ 6 3/8 $ 4 1/2
Second Quarter 6 9/16 5 1/8
Third Quarter 6 1/4 4 1/2
Fourth Quarter 4 3/8 3 1/4
1997
First Quarter $ 4 1/4 $ 3 1/8
Second Quarter 4 3 1/8
Third Quarter 6 3/8 3 3/8
Fourth Quarter 6 3/4 5 1/4
</TABLE>
The Company had 108 holders of record of its common stock on March 19,
1999.
The Company has never paid a cash dividend on the Common Stock and
anticipates that for the foreseeable future, earnings will be retained for use
in its business.
-7-
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998 1997 1996 1995 1994
Income Statement Data:
(In thousands, except for per share data and number of shares)
Combined sales:
By Company offices $60,466 $48,986 $39,247 $30,657 $23,822
By franchise 3,193 2,586 2,957 4,175 6,403
Total combined sales 63,659 51,572 42,204 34,832 30,225
Net revenue* 60,850 49,199 39,390 30,989 24,297
Income (loss) from operations 3,204 2,547 1,585 (401)(1) 865
Net income (loss) 1,829 1,444 1,138 (432)(1) 636
Basic earnings (loss) per common share .57 .45 .37 (.15) .22
Diluted earnings (loss) per share .52 .41 .34 (.15) .20
Weighted average shares - basic 3,220,473 3,191,825 3,065,719 2,917,662 2,913,886
Weighted average shares - diluted 3,523,266 3,488,180 3,323,679 2,917,662 3,152,530
*Represents sales by Company, income from franchises and other income
(1) Includes one-time write off of restrictive covenant costs and related assets
associated with franchise operations of $1.1 million
Year ended December 31,
1998 1997 1996 1995 1994
Balance Sheet Data:
(In thousands, except for per share data)
Working capital $6,296 $4,696 $3,248 $ 3,028 $2,201
Total assets 12,919 9,451 8,438 7,146 7,123
Long-term debt 17 35 51 606 579
Stockholders' equity 7,287 5,404 3,862 2,654 3,055
Stockholders' equity per share 2.26 1.68 1.22 .91 1.05
</TABLE>
-8-
<PAGE>
Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Quarter Quarter Quarter
ended ended ended ended
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
Revenue $ 14,409,000 $ 15,098,000 $ 14,823,000 $ 16,520,000
Operating expenses 13,765,000 14,290,000 13,992,000 15,599,000
Net income 355,000 445,000 458,000 571,000
Basic earnings per share 0.11 0.14 0.14 0.18
Diluted earnings per share 0.10 0.13 0.13 0.16
Quarter Quarter Quarter Quarter
ended ended ended ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
Revenue $ 10,782,000 $ 11,837,000 $ 13,434,000 $ 13,146,000
Operating expenses 10,371,000 11,220,000 12,711,000 12,350,000
Net income 226,000 343,000 408,000 467,000
Basic earnings per share 0.07 0.11 0.13 0.15
Diluted earnings per share 0.07 0.10 0.12 0.13
</TABLE>
-9-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
1998 Compared to 1997
Revenues increased by approximately $11,651,000 or 24% to $60,850,000
as compared to $49,199,000 in 1997. The increase is primarily due to the
increase in temporary staffing revenues of 31% and permanent placement revenues
of 3%, as compared to 1997.
Operating expenses increased approximately 24% as compared to 1997.
Compensation and other benefits increased approximately 28% mainly due to
increased compensation and compensation related costs associated with the
increase in revenues. Selling, general and administrative expenses increased 6%
due to additions to the sales force, commissions related to increased revenues
and other costs related to maintaining the Company' branch operations.
Interest expense decreased during 1998 as a result of there being no
borrowings under the Company's credit facility when compared to 1997.
The effective tax rate was approximately 44% for the twelve month
period ended December 31, 1998 and December 31, 1997.
Net income for the twelve month period ended December 31, 1998 was
approximately $1,829,000 or $.57 basic earnings per common share and $.52
diluted earnings per common share as compared to a net income of approximately
$1,444,000 or $.45 basic earnings per common share and $.41 diluted earnings per
common share for the prior year. The increase in net income and earnings per
share is primarily due to increased revenues, partially offset by the related
increases in operating expenses.
1997 Compared to 1996
Revenues increased by approximately $9,809,000 or 25% to $49,199,000
as compared to $39,390,000 in 1996. The increase is primarily due to the
increase in temporary staffing revenues of 31% and permanent placement revenues
of 14%, as compared to 1996.
Operating expenses increased approximately 23% as compared to 1996.
Compensation and other benefits increased approximately 28% mainly due to
increased compensation and compensation related costs associated with the
increase in revenues. Selling, general and administrative expenses increased 6%
due to additions to the sales force and commissions related to increased
revenues and advertising, and other costs related to maintaining the Company's
branch operations.
Interest expense decreased during 1997 due mainly to the lower average
balance on borrowings under the Company's credit facility when compared to 1996.
-10-
<PAGE>
The effective tax rate was 44% for the twelve month period ended
December 31, 1997 as compared to 22% in 1996. The lower prior year rate was
attributable to an income tax benefit as a result of a reduction in the
valuation allowance for certain deferred tax assets that were determined to be
realizable.
Net income for the twelve month period ended December 31, 1997 was
approximately $1,444,000 or $.45 basic earnings per common share and $.41
diluted earnings per common share as compared to a net income of approximately
$1,138,000 or $.37 basic earnings per common share and $.34 diluted earnings per
common share for the prior year. The increase in net income and earnings per
share is primarily due to increased revenues, partially offset by the related
increases in operating expenses and increase in effective tax rate.
Liquidity and Capital Resources
Cash provided by operating activities was $1,913,000 in 1998. In
addition to net income, cash flow from operating activities was affected by an
increase in accounts receivable due to the significant growth in revenues offset
by increased accounts payable, accrued expenses and income taxes payable. In
1997, cash generated from operating activities was $190,000. Working capital on
December 31, 1998 was approximately $6,296,000 as compared to $4,696,000 on
December 31, 1997. Cash used in investing activities was $316,000 due to the
purchase of property and equipment and financing activities provided cash of
$5,000 (exercise of options offset by the repayment of capital lease
obligations) in 1998. The Company has no material commitments for capital
expenditures during 1999.
The Company has a secured credit facility providing for short-term
advances to a maximum of $6,000,000 based on up to 80% of eligible accounts
receivable, as defined under which no amounts are outstanding.
Management believes that the cash available from the Company's credit
facility and cash from its operations will be sufficient to support current
operations and any currently foreseeable increase in activities.
Inflation
To date, the impact of inflation and changing prices on the Company's
business has been minimal. The Company charges its customers fixed percentages
of the salaries and wages of permanent and temporary employees, which causes its
fee income to increase proportionately as salary and wages increase.
Year 2000 Issues
The Company has assessed its computer information systems and has
taken necessary steps to ensure its systems are Year 2000 compliant. The
Company's computer systems consultants have represented to the Company in
writing that, as presently configured, the Company's systems are Year 2000
compliant. No special costs were incurred in order to make the systems
compliant, and the cost of testing such compliance which was completed at
December 31, 1998, was not material.
The Company also is in the process of determining the extent to which
it may be vulnerable to any failures by its service providers to resolve their
own Year 2000 issues. The Company has initiated formal communications with such
providers and, at this time, has received formal written responses from a number
of such providers indicating that their systems are Year 2000 compliant. The
Company is continuing to collect such responses and will be developing such
contingency plans as it believes are warranted, based on such responses. At this
time, the Company is unable to estimate the extent of any adverse impact from
failure by these service providers with regard to Year 2000 compliance, and the
nature by which their problems might materially affect the Company's business,
financial condition or results of operations.
-11-
<PAGE>
The Company is currently implementing a contingency plan involving
creation of a back-up computer capability as a result of which all of its
systems and files will be redundant so that if its principal offices in New York
City become inaccessible, its operations may be conducted from other Company
offices located in New Jersey. Such contingency plan should be implemented
during the first half of 1999.
Failure by the Company to eliminate Year 2000 problems could result in
a possible failure or miscalculations, causing disruption of operations. Under a
worst case scenario, such problems would be addressed by manually processing
data and transactions. However, this would cause delays and additional costs to
the administrative process. Further contingency plans are being developed to
address this issue.
Based upon the current information, the Company does not anticipate
that, in the aggregate, costs associated with the Year 2000 issue will have a
material financial impact. However there can be no assurances that, despite the
steps taken by the Company to insure that it and its customers and vendors are
Year 2000 compliant, there will not be interruptions or other limitations of
systems functionality or that the Company will not incur significant costs to
avoid such interruptions or limitations. The Company's expectations about future
costs associated with the Year 2000 issue are subject to uncertainties that
could cause actual events to have a greater financial impact than currently
anticipated. Factors that could influence the amount and timing of future costs
include unanticipated vendor delays, technical difficulties, the impact of tests
of vendors' and customers' systems and similar events. If, despite the Company's
efforts under its Year 2000 planning, there are Year 2000-related failures that
create substantial disruptions to the Company's business, the adverse impact on
the business could be material.
Market Risk and Risk Management Policies
The Company currently does not have exposure to market risk. The
Company will develop policies and procedures to manage market risk in the future
as deemed necessary.
