<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21533
TEAM AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 31-1209872
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST WILSON BRIDGE ROAD 43085
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (614) 848-3995
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
THE NUMBER OF SHARES OF REGISTRANT'S ONLY CLASS OF COMMON STOCK OUTSTANDING ON
JULY 31, 1998 WAS 4,746,622
<PAGE> 2
TEAM AMERICA CORPORATION AND SUBSIDIARIES
JUNE 30, 1998
INDEX
PART I. FINANCIAL INFORMATION
PAGE
NO.
----
Item 1. Financial Statements:
Consolidated Statements of Income -- Three-month periods
ended June 30, 1998 and 1997 (unaudited) - 3 -
Consolidated Statements of Income -- Six-month periods
ended June 30, 1998 and 1997 (unaudited) - 4 -
Consolidated Balance Sheets -- June 30, 1998 (unaudited)
and December 31, 1997 - 5 -
Consolidated Statements of Cash Flows -- Six-month periods
ended June 30, 1998 and 1997 (unaudited) - 7 -
Consolidated Statement of Changes in Shareholders' Equity-
Six-month period ended June 30, 1998 (unaudited) - 8 -
Notes to Consolidated Financial Statements - 9 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - 10 -
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders - 18 -
Item 6. Exhibits and Reports on Form 8-K - 18 -
Signature - 19 -
Exhibit Index - 20 -
Exhibits - 21 -
- -------------
Note: Items 1 through 3 of Part II are omitted because they
are not applicable.
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
<CAPTION>
1998 1997
(unaudited)
<S> <C> <C>
REVENUES $84,107,464 $31,812,348
DIRECT COSTS:
Salaries and wages 72,218,013 27,243,193
Payroll taxes, workers' compensation premiums,
employee benefits and other 7,558,597 2,756,449
----------- -----------
Total direct costs 79,776,610 29,999,642
----------- -----------
Gross profit 4,330,854 1,812,706
EXPENSES:
Administrative salaries, wages and employment taxes 2,090,331 836,795
Other selling, general and administrative expenses 1,309,330 503,477
Depreciation and amortization 369,101 51,024
----------- -----------
Total operating expenses 3,768,762 1,391,296
----------- -----------
Income from operations 562,092 421,410
OTHER INCOME 35,390 140,622
----------- -----------
Income before income taxes 597,482 562,032
INCOME TAX EXPENSE 352,000 230,192
----------- -----------
Net income $ 245,482 $ 331,840
=========== ===========
EARNINGS PER SHARE:
Basic $ 0.05 $ 0.10
=========== ===========
Diluted $ 0.05 $ 0.10
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 4,746,622 3,375,703
=========== ===========
Diluted 4,960,774 3,375,703
=========== ===========
</TABLE>
3
<PAGE> 4
<TABLE>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
<CAPTION>
1998 1997
(unaudited)
<S> <C> <C>
REVENUES $154,141,895 $57,354,716
DIRECT COSTS:
Salaries and wages 131,346,478 48,840,893
Payroll taxes, workers' compensation premiums,
employee benefits and other 15,054,593 5,301,928
------------ -----------
Total direct costs 146,401,071 54,142,821
------------ -----------
Gross profit 7,740,824 3,211,895
EXPENSES:
Administrative salaries, wages and employment taxes 3,853,114 1,560,115
Other selling, general and administrative expenses 2,517,043 908,661
Depreciation and amortization 708,516 86,702
------------ -----------
Total operating expenses 7,078,673 2,555,478
------------ -----------
Income from operations 662,151 656,417
OTHER INCOME 78,749 291,684
------------ -----------
Income before income taxes 740,900 948,101
INCOME TAX EXPENSE 494,000 384,742
------------ -----------
Net income $ 246,900 $ 563,359
============ ===========
EARNINGS PER SHARE:
Basic $ 0.05 $ 0.17
============ ===========
Diluted $ 0.05 $ 0.17
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 4,721,928 3,355,396
============ ===========
Diluted 4,960,216 3,355,396
============ ===========
</TABLE>
4
<PAGE> 5
<TABLE>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 2,947,441 $ 1,465,141
Temporary cash investments 1,631,986 4,484,367
Short-term investments 515,000 515,000
Receivables:
Trade, net 1,501,184 1,509,583
Other 239,871 165,519
Unbilled revenues 9,547,755 7,070,588
Refundable income taxes -- 253,396
----------- -----------
Total receivables 11,288,810 8,999,086
Prepaid expenses 416,865 216,685
Deferred income tax asset 107,000 107,000
----------- -----------
Total current assets 16,907,102 15,787,279
PROPERTY AND EQUIPMENT, NET 1,452,571 991,477
OTHER ASSETS:
Goodwill and non-compete agreements, net 25,621,316 23,216,338
Cash surrender value of life insurance policies 533,093 398,005
Mandated benefit/security deposits 251,955 329,251
Deferred income tax asset 159,000 159,000
Other assets 106,579 128,585
----------- -----------
Total other assets 26,671,943 24,231,179
----------- -----------
Total assets $45,031,616 $41,009,935
=========== ===========
</TABLE>
5
<PAGE> 6
<TABLE>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 362,658 $ 336,694
Accrued compensation 8,027,592 6,575,641
Accrued payroll taxes 3,141,095 2,484,735
Accrued workers' compensation premiums 1,803,629 1,255,013
Federal and state income taxes payable 217,069 160,000
Other accrued expenses 246,143 791,690
Client deposits 603,375 544,330
Notes payable and capital lease obligation, current portion 87,000 10,128
----------- -----------
Total current liabilities 14,488 561 12,158,231
CAPITAL LEASE OBLIGATION, net of current portion 15,425 18,941
DEFERRED RENT 77,833 98,832
DEFERRED COMPENSATION LIABILITY 500,873 394,687
----------- -----------
Total liabilities 15,082,692 12,670,691
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock:
Class A, no par value; 500,000 shares authorized; -- --
none issued; (aggregate liquidation preference $0)
Class B, no par value; 500,000 shares authorized;
none issued -- --
Common Stock, no par value:
Common Stock, 10,000,000 shares authorized
4,863,433 and 4,730,716 shares issued; 4,746,622 and
4,613,905 shares outstanding, respectively 28,249,006 26,886,226
Excess purchase price (83,935) (83,935)
Retained earnings 1,805,866 1,558,966
----------- -----------
29,970,937 28,361,257
Less - Treasury stock, 116,811 and 116,811 shares
respectively, at cost (22,013) (22,013)
Total shareholders' equity 29,948,924 28,339,244
----------- -----------
Total liabilities and shareholders' equity $45,031,616 $41,009,935
=========== ===========
</TABLE>
6
<PAGE> 7
<TABLE>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
<CAPTION>
1998 1997
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 246,900 $ 563,359
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation and amortization 708,516 86,702
Deferred tax expense (benefit) -- --
(Increase) decrease in operating assets:
Receivables (2,155,661) (1,667,914)
Prepaid expenses (196,950) (76,821)
Mandated benefit/security deposits 113,454 (11,000)
Other 50,469 --
Increase (decrease) in operating liabilities:
Accounts payable 24,309 (62,603)
Accrued expenses and other payables 1,938,161 1,063,625
Client deposits (30,571) 8,119
Deferred liabilities 85,187 58,202
----------- -----------
Net cash provided by (used in) operating activities 783,814 (38,331)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (529,869) (189,381)
Increases in cash surrender value of life insurance policies (135,088) (73,178)
Decrease in short-term investments -- 1,715,028
Acquisitions (1,425,168) (289,485)
----------- -----------
Net cash provided by (used in) investing activities (2,090,125) 1,162,984
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (63,770) (5,073)
Offering costs incurred -- (20,580)
----------- -----------
Net cash used in financing activities (63,770) (25,653)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,370,081) 1,099,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,949,508 8,100,520
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,579,427 $ 9,199,520
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid during the period for: Interest $ 12,386 $ 713
=========== ===========
Income Taxes $ 50,000 $ 718,000
=========== ===========
</TABLE>
7
<PAGE> 8
<TABLE>
TEAM AMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<CAPTION>
Common Stock Treasury Stock Excess
------------ -------------- Purchase Retained
Number Value Number Value Price Earnings Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1997 4,730,716 $26,886,226 116,811 $(22,013) $(83,935) $1,558,966 $28,339,244
Acquisitions 132,717 1,362,780 1,362,780
Net Income 246,900 246,900
-------------------------------------------------------------------------------------------
Balance
June 30, 1998 4,863,433 $28,249,006 116,811 $(22,013) $(83,935) $1,805,866 $29,948,924
===========================================================================================
</TABLE>
8
<PAGE> 9
TEAM AMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- Unaudited Interim Consolidated Financial Statements
The accompanying interim consolidated financial statements as of June
30, 1998 and for the three-month and six month periods then ended are unaudited.
However, in the opinion of management these interim statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position, results of operations and cash
flows of TEAM America Corporation.
