<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1998
REGISTRATION NO. 333-39163
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EMPLOYEE SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
ARIZONA 7361 86-0676898
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
AND ITS GUARANTOR SUBSIDIARIES:
<TABLE>
<S> <C> <C>
INDIANA ERC OF INDIANA, INC. 35-1724861
MINNESOTA ERC OF MINN, INC. 41-1860732
MICHIGAN ERC OF OHIO, INC. 38-2986964
NEVADA ESI AMERICA, INC. 94-3232050
NEVADA ESI-MIDWEST, INC. 86-0826071
ARIZONA ESI RISK MANAGEMENT AGENCY, INC. 86-0806066
INDIANA EMPLOYEE RESOURCES CORPORATION 38-3250667
GEORGIA EMPLOYEE SOLUTIONS-EAST, INC. 58-2118958
MICHIGAN EMPLOYEE SOLUTIONS-MIDWEST, INC. 38-2986965
INDIANA EMPLOYEE SOLUTIONS OF OHIO, INC. 35-1814397
TEXAS EMPLOYEE SOLUTIONS OF TEXAS, INC. 74-2617722
FLORIDA EMPLOYEE SOLUTIONS-SOUTHEAST, INC. 59-2474722
DELAWARE GCK ENTERTAINMENT SERVICES I, INC. 95-4353479
NEVADA LOGISTICS PERSONNEL CORPORATION 86-0802394
INDIANA PHOENIX CAPITAL MANAGEMENT, INC. 35-1814367
DELAWARE TALENT, ENTERTAINMENT AND MEDIA 95-4560704
SERVICES, INC.
(STATE OR OTHER JURISDICTION (EXACT NAME OF GUARANTOR (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) AS SPECIFIED IN ITS CHARTER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
<TABLE>
<S> <C>
PAUL M. GALES, ESQ.
EMPLOYEE SOLUTIONS, INC.
6225 NORTH 24TH STREET 6225 NORTH 24TH STREET
PHOENIX AZ 85016 PHOENIX AZ 85016
(602) 955-5556 (602) 955-5556
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE,
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S AND TELEPHONE NUMBER INCLUDING AREA
PRINCIPAL EXECUTIVE OFFICES) CODE, OF AGENT FOR SERVICE)
</TABLE>
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT
SHOULD BE SENT TO:
<TABLE>
<S> <C>
KENNETH V. HALLETT, ESQ. WILLIAM R. KUNKEL, ESQ.
QUARLES & BRADY SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
411 EAST WISCONSIN AVENUE 333 WEST WACKER DRIVE
MILWAUKEE WI 53202 CHICAGO IL 60606
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
EMPLOYEE SOLUTIONS, INC.
[EMPLOYEE SOLUTIONS, INC. LOGO]
OFFER TO EXCHANGE UP TO $85 MILLION IN PRINCIPAL AMOUNT
OF ITS SERIES B 10% SENIOR NOTES DUE 2004,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR ANY AND ALL OF ITS OUTSTANDING $85 MILLION IN PRINCIPAL AMOUNT
OF 10% SENIOR NOTES DUE 2004
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON MAY 11, 1998, UNLESS EXTENDED
The Series B 10% Senior Notes due 2004 are being offered by Employee
Solutions, Inc., an Arizona corporation ("ESI" or the "Company"). ESI hereby
offers to exchange (the "Exchange Offer") up to $85 million in aggregate
principal amount of ESI's new Series B 10% Senior Notes due 2004 (the "Exchange
Notes") for $85 million in aggregate principal amount of ESI's outstanding 10%
Senior Notes due 2004 (the "Original Notes"). The Original Notes and the
Exchange Notes are sometimes referred to herein collectively as the "Notes."
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Exchange Notes will be freely transferable by holders thereof
(other than as described herein) and issued free of any covenant restricting
transfer absent registration and will not have the right to earn additional
interest as Liquidated Damages (as defined) in the event of a failure to
register such Exchange Notes. The Exchange Notes will evidence the same debt as
the Original Notes and contain terms which are substantially identical to the
terms of the Original Notes for which they are to be exchanged. For a
description of the terms of the Notes, see "Description of the Notes." There
will be no cash proceeds to the Company from the Exchange Offer.
The Exchange Notes will bear interest from the most recent date to which
interest has been paid on the Original Notes, or if no interest has been paid on
the Original Notes, from October 21, 1997. Holders whose Original Notes are
accepted for exchange will not receive any payment in respect of interest on
such Original Notes otherwise payable on any interest payment date the record
date for which occurs on or after consummation of the Exchange Offer. See "The
Exchange Offer -- Terms of the Exchange Offer."
The Notes mature on October 15, 2004, unless previously redeemed. Interest
on the Notes is payable semiannually on April 15 and October 15, commencing
April 15, 1998. The Notes are redeemable at the option of the Company, in whole
or in part, on or after October 15, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages on the Original
Notes (as defined), if any, to the redemption date. Upon a Change of Control (as
defined), the Company is required to offer to repurchase all outstanding Notes
at 101% of the principal amount thereof plus accrued and unpaid interest (and,
in the case of Original Notes, Liquidated Damages, if any), to the date of
repurchase.
The Notes are general unsecured obligations of the Company and rank senior
in right of payment to all existing and future Indebtedness (as defined) of the
Company that is subordinated to the Notes and will rank pari passu in right of
payment with all current and future senior indebtedness of the Company. The
Notes are unconditionally guaranteed on a senior basis (the "Guarantees") by
certain of the Company's current and future Subsidiaries (as defined) (the
"Guarantors"). The Guarantees are general unsecured obligations and will rank
senior in right of payment to all existing and future subordinated Indebtedness
of the Guarantors and will rank pari passu in right of payment with all other
existing and future senior Indebtedness of the Guarantors. Under the Amended
Credit Facility (as defined), the Company may borrow on a revolving basis or
draw letters of credit up to $20 million, which will be secured by substantially
all of the assets of the Company and guaranteed by the Guarantors, which
guarantees will be secured by substantially all of the assets of the Guarantors.
Accordingly, the Notes and the Guarantees are effectively subordinated to the
loans outstanding under the Amended Credit Facility and the guarantees of such
loans, respectively, to the extent of the value of the assets securing such
loans and guarantees. As of June 30, 1997, on a pro forma basis after giving
effect to the Offering and the application of the estimated net proceeds
therefrom, the Company had no senior Indebtedness outstanding other than the
Notes. See "Description of Notes."
The Original Notes were sold on October 21, 1997, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon the exemption provided in Section 4(2) of the Securities Act
(the "Offering"). Accordingly, the Original Notes may not be offered, resold or
otherwise pledged, hypothecated or transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered to satisfy the obligations of the Company under a Registration
Rights Agreement relating to the Original Notes. See "The Exchange
Offer -- Purposes and Effects of the Exchange Offer." Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Original Notes may be offered
for resale, resold or otherwise transferred by the holders thereof (other than
any holder which is an affiliate of the Company within the meaning of Rule 405
under the Securities Act and other than any broker-dealer that receives Exchange
Notes for its own account in exchange for Original Notes that were acquired as a
result of market-making activities or other trading activities) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged and do not
intend to engage, and have no arrangement or understanding with any person to
engage, in the distribution of such Exchange Notes. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DESCRIPTION OF CERTAIN RISKS
RELATING TO ESI AND AN INVESTMENT IN ITS SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is April 6, 1998.
<PAGE> 3
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by so delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company had agreed
that, for a period of up to 180 days after the date hereof (or longer under
certain circumstances), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list either the
Original Notes or the Exchange Notes on any securities exchange. To the extent
that any Original Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell Original Notes could be adversely affected. No
assurances can be given as to the liquidity of the trading market for either the
Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 P.M., New York time, on May 11, 1998, unless extended (the
"Expiration Date"). The date of acceptance for exchange of the Original Notes
will be the first business day following the Expiration Date. Original Notes
tendered pursuant to the Exchange Offer may be withdrawn at anytime prior to the
Expiration Date, otherwise, such tenders are irrevocable. The Company will pay
all expenses incident to the Exchange Offer.
THE DISTRIBUTION OF THIS PROSPECTUS AND THE EXCHANGE OFFER DESCRIBED HEREIN
MAY BE RESTRICTED BY LAW IN CERTAIN JURISDICTIONS. PERSONS INTO WHOSE POSSESSION
THIS PROSPECTUS COMES MUST INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH
RESTRICTIONS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES TO ANY PERSON IN ANY JURISDICTION WHERE IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
i
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Cautionary Statement Regarding Forward-Looking Statements... ii
Available Information....................................... ii
Documents Incorporated by Reference......................... iii
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
The Exchange Offer.......................................... 15
Certain Federal Income Tax Consequences..................... 23
Use of Proceeds............................................. 23
Selected Consolidated Financial Information................. 24
Business.................................................... 25
Description of Notes........................................ 26
Plan of Distribution........................................ 47
Legal Matters............................................... 48
Experts..................................................... 48
</TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus which are not historical facts
(including statements in the future tense and statements using terms such as
"believe," "expect," "anticipate" and similar terms) are forward-looking
statements subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in the forward-looking statements,
including delay or inability to conclude acquisition transactions, introductions
of competing services, cancellations of contracts, changes in applicable
regulations, general market acceptance of the Company's professional employer
organization services and other services, fluctuations in margins, customers'
reorganizations, demand fluctuations, and other factors. The other factors
include those set forth in connection with the forward-looking statements or
otherwise set forth herein, particularly in "Risk Factors," and in the Company's
1997 Annual Report on Form 10-K ("ESI 1997 10-K") incorporated herein by
reference, particularly made in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Readers of this
Prospectus are also urged to review carefully and consider the various
disclosures herein, and incorporated herein by reference, which attempt to
advise interested parties of the factors which affect or may affect the
Company's business.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information filed by the Company under the Exchange Act
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: 7 World Trade Center, 13th
Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Also, the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants (such as the Company) that file
electronically with the Commission.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish to the Holders of the Notes and file with the
Commission (unless the Commission will not accept such a filing) (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
ii
<PAGE> 5
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports.
Certain provisions of various instruments, including the Indenture and the
Registration Rights Agreement (each as defined), and the Notes are summarized in
this Offering Memorandum, but prospective investors should be aware that the
summaries are qualified in their entirety by reference to the texts of the
original instruments, which will be made available to Holders without charge on
request. Requests for such documents should be submitted in writing to Paul M.
Gales, Senior Vice President, General Counsel and Secretary, at the Company's
principal executive offices at 6225 North 24th Street, Phoenix, Arizona 85016,
or by telephone at (602) 955-5556.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act (File No. 0-22600) are incorporated into this Offering
Memorandum by reference:
(a) Annual Report on Form 10-K for fiscal year ended December 31,
1997.
(b) Current Report on Form 8-K dated as of February 20, 1998.
(c) All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the completion of the Exchange Offer.
The information contained in this Prospectus does not purport to be
comprehensive and should be read together with the information contained in the
documents incorporated by reference herein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed to constitute a part of this Prospectus, except as so
modified or superseded.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents which are incorporated herein by reference (other
than exhibits not specifically incorporated by reference into the text of such
documents). Requests should be directed to Paul M. Gales, Senior Vice President,
General Counsel and Secretary, at the Company's principal executive offices at
6225 North 24th Street, Phoenix, Arizona 85016, or by telephone at (602)
955-5556.
iii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the consolidated financial statements and the notes thereto, appearing elsewhere
in this Prospectus. Unless the context otherwise indicates, references in this
Prospectus to the "Company" or "ESI" refer to Employee Solutions, Inc. and its
subsidiaries. Investors should carefully consider the information set forth
under the caption "Risk Factors."
THE COMPANY
The Company is one of the largest professional employer organizations
("PEO") and is the most geographically diverse PEO in the United States,
specializing in integrated employment outsourcing solutions for small and
mid-sized businesses. As of December 31, 1997, the Company served approximately
1,700 client companies representing 45,200 worksite employees in 47 states.
The Company offers a broad array of integrated outsourcing solutions which
provide businesses throughout the United States with comprehensive and flexible
outsourcing services to meet their payroll, benefits and human resources needs
while helping manage their overall costs. The Company provides significant
benefits to its client companies and their worksite employees, including: (i)
managing escalating costs associated with workers' compensation, health
insurance, workplace safety and employment policies and practices; (ii)
enhancing employee recruiting and retention by providing employees with access
to a menu of healthcare and other benefits that are more characteristic of
larger employers; (iii) providing expertise in transportation personnel and in
labor relations; and (iv) reducing the time and effort required by the employer
to deal with an increasingly complex administrative, legal and regulatory
environment.
As a PEO, ESI and its "client company" typically agree that ESI will become
the "employer of record" for the client company's employees. ESI generally
assumes designated obligations for payroll processing and reporting, payment of
payroll taxes, human resources management and the provision of employee benefit
plans and risk management/workers' compensation services. Additionally, ESI may
provide other products and services directly to worksite employees, such as
employee payroll deduction programs for disability and specialty health
insurance, prepaid telephone cards and other personal financial services. The
client company generally retains management control of the worksite employees,
including hiring, supervision and termination and determining the employees' job
descriptions and salaries.
1
<PAGE> 7
THE EXCHANGE OFFER
PURPOSE OF EXCHANGE........ The Original Notes were sold in the Private
Offering (the "Offering") by ESI to certain
accredited institutions through First Chicago
Capital Markets, Inc., who acted as the initial
purchaser (the "Initial Purchaser"). In connection
therewith, ESI executed and delivered, for the
benefit of the holders of the Original Notes, a
Registration Rights Agreement dated October 21,
1997 (the "Registration Rights Agreement"), which
is an exhibit to the Registration Statement of
which this Prospectus is a part, providing for,
among other things, the Exchange Offer so that the
Exchange Notes will be freely transferable by the
holders thereof without registration or any
prospectus delivery requirements under the
Securities Act, except that a "dealer" or any
"affiliate" of a "dealer" (as such terms are
defined under the Securities Act), who exchanges
Original Notes held for its own account (a
"Restricted Holder") will be required to deliver
copies of this Prospectus in connection with any
resale of the Exchange Notes issued in exchange for
such Original Notes. See "Risk
Factors -- Consequences of Failure to Exchange,
"The Exchange Offer -- Purposes and Effects of the
Exchange Offer" and "Plan of Distribution".
THE EXCHANGE OFFER......... ESI is offering to exchange pursuant to the
Exchange Offer up to $85 million aggregate
principal amount of ESI's new Series B 10% Senior
Notes due 2004 (the "Exchange Notes") for $85
million aggregate principal amount of ESI's
outstanding 10% Senior Notes due 2004 (the
"Original Notes"). The Original Notes and the
Exchange Notes are sometimes collectively referred
to herein as the "Notes." The terms of the Exchange
Notes are substantially identical in all respects
(including principal amount, interest rate and
maturity) to the terms of the Original Notes for
which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (other than
as provided herein), and are not subject to any
covenant regarding registration under the
Securities Act. See "The Exchange Offer -- Terms of
the Exchange Offer" and "The Exchange Offer --
Procedures for Tendering."
The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange.
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time on May 11, 1998, unless extended to
a date not later than 60 days from the effective
date of the Registration Statement of which this
Prospectus is a part (the "Expiration Date").
CONDITIONS OF THE
EXCHANGE OFFER............. ESI's obligation to consummate the Exchange Offer
will be subject to certain conditions. ESI will not
be required to accept for exchange any Original
Notes tendered and may terminate or amend the
Exchange Offer as provided herein before the
acceptance of such Original Notes, if, among other
things, certain legal actions or proceedings are
instituted or there shall have been proposed,
adopted or enacted any law, statutes or regulations
materially affecting the benefits of the Exchange
Offer. See "The Exchange Offer -- Conditions of the
Exchange Offer." ESI reserves the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such conditions.
2
<PAGE> 8
PROCEDURES FOR TENDERING
ORIGINAL NOTES............. Each holder of Original Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Original Notes and any other required
documentation to the exchange agent (the "Exchange
Agent") at the address set forth herein. Original
Notes may be physically delivered, but physical
delivery is not required if a confirmation of a
book-entry of such Original Notes to the Exchange
Agent's account at The Depository Trust Company
("DTC" or the "Depository") is delivered in a
timely fashion. Brokers, dealers, commercial banks,
trust companies and other nominees who hold
Original Notes through DTC may effect exchanges by
book-entry transfer in accordance with DTC's
Automated Tender Offer Program ("ATOP"). Holders of
such Original Notes registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee are urged to contact such person
promptly if they wish to exchange Original Notes.
By executing the Letter of Transmittal, each holder
will represent to the Company, among other things,
(i) that the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person receiving
such Exchange Notes, whether or not such person is
the holder, (ii) that neither the holder nor any
such other person is engaged in, or intends to
engage in, or has an arrangement or understanding
with any person to participate in, the distribution
of such Exchange Notes and (iii) that neither the
holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of
ESI, or if it is an affiliate, that it will comply
with the registration and prospectus delivery
requirements of the Securities Act, to the extent
applicable. Each broker or dealer that receives
Exchange Notes for its own account in exchange for
Original Notes, where such Original Notes were
acquired by such broker or dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. See "The Exchange
Offer -- Procedures for Tendering" and "Plan of
Distribution."
Letters of Transmittal and certificates
representing Original Notes should not be sent to
the Company. Such documents should only be sent to
the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Original Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering the Original Notes, either make
appropriate arrangements to register ownership of
the Original Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
3
<PAGE> 9
GUARANTEED DELIVERY
PROCEDURES................. Holders of Original Notes who wish to tender their
Original Notes and whose Original Notes are not
entirely available or who cannot deliver their
Original Notes must complete, sign and deliver, the
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date and
must tender their Original Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00
p.m. New York City time, on the Expiration Date.
See "The Exchange Offer -- Withdrawal of Tenders."
ACCEPTANCE OF ORIGINAL
NOTES AND DELIVERY OF
EXCHANGE NOTES............. ESI will accept for exchange any and all Original
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
EXCHANGE AGENT............. The Huntington National Bank, Columbus, Ohio is
serving as Exchange Agent in connection with the
Exchange Offer. See "The Exchange Offer -- Exchange
Agent."
EFFECT ON HOLDERS OF THE
ORIGINAL NOTES............. As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, ESI will have fulfilled one of
the covenants contained in the Registration Rights
Agreement and, accordingly, there will be no
increase in the interest rate on the Original Notes
pursuant to the applicable terms of the
Registration Rights Agreement due to the Exchange
Offer. Holders of the Original Notes who do not
tender their Original Notes will be entitled to all
the rights and limitations applicable thereto under
the Indenture dated as of October 15, 1997, among
ESI, the Guarantors, and The Huntington National
Bank, Columbus, Ohio, as trustee (the "Trustee")
relating to the Original Notes and the Exchange
Notes (the "Indenture"), except for any rights
under the Indenture or the Registration Rights
Agreement which by their terms terminate or cease
to have further effectiveness as a result of the
making of, and the acceptance for exchange of all
validly tendered Original Notes pursuant to, the
Exchange Offer. All indentured Original Notes will
continue to be subject to the restrictions on
transfer provided for in the Original Notes and in
the Indenture. To the extent that Original Notes
are tendered and accepted in the Exchange Offer,
the trading market for Original Notes could be
adversely affected.
USE OF PROCEEDS............ There will be no cash proceeds to ESI from the
exchange pursuant to the Exchange Offer.
TERMS OF THE NOTES
The Exchange Offer applies to the entire outstanding $85 million principal
amount of Original Notes. The terms of the Exchange Notes are identical in all
material respects to the Original Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Original Notes for
4
<PAGE> 10
Exchange Notes. The Exchange Notes will evidence the same debt as the Original
Notes and will be entitled to the benefits of the Indenture under which both the
Original Notes were, and the Exchange Notes will be, issued. A brief description
of the Notes is set forth below; for a more extensive description; see
"Description of the Notes."
MATURITY DATE.............. October 15, 2004.
INTEREST PAYMENT DATES..... April 15 and October 15 each year, commencing April
15, 1998.
GUARANTEES................. The Notes are unconditionally guaranteed (the
"Guarantees") on an unsecured senior basis by
certain existing and future Subsidiaries of the
Company (collectively, the "Guarantors"). See
"Description of Notes."
RANKING.................... The Notes and the Guarantees are general unsecured
obligations of the Company and the Guarantors,
respectively, and rank senior in right of payment
to all existing and future subordinated
Indebtedness of the Company and the Guarantors,
respectively. The Notes and the Guarantees rank
pari passu in right of payment with all senior
Indebtedness (as defined) of the Company and the
Guarantors, respectively. Loans and guarantees
under the Company's $20 million amended revolving
credit facility entered into as of October 21, 1997
(the "Amended Credit Facility") are secured by
substantially all of the assets of the Company and
the Guarantors and, accordingly, the Notes and the
Guarantees are effectively subordinated to the
loans and guarantees outstanding under the Amended
Credit Facility to the extent of the value of the
assets securing such loans and guarantees. As of
December 31, 1997, the Company and its Subsidiaries
had no senior Indebtedness other than the Notes.
OPTIONAL REDEMPTION........ The Notes are redeemable, in whole or in part, at
the option of the Company at any time on or after
October 15, 2001, at the declining redemption
prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of redemption. See "Description of
Notes -- Optional Redemption."
CHANGE OF CONTROL.......... In the event of a Change of Control, Holders of the
Notes will have the right to require that the
Company repurchase the Notes in whole or in part at
a redemption price of 101% of the principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
repurchase. See "Description of Notes -- Certain
Covenants -- Repurchase of Notes at the Option of
the Holder Upon a Change of Control."
COVENANTS.................. The Indenture contains certain covenants, including
limitations on the ability of the Company and its
Subsidiaries to: (i) incur additional Indebtedness;
(ii) incur certain liens; (iii) engage in certain
transactions with affiliates; (iv) make certain
restricted payments; (v) agree to payment
restrictions affecting Subsidiaries; (vi) engage in
unrelated lines of business; or (vii) engage in
mergers, consolidations or the transfer of all or
substantially all of the assets of the Company to
another person. In addition, in the event of
certain Asset Sales (as defined), the Company will
be required to use the proceeds to reinvest in the
Company's business, to repay certain debt or to
offer to purchase Notes at 100% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of
purchase. See "Description of Notes -- Certain
Covenants."