Impact of Recently Issued Accounting Standards
In June 1998 the FASB issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt the new Statement effective January 1, 2000. The Statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
Forward-Looking Statements
This report contains forward-looking statements and information that
is based on management's beliefs and assumptions, as well as information
currently available to management. Such beliefs and assumptions are based on,
among other things, the Company's operating and financial performance over
recent years and its expectations about its business for the current fiscal
year. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Such statements are subject to certain
risks, uncertainties and assumptions, including, but not limited to, the
possibility that (a) prevailing economic
-12-
<PAGE>
conditions may significantly deteriorate, thereby reducing the demand for the
Company's services, (b) the Company might experience a significant deterioration
in its collection of accounts receivable and (c) regulatory or legal changes
might affect an employer's decision to utilize the Company's services, although
none of such risks is anticipated at the present time. Should one or more of
these or any other risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or expected.
Item 8. Financial Statements and Supplementary Data
See Item 14 for a list of Winston Resources, Inc. and Subsidiaries
Financial Statements and Schedules filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
-13-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by
reference to the material under the caption "ELECTION OF DIRECTORS" in the
Company's definitive Proxy Statement to be filed on or before April 30, 1999
(the "1999 Proxy Statement").
Item 11. Executive Compensation
The information required by this term is incorporated herein by
reference to the material under the caption "EXECUTIVE COMPENSATION" in the 1999
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the material under the caption "ELECTION OF DIRECTORS" in the 1999
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the material under the caption "ELECTION OF DIRECTORS - Certain
Transactions" in the 1999 Proxy Statement.
-14-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1,2 The information required by this subsection of this Item is
presented in the index to the Financial Statements on Page
F-1
<PAGE>
Form 10-K - Item 14 (a) (1) and (2)
Winston Resources, Inc. and Subsidiaries
List of Financial Statements and
Financial Statement Schedules
The following consolidated financial statements of Winston Resources, Inc. and
Subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors....................................................................... F-2
Consolidated Balance Sheets - December 31, 1998 and 1997............................................. F-3
Consolidated Statements of Income - Years Ended
December 31, 1998, 1997 and 1996.................................................................. F-4
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1998, 1997 and 1996.................................................................. F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998, 1997 and 1996.................................................................. F-6
Notes to Consolidated Financial Statements........................................................... F-7
The following consolidated financial statement schedule of Winston Resources, Inc.
and Subsidiaries is included in Item 14 (a) (2):
Schedule II - Valuation and Qualifying Accounts....................................................... F-21
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instruction or are inapplicable and therefore have been omitted.
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Winston Resources, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Winston
Resources, Inc. and Subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1998. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and 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 our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Winston
Resources, Inc. and Subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
February 26, 1999
F-2
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
December 31
1998 1997
----------------------------------
Assets
Current assets:
Cash and cash equivalents $2,047,000 $445,000
Accounts receivable - trade, less allowances for doubtful
accounts of $200,000 and $100,000 9,036,000 7,341,000
Prepaid expenses and other current assets 118,000 227,000
Securities available-for-sale 455,000 392,000
----------------------------------
Total current assets 11,656,000 8,405,000
Property and equipment, net 649,000 540,000
Deferred income taxes 234,000 185,000
Security deposits and other assets 380,000 321,000
----------------------------------
Total assets $12,919,000 $9,451,000
==================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $5,200,000 $3,668,000
Capital lease obligations 18,000 16,000
Income taxes payable 142,000 25,000
----------------------------------
Total current liabilities 5,360,000 3,709,000
Deferred rent 255,000 303,000
Long-term portion of capital lease obligations 17,000 35,000
----------------------------------
Total liabilities 5,632,000 4,047,000
Commitments and contingencies
Stockholders' equity:
Preferred stock - $100 par value: authorized 2,000,000 shares,
no shares issued
Common stock - $.01 par value: authorized 10,000,000 shares;
issued and outstanding 3,228,121 shares (3,215,120 in 1997) 32,000 32,000
Additional paid-in capital 4,456,000 4,435,000
Retained earnings 2,612,000 783,000
Accumulated other comprehensive income 187,000 154,000
----------------------------------
Total stockholders' equity 7,287,000 5,404,000
----------------------------------
Total liabilities and stockholders' equity $12,919,000 $9,451,000
==================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<S> <C> <C> <C>
Year ended December 31
1998 1997 1996
----------------------------------------------------------
Revenue:
Placement fees and related income $60,850,000 $49,199,000 $39,390,000
----------------------------------------------------------
Operating expenses:
Compensation and other benefits 48,191,000 37,735,000 29,414,000
Selling, general and administrative 9,455,000 8,917,000 8,391,000
----------------------------------------------------------
57,646,000 46,652,000 37,805,000
----------------------------------------------------------
Income from operations 3,204,000 2,547,000 1,585,000
----------------------------------------------------------
Other income (expense):
Interest expense (5,000) (36,000) (187,000)
Interest and other income 49,000 69,000 52,000
----------------------------------------------------------
44,000 33,000 (135,000)
----------------------------------------------------------
Income before provision for income taxes 3,248,000 2,580,000 1,450,000
Provision for income taxes 1,419,000 1,136,000 312,000
----------------------------------------------------------
Net income $1,829,000 $1,444,000 $1,138,000
==========================================================
Basic earnings per share $.57 $.45 $.37
==========================================================
Diluted earnings per share $.52 $.41 $.34
==========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock
$.01 Par Value Retained Accumulated
--------------------------- Additional Earnings Other
Number Paid-in (Accumulated Comprehensive
of Shares Amount Capital Deficit) Income Total
------------------------------------------------------------------------------------------
Balance - December 31, 1995 2,920,833 $29,000 $4,396,000 $(1,799,000) $28,000 $2,654,000
Exercise of common stock options 273,060 3,000 115,000 - - 118,000
Retirement of treasury stock (16,789) - (98,000) - - (98,000)
Comprehensive income:
Net income - - - 1,138,000 - 1,138,000
Unrealized gain on securities
available-for-sale, net - - - - 50,000 50,000
-----------
Comprehensive income 1,188,000
------------------------------------------------------------------------------------------
Balance - December 31, 1996 3,177,104 32,000 4,413,000 (661,000) 78,000 3,862,000
Exercise of common stock options 38,016 - 22,000 - - 22,000
Comprehensive income:
Net income - - - 1,444,000 - 1,444,000
Unrealized gain on securities
available-for-sale, net - - - - 76,000 76,000
-----------
Comprehensive income 1,520,000
------------------------------------------------------------------------------------------
Balance - December 31, 1997 3,215,120 32,000 4,435,000 783,000 154,000 5,404,000
Exercise of common stock options 13,001 - 21,000 - - 21,000
Comprehensive income:
Net income - - - 1,829,000 - 1,829,000
Unrealized gain on securities
available-for-sale, net - - - - 33,000 33,000
----------
Comprehensive income 1,862,000
-------------------------------------------------------------------------------------------
Balance - December 31, 1998 3,228,121 $32,000 $4,456,000 $2,612,000 $187,000 $7,287,000
===========================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Winston Resources, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Year ended December 31
1998 1997 1996
----------------------------------------------------------
Cash flows from operating activities
Net income $1,829,000 $1,444,000 $1,138,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt expense 285,000 41,000 125,000
Depreciation and amortization 207,000 172,000 129,000
Deferred rent (48,000) (47,000) (29,000)
Deferred tax (benefit) expense (75,000) 224,000 (349,000)
Changes in assets and liabilities:
Accounts receivable (1,980,000) (1,527,000) (164,000)
Prepaid expenses and other current assets 109,000 11,000 66,000
Other assets (63,000) (80,000) (38,000)
Accounts payable, accrued expenses and
income taxes payable 1,649,000 (428,000) 1,364,000
----------------------------------------------------------
Net cash provided by (used in) operating activities 1,913,000 (190,000) 2,242,000
----------------------------------------------------------
Cash flows from investing activities
Purchases of property and equipment (316,000) (401,000) (87,000)
----------------------------------------------------------
Cash flows from financing activities
Repayment on credit facility debt - - (1,182,000)
Proceeds from exercise of options 21,000 22,000 20,000
Repayment of capital leases (16,000) (54,000) (69,000)
----------------------------------------------------------
Net cash provided by (used in) financing activities 5,000 (32,000) (1,231,000)
----------------------------------------------------------
Net increase (decrease) in cash and cash 1,602,000 (623,000) 924,000
equivalents
Cash and cash equivalents - beginning of year 445,000 1,068,000 144,000
----------------------------------------------------------
Cash and cash equivalents - end of year $2,047,000 $445,000 $1,068,000
==========================================================
Supplemental disclosures of cash flow
information
Cash payments for interest $5,000 $36,000 $176,000
==========================================================
Cash payments for income taxes $1,384,000 $1,405,000 $128,000
==========================================================
Supplemental disclosures of noncash investing
and financing activities
Retirement of treasury stock $- $- $98,000
==========================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. Principal Business Activity and Summary of Significant Accounting Policies
Business Activity
Winston Resources, Inc. and Subsidiaries (the "Company") provide a wide variety
of temporary staffing specialties, permanent placement services, executive
search recruitment, and recruitment advertising to the business community.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Winston Resources, Inc. and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk include cash and cash equivalents and accounts receivable arising
from its normal business activities. The Company places its cash and cash
equivalents with high credit quality financial institutions. Approximately 99%
and 91% of cash and cash equivalents at December 31, 1998 and 1997,
respectively, was on deposit at one financial institution.
The Company believes that its credit risk regarding accounts receivable is
limited due to the large number of entities comprising the Company's customer
base. In addition, the Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit risk of its customers,
establishes an allowance for uncollectible accounts, where appropriate.