NOTE 2 -- Accounting Policies
The financial statements should be read in conjunction with the audited
financial statements contained in TEAM America Corporation's Form 10-K Annual
Report for the year ended December 31, 1997. Since December 31, 1997, the
Company acquired PEO businesses in transactions accounted for as purchases.
Intangible assets recorded as a result of the purchases was goodwill. Goodwill
was recorded as the amount by which the consideration paid, including the value
of stock issued and liabilities assumed, exceeded the fair market value of
assets acquired. Goodwill is being amortized over a twenty-five year period.
NOTE 3 -- Earnings Per Share
Earnings per share were determined in accordance with SFAS No. 128.
There were no differences to reconcile to determine net income for basic and
diluted earnings per share purposes. The effects of dilutive stock options
increased the weighted average shares outstanding from 4,746,000 to 4,961,000 in
the second quarter of 1998 and from 4,722,000 to 4,960,000 in the first six
months of 1998. Dilutive stock options had no effect on the shares outstanding
for diluted earnings per share purposes in the 1997 periods presented.
9
<PAGE> 10
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth results of operations for the
three-month and six-month periods ended June 30, 1998 and 1997 expressed as a
percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Direct Costs:
Salaries and wages 85.6 85.9 85.2 85.2
Payroll taxes,workers' 8.7 9.0 9.2 9.8
compensation premiums,
employee benefits and other
costs
Gross Profit 5.7 5.1 5.6 5.0
Operating Expenses:
Administrative salaries, 2.6 2.5 2.7 2.5
wages and employment taxes
Other selling general and 1.5 1.6 1.6 1.6
administrative
Depreciation and amortization 0.2 0.4 0.2 0.5
Total Operating Expenses 4.3 4.5 4.5 4.6
Other income (expense), net 0.4 0.1 0.5
Income before taxes 1.8 0.7 1.6 0.4
Provision for income taxes 0.7 0.4 0.6 0.3
Net income 1.1 0.3 1.0 0.1
</TABLE>
10
<PAGE> 11
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REVENUES
Revenues increased 164% from $31,812,000 in the three months ended June
30, 1997 to $84,107,000 in the three months ended June 30, 1998. Since June 30,
1997, the Company completed seven acquisitions of PEO's including three in the
first quarter of 1998, and one in the second quarter of 1998. Revenues from the
acquisitions accounted for over 55% of the revenues recorded in the second
quarter of 1998.
DIRECT COSTS
Total direct costs increased 166% to $79,777,000 in the three months
ended June 30, 1998 from $30,000,000 in the three months ended June 30, 1997.
Direct costs increased to 94.9% of total revenues in the second quarter of 1998
up from 94.3% in the second quarter of 1997. Costs rose more than revenues and
increased as a percentage of revenues for two reasons. First, the acquired
companies have lower fees and margins than the core business. Improving margins
through fee increases and better leveraging of acquiring insurances and other
benefits are opportunities for future profit and margin improvement in the
acquired companies. The second factor affecting margin is that the acquirees
have more flat percentage fee arrangements with their clients, whereas this
billing method was used infrequently in the core business where a weekly per
head count fee is prevalent. The flat fee percentage results in lower margins in
the first half of the year when certain costs, such as unemployment taxes, are
highest. As these taxes reach their statutory maximums they drop off. Costs
decline but the flat percentage fee continues, resulting in higher margins in
the second half of the year. Offsetting the higher direct costs in the acquired
companies were workers' compensation credits and rebates received by the Ohio
operations in the second quarter. These credits and rebates increased margin by
over 1 basis point. They are not expected to recur in future quarters.
EXPENSES
Administrative salaries, etc. rose 150% to $2,090,000 in the three
months ended June 30, 1998 from $837,000 in the three months ended June 30,
1997. These costs declined to 2.5% of total revenues in the second quarter of
1998 from 2.6% of total revenues in the second quarter of 1997. The increase in
this expense category reflects the higher headcount from the acquisitions.
However, the acquired entities had lower expenses as a percentage of revenues
leading to the decline as a percentage of revenues.
Other selling, general and administrative expenses increased 160% to
$1,309,000 in the three months ended June 30, 1998 from $503,000 in the three
months ended June 30, 1997. In addition to the increased costs from the acquired
companies, expenses also rose for liability and employment practices insurance,
printing for new brochures and stationery for the acquired companies, travel and
facilities costs. These costs are not expected to continue to increase at a
greater pace than revenues. Additional savings are also expected once the
Company's new payroll, HR and accounting software package is deployed and
operating at all locations, which is now expected to occur in the second half of
1998.
Depreciation and amortization expense rose to $369,000 in the three
months ended June 30, 1998 from $51,000 in the three months ended June 30, 1997.
11
<PAGE> 12
Depreciation expense was $87,000 in 1998 compared to $40,000 in 1997 while
amortization expense was $282,000 in 1998 compared to $11,000 in the second
quarter of 1997.
The increased depreciation expense resulted from the ongoing investment
in computer equipment and software. The amortization expense is the 25 year
amortization of goodwill and other intangibles arising from the seven
acquisitions completed since June 30, 1997.
INCOME FROM OPERATIONS
Income from operations increased 33% to $562,000 in the three months
ended June 30, 1998 from $421,000 in the three months ended June 30, 1997. On an
EBITDA basis, operating income increased 99% to $941,000 in the three months
ended June 30, 1998 from $472,000 in the three months ended June 30, 1997.
OTHER INCOME
Other income declined to $35,000 in the three months ended June 30,
1998 from $141,000 in the three months ended June 30, 1997. Other income is
income from the investment of the $13,000,000 of proceeds from the IPO completed
in December 1996. In the second quarter of 1997, the entire amount was invested.
By December 31, 1997 the balance remaining had declined to approximately
$5,000,000 and had further declined to approximately $2,300,000 at June 30, 1998
as a result of using the proceeds to acquire other PEO's.
INCOME TAX EXPENSE
Income tax expense was $352,000 or 58% of income before taxes in the
three months ended June 30, 1998 compared to $230,000 or 41% of income before
taxes in the three months ended June 30, 1997. Income tax expense rose as a
percent of pre-tax income in 1998 because the goodwill amortization is not a
deductible expense for tax purposes. The tax provision in 1997 also benefited
from the investment income, almost half of which was from tax-free municipal
bonds.
NET INCOME AND EARNINGS PER SHARE
As a result of the higher income tax expense, higher amortization
expense and lower investment income, net income declined to $245,000 in the
three months ended June 30, 1998 from $332,000 in the three months ended June
30, 1997.
Basic and diluted earnings per share were $0.05 in the three months
ended June 30, 1998 and $.10 in the three months ended June 30, 1997. Average
diluted shares outstanding were 4,961,000 in the three months ended June 30,
1998 compared to 3,376,000 in the three months ended June 30, 1997 due to the
shares issued for acquisitions.
12
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REVENUES
Revenues increased 169% from $57,355,000 in the six months ended June
30, 1997 to $154,142,000 in the six months ended June 30, 1998. Revenues from
acquisitions contributed over 52% of the revenues recorded in the first half of
1998.
DIRECT COSTS
Total direct costs increased 170% to $146,401,000 in the six months
ended June 30, 1998 from $54,143,000 in the six months ended June 30, 1997.
Direct costs increased to 95.0% of total revenues in the first half of 1998 up
from 94.4% in the first half of 1997. Costs rose more than revenues and
increased as a percentage of revenues for two reasons. First, the acquired
companies have lower fees and margins than the core business. The second factor
affecting margin is that the acquirees have more flat percentage fee
arrangements with their clients, whereas this billing method was used
infrequently in the core business where a weekly per head count fee is
prevalent. The flat fee percentage results in lower margins in the first half of
the year when certain costs, such as unemployment taxes, are highest. As these
taxes reach their statutory maximums they drop off. Costs decline but the flat
percentage fee continues, resulting in higher margins in the second half of the
year. Offsetting the higher costs in the acquired companies were workers'
compensation credits and rebates in the Ohio business which increased margin by
over 1 basis point. These credits and rebates are not expected to recur in the
second half of 1998.
EXPENSES
Administrative salaries, etc. rose 147% to $3,853,000 in the six months
ended June 30, 1998 from $1,560,000 in the six months ended June 30, 1997. These
costs declined to 2.5% of total revenues in the first half of 1998 from 2.7% of
total revenues in the first half of 1997. The increase in this expense category
reflects the staffing at the increased number of locations from the
acquisitions. However, the acquired entities had lower expenses as a percentage
of revenues leading to the decline as a percentage of revenues.
Other selling, general and administrative expenses increased 177% to
$2,517,000 in the six months ended June 30, 1998 from $909,000 in the six months
ended June 30, 1997. In addition to the increased costs from the acquired
companies, expenses also rose for liability and employment practices insurance,
printing for new brochures and stationery for the acquired companies, travel,
professional fees and facilities costs. These costs are not expected to continue
to increase at a greater pace than revenues. Additional savings are also
expected once the Company's new payroll, HR and accounting software package is
deployed and operating at all locations, which is now expected to occur in the
second half of 1998.