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<PAGE> 11
EXCHANGE OFFER;
REGISTRATION RIGHTS........ Pursuant to a Registration Rights Agreement (the
"Registration Rights Agreement") between the
Company, the Guarantors and the Initial Purchaser,
the Company has agreed to file with the Commission,
within 45 days after the date of issuance of the
Notes (the "Issue Date"), a registration statement
under the Securities Act relating to an Exchange
Offer for the Notes and will use its best efforts
to cause such registration statement to become
effective within 120 days after the Issue Date
(which did not occur). In the event of a
Registration Default (as defined), the Company
would be required to pay Liquidated Damages on the
Original Notes, but such provisions do not apply to
the Exchange Notes. The Registration Statement of
which this Prospectus is a part has been filed to
satisfy the requirements of the Registration Rights
Agreement. See "Description of
Notes -- Registration Rights; Liquidated Damages."
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Notes, see "Risk Factors."
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<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents for the periods indicated certain historical
consolidated financial information. The consolidated financial information as of
December 31, 1995, 1996 and 1997 and for the years then ended is derived from
the consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report incorporated by reference herein. This information should be read in
conjunction with "Selected Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................................... $164,455 $439,016 $933,817
Cost of revenues............................................ 150,675 400,862 903,255
-------- -------- --------
Gross profit................................................ 13,780 38,154 30,562
Selling, general and administrative expenses................ 7,183 17,310 33,411
Depreciation and amortization............................... 426 2,073 4,617
-------- -------- --------
Income (loss) from operations............................... 6,171 18,771 (7,466)
Interest income............................................. 296 833 1,303
Interest expense............................................ (25) (1,196) (5,102)
Other income (expense)...................................... 239 (1) (50)
-------- -------- --------
Income (loss) before income taxes........................... 6,681 18,407 (11,315)
Income tax provision (benefit).............................. 2,846 6,381 (2,819)
-------- -------- --------
Net income (loss)........................................... $ 3,835 $ 12,026 $ (8,496)
======== ======== ========
OTHER DATA:
EBITDA(a)................................................... $ 7,132 $ 21,676 $ (1,596)
Depreciation and amortization............................... 426 2,073 4,617
Capital expenditures........................................ 238 702 2,499
Ratio of earnings to fixed charges(b)....................... 93.8x 13.6x (c)
At period end:
Number of worksite employees................................ 11,000 30,000 45,200
Number of client companies.................................. 920 1,200 1,700
States with worksite employees.............................. 40 46 47
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents and restricted cash............... $ 16,771 $ 22,480 $ 59,110
Total assets................................................ 36,840 125,969 207,217
Total long-term debt........................................ -- 42,800 85,000
Total stockholders' equity.................................. 19,943 46,507 42,389
</TABLE>
- ---------------
(a) "EBITDA" represents the sum of income (loss) before income taxes, interest
expense and depreciation and amortization. Information regarding EBITDA is
presented because management believes that certain investors use EBITDA as
one measure of an issuer's ability to service its debt. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles, but is presented to provide additional information
related to debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of liquidity or financial
performance under generally accepted accounting principles. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to the potential inconsistencies in
the method of calculation.
(b) The ratio of earnings to fixed charges is computed by dividing fixed charges
into income before income taxes plus fixed charges. Fixed charges include
interest expense, amortization of debt issuance costs and the estimated
interest component of rent expense. The ratios were 1.7x and 18.6x in 1993
and 1994, respectively.
(c) Earnings in 1997 were inadequate to cover fixed charges and resulted in a
coverage deficiency of approximately $11.3 million. Pro forma 1997 earnings
were inadequate to cover pro forma fixed charges and resulted in a coverage
deficiency of approximately $14.6 million. Proforma adjustments relate to
the note offering being effective January 1, 1997.
7
<PAGE> 13
RISK FACTORS
Holders should consider carefully, in addition to the other information
contained in, or incorporated by reference into, this Prospectus, the following
factors in evaluating the Company and its business before accepting the Exchange
Offer.
Procedures for Tender of Original Notes. The Exchange Notes will be issued
in exchange for Original Notes only after timely receipt by the Exchange Agent
of such Original Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Original
Notes desiring to tender such Original Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of Original Notes for exchange. Any
holder of Original Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Original Notes, where such
Original Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
Consequences of Failure to Exchange Original Notes. The Original Notes
have not been registered under the Securities Act and are subject to substantial
restrictions on transfer. Original Notes that are not tendered in exchange for
Exchange Notes or are tendered but not accepted will, following consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof. The Company does not currently anticipate that it will
register the Original Notes under the Securities Act. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, the trading
market for indentured and tendered but unaccepted Original Notes could be
adversely affected. See "The Exchange Offer -- Consequences of Failure to
Exchange."
Substantial Leverage. The Company has incurred significant debt primarily
in connection with its expansion through acquisitions. As of December 31, 1997,
the Company had outstanding senior Indebtedness of approximately $85 million,
which consisted of the Notes, and stockholders' equity of approximately $42.4
million.
The Company's ability to make scheduled principal payments in respect of,
or to pay the interest or Liquidated Damages, if any, on, or to refinance, any
of its indebtedness (including the Notes) will depend on its future performance,
which, to a certain extent, is subject to general economic, financial,
competitive, regulatory and other factors beyond its control. Based upon the
Company's current level of operations and anticipated growth, management
believes that cash flow from operations and other available cash will be
adequate to meet the Company's anticipated future requirements for working
capital expenditures, scheduled lease payments and scheduled payments of
interest on its indebtedness, including the Notes, for the foreseeable future.
Due to financial covenant violations, the Company is not currently able to
borrow under the Amended Credit Facility, which had been another source of
liquidity. The Company may, however, need to refinance all or a portion of the
principal of the Notes at or prior to maturity. There can be no assurance that
the Company's business will generate sufficient cash flow from operations, that
anticipated growth will occur or that future borrowings will be available under
the Amended Credit Facility or otherwise in an amount sufficient to enable the
Company to service or refinance its indebtedness, including the Notes, or make
anticipated capital expenditures and lease payments. In addition, there can be
no assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in the ESI 1997 10-K.
The degree to which the Company is leveraged could have important
consequences to Holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be dedicated to debt service and will not be available for other purposes;
(ii) the Company's ability to obtain additional financing in the future could be
limited; and (iii) the Indenture and the Amended Credit Facility contain
financial and restrictive covenants that limit the ability of the Company to,
among
8
<PAGE> 14
other things, borrow additional funds. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company's business and
financial performance.
A substantial portion of the Company's business is conducted through its
Subsidiaries. As a result, the Company's ability to make scheduled payments of
principal and interest on its indebtedness, including the Notes, will depend on
the future operating performance and cash flows of its Subsidiaries and on the
ability of the Company's Subsidiaries to pay dividends or make loans to the
Company. Camelback Insurance Ltd. ("Camelback"), the Company's wholly owned
insurance subsidiary, is subject to certain statutory and contractual
restrictions which limit its ability to pay dividends or make loans to the
Company. The Notes and the Guarantees will be effectively subordinated to the
loans outstanding under the Amended Credit Facility and the guarantees of such
loans to the extent of the value of the assets securing such loans and
guarantees. The Indenture will permit the Company and its Subsidiaries to incur
additional indebtedness, some of which may be secured and to which the Notes
will be effectively subordinated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in the ESI 1997 10-K.
Repurchase of Notes upon a Change of Control. In the event of a Change of
Control, the Company will be required to make an offer to repurchase the Notes
for cash at 101% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the repurchase date. Certain events
involving a Change of Control may result in an event of default under the
Amended Credit Facility or other indebtedness of the Company that may be
incurred in the future. Moreover, the exercise by the Holders of the Notes of
their right to require the Company to repurchase the Notes could cause an event
of default under the Amended Credit Facility and may cause a default under such
other indebtedness, even if the Change of Control does not. The Company's
obligations under this provision of the Indenture could delay, deter or prevent
a sale of the Company which might otherwise be advantageous to the Holders of
the Notes. There can be no assurance that the Company will have the financial
resources necessary to repurchase the Notes upon a Change of Control. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in the ESI 1997 10-K and
"Description of Notes -- Certain Covenants -- Repurchase of Notes at the Option
of the Holder Upon a Change of Control."
Management of Rapid Growth. The Company's success depends, in part, upon
its ability to achieve growth and manage this growth effectively. Since its
formation, the Company has experienced rapid growth which has challenged the
Company's management, personnel, resources and systems. As part of its business
strategy, the Company intends to pursue continued growth through its sales and
marketing capabilities, acquisitions and marketing alliances. Although the
Company has expanded its management, personnel, resources and systems to manage
future growth and to assimilate acquired operations, there can be no assurance
that the Company will be able to maintain or accelerate its growth in the future
or manage this growth effectively. Failure to do so could materially adversely
affect the Company's business and financial performance. To accommodate growth,
the Company is centralizing certain operations, which may result in temporary
disruptions in operations.
The Company has grown substantially in recent years through the acquisition
of other PEO and similar companies. Although the Company has recently focused on
further integrating prior acquisitions into the Company's operations, a key
component of the Company's long-term growth strategy is to continue to pursue
selective attractive acquisition opportunities. There can be no assurance that
the Company will be able to find attractive acquisition candidates at reasonable
prices or, if it does, that other potential acquirers will not compete
successfully with the Company for these candidates. Any significant increase in
the number of companies competing with the Company to acquire PEOs would likely
increase the cost of acquisitions and thereby limit the Company's ability to
grow profitably through acquisitions. In addition, although the Company attempts
to evaluate each acquisition candidate thoroughly prior to an acquisition, there
can also be no assurance that, once acquired, the Company will be able to
achieve acceptable levels of revenues, profitability or productivity from the
acquired company.
9
<PAGE> 15
A portion of the Company's historical growth is attributable to its risk
management/workers' compensation services program. The risks associated with
rapid growth in this area include the potential for inadequate underwriting due
to a lack of experience with new geographic markets and industries served, a
shortage of experienced and trained personnel, and the need for sophisticated
operating systems to help manage these risks. The Company recently converted its
risk management information system to a new operating system to support this
growth; there can be no assurance that this conversion will ultimately prove to
be successful, or that other future changes in systems or procedures will be
successfully completed. Any failure to manage growth in the risk
management/workers' compensation program could adversely affect the Company's
ability to underwrite profitable risks and efficiently resolve claims, which in
turn could have a material adverse effect on the Company's business and
financial performance. The pricing of the Company's guaranteed cost and Ohio
reinsurance policies in place as of January 1, 1998 are subject to annual
negotiation, and the above factors could materially increase the Company's costs
under such policies.
Adequacy of Loss Reserves; Loss and Claims Experience. Under its partially
self-insured workers' compensation arrangements in effect until January 1, 1998,
the Company is responsible for the first $250,000 ($350,000 for certain
transportation programs and $500,000 in two states with "monopolistic" workers'
compensation insurance structures) of each occurrence with no aggregate limit to
the number of losses for which the Company may be liable. The Company's reserves
for losses and loss adjustment expenses under its workers' compensation are
estimates of amounts needed to pay reported and unreported claims and related
loss adjustment expenses. Reserves are estimates based on industry data and
historical experience, and include judgments of the effects that future economic
and social forces are likely to have on the Company's experience with the type
of risk involved, circumstances surrounding individual claims and trends that
may affect the probable number and nature of claims arising from losses not yet
reported. Consequently, loss reserves are inherently uncertain and are subject
to a number of circumstances that are highly variable and difficult to predict.
This uncertainty is compounded in the Company's case by its rapid growth and
limited experience. For these reasons, there can be no assurance that the
Company's ultimate liability will not materially exceed its loss and loss
adjustment expense reserves. If the Company's reserves prove to be inadequate,
the Company will be required to increase reserves or corresponding loss payments
with a corresponding reduction, which may be material, to the Company's
operating results in the period in which the deficiency is identified.
The Company recently changed its business strategy with respect to its
workers' compensation program and related workers' compensation reserves in
response to the changing risk profile of its worksite employee base, increased
competition and reduced margin opportunities, the availability of third party
insurance at attractive rates, and in an effort to reduce the uncertainty
associated with its quarterly workers' compensation expense. As part of the
Company's change in business strategy, the Company obtained fully-insured
guaranteed cost workers' compensation coverage effective January 1, 1998,
thereby eliminating, with limited exceptions, the Company's risk retention on
workers' compensation claims arising after that date. The coverage was obtained
through Stirling Cooke Risk Management Services, Inc. under a three-year
arrangement, with pricing subject to annual review. The Company will retain risk
up to $250,000 per occurrence with respect to a defined portfolio of stand-alone
policies which were in place at December 31, 1997, which policies expire at
various dates during 1998. The Company also will retain risk up to $50,000 per
occurrence for claims under Ohio's monopolistic workers' compensation structure,
with an aggregate liability limitation based on a percentage of Ohio manual
premium. Consistent with the change in strategy, the Company also increased its
workers' compensation reserves at December 31, 1997 to reflect a one-time charge
of approximately $6.0 million to establish its reserves at a level intended to
eliminate any risk of future workers' compensation charges for pre-1998 claims.
The Company also is pursuing aggressively a loss portfolio transfer or similar
reinsurance, for pre-1998 claims. However, there can be no assurance that the
Company will successfully complete such a transaction, or of the terms on which
such a transaction could be completed.
The Company believes that the transition to a guaranteed cost program and
the increase in reserves at December 31, 1997 will reduce the uncertainty
associated with the quarterly calculation of workers' compensation costs while
providing a premium cost structure for 1998 which compares favorably with
historical costs. The availability of coverages and premium costs in future
years are subject to change (including possible material upward adjustment of
premium costs) based on loss experience and competitive
10
<PAGE> 16
conditions in the overall workers' compensation market. The Company also
believes that its workers' compensation reserves have been established at a
level which is consistent with its change in business strategy described above
(including expense associated with a loss portfolio transfer should such a
transfer be completed), although there can be no assurance that this is the
case.
State unemployment taxes are, in part, determined by the Company's
unemployment claims experience. Medical claims experience also greatly impacts
the Company's health insurance rates and claims cost from year to year, and
directly impacts the Company under its self insured medical program. Should the
Company experience a large increase in claims activity for unemployment,
workers' compensation and/or health care, then its costs in these areas would
increase. In such a case, the Company may not be able to pass these higher costs
to its clients and would therefore have difficulty competing with PEOs with
lower claims rates that may offer lower rates to clients. The Company has an
arrangement with its largest client under which the Company remains responsible
for medical claims above an agreed limit. While the Company does not believe
that it will incur material liabilities under this arrangement, there can be no
assurance that this will be the case.
Tax Treatment. The attractiveness to clients of a full-service PEO
arrangement depends in part upon the tax treatment of payments for particular
services and products under the Code (for example, the opportunity of employees
to pay for certain benefits under a cafeteria plan using pre-tax dollars). The
Internal Revenue Service ("IRS") has formed a Market Segment Study Group to
examine whether PEOs, such as the Company, are for certain employee benefit and
tax purposes the "employers" of worksite employees under the Internal Revenue
Code (the "Code"). The Company cannot predict either the timing or the nature of
any final decision that may be reached by the IRS with respect to the Market
Segment Study Group or the ultimate outcome of any such decision, nor can the
Company predict whether the Treasury Department will issue a policy statement
with respect to its position on these issues or, if issued, whether such
statement would be favorable or unfavorable to the Company. If the IRS were to
determine that the Company is not an "employer" under certain provisions of the
Code, it could materially adversely affect the Company in several ways. With
respect to benefit plans, the tax qualified status of the Company's 401(k) plans
could be revoked, and the Company's cafeteria and medical reimbursement plans
may lose their favorable tax status. If an adverse IRS determination were
applied retroactively to disqualify benefit plans, employees' vested account
balances under 401(k) plans would become taxable, an administrative employer
such as the Company would lose its tax deductions to the extent its matching
contributions were not vested, a 401(k) plan's trust could become a taxable
trust and the administrative employer could be subject to liability with respect
to its failure to withhold applicable taxes and with respect to certain
contributions and trust earnings. In such event, the Company also would face the
risk of client dissatisfaction and potential litigation by clients or worksite
employees.
As the employer of record for many client companies and their worksite
employees, the Company must account for and remit payroll, unemployment and
other employment-related taxes to numerous federal, state and local tax, labor
and unemployment authorities, and is subject to substantial penalties for
failure to do so. From time to time, the Company has received notices or
challenges which may adversely affect its tax rates and payments. In light of
the IRS Market Segment Study Group and the general uncertainty in this area,
certain proposed legislation has been drafted to clarify the employer status of
PEOs in the context of the Code and benefit plans. However, there can be no
assurance that such legislation will be proposed and adopted or in what form it
would be adopted. Even if it were adopted, the Company may need to change
aspects of its operations or programs to comply with any requirements which may
ultimately be adopted. In particular, the Company may need to retain increased
sole or shared control over worksite employees if the legislation is passed in
its current form.
Credit Risks. As the employer of record for its worksite employees, the
Company is obligated to pay their wages, benefit costs and payroll taxes. The
Company typically bills a client company for these amounts in advance of or at
each payroll date, and reserves the right to terminate its agreement with the
client, and thereby the Company's liability for future payrolls to the client's
worksite employees, if payment is not received within two days of the invoice
date. Limited extended payment terms are offered in certain cases subject to
local competitive conditions. The rapid turnaround necessary to process and make
payroll payments leaves the Company vulnerable to client credit risks, some of
which may not be identified prior to the time
11
<PAGE> 17
payroll payments are made. There can be no assurance that the Company will be
able to timely terminate any delinquent accounts or that its contractual
termination rights will be judicially enforced.
In addition, the Company has recently entered several market segments
through acquisitions in which PEOs typically advance wages, benefit costs and
payroll taxes to their clients. The Company intends to continue this practice
despite the potentially greater credit risk posed by such practices. Also, in
its stand-alone risk management/worker's compensation program, the Company has
structured certain of its clients' premium payments so that less than the full
premium is billed periodically through the policy year, with the difference to
be paid by the client on a deferred basis after the end of the policy year.
Following the completion of the Company's first series of policy audits, the
Company determined in late 1997 that collection rates from these clients would
be lower than expected, due in part to the Company's non-renewal of the affected
policies as part of the overall de-emphasis of its stand-alone program. The
Company conducts a limited credit review before accepting new clients. However,
the nature of the Company's business and pricing margins is such that a small
number of client credit failures could have an adverse effect on its business
and financial performance.
Litigation. As previously reported, the Company and certain of its present
and former directors and executive officers have been named as defendants in ten
actions filed between March 1997 and May 1997. While the exact claims and
allegations vary, they all allege violations by the Company of Section 10(b) of
the Exchange Act, and Rule 10b-5 promulgated thereunder, with respect to the
accuracy of statements regarding Company reserves and other disclosures made by
the Company and certain directors and officers. These suits were filed after a
significant drop in the trading price of the Company's Common Stock in March
1997. Each of the actions seeks certification of a class consisting of
purchasers of securities of the Company over specified periods of time. Each of
the complaints seeks the award of compensatory damages in amounts to be
determined at trial, including interest thereon, and costs of the action,
including attorneys fees. The suits have been consolidated before a single judge
of the U.S. District Court in Phoenix, Arizona. The Court has appointed lead
plaintiffs for the putative class, approved plaintiffs' selection of counsel,
and ordered plaintiffs to file a consolidated, amended complaint on or about
April 6, 1998. The Company believes the actions are without merit and intends to
defend the cases vigorously. However, the ultimate resolution of these actions
could have a material adverse effect on the Company's results of operations and
financial condition.
Client Relationships. The Company's subscriber agreements with its clients
generally may be canceled upon 30 days written notice of termination by either
party. While the Company believes that it has experienced favorable client
retention in the past, there can be no assurance that those relationships will
continue or that historical rates of retention will continue to be achieved. The
short-term nature of most customer agreements means that clients could terminate
a substantial portion of the Company's business upon short notice.
Through recent acquisitions and internal growth, the percentage of the
Company's clients in the transportation industry has increased. While the
Company has targeted this industry, which it believes could benefit from Company
services and expertise, increased concentration in a single industry could make
the Company subject to risks and trends of that industry. Also, certain aspects
of the transportation industry may be subject to particular risks, such as the
risk of property damage, injury and death from accidents inherent in the
operation of a motor vehicle. In addition, the Company is providing driver
leasing services, in which the Company acts as sole employer, which may increase
risk to the Company as a result of the direct nature of the employment
relationship.
Uncertainty of Extent of PEO's Liability; Government Regulation of PEOs.
Employers are regulated by numerous federal and state laws relating to labor,
tax and employment matters. Generally, these laws prohibit race, age, sex,
disability and religious discrimination, mandate safety regulations in the
workplace, set minimum wage rates and regulate employee benefits. Because many
of these laws were enacted prior to the development of non-traditional
employment relationships, such as PEO services, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
"co-employers" such as the Company, and there are many legal uncertainties about
employee relationships created by PEOs, such as the extent of the PEO's
liability for violations of employment and discrimination laws. The Company may
be subject to liability for violations of these or other laws even if it does
not participate in such violations. As a
12
<PAGE> 18
result, interpretive issues concerning the definition of the term "employer" in
various federal laws have arisen pertaining to the employment relationship.
Unfavorable resolution of these issues could have a material adverse effect on
the Company's results of operations or financial condition.