F-7
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Securities Available-for-Sale
Investments, which consist of common stocks, are stated at fair value as
determined by quoted market price. The Company has classified its securities as
investments available-for-sale pursuant to Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, any unrealized gain or loss on the investments, net of
deferred taxes thereon, is reported as a component of accumulated other
comprehensive income.
Depreciation and Amortization
Depreciation and amortization of property and equipment are provided on the
straight-line and declining balance methods over the estimated useful lives of
the assets.
Revenue Recognition
Permanent placement revenue is recognized when a candidate is accepted for
employment. Provisions are made for estimated losses in realization (principally
due to applicants not remaining in employment for the guaranteed period).
Temporary placement revenue is recognized when the temporary personnel provide
the services. Nonrefundable retainer revenue is recognized according to the
terms of the search contract.
Advertising Costs
The Company expenses advertising costs upon the first showing of the
advertisements. Advertising expenses for the years ended December 31, 1998, 1997
and 1996 totaled approximately $952,000, $871,000 and $711,000, respectively.
F-8
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or stockholders' equity. Statement 130 requires unrealized gains or
losses on securities available-for-sale which, prior to adoption, were reported
separately in stockholders' equity, to be included in other comprehensive
income.
Segment Information
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. Statement 131 superseded FASB Statement No. 14, Financial Reporting
for Segments of a Business Enterprise. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
Statement 131 did not affect results of operations or financial position, but
did affect the disclosure of segment information (see Note 10).
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<S> <C> <C> <C>
December 31 Estimated
1998 1997 Useful Life
-----------------------------------------------------------
Furniture, fixtures and equipment $970,000 $804,000 3 to 7 years
Leasehold improvements 346,000 349,000 Life of lease
---------------------------------------
1,316,000 1,153,000
Less accumulated depreciation 667,000 613,000
---------------------------------------
$649,000 $540,000
=======================================
</TABLE>
Included in property and equipment at December 31, 1998 are assets recorded
under capital leases with a cost of approximately $216,000 and accumulated
amortization of approximately $196,000. Amortization of assets recorded under
capital leases is included with depreciation expense.
3. Financing Arrangements
a. Credit Facility
The Company has a secured credit facility providing for short-term advances
to a maximum of $6,000,000, based on up to 80% of eligible accounts
receivable, as defined. The Company pays interest on advances at the bank's
alternate base rate, as defined, or at LIBOR plus 2.5% (7.5% and 8.5% at
December 31, 1998 and 1997, respectively). The credit facility is
collateralized by the accounts receivable of the Company and expires on
October 31, 1999. The Company had no borrowings under this facility for the
year ended December 31, 1998.
F-10
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Financing Arrangements (continued)
b. Capital Lease Obligations
The Company has leased telephone equipment, software and computer equipment
under capital leases which are included in property and equipment (see Note
2). The following is a schedule of the future minimum lease payments,
together with the present value of the minimum lease payments as of
December 31, 1998:
<TABLE>
<S> <C>
Year ending December 31:
1999 $21,000
2000 17,000
----------------------
Total 38,000
Less amount representing interest (effective rate 11%) 3,000
----------------------
Present value of the minimum lease payments 35,000
Less current portion of capital lease obligations 18,000
----------------------
$17,000
======================
</TABLE>
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<S> <C> <C>
December 31
1998 1997
-----------------------------------------------
Accounts payable - trade $739,000 $686,000
Accrued compensation and payroll taxes 3,003,000 1,750,000
Accrued commissions 1,143,000 904,000
Other accrued expenses 315,000 328,000
-----------------------------------------------
Total $5,200,000 $3,668,000
===============================================
</TABLE>
F-11
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
The provision for income taxes consists of:
<TABLE>
<S> <C> <C> <C>
Year ended December 31
1998 1997 1996
--------------------------------------------------------------
Current:
Federal $952,000 $720,000 $535,000
State and local 542,000 192,000 126,000
Deferred (75,000) 224,000 (349,000)
--------------------------------------------------------------
$1,419,000 $1,136,000 $312,000
==============================================================
A reconciliation of the federal statutory tax rate to the actual effective rate is as follows:
Year ended December 31
1998 1997 1996
------------------------------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State and local income taxes, net of
federal benefit 10.7 4.3 4.8
Change in valuation allowance (1.0) 1.8 (17.1)
Permanent differences 1.6 2.4 1.8
Other (1.6) 1.5 (2.0)
------------------------------------------------------------
43.7% 44.0% 21.5%
============================================================
</TABLE>
F-12
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
The deferred income taxes are comprised of the following:
<TABLE>
<S> <C> <C>
December 31
1998 1997
------------------------------------------
Assets
Provision for doubtful accounts $80,000 $40,000
Intangible assets written off 230,000 224,000
Accrued rent 102,000 121,000
Net operating losses for state and local tax purposes 91,000 127,000
------------------------------------------
Deferred tax asset 503,000 512,000
------------------------------------------
Liabilities
Unrealized gain on securities (182,000) (156,000)
Other (30,000) (44,000)
------------------------------------------
Deferred tax liability (212,000) (200,000)
------------------------------------------
291,000 312,000
Valuation allowance (57,000) (127,000)
------------------------------------------
$234,000 $185,000
==========================================
</TABLE>
The valuation allowance (decreased) increased by ($70,000), $52,000 and
$(333,000), respectively, during the years ended December 31, 1998, 1997 and
1996.
6. Commitments and Contingencies
Operating Leases
The Company leases office space under noncancelable operating leases which
expire at various dates through 2003. These leases are subject to escalations
for increases in real estate taxes and other expenses.
F-13
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Commitments and Contingencies (continued)
The aggregate future minimum lease payments required under these leases are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
1999 $783,000
2000 791,000
2001 743,000
2002 699,000
2003 398,000
----------------------
Total $3,414,000
======================
</TABLE>
Rental expense under operating leases, including escalation charges for the
years ended December 31, 1998, 1997 and 1996, approximated $839,000, $726,000
and $700,000, respectively.
Pursuant to one of the Company's leases, rent expense charged to operations
differs from rent paid because of the effect of free rent periods and scheduled
rent increases. Accordingly, the Company has recorded deferred rent payable of
$255,000 and $303,000 at December 31, 1998 and 1997, respectively. Rent expense
is calculated by allocating total rental payments, including those attributable
to scheduled rent increases, on a straight-line basis, over the lease term.
The Company has been released from a portion of its rent obligation on certain
premises which it had been subleasing through 2003; however, in the event of
default by the sublessee, it would remain liable for the balance of the rent
obligation which, at December 31, 1998, aggregated $464,000.
Executive Employment Agreement
An employment agreement with the chief executive officer expiring in August 2002
provides for an annual salary of approximately $446,000, plus incentive bonuses
based on pre-tax income. In addition, the officer is entitled, under certain
circumstances, to termination benefits.
F-14
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Retirement Plan
The Company has a defined contribution plan under Section 401(k) of the Internal
Revenue Code ("IRC") which provides that eligible employees may make
contributions, subject to IRC limitations. The Company may choose to make
contributions to the Plan in an amount determined by the Company at its
discretion. No contributions were made for the years ended December 31, 1998 and
1997. The Company made a contribution to the Plan of $25,000 for the year ended
December 31, 1996.
8. Stock Option Plans
Under the Company's 1996 Stock Plan (the "Plan") a committee of the Board of
Directors is authorized to issue to officers, directors, key employees and
consultants stock options (both incentive stock options ("ISOs") and
nonqualified options), restricted stock and directors' options. In 1998, the
number of options issuable under the Plan was increased from 400,000 to 800,000.
The Company also has an Incentive Program (the "Program") under which it may
issue to officers, directors, key employees, and certain consultants stock
options (both ISOs and nonqualified options), stock appreciation rights ("SARs")
(in tandem with stock options or free-standing), restricted stock and directors'
options issuable pursuant to a formula. Up to 575,000 shares are issuable under
the Program either as outright grants or upon exercise of options or SARs
awarded thereunder.
Directors of the Company who are not employees are eligible to participate
solely in the nondiscretionary directors' option portion of the Program. All
administrative powers of the Option Committee of the Broad of Directors (the
"Committee") with respect to directors' options may be exercised, at the
discretion of the Board of Directors, by an Alternate Committee comprised of
persons not eligible to receive directors' options, one of whom must be a
director. Moreover, in no event, may the number of shares subject to directors'
options issuable to any qualified director in any year exceed 25,000.
F-15
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Stock Option Plans (continued)
The selection of participants from among employees and officers and the
determination of the type and amount of awards (except as to the directors'
options) is entirely within the discretion of the Committee. There is no limit
on the number or amount of awards which may be granted to any one person under
the Program, except that the fair market value (determined as of the date of
grant) of shares with respect to which ISOs are first exercisable in any one
year as to any participant may not exceed $100,000.
All options granted have five or ten year terms and vest and become fully
exercisable at the end of three years of continued employment.
Restricted stock may be awarded under the Program either at no cost to the
recipient or for such cost as specified by the grant. Unless waived in whole or
in part by the Committee, once a holder of record of restricted stock ceases to
be an employee, officer or director of the Company, all shares of restricted
stock then held and still subject to restriction will be forfeited by such
holder and reacquired by the Company.
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its stock options under the fair
value method estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1997 and 1996 (no
options were granted in 1998), risk-free interest rates of 5.6% in 1997 and 5.9%
to 6.0% in 1996; volatility factors of the expected market price of the
Company's common stock of .72 and .75. The weighted-average expected life of the
options is three years. Dividends are not expected in the future.