Depreciation and amortization expense rose to $708,000 in the six
months ended June 30, 1998 from $87,000 in the six months ended June 30, 1997.
Depreciation expense increased as a result of the investment in computer
equipment and software during the past year. Amortization expense is the 25 year
amortization of goodwill and other intangibles arising from the acquisitions.
13
<PAGE> 14
INCOME FROM OPERATIONS
As a result of the higher general and administrative and depreciation
and amortization expenses, income from operations was flat at $662,000 in the
six months ended June 30, 1998 compared to $656,000 in the six months ended June
30, 1997. However, on an EBITDA basis, there was an 85% increase in operating
income to $1,371,000 in the six months ended June 30, 1998 from $743,000 in the
six months ended June 30, 1997.
OTHER INCOME
Other income declined to $79,000 in the six months ended June 30, 1998
from $292,000 in the six months ended June 30, 1997. Other income is income from
the investment of the $13,000,000 of IPO proceeds. In the first half of 1997,
the entire amount was invested. By December 31, 1997, the balance remaining had
declined to approximately $5,000,000 and had further declined to approximately
$2,300,000 at June 30, 1998 as a result of using the proceeds to acquire other
PEO's.
INCOME TAX EXPENSE
Income tax expense was $454,000 or 67% of income before taxes in the
six months ended June 30, 1998 compared to $385,000 or 41% of income before
taxes in the six months ended June 30, 1997. Income tax expense rose as a
percent of pre-tax income in 1998 because the goodwill amortization is not a
deductible expense for tax purposes. The tax provision in 1997 also benefited
from the investment income, almost half of which was from tax-free municipal
bonds.
NET INCOME AND EARNINGS PER SHARE
As a result of the higher operating expenses, higher amortization
expense and lower investment income, net income declined to $247,000 in the six
months ended June 30, 1998 from $563,000 in the six months ended June 30, 1997.
Basic and diluted earnings per share were $0.05 in the six months ended
June 30, 1998 and $0.17 in the six months ended June 30, 1997. Average diluted
shares outstanding increased to 4,960,000 in the six months ended June 30, 1998
compared to 3,355,000 in the six months ended June 30, 1997 due to the shares
issued for acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had a working capital surplus of
$2,419,000. At December 31, 1997, the working capital surplus was $3,117,000.
The Company's primary source of liquidity and capital resources has
historically been its internal cash flow from operations. In addition, in
December 1996, net cash of $13,314,000 was provided from an initial public
offering of Company stock.
Net cash provided by (used in) operating activities was $784,000 and
($38,000) for the six month periods ended June 30, 1998 and 1997, respectively.
14
<PAGE> 15
The Company recognizes as revenue and as unbilled receivables, on an
accrual basis, any such amounts which relate to services performed by worksite
employees as of the end of each accounting period which have not yet been billed
to the client because of timing differences between the day the Company's
accounting period ends and the billing dates for client payroll periods that
include the day the Company's accounting period ends. The amount of unbilled
receivables, as well as accrued liabilities and client deposits, have increased
with the growth of the Company.
For work performed prior to the termination of a client agreement, the
Company may be obligated, as an employer, to pay the gross salaries and wages of
the client's worksite employees and the related employment taxes and workers'
compensation costs, whether or not the Company's client pays the Company on a
timely basis or at all. The Company, however, historically has not incurred
significant bad debt expenses because the Company generally collects from its
clients all revenues with respect to each payroll period in advance of the
Company's payment of the direct costs associated therewith. The Company attempts
to minimize its credit risk by investigating and monitoring the credit history
and financial strength of its clients and by generally requiring payments be
made by wire transfer, immediately available funds of ACH transfer. With respect
to ACH transfers, the Company is obligated to pay the client's worksite
employees if there are insufficient funds in the client's bank account on the
payroll date. The Company's policy, however, is only to permit clients with a
proven credit history with the Company to pay by ACH transfer. In addition, in
the rare event of nonpayment by a client, the Company has the ability to
terminate immediately its contract with the client. The Company also protects
itself by obtaining unconditional personal guaranties from the owners of a
client and/or a cash security deposit, bank letter of credit or pledge of
certificates of deposits. As of June 30, 1998 and 1997, the Company held cash
security deposits in the amounts of $603,000 and $478,000 respectively.
Additional sources of funds to the Company are advance payments of
employment taxes and insurance premiums which the Company holds until they are
due and payable to the respective taxing authorities and insurance providers.
Net cash provided by (used in) investing activities was ($2,090,000)
and $1,163,000 for the six month periods ended June 30, 1998 and 1997
respectively. The principal use of cash from investing activities was the
purchase of additional computer equipment and software to support the growth of
the business. Also, during the first half of 1998, $1,425,000 was paid toward
the purchase of four PEO companies. In addition to the cash paid during the
first half for acquisitions, 132,717 shares of TEAM America Common Stock were
also issued. These shares are unregistered restricted shares and cannot be sold
for a one year period from the date of issuance and without either an effective
registration statement or an exemption from registration.
The principal source of cash provided by investing activities in the
first half of 1997 was the maturation of short-term investment instruments which
were reinvested in temporary cash investments at June 30, 1997.
Financing activities are not material as the Company has no debt or
significant leases.
Presently, the Company has no material commitments for capital
expenditures. Primary new uses of cash may include acquisitions, the size and
timing of which cannot be predicted. However, the Company is limited in its
ability to continue to acquire other PEO companies unless it can raise
additional capital since most acquisitions involve the payment of cash and the
issuance of stock for the purchase price and may also require some additional
working capital following acquisition.
15
<PAGE> 16
In July 1998, the Company obtained a $10,000,000 revolving credit
agreement with a bank. The credit agreement provides for borrowings at the prime
rate or LIBOR plus 2%. The credit agreement requires the Company to maintain
certain financial standards as to net worth, current ratio and cash position and
also requires the bank's consent to acquisitions. There were no borrowings under
any revolving credit agreement in the first half of 1998.
The Company believes that the net proceeds from the sale of the common
shares in December 1996 which were invested in marketable securities and
certificates of deposit, together with existing cash, cash equivalents and
internally generated funds will be sufficient to meet the Company's presently
anticipated working capital and capital expenditure requirements, excluding
acquisitions of other PEO's for the foreseeable future. To the extent that the
Company needs additional capital resources, the Company believes that it will
have access to bank financing and other alternative sources of capital. However,
there can be no assurances that additional financing will be available on terms
favorable to the Company, or at all.
The Company did not pay dividends in 1996, 1997, or thus far in 1998,
and does not expect to pay a dividend in the foreseeable future.
The Company believes the effects of inflation have not had a
significant impact on its results of operations or financial condition.
YEAR 2000
The company's new operating system, TEAMDirect, is expected to be fully
operational by the end of 1998 at all company locations. The operating system
handles all payroll, accounting and payroll-related matters. It is written on an
Oracle database engine and is fully year 2000 compliant. The Company is unaware
of any other of its systems that are not year 2000 compliant or that would
materially adversely affect the company's operations if they are not in
compliance.
The Company has vendor relationships with large national insurance
companies for its health plans, benefit plans and workers' compensation
insurance programs. TEAM America is also reliant on major banks to process
checks and electronic transfers and payments effectively. The Company has not
yet evaluated whether these entities are year 2000 compliant and what impact, if
any, this may have on the Company's operations.
The Company's client base is highly diversified with over 14,000
worksite employees housed at over 1,600 client locations. The Company has not
undertaken to review year 2000 compliance with its numerous clients.
16
<PAGE> 17
QUARTERLY RESULTS
The following table sets forth certain unaudited operating results of each of
the seven consecutive quarters for the period ended June 30, 1998 which comprise
all of the quarterly periods following the Company's initial public offering of
its Common Stock in December 10, 1996.
The information is unaudited, but in the opinion of management, includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations of such periods. This information
should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto.