The Company's standard forms of client service agreement establish the
contractual division of responsibilities between the Company and its clients for
various personnel management matters, including compliance with and liability
under various governmental regulations. However, because the Company acts as a
co-employer, and in some instances acts as sole employer (such as in the driver
leasing program), the Company may be subject to liability for violations of
these or other laws despite these contractual provisions, even if it does not
participate in such violations. The circumstances in which the Company acts as
sole employer may expose the Company to increased risk of such liabilities for
an employee's actions. The Company has been sued in tort actions alleging
responsibility for employee actions (which it considers to be incidental to its
business). Although it believes it has meritorious defenses, and maintains
insurance (and requires its clients to maintain insurance) covering certain of
such liabilities, there can be no assurances that the Company will not be found
to be liable for damages in any such suit, or that such liability would not have
a material adverse effect on the Company. Although the client generally is
required to indemnify the Company for any liability attributable to the conduct
of the client or employee, the Company may not be able to collect on such a
contractual indemnification claim and thus may be responsible for satisfying
such liabilities. In addition, employees of the client may be deemed to be
agents of the Company, subjecting the Company to liability for the actions of
such employees.
While many states do not explicitly regulate PEOs, various states have
passed laws that have licensing or registration requirements and other states
are considering such regulation. Such laws vary from state to state but
generally provide for monitoring the fiscal responsibility of PEOs. There can be
no assurance that the Company will be able to satisfy licensing requirements or
other applicable regulations of any particular state from time to time.
Government Regulation Relating to Workers' Compensation Program. As part
of its risk management/workers' compensation programs, the Company has utilized
Camelback Insurance Ltd. ("Camelback"), a wholly-owned insurance company
subsidiary. Insurance companies such as Camelback are subject to the insurance
laws and regulations of the jurisdictions in which they are chartered; such laws
and regulations generally are designed to protect the interests of policyholders
rather than the interests of shareholders such as the Company. In general,
insurance regulatory authorities have broad administrative authority over
insurers domiciled in their respective jurisdictions, including authority over
insurers' capital and surplus levels, dividend payments, financial disclosure,
reserve requirements, investment parameters and premium rates. The jurisdictions
also limit the ability of an insurer to transfer or loan statutory capital or
surplus to its affiliates. The regulation of Camelback could materially
adversely affect the Company's operations and results.
Competition. The market for many of the services provided by the Company
is highly fragmented, with over 2,300 PEOs currently competing in the United
States. Many of these PEOs have limited operations with relatively few worksite
employees, but the Company believes that several are larger than or comparable
to the Company in size. The Company also competes with non-PEO companies whose
offerings overlap with some of the Company's services, including payroll
processing firms, insurance companies, temporary personnel companies and human
resource consulting firms. In addition, as the PEO industry becomes better
established, the Company expects that competition will continue to increase as
existing PEO firms consolidate into fewer and better competitors and
well-organized new entrants with potentially greater resources than the Company,
including some of the non-PEO companies described above, continue to enter the
PEO market. The Company's subscriber agreements with its clients generally may
be canceled upon 30 days written notice of termination by either party. The
short-term nature of most customer agreements means that a substantial portion
of the Company's business could be terminated upon short notice. In the
stand-alone risk management/workers' compensation services area, the Company
considers state insurance funds and other private insurance carriers to be its
primary competition.
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Year 2000 Compliance. Many computer programs process transactions based on
using two digits for the year of the transaction rather than a full four year
digits (e.g. "98" for 1998). Systems that process Year 2000 transactions with
the year "00" may encounter significant processing inaccuracies or
inoperability. Management has determined that, like most other companies, it
will be required to modify or replace significant portions of its software so
that its information systems will be able to properly utilize dates subsequent
to December 31, 1999. The Year 2000 issue will be addressed through either the
modification of existing software or conversion to new software. However, if
such transition is not completed on a timely basis, the Year 2000 issue could
have a material impact on the Company's operations.
The Company began developing its plan to address Year 2000 in 1997. The
plan includes hardware, software, electronic equipment and building systems, and
evaluates risk associated with vendor readiness. Based on developments to date,
the Company expects that the plan will be completed in a timely fashion and that
Year 2000 issues will not have a material effect on the Company's results of
operations. The Company's expectation in this regard is based upon numerous
assumptions of future events including the availability of certain resources,
third party modifications and other factors, and there can be no assurance that
the Company's current expectations will be met.
Fraudulent Conveyance. Under federal or state fraudulent conveyance
statutes or other legal principles, the Notes and/or the Guarantees might be
subordinated to existing or future indebtedness of the Company or the
Guarantors, voided or found not to be enforceable in accordance with their
terms. Accordingly, under such fraudulent conveyance statutes, if a court in a
lawsuit on behalf of an unpaid creditor of the Company or any Guarantor or a
representative of creditors, such as a trustee in bankruptcy, were to find that
the Company or any Guarantor incurred the indebtedness represented by the Notes
or the Guarantee, respectively, with actual intent to hinder, delay or defraud
creditors, or received less than a reasonably equivalent value or fair
consideration for any of such indebtedness or obligation and at the time of such
incurrence: (i) was insolvent; (ii) was rendered insolvent by reason of such
incurrence; (iii) was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small capital to carry
on its business; (iv) intended to incur, or believed that it would incur, debts
(including contingent obligations) beyond its ability to pay such debts as they
matured; or (v) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it, if, in either case, after final
judgment, the judgment was unsatisfied, such court might permit such
indebtedness, or obligation, and prior payments thereon, to be voided by such
creditor or representative and permit such prior payments to be recovered from
the holders of such indebtedness, as the case may be.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, the
Company or any Guarantor would be considered insolvent if, at the time it
incurred such indebtedness or issued the Guarantees, either the fair market
value (or fair saleable value) of its assets was less than the amount required
to pay its total debts as they mature.
Absence of Public Market. The Exchange Notes will be a new class of
securities for which there currently is no established trading market. The
Original Notes are eligible for trading on the PORTAL market. The Company does
not intend to list the Notes on any national securities exchange or to seek the
admission thereof to trading on the Nasdaq National Market. The Company has been
advised by the Initial Purchaser that it currently intends to make a market in
the Notes. The Initial Purchaser is not obligated to do so, however, and any
market-making activities with respect to the Notes may be discontinued at any
time without notice. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public market will
develop for the Exchange Notes or as to the liquidity of the trading market for
the Exchange Notes.
If the trading market does not develop or is not maintained, Holders of the
Exchange Notes may experience difficulty in reselling the Notes or may be unable
to sell them at all. If a market for the Exchange Notes does develop, any such
market may be discontinued at any time. If a public trading market develops for
the Exchange Notes, future trading prices of such Exchange Notes will depend
upon many factors, including, among other factors, prevailing interest rates,
the Company's financial condition and results of operations and
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<PAGE> 20
the market for similar notes. Depending upon those and other factors, the
Exchange Notes may trade at a discount from their principal amount.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Exchange Notes
will not be subject to similar disruptions. Any such disruptions may have an
adverse effect on Holders of the Exchange Notes.
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by ESI on October 21, 1997 to the Initial
Purchaser, who resold the Original Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act) in
the Private Offering. In connection with the sale of the Original Notes, ESI and
the Initial Purchaser entered into a Registration Rights Agreement dated as of
October 21, 1997 (the "Registration Rights Agreement") pursuant to which ESI
agreed to file with the Commission a registration statement (the "Exchange Offer
Registration Statement") with respect to an offer to exchange the Original Notes
for Exchange Notes within 45 days following the issuance of the Original Notes.
In addition, ESI agreed to use its best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act as soon as
practicable and to issue the Exchange Notes pursuant to the Exchange Offer. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
This Prospectus is a part of the Exchange Offer Registration Statement that
ESI has filed with the Commission as provided above. The Exchange Offer is being
made pursuant to the Registration Rights Agreement to satisfy ESI's obligations
thereunder. The term "Holder," with respect to the Exchange Offer, means any
person in whose name Original Notes are registered on the books of the Company
or any other person who has obtained a properly completed bond power from the
registered holder, or any person whose Original Notes are held of record by the
Depository. Upon completion of the Exchange Offer ESI generally will not be
required to file any registration statement to register any outstanding Original
Notes. Holders of Original Notes who do not tender their Original Notes or whose
Original Notes are tendered but not accepted generally will have to rely on
exemptions to registration requirements under the securities laws, including the
Securities Act, if they wish to sell their Original Notes.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to ESI, ESI believes that
the Exchange Notes issued pursuant to the Exchange Offer in exchange for
Original Notes may be offered for resale, resold and otherwise transferred by
any holder of such Exchange Notes (other than a person that is an "affiliate" of
ESI within the meaning of Rule 405 under the Securities Act and except as set
forth in the next paragraph) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder is not engaged and does not intend to engage, and has no arrangement
or understanding with any person to engage, in the distribution of such Exchange
Notes.
If any person were to be participating in the Exchange Offer for the
purpose of distributing securities in a manner not permitted by the Commission's
interpretation (i) the position of the staff of the Commission enunciated in
interpretive letters would be inapplicable to such person and (ii) such person
would be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will ESI accept surrenders for
exchange from, Holders of Original Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or laws of such jurisdiction. Prior to the Exchange Offer, however,
ESI will use its best efforts to register or qualify the Exchange Notes for
offer and sale under the securities or laws of such
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<PAGE> 21
jurisdictions as is necessary to permit consummation of the Exchange Offer and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Exchange Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, ESI will accept any and all
Original Notes validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date (as defined). ESI will issue up to $85 million aggregate
principal amount of Exchange Notes in exchange for a like principal amount of
outstanding Original Notes which are validly tendered and accepted in the
Exchange Offer. Subject to the conditions of the Exchange Offer described below,
the Company will accept any and all Original Notes which are so tendered.
Holders may tender some or all of their Original Notes pursuant to the Exchange
Offer.
The Exchange Offer is not conditioned upon any number of Original Notes
being tendered.
The form and terms of the Exchange Notes will be the same in all material
respects as the form and terms of Original Notes, except that the Exchange Notes
will be registered under the Securities Act and hence will not bear legends
restricting the transfer thereof. The Exchange Notes will not represent
additional indebtedness of ESI and will be entitled to the benefits of the
Indenture, which is the same Indenture as the one under which the Original Notes
were issued.
Interest on the Exchange Notes will accrue from the most recent date to
which interest has been paid on the Original Notes or, if no interest has been
paid, from October 21, 1997. Accordingly, registered holders of Exchange Notes
on the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from October 21, 1997. Original Notes accepted for exchange will cease to accrue
interest from and after the date of the consummation of the Exchange Offer.
Holders whose Original Notes are accepted for exchange will not receive any
payment in respect of interest on such Original Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
Holders of Original Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. ESI intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement. Original Notes which are not tendered for exchange or are
tendered but not accepted in the Exchange Offer will remain outstanding and be
entitled to the benefits of the Indenture, but generally will not be entitled to
any registration rights under the Registration Rights Agreement.
ESI shall be deemed to have accepted validly tendered Original Notes when,
as and if ESI has given oral or written notice thereof to the Exchange Agent for
the Exchange Offer. The Exchange Agent will act as agent for the tendering
holders for the purposes of receiving the Exchange Notes from ESI.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Original Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letters of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, ESI
will not be required to accept for exchange any Original Notes for any Exchange
Notes tendered and may terminate or amend the
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<PAGE> 22
Exchange Offer as provided herein before the acceptance of such Original Notes,
if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority with
respect to the Exchange Offer which, in the judgment of the Company, could
reasonably by expected to materially impair the ability of ESI to proceed
with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer; or
(b) there shall have been proposed, adopted or enacted any law,
statute, rule, regulation or order which, in the judgment of ESI, could
reasonably be expected to materially impair the ability of ESI to proceed
with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer.
The foregoing conditions are for the sole benefit of ESI and may be
asserted by ESI regardless of the circumstances giving rise to such conditions
or may be waived by ESI in whole or in part at any time and from time to time in
its sole discretion. If ESI waives or amends the foregoing conditions, ESI will,
if required by applicable law, extend the Exchange Offer for a minimum of five
business days from the date that ESI first gives notice, by public announcement
or otherwise, of such waiver or amendment, if the Exchange Offer would otherwise
expire within such five business-day period. Any determination by ESI concerning
the events described above will be final and binding upon all parties.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., New York City Time, on May 11,
1998, subject to extension by the Company by notice to the Exchange Agent as
herein provided (the "Expiration Date"). ESI reserves the right to so extend the
Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Company will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to 9:00
A.M., New York City time, on the next business day after the previously
scheduled Expiration Date.
ESI reserves the right (i) to delay accepting for exchange any Original
Notes for any Exchange Notes or to extend or terminate the Exchange Offer and
not accept for exchange any Original Notes for any Exchange Notes if any of the
events set forth under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by ESI by giving oral or written notice
of such delay or termination to the Exchange Agent, or (ii) to amend the terms
of the Exchange Offer in any manner. Any such delay in acceptance for exchange,
extension or amendment will be followed as promptly as practicable by public
announcement thereof. If the Exchange Offer is amended in a manner determined by
ESI to constitute a material change, ESI will promptly disclose such amendment
in a manner reasonably calculated to inform the holder of Exchange Notes of such
amendment and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the amendment and the
manner of disclosure to the holders of the Exchange Notes, if the Exchange Offer
would otherwise expire during such five to ten business-day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth under the caption "Conditions of the Exchange Offer."
PROCEDURES FOR TENDERING
Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Original Notes (unless such tender is being effected pursuant to the
procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Original
Notes by causing the Depositary to transfer such Original Notes into
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<PAGE> 23
the Exchange Agent's account in accordance with the Depositary's procedure for
such transfer, such as ATOP. Holders of such Original Notes registered in the
name of such a financial institution are urged to contact such person promptly
if they wish to exchange Original Notes. Although delivery of Original Notes may
be effected through book-entry transfer into the Exchange Agent's account at the
Depositary, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its addresses
set forth in "Exchange Agent" below prior to 5:00 P.M., New York City time, on
the Expiration Date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Original Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
The method of delivery of Original Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Original Notes should be sent to the Company. Holders
may request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect the tenders for such holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Original Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal,
or (ii) for the account of an Eligible Institution. In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member of a signature
guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
ESI, evidence satisfactory to ESI of their authority to so act must be submitted
with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Original Notes will be
determined by ESI in its sole discretion, which determination will be final and
binding. ESI reserves the absolute right to reject any and all Original Notes
not properly tendered or any Original Notes ESI's acceptance of which would, in
the opinion of counsel for the Company, be unlawful. ESI also reserves the right
to waive any defects, irregularities or conditions of tender as to particular
Original Notes. ESI's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such times as the
Company shall determine. Although ESI intends to request the Exchange Agent to
notify holders of defects or irregularities with respect to tenders of Original
Notes, neither ESI, the Exchange Agent nor any other person shall incur any
liability for failure to give such notification. Tenders of Original Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Original Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, ESI reserves the right in its sole discretion (subject to
limitations contained in the Indenture) (i) to purchase or make offers for any
Original Notes that remain outstanding subsequent to the Expiration Date and
(ii) to the extent permitted by applicable law, purchase Original Notes in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
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<PAGE> 24
By tendering, each holder will represent to ESI, among other things, (i)
that the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, (ii) that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and (iii) that
neither the holder nor any such other person is an "affiliate", as defined in
Rule 405 under the Securities Act, of ESI or, if such person is an affiliate of
ESI, that such person will comply with the registration and prospectus delivery
requirements of the Securities Act, to the extent applicable. If the holder is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Original Notes that were acquired as a result of market-making activities or
other trading activities, such holder by tendering will acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available, or (ii) who cannot deliver their Original
Notes and other required documents to the Exchange Agent, or cannot complete the
procedure for book-entry transfer prior to the Expiration Date, may effect a
tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly competed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Original Notes (if available) and the principal amount of Original
Notes tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date,
the certificate(s) representing the Original Notes to be tendered in proper
form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Original Notes delivered
electronically) with any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) Such certificate(s) representing all tendered Original Notes in
proper form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Original Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 P.M., New York City Time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 P.M., New York City time, on
the Expiration Date, and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Original Notes to be withdrawn (the "Depositor"), (ii)
identify the Original Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Original Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Original Notes register the transfer of
such Original Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Original Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility
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<PAGE> 25
(including time of receipt) of such withdrawal notices will be determined by ESI
whose determination shall be final and binding on all parties. Any Original
Notes so withdrawn will be deemed not to have been validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Original Notes so withdrawn are validly re-tendered. Any Original
Notes which have been tendered but which are not accepted for exchange or which
are withdrawn will be returned to the holder thereof without cost to such holder
as soon as practicable after withdrawal, rejection of tender or termination of
the Exchange Offer. Properly withdrawn Original Notes may be re-tendered by
following one of the procedures described above under "Procedures for Tendering"
at any time prior to the Expiration Date.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by ESI. The principal solicitation for tenders pursuant to the Exchange
Offer is being made by mail; however, additional solicitation may be made by
telegraph, telephone or in person by officers and regular employees of ESI and
its affiliates.
ESI has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the Exchange Offer. ESI, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. ESI may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Original Notes and in handling or forwarding tenders for exchange. ESI will pay
the other expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Trustee, accounting and legal fees and
printing costs.
ESI will pay all transfer taxes, if any, applicable to the exchange of
Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Original Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Original Notes tendered,
or if tendered Original Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Original Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
RESALE OF EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, ESI believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange Original Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes (other than broker-dealers, as set forth below, and other than any such
holder which is "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder does
not intend to participate and has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes. Any holder who
tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes may not rely
on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) and Morgan Stanley & Co.,
Incorporated (available June 5, 1991), or similar no-action letters, but rather
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Original Notes, where such Original
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities,
20
<PAGE> 26
must acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is a holder,
(ii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and (iii) the Holder and such other person acknowledge that if
they participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (a) they must, in the absence of an exemption therefrom, comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of ESI
will represent to the Company that such holder understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by that holder without registration under the Securities Act or an
exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of making of this Exchange Offer, ESI will have fulfilled one
of its obligations under the Registration Rights Agreement and holders of
Original Notes who do not tender their Original Notes generally will not have
any further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any holder of Original Notes that does not exchange that
holder's Original Notes for Exchange Notes will continue to hold the untendered
Original Notes and will be entitled to all the rights and limitations applicable
thereto under the Indenture, except to the extent of such rights or limitations
that, by their terms, terminate or cease to have further effectiveness as a
result of the Exchange Offer (including the right to receive additional
interest, under certain circumstances, as Liquidated Damages).
The Original Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the Original Notes are eligible for resale
pursuant to Rule 144A, to a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act in a transaction meeting the requirements of
144A, (iv) outside the United States to a foreign person pursuant to the
exemption from the registration requirements of the Securities Act provided by
Regulation S thereunder, (v) to an institutional accredited investor that, prior
to such transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Original Notes evidenced thereby (the form of which letter can be obtained from
the Trustee) or (vi) pursuant to another available exemption from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
Accordingly, if any Original Notes are tendered and accepted in the
Exchange Offer, the trading market for the untendered Original Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange
Original Notes" and "-- Termination of Certain Rights."
TERMINATION OF CERTAIN RIGHTS
Holders of the Notes will not be entitled to certain rights under the
Registration Rights Agreement following the consummation of the Exchange Offer.
The rights that generally will terminate are the right (i) to have the Company
file with the Commission and use its best efforts to have declared effective a
shelf registration statement to cover resales of the Original Notes by the
holders thereof and (ii) to receive
21
<PAGE> 27
additional interest as Liquidated Damages if the registration statement of which
this Prospectus is a part or the shelf registration statement are not filed
with, or declared effective by, the Commission within certain specified time
periods or the Exchange Offer is not consummated within a specified time period.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of ESI or its subsidiaries since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tender be accepted from or on behalf of) holders of Original Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, the
Company intends to take such action as it may deem necessary to make the
Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders
of Original Notes in such jurisdiction.
The Company may in the future seek to acquire indentured Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Original
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any indentured Original Notes except to the
extent that it may be required to do so under the Registration Rights Agreement.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes, as reflected in ESI's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by ESI upon the consummation of the Exchange Offer. The expenses of
the Exchange Offer will be amortized by ESI over the term of the Exchange Notes
under generally accepted accounting principles.
EXCHANGE AGENT
The Huntington National Bank, Columbus, Ohio has been appointed as Exchange
Agent for the Exchange Offer. All correspondence in connection with the Exchange
Offer and the Letter of Transmittal should be addressed to the Exchange Agent,
as follows:
By Mail, Overnight Courier or Hand Delivery:
The Huntington National Bank
Attn: Corporate Trust
41 South High Street, 11th Floor
Columbus, OH 43215
Facsimile Transmission:
(614) 480-5223
(For Eligible Institutions Only)
Confirm by Telephone:
(614) 480-3888
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
22
<PAGE> 28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary view,
and no ruling from the Service has been or will be sought. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
nor modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders of either Original Notes or Exchange Notes. Certain
holders of the Original Notes (including insurance companies, tax exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. EACH HOLDER OF AN ORIGINAL NOTE SHOULD
CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING SUCH HOLDER'S ORIGINAL NOTES FOR EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The issuance of the Exchange Notes to holders of the Original Notes
pursuant to the terms set forth in this Prospectus should not constitute a
recognition event for Federal income tax purposes. Consequently, no gain or loss
should be recognized by Holders of the Original Notes upon receipt of the
Exchange Notes. For purposes of determining gain or loss upon the subsequent
sale or exchange of the Exchange Notes, a Holder's basis in the Exchange Notes
should be the same as such Holder's basis in the Original Notes exchanged
therefor. Holders should be considered to have held the Exchange Notes from the
time of their original acquisition of the Original Notes.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of ESI's obligations
under the Purchase Agreement and the Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated in
this Prospectus, the Company will receive the Original Notes in like principal
amount, the form and terms of which are the same as the form and terms of the
Exchange Notes (which replace the Original Notes, except as otherwise described
herein). The Original Notes surrendered in exchange for the Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of ESI.
The Company received approximately $82 million of net proceeds of the
Offering of the Original Notes (after deduction of the Initial Purchaser's
discount and estimated Offering expenses). The Company employed the proceeds to
support its growth by using approximately $50 million to repay indebtedness
under its prior bank revolving credit facility (the "Prior Credit Facility")
incurred primarily in connection with recent acquisitions. The Company also
intends to utilize approximately $1.5 million to enhance operations by upgrading
its information systems and networks and to support centralization of certain
functions, and between $2 million and $4 million for deferred payments relating
to prior acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" in the
ESI 1997 10-K. The remaining net proceeds will be used to provide funds for
general corporate purposes, including working capital, and for possible future
acquisitions. The Company has no current arrangements, and no pending
agreements, for any such acquisitions; there can be no assurance that
appropriate acquisitions will be identified or that any such transactions will
be consummated.