F-16
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Stock Option Plans (continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
------------------------------------------------------------
Pro forma net income $1,712,000 $1,363,000 $979,000
Pro forma basic income per share $.53 $.43 $.32
Pro forma diluted income per share $.50 $.40 $.30
</TABLE>
Stock option activity is summarized as follows:
<TABLE>
<S> <C> <C>
Weighted-
Average
Shares Exercise Price
---------------------------------------------
Balance at January 1, 1996 518,317 $.97
Granted 304,500 $2.14
Exercised (273,060) $.43
Cancelled (5,107) $.43
---------------------------------------------
Balance at December 31, 1996 (137,759
exercisable at option prices $.4875 to $2.20) 544,650 $1.90
Granted 113,500 $5.34
Exercised (38,016) $.58
Cancelled (2,124) $.85
---------------------------------------------
Balance at December 31, 1997 (272,938 exercisable
at option prices $.4375 to $5.775) 618,010 $2.62
Exercised (13,001) $1.63
Cancelled (333) $1.50
---------------------------------------------
Balance at December 31, 1998 (428,396 exercisable
at option prices $.4375 to $5.775) 604,676 $2.64
=============================================
</TABLE>
F-17
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Stock Option Plans (continued)
The weighted average fair value of options granted during 1997 and 1996 was
$2.03 and $1.07, respectively. The exercise prices for options outstanding as of
December 31, 1998 ranged from $.4375 to $5.775. The weighted average remaining
contractual life of those options is 6.63 years.
At December 31, 1998, 432,850 options are available for grant.
9. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
----------------------------------------------------------------
Numerator:
Net income $1,829,000 $1,444,000 $1,138,000
----------------------------------------------------------------
Denominator:
Denominator for basic earnings per
share-weighted-average shares 3,220,473 3,191,825 3,065,719
Effect of dilutive securities:
Stock options 302,793 296,355 257,960
----------------------------------------------------------------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed 3,523,266 3,488,180 3,323,679
conversions
----------------------------------------------------------------
Basic earnings per share $.57 $.45 $.37
================================================================
Diluted earnings per share $.52 $.41 $.34
================================================================
</TABLE>
F-18
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Segment Information
The Company derives all of its revenues from businesses located in the United
States and classifies its business into two fundamental areas: placement
services and recruitment advertising. Placement services consist of the
placement of temporary and permanent employees. Recruitment advertising consists
of the placement of recruitment advertising on behalf of the Company, clients
and other third parties.
The Company evaluates performance based on the segments' profit or loss. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies (see Note 2). Inter-segment
sales and transfers are recorded at the Company's cost; there is no intercompany
profit or loss on inter- segment sales or transfers.
<TABLE>
<S> <C> <C> <C>
Year ended December 31, 1998
-------------------------------------------------------
Placement Recruitment
Services Advertising Total
-----------------------------------------------------------
Placement fees and related income $55,259,000 $6,423,000 $61,682,000
Inter-segment placement fees and related 71,000 761,000 832,000
income
Interest expense 5,000 - 5,000
Depreciation and amortization 195,000 12,000 207,000
Income tax expense 1,407,000 12,000 1,419,000
Segment profit 1,814,000 15,000 1,829,000
Segment assets 12,330,000 589,000 12,919,000
Expenditures for long-lived assets 299,000 17,000 316,000
Year ended December 31, 1997
-------------------------------------------------------
Placement Recruitment
Services Advertising Total
-----------------------------------------------------------
Placement fees and related income $43,684,000 $6,239,000 $49,923,000
Inter-segment placement fees and related 27,000 697,000 724,000
income
Interest expense - 36,000 36,000
Depreciation and amortization 163,000 9,000 172,000
Income tax expense 1,081,000 55,000 1,136,000
Segment profit 1,376,000 68,000 1,444,000
Segment assets 8,959,000 492,000 9,451,000
Expenditures for long-lived assets 392,000 9,000 401,000
</TABLE>
F-19
<PAGE>
Winston Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Segment Information (continued)
<TABLE>
<S> <C> <C> <C>
Year ended December 31, 1996
Placement Recruitment
Services Advertising Total
-----------------------------------------------------------
Placement fees and related income $34,230,000 $5,768,000 $39,998,000
Inter-segment placement fees and related 40,000 568,000 608,000
income
Interest expense 172,000 15,000 187,000
Depreciation and amortization 122,000 7,000 129,000
Income tax expense (benefit) 336,000 (24,000) 312,000
Segment profit (loss) 1,226,000 (88,000) 1,138,000
Segment assets 7,858,000 580,000 8,438,000
Expenditures for long-lived assets 82,000 5,000 87,000
</TABLE>
F-20
<PAGE>
Winston Resources, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
the Beginning Costs and End
of the Period Expenses Deductions of Period
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $100,000 $285,000 $185,000 (1) $200,000
Year ended December 31, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $109,000 $41,000 $50,000 (1) $100,000
Year ended December 31, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts $82,000 $125,000 $98,000 (1) $109,000
</TABLE>
Uncollectible accounts written off, net of recoveries.
F-21
<PAGE>
(a)3 Exhibits
Exhibit No. Description
* 3.1.1 Restated Certificate of Incorporation of the Company, as
filed with the Secretary of State of Delaware on April 6,
1987 [Registration Statement No. 33-14913, Exhibit 3.1]
* 3.1.2 Agreement and Plan of Merger dated as of April 15, 1987,
between Winston Resources, Inc. (New York) and the Company,
as filed with the Secretary of State of Delaware on April
20, 1987 [Registration Statement No. 33-14813, Exhibit 3.2]
* 3.1.3 Certificate of Amendment of Restated Certificate of
Incorporation of the Company, as filed with the Secretary of
State of Delaware on June 11, 1993 [Form 10-KSB (1993)]
* 3.1.4 Composite Copy of Restated Certificate of Incorporation of
the Company, as amended [Form 10-K (1987), Exhibit 3.3]
* 3.2 By-laws of the Company, as amended June 11, 1993 [Form
10-KSB (1993)]
* 9 Stockholders' Voting Agreement, dated June 8, 1987, among
Seymour Kugler, Alec Peters and Melvin Winograd
[Registration Statement No. 33-14913, Exhibit 9]
10.1 Amended and Restated Employment Agreement, dated January 1,
1997, between the Company and Seymour Kugler
* 10.2 Supplemental Excess Profit Sharing Plan, dated December 12,
1984 [Registration Statement No. 33-14913, Exhibit 10.3]
* 10.3 Incentive Program of the Company [Registration Statement on
Form S-8 No. 33- 37476, Exhibit 4]
____________________
* Incorporated by reference and not filed herewith.
-15-
<PAGE>
Exhibit No. Description
* 10.4 Winston Resources, Inc. 1996 Stock Plan [1996 Proxy
Statement, Exhibit A]
* 10.5 Agreement of Lease, dated as of August 8, 1990 (the
"Lease"), between Nineteen New York Properties Limited
Partnership, and the Company, as tenant [Form 10- K (1990),
Exhibit 10.11]
* 10.6 First Amendment of Lease dated as of March 1, 1992, between
Nineteen New York Properties Limited Partnership and the
Company [Form 10-KSB (1992), Exhibit 10.6]
* 10.7 Second Amendment of Lease dated as of January 29, 1993,
between Nineteen New York Properties Limited Partnership and
the Company [Form 10-KSB (1992), Exhibit 10.7]
* 10.8 Third Amendment of Lease dated as of February 19, 1993,
between Nineteen New York Properties Limited Partnership and
the Company [Form 10-KSB (1992), Exhibit 10.8]
10.9 Fifth Amendment of Lease dated as of March 14, 1997 between
535 Fifth Avenue LLC (the successor in interest to Nineteen
New York Properties Limited Partnership) and the Company, as
tenant
10.10 Secured Line of Credit Agreement dated November 4, 1996
between Winston Resources, Inc. and The Bank of New York
10.11 Promissory Note dated November 26, 1996 made by Winston
Resources, Inc. in favor of The Bank of New York
10.12 Security Agreement dated as of November 26, 1996 by and
among Winston Resources, Inc., WIN-PAY, Inc., Winston
Professional Staffing, Inc., Winston Cosmopolitan, Inc.,
Roth Young Personnel Services, Inc., Winston Personnel of
Boca Raton, Inc., Winston Personnel Inc. of New Jersey,
Winston Staffing Services, Inc. and The Bank of New York
10.13 Extension by The Bank of New York of term of Line of Credit
through October 31, 1999
____________________
* Incorporated by reference and not filed herewith.
-16-
<PAGE>
Exhibit No. Description
22 Subsidiaries of the Company:
Delta 10, Inc. (a New Jersey corporation)
Winston Personnel of Boca Raton, Inc. (a Florida
corporation)
Winston Personnel, Inc. of New Jersey (a New Jersey
corporation)
Winston Professional Staffing, Inc. (a New Jersey
corporation)
Winston Staffing Services, Inc. (a New York
corporation)
WIN-PAY, Inc. (a New York corporation)
23.1 Consent of Ernst & Young LLP, independent auditors
27 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been
filed during the quarter ended December 31, 1998.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 25, 1999
WINSTON RESOURCES, INC.