<TABLE>
QUARTER ENDED
<CAPTION>
- --------------------------------------------------------------------------------------------------
Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30
1996 1997 1997 1997 1997 1998 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES $25,762 $25,542 $31,812 $36,697 $61,812 $70,034 $84,107
- --------------------------------------------------------------------------------------------------
DIRECT COSTS: 24,218 24,143 30,000 35,000 58,402 66,624 79,777
- --------------------------------------------------------------------------------------------------
NET INCOME: 167 232 332 173 193 1 246
- --------------------------------------------------------------------------------------------------
EARNINGS PER
SHARE:
- --------------------------------------------------------------------------------------------------
Basic $ .07 $ .07 $ .10 $ .05 $ .04 $ .00 $ .05
- --------------------------------------------------------------------------------------------------
Diluted $ .07 $ .07 $ .10 $ .05 $ .04 $ .00 $ .05
- --------------------------------------------------------------------------------------------------
</TABLE>
AMOUNTS IN $000'S EXCEPT PER SHARE AMOUNTS
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "believes", "anticipates",
"intends", "expects", and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or the PEO industry to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
(i) potential for unfavorable interpretation of government regulations relating
to labor, tax, insurance and employment matters; (ii) changes in the laws
regulating collection and payment of payroll taxes and employee benefits,
including 401(k) plans; (iii) potential loss of qualified status for the
Company's 401(k) plan as a result of request by Internal Revenue Services
("IRS") for Tax Advice memorandum ("TMAM"); (iv) general market conditions,
including demand for the Company's products and services, competition and price
levels or adverse economic developments in Ohio where a substantial portion of
the Company's business is concentrated; (v) the Company's ability to offer its
services in states other than Ohio where it has little or no market penetration;
(vi) higher than expected workers' compensation claims, increases in rates, or
changes in applicable laws or regulations; (vii) the level and quality of
acquisition opportunities available to the Company and the ability to properly
manage growth when acquisitions are made; (viii) short-term nature of client
agreements and the financial condition of the Company's clients; (ix) liability
for employment practices of clients; and (x) additional regulatory requirements
affecting the Company.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 5,
1998. At the close of business on the record date of March 27,1998, 4,781,650
common shares were outstanding and entitled to vote at the meeting. At the
Annual Meeting, 4,212,275 or 88.1% of the outstanding common shares entitled to
vote were represented in person or by proxy. Matters voted on at the meeting
were the election of Class II directors and an amendment to the Company's 1996
Incentive Stock Plan.
a.) Election of Directors
The Board of Directors is divided into two classes. Four director
positions, to serve for a term of two years, were up for election. Directors
elected at the Annual Meeting were:
Richard C. Schilg
Kevin T. Costello
Charles F. Dugan, II
Crystal Faulkner
The voting for each director was as follows:
For Withheld
Richard C. Schilg 4,169,053 43,222
Kevin T. Costello 4,168,553 43,722
Charles F. Dugan, II 4,166,553 45,722
Crystal Faulkner 4,168,553 43,722
b.) Amendment to the 1996 Incentive Stock Plan
The proposed amendment was approved by the shareholders. The voting was
as follows:
For: 3,311,754
Against: 185,977
Abstained: 10,850
ITEM 5. OTHER INFORMATION
Any shareholder proposal submitted outside the processes of Rule 14a-8
under the Securities Act of 1934 for presentation to the Company's 1999 Annual
Meeting of Shareholders will be considered untimely for purposes of Rule 14a-4
and 14a-5 if notice thereof is received by the Company after February 20, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
None
(b) Exhibits
10 Revolving Credit Agreement
27 Financial Data Schedule
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TEAM AMERICA CORPORATION
/s/MICHAEL R. GOODRICH
--------------------------------------
Chief Financial Officer and Authorized
Signing Officer
August 11, 1998
19
<PAGE> 20
EXHIBIT INDEX
Exhibit Number Description Page #
- -------------- ----------- ------
10 Revolving Credit Agreement dated July 15, 1998 -21-
27 Financial Data Schedule - -*
*In SEC EDGAR-filed document only
20
<PAGE> 1
Exhibit 10
COMMERCIAL NOTE: REVOLVING CREDIT/PRIME/LIBOR (OHIO)
- --------------------------------------------------------------------------------
AMOUNT CITY, STATE DATE FOR BANK USE ONLY
---------------------------
$10,000,000.00 COLUMBUS, OHIO JULY 15, 1998 OBLIGOR #
- --------------------------------------------------------------------------------
TAX I. D. #
---------------------------
OBLIGATION #
---------------------------
OFFICE
---------------------------
FOR VALUE RECEIVED, TEAM AMERICA CORPORATION, AN OHIO CORPORATION ("BORROWER"),
whose mailing address is 110 East Wilson Bridge Road, Worthington, Ohio 43085,
hereby promises to pay to the order of NATIONAL CITY BANK, A NATIONAL BANKING
ASSOCIATION ("BANK"), having a banking office at 155 East Broad Street,
Columbus, Ohio 43051, at the address specified on the bills received by Borrower
from Bank (or at such other place as Bank may from time to time designate by
written notice) in lawful money of the United States of America, the principal
sum of
TEN MILLION AND 00/100 DOLLARS
or such lesser amount as may appear on this Note, or as may be entered in a loan
account on Bank's books and records, or both, together with interest, all as
provided below.
1. COMMITMENT. This Note evidences an arrangement (the "SUBJECT COMMITMENT")
whereby Borrower may, on the date of this Note and thereafter until (but not
including) May 31, 2001 (the "EXPIRATION DATE") or such earlier date upon which
the Subject Commitment is terminated or reduced to zero, obtain from Bank,
subject to the terms and conditions of this Note, such loans (each a "SUBJECT
LOAN") as Borrower may from time to time properly request. The amount of the
Subject Commitment shall be equal to the face amount of this Note, provided,
that Borrower shall have the right, at any time and from time to time, to
permanently reduce the amount of the Subject Commitment to any amount that is an
integral multiple of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the
"MINIMUM BORROWING AMOUNT") by giving Bank not less than one (1) Banking Day's
prior notice (which shall be irrevocable) of the effective date of the
reduction, provided, that no reduction in the amount of the Subject Commitment
shall be effective if, after giving effect to that reduction, the aggregate
unpaid principal balance of the Subject Loans would exceed the amount of the
Subject Commitment as so reduced. Regardless of any fee or other consideration
received by Bank, the Subject Commitment may be terminated pursuant to section
11.
2. FEES. Borrower shall pay Bank a commitment fee (a) in arrears on September 1,
1998, and quarter-annually thereafter and upon the termination of the Subject
Commitment or the reduction thereof to zero, (b) based on the average daily
difference between the amount of the Subject Commitment and the aggregate unpaid
principal balance of the Subject Loans during the period from the due date of
the last such fee (or, if none, the date of this Note) to the due date of the
fee in question, and (c) computed at the rate of twenty-five hundredths percent
(0.25%) per annum.
3. LOAN REQUESTS; DISBURSEMENT. A Subject Loan is properly requested if
requested orally or in writing not later than 2:00 p. m., Banking-Office Time,
of the Banking Day upon which that Subject Loan is to be made. Each request for
a Subject Loan shall of itself constitute, both when made and when honored, a
representation and warranty by Borrower to Bank that Borrower is entitled to
obtain the requested Subject Loan. Bank is hereby irrevocably
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<PAGE> 2
authorized to make an appropriate entry on this Note, in a loan account on
Bank's books and records, or both, whenever Borrower obtains a Subject Loan.
Each such entry shall be prima facie evidence of the data entered, but the
making of such an entry shall not be a condition to Borrower's obligation to
pay. Bank is hereby directed, absent notice from Borrower to the contrary, to
disburse the proceeds of each Subject Loan to Borrower's general checking
account with Bank. Bank shall have no duty to follow, nor any liability for, the
application of any proceeds of any Subject Loan.
4. CONDITIONS: SUBJECT LOANS. Each Subject Loan shall be in an amount that is an
integral multiple of the Minimum Borrowing Amount. Borrower shall not be
entitled to obtain any Subject Loan (a) on or after the termination of the
Subject Commitment or the reduction thereof to zero, (b) if either at the time
of Borrower's request for that loan or when that request is honored there shall
exist or would occur any Event of Default, (c) if any representation, warranty,
or other statement (other than any expressly made as of a single date) made by
any Person (other than Bank) in any Related Writing would, if made either as of
the time of Borrower's request for that Subject Loan or as of the time when that
request is honored, be untrue or incomplete in any material respect, or (d) if
after giving effect to that Subject Loan and all others for which requests are
then pending, the aggregate unpaid principal balance of the Subject Loans would
exceed the then amount of the Subject Commitment.
5. INTEREST. The unpaid principal balance of each Subject Loan shall at all
times bear interest at the Contract Rate, provided, that so long as any
principal of or accrued interest on any Subject Loan is overdue, all unpaid
principal of each Subject Loan and all overdue interest on that principal (but
not interest on overdue interest) shall bear interest at a fluctuating rate
equal to two percent (2.0%) per annum above the rate that would otherwise be
applicable, but in no case less than two percent (2.0%) per annum above the
Prime Rate; provided further, that in no event shall any principal of or
interest on any Subject Loan bear interest at any time after Maturity at a
lesser rate than the rate applicable thereto immediately after Maturity. The
"CONTRACT RATE" shall at all times be a fluctuating rate equal to the Prime
Rate, provided, that Borrower shall have the right from time to time to
irrevocably elect two and twenty-five hundredths percent (2.25%) per annum plus
LIBOR as the Contract Rate applicable during a Contract Period to a Unit in the
amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (or any greater
amount that is an integral multiple of One Hundred Thousand and 00/100 Dollars
[$100,000.00]) by specifying the term and amount, respectively, of the Contract
Period and Unit in a notice given to Bank orally or in writing not later than
2:00 p. m., Banking-Office Time, of the third (3rd) Eurodollar Banking Day
preceding the first day of that Contract Period.