23
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" incorporated by reference herein from the ESI 1997 10-K.
The selected consolidated financial information presented below as of December
31, 1994, 1995, 1996 and 1997 and for the years then ended are derived from
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report incorporated by reference herein. The selected consolidated financial
information presented below as of December 31, 1993 and for the year then ended
are derived from consolidated financial statements of the Company which have
been audited by the Company's former independent public accountants. Except for
1993 and 1994, the earnings per share amounts for all prior years have been
restated to conform with the presentation requirements of Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Management does not believe
the impact of restatement for 1993 and 1994 would be material.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................................ $48,571 $74,334 $164,455 $439,016 $933,817
Cost of revenues........................................ 46,501 71,068 150,675 400,862 903,255
------- ------- -------- -------- --------
Gross profit............................................ 2,070 3,266 13,780 38,154 30,562
Selling, general and administrative expenses............ 1,471 2,297 7,183 17,310 33,411
Depreciation and amortization........................... 128 269 426 2,073 4,617
------- ------- -------- -------- --------
Income (loss) from operations........................... 471 700 6,171 18,771 (7,466)
Other income:
Interest income....................................... 10 52 296 833 1,303
Interest expense...................................... (104) (3) (25) (1,196) (5,102)
Other income (expense)................................ (169) 80 239 (1) (50)
------- ------- -------- -------- --------
Income (loss) before income taxes....................... 208 829 6,681 18,407 (11,315)
Income tax provision (benefit).......................... 98 450 2,846 6,381 (2,819)
------- ------- -------- -------- --------
Net income (loss)....................................... $ 110 $ 379 $ 3,835 $ 12,026 $ (8,496)
======= ======= ======== ======== ========
Net income (loss) per share:
Basic................................................. $ .01 $ .02 $ .17 $ .40 $ (.27)
Diluted............................................... $ .01 $ .02 $ .16 $ .37 $ (.27)
OTHER DATA:
EBITDA(a)............................................... $ 440 $ 1,101 $ 7,132 $ 21,676 $ (1,596)
Depreciation and amortization........................... 128 269 426 2,073 4,617
Capital expenditures.................................... 46 189 238 702 2,499
Ratio of earnings to fixed charges(b)................... 1.7x 18.6x 93.8x 13.6x (c)
At period end:
Worksite employees...................................... 2,200 3,600 11,000 30,000 45,200
Client companies........................................ 250 450 920 1,200 1,700
States with worksite employees.......................... 15 20 40 46 47
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents and restricted cash........... $ 1,049 $ 1,998 $ 16,771 $ 22,480 59,110
Working capital (deficit)............................... (36) 2,394 8,589 30,449 58,329
Total assets............................................ 6,399 9,310 36,840 125,969 207,217
Long-term debt.......................................... -- -- -- 42,800 85,000
Stockholders' equity.................................... 3,451 6,401 19,943 46,507 42,389
</TABLE>
- ---------------
(a) "EBITDA" represents the sum of income (loss) before income taxes, interest
expense and depreciation and amortization. Information regarding EBITDA is
presented because management believes that certain investors use EBITDA as
one measure of an issuer's ability to service its debt. EBITDA is not a
measure of performance or financial condition under generally accepted
accounting principles, but is presented to provide additional information
related to debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of liquidity or financial
performance under generally accepted accounting principles. While EBITDA is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other companies due to the potential inconsistencies in
the method of calculation.
(b) The ratio of earnings to fixed charges is computed by dividing fixed charges
into income before income taxes plus fixed charges. Fixed charges include
interest expense, amortization of debt issuance costs and the estimated
interest component of rent expense.
(c) Earnings in 1997 were inadequate to cover fixed charges and resulted in a
coverage deficiency of approximately $11.3 million. Pro forma 1997 earnings
were inadequate to cover pro forma fixed charges and resulted in a coverage
deficiency of approximately $14.6 million. Pro forma adjustments relate to
the note offering being effective January 1, 1997.
24
<PAGE> 30
BUSINESS
THE COMPANY
The Company is one of the largest professional employer organizations
("PEO") and is the most geographically diverse PEO in the United States,
specializing in integrated employment outsourcing solutions for small and
mid-sized businesses. As of December 31, 1997, the Company served approximately
1,700 client companies representing 45,200 worksite employees in 47 states.
The Company offers a broad array of integrated outsourcing solutions which
provide businesses throughout the United States with comprehensive and flexible
outsourcing services to meet their payroll, benefits and human resources needs
while helping manage their overall costs. The Company provides significant
benefits to its client companies and their worksite employees, including: (i)
managing escalating costs associated with workers' compensation, health
insurance, workplace safety and employment policies and practices; (ii)
enhancing employee recruiting and retention by providing employees with access
to a menu of healthcare and other benefits that are more characteristic of
larger employers; (iii) providing expertise in transportation personnel and in
labor relations; and (iv) reducing the time and effort required by the employer
to deal with an increasingly complex administrative, legal and regulatory
environment.
As a PEO, ESI and its "client company" typically agree that ESI will become
the "employer of record" for the client company's employees. ESI generally
assumes designated obligations for payroll processing and reporting, payment of
payroll taxes, human resources management and the provision of employee benefit
plans and risk management/workers' compensation services. Additionally, ESI may
provide other products and services directly to worksite employees, such as
employee payroll deduction programs for disability and specialty health
insurance, prepaid telephone cards and other personal financial services. The
client company generally retains management control of the worksite employees,
including hiring, supervision and termination and determining the employees' job
descriptions and salaries.
Information regarding the Company, including a discussion of its business,
financial statements and management's discussion and analysis, is incorporated
by reference from the ESI 1997 10-K. See "Incorporation of Certain Documents by
Reference."
25
<PAGE> 31
DESCRIPTION OF NOTES
The Original Notes were issued, and the Exchange Notes will be issued,
under an Indenture dated as of October 15, 1997 (the "Indenture") among ESI, the
Guarantors and the Trustee. The terms of the Exchange Notes and of the Original
Notes (which are sometimes referred to collectively as the "Notes") will be
substantially identical to each other, except for transferability. Under the
terms of the Indenture, the covenants and events of default will apply equally
to the Original Notes and the Exchange Notes, and the Original Notes and
Exchange Notes will be treated as one class for all actions to be taken by the
holders thereof and for determining their respective rights under the Indenture.
The terms of the Notes (including both the Original Notes and the Exchange
Notes) include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as in effect from time to time. The Notes are subject to
all such terms, and Holders of the Notes are referred to the Indenture and the
Trust Indenture Act for a statement of them.
The following summaries of certain provisions of the Indenture are
summaries only, do not purport to be complete and are qualified in their
entirety by reference to all of the provisions of the Indenture. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
them in the Indenture. Wherever particular provisions of the Indenture are
referred to in this summary, such provisions are incorporated by reference as a
part of the statements made and such statements are qualified in their entirety
by such reference. A copy of the form of Indenture is an exhibit to the
Registration Statement of which this Prospectus forms a part, and is available
upon request. For purposes of this summary, the term "Company" refers only to
Employee Solutions, Inc. and not to any of its subsidiaries.
GENERAL
The Notes are senior, unsecured, general obligations of the Company,
ranking pari passu in right of payment with all other senior, unsecured
obligations of the Company. The Notes are limited in aggregate principal amount
to $85 million. The Notes are jointly and severally irrevocably and
unconditionally guaranteed on a senior basis by each of the Guarantors. The
"Guarantors" include certain of the Company's present and future Subsidiaries.
See "Future Subsidiary Guarantors" and "Certain Definitions -- Guarantors." The
Guarantees rank pari passu in right of payment with all other senior, unsecured
obligations of the Guarantors. See "Certain Bankruptcy Limitations." The Notes
are issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof.
The Notes will mature on October 15, 2004. The Notes bear interest at the
rate of 10% per annum from the date of issuance (October 21, 1997) or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semi-annually on April 15 and October 15 of each year, commencing
April 15, 1998, to the persons in whose names such Notes are registered at the
close of business on April 1 or October 1 immediately preceding such Interest
Payment Date. Interest is calculated on the basis of a 360-day year consisting
of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes is payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of the Company maintained for such
purpose, which office or agency shall be maintained in the Borough of Manhattan,
The City of New York, except as set forth below. At the option of the Company,
payment of interest may be made by check mailed to the Holders of the Notes at
the addresses set forth upon the registry books of the Company; provided that
all payments with respect to Global Notes and Certificated Notes the Holders of
which have given wire transfer instructions to the Company and the Paying Agent,
will be required to be made by wire transfers of immediately available funds to
the accounts specified by the Holders thereof. No service charge will be made
for any registration of transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until otherwise designated by the
Company, the Company's office or agency will be the corporate trust office of
the Trustee presently located at the office of the Trustee in the Borough of
Manhattan, The City of New York.
26
<PAGE> 32
CERTAIN BANKRUPTCY LIMITATIONS
The Company conducts a substantial part of its business through
Subsidiaries. Certain of the Company's present and future Subsidiaries have
guaranteed or will guarantee the Company's obligations with respect to the
Notes. See "Future Subsidiary Guarantors" and "Certain
Definitions -- Guarantors." Holders of the Notes will be direct creditors of
each Guarantor by virtue of its guarantee. Nonetheless, in the event of the
bankruptcy or financial difficulty of a Guarantor, such Guarantor's obligations
under its guarantee may be subject to review and avoidance under state and
federal fraudulent transfer laws. Among other things, such obligations may be
avoided if a court concludes that such obligations were incurred for less than
reasonably equivalent value or fair consideration at a time when the Guarantor
was insolvent, was rendered insolvent, or was left with inadequate capital to
conduct its business. A court would likely conclude that a Guarantor did not
receive reasonably equivalent value or fair consideration to the extent that the
aggregate amount of its liability on its guarantee exceeds the economic benefits
it receives in the Offering. The obligations of each Guarantor under its
guarantee will be limited in a manner intended to cause it not to be a
fraudulent conveyance under applicable law, although no assurance can be given
that a court would give the Holder the benefit of such provision. See "Risk
Factors -- Fraudulent Transfer Considerations."
If the obligations of a Guarantor under its guarantee were avoided, Holders
of Notes would have to look to the assets of any remaining Guarantors for
payment. There can be no assurance in that event that such assets would be
sufficient to pay the outstanding principal and interest on the Notes.
OPTIONAL REDEMPTION
The Company does not have the right to redeem any Notes prior to October
15, 2001. The Notes are redeemable for cash at the option of the Company, in
whole or in part, at any time on or after October 15, 2001, upon not less than
30 days nor more than 60 days notice to each Holder of Notes, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the 12-month period commencing October 15 of the years indicated below,
in each case (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.............................................. 105.0%
2002.............................................. 102.5%
2003 and thereafter............................... 100.0%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Company defaults in the payment
thereof.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of
Control. The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such
27
<PAGE> 33
Holder's option, pursuant to an irrevocable and unconditional offer by the
Company (the "Change of Control Offer"), to require the Company to repurchase
all or any part of such Holder's Notes (provided, that the principal amount of
such Notes must be $1,000 or an integral multiple thereof) on a date (the
"Change of Control Purchase Date") that is no later than 35 Business Days after
the occurrence of such Change of Control, at a cash price equal to 101% of the
principal amount thereof (the "Change of Control Purchase Price"), together with
accrued and unpaid interest and Liquidated Damages, if any, to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 10
Business Days following a Change of Control and shall remain open for 20
Business Days following its commencement (the "Change of Control Offer Period").
Upon expiration of the Change of Control Offer Period, the Company promptly
shall purchase all Notes properly tendered in response to the Change of Control
Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Company with or into any person or any sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company and its Subsidiaries, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after giving
effect to such transaction(s), any "person" or "group" (as such terms are used
for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner," directly or indirectly, of
more than 50% of the total voting power in the aggregate normally entitled to
vote in the election of directors, managers, or trustees, as applicable, of the
transferee(s) or surviving entity or entities, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) is or becomes the "beneficial owner," directly
or indirectly, of more than 50% of the total voting power in the aggregate of
all classes of Capital Stock of the Company then outstanding normally entitled
to vote in elections of directors, or (iii) during any period of 12 consecutive
months after the Issue Date, individuals who at the beginning of any such
12-month period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board or whose nomination for election
by the shareholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The Paying
Agent promptly will pay the Holders of Notes so accepted an amount equal to the
Change of Control Purchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any), and the Trustee promptly will authenticate and
deliver to such Holders a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be delivered
promptly by the Company to the Holder thereof. The Company publicly will
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management.
The phrase "all or substantially all" of the assets of the Company will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Company has occurred.
No assurances can be given that the Company will have available sufficient
funds to acquire Notes tendered upon the occurrence of a Change of Control. In
the event that the Company is required to purchase outstanding Notes upon the
occurrence of a Change of Control, the Company expects that it would seek third
party financing to the extent that it does not have available funds to meet its
purchase obligations. There can be no assurance that the Company would be able
to obtain such financing.
28
<PAGE> 34
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the terms hereof, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Indenture or the Notes by virtue thereof.
Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock. The Indenture provides that, except as set forth in this
covenant, the Company and its Subsidiaries will not, and will not permit any of
their Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur,
become directly or indirectly liable with respect to (including as a result of
an Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an "incurrence"),
any Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness) other than Permitted Indebtedness. Notwithstanding the foregoing,
if (i) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness or Disqualified Capital Stock and (ii) on the date of
such incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the
Company for the Reference Period immediately preceding the Incurrence Date,
after giving effect on a pro forma basis to such incurrence of such Indebtedness
or Disqualified Capital Stock and, to the extent set forth in the definition of
Consolidated Coverage Ratio, the use of proceeds thereof, would be at least 2.25
to l (the "Debt Incurrence Ratio"), then the Company may incur such Indebtedness
or Disqualified Capital Stock and its Subsidiaries may incur such Indebtedness.
Indebtedness or Disqualified Capital Stock of any person which is
outstanding at the time such person becomes a Subsidiary of the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
Limitation on Restricted Payments. The Indenture provides that the Company
and its Subsidiaries will not, and will not permit any of their Subsidiaries to,
directly or indirectly, make any Restricted Payment if, after giving effect to
such Restricted Payment on a pro forma basis, (1) a Default or an Event of
Default shall have occurred and be continuing, (2) the Company is not permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Debt
Incurrence Ratio in the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," or (3) the aggregate amount of all
Restricted Payments made by the Company and its Subsidiaries, including after
giving effect to such proposed Restricted Payment, from and after the Issue
Date, would exceed the sum of (a) $5.0 million, plus (b) 50% of the aggregate
Consolidated Net Income of the Company and its Consolidated Subsidiaries for the
period (taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (c) the aggregate Net Cash
Proceeds received by the Company from the sale of its Qualified Capital Stock
(other than (i) to a Subsidiary of the Company and (ii) to the extent applied in
connection with a Qualified Exchange) after the Issue Date.
The immediately preceding paragraph, however, will not prohibit (y) a
Qualified Exchange or (z) the payment of any dividend on Qualified Capital Stock
within 60 days after the date of its declaration if such dividend could have
been made on the date of such declaration in compliance with the foregoing
provisions. The full amount of any Restricted Payment made pursuant to clause
(z) (but not pursuant to clause (y)) of the immediately preceding sentence,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company and its Subsidiaries will
not, and will not permit any of their Subsidiaries to, directly or indirectly,
create, assume or suffer to exist any consensual restriction on the ability of
any Subsidiary of the Company to pay dividends or make other distributions to or
on behalf of, or to pay any obligation to or on
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behalf of, or otherwise to transfer assets or property to or on behalf of, or
make or pay loans or advances to or on behalf of, the Company or any Subsidiary
of the Company, except (a) restrictions imposed by the Notes or the Indenture,
(b) restrictions imposed by applicable laws and regulations, including laws and
regulations establishing capital and liquidity requirements for Insurance
Subsidiaries, (c) existing restrictions under specified Indebtedness outstanding
on the Issue Date, (d) restrictions under any Acquired Indebtedness not incurred
in violation of the Indenture or any agreement relating to any property, asset,
or business acquired by the Company or any of its Subsidiaries, which
restrictions in each case existed at the time of acquisition, were not put in
place in connection with or in anticipation of such acquisition and are not
applicable to any person, other than the person acquired, or to any property,
asset or business, other than the property, assets and business so acquired, (e)
any such restriction or requirement imposed by Indebtedness incurred under
paragraph (b) of the definition of "Permitted Indebtedness" provided such
restriction or requirement is no more restrictive than that imposed by the
Amended Credit Facility as of the Issue Date, (f) restrictions with respect
solely to a Subsidiary of the Company imposed pursuant to a binding agreement
which has been entered into for the sale or disposition of all or substantially
all of the Equity Interests or assets of such Subsidiary, provided such
restrictions apply solely to the Equity Interests or assets of such Subsidiary
which are being sold, (g) restrictions arising out of "fronting" arrangements or
reinsurance agreements with third party insurers in existence on the Issue Date
pursuant to which the Insurance Subsidiary is required to meet certain cash
collateral requirements, (h) in connection with and pursuant to permitted
Refinancings, replacements of restrictions imposed pursuant to clauses (a), (c)
or (d) of this paragraph that are not more restrictive than those being replaced
and do not apply to any other person or assets than those that would have been
covered by the restrictions in the Indebtedness so refinanced; and (i) any
agreement that extends, renews or replaces any agreement described in clause (g)
or any similar agreement, provided that the terms and conditions of any such
restrictions are not materially less favorable to the Holders than those under
or pursuant to such agreements as in effect on the Issue Date. Notwithstanding
the foregoing, neither (a) customary provisions restricting subletting or
assignment of any lease entered into in the ordinary course of business,
consistent with industry practice, nor (b) Liens on assets securing the
Indebtedness under the Amended Credit Facility incurred in accordance with the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock" shall in and of themselves be considered a restriction on the
ability of the applicable Subsidiary to transfer such agreement or assets, as
the case may be.
Limitation on Liens Securing Indebtedness. The Company and its
Subsidiaries will not, and will not permit any of their Subsidiaries to, create,
incur, assume or suffer to exist any Lien of any kind, other than Permitted
Liens, upon any of their respective assets now owned or acquired on or after the
date of the Indenture or upon any income or profits therefrom, unless the
Company provides, and causes its Subsidiaries to provide, concurrently
therewith, that the Notes are equally and ratably so secured, provided that, if
such Indebtedness is Subordinated Indebtedness, the Lien securing such
Subordinated Indebtedness shall be subordinate and junior to the Lien securing
the Notes with the same relative priority as such Subordinated Indebtedness
shall have with respect to the Notes.
Limitation on Sale of Assets and Subsidiary Stock. The Indenture provides
that the Company and its Subsidiaries will not, and will not permit any of their
Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets, including by merger or consolidation (in the case
of a Subsidiary of the Company), and including any sale or other transfer or
issuance of any Equity Interests of any Subsidiary of the Company, whether by
the Company or a Subsidiary or through the issuance, sale or transfer of Equity
Interests by a Subsidiary of the Company, and including any sale and leaseback
transaction (any of the foregoing, an "Asset Sale"), unless (l)(a) within 210
days after the date of such Asset Sale, the Net Cash Proceeds therefrom (the
"Asset Sale Offer Amount") are applied to the optional redemption of the Notes
in accordance with the terms of the Indenture or to the repurchase of the Notes
pursuant to an irrevocable, unconditional cash offer (the "Asset Sale Offer") to
repurchase Notes at a purchase price of 100% of principal amount (the "Asset
Sale Offer Price") together with accrued and unpaid interest and Liquidated
Damages, if any, to the date of payment, made within 180 days of such Asset Sale
or (b) within 180 days following such Asset Sale, the Asset Sale Offer Amount is
(i) invested (or committed, pursuant to a binding commitment subject only to
reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in assets
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and property (other than notes, bonds, obligation and securities, except in
connection with the acquisition of a wholly owned Subsidiary) which in the good
faith reasonable judgment of the Board will immediately constitute or be a part
of a Related Business of the Company or such Subsidiary (if it continues to be a
Subsidiary) immediately following such transaction or (ii) used to permanently
reduce Indebtedness permitted pursuant to paragraph (b) of the definition
"Permitted Indebtedness" (provided that in the case of a revolver or similar
arrangement that makes credit available, such commitment is also permanently
reduced by such amount), (2) at least 85% of the total consideration received
for such Asset Sale or series of related Asset Sales consists of Cash or Cash
Equivalents, (3) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a pro forma
basis, to, such Asset Sale, and (4) the Board of Directors of the Company
determines in good faith that the Company or such Subsidiary, as applicable,
receives fair market value for such Asset Sale.
The Indenture provides that an acquisition of Notes pursuant to an Asset
Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset
Sales not applied to the uses set forth in (l) above (the "Excess Proceeds")
exceeds $2.0 million and that each Asset Sale Offer shall remain open for 20
Business Days following its commencement (the "Asset Sale Offer Period"). Upon
expiration of the Asset Sale Offer Period, the Company shall apply the Asset
Sale Offer Amount plus an amount equal to accrued and unpaid interest and
Liquidated Damages, if any, to the purchase of all Notes properly tendered (on a
pro rata basis if the Asset Sale Offer Amount is insufficient to purchase all
Notes so tendered) at the Asset Sale Offer Price (together with accrued
interest). To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Asset Sale Offer Amount, the Company may
use any remaining Net Cash Proceeds for general corporate purposes as otherwise
permitted by the Indenture and following each Asset Sale Offer the Excess
Proceeds amount shall be reset to zero. For purposes of (2) above, total
consideration received means the total consideration received for such Asset
Sales minus the amount of (a) Indebtedness which is not Subordinated
Indebtedness assumed by a transferee which assumption permanently reduces the
amount of Indebtedness outstanding on the Issue Date or permitted pursuant to
paragraph (b) or (d) of the definition "Permitted Indebtedness" (including that
in the case of a revolver or similar arrangement that makes credit available,
such commitment is so reduced by such amount) and (b) property that within 30
days of such Asset Sale is converted into Cash or Cash Equivalents.