By: /s/ Seymour Kugler
Seymour Kugler, Chairman of
the Board and President
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:
Signature
<TABLE>
<S> <C> <C>
/s/ Seymour Kugler Chairman of the Board and March 25, 1999
Seymour Kugler President; Principal Executive
Officer; Director
/s/ Jesse Ulezalka Chief Financial Officer March 25, 1999
Jesse Ulezalka
/s/Gregg Kugler Director March 25, 1999
Gregg Kugler
/s/Todd Kugler Director March 25, 1999
Todd Kugler
/s/ Martin Fischer Director March 25, 1999
Martin Fischer
/s/ Alan E. Wolf Director March 25, 1999
Alan E. Wolf
/s/ Martin Wolfson Director March 25, 1999
Martin Wolfson
/s/ Norton Sperling Director March 25, 1999
Norton Sperling
/s/ Martin J. Simon Director March 25, 1999
Martin J. Simon
</TABLE>
-18-
<PAGE>
EXHIBIT 10.13
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED IN 784 BY ALEXANDER HAMILTON
1290 Avenue of the Americas, New York, N.Y 10104
Mr. Sy Kaye, Chairman,
Winston Resources, Inc.
535 Fifth Avenue,
New York, N.Y. 10017
10/30/98
Dear Sir,
This is to confirm that the advised Line of Credit available for Winston
Resources, Inc. is extended to October 31, 1999. All the terms and conditions
remain the same.
Sincerely,
Sanjay S Shirali
Vice President.
<PAGE>
EXHIBIT
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED IN 784 BY ALEXANDER HAMILTON
1290 Avenue of the Americas, New York, N.Y 10104
October 13, 1998
Winston Resources, Inc.
535 Fifth Avenue
New York, New York 10017
Attention: Sy Kaye
Chief Executive Officer
Gentlemen/Ladies:
The Bank of New York (the "Bank") is pleased to confirm that it has
extended the period of availability of the $6,000,000 secured line of credit
that the Bank holds available to Winston Resources, Inc.
Notwithstanding the foregoing, the aggregate outstanding principal
amount of all advances under this line of credit shall not exceed the lesser of
$6,000,000 or an amount equal to the sum of the following:
1. 80% of each account receivable of the Company (including the
Company's Winston Advertising Agency division) or any of Winston Personnel of
Boca Raton, Inc., WIN- PAY, Inc., Winston Personnel Inc. of New Jersey, Winston
Professional Staffing, Inc., Winston Staffing Services, Inc., Winston
Cosmopolitan, Inc., Winston Franchise Corp. and Roth Young Personnel Services,
Inc. (collectively, the "Subsidiaries") (i) which was generated in connection
with the placement of temporary employees or in connection with advertising,
(ii) in respect of which the Bank has a perfected first priority security
interest and (iii) in respect of which no amount is unpaid for more than 90 days
(or in the case of an account receivable, the relevant account debtor on which
is a hospital, 120 days) past the date of the related invoice; plus
2. 50% of each account receivable of the Company or any of the
Subsidiaries (i) which was generated in connection with the placement of
permanent employees, (ii) in respect of which the Bank has a perfected first
priority security interest and (iii) in respect of which no amount is unpaid for
more than 90 days past the date of the related invoice.
Advances under this line of credit shall be evidenced by, shall be
payable as provided in, and shall bear interest at the rate specified in, the
Promissory Note dated November 26, 1996 made by the Company to the order of the
Bank in the principal amount of $6,000,000.
<PAGE>
2
All obligations of the Company to the Bank with respect to this line
of credit shall be jointly and severally guaranteed by the Subsidiaries pursuant
to the Guaranty Agreement dated November 26, 1996 between the Subsidiaries and
the Bank. In addition, all obligations of the Company and the Subsidiaries to
the Bank with respect to this line of credit shall be secured pursuant to the
Security Agreement dated November 26, 1996 among the Company, the Subsidiaries
and the Bank which grants the Bank a first and prior security interest in all
accounts receivable of the Company and the Subsidiaries.
For so long as this line of credit is held available or the Company
has any obligations outstanding under this line of credit, there shall be
delivered to the Bank the following, each in form and content satisfactory to
the Bank:
a. Within 5 business days after the filing thereof, copies of all
documents, including financial statements, filed by the Company or any of the
Subsidiaries with the Securities and Exchange Commission;
b. Within 15 days after the end of each month, a borrowing base
certificate and an aging schedule of the accounts receivable of the Company and
the Subsidiaries, in each case as of the end of such month; and
c. Promptly upon the Bank's request therefor, such other information
as the Bank may reasonably request from time to time.
As you know lines of credit are cancellable at any time by either
party and, in addition, any advance under this line of credit is subject to the
Bank's satisfaction, at the time of such advance, with the condition (financial
and otherwise), business, prospects, properties, assets, ownership, management
and operations of each of the Company and each of the Subsidiaries and with the
collateral for this line of credit. Unless cancelled earlier as provided in the
first sentence of this paragraph, this line of credit shall be held available
until October 9, 1999.
Very truly yours,
THE BANK OF NEW YORK
By _________________
Sanjay S Shirali
Vice President
<PAGE>
EXHIBIT - 27
WINSTON RESOURCES, INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1998
/LEGEND
Multiplier 1
TABLE
S C
Period-Type Year
Fiscal-Year-End DEC-31-1998
Period-End DEC-31-1998
Cash 2,047,000
Securities 455,000
Receivables 9,236,000
Allowances 200,000
Inventory 0
Current-Assets 11,656,000
PP&E 1,316,000
Depreciation 667,000
Total-Assets 12,919,000
Current-Liabilities 5,360,000
Bonds 0
Preferred-Mandatory 0
Preferred 0
Common 32,000
Other-SE 7,255,000
Total-Liability-and-Equity 12,919,000
Sales 60,850,000
Total-Revenues 60,850,000
CGS 0
Total-Costs 48,191,000
Other-Expenses 9,455,000
Loss-Provision 0
Interest-Expense 0
Income-Pretax 3,248,000
Income-Tax 1,419,000
Income-Continuing 1,829,000
Discontinued 0
Extraordinary 0
Changes 0
Net-Income 1,829,000
EPS-Primary .57
EPS-Diluted .52
<PAGE>
EXHIBIT (d)(2)
Form of
LETTER OF TRANSMITTAL
to Tender
Shares of Common Stock
of
Winston Resources, Inc.
Pursuant to the Offer to Purchase
Dated September 2, 1999
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON MONDAY, OCTOBER 4,1999, UNLESS THE OFFER IS EXTENDED.
The Depositary For The Offer Is:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY.
(the "Depositary")
<TABLE>
<S> <C> <C>
By Hand/
By Mail By Facsimile Transmission Overnight Delivery
(For Eligible Institutions Only):
2 Broadway (212) 616-7610 2 Broadway
19th Floor Confirm by Telephone: 19th Floor
New York, NY 10004 (212) 509-4000, New York, NY 10004
extension 535
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates evidencing Shares (as defined below) are to be forwarded herewith
or if delivery of Shares is to be made by book-entry transfer to the
Depositary's account at The Depository Trust Company (hereinafter referred to as
the "Book-Entry Transfer Facility") pursuant to the book-entry transfer
procedure described in "The Tender Offer" -- 3. Procedures for Accepting the
Offer and Tendering Shares" of the Offer to Purchase (as defined below).
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
Stockholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates by
the book-entry transfer of the Shares into the Depositary's Account at the
Book-Entry Transfer Facility ("Book-Entry Confirmation") and all other documents
required hereby to the Depositary prior to the Expiration Date (as defined in
"The Tender Offer -- 1. Terms of the Offer; Expiration Date" of the Offer to
Purchase) and who wish to tender their Shares must do so pursuant to the
guaranteed delivery procedure described in "The Tender Offer -- 3. Procedures
for Accepting the Offer and Tendering Shares" of the Offer to Purchase. See
Instruction 2.
<PAGE>
DESCRIPTION OF SHARES TENDERED
<TABLE>
<S> <C> <C> <C>
====================================================================================================================================
Name(s) And Address(es) Of
Registered Holder(s)
(Please fill in blank exactly as
as name(s) appear(s) on Share Total Number Of Shares Evidenced
Certificates*) Share Certificate Number(s) By Share Certificate(s) Number Of Shares Tendered**
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
====================================================================================================================================
</TABLE>
_______________
* Need not be completed by stockholders delivering shares by book-entry
transfer.
** If you desire to tender fewer than all Shares evidenced by any
certificates listed above, please indicate in this column the number of
Shares you wish to tender. Otherwise, all shares evidenced by such
certificates will be deemed to have been tendered. See Instruction 4.
[ ] CHECK HERE IF ANY OF THE SHARE CERTIFICATES THAT YOU OWN AND WISH TO
SURRENDER HAVE BEEN LOST, DESTROYED OR STOLEN. (See Instruction 10.)
[ ] Check here if shares are being delivered by book-entry transfer to the
depositary's account at the book-entry transfer facility and complete
the following:
Name of Tendering Institution: _______________________________________
Account Number: ______________________________________________________
Transaction Code Number: _____________________________________________
- --------------------------------------------------------------------------------
[ ] Check if shares are being tendered pursuant to a notice of guaranteed
delivery previously sent to the depositary and complete the following:
Name (s) of Registered Holder (s): ___________________________________
Window Ticket Number (if any): _______________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________
Name of Institution which Guaranteed Delivery: _______________________
2
<PAGE>
If delivery is book-entry transfer, give the following:
Book-Entry Transfer Facility Account Number: __________________________
Transaction Code Number: _____________________________________________
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH
IN THIS LETTER OF TRANSMITTAL CAREFULLY.