Interest on each Subject Loan shall be payable in arrears on July 1, 1998, and
on the first (1st) day of each month thereafter, at Maturity, and on demand
thereafter. The principal comprising each LIBOR Unit shall, at the end of the
Contract Period for that Unit, become part of the Prime Rate Unit unless and to
the extent that Borrower shall have elected otherwise as hereinbefore provided.
Bank shall be entitled to fund and maintain its funding of all or any part of
any LIBOR Unit in any manner Bank may from time to time deem advisable, Borrower
hereby acknowledging that all determinations relating to LIBOR Units shall be
made as if Bank had actually funded and maintained each such Unit by the
purchase of deposits in an amount similar to the amount of that Unit, with a
maturity similar to the Contract Period for that Unit, and bearing interest at
LIBOR with respect to that Unit.
-22-
<PAGE> 3
6. INEFFECTIVE ELECTIONS. Notwithstanding any provision or inference to the
contrary, Bank shall have the right in its discretion, without notice to
Borrower, to deem ineffective Borrower's election of a Contract Rate if (a) on
or before the first day of the Contract Period specified in Borrower's notice of
that election, the Subject Commitment shall have been terminated or reduced to
zero, (b) the Contract Period specified in Borrower's notice of that election
would end after the Expiration Date, (c) at the time of that election or on the
first day of the Contract Period specified in Borrower's notice thereof, there
shall exist or there would occur any Event of Default, (d) any representation,
warranty, or other statement (other than any expressly made as of a single date)
made by any Person (other than Bank) in any Related Writing would, if made
either as of the time of that election or as of the first day of the Contract
Period specified in Borrower's notice thereof, be untrue or incomplete in any
material respect, (e) after giving effect to that election, more than one
Contract Rate would be applicable to all or any part of any Unit, (f) Bank shall
determine that any governmental authority has asserted that it is unlawful for
Bank to fund, make, or maintain loans bearing interest based on LIBOR, or (g)
after giving effect to that election, the aggregate unpaid principal balance of
the Subject Loans would, on the first day of the Contract Period specified in
Borrower's notice of that election, be less than the then aggregate amount of
all LIBOR Units. Moreover, Borrower shall not be entitled to elect a Contract
Rate if Bank shall determine that (i) dollar deposits of the appropriate amount
and maturity are not available in the market selected by Bank for the purpose of
funding the relevant Unit at LIBOR, (ii) circumstances affecting the market
selected by Bank for the purpose of funding the relevant Unit make it
impracticable for Bank to determine LIBOR, (iii) LIBOR is unlikely to adequately
compensate Bank for the cost of making, funding, or maintaining the relevant
Unit for the Contract Period specified in Borrower's notice of that election, or
(iv) any governmental authority has asserted that it is unlawful for Bank to
fund, make, or maintain loans bearing interest based on LIBOR. Bank's books and
records shall be conclusive (absent manifest error) as to whether Bank shall
have deemed any election of a Contract Rate ineffective. Except as hereinbefore
provided, there is no limit to the number of Contract Rates that may be
applicable to the unpaid principal balance of this Note at any one time.
7. PREMIUM: INEFFECTIVE ELECTIONS; GOVERNMENTAL ACTS. If Bank shall deem
ineffective Borrower's election of any Contract Rate, then, and in each such
case, that election shall be ineffective and Borrower shall pay to Bank, on
Bank's demand, a premium based on the amount of the Unit specified in Borrower's
notice of that election and computed for the Contract Period specified in that
notice at a rate per annum equal to the excess, if any, of the Contract Rate so
elected over the Reinvestment Rate. If Bank shall determine that any
governmental authority has asserted that it is unlawful for Bank to fund, make,
or maintain loans bearing interest based on LIBOR, then, and in each such case,
notwithstanding any provision or inference to the contrary, the principal
comprising each then outstanding LIBOR Unit shall, upon Bank's giving Borrower
notice of that determination, be added to and become part of the Prime Rate
Unit, and Borrower shall concurrently with the addition of that principal to the
Prime Rate Unit, pay to Bank (a) the accrued interest on the principal so added
and (b) a premium based on the amount of the principal so added and computed for
the remainder of the Contract Period therefor, at a rate equal to the excess, if
any, of the Contract Rate theretofore applicable over the Reinvestment Rate.
8. REPAYMENT. Subject to section 11, each Subject Loan shall be due and payable
in full upon the Expiration Date. Borrower shall have the right to prepay each
Subject Loan in whole or in part, provided, that each such prepayment shall be
in an amount that is an integral
-23-
<PAGE> 4
multiple of the Minimum Borrowing Amount. Each prepayment of the Subject Loans
may be made without premium or penalty, provided, that if any LIBOR Unit is paid
(whether by way of a prepayment or a payment following any acceleration of the
due date thereof) in whole or in part before the last day of the Contract Period
for that Unit, then, and in each such case, Borrower shall, concurrently with
the payment, pay to Bank (i) the accrued interest on the principal being prepaid
and (ii) a premium based on the principal amount paid and computed for the
period from the date of payment to the last day of the Contract Period for that
Unit at a rate per annum equal to the excess, if any, of the Contract Rate
theretofore applicable over the Reinvestment Rate.
9. DEFINITIONS. As used in this Note, except where the context clearly requires
otherwise, "AFFILIATE" means, when used with reference to any Person (the
"subject"), a Person that is in control of, under the control of, or under
common control with, the subject, the term "control" meaning the possession,
directly or indirectly, of the power to direct the management or policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise; "BANK DEBT" means, collectively, all Debt to Bank, whether incurred
directly to Bank or acquired by it by purchase, pledge, or otherwise, and
whether participated to or from Bank in whole or in part; "BANKING DAY" means
any day (other than any Saturday, Sunday or legal holiday) on which Bank's
banking office is open to the public for carrying on substantially all of its
banking functions; "BANKING-OFFICE TIME" means, when used with reference to any
time, that time determined at the location of Bank's banking office; "Contract
Period" means, relative to a Unit, a period selected by Borrower, provided, that
each Contract Period shall commence on a Eurodollar Banking Day and end one (1)
month, two (2) months three (3) months or four (4) thereafter, provided, that
(a) if any Contract Period otherwise would end on a day that is not a Eurodollar
Banking Day, it shall end instead on the next following Eurodollar Banking Day
unless that day falls in another calendar month, in which latter case the
Contract Period shall end instead on the next preceding Eurodollar Banking Day
and (b) if any Contract Period commences on a day for which there is no
numerical equivalent in the calendar month in which that Contract Period is to
end, it shall end on the last Eurodollar Banking Day of that calendar month;
"DEBT" means, collectively, all obligations of the Person or Persons in
question, including, without limitation, every such obligation whether owing by
one such Person alone or with one or more other Persons in a joint, several, or
joint and several capacity, whether now owing or hereafter arising, whether
owing absolutely or contingently, whether created by lease, loan, overdraft,
guaranty of payment, or other contract, or by quasi-contract, tort, statute,
other operation of law, or otherwise; "EURODOLLAR BANKING DAY" means any Banking
Day on which banks in the London Interbank Market deal in United States dollar
deposits and on which banking institutions are generally open for domestic and
international business at the place where Bank's banking office is located and
in New York City; "LIBOR" means, with respect to a Unit, the rate per annum
(rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by
Bank by dividing (a) the rate per annum determined by Bank to equal the average
rate per annum at which deposits (denominated in United States dollars) in an
amount similar to that Unit and with a maturity similar to the Contract Period
for that Unit are offered to Bank at 11:00 a.m. London time (or as soon
thereafter as practicable) two (2) Eurodollar Banking Days prior to the first
day of that Contract Period by banking institutions in any Eurodollar market
selected by Bank by (b) the difference of one (1) less the Reserve Percentage;
"LIBOR UNIT" means a Unit for which the Contract Rate is based on LIBOR;
"MATURITY" means, when used with reference to any Subject Loan, the date
(whether occurring by lapse of time, acceleration, or otherwise) upon which that
Subject Loan is due; "NOTE" means this promissory note (including, without
limitation, each addendum, allonge, or
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<PAGE> 5
amendment, if any, hereto); "OBLIGOR" means any Person who, or any of whose
property, shall at the time in question be obligated in respect of all or any
part of the Bank Debt of Borrower and (in addition to Borrower) includes,
without limitation, co-makers, indorsers, guarantors, pledgors, hypothecators,
mortgagors, and any other Person who agrees, conditionally or otherwise, to make
any loan to, purchase from, or investment in, any other Obligor or otherwise
assure such other Obligor's creditors or any of them against loss; "PERSON"
means an individual or entity of any kind, including, without limitation, any