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Subsidiaries may, in the ordinary course of
business, convey, sell, transfer, assign or otherwise dispose of property
or assets in the ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
the covenant "Limitation on Merger, Sale or Consolidation;"
(iii) the Company and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Company or such Subsidiary, as applicable; and
(iv) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or any of its wholly
owned Subsidiaries.
All Net Cash Proceeds from an Event of Loss shall be invested, used for
prepayment of Indebtedness, or used to repurchase Notes, all within the period
and as otherwise provided above in clause 1(a) or 1(b) of the first paragraph of
this section.
In addition to the foregoing, the Company will not, and will not permit any
Subsidiary to, directly or indirectly make any Asset Sale of any of the Equity
Interests of any Subsidiary except pursuant to an Asset Sale of all the Equity
Interests of such Subsidiary.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or
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regulations conflict with the terms hereof, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations hereunder by virtue thereof.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Subsidiaries will be permitted on or after
the Issue Date to enter into or suffer to exist any contract, agreement,
arrangement or transaction with any Affiliate (an "Affiliate Transaction"), or
any series of related Affiliate Transactions, (other than Exempted Affiliate
Transactions) (i) unless it is determined that the terms of such Affiliate
Transaction are fair and reasonable to the Company, and no less favorable to the
Company than could have been obtained in an arm's length transaction with a
non-Affiliate and, (ii) if involving consideration to either party in excess of
$1.0 million, unless such Affiliate Transaction(s) is evidenced by an Officers'
Certificate addressed and delivered to the Trustee certifying that such
Affiliate Transaction (or Transactions) has been approved by a majority of the
members of the Board of Directors that are disinterested in such transaction and
(iii) if involving consideration to either party in excess of $3.0 million,
unless in addition the Company, prior to the consummation thereof, obtains a
written favorable opinion as to the fairness of such transaction to the Company
from a financial point of view from an independent investment banking firm of
national reputation.
Limitation on Merger, Sale or Consolidation. The Indenture provides that
the Company will not, directly or indirectly, consolidate with or merge with or
into another person or sell, lease, convey or transfer all or substantially all
of its assets (computed, together with its Subsidiaries, on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons or adopt a Plan of Liquidation,
unless (i) either (a) the Company is the continuing entity or (b) the resulting,
surviving or transferee entity or, in the case of a Plan of Liquidation, the
entity which receives the greatest value from such Plan of Liquidation is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Notes and the Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction on a pro forma basis, the Consolidated Net
Worth of the consolidated surviving or transferee entity or, in the case of a
Plan of Liquidation, the entity which receives the greatest value from such Plan
of Liquidation is at least equal to the Consolidated Net Worth of the Company
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a pro forma basis, the consolidated resulting, surviving
or transferee entity or, in the case of a Plan of Liquidation, the entity which
receives the greatest value from such Plan of Liquidation would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company or consummation of a Plan of Liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a Plan of Liquidation, the entity which receives the
greatest value from such Plan of Liquidation shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named therein as the Company, and the Company shall be released from the
obligations under the Notes and the Indenture except with respect to any
obligations that arise from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
Limitation on Lines of Business. The Indenture provides that neither the
Company nor any of its Subsidiaries shall directly or indirectly engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgment of the Board of Directors of the
Company, is a Related Business.
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Limitations with respect to Subsidiaries that are not Guarantors. The
Indenture provides that the aggregate total revenues and the aggregate
Consolidated Net Worth of the Subsidiaries which are not Guarantors (other than
the Insurance Subsidiaries) will not exceed 7.5% of total revenues or
Consolidated Net Worth, respectively, of the Company and its Subsidiaries on a
consolidated basis. The Indenture will also provide that the Company will not
retain any funds or assets in any Insurance Subsidiary except funds that are
held in trust accounts for claim reserves or otherwise held to pay claims and
funds for current operations or as required by insurance laws and regulations
applicable to such Insurance Subsidiaries, including capital and liquidity
requirements.
Future Subsidiary Guarantors. The Indenture provides that all future
Subsidiaries of the Company will jointly and severally guaranty irrevocably and
unconditionally all principal, premium, if any, and interest and Liquidated
Damages, if any, on the Notes on a senior basis, other than (i) future Insurance
Subsidiaries and (ii) certain other future Subsidiaries designated by the
Company, provided that the Company complies with the restrictions with respect
to the aggregate total revenues and aggregate Consolidated Net Worth of
Subsidiaries which are not Guarantors as set forth in the covenant "Limitations
with respect to Subsidiaries that are not Guarantors."
Release of Guarantors. The Indenture provides that no Guarantor shall
consolidate or merge with or into (whether or not such Guarantor is the
surviving person) another person unless (i) subject to the provisions of the
following paragraph, the person formed by or surviving any such consolidation or
merger (if other than such Guarantor, another Guarantor or the Company) assumes
all the obligations of such Guarantor pursuant to a supplemental indenture in
form reasonably satisfactory to the Trustee, pursuant to which such person shall
unconditionally guaranty, on a senior basis, all of such Guarantor's obligations
under such Guarantor's guaranty and the Indenture on the terms set forth in the
Indenture; and (ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis, no Default or Event of Default shall have
occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) by a Guarantor of all or substantially all of its assets to an
entity which is not a Guarantor, which transaction is otherwise in compliance
with the Indenture (including, without limitation, the provisions of the
covenant "Limitations on Sale of Assets and Subsidiary Stock"), such Guarantor
will be deemed released from its obligations under its Guarantee of the Notes;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Guarantor under all of its guarantees of, and under all
of its pledges of assets or other security interests which secure, any
Indebtedness of the Company or any other Subsidiary shall also terminate upon
such release, sale or transfer.
Limitation on Status as Investment Company. The Indenture prohibits the
Company and its Subsidiaries from being required to register as an "investment
company" (as that term is defined in the Investment Company Act of 1940, as
amended), or from otherwise becoming subject to regulation under the Investment
Company Act.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
the Company will not, and will not permit any Subsidiary to, directly or
indirectly, enter into any sale and leaseback transaction unless (a) immediately
after giving pro forma effect to such sale and leaseback transaction (the
Attributable Value of such sale and leaseback transaction being deemed to be
Indebtedness of the Company, if not otherwise treated so pursuant to the
definition of Indebtedness), the Company could incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock" and (b) such sale and leaseback transaction complies with the
covenant "Limitation on Sale of Assets and Subsidiary Stock."
Payments for Consent. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture, the Notes or the Guarantees unless such
consideration is offered to be paid or agreed to be paid to all holders of the
Notes who so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
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REPORTS
The Indenture provides that, whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each Holder annual and quarterly financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission, if the Company were subject to
the requirements of Section 13 or 15(d) of the Exchange Act, including, in each
case, a management's discussion and analysis of financial condition and results
of operations and, with respect to annual information only, a report thereon by
the Company's certified independent public accountants. In addition, the Company
has agreed that, from and after the time the Company files a registration
statement with the Commission with respect to the Notes, the Company will file
such reports with the Commission provided the Commission will accept such
filings.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as:
(i) the failure by the Company to pay any installment of interest on
the Notes as and when the same becomes due and payable and the continuance
of any such failure for 30 days;
(ii) the failure by the Company to pay all or any part of the
principal, or premium, if any, on the Notes when and as the same becomes
due and payable at maturity, redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase
Price or the Asset Sale Offer Price, or otherwise;
(iii) the failure by the Company or any Subsidiary to observe or
perform any other covenant or agreement contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such
failure for a period of 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in aggregate principal amount of the Notes outstanding;
(iv) certain events of bankruptcy, insolvency or reorganization in
respect of the Company or any of its Subsidiaries;
(v) a default in Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $5 million (a)
resulting from the failure to pay principal or interest or (b) as a result
of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity;
(vi) final unsatisfied judgments not covered by insurance aggregating
in excess of $5 million, at any one time rendered against the Company or
any of its Subsidiaries and not stayed, bonded or discharged within 60
days; and
(vii) any Guarantee shall cease to be, or be asserted in writing by
any Significant Subsidiary or the Company not to be, in full force and
effect, except as contemplated by the Indenture.
The Indenture provides that if an Event of Default occurs and is continuing, the
Trustee must, within 90 days after the occurrence of such default, give to the
Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Company or any of its
Significant Subsidiaries), then in every such case, unless the principal of all
of the Notes shall have already become due and payable, either the Trustee or
the Holders of 25% in aggregate principal amount of the Notes then outstanding,
by notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal, determined as set forth
below, and accrued interest thereon to be due and payable immediately. If an
Event of Default specified in clause (iv) above, relating to the Company or any
Significant Subsidiary occurs, all principal and accrued interest thereon will
be immediately due and payable on all outstanding Notes without any declaration
or other act on the part of Trustee or the Holders. The Holders of a majority in
aggregate principal amount of Notes generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on the Notes which have become
due solely by such
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acceleration, have been cured or waived, except on default with respect to any
provision requiring a supermajority approval to amend, which default may only be
waived by such a supermajority.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
October 15, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to October 15, 2001, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a default
with respect to any provision requiring a supermajority approval to amend, which
default may only be waived by such a supermajority, and except a default in the
payment of principal of or interest on any Note not yet cured or a default with
respect to any covenant or provision which cannot be modified or amended without
the consent of the Holder of each outstanding Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations and the obligations of the Guarantors discharged
with respect to the outstanding Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented, and the Indenture shall cease to be of
further effect as to all outstanding Notes and Guarantees, except as to (i)
rights of Holders to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
funds; (ii) the Company's obligations with respect to such Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes, and the maintenance of an office or agency for payment and money
for security payments held in trust; (iii) the rights, powers, trust, duties,
and immunities of the Trustee, and the Company's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, nonpayment of
guarantees, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the Holders of
Notes must have a
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valid, perfected, exclusive security interest in such trust; (ii) in the case of
the Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to Trustee confirming that
(A) the Company has received from, or there has been published by the Internal
Revenue Service, a ruling or (B) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of such Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the Holders of such Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under, the Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of such Notes over any other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and (vii) the Company
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that the conditions precedent provided for in, in the case
of the Officers' Certificate, (i) through (vi) and, in the case of the opinion
of counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance cannot be applied to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of the Company under
the Indenture will be revived and no such defeasance will be deemed to have
occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company, the Guarantors
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, the Guarantors and the Trustee are permitted to amend
or supplement the Indenture or any supplemental indenture or modify the rights
of the Holders; provided that no such modification may without the consent of
Holders of at least 66 2/3% in aggregate principal amount of Notes at the time
outstanding modify the provisions (including the defined terms used therein) of
the covenant "Repurchase of Notes at the Option of the Holder upon a Change of
Control" and "Limitation on Sale of Assets and Subsidiary Stock" in a manner
adverse to the Holders and provided that no such modification may, without the
consent of each Holder affected thereby: (i) change the Stated Maturity on any
Note, or reduce the principal amount thereof or the rate (or extend the time for
payment) of interest thereon or any premium payable upon the redemption thereof,
or change the place of payment where, or the coin or currency in which, any Note
or any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or reduce the Change of Control Purchase Price or the Asset Sale Offer
Price or alter the provisions (including the defined terms used therein)
regarding the right of the Company to redeem the Notes in a manner adverse to
the Holders, or (ii) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Holders is required for any such
amendment, supplemental indenture or waiver provided for in the Indenture, or
(iii) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holder of each outstanding Note
affected thereby, or (iv) cause the Notes or any Guarantee to become subordinate
in right of payment to any other Indebtedness.
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NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in respect
of the obligations of the Company or the Guarantors under the Indenture or the
Notes by reason of his or its status as such stockholder, employee, officer or
director, except to the extent such person is the Company or a Guarantor.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Company,
including by designation, or is merged or consolidated into or with the Company
or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, or the
acquisition of assets that constitute all or substantially all of an operating
unit or business, whether by purchase, merger, consolidation, or other transfer,
and whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, with respect to ownership interest in the Company
and its Subsidiaries a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"Amended Credit Facility" means the credit facility dated October 21, 1997
by and between the Company and Bank One, Arizona, N.A., providing for an
aggregate $20 million revolving credit facility, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Amended Credit Facility"
shall include agreements in respect of Interest Swap and Hedging Obligations
with lenders party to the Amended Credit Facility and shall also include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to the Amended Credit Facility and all refundings,
refinancings and replacements of the Amended Credit Facility, including any
agreement (i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include one or more of the Company
and its Subsidiaries and their respective successors and assigns, (iii)
increasing the amount of Indebtedness incurred thereunder or available to be
borrowed thereunder, provided that on the date such Indebtedness is incurred it
would not be prohibited by paragraph (b) of the definition "Permitted
Indebtedness," or (iv) otherwise altering the terms and conditions thereof in a
manner not prohibited by the terms hereof.
"Attributable Value" means, as to any particular lease under which any
person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such person under such lease during the
remaining term thereof (whether or not such lease is terminable at the option of
the lessee prior to the end of such term), including any period for which such
lease has been, or may, at the option of the lessor, be extended, discounted
from the last date of such term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. The net amount of rent
required to be paid under any lease for any such period shall be the aggregate
amount of rent payable by the lessee with respect to such period after excluding
amounts required to be paid on account of insurance, taxes, assessments,
utility, operating and labor costs and similar charges. "Attributable Value"
means, as to a Capitalized Lease Obligation under which any person is at the
time liable and at any date as of which the
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amount thereof is to be determined, the discounted present value of the rental
obligations of such person, as lessee, required to be capitalized on the balance
sheet of such person in conformity with GAAP.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" or "beneficial owner" has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Capitalized Lease Obligation" means, as applied to any person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such person, as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such person.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) or (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $500 million and (iii) commercial paper issued by others rated at
least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least
P-1 or the equivalent thereof by Moody's Investors Service, Inc., and in the
case of each of (i), (ii), and (iii) maturing within one year after the date of
acquisition.
"Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of such Reference Period, and (iv) the
Consolidated Fixed Charges of such person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
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"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) consolidated income tax
expense, (ii) consolidated depreciation and amortization expense, provided that
consolidated depreciation and amortization of a Subsidiary that is a less than
wholly owned Subsidiary shall only be added to the extent of the equity interest
of such person in such Subsidiary, (iii) other non-cash charges of the Company
and its Subsidiaries reducing Consolidated Net Income for such period and (iv)
Consolidated Fixed Charges.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable (or guaranteed) by such person or
any of its Consolidated Subsidiaries in respect of preferred stock (other than
by Subsidiaries of such person to such person or such person's wholly owned
Subsidiaries). For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains (but not losses) which are
either extraordinary (as determined in accordance with GAAP) or nonrecurring
(including any gain from the sale or other disposition of assets outside the
ordinary course of business or from the issuance or sale of any capital stock),
(b) the net income, if positive, of any person, other than a wholly owned
Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a wholly
owned Consolidated Subsidiary of such person during such period, but in any case
not in excess of such person's pro rata share of such person's net income for
such period, (c) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition, (d)
the net income, if positive, of any of such person's Consolidated Subsidiaries
to the extent that the declaration or payment of dividends or similar
distributions is not at the time permitted by operation of the terms of its
charter or bylaws or any other agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation (other than any insurance statute, rule
or governmental regulation restricting dividends or similar distributions by an
Insurance Subsidiary, including capital and liquidity requirements) applicable
to such Consolidated Subsidiary.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude, to the extent included in calculating such
equity, (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such person or a Consolidated Subsidiary of such person
subsequent to the Issue Date, and (c) all investments in Subsidiaries that are
not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Default" means any event that is, or after notice or the passage of time
or both would be an Event of Default.
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"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, any Equity Interest of such person that, by its terms or
by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time would
be, required to be redeemed or repurchased (including at the option of the
holder thereof) by such person or any of its Subsidiaries, in whole or in part,
on or prior to the Stated Maturity of the Notes and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of the
Company), any Equity Interest other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"Equity Interest" of any person means any shares, interests, participations
or other equivalents (however designated) in such person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such person.
"Event of Loss" means, with respect to any property or asset, (i) any loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Exempted Affiliate Transaction" means (a) customary employee compensation
arrangements approved by a majority of independent (as to such transactions)
members of the Board of Directors of the Company, (b) dividends permitted under
the terms of the covenant discussed above under "Limitation on Restricted
Payments" above and payable, in form and amount, on a pro rata basis to all
holders of Common Stock of the Company, and (c) transactions solely between the
Company and any of its Subsidiaries or solely among Subsidiaries of the Company.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Guarantors" means (i) all of the Company's present Subsidiaries other than
Camelback Insurance, Ltd., Employee Solutions of Alabama, Inc. and Employee
Solutions of California, Inc. and (ii) certain future Subsidiaries as described
in the covenant "Future Subsidiary Guarantors".
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise (as set forth in subclauses
(i) through (vi)), of any such person, (i) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such person
or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or
similar instruments, (iii) representing the balance deferred and unpaid of the
purchase price of any property or services, except those incurred in the
ordinary course of its business that would constitute ordinarily a trade payable
or other accrued current liability that is not more than 90 days past their
original due date and except those for which cash is held in escrow pending
payment of such deferred and unpaid purchase price, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) relating to
any Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit;
(b) all net obligations of such person under Interest Swap and Hedging
Obligations; (c) all liabilities and obligations of others of the kind described
in the preceding clause (a) or (b) that such person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property of
such person; and (d) any and all deferrals, renewals, extensions, refinancing
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b) or (c), or this clause (d), whether or not between or among the
same parties; and (e) all Disqualified Capital Stock of such person (measured at
the greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends). Indebtedness shall not include obligations under
insurance policies or reinsurance contracts entered into in the ordinary course
of business. For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital
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Stock, such fair market value to be determined in good faith by the board of
directors of the issuer (or managing general partner of the issuer) of such
Disqualified Capital Stock.
"Insurance Subsidiary" means a wholly owned Subsidiary of the Company
engaged principally in the ownership or issuance of insurance policies that have
not expired or the ownership or operation of any other similar assets of an
insurer or any interest therein.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person; (b) the making by such person of any deposit with, or advance, loan or
other extension of credit to, such other person (including the purchase of
property from another person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other person) or any
commitment to make any such advance, loan or extension (but excluding accounts
receivable or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Company or any Guarantor to the extent
permitted by the covenant "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," the entering into by such person of any
guarantee of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other person; and (d) the making of any
capital contribution by such person to such other person. Investments shall
exclude insurance premiums and other receivables in the ordinary course of
collection.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Net Cash Proceeds" means the aggregate amount of Cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash on or after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities (including options, warrants, rights and convertible
or exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and expenses (including, without limitation, the fees and expenses
of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale or sale of Qualified Capital Stock, and, in the
case of an Asset Sale only, less the amount (estimated reasonably and in good
faith by the Company) of income, franchise, sales and other applicable taxes
required to be paid by the Company or any of its respective Subsidiaries in
connection with such Asset Sale.
"Permitted Indebtedness" means any of the following:
(a) the Company and the Guarantors may incur Indebtedness evidenced by
the Notes and represented by the Indenture up to the amounts specified
therein as of the date thereof;
(b) Indebtedness incurred pursuant to the Amended Credit Facility
(including any Indebtedness issued to refinance, refund or replace such
Indebtedness) provided that the aggregate principal amount of Indebtedness
outstanding at any time does not exceed $20.0 million, plus accrued
interest and such
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additional amounts as may be deemed to be outstanding in the form of
Interest Swap and Hedging Obligations with lenders party to the Amended
Credit Facility, minus the amount of any such Indebtedness retired with Net
Cash Proceeds from any Asset Sale or assumed by a transferee in an Asset
Sale;
(c) the Company and its Subsidiaries, as applicable, may incur
Refinancing Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, described in clause (b) of this definition,
incurred under the Debt Incurrence Ratio test of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
or which is outstanding on the Issue Date so long as such Refinancing
Indebtedness is secured only by the assets that secured the Indebtedness so
refinanced;
(d) the Company and its Subsidiaries may incur Indebtedness in an
aggregate amount outstanding at any time (including any Indebtedness issued
to refinance, replace, or refund such Indebtedness) of up to $2.0 million,
minus the amount of any such Indebtedness retired with Net Cash Proceeds
from any Asset Sale or assumed by a transferee in an Asset Sale;
(e) the Company may incur Indebtedness to any wholly owned Subsidiary,
and any wholly owned Subsidiary may incur Indebtedness to any other wholly
owned Subsidiary or to the Company; provided that, in the case of
Indebtedness of the Company (except Indebtedness to an Insurance
Subsidiary), such obligations shall be unsecured and subordinated in all
respects to the Company's obligations pursuant to the Notes and the date of
any event that causes a Subsidiary to no longer be a wholly owned
Subsidiary shall be an Incurrence Date;
(f) Indebtedness incurred in respect of reimbursement-type obligation
regarding workers' compensation claims;
(g) Indebtedness of the Company or its Subsidiaries in connection with
performance bonds, surety bonds, insurance obligations or bonds and other
similar bonds or obligations incurred in the ordinary course of business;
and
(h) Earn-out agreements in connection with acquisitions of businesses
by the Company or its Subsidiaries, provided that at the time such
agreement is entered into the Company may incur $1.00 of additional
Indebtedness under the Debt Incurrence Ratio in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Stock" and any
Indebtedness incurred to fund payments made pursuant to any such earn-out
agreements shall not be Permitted Indebtedness.
"Permitted Investment" means (a) Investments in any of the Notes; (b)
Investments in Cash Equivalents; (c) Investments in intercompany obligations to
the extent permitted under clause (e) of the definition of "Permitted
Indebtedness"; (d) any Investment in a person in a Related Business, which,
after such Investment, becomes a wholly owned Subsidiary of the Company and a
Guarantor of the Notes; and (e) other Investments not to exceed $2.0 million.