3
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Winston Resources, Inc., a Delaware
Corporation (the "Company"), the above-described shares of Common Stock, $0.01
par value per share, of the Company (all such shares of Common Stock, par value
$0.01 per share, from time to time outstanding being, collectively, the
"Shares") pursuant to the Company's offer to purchase all Shares, at $4.625 per
Share, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated September 2, 1999 (the "Offer to
Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which, together with the Offer to Purchase, constitute the
"Offer").
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith, in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to all the Shares that are being tendered
hereby and all dividends, distributions (including, without limitation,
distributions of additional Shares) and rights declared, paid or distributed in
respect of such Shares on or after June 16, 1999 (collectively, "Distributions")
and irrevocably appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Share Certificates evidencing such Shares and all Distributions, or transfer
ownership of such Shares and all Distributions on the account books maintained
by the Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (ii) present such Shares and all Distributions for transfer on the
books of the Company, and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions, that when such Shares are accepted for
payment by the Company, the Company will acquire good, marketable and
unencumbered title thereto and to all Distributions, free and clear of all
liens, restrictions, charges and encumbrances, and that none of such Shares and
Distributions will be subject to any adverse claim. The undersigned, upon
request, shall execute and deliver all additional documents deemed by the
Depositary or the Company to be necessary or desirable to complete the sale,
assignment and transfer of the Shares tendered hereby and all Distributions. In
addition, the undersigned shall remit and transfer promptly to the Depositary
for the account of the Company all Distributions in respect of the Shares
tendered hereby, accompanied by appropriate documentation of transfer, and
pending such remittance and transfer or appropriate assurance thereof, the
Company shall be entitled to all rights and privileges as owner of each such
Distribution and may withhold the entire purchase price of the Shares tendered
hereby, or deduct from such purchase price the amount or value of such
Distribution as determined by the Company in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, personal representatives, successors and assigns of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase under "The Tender Offer -- 3.
Procedures for Accepting the Offer and Tendering Shares" and in the instructions
hereto will constitute the undersigned's acceptance of the terms and conditions
of the Offer. The Company's acceptance of such Shares for payment will
4
<PAGE>
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares purchased
and return all Share Certificates evidencing Shares not purchased or not
tendered in the name(s) of, and mail such check and Share Certificates to, the
person(s) so indicated. Unless otherwise indicated herein in the box entitled
"Special Payment Instructions, please credit any Shares tendered hereby and
delivered by book entry transfer, but which are not purchased, by crediting the
account at the Book Entry Transfer Facility designated above." The undersigned
recognizes that the Company has no obligation, pursuant to the Special Payment
Instructions, to transfer any Shares from the name of the registered holder(s)
thereof if the Company does not purchase any of the Shares tendered hereby.
5
<PAGE>
<TABLE>
<S> <C>
SECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 And 7) (See Instructions 1, 5, 6 And 7)
To be completed ONLY if the check for the purchase price of Shares and/or To be completed ONLY if the check for the
Share Certificates evidencing Shares not tendered or not accepted for purchase purchase price of Shares and/or Share
are to be issued in the name of someone other than the name(s) of the registered Certificates evidencing Shares not tendered or
holder(s) appearing above under "Description of Certificates Tendered" or if not accepted for purchase are to be mailed to
Shares tendered hereby and delivered by book-entry transfer which are not someone other than the undersigned or to
purchased are to be returned by credit to an account at the Book-Entry Transfer the address of the registered Shareholder(s)
Facility other than that designated above. appearing above under "Description of Share
Certificates Tendered."
Issue check and/or Share Certificate and mail to: Mail or deliver check and/or Share Certificate to:
Name _______________________________ Name ________________
(Please Print) (Please Print)
Address ___________________________ Address ______________________________
(Zip Code) (Zip Code)
(Taxpayer Identification No. (Taxpayer Identification No.
or Social Security No.) or Social Security No.)
(See Substitute Form W-9 below) (See Substitute Form W-9 below)
</TABLE>
Credit Shares delivered by book-entry transfer and not purchased to the account
set forth below:
STOCKHOLDERS SIGN HERE
(Please complete Substitute Form W-9 below)
________________________________________________________________________________
Signature(s) of Stockholder(s)
Dated:________________________________
6
<PAGE>
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 5.)
Name(s) _____________________________________________________________
(Please Print)
Capacity (full title) ______________________________________________
Address ___________________________________________________________
(Include Zip Code)
Area Code and Telephone No _________________________________________
Tax Identification or Social Security No ____________________________
(See Substitute Form W-9 below)
Guarantee of Signature(s) (If required - See Instructions 1 and 5)
FOR USE BY FINANCIAL INSTITUTIONS ONLY
FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE OVER THE BELOW
INFORMATION
Name of Firm ______________________________________________________
Authorized Signature ________________________________________________
Name _____________________________________________________________
Address _____________________________________________________________
Area Code and Telephone Number ______________________________________
Dated:_________________________
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a firm that is a member of the Medallion Signature
Guarantee Program, or by any other "eligible guarantor institution," as such
term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (each of the foregoing being referred to as an "Eligible Institution"),
unless (i) this Letter of Transmittal is signed by the registered holder(s) of
the Shares (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of Shares) tendered hereby and such holder(s) has
(have) completed neither the box entitled "Special Payment Instructions" nor the
box entitled "Special Delivery Instructions" herein or (ii) such Shares are
tendered for the account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter of
Transmittal is to be used either if Share Certificates are to be forwarded
herewith or if Shares are to be delivered by book-entry transfer pursuant to the
procedure set forth under "The Tender Offer -- 3. Procedures for Accepting the
Offer and Tendering Shares" in the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or a confirmation of a book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility of all
Shares delivered by book-entry transfer as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth herein prior to the Expiration Date (as defined
under "The Tender Offer -- 1. Terms of the Offer; Expiration Date" in the Offer
to Purchase). If Share Certificates are forwarded to the Depositary in multiple
deliveries, a properly completed and duly executed Letter of Transmittal must
accompany each such delivery.
Stockholders whose Share Certificates are not immediately available, who
cannot deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot complete the procedure for
delivery by book-entry transfer on a timely basis may tender their Shares
pursuant to the guaranteed delivery procedure described under "The Tender Offer
- -- 3. Procedures for Accepting the Offer and Tendering Shares" in the Offer to
Purchase. Pursuant to such procedure: (i) such tender must be made by or through
an Eligible Institution; (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Depositary prior to the Expiration Date; and (iii) the
Share Certificates evidencing all physically delivered Shares in proper form for
transfer by delivery, or a confirmation of a book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility of all Shares delivered
by book-entry transfer, in each case together with a Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, a Book-Entry
Confirmation (as defined in "The Tender Offer -- 2. Acceptance for Payment and
Payments for Shares" of the Offer to Purchase), and any other documents required
by this Letter of Transmittal, must be received by the Depositary within three
American Stock Exchange ("AMEX") trading days after the date of execution of
such Notice of Guaranteed Delivery, all as described under "The Tender Offer --
3. Procedures for Accepting the Offer and Tendering Shares" in the Offer to
Purchase.
The method of delivery of this Letter of Transmittal, Share Certificates
and all other required documents is at the option and risk of the tendering
stockholders, including delivery through the Book-Entry Transfer Facility, and
the delivery will be deemed made only when actually received by the Depositary.
8
<PAGE>
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a facsimile hereof), all tendering stockholders waive any right to receive
any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto.
4. PARTIAL TENDERS (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares evidenced by any Share Certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares which are to be tendered in the box entitled "Number of Shares
Tendered." In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificates delivered to the
Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" above, as soon as practicable after the expiration or termination
of the Offer. All Shares evidenced by Share Certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any Shares tendered hereby is owned of record by two or more persons,
all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case, the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
9
<PAGE>
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, the Company will pay all stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or Share
Certificate(s) evidencing Shares not tendered or not purchased are to be issued
in the name of, a person other than the registered holder(s), the amount of any
stock transfer taxes (whether imposed on the registered holder(s), such other
person or otherwise) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased, unless
evidence satisfactory to the Company of the payment of such taxes, or exemption
therefrom, is submitted. Except as provided in this Instruction 6, it will not
be necessary for transfer tax stamps to be affixed to the Share Certificates
evidencing the Shares tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered herewith is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered" above, the appropriate boxes above in
this Letter of Transmittal must be completed. Stockholders delivering Shares
tendered herewith by book-entry transfer may request that Shares not purchased
be credited to such account maintaining at the Book-Entry Transfer Facility as
such stockholders may designate in the box entitled "Special Payment
Instructions" above. If no such instructions are given, all such Shares not
purchased will be returned by crediting the account at the Book-Entry Transfer
Facility as the account from which such Shares were delivered.
8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Information Agent at its
address or telephone number set forth below. Additional copies of the Offer to
Notice Purchase and the Notice of Guaranteed Delivery may be obtained from the
Information Agent or from brokers, dealers, commercial banks or trust companies.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing
Shares has been lost, destroyed or stolen, the shareholder should promptly
notify either the Depositary or the Transfer Agent. The stockholder will then be
instructed as to the steps that must be taken in order to replace the
certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
10
<PAGE>
10. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and that
such stockholder is not subject to backup withholding of federal income tax. If
a tendering stockholder has been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding, such stockholder must cross
out item (2) of the Certification box of the Substitute Form W-9, unless such
stockholder has since been notified by the Internal Revenue Service that such
stockholder is no longer subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering stockholder to
31% federal income tax withholding on the payment of the purchase price of all
Shares purchased from such stockholder. If the tendering stockholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such stockholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is
not provided with a TIN within 60 days, the Depositary will withhold 31% on all
payments of the purchase price to such shareholder until a TIN is provided to
the Depositary.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND
SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS
DEFINED IN THE "THE TENDER OFFER -- 1. TERMS OF THE OFFER; EXPIRATION DATE" OF
THE OFFER TO PURCHASE).