association, company, cooperative, corporation, partnership, trust, governmental
body, or any other form or kind of entity; "PRIME RATE" means the fluctuating
rate per annum which is publicly announced from time to time by Bank as being
its so-called "prime rate" or "base rate" thereafter in effect, with each change
in the Prime Rate automatically, immediately, and without notice changing the
Prime Rate thereafter applicable hereunder, it being acknowledged that the Prime
Rate is not necessarily the lowest rate of interest then available from Bank on
fluctuating-rate loans; "PRIME RATE UNIT" means, at any time, the then aggregate
unpaid principal balance of the Subject Loans for which the Contract Rate is
based on the Prime Rate; "PROCEEDING" means any assignment for the benefit of
creditors, any case in bankruptcy, any marshalling of any Obligor's assets for
the benefit of creditors, any moratorium on the payment of debts, or any
proceeding under any law relating to conservatorship, insolvency, liquidation,
receivership, trusteeship, or any similar event, condition, or other thing;
"REINVESTMENT RATE" means, when used with respect to any period, a per annum
rate of interest equal to the "bond equivalent yield" for the most actively
traded issues of U. S. Treasury Bills, U. S. Treasury Notes, or U. S. Treasury
Bonds for a term similar to the period in question; "RELATED WRITING" means this
Note and any indenture, note, guaranty, assignment, mortgage, security
agreement, subordination agreement, notice, financial statement, legal opinion,
certificate, or other writing of any kind pursuant to which all or any part of
the Bank Debt of Borrower is issued, which evidences or secures all or any part
of the Bank Debt of Borrower, which governs the relative rights and priorities
of Bank and one or more other Persons to payments made by, or the property of,
any Obligor, which is delivered to Bank pursuant to another such writing, or
which is otherwise delivered to Bank by or on behalf of any Person (or any
employee, officer, auditor, counsel, or agent of any Person) in respect of or in
connection with all or any part of the Bank Debt of Borrower; "REPORTING PERSON"
means each Obligor and each member of any "Reporting Group" as defined in any
addendum to this Note; "RESERVE PERCENTAGE" means the percentage (expressed as a
decimal) which Bank determines to be the maximum (but in any case less than
1.00) reserve requirement (including, without limitation, any emergency,
marginal, special, or supplemental reserve requirement) prescribed for so-called
"Eurocurrency liabilities" (or any other category of liabilities that includes
deposits by reference to which the interest rate applicable to LIBOR Units is
determined) under Regulation D (as amended from time to time) of the Board of
Governors of the Federal Reserve System or under any successor regulation which
Bank determines to be applicable, with each change in such maximum reserve
requirement automatically, immediately, and without notice changing the interest
rate thereafter applicable to each LIBOR Unit, it being agreed that LIBOR Units
shall be deemed Eurocurrency liabilities subject to such reserve requirements
without the benefit of any credit for proration, exceptions, or offsets; and
"Unit" means the aggregate unpaid principal balance of this Note or any part of
that balance; and the foregoing definitions shall be applicable to the
respective plurals of the foregoing defined terms.
10. EVENTS OF DEFAULT. It shall be an "EVENT OF DEFAULT" if (a) all or any part
of the Bank Debt of any Obligor shall not be paid in full promptly within five
(5) Banking Days after the same becomes due (whether by lapse of time,
acceleration, or otherwise); (b) any
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<PAGE> 6
representation, warranty, or other statement made by any Person (other than
Bank) in any Related Writing shall be untrue or incomplete in any material
respect when made; (c) any Person (other than Bank) shall repudiate or shall
fail or omit to perform or observe any agreement contained in this Note or in
any other Related Writing that is on that Person's part to be complied with; (d)
any indebtedness (other than any evidenced by this Note) of any Obligor shall
not be paid when due, or there shall occur any event, condition, or other thing
which gives (or which with the lapse of any applicable grace period, the giving
of notice, or both would give) any creditor the right to accelerate or which
automatically accelerates the maturity of any such indebtedness; (e) Bank shall
not receive (in addition to any information described in any addendum to this
Note) without expense to Bank, (i) within five (5) Banking Days after each
request of Bank made upon Borrower therefor, (A) such information in writing
regarding each Reporting Person's financial condition, properties, business
operations, if any, and pension plans, if any, prepared, in the case of
financial information, in accordance with generally accepted accounting
principles consistently applied and otherwise in form and detail satisfactory to
Bank or (B) written permission, in form and substance satisfactory to Bank, from
each Reporting Person to inspect (or to have inspected by one or more Persons
selected by Bank) the properties and records of that Reporting Person and to
make copies and extracts from those records or (ii) prompt written notice
whenever Borrower (or any director, employee, officer, or agent of Borrower)
knows or has reason to know that any Event of Default has occurred; (f) any
judgment in excess of Ten Thousand and 00/100 Dollars ($10,000.00) shall be
entered against any Obligor in any judicial or administrative tribunal or before
any arbitrator or mediator; (g) any Obligor shall fail or omit to comply with
any applicable law, rule, regulation, or order in any material respect; (h) any
proceeds of any Subject Loan shall be used for any purpose that is not in the
ordinary course of Borrower's business; (i) any property in which any Obligor
now has or hereafter acquires any rights or which now or hereafter secures any
Bank Debt shall be or become encumbered by any mortgage, security interest, or
other lien, except any mortgage, security interest, or other lien consented to
by Bank; (j) any Obligor shall at any time or over any period of time sell,
lease, or otherwise dispose of all or any material part of that Obligor's
assets, except for inventory sold in the ordinary course of business and other
assets sold, leased, or otherwise disposed of with the consent of Bank; (k) any
Obligor shall cease to exist or shall be dissolved, become legally
incapacitated, or die; (l) any Proceeding shall be commenced with respect to any
Obligor and shall not have been dismissed within thirty (30) days after having
been commenced; (m) there shall occur or commence to exist any event, condition,
or other thing that constitutes an "Event of Default" as defined in any addendum
to this Note; (n) there shall occur any event, condition, or other thing that
has, or, in Bank's reasonable good faith judgment, is likely to have, a material
adverse effect on the financial condition, properties, or business operations of
any Obligor or on Bank's ability to enforce or exercise any agreement or right
arising under, out of, or in connection with any Related Writing; or (o) the
holder of this Note shall, in good faith, believe that the prospect of payment
or performance of any obligation evidenced by this Note is impaired.
11. EFFECTS OF DEFAULT. If any Event of Default (other than the commencement of
any Proceeding with respect to Borrower) shall occur, then, and in each such
case, notwithstanding any provision or inference to the contrary, Bank shall
have the right in its discretion, by giving written notice to Borrower, to (a)
immediately terminate the Subject Commitment (if not already terminated or
reduced to zero) and (b) declare each Subject Loan (if not already due) to be
due, whereupon each Subject Loan shall immediately become due and payable in
full. If any Proceeding shall be commenced with respect to Borrower, then,
-26-
<PAGE> 7
notwithstanding any provision or inference to the contrary, automatically,
without presentment, protest, or notice of dishonor, all of which are waived by
all makers and all indorsers of this Note, now or hereafter existing, (i) the
Subject Commitment shall immediately terminate (if not already terminated or
reduced to zero) and (ii) each Subject Loan (if not already due) shall
immediately become due and payable in full.
12. LATE CHARGES. If any principal of or interest on any Subject Loan is not
paid within ten (10) days after its due date, then, and in each such case, Bank
shall have the right to assess a late charge, payable by Borrower on demand, in
an amount equal to the greater of Twenty and 00/100 Dollars ($20.00) or five
percent (5.0%) of the amount not timely paid.
13. NO SETOFF. Borrower hereby waives any and all now existing or hereafter
arising rights to recoup or offset any obligation of Borrower under or in
connection with this Note or any Related Writing against any claim or right of
Borrower against Bank.
14. INDEMNITY: GOVERNMENTAL COSTS. If (a) there shall be enacted any law
(including, without limitation, any change in any law or in its interpretation
or administration and any request by any governmental authority) relating to any
interest rate or any assessment, reserve, or special deposit requirement (except
if and to the extent utilized in computation of the Reserve Percentage) against
assets held by, deposits in, or loans by Bank or to any tax (other than any tax
on Bank's overall net income) and (b) in Bank's sole opinion any such event
increases the cost of funding or maintaining any LIBOR Unit or reduces the
amount of any payment to be made to Bank in respect thereof, then, and in each
such case, upon Bank's demand, Borrower shall pay Bank an amount equal to each
such cost increase or reduced payment, as the case may be. In determining any
such amount, Bank may use reasonable averaging and attribution methods. Each
determination by Bank shall be conclusive absent manifest error.