"Permitted Lien" means (a) Liens incurred in connection with the Amended
Credit Facility if such Indebtedness is permitted by clause (b) under the
definition of Permitted Indebtedness and additional Liens in an amount not to
exceed $20.0 million in the aggregate incurred in connection with the Amended
Credit Facility, as such facility may be increased or amended from time to time,
provided that at the time such Lien is incurred, the Company is able to incur at
least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio in
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock;" (b) Liens existing on the Issue Date; (c) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (d) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (e) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds,
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performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (f) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects which, singly or in
the aggregate, do not in any case materially detract from the value of the
property subject thereto (as such property is used by the Company or any of its
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries; (g) Liens arising by operation of law in
connection with judgments, only to the extent, for an amount and for a period
not resulting in an Event of Default with respect thereto; (h) pledges or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security
legislation; (i) Liens securing the Notes; (j) Liens securing Indebtedness of a
person existing at the time such person becomes a Subsidiary or is merged with
or into the Company or a Subsidiary or Liens securing Indebtedness incurred in
connection with an Acquisition, provided that such Liens were in existence prior
to the date of such acquisition, merger or consolidation, were not incurred in
anticipation thereof, and do not extend to any assets other than those acquired;
(k) leases or subleases granted to other persons in the ordinary course of
business not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Subsidiary; (l) Liens arising from
precautionary Uniform Commercial Code financing statement filings regarding
operating leases entered into by the Company or any of its Subsidiaries in the
ordinary course of business; (m) Liens securing Refinancing Indebtedness
incurred to refinance any Indebtedness that was previously so secured in a
manner no more adverse to the Holders of the Notes than the terms of the Liens
securing such refinanced Indebtedness provided that the Indebtedness secured is
not increased and the Lien is not extended to any additional assets or property;
and (n) restrictions on funds held by or on behalf of the Insurance Subsidiaries
for the payment of claims.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of Qualified Capital Stock or any
exchange of Qualified Capital Stock for any Capital Stock or Indebtedness of the
Company issued on or after the Issue Date.
"Reference Period" with regard to any person means the four full fiscal
quarters ended immediately preceding any date upon which any determination is to
be made pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
provided, that (A) such Refinancing Indebtedness of any Subsidiary of the
Company shall only be used to refinance outstanding Indebtedness or Disqualified
Capital Stock of such Subsidiary, (B) such Refinancing Indebtedness shall (x)
not have an Average Life shorter than the Indebtedness or Disqualified Capital
Stock to be so refinanced at the time of such Refinancing and (y) in all
respects, be no less subordinated or junior, if applicable, to the rights of
Holders of the Notes than was the Indebtedness or Disqualified Capital Stock to
be refinanced and (C) such Refinancing Indebtedness shall have a final stated
maturity or redemption date, as applicable, no earlier than the final stated
maturity or redemption date, as applicable, of the Indebtedness or Disqualified
Capital Stock to be so refinanced.
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"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any parent or Subsidiary of such person, (b) any payment on
account of the purchase, redemption or other acquisition or retirement for value
of Equity Interests of such person or any Subsidiary or parent of such person,
(c) other than with the proceeds from the substantially concurrent sale of, or
in exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such person or a parent or Subsidiary of such person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness and (d) any Investment by
such person, other than a Permitted Investment; provided, however, that the term
"Restricted Payment" does not include (i) any dividend, distribution or other
payment on or with respect to Equity Interests of an issuer to the extent
payable solely in shares of Qualified Capital Stock of such issuer; or (ii) any
dividend, distribution or other payment to the Company, or to any of its wholly
owned Subsidiaries, by the Company or any of its Subsidiaries.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X under the Securities Act, as in effect on the issue date.
"Stated Maturity," when used with respect to any Note, means October 15,
2004.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment to the Notes or such
Guarantee, as applicable, in any respect or has a stated maturity on or after
the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or a Subsidiary of such person is,
at the time, a general partner. Unless the context requires otherwise,
Subsidiary means each direct and indirect Subsidiary of the Company.
"wholly owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by the Company or one or more wholly owned Subsidiaries of the
Company.
BOOK-ENTRY, DELIVERY AND FORM
The Notes are initially represented by one or more Global Notes issued in
the form of fully registered Global Notes, which are deposited with or on behalf
of the Depository and registered in the name of a nominee of the Depository.
Interests in Global Notes are available for purchase only by "qualified
institutional buyers" as defined in Rule 144A under the Securities Act.
Notes that were originally issued to or transferred to institutional
"accredited investors" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act or to any other persons who are not qualified institutional
buyers were issued as a separate Certificated Note also held in the name of a
nominee of the Depository. Upon the transfer to a qualified institutional buyer
of Certificated Notes, such Certificated Notes will be exchanged for an interest
in the Global Notes representing the principal amount of the Notes being
transferred.
The Depository has advised the Company and the Initial Purchaser that the
Depository intends to follow the procedures described below:
The Depository will act as securities depository for the Global Notes.
The Global Notes will be issued as a fully registered security registered
in the name of Cede & Co. (the Depository's nominee).
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The Depository is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository holds securities that its
participants ("Participants") deposit with the Depository. The Depository
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
organizations ("Direct Participants"). The Depository is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depository's system is also available to others
such as securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
Rules applicable to the Depository and its Participants are on file with
the Commission.
Purchase of Notes must be made by or through Direct Participants,
which will receive a credit for the Notes on the Depository's records. The
ownership interest of each actual purchaser of each Note represented by the
Global Notes ("Beneficial Owner") is in turn recorded on the Direct and
Indirect Participants' records. Transfers of ownership interests in the
Notes are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Notes, except in
the event that use of the book-entry system for the Notes is discontinued.
Conveyance of Notes and other communications by the Depository to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, the Depository's practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither the Depository nor Cede & Co. will consent or vote with
respect to the Global Notes. Under its usual procedures, the Depository
mails an Omnibus Proxy to the issuer as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Notes are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Principal of, premium and Liquidated Damages, if any, and interest
payments on the Notes will be made to the Depository. The Depository's
practice is to credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on the Depository's records
unless the Depository has reason to believe that it will not receive
payment on the payable date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form
or registered in "street name", and will be the responsibility of such
Participant and not of the Depository, the Paying Agent or the Company,
subject to any statutory or regulatory requirements as may be in effect
from time to time. Payment to the Depository of principal of, premium and
Liquidated Damages, if any, and interest on the Notes are the
responsibility of the Company or the Paying Agent, disbursement of such
payments to Direct Participants shall be the responsibility of the
Depository, and disbursement of such payments to the Beneficial Owners
shall be the responsibility of Direct and Indirect Participants.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
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If the Depository is at any time unwilling, unable or ineligible to
continue as Depository and a successor Depository is not appointed by the
Company within 90 days, the Company will issue Certificated Notes in exchange
for the Global Notes. In addition, the Company may at any time and in its sole
discretion determine not to have any Notes in registered form represented by the
Global Notes and, in such event, will issue Certificated Notes in exchange for
the Global Notes. In any such instance, an owner of a beneficial interest in a
Global Note will be entitled to physical delivery of Certificated Notes
registered in its name. Upon the exchange of the Global Notes for Certificated
Notes, the Global Notes will be canceled by the Trustee.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement pursuant to which the Company agreed to file with
the Commission promptly (but in any event on or prior to 45 days) after the
Issue Date, the Exchange Offer Registration Statement on the appropriate form,
relating to the Exchange Offer to exchange the Original Notes for the Company's
Series B 10% Senior Notes due 2004 (the "Exchange Notes"), which will have terms
substantially identical in all material respects to the Original Notes (except
that such Exchange Notes will not contain terms with respect to transfer
restrictions). The Registration Statement of which this Prospectus forms a part
is the Exchange Offer Registration Statement. The Company agreed to use its best
efforts to cause such Exchange Offer Registration Statement to become effective
within 120 days after the Issue Date. Upon the effectiveness of the Exchange
Offer Registration Statement, the Company agreed to offer the Holders of
Original Notes the opportunity to exchange their Original Notes for Exchange
Notes. In the event that applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer or permit a
Holder to participate in the Exchange Offer, or, in the case of any Holder of
Original Notes that participates in the Exchange Offer, such Holder does not
receive freely tradable Exchange Notes on the date of the exchange for tendered
Original Notes, or if for any reason the Exchange Offer is not consummated
within 150 days after the Issue Date, or, subject to certain conditions, upon
the request of the Initial Purchaser or the Holders of a majority in aggregate
principal amount of the Original Notes, the Company agreed, at its cost, to file
with the Commission the Shelf Registration Statement to cover resales of
Original Notes by the Holders thereof. The Company will use its best efforts to
cause the applicable registration statement to be declared effective by the
Commission as promptly as practicable after the date of filing.
Based on an interpretation of the staff of the Commission set forth in
several no-action letters to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by Holders thereof without compliance with the
registration and prospectus delivery provisions of the Securities Act. However,
any purchaser of Original Notes who is an "affiliate" of the Company or who
intends to participate in the Exchange Offer for the purpose of distributing the
Exchange Notes (i) will not be able to rely on the interpretation of the staff
of the Commission set forth in the above referenced no-action letters, (ii) will
not be able to tender its Original Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Original Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements.
The Registration Rights Agreement provides that unless the Exchange Offer
would not be permitted by a policy of the Commission, the Company will have
commenced the Exchange Offer and will use its best efforts to issue on or prior
to 30 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission Exchange Notes in exchange
for all Original Notes tendered prior thereto in the Exchange Offer. If (a)
neither of the registration statements described above is filed on or before the
45th day following the Issue Date, (b) neither of such registration statements
is declared effective by the Commission on or prior to the 120th day after the
Issue Date (the "Effectiveness Date"), (c) an Exchange Offer Registration
Statement becomes effective, and the Company fails to consummate the Exchange
Offer within 30 business days of the effectiveness of such registration
statement, or (d) the Shelf Registration Statement is filed and declared
effective but thereafter ceases to be effective without being succeeded within
30 days by another effective registration statement (each such event, a
"Registration Default"), the Company will pay liquidated damages ("Liquidated
Damages") to each Holder of Registrable
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Securities (as defined) during the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to one-half of one
percent (0.5%) per annum of the principal amount of the Original Notes held by
such Holder during the first 90-day period immediately following the occurrence
of such Registration Default, increasing by an additional one-half of one
percent (0.5%) per annum of the principal amount of such Original Notes during
each subsequent 90-day period, up to a maximum amount of Liquidated Damages
equal to two percent (2.0%) per annum of the principal amount of such Original
Notes, which provision for Liquidated Damages will continue until such
Registration Default has been cured. All accrued Liquidated Damages will be paid
in the same manner as interest payments on the Original Notes on semiannual
damages payment dates that correspond to interest payment dates for the Original
Notes and upon redemption dates, Change of Control Purchase Dates and Asset Sale
Offers. Following the cure of a Registration Default, the accrual of Liquidated
Damages will cease.
Holders of Original Notes is required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement in order to have
their Notes included in the Shelf Registration Statement. A Holder of Original
Notes that sells such Original Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a Holder (including
certain indemnification obligations). The Company will provide a copy of the
Registration Rights Agreement to Holder upon request.
PLAN OF DISTRIBUTION
Based on interpretations by Commission staff set forth in no-action letters
issued to third parties, including the Exxon Capital and Morgan Stanley letters
and similar letters, the Company believes that the Exchange Notes to be issued
pursuant to the Exchange Offer in exchange for Original Notes may be offered for
resale, resold, and otherwise transferred by any Holder thereof (other than any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder has no arrangement with any person to participate in the
distribution of such Exchange Notes. Accordingly, any Holder using the Exchange
Offer to participate in a distribution of the Exchange Notes will not be able to
rely on such no-action letters. Notwithstanding the foregoing, each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Original Notes where
such Original Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of up to 180
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
ESI will not receive any proceeds from any sales of the Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of the Exchange Notes and any
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commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a prospectus
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of up to 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. ESI has agreed to pay certain expenses incident to
the Exchange Offer, other than commissions or concession of any brokers or
dealers, and will indemnify the holders of the Exchange Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in this Prospectus untrue in any material respect or which
requires the making of any changes in this Prospectus in order to make the
statements herein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of this
Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented Prospectus to such broker-dealer. If the Company shall give any
such notice to suspend the use of the Prospectus, it shall extend the period
referred to above by the number of days during the period from and including the
date of the giving of such notice to and including the date when broker-dealers
shall have received copies of the supplemented or amended Prospectus necessary
to permit resales of the Exchange Notes.
This Prospectus has been prepared to permit its use by the Initial
Purchaser in connection with offers and sales of the Notes, in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. The Initial Purchaser may act as principal or agent in such
transactions. The Initial Purchaser has advised the Company that it currently
intends to make a market in the Notes, but it is not obligated to do so and may
discontinue any such market-making at any time without notice. Accordingly, no
assurance can be given that an active trading market will develop for, or as to
the liquidity of, the Notes.
LEGAL MATTERS
The validity of the Exchange Notes and the Guarantees offered hereby is
being passed upon for the Company by Quarles & Brady, Milwaukee, Wisconsin and
Phoenix, Arizona.
EXPERTS
The consolidated financial statements of the Company for each of the three
years in the period ended December 31, 1997 incorporated by reference in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, which is
incorporated by reference herein in reliance upon the authority of said firm as
experts in giving said report.
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INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Arizona Revised Statutes sec. 10-851 contains an extensive indemnification
provision which permits an Arizona corporation to indemnify any person who was,
is or is threatened to be named defendant or respondent ("party") in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative ("proceeding") (other than (i) a
proceeding by or in the right of the corporation in which the director was held
liable to the corporation or (ii) in connection with a proceeding charging
improper personal benefit in which the director was held liable on the basis
that personal benefit was improperly received by the director) by reason of the
fact that such person is or was a director, or while serving as a director, is
or was serving at the corporation's request as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise ("director") against the
obligation to pay a judgment, settlement, penalty or fine, or reasonable
expenses with respect to a proceeding (including obligations and expenses that
have not yet been paid by such person but that have been or may be incurred)
("liability") if such person's conduct was in good faith and such person
reasonably believed that such conduct in an official capacity with the
corporation was in the corporation's best interest or, in all other cases, that
such conduct was at least not opposed to the corporation's best interest, and,
in the case of criminal proceedings, such person had no reasonable cause to
believe that the conduct was unlawful.
Arizona Revised Statutes sec. 10-852 requires an Arizona corporation
(unless limited by its articles of incorporation) to (i) indemnify a director
who was the prevailing party in the defense of a proceeding to which the
director was a party because the director is or was a director of the
corporation against reasonable expenses incurred by the director in connection
with the proceeding and (ii) indemnify a director who is not an officer,
employee or holder of more than 5% of the outstanding shares of any class of the
corporation's stock (an "outside director") against liability and to pay an
outside director's expenses in advance of a final disposition of a proceeding,
if the director furnishes the corporation with a written affirmation of the
director's good faith belief that the director met the standard of conduct
described in sec. 10-851 and an undertaking executed personally, or on the
director's behalf, to repay the advance if it is determined that the director
did not meet the standard of conduct. Arizona Revised Statutes sec. 10-853
permits an Arizona corporation to pay expenses incurred by any other director
who is a party to a proceeding in advance of final disposition of a proceeding
if the director furnishes the corporation the written affirmation and
undertaking described above and a determination is made by the company's board
who are not parties to the proceeding, special legal counsel or shareholders
that the facts then known would not preclude indemnification.
Arizona Revised Statutes sec. 10-854 permits a court to order
indemnification of a director who is a party to a proceeding upon the director's
application for indemnification to the court even if the director has not met
the statutory requirements if the director is fairly and reasonably entitled to
indemnification in view of all of the relevant circumstances.
Arizona Revised Statutes sec. 10-856 entitles an officer who is not a
director to the mandatory and court-ordered indemnification provided by Arizona
law to directors. In addition, an officer who is not a director and employees
and agents of an Arizona corporation may be indemnified to the same extent as
directors and may be further indemnified to the extent consistent with public
policy.
Arizona Revised Statutes sec. 10-202 provides that a corporation in its
articles of incorporation may eliminate or limit personal liability of members
of its board of directors to the corporation or its shareholders for money
damages for any action taken or any failure to take any action as a director.
However, no such provision may eliminate or limit the liability of a director
for the amount of a financial benefit received by a director to which the
director is not entitled, an intentional infliction of harm on the corporation
or its shareholders, authorizing the unlawful distribution to shareholders, or
an intentional violation of criminal law. A provision of this type has no effect
on the availability of equitable remedies, such as injunction or rescission, for
an action or failure to take any action as a director. The Registrant's Articles
of Incorporation contain such a provision.
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The Registrant's Bylaws provide that the Registrant shall indemnify
officers and directors to the full extent permitted by and in the manner
permissible under the laws of the State of Arizona.
The Registrant maintains directors' and officers' liability insurance
coverage for, among other things, certain liability for violations of certain
federal and state securities laws. The Registrant also has entered into
indemnification agreements with substantially all of the Registrant's directors
and executive officers.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Incorporated by reference to the Exhibit Index immediately following the
signature page hereof.
(b) Financial Statement Schedules:
None. All schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements or notes
thereto.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
II-2
<PAGE> 56
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Phoenix,
State of Arizona on April 3, 1998.
EMPLOYEE SOLUTIONS, INC.
By: /s/ MARVIN D. BRODY
------------------------------------
MARVIN D. BRODY
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARVIN D. BRODY Chairman of the Board, Chief April 3, 1998
- --------------------------------------------------- Executive Officer, President
Marvin D. Brody and Director
HARVEY A. BELFER* Director April 3, 1998
- ---------------------------------------------------
Harvey A. Belfer
JEFFERY A. COLBY* Director April 3, 1998
- ---------------------------------------------------
Jeffery A. Colby
EDWARD L. CAIN, JR.* Director April 3, 1998
- ---------------------------------------------------
Edward L. Cain, Jr.
/s/ SARA R. DIAL Director April 3, 1998
- ---------------------------------------------------
Sara R. Dial
ROBERT L. MUELLER* Director April 3, 1998
- ---------------------------------------------------
Robert L. Mueller
/s/ QUENTIN P. SMITH, JR. Director April 3, 1998
- ---------------------------------------------------
Quentin P. Smith, Jr.
/s/ MORRIS C. AARON Chief Financial Officer April 3, 1998
- ---------------------------------------------------
Morris C. Aaron
/s/ JOHN V. PRINCE Chief Accounting Officer April 3, 1998
- ---------------------------------------------------
John V. Prince
*By /s/ MORRIS C. AARON
----------------------------------------------
Morris C. Aaron
Attorney-in-fact
</TABLE>
II-4
<PAGE> 58
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the Guarantor Subsidiaries, as a Registrant, has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Phoenix, State of Arizona on April 3, 1998.
ERC OF INDIANA, INC.
ERC OF MINN, INC.
ERC OF OHIO, INC.
ESI AMERICA, INC.
ESI-MIDWEST, INC.
ESI RISK MANAGEMENT AGENCY, INC.
EMPLOYEE RESOURCES CORPORATION
EMPLOYEE SOLUTIONS-EAST, INC.
EMPLOYEE SOLUTIONS-MIDWEST, INC.
EMPLOYEE SOLUTIONS OF OHIO, INC.
EMPLOYEE SOLUTIONS OF TEXAS, INC.
GCK ENTERTAINMENT SERVICES I, INC.
LOGISTICS PERSONNEL CORPORATION
PHOENIX CAPITAL MANAGEMENT, INC.
TALENT, ENTERTAINMENT AND MEDIA
SERVICES, INC.
By: /s/ MARVIN D. BRODY
------------------------------------
Marvin D. Brody, Chief Executive
Officer of each of the foregoing
Guarantor Subsidiaries
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARVIN D. BRODY Director and Chief Executive April 3, 1998
- --------------------------------------------------- Officer of each of the
Marvin D. Brody foregoing Guarantor
Subsidiaries
HARVEY A. BELFER* Director of each of the April 3, 1998
- --------------------------------------------------- Guarantor Subsidiaries
Harvey A. Belfer
/s/ MORRIS C. AARON Chief financial officer of each April 3, 1998
- --------------------------------------------------- of the foregoing Guarantor
Morris C. Aaron Subsidiaries
/s/ JOHN V. PRINCE Chief accounting officer of April 3, 1998
- --------------------------------------------------- each of the foregoing
John V. Prince Guarantor Subsidiaries
*By /s/ MORRIS C. AARON
----------------------------------------------
Morris C. Aaron
Attorney-in-fact
</TABLE>
II-5
<PAGE> 59
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the Guarantor Subsidiaries, as a Registrant, has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Phoenix, State of Arizona on April 3, 1998.
EMPLOYEE SOLUTIONS-SOUTHEAST, INC.
By: /s/ ROY A. FLEGENHEIMER
------------------------------------
Roy A. Flegenheimer, President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROY A. FLEGENHEIMER President (chief executive officer) April 3, 1998
- ---------------------------------------------------
Roy A. Flegenheimer
HARVEY A. BELFER* Director April 3, 1998
- ---------------------------------------------------
Harvey A. Belfer
EDWARD L. CAIN, JR.* Director April 3, 1998
- ---------------------------------------------------
Edward L. Cain, Jr.