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is such stockholder's social security
number. If the Depositary is not provided with the correct TIN, the stockholder
may be subject to a $50 penalty imposed by the Internal Revenue Service and
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%. In addition,
if a stockholder makes a false statement that results in no imposition of backup
withholding, and there was no reasonable basis for such a statement, a $500
penalty may also be imposed by the Internal Revenue Service.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, such individual must submit a statement, signed under penalties of
perjury, attesting to such individual's exempt status. Forms of such statements
can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions. A stockholder should consult his or her tax advisor as
to such stockholder's qualification for an exemption from backup withholding and
the procedure for obtaining such exemption.
11
<PAGE>
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form below certifying that (a) the TIN provided on Substitute
Form W-9 is correct (or that such stockholder is awaiting a TIN) and (b) that
(i) such stockholder has not been notified by the Internal Revenue Service that
such stockholder is subject to backup withholding as a result of a failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified such stockholder that such stockholder is no longer subject to backup
withholding.
What Number to Give the Depositary
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares
tendered hereby. If the Shares are in more than one name or are not in the name
of the actual owner, consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional guidance on
which number to report.
12
<PAGE>
PAYER' NAME: Continental Transfer & Trust Company
<TABLE>
<S> <C> <C>
=============================================================================================================================
SUBSTITUTE FORM W-9 PART I - Taxpayer Identification Number-For all accounts, _____________________
enter your taxpayer identification number in the box Social Security Number
at right. (For most individuals, this is your social
security number. If you do not have a number, see OR ___________________
Obtaining a Number in the enclosed Guidelines.) Certify Taxpayer Identification Number
by signing and dating below. Note: If the account is in
more than one name, see the chart in the enclosed (If awaiting TIN write "Applied For")
Guidelines to determine which number to give the Payer.
Payer's Request for Part II-For Payees Exempt From Backup Withholding,
Taxpayer see the enclosed Guidelines and complete as instructed therein.
Identification
Number (TIN)
</TABLE>
Certification - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the "IRS") that I am subject
to backup withholding as a result of failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
Certification Instructions-You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
================================================================================
PART III--
SIGNATURE ___________________________ DATE __________________, 1999
Awaiting TIN [_]
================================================================================
13
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART III OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number, 31% of all reportable
payments made to me will be withheld, but that such amounts will be refunded to
me if I then provide a taxpayer identification number within 60 days.
Signature _____________________________ Date______________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any required documents should
be sent or delivered by each stockholder or his broker, dealer, commercial bank,
trust company or other nominee to the Depositary at its address set forth below.
Additional copies of this Offer to Purchase, the Letter of Transmittal and the
Notice of Guaranteed Delivery may be obtained from the Information Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED
(TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND SHARE CERTIFICATES OR
CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A
PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE "THE
TENDER OFFER -- 1. TERMS OF THE OFFER; EXPIRATION DATE" OF THE OFFER TO
PURCHASE).
MANUALLY SIGNED FACSIMILE COPIES OF THE LETTER OF TRANSMITTAL, PROPERLY
COMPLETED AND DULY EXECUTED, WILL BE ACCEPTED. THE LETTER OF TRANSMITTAL,
CERTIFICATES FOR SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT OR
DELIVERED BY EACH STOCKHOLDER OF THE COMPANY OR HIS BROKER, DEALER, COMMERCIAL
BANK, TRUST COMPANY OR OTHER NOMINEE TO THE DEPOSITARY AT ONE OF ITS ADDRESSES
SET FORTH ON THE FIRST PAGE.
14
<PAGE>
The Depositary for the Offer is:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Facsimile Transmission
By Mail (For Eligible Institutions Only) By Hand/Overnight Delivery
2 Broadway (212) 616-7610 2 Broadway
19th Floor Confirm by Telephone: 19th Floor
New York, NY 10004 (212) 509-4000, New York, NY 10004
extension 535
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent at its address and/or telephone number listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be obtained from the Information Agent. A stockholder may also
contact brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
The Information Agent for the Offer is:
MORROW & CO., INC.
445 Park Avenue, 5TH Floor
New York, New York 10022
Banks and Brokerage Firms Call: (800) 662-5200
(212) 754-8000
Stockholders Please Call: (800) 566-9061
14
<PAGE>
EXHIBIT (d)(3)
Form of
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
of
WINSTON RESOURCES, INC.
This Notice of Guaranteed Delivery or a form substantially equivalent
hereto must be used to accept the Offer as defined below by Winston Resources,
Inc., a Delaware corporation (the "Company"), to purchase for cash all of its
outstanding shares of Common Stock, $0.01 per value per share (the "Shares"),
(i) if certificates ("Share Certificates") evidencing the Shares are not
immediately available, (ii) if Share Certificates and all other required
documents cannot be delivered to Continental Stock Transfer and Trust Company,
as Depositary (the "Depositary"), prior to the Expiration Date (as defined in
"The Tender Offer - 1. Terms of the Offer; Expiration Date" of the Offer to
Purchase (as defined below)) or (iii) if the procedure for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand or mail or transmitted by facsimile
transmission to the Depositary. See "The Tender Offer -- 3. Procedures for
Accepting the Offer and Tendering Shares" in the Offer to Purchase.
THE TENDER OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, OCTOBER 4, 1999,
UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE")
The Depositary for the Offer is:
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
(the "Depositary")
<TABLE>
<S> <C> <C>
Facsimile Transmission (For By Hand/
By Mail Eligible Institutions Only): Overnight Delivery
2 Broadway (212) 616-7610 2 Broadway
19th Floor Confirm by Telephone: 19th Floor
New York, NY 10004 (212) 509-4000, New York, NY 10004
extension 535
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH ABOVE, WILL NOT
CONSTITUTE A VALID DELIVERY.
<PAGE>
The Offer is not being made to (nor will the surrender of Share
Certificates be accepted from or on behalf of) shareholders in any jurisdiction
in which the making or acceptance of the Offer would not be in compliance with
the laws of such jurisdiction.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Winston Resources, Inc., a Delaware
Corporation, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated September 1, 1999 (the "Offer to Purchase"), and the related
Letter of Transmittal (which together constitute the "Offer"), receipt of each
of which is hereby acknowledged, the number of Shares specified below pursuant
to the guaranteed delivery procedure described under "The Tender Offer - -- 3.
Procedures for Accepting the Offer and Tendering Shares" in the Offer to
Purchase.
PLEASE SIGN AND COMPLETE
Number of Shares: _____________
Certificate Nos. (if available):
_____________
[_] Check box if Shares will be delivered by book-entry transfer
Account No.
_____________
at: _____________
Signature(s) of Holder(s):
_____________
Dated:____________________________________, 1999
Name(s) of Holders
_____________
_____________
(Please Type or Print)
Address:
_____________
_____________
_____________
(Zip Code)
3
<PAGE>
Area Code and Telephone No.
_____________
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Share Certificates exactly as their name(s) appear(s) on the Share
Certificates or on a security position listing as the owner(s) of the Share
Certificates, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, guardian, attorney-in-fact, officer of a
corporation, executor, administrator, agent or other representative, such person
must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Names(s):
_____________
Capacity(ies):
_____________
Address(es):
_____________
4
<PAGE>
THE GUARANTEE SET FORTH BELOW MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of the Medallion Signature
Guarantee Program, or another "eligible guarantor institution", as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that, within three American Stock Exchange trading days from the date
of this Notice of Guaranteed Delivery, either Share Certificates evidencing the
Shares tendered hereby, in proper form for transfer, or confirmation of
book-entry transfer of such Shares into the Depositary's account at a Book-Entry
Transfer Facility, in each case with delivery of a Letter of Transmittal (or a
facsimile thereof) properly completed and duly executed with any required
signature guarantees or a Book-Entry Confirmation as defined in "The Tender
Offer -- 2. Acceptance for Payment and Payment for Shares" of the Offer to
Purchase) in the case of a book-entry delivery, and any other required
documents, will be deposited by the undersigned with the Depositary at one of
its addresses set forth above.
Name of Firm: _______________________
Address (Inc. Zip Code): _________________
Area Code and Telephone No.: _____________________
AUTHORIZED SIGNATURE: ____________________
Dated: ______________________
DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE OF GUARANTEED DELIVERY,
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRABSMITTAL.
5
<PAGE>
EXHIBIT (d)(4)
Form of Letter from Morrow & Co., Inc. to Brokers,
Dealers, Commercial Banks,
Trust Companies and Nominees
Offer by
WINSTON RESOURCES, INC.
to Purchase for Cash
all Outstanding Shares of its Common Stock
at
$4.625 Net Per Share
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON MONDAY, OCTOBER 4, 1999
UNLESS THE OFFER IS EXTENDED.