15. INDEMNITY: CAPITAL ADEQUACY. If (a) at any time any governmental authority
shall require National City Corporation, a Delaware corporation, its successors
or assigns, or Bank, whether or not the requirement has the force of law, to
maintain, as support for the Subject Commitment, capital in a specified minimum
amount that either is not required or is greater than that required at the date
of this Note, whether the requirement is implemented pursuant to the "risk-based
capital guidelines" (published at 12 CFR 3 in respect of "national banking
associations", 12 CFR 208 in respect of "state member banks", and 12 CFR 225 in
respect of "bank holding companies") or otherwise, and (b) as a result thereof
the rate of return on capital of National City Corporation, its successors or
assigns, or Bank or both (taking into account their then policies as to capital
adequacy and assuming full utilization of their capital) shall be directly or
indirectly reduced by reason of any new or added capital thereby attributable to
the Subject Commitment; then, and in each such case, Borrower shall, on Bank's
demand, pay Bank as an additional fee such amounts as will in Bank's reasonable
opinion reimburse National City Corporation, its successors and assigns, and
Bank for any such reduced rate of return. In determining the amount of any such
fee, Bank may use reasonable averaging and attribution methods. Each
determination by Bank shall be conclusive absent manifest error.
16. INDEMNITY: ADMINISTRATION AND ENFORCEMENT. Borrower will reimburse Bank, on
Bank's demand from time to time, for any and all fees, costs, and expenses
(including, without limitation, the fees and disbursements of legal counsel)
incurred by Bank in administering this Note or in protecting, enforcing, or
attempting to protect or enforce its rights under this Note. If
-27-
<PAGE> 8
any amount (other than any principal of any Subject Loan and any interest and
late charges) owing under this Note is not paid when due, then, and in each such
case, Borrower shall pay, on Bank's demand, interest on that amount from the due
date thereof until paid in full at a fluctuating rate equal to four percent
(4.0%) per annum plus the Prime Rate.
17. WAIVERS; REMEDIES; APPLICATION OF PAYMENTS. Bank may from time to time in
its discretion grant waivers and consents in respect of this Note or any other
Related Writing or assent to amendments thereof, but no such waiver, consent, or
amendment shall be binding upon Bank unless set forth in a writing (which
writing shall be narrowly construed) signed by Bank . No course of dealing in
respect of, nor any omission or delay in the exercise of, any right, power, or
privilege by Bank shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any further or other exercise thereof or of
any other, as each such right, power, or privilege may be exercised either
independently or concurrently with others and as often and in such order as Bank
may deem expedient. Without limiting the generality of the foregoing, neither
Bank's acceptance of one or more late payments or charges nor Bank's acceptance
of interest on overdue amounts at the respective rates applicable thereto shall
constitute a waiver of any right of Bank. Each right, power, or privilege
specified or referred to in this Note is in addition to and not in limitation of
any other rights, powers, and privileges that Bank may otherwise have or acquire
by operation of law, by other contract, or otherwise. Bank shall be entitled to
equitable remedies with respect to each breach or anticipatory repudiation of
any provision of this Note, and Borrower hereby waives any defense which might
be asserted to bar any such equitable remedy. Bank shall have the right to apply
payments in respect of the indebtedness evidenced by this Note with such
allocation to the respective parts thereof and the respective due dates thereof
as Bank in its sole discretion may from time to time deem advisable.
18. OTHER PROVISIONS. The provisions of this Note shall bind Borrower and
Borrower's successors and assigns and benefit Bank and its successors and
assigns, including each subsequent holder, if any, of this Note, provided, that
no Person other than Borrower may obtain Subject Loans; provided further, that
neither any such holder of this Note nor any assignee of any Subject Loan,
whether in whole or in part, shall thereby become obligated to grant Borrower
any Subject Loan. Except for Borrower and Bank and their respective successors
and assigns, there are no intended beneficiaries of this Note or the Subject
Commitment. The provisions of sections 12 through 22, both inclusive, shall
survive the payment in full of the principal of and interest on this Note. The
captions to the sections and subsections of this Note are inserted for
convenience only and shall be ignored in interpreting the provisions thereof.
Each reference to a section includes a reference to all subsections thereof
(i.e., those having the same character or characters to the left of the decimal
point) except where the context clearly does not so permit. If any provision in
this Note shall be or become illegal or unenforceable in any case, then that
provision shall be deemed modified in that case so as to be legal and
enforceable to the maximum extent permitted by law while most nearly preserving
its original intent, and in any case the illegality or unenforceability of that
provision shall affect neither that provision in any other case nor any other
provision. All fees, interest, and premiums for any given period shall accrue on
the first day thereof but not on the last day thereof (unless the last day is
the first day) and in each case shall be computed on the basis of a 360-day year
and the actual number of days in the period. In no event shall interest accrue
at a higher rate than the maximum rate, if any, permitted by law. Bank shall
have the right to furnish to its Affiliates, and to such other Persons as Bank
shall deem advisable for the conduct of its business, information concerning the
business, financial
-28-
<PAGE> 9
condition, and property of Borrower, the amount of the Bank Debt of Borrower,
and the terms, conditions, and other provisions applicable to the respective
parts thereof. This Note shall be governed by the law (excluding conflict of
laws rules) of the jurisdiction in which Bank's banking office is located.
19. INTEGRATION. This Note and, to the extent consistent with this Note, the
other Related Writings, set forth the entire agreement of Borrower and Bank as
to the subject matter of this Note, and may not be contradicted by evidence of
any agreement or statement unless made in a writing (which writing shall be
narrowly construed) signed by Bank contemporaneously with or after the execution
and delivery of this Note. Without limiting the generality of the foregoing,
Borrower hereby acknowledges that Bank has not based, conditioned, or offered to
base or condition the credit hereby evidenced or any charges, fees, interest
rates, or premiums applicable thereto upon Borrower's agreement to obtain any
other credit, property, or service other than any loan, discount, deposit, or
trust service from Bank.
20. NOTICES AND OTHER COMMUNICATIONS. Each notice, demand, or other
communication, whether or not received, shall be deemed to have been given to
Borrower whenever Bank shall have mailed a writing to that effect by certified
or registered mail to Borrower at Borrower's mailing address (or any other
address of which Borrower shall have given Bank notice after the execution and
delivery of this Note); however, no other method of giving actual notice to
Borrower is hereby precluded. Borrower hereby irrevocably accepts Borrower's
appointment as each Obligor's agent for the purpose of receiving any notice,
demand, or other communication to be given by Bank to each such Obligor pursuant
to any Related Writing. Bank shall be entitled to assume that any knowledge
possessed by any Obligor other than Borrower is possessed by Borrower. Each
communication to be given to Bank shall be in writing unless this Note expressly
permits that communication to be made orally, and in any case shall be given to
Bank's Metropolitan Banking Division at Bank's banking office (or any other
address of which Bank shall have given notice to Borrower after the execution
and delivery this Note). Borrower hereby assumes all risk arising out of or in
connection with each oral communication given by Borrower and each communication
given or attempted by Borrower in contravention of this section. Bank shall be
entitled to rely on each communication believed in good faith by Bank to be
genuine.
21. WARRANT OF ATTORNEY. Borrower hereby authorizes any attorney at law at any
time or times to appear in any state or federal court of record in the United
States of America after all or any part of the obligations evidenced by this
Note shall have become due, whether by lapse of time, acceleration, or
otherwise, and in each case to waive the issuance and service of process, to
present to the court this Note and any other writing (if any) evidencing the
obligation or obligations in question, to admit the due date thereof and the
nonpayment thereof when due, to confess judgment against Borrower in favor of
Bank for the full amount then appearing due, together with interest and costs of
suit, and thereupon to release all errors and waive all rights of appeal and any
stay of execution. The foregoing warrant of attorney shall survive any judgment,
it being understood that should any judgment against Borrower be vacated for any
reason, Bank may nevertheless utilize the foregoing warrant of attorney in
thereafter obtaining one or more additional judgments against Borrower.
22. JURISDICTION AND VENUE; WAIVER OF JURY TRIAL. Any action, claim,
counterclaim, crossclaim, proceeding, or suit, whether at law or in equity,
whether sounding in tort, contract, or otherwise at any time arising under or in
connection with this Note or any other Related Writing, the administration,
enforcement, or negotiation of this Note or any other Related
-29-
<PAGE> 10
Writing, or the performance of any obligation in respect of this Note or any
other Related Writing (each such action, claim, counterclaim, crossclaim,
proceeding, or suit, an "ACTION") may be brought in any federal or state court
located in the city in which Bank's banking office is located. Borrower hereby
unconditionally submits to the jurisdiction of any such court with respect to
each such Action and hereby waives any objection Borrower may now or hereafter
have to the venue of any such Action brought in any such court. BORROWER HEREBY,
AND EACH HOLDER OF THIS NOTE, BY TAKING POSSESSION THEREOF, KNOWINGLY AND
VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY ACTION.
BORROWER:
TEAM AMERICA CORPORATION
By:
------------------------------------------
Richard C. Schilg
Its: Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
- --------------------------------------------------------------------------------
-30-
<PAGE> 11
COMMERCIAL NOTE ADDENDUM (OHIO)
- --------------------------------------------------------------------------------
AMOUNT CITY, STATE DATE FOR BANK USE ONLY
---------------------------
$10,000,000.00 COLUMBUS, OHIO JULY 15, 1998 OBLIGOR #
- --------------------------------------------------------------------------------
TAX I. D. #
---------------------------
OBLIGATION #
---------------------------
OFFICE
---------------------------
This Commercial Note Addendum (this "ADDENDUM") is made by TEAM AMERICA
CORPORATION, AN OHIO CORPORATION ("BORROWER"), at the place and as of the date
first set forth above.