/s/ MORRIS C. AARON Chief financial officer April 3, 1998
- ---------------------------------------------------
Morris C. Aaron
/s/ JOHN V. PRINCE Chief accounting officer April 3, 1998
- ---------------------------------------------------
John V. Prince
*By /s/ MORRIS C. AARON
----------------------------------------------
Morris C. Aaron
Attorney-in-fact
</TABLE>
II-6
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY PREVIOUSLY FILED
NO. DESCRIPTION REFERENCE TO FILED HEREWITH
------- ----------- --------------- ---------- --------
<S> <C> <C> <C> <C> <C>
4.1 -- Registrant's Composite Articles of Exhibit 3(i) to the
Incorporation, as amended Registrant's Annual Report on
Form 10-K for the year ended
December 31, 1996 ("1996 10-K")
4.2 -- Registrant's Bylaws, as amended Exhibit 3(ii) to 1996 10-K
4.3 -- Indenture dated October 15, 1997 among Exhibit 4.1 to the Registrant's
the Registrant, the Guarantor Current Report on Form 8-K
Subsidiaries and The Huntington dated October 21, 1997
National Bank ("10/21/97 8-K")
4.4 -- Purchase Agreement dated October 16, Exhibit 4.2 to 10/21/97 8-K
1997 among the Registrant, the
Guarantor Subsidiaries and First
Chicago Capital Markets, Inc. ("FCCM")
4.5 -- Registration Rights Agreement dated Exhibit 4.3 to 10/21/97 8-K
October 21, 1997 among the Registrant,
the Guarantor Subsidiaries and FCCM
4.6 -- Amended and Restated Loan Agreement Exhibit 4.4 to 10/21/97 8-K
dated October 21, 1997 between the
Registrant and Bank One Arizona, NA
5.1 -- Opinion of Quarles & Brady X
12.1 -- Statements re computation of ratios X
23.1 -- Consent of Quarles & Brady (Included in
Exhibit 5.1 above)
23.2 -- Consent of Arthur Andersen LLP X
24.1 -- Powers of Attorney Signature
Page
25.1 -- Statement of eligibility of Trustee, on
Form T-1 X
99.1 -- Form of Letter of Transmittal X
</TABLE>
II-7
<PAGE> 1
EXHIBIT 12.1
EMPLOYEE SOLUTIONS, INC.
AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31, Pro forma(a)
----------------------------------------------- ------------
1993 1994 1995 1996 1997 1997
---- ---- ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
before income taxes $208 $829 $6,681 $18,407 $(11,315) $(14,596)
Add
Portion of rents representative of the
interest factor 29 44 47 213 522 522
Interest on indebtedness 104 3 25 1,196 5,102 8,500
Amortization of debt expense and
premium 169 -- -- 53 601 484
---- ---- ------ ------- -------- --------
Income (loss) as adjusted $510 $876 $6,753 $19,869 $ (5,090) $ (5,090)
==== ==== ====== ======= ======== ========
Fixed charges
Interest on indebtedness $104 $ 3 $ 25 $ 1,196 $ 5,102 $ 8,500
Amortization of debt expense and
premium 169 -- -- 53 601 484
Portion of rents representative of
the interest factor 29 44 47 213 522 522
---- ---- ------ ------- ------- --------
Fixed charges $302 $ 47 $ 72 $ 1,462 $ 6,225 $ 9,506
==== ==== ====== ======= ======= ========
Ratio of earnings to fixed charges 1.7x 18.6x 93.8x 13.6x (b) (c)
==== ==== ====== ======= ======= ========
</TABLE>
(a) Pro forma adjustments relate to the note offering being effective January 1,
1997. Adjustments include interest expense and amortization of debt expense
and the related effect on income (loss) from continuing operations before
income taxes.
(b) Earnings in 1997 were inadequate to cover fixed charges and resulted in a
coverage deficiency of approximately $11.3 million.
(c) Pro forma earnings in 1997 were inadequate to cover fro forma fixed
charges and resulted in acoverage deficiency of approximately
$14.6 million.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this Form S-4
registration statement for Employee Solutions, Inc.
Arthur Andersen LLP
Phoenix, Arizona,
March 11, 1998.
<PAGE> 1
Exhibit 25.1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2)
THE HUNTINGTON NATIONAL BANK
(Exact name of trustee as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
31-0966785
(Jurisdiction of incorporation or organization (IRS Employer Identification Number)
if not a U.S. national bank)
41 S. High Street
Columbus, Ohio 43215
(Address of principal executive offices) (Zip Code)
</TABLE>
Ralph K. Frazier, General Counsel
The Huntington National Bank
41 S. High Street - HC3412
Columbus, Ohio 43215
Tel: (614) 480-4647
(Name, address and telephone number of agent for service)
EMPLOYEE SOLUTIONS, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Arizona 86-0676898
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
4225 North 24th Street
Phoenix, AZ 85016
(Address of principal executive offices) (Zip Code)
</TABLE>
EMPLOYEE SOLUTIONS, INC. 10% SENIOR
NOTES DUE 2004, SERIES B
Debt Securities
(Title of the indenture securities)
1
<PAGE> 2
GENERAL
Pursuant to General Instruction B of the Form T-1, the applicant is providing
responses to only Items 1, 2, and 16 of the Form T-1 since the obligor is not
in default.
Item 1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it is
subject.
<TABLE>
<CAPTION>
<S> <C>
Office of the Comptroller of the Currency Federal Deposit Insurance Corporation
Central District Chicago Region
One Financial Plaza 30 South Wacker Drive
440 South LaSalle, Suite 2700 Chicago, Illinois 60505
Chicago, Illinois 60605
</TABLE>
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Federal Reserve Bank of Cleveland - District No. 4
1455 East Sixth Street
Cleveland, Ohio 44115
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the obligor.
If the obligor is an affiliate of the trustee, describe each
such affiliation.
None.
2
<PAGE> 3
16. List of Exhibits
List below all exhibits filed as a part of this Statement of Eligibility.
1. A copy of the Articles of Association of the Trustee as now in effect (see
Item 16, Exhibit 1 to Form T-1 filed in connection with Registration Statement
No. 33-80090 which is incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence Business
(see Item 16. Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-80090, which is incorporated by reference).
3. A copy of the authorization of the Trustee to exercise corporate trust
powers (see Item 16, Exhibit 3 to Form T-1 filed in connection with
Registration Statement No. 33-80090, which is incorporated by reference).
4. A copy of the existing By Laws of the Trustee (see Item 16, Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-80090, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321 (b) of the Act (see Item
16, Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-80090, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published pursuant
to law or the requirements of its supervising or examining authority for the
period ended December 31, 1997 is attached.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Huntington National Bank, a national association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Columbus and State of Ohio, on the 3rd day of
April, 1998.
THE HUNTINGTON NATIONAL BANK
(Trustee)
By: /s/ Donna L. Shutek
-----------------------------------------
Donna L. Shutek, Assistant Vice President
(Name and Title)
3
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-1
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Consolidated Report of Income
for the period January 1, 1997-December 31, 1997
All Report of Income schedules are to be reported on a calendar year-to-date
basis in thousands of dollars.
Schedule RI--Income Statement
<TABLE>
<CAPTION>
----------
I480 <-
---------------------
Dollar Amounts
in Thousands
- --------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C>
RIAD Bil Mil Thou
1. Interest income: //////////////////
a. Interest and fee income on loans: //////////////////
(1) In domestic offices: //////////////////
(a) Loans secured by real estate ................................................... 4011 564,760 1.a.(1)(a)
(b) Loans to depository institutions ............................................... 4019 82 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ 4024 7,927 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ 4012 402,029 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... 4026 0 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: //////////////////
(1) Credit cards and related plans ............................................. 4054 74,148 1.a.(1)(f)(1)
(2) Other ...................................................................... 4055 430,771 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions ......................... 4056 0 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political //////////////////
subdivisions in the U.S.: //////////////////
(1) Taxable obligations ........................................................ 4503 0 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... 4504 5,367 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ 4058 126 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... 4059 0 1.a.(2)
b. Income from lease financing receivables: //////////////////
(1) Taxable leases ..................................................................... 4505 129,468 1.b.(1)
(2) Tax-exempt leases .................................................................. 4307 0 1.b.(2)
c. Interest income on balances due from depository institutions:(1) //////////////////
(1) In domestic offices ................................................................ 4105 608 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... 4106 12 1.c.(2)
d. Interest and dividend income on securities: //////////////////
(1) U.S. Treasury securities and U.S. Government agency obligations .................... 4027 307,955 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: //////////////////
(a) Taxable securities ............................................................. 4506 0 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... 4507 16,668 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... 3657 25,596 1.d.(3)
(4) Foreign debt securities ............................................................ 3658 363 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... 3659 3,630 1.d.(5)
e. Interest income from trading assets .................................................... 4069 0 1.e.
----------------------
</TABLE>
____________
(1) Includes interest income on time certificates of deposit not held for
trading.
3
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-2
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RI--Continued
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
------------
Year-to-date
- ---------------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Interest income (continued) RIAD Bil Mil Thou
f. Interest income on federal funds sold and securities purchased //////////////////
under agreements to resell .......................................... 4020 3,780 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ 4107 1,973,290 1.g.
2. Interest expense: //////////////////
a. Interest on deposits: //////////////////
(1) Interest on deposits in domestic offices: //////////////////
(a) Transaction accounts (NOW accounts, ATS accounts, and //////////////////
telephone and preauthorized transfer accounts) .............. 4508 29,808 2.a.(1)(a)
(b) Nontransaction accounts: //////////////////
(1) Money market deposit accounts (MMDAs) ................... 4509 55,090 2.a.(1)(b)(1)
(2) Other savings deposits .................................. 4511 100,315 2.a.(1)(b)(2)
(3) Time deposits of $100,000 or more ....................... A517 109,826 2.a.(1)(b)(3)
(4) Time deposits of less than $100,000 ..................... A518 329,445 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement //////////////////
subsidiaries, and IBFs .......................................... 4172 26,394 2.a.(2)
b. Expense of federal funds purchased and securities sold under //////////////////
agreements to repurchase ............................................ 4180 92,151 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading //////////////////
liabilities, and other borrowed money ............................... 4185 182,850 2.c.
d. Not applicable //////////////////
e. Interest on subordinated notes and debentures ....................... 4200 29,336 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... 4073 955,215 2.f.
-----------------------
3. Net interest income (item 1.g minus 2.f) ............................... ////////////////// RIAD 4074 1,018,075 3.
-----------------------
4. Provisions: //////////////////
-----------------------
a. Provision for loan and lease losses ................................. ////////////////// RIAD 4230 106,542 4.a.
b. Provision for allocated transfer risk ............................... ////////////////// RIAD 4243 0 4.b.
-----------------------
5. Noninterest income: //////////////////
a. Income from fiduciary activities .................................... 4070 49,952 5.a.
b. Service charges on deposit accounts in domestic offices ............. 4080 117,816 5.b.
c. Trading revenue (must equal Schedule RI, sum of Memorandum //////////////////
items 8.a through 8.d) .............................................. A220 1,599 5.c.
d.-e. Not applicable //////////////////
f. Other noninterest income: //////////////////
(1) Other fee income ................................................ 5407 130,776 5.f.(1)
(2) All other noninterest income* ................................... 5408 29,729 5.f.(2)
-----------------------
g. Total noninterest income (sum of items 5.a through 5.f) ............. ////////////////// RIAD 4079 329,872 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. ////////////////// RIAD 3521 0 6.a.
b. Realized gains (losses) on available-for-sale securities ............ ////////////////// RIAD 3196 7,651 6.b.
-----------------------
7. Noninterest expense: //////////////////
a. Salaries and employee benefits ...................................... 4135 312,978 7.a.
b. Expenses of premises and fixed assets (net of rental income) //////////////////
(excluding salaries and employee benefits and mortgage interest) .... 4217 85,425 7.b.
c. Other noninterest expense* .......................................... 4092 367,531 7.c.
-----------------------
d. Total noninterest expense (sum of items 7.a through 7.c) ............ ////////////////// RIAD 4093 765,934 7.d.
-----------------------
8. Income (loss) before income taxes and extraordinary items and other //////////////////
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, //////////////////
6.a, 6.b, and 7.d) ..................................................... ////////////////// RIAD 4301 483,122 8.
-----------------------
9. Applicable income taxes (on item 8) .................................... ////////////////// RIAD 4302 175,250 9.
-----------------------
10. Income (loss) before extraordinary items and other adjustments //////////////////
(item 8 minus 9) ....................................................... ////////////////// RIAD 4300 307,872 10.
-----------------------
11. Extraordinary items and other adjustments, net of income taxes* ........ ////////////////// RIAD 4320 0 11.
-----------------------
12. Net income (loss) (sum of items 10 and 11) ............................. ////////////////// RIAD 4340 307,872 12.
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
4
<PAGE> 6
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-3
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
</TABLE>
Schedule RI--Continued
<TABLE>
<CAPTION>
-------
1481 <-
Memoranda ---------------
Year-to-date
--------------------
Dollar Amounts in Thousands RIAD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after //////////////////
August 7, 1986, that is not deductible for federal income tax purposes .......................... 4513 2 M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices //////////////////
(included in Schedule RI, item 8) ............................................................... 8431 18,098 M.2.
3.-4. Not applicable //////////////////
5. Number of full-time equivalent employees on payroll at end of current period (round to //// Number
nearest whole number) ........................................................................... 4150 8,190 M.5.
6. Not applicable //////////////////
7. If the reporting bank has restated its balance sheet as a result of applying push down RIAD //// CC YY MM DD
accounting this calendar year, report the date of the bank's acquisition (1) ................9106 00 00 00 00 M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) //////////////////
(sum of Memorandum items 8.d must equal Schedule RI, item 5.c): //// Bil Mil Thou
a. Interest rate exposures....................................................................... 8757 693 M.8.a.
b. Foreign exchange exposures.................................................................... 8758 906 M.8.b.
c. Equity security and index exposures........................................................... 8759 0 M.8.c.
d. Commodity and other exposures................................................................. 8760 0 M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: //////////////////
a. Net increase (decrease) to interest income.................................................... 8761 195 M.9.a.
b. Net (increase) decrease to interest expense................................................... 8762 3,324 M.9.b.
c. Other (noninterest) allocations............................................................... 8763 672 M.9.c.
10. Credit losses on off-balance sheet derivatives (see instructions) ............................... A251 0 M.10.
11. Does the reporting bank have a Subchapter S election in effect for federal income tax YES NO
purposes for the current tax year? .............................................................. A530 /// X M.11.
12. Deferred portion of total applicable income taxes included in Schedule RI, //// Bil Mil Thou
items 9 and 11 (to be reported with the December Report of Income) .............................. 4772 50,007 M.12.
</TABLE>
____________
(1) For example, a bank acquired on June 1, 1997, would report 19970601.
5
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-4
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RI-A--Changes in Equity Capital
Indicate decreases and losses in parentheses.
<TABLE>
<CAPTION>
----------
Dollar Amounts in Thousands I483 <-
- ------------------------------------------------------------------------------------------------------ -----------------------
<S> <C> <C> <C>
RIAD Bil Mil Thou
1. Total equity capital originally reported in the December 31, 1996, Reports of Condition //////////////////
and Income ...................................................................................... 3215 834,472 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. 3216 0 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ 3217 834,472 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. 4340 307,872 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. 4346 0 5.
6. Changes incident to business combinations, net .................................................. 4356 1,407,484 6.
7. LESS: Cash dividends declared on preferred stock ................................................ 4470 0 7.
8. LESS: Cash dividends declared on common stock ................................................... 4460 228,892 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions //////////////////
for this schedule) .............................................................................. 4411 (1,794) 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) 4412 0 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ 8433 20,876 11.
12. Foreign currency translation adjustments ........................................................ 4414 ( 0 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ 4415 (624,759) 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, //////////////////
item 28) ........................................................................................ 3210 1,715,259 14.
----------------------
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.
<TABLE>
<CAPTION>
----------
I486 <-
------------------------------------------
(Column A) (Column B)
Dollar Amounts in Thousands Charge-offs Recoveries
- ------------------------------------------------------------------------------ -------------------- --------------------
Calendar year-to-date
<S> <C> <C> <C>
RIAD Bil Mil Thou RIAD Bil Mil Thou
1. Loans secured by real estate: ////////////////// //////////////////
a. To U.S. addressees (domicile) ......................................... 4651 4,229 4661 875 1.a.
b. To non-U.S. addressees (domicile) ..................................... 4652 0 4662 0 1.b.
2. Loans to depository institutions and acceptances of other banks: ////////////////// //////////////////
a. To U.S. banks and other U.S. depository institutions .................. 4653 0 4663 0 2.a.
b. To foreign banks ...................................................... 4654 0 4664 0 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... 4655 0 4665 0 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile) ......................................... 4645 22,891 4617 4,373 4.a.
b. To non-U.S. addressees (domicile) ..................................... 4646 0 4618 0 4.b.
5. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures: ////////////////// //////////////////
a. Credit cards and related plans ........................................ 4656 26,241 4666 3,250 5.a.
b. Other (includes single payment, installment, and all student loans) ... 4657 47,010 4667 12,941 5.b.
6. Loans to foreign governments and official institutions ................... 4643 0 4627 0 6.
7. All other loans .......................................................... 4644 0 4628 0 7.
8. Lease financing receivables: ////////////////// //////////////////
a. Of U.S. addressees (domicile) ......................................... 4658 9,878 4668 1,057 8.a.
b. Of non-U.S. addressees (domicile) ..................................... 4659 0 4669 0 8.b.
9. Total (sum of items 1 through 8) ......................................... 4635 110,249 4605 22,496 9.
-------------------------------------------
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-5
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RI-B--Continued
Part I. Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
-------------------------------------------
Calendar year-to-date
-------------------------------------------
(Column A) (Column B)
Memoranda Charge-offs Recoveries
- ------------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
RIAD Bil Mil Thou RIAD Bil Mil Thou
1-3. Not applicable ////////////////// //////////////////
4. Loans to finance commercial real estate, construction, and land ////////////////// //////////////////
development activities (not secured by real estate) included in ////////////////// //////////////////
Schedule RI-B, part I, items 4 and 7, above............................... 5409 0 5410 0 M.4.
5. Loans secured by real estate in domestic offices (included in ////////////////// //////////////////
Schedule RI-B, part I, item 1, above): ////////////////// //////////////////
a. Construction and land development...................................... 3582 375 3583 111 M.5.a.
b. Secured by farmland.................................................... 3584 0 3585 0 M.5.b
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit...................... 5411 1,268 5412 175 M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties....... 5413 1,935 5414 304 M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties.............. 3588 0 3589 0 M.5.d.
e. Secured by nonfarm nonresidential properties........................... 3590 651 3591 284 M.5.e
-------------------------------------------
</TABLE>
Part II. Changes in Allowance for Loan and Lease Losses
<TABLE>
<CAPTION>
Dollar Amounts
in Thosands
- --------------------------------------------------------------------------------------------------- ----------------------
<S> <C> <C> <C>
RIAD Bil Mil Thou
1. Balance originally reported in the December 31, 1996, Reports of Condition and Income.......... 3124 144,088 1.
2. Recoveries (must equal part I, item 9, column B above)......................................... 4605 22,496 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above).................................. 4635 110,249 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... 4230 106,542 4.
5. Adjustments* (see instructions for this schedule).............................................. 4815 94,135 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, //////////////////
item 4.b)...................................................................................... 3123 257,012 6.
--------------------
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
7
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-6
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RI-D--Income from International Operations
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs
where international operations account for more than 10 percent of total
revenues, total assets, or net income.
Part I. Estimated Income from International Operations
<TABLE>
<CAPTION>
----------
I492 <-
------ --------
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
Year-to-date
RIAD Bil Mil Thou
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, //////////////////
and IBFs: //////////////////
a. Interest income booked ................................................................... 4837 N/A 1.a.
b. Interest expense booked .................................................................. 4838 N/A 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs //////////////////
(item 1.a minus 1.b) ..................................................................... 4839 N/A 1.c.
2. Adjustments for booking location of international operations: //////////////////
a. Net interest income attributable to international operations booked at domestic offices .. 4840 N/A 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... 4841 N/A 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... 4842 N/A 2.c.
3. Noninterest income and expense attributable to international operations: //////////////////
a. Noninterest income attributable to international operations .............................. 4097 N/A 3.a.
b. Provision for loan and lease losses attributable to international operations ............. 4235 N/A 3.b.
c. Other noninterest expense attributable to international operations ....................... 4239 N/A 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a //////////////////
minus 3.b and 3.c) ....................................................................... 4843 N/A 3.d.
4. Estimated pretax income attributable to international operations before capital allocation //////////////////
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. 4844 N/A 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect //////////////////
the effects of equity capital on overall bank funding costs ................................. 4845 N/A 5.
6. Estimated pretax income attributable to international operations after capital allocation //////////////////
adjustment (sum of items 4 and 5) ........................................................... 4846 N/A 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... 4797 N/A 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. 4341 N/A 8.
----------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda ---------------------
Dollar Amounts
in Thousands
- ------------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C>
RIAD Bil Mil Thou
1. Intracompany interest income included in item 1.a above ..................................... 4847 N/A M.1.
2. Intracompany interest expense included in item 1.b above .................................... 4848 N/A M.2.
--------------------------
</TABLE>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
- ------------------------------------------------------------------------------------------------ --------------------
<S> <C> <C> <C>
Year-to-date
RIAD Bil Mil Thou
1. Interest income booked at IBFs .............................................................. 4849 N/A 1.
2. Interest expense booked at IBFs ............................................................. 4850 N/A 2.
3. Noninterest income attributable to international operations booked at domestic offices //////////////////
(excluding IBFs): //////////////////
a. Gains (losses) and extraordinary items ................................................... 5491 N/A 3.a.
b. Fees and other noninterest income ........................................................ 5492 N/A 3.b.
4. Provision for loan and lease losses attributable to international operations booked at //////////////////
domestic offices (excluding IBFs) ........................................................... 4852 N/A 4.
5. Other noninterest expense attributable to international operations booked at domestic offices //////////////////
(excluding IBFs) ............................................................................ 4853 N/A 5.
--------------------
</TABLE>
8
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-7
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RI-E--Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.
Detail all adjustments in Schedule RI-A and RI-B, all extraordinary items and
other adjustments in Schedule RI, and all significant items of other
noninterest income and other noninterest expense in Schedule RI. (See
instructions for details.)
<TABLE>
<CAPTION> ----------
I495 <-
------ --------
Dollar Amounts in Thousands Year-to-date
RIAD Bil Mil Thou
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) //////////////////
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): //////////////////
a. Net gains (losses) on other real estate owned ........................................... 5415 0 1.a.
b. Net gains (losses)on sales of loans ..................................................... 5416 0 1.b.
c. Net gains (losses) on sales of premises and fixed assets ................................ 5417 5,523 1.c.