September 2, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Winston Resources, Inc., a Delaware Corporation
(the "Company"), to act as Information Agent in connection with the Company's
offer to purchase for cash all outstanding shares of its common stock, $0.01 per
value per share (the "Shares"), of the Company at a price of $4.625 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Company's Offer to Purchase, dated September 2, 1999 (the "Offer to
Purchase"), and the related Letter of Transmittal (which, together with the
Offer to Purchase, constitute the "Offer"), enclosed herewith. Please furnish
copies of the enclosed materials to those of your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE NOT LESS THAN 66-2/3% OF
THE THEN OUTSTANDING SHARES, ON A FULLY DILUTED BASIS, OTHER THAN SHARES
BENEFICIALLY OWNED BY SEYMOUR KUGLER, CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THE COMPANY, CERTAIN MEMBERS OF HIS
FAMILY OWNING SHARES AND A TRUST OF WHICH KUGLER FAMILY MEMBERS ARE THE
BENEFICIARIES, OR 1,142,403 SHARES, AND (ii) THE COMPANY OBTAINING THE DEBT
FINANCING AS DESCRIBED IN THE OFFER TO PURCHASE. SEE "INTRODUCTION" AND "THE
TENDER OFFER - 11. CERTAIN CONDITIONS OF THE OFFER" OF THE OFFER TO PURCHASE.
<PAGE>
Enclosed for your information and use are copies of the following
documents:
1. Offer to Purchase, dated September 2, 1999;
2. Letter of Transmittal to be used by holders of Shares in accepting the
Offer and tendering Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents are not immediately available
or cannot be delivered to Continental Stock Transfer and Trust Company
(the "Depositary") by the Expiration Date or if the procedure for
book-entry transfer cannot be completed by the Expiration Date; or if
the procedure for book entry transfer cannot be completed by the
Expiration Date;
4. A letter to stockholders of the Company from the Chief Executive
Officer of the Company;
5. A letter that may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to
the Offer;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MONDAY, OCTOBER 4, 1999, UNLESS THE OFFER IS EXTENDED.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of certificates
evidencing such Shares (or a confirmation of a book-entry transfer of such
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities (as defined in the Offer to Purchase)), a Letter of Transmittal (or
facsimile thereof) properly completed and duly executed and any other required
documents.
If holders of Shares wish to tender, but cannot deliver their certificates
or other required documents, or cannot comply with the procedure for book-entry
transfer, prior to the expiration of the Offer, a tender of Shares may be
effected by following the guaranteed delivery procedure described under "The
Tender Offer -- 3. Procedures for Accepting the Offer and Tendering Shares" in
the Offer to Purchase.
The Company will not pay any fees or commissions to any broker, dealer or
other person (other than the Depositary and the Information Agent as described
in the Offer) in connection with the solicitation of tenders of Shares pursuant
to the Offer. However, the Company will reimburse you for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials to
your clients. The Company will pay or cause to be paid any stock transfer taxes
payable with respect to the transfer of Shares to it, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
2
<PAGE>
Any inquiries you may have with respect to the Offer should be addressed to
Morrow & Co., Inc., the Information Agent, at its address and telephone number
set forth on the back cover page of the Offer to Purchase.
Additional copies of the enclosed material may be obtained from the
Information Agent, at the address and telephone number set forth on the back
cover page of the Offer to Purchase.
Very truly yours,
MORROW & CO., INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU, OR
ANY OTHER PERSON, THE AGENT OF THE COMPANY, THE INFORMATION AGENT OR THE
DEPOSITARY, OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN
CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENT AND THE STATEMENTS
CONTAINED THEREIN.
3
<PAGE>
EXHIBIT (d)(5)
Form of Letter from Brokers, Dealers, Commercial Banks, Trust
Companies and Nominees to Clients
Offer by
WINSTON RESOURCES, INC.
to Purchase for Cash
all Outstanding Shares of its Common Stock
at
$4.625 Net Per Share
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME,
ON MONDAY, OCTOBER 4, 1999, UNLESS THE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated September
2, 1999 (the "Offer to Purchase"), and a related Letter of Transmittal in
connection with the offer by Winston Resources, Inc. a Delaware Corporation (the
"Company"), to purchase for cash all outstanding shares of its Common Stock,
$0.01 par value per share (the "Shares"), of the Company at a price of $4.625
per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal (which, together with the Offer to Purchase, constitute the
"Offer").
We are (or our nominee is) the holder of record of Shares held by us for
your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US OR OUR NOMINEE AS
THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF
TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY
YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the Shares held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The tender price is $4.625 per Share, net to the seller in cash.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company (the "Board") and the Independent
Committee (as defined in the Offer to Purchase under "Special Factors - 1.
Purpose and Background of the Offer; Certain Effects of the Offer; Plans of the
Company After the Offer") have determined that the Offer is fair to, and in the
best interests of, the stockholders of the Company, and recommends that
stockholders accept the Offer and tender their Shares pursuant to the Offer.
<PAGE>
4. The Offer and withdrawal rights will expire at 5:00 P.M., New York City
time, on Monday, October 4, 1999, unless the Offer is extended.
5. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by the
Company pursuant to the Offer. However, federal income tax backup withholding at
a rate of 31% may be required, unless an exemption is provided or unless the
required tax payer identification information is provided. See Instruction 10 of
the Letter of Transmittal.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form contained
in this letter. An envelope in which to return your instructions to us in
enclosed. If you authorize the tender of your Shares, all such Shares will be
tendered unless otherwise specified in your instructions. Your instructions
should be forwarded to us in ample time to permit us to submit a tender on your
behalf prior to the expiration of the Offer.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. The Company is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If the Company becomes
aware of any valid state statute prohibiting the making of the Offer or the
acceptance of Shares pursuant thereto, the Company will make a good faith effort
to comply. If after such good faith effort, the Company cannot comply with such
state statute, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of Shares in such state. In any jurisdiction where
the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of the
Company by one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING
SHARES OF COMMON STOCK OF WINSTON RESOURCES, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated September 2, 1999, and the related Letter of
Transmittal (which together with the Offer to Purchase, constitute the "Offer")
in connection with the offer by Winston Resources Inc., a Delaware corporation
(the "Company"), to purchase all outstanding shares of Common Stock, $0.01 par
value per share (the "Shares"), of the Company at a price of $4.625 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer.
This will instruct you to tender the number of Shares indicated below (or
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
SIGN HERE
Number of Shares to be Tendered: ____________________
_______________ shares*
_____________________
Signature(s)
2
<PAGE>
Dated: _____________, 1999
Please Type or Print Name(s)
__________________________
__________________________
Please Type or Print Address(es)
__________________________
__________________________
Area Code and Telephone Number
__________________________
__________________________
Taxpayer Identification or
Social Security Number
____________________
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE>
EXHIBIT (d)(6)
Form of
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for determining the proper identification to give the Payer. --
Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the Payer.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND SOCIAL SECURITY NUMBER OF --
- -------------------------------------------------------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, any one of
the individuals (1)
3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either
person (1)
4. Custodian account of a minor The minor (2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the minor (1)
6. Account in the name of guardian or committee for a The ward, minor, or incompetent person (3)
designated ward, minor, or incompetent person
7. a) The usual revocable savings trust account The grantor-trustee (1)
(grantor is also trustee)
b) So-called trust account that is not a legal The actual owner (1)
or valid trust under state law
8. Sole proprietorship account The owner (4)
- ---------------------------------------------------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER IDENTIFICATION NUMBER OF --
- ---------------------------------------------------------------------------------------------------------------------------
9. A valid trust, estate or pension trust The legal entity (do not furnish the identification number of
the personal representative or trustee unless the legal entity
itself is not designated in the account title (5)).
10. Corporate account The corporation
<PAGE>
11. Religious, charitable, or educational organization The organization
12. Partnership account held in the name of the business The partnership
13. Association, club, or other tax-exempt The organization
Organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a state or
local government, school district, or prison) that
receives agricultural program payments
</TABLE>
_______________
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security
number.
(3) Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
2
<PAGE>
OBTAINING A NUMBER. -- If you don't have a taxpayer identification number
or you don't know your number, obtain Form SS-5, Application for a Social
Security Number Card, or Form SS-4, Application for Employer Identification
Number, at the local office of the Social Security Administration or the
Internal Revenue Service (the "IRS") and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING. -- Payees specifically exempted from
backup withholding on ALL payments include the following (Section references are
to the Internal Revenue Code of 1986, as amended (the "Code")):
- A corporation.
- A financial institution.
- An organization exempt from tax under Section 501(a) of the Code or an
individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality
thereof.
- A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
- A futures commission merchant registered with the Commodity Futures
Trading Commission.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a) of the
Code.
- An exempt charitable remainder trust, or a non-exempt trust described
in Section 4947(a)(1) of the Code.
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
3
<PAGE>
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under Section
1441 of the Code.
- Payments to partnerships not engaged in a trade or business in the
United States and which have at least one non-resident partner.
- Payments of patronage dividends where the amount received is not paid
in money.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
- Payments of tax-exempt interest (including the exempt-interest
dividends under section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to non-resident
aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
Exempt payees described above should file the Substitute Form W-9 enclosed
herewith to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE
PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE
OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, 6042, 6044, 6045, 6049, 6050A and 6050N of the Code.
Privacy Act Notice. -- Section 6109 of the Code requires most recipients of
dividend, interest, or other payments to give taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
4
<PAGE>
Penalties:
1. Penalty For Failure to Furnish Taxpayer Identification Number.-- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
2. Failure to Report Certain Dividend and Interest Payments. -- If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
3. CIvil Penalty For False Information With Respect To Withholding. -- If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
4. Criminal Penalty For Falsifying Information. -- Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT
OR THE INTERNAL REVENUE SERVICE
5