Borrower has executed and delivered to NATIONAL CITY BANK, A NATIONAL BANKING
ASSOCIATION ("BANK"), a promissory note of even date herewith in the face amount
set forth above and captioned Commercial Note: Revolving Credit/Prime/LIBOR
(Ohio).
This Addendum is hereby made a part of the note described above and that note is
hereby supplemented by adding the following Events of Default thereto:
1. INFORMATION. It shall be an Event of Default if Bank shall not receive:
(a) as soon as available, and in any event within forty-five (45) days after
each quarter-annual fiscal period of each of Borrower's fiscal years, the
Reporting Group's balance sheet as at the end of the period and the Reporting
Group's statements of cash flow, income, and surplus reconciliation for
Borrower's then current fiscal year to date, prepared for the Reporting Group
on a consolidated basis, and on comparative basis with the prior year, in
accordance with GAAP, and in form and detail satisfactory to Bank, and
(b) as soon as available, and in any event within one hundred twenty (120)
days after the end of each of Borrower's fiscal years, a complete copy of an
annual report (including, without limitation, all financial statements
therein and notes thereto) of the Reporting Group for that year, (i) prepared
in the manner described in the next preceding clause (a), (ii) certified,
without qualification as to GAAP, as having been audited by independent
certified public accountants selected by Borrower and satisfactory to Bank,
and (iii) accompanied by a copy of any management report, letter, or similar
writing furnished to any member of the Reporting Group by those accountants.
(c) concurrently with each delivery of financial statements pursuant to
clause (a) or (b) of this section 1, a compliance certificate signed by
Borrower's chief financial officer (or other officer acceptable to Bank) and
otherwise in form and substance satisfactory to Bank (i) certifying that to
the best of that officer's knowledge and belief, (A) those financial
statements have been prepared in accordance with GAAP and fairly present in
all material respects the financial condition and results of operations of
the Reporting Group, if any, in accordance with GAAP subject, in the case of
interim financial statements, to routine year-end
-31-
<PAGE> 12
adjustments and (B) no Event of Default then exists or if any does, a brief
description of the Event of Default and Borrower's intentions in respect
thereof and (ii) setting forth calculations with respect to each subsection
of section 2.
2. FINANCIAL STANDARDS. Each of the following shall be an Event of Default:
2.1 NET WORTH. If, on the dates set forth below, the Reporting Group's
net worth shall be less than an amount equal to the aggregate of (a)
the cumulative total value, from the date of this Addendum to the
particular date in question, of all of the shares of Borrower's common
stock which have been issued during such period (with the value of each
such share being determined as of the date of issue), plus (b) the
amount set forth below opposite the particular date in question.
DATE AMOUNT
---- ------
December 31, 1998 $27,000,000.00
December 31, 1999 $28,000,000.00
December 31, 2000 $29,000,000.00
2.2 EBITDA. If, on the dates set forth below, the aggregate of (a) the
Reporting Group's Net Income for the period of twelve (12) consecutive
months ending on such date, plus (b) the Reporting Group's interest
expense for that period, plus (c) the Reporting Group's federal, state,
and local income taxes, if any, for that period, plus (d) the Reporting
Group's depreciation and amortization charges for that period shall be
less than the amount set forth opposite the particular date in
question.
DATE AMOUNT
---- ------
December 31, 1998 $3,500,000.00
June 30, 1999 $4,000,000.00
December 31, 1999 $4,500,000.00
June 30, 2000 $5,000,000.00
December 31, 2000 $5,500,000.00
June 30, 2001 $6,000,000.00
2.3 SUBJECT LOANS TO EBITDA. If, as of the last day an applicable
EBITDA Measurement Period, commencing with the EBITDA Measurement
Period ending on March 31, 1998, the aggregate of the unpaid principal
balance of the Subject Loans shall be greater than two hundred fifty
percent (250.0%) of the aggregate of (a) the Reporting Group's Net
Income for that EBITDA Measurement Period, plus (b) the Reporting
Group's interest expense for that period, plus (c) the Reporting
Group's federal, state, and local income taxes, if any, for that
period, plus (d) the Reporting Group's depreciation and amortization
charges for that period. Each "EBITDA MEASUREMENT PERIOD" shall be a
period of four (4) consecutive quarter-annual fiscal periods of
Borrower ending on the last day of the fourth such period.
-32-
<PAGE> 13
2.4 DIVIDENDS. If any member of the Reporting Group shall make or
commit itself to make any Dividend without having first obtained Bank's
consent.
3. BORROWINGS. It shall be an Event of Default if any member of the Reporting
Group shall, without having first obtained Bank's consent, create, assume, or
have outstanding at any time any Debt (specifically including, for the purposes
of this section 3, all capital or operating leases) in an aggregate amount in
excess of One Million and 00/100 Dollars ($1,000,000.00), except any existing
Debt fully disclosed in the Most Recent Financial Statements, any existing or
future Bank Debt, any existing or future Subordinated Debt, or any existing or
future Debt secured by any mortgage, security interest, or other lien expressly
consented to by Bank.
4. DEFINITIONS. As used in this Addendum, except where the context clearly
requires otherwise, "DIVIDEND" means a payment made, liability incurred, or
other consideration given by any Person (other than any stock dividend or stock
split payable solely in capital stock of that Person) for the purchase,
acquisition, redemption or retirement of any capital stock of that Person or as
a dividend, return of capital, or other distribution in respect of that Person's
capital stock; "GAAP" means generally accepted accounting principles applied in
a manner consistent with those used in preparation of the Most Recent Financial
Statements; "MOST RECENT FINANCIAL STATEMENTS" means the financial statements
included in the Reporting Group's most recent annual report delivered to Bank on
or before the date of this Addendum; "NET INCOME" means net income as determined
in accordance with GAAP, after taxes, if any, and after extraordinary items, but
without giving effect to any gain resulting from any reappraisal or write-up of
any asset; "REPORTING GROUP" means (I) Borrower alone, if all of the financial
statements hereinbefore selected are prepared for Borrower alone, in which case
all determinations referred to in section 2 shall be for Borrower alone and in
accordance with GAAP; (II) Borrower and each Subsidiary of Borrower, if any of
the financial statements hereinbefore selected are prepared on a consolidated
basis, in which case all determinations referred to in section 2 shall be on a
consolidated basis and in accordance with GAAP, and (III) Borrower and each
other Person whose assets, liabilities, income, cash flow, and shareholders'
equity are reported on a combined basis with those of Borrower, if any of the
financial statements hereinbefore selected are prepared on a combined basis, in
which case all determinations referred to in section 2 shall be on a combined
basis and in accordance with GAAP; "SUBORDINATED", as applied to any liability
of any Person, means a liability which at the time in question is subordinated
(by a writing in form and substance satisfactory to Bank) in favor of the prior
payment in full of that Person's Debt to Bank; "SUBSIDIARY" means a corporation
or other business entity if shares constituting a majority of its outstanding
capital stock (or other form of ownership) or constituting a majority of the
voting power in any election of directors (or shares constituting both
majorities) are (or upon the exercise of any outstanding warrants, options or
other rights would be) owned directly or indirectly at the time in question by
the corporation in question or another Subsidiary of that corporation or any
combination of the foregoing; and the foregoing definitions shall be applicable
to the respective plurals of the foregoing defined terms. Any accounting term
used in this Addendum shall have the meaning ascribed thereto by GAAP as in
effect on the date hereof, subject, however, to such modification, if any, as
may be provided in this Addendum or in the note hereby supplemented.
-33-
<PAGE> 14
BORROWER:
TEAM AMERICA CORPORATION
By:
---------------------------------------
Richard C. Schilg
Its: Chairman and Chief Executive Officer
- --------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
- --------------------------------------------------------------------------------
-34-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,579,427
<SECURITIES> 515,000
<RECEIVABLES> 11,338,810
<ALLOWANCES> 50,000
<INVENTORY> 0
<CURRENT-ASSETS> 16,907,102
<PP&E> 2,202,326
<DEPRECIATION> 749,755
<TOTAL-ASSETS> 45,031,616
<CURRENT-LIABILITIES> 14,488,561
<BONDS> 0
0
0
<COMMON> 28,249,006
<OTHER-SE> 1,699,918
<TOTAL-LIABILITY-AND-EQUITY> 45,031,616
<SALES> 0
<TOTAL-REVENUES> 154,141,895
<CGS> 0
<TOTAL-COSTS> 146,401,071
<OTHER-EXPENSES> 7,078,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 740,900
<INCOME-TAX> 494,000
<INCOME-CONTINUING> 246,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