Itemize and describe the three largest other amounts that exceed 10% of //////////////////
Schedule RI, item 5.f.(2): //////////////////
-------------
d. TEXT 4461 Miscellaneous mortgage banking income 4461 12,596 1.d.
----------- ------------------------------------------------------------------------------
e. TEXT 4462 Gain on sale of branches 4462 3,508 1.e.
----------- ------------------------------------------------------------------------------
f. TEXT 4463 4463 1.f.
-------------------------------------------------------------------------------------------
2. Other noninterest expense (from Schedule RI, item 7.c): //////////////////
a. Amortization expense of intangible assets ................................................ 4531 17,562 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: //////////////////
b. Net (gains) losses on other real estate owned ............................................ 5418 0 2.b.
c. Net (gains) losses on sales of loans ..................................................... 5419 0 2.c.
d. Net (gains) losses on sales of premises and fixed assets ................................. 5420 0 2.d.
Itemize and describe the three largest other amounts that exceed 10% of //////////////////
Schedule RI, item 7.c: //////////////////
-------------
e. TEXT 4464 Intercompany operation fees 4464 81,692 2.e.
----------- ------------------------------------------------------------------------------
f. TEXT 4467 4467 2.f.
----------- ------------------------------------------------------------------------------
g. TEXT 4468 4468 2.g.
-------------------------------------------------------------------------------------------
3. Extraordinary items and other adjustments and applicable income tax effect (from Schedule //////////////////
RI, item 11) (itemize and describe all extraordinary items and other adjustments): //////////////////
-------------
a. (1) TEXT 4469 4469 3.a.(1)
---------------------------------------------------------------------------------------
(2) Applicable income tax effect RIAD 4486 ////////////////// 3.a.(2)
-------------
b. (1) TEXT 4487 4487 3.b.(1)
---------------------------------------------------------------------------------------
(2) Applicable income tax effect RIAD 4488 ////////////////// 3.b.(2)
-------------
c. (1) TEXT 4489 4489 3.c.(1)
---------------------------------------------------------------------------------------
(2) Applicable income tax effect RIAD 4491 ////////////////// 3.c.(2)
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, //////////////////
item 2) (itemize and describe all adjustments): //////////////////
-------------
a. TEXT 4492 4492 4.a.
----------- ------------------------------------------------------------------------------
b. TEXT 4493 4493 4.b.
-------------------------------------------------------------------------------------------
5. Cumulative effect of changes in accounting principles from prior years (from //////////////////
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): //////////////////
-------------
a. TEXT A546 Effect of change to GAAP from previous non-GAAP instructions A546 (1,794) 5.a.
----------- ------------------------------------------------------------------------------
b. TEXT 4495 4495 5.b.
-------------------------------------------------------------------------------------------
6. Corrections of material accounting errors from prior years (from Schedule RI-A, //////////////////
item 10) (itemize and describe all corrections): //////////////////
-------------
a. TEXT 4496 4496 6.a.
----------- ------------------------------------------------------------------------------
b. TEXT 4497 4497 6.b.
-------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RI-8
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RI-E--Continued
<TABLE>
<CAPTION> ----------------
Dollar Amounts in Thousands
----------------------
Year-to-date
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C> <C>
RIAD Bil Mil Thou
7. Other transactions with parent holding company (from Schedule RI-A, item 13) //////////////////
(itemize and describe all such transactions): //////////////////
TEXT
-----------
a. 4498 Surplus reduction via distribution to parent 4498 (650,000) 7.a.
----------- ------------------------------------------------------------------------------
b. 4499 Pushdown of fixed assets from parent 4499 25,241 7.b.
-------------------------------------------------------------------------------------------
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, //////////////////
item 5) (itemize and describe all adjustments): //////////////////
TEXT
-------------
a. 4521 Increase incident to business combinations 4521 94,135 8.a.
----------- ------------------------------------------------------------------------------
b. 4522 4522 8.b
------------------------------------------------------------------------------------------- ---------------------
9. Other explanations (the space below is provided for the bank to briefly describe, I498 I499 <-
----------------------
at its option, any other significant items affecting the Report of Income):
---
No comment [ ] (RIAD 4769)
---
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
10
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-1
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for December 31, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
----------
C400 <-
-------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS //////////////////
1. Cash and balances due from depository institutions (from Schedule RC-A): //////////////////
a. Noninterest-bearing balances and currency and coin(1) ................................... 0081 1,143,737 1.a.
b. Interest-bearing balances(2) ............................................................ 0071 50,050 1.b.
2. Securities: //////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. 1754 33,010 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ 1773 5,675,335 2.b.
3. Federal funds sold and securities purchased under agreements to resell ..................... 1350 560,453
4. Loans and lease financing receivables: //////////////////
------------------
a. Loans and leases, net of unearned income (from Schedule RC-C) ...... RCFD 2122 17,846,086 ////////////////// 4.a.
b. LESS: Allowance for loan and lease losses .......................... RCFD 3123 257,012 ////////////////// 4.b.
c. LESS: Allocated transfer risk reserve .............................. RCFD 3128 0 ////////////////// 4.c.
d. Loans and leases, net of unearned income, //////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c) ..................................... 2125 17,589,074 4.d.
5. Trading assets (from Schedule RC-D) ........................................................ 3545 3,492 5.
6. Premises and fixed assets (including capitalized leases) ................................... 2145 386,012 6.
7. Other real estate owned (from Schedule RC-M) ............................................... 2150 17,615 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... 2130 8,734 8.
9. Customers' liability to this bank on acceptances outstanding ............................... 2155 27,818 9.
10. Intangible assets (from Schedule RC-M) ..................................................... 2143 304,399 10.
11. Other assets (from Schedule RC-F) .......................................................... 2160 790,345 11.
12. Total assets (sum of items 1 through 11) ................................................... 2170 26,590,074 12.
----------------------
</TABLE>
- -------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
11
<PAGE> 13
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-2
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC--Continued
<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
///////// Bil Mil Thou
LIABILITIES //////////////////
13. Deposits: //////////////////
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... RCON 2200 17,507,310 13.a.
----------------------------
(1) Noninterest-bearing(1) ....................................RCON 6631 2,717,516 ///////////////////// 13.a.(1)
(2) Interest-bearing ..........................................RCON 6636 14,789,794 ///////////////////// 13.a.(2)
---------------------------
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, //////////////////
part II) .............................................................................. RCFN 2200 803,504 13.b.
---------------------------
(1) Noninterest-bearing .......................................RCFN 6631 0 ///////////////////// 13.b.(1)
(2) Interest-bearing ..........................................RCFN 6636 803,504 ///////////////////// 13.b.(2)
----------------------------
14. Federal funds purchased and securities sold under agreements to repurchase ............... RCFD 2800 2,703,544 14.
15. a. Demand notes issued to the U.S. Treasury .............................................. RCON 2840 25,358 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. RCFD 3548 0 15.b.
16. Other borrowed money: (includes mortgage indebtedness and obligation under //////////////////
capitalized leases): //////////////////
a. With original maturity of one year or less ............................................ RCFD 2332 1,368,700 16.a.
b. With original maturity of more than one year through three years ...................... RCFD A547 735,211 16.b.
c. With a remaining maturity of more than three years .................................... RCFD A548 473,190 16.c.
17. Not applicable //////////////////
18. Bank's liability on acceptances executed and outstanding ................................. RCFD 2920 27,818 18.
19. Subordinated notes and debentures (2) .................................................... RCFD 3200 849,475 19.
20. Other liabilities (from Schedule RC-G) ................................................... RCFD 2930 380,705 20.
21. Total liabilities (sum of items 13 through 20) ........................................... RCFD 2948 24,874,815 21.
22. Not applicable //////////////////
EQUITY CAPITAL //////////////////
23. Perpetual preferred stock and related surplus ............................................ RCFD 3838 0 23.
24. Common stock ............................................................................. RCFD 3230 40,000 24.
25. Surplus (exclude all surplus related to preferred stock).................................. RCFD 3839 435,891 25.
26. a. Undivided profits and capital reserves ................................................ RCFD 3632 1,224,603 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ RCFD 8434 14,765 26.b.
27. Cumulative foreign currency translation adjustments ...................................... RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27) ........................................ RCFD 3210 1,715,259 28.
29. Total liabilities and equity capital (sum of items 21 and 28) ............................ RCFD 3300 26,590.074 29.
---------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Memorandum
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that Number
best describes the most comprehensive level of auditing work performed ----------------------
for the bank by independent external auditors as of any date during 1996 ........................... RCFD 6724 N/A M.1.
----------------------
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance 8 = No external audit work
with generally accepted auditing standards by a certified
public accounting firm (may be required by state
chartering authority)
- ------------
</TABLE>
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
12
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-3
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
<TABLE>
<CAPTION>
----------
Dollar Amounts in Thousands C405 <-
--------------------------------- --------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
- ----------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C> <C>
RCFD Bil Mil Thou RCON Bil Mil Thou
1. Cash items in process of collection, unposted debits, and currency and ////////////////// //////////////////
coin .................................................................... 0022 922,488 ////////////////// 1.
a. Cash items in process of collection and unposted debits .............. ////////////////// 0020 683,087 1.a.
b. Currency and coin .................................................... ////////////////// 0080 239,401 1.b.
2. Balances due from depository institutions in the U.S. ................... ////////////////// 0082 79,824 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... 0083 0 ////////////////// 2.a.
b. Other commercial banks in the U.S. and other depository institutions ////////////////// //////////////////
in the U.S. (including their IBFs) ................................... 0085 79,824 ////////////////// 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. ////////////////// 0070 50,000 3.
a. Foreign branches of other U.S. banks ................................. 0073 50,000 ////////////////// 3.a.
b. Other banks in foreign countries and foreign central banks ........... 0074 0 ////////////////// 3.b.
4. Balances due from Federal Reserve Banks ................................. 0090 141,475 0090 141.475 4.
5. Total (sum of items 1 through 4) (total of column A must equal ////////////////// //////////////////
Schedule RC, sum of items 1.a and 1.b) .................................. 0010 1,193,787 0010 1,193,787 5.
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
---------------------
Memorandum Dollar Amounts in Thousands
- -------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
RCON Bil Mil Thou
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, //////////////////
column B above) .............................................................................. 0050 79,774 M.1.
----------------------
</TABLE>
Schedule RC-B--Securities
Exclude assets held for trading.
<TABLE>
<CAPTION>
Dollar Amounts in Thousands C410 <-
--------------------------------------------------------------------------- --------
Held-to-maturity Available-for-sale
----------------------------------------- -----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
- -------------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
1. U.S. Treasury securities ......... 0211 156 0213 156 1286 711,322 1287 709,567 1.
2. U.S. Government agency ////////////////// ////////////////// ////////////////// //////////////////
(exclude mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities): ////////////////// ////////////////// ////////////////// //////////////////
a. Issued by U.S. Govern- ////////////////// ////////////////// ////////////////// //////////////////
ment agencies(2) .............. 1289 500 1290 500 1291 0 1293 0 2.a.
b. Issued by U.S. ////////////////// ////////////////// ////////////////// //////////////////
Government-sponsored ////////////////// ////////////////// ////////////////// //////////////////
agencies(3) ................... 1294 0 1295 0 1297 2,193,091 1298 2,201,580 2.b.
-------------------------------------------------------------------------------------
</TABLE>
_____________
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.b, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates,"
U.S. Maritime Administration obligations, and Export-Import Bank
participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the
Farm Credit System, the Federal Home Loan Bank System, the Federal Home
Loan Mortgage Corporation, the Federal National Mortgage Association, the
Financing Corporation, Resolution Funding Corporation, the Student Loan
Marketing Association, and the Tennessee Valley Authority.
13
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-4
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-B--Continued
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Held-to-maturity Available-for-sale
----------------------------------------- -----------------------------------------
(Column A) (Column B) (Column C) (Column D)
Amortized Cost Fair Value Amortized Cost Fair Value(1)
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bill Mil Thou
- ------------------------------------- ------------------ ------------------ ------------------ ------------------
3. Securities issued by states ////////////////// ////////////////// ////////////////// //////////////////
and political subdivisions ////////////////// ////////////////// ////////////////// //////////////////
in the U.S.: ////////////////// ////////////////// ////////////////// //////////////////
a. General obligations ........... 1676 14,576 1677 14,751 1678 163,540 1679 170,424 3.a.
b. Revenue obligations ........... 1681 17,778 1686 17,987 1690 45,787 1691 47,452 3.b.
c. Industrial development ////////////////// ////////////////// ////////////////// //////////////////
and similar obligations ....... 1694 0 1695 0 1696 0 1697 0 3.c.
4. Mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (MBS): ////////////////// ////////////////// ////////////////// //////////////////
a. Pass-through securities: ////////////////// ////////////////// ////////////////// //////////////////
(1) Guaranteed by ////////////////// ////////////////// ////////////////// //////////////////
GNMA ...................... 1698 0 1699 0 1701 61,255 1702 61,390 4.a.(1)
(2) Issued by FNMA ////////////////// ////////////////// ////////////////// //////////////////
and FHLMC ................. 1703 0 1705 0 1706 1,307,233 1707 1,310,035 4.a.(2)
(3) Other pass-through ////////////////// ////////////////// ////////////////// //////////////////
securities................. 1709 0 1710 0 1711 0 1713 0 4.a.(3)
b. Other mortgage-backed ////////////////// ////////////////// ////////////////// //////////////////
securities (include CMOs, ////////////////// ////////////////// ////////////////// //////////////////
REMICs, and stripped ////////////////// ////////////////// ////////////////// //////////////////
MBS): ////////////////// ////////////////// ////////////////// //////////////////
(1) Issued or guaranteed ////////////////// ////////////////// ////////////////// //////////////////
by FNMA, FHLMC, ////////////////// ////////////////// ////////////////// //////////////////
or GNMA ................... 1714 0 1715 0 1716 668,994 1717 671,402 4.b.(1)
(2) Collateralized ////////////////// ////////////////// ////////////////// //////////////////
by MBS issued or ////////////////// ////////////////// ////////////////// //////////////////
guaranteed by FNMA, ////////////////// ////////////////// ////////////////// //////////////////
FHLMC, or GNMA............. 1718 0 1719 0 1731 23,821 1732 23,895 4.b.(2)
(3) All other mortgage- ////////////////// ////////////////// ////////////////// //////////////////
backed securities.......... 1733 0 1734 0 1735 0 1736 0 4.b.(3)
5. Other debt securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Other domestic debt ////////////////// ////////////////// ////////////////// //////////////////
securities .................... 1737 0 1738 0 1739 420,312 1741 422,450 5.a.
b. Foreign debt ////////////////// ////////////////// ////////////////// //////////////////
securities .................... 1742 0 1743 0 1744 3,503 1746 3,505 5.b.
6. Equity securities: ////////////////// ////////////////// ////////////////// //////////////////
a. Investments in mutual ////////////////// ////////////////// ////////////////// //////////////////
fundsand other equity ////////////////// ////////////////// ////////////////// //////////////////
securities with readily ////////////////// ////////////////// ////////////////// //////////////////
determined fair values ........ ////////////////// ////////////////// A510 42 A511 42 6.a.
b. All other equity ////////////////// ////////////////// ////////////////// //////////////////
securities(1).................. ////////////////// ////////////////// 1752 53,593 1753 53,593 6.b.
7. Total (sum of items 1 ////////////////// ////////////////// ////////////////// //////////////////
through 6) (total of ////////////////// ////////////////// ////////////////// //////////////////
column A must equal ////////////////// ////////////////// ////////////////// //////////////////
Schedule RC, item 2.a) ////////////////// ////////////////// ////////////////// //////////////////
(total of column D must ////////////////// ////////////////// ////////////////// //////////////////
equal Schedule RC, ////////////////// ////////////////// ////////////////// //////////////////
item 2.b)......................... 1754 33,010 1771 33,394 1772 5,652,493 1773 5,675,335 7.
-------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Includes equity securities without readily determinable fair values at
historical cost in item 6.b, column D.
14
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-5
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-B--Continued
<TABLE>
<CAPTION>
Memoranda -----------
C412 <-
----------- ---------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Pledged securities(1) ......................................................................... 0416 2,050,211 M.1.
2. Maturity and repricing data for debt securities(1),(2) (excluding those in nonaccrual status): //////////////////
a. Securities issued by the U.S. Treasury, U.S. Government agencies, and states and political //////////////////
subdivisions in the U.S.; other non-mortgage debt securities; and mortgage pass-through //////////////////
securities other than those backed by closed-end first lien 1-4 family residential mortgages //////////////////
with a remaining maturity or repricing frequency of:(3)(4).................................. //////////////////
(1) Three months or less ................................................................... A549 4,649 M.2.a.(1)
(2) Over three months through 12 months .................................................... A550 18,159 M.2.a.(2)
(3) Over one year through three years ...................................................... A551 365,598 M.2.a.(3)
(4) Over three years through five years .................................................... A552 1,839,102 M.2.a.(4)
(5) Over five years through 15 years ....................................................... A553 1,268,864 M.2.a.(5)
(6) Over 15 years .......................................................................... A554 91,616 M.2.a.(6)
b. Mortgage pass-through securities backed by closed-end first lien 1-4 family residential //////////////////
mortgages with a remaining maturity or repricing frequency of: (3)(5) //////////////////
(1) Three months or less ................................................................... A555 1,182 M.2.b.(1)
(2) Over three months through 12 months .................................................... A556 1,030 M.2.b.(2)
(3) Over one year through three years ...................................................... A557 3,078 M.2.b.(3)
(4) Over three years through five years .................................................... A558 167,528 M.2.b.(4)
(5) Over five years through 15 years ....................................................... A559 1,157,295 M.2.b.(5)
(6) Over 15 years .......................................................................... A560 41,312 M.2.b.(6)
c. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS; exclude mortgage //////////////////
pass-through securities) with an expected average life of: (6) //////////////////
(1) Three years or less .................................................................... A561 0 M.2.c.(1)
(2) Over three years ....................................................................... A562 695,297 M.2.c.(2)
d. Fixed rate AND floating rate debt securities with a REMAINING MATURITY of one year or less //////////////////
(included in Memorandum items 2.a through 2.c above) ....................................... A248 23,917 M.2.d.
3.-6.Not applicable //////////////////
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or //////////////////
trading securities during the calendar year-to-date (report the amortized cost at date of sale //////////////////
or transfer) .................................................................................. 1778 225,342 M.7.
8. High-risk mortgage securities (included in the held-to-maturity and available-for-sale //////////////////
accounts in Schedule RC-B, item 4.b): //////////////////
a. Amortized cost.............................................................................. 8780 0 M.8.a.
b. Fair value.................................................................................. 8781 0 M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in //////////////////
Schedule RC-B, items 2, 3, and 5): //////////////////
a. Amortized cost.............................................................................. 8782 0 M.9.a.
b. Fair value.................................................................................. 8783 0 M.9.b.
----------------------
</TABLE>
_____________
(1) Includes held-to-maturity securities at amortized cost and
available-for-sale securities at fair value.
(2) Exclude equity securities, e.g., investments in mutual funds, Federal
Reserve stock, common stock, and preferred stock.
(3) Report fixed rate debt securities by remaining maturity and floating rate
debt securities by repricing frequency.
(4) Sum of Memorandum item 2.a.(1) through 2.a.(6) plus any nonaccrual debt
securities in the categories of debt securities reported in Memorandum item
2.a that are included in Schedule RC-N, item 9, column C, must equal
Schedule RC-B, sum of items 1, 2, 3, and 5, columns A and D, plus mortgage
pass-through securities other than those backed by closed-end first lien 1-4
family residential mortgages included in Schedule RC-B, item 4.a, columns A
and D.
(5) Sum of Memorandum items 2.b.(1) through 2.b.(6) plus any nonaccrual
mortgage pass-through securities backed by closed-end first lien 1-4 family
residential mortgages included in Schedule RC-N, item 9, column C, must
equal Schedule RC-B, item 4.a, sum of columns A and D, less the amount of
mortgage pass-through securities other than those backed by closed-end
first lien 1-4 family residential mortgages included in Schedule RC-B, item
4.a, columns A and D.
(6) Sum of Memorandum items 2.c.(1) and 2.c.(2) plus any nonaccrual "Other
mortgage-backed securities" included in Schedule RC-N, item 9, column C,
must equal Schedule RC-B, item 4.b, sum of columns A and D.
15
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-6
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
</TABLE>
Schedule RC-C--Loans and Lease Financing Receivables
Part I. Loans and Leases
<TABLE>
<CAPTION>
Do not deduct the allowance for loan and lease losses from amounts ----------
reported in this schedule. Report total loans and leases, net of unearned Dollar Amounts in Thousands C415 <-
income. Exclude assets held for trading and commercial paper. --------------------------------- --------
(Column A) (Column B)
Consolidated Domestic
Bank Offices
-------------------- --------------------
<S> <C> <C> <C> <C> <C>
RCFD Bil Mil Thou RCON Bil Mil Thou
1. Loans secured by real estate .......................................... 1410 7,389,250 ////////////////// 1.
a. Construction and land development .................................. ////////////////// 1415 671,311 1.a.
b. Secured by farmland (including farm residential and other ////////////////// //////////////////
improvements) ...................................................... ////////////////// 1420 51,321 1.b.
c. Secured by 1-4 family residential properties: ////////////////// //////////////////
(1) Revolving, open-end loans secured by 1-4 family residential ////////////////// //////////////////
properties and extended under lines of credit .................. ////////////////// 1797 1,271,814 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: ////////////////// //////////////////
(a) Secured by first liens ..................................... ////////////////// 5367 1,443,964 1.c.(2)(a)
(b) Secured by junior liens .................................... ////////////////// 5368 929,254 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties .......... ////////////////// 1460 125,290 1.d.
e. Secured by nonfarm nonresidential properties ....................... ////////////////// 1480 2,896,296 1.e.
2. Loans to depository institutions: ////////////////// //////////////////
a. To commercial banks in the U.S. .................................... ////////////////// 1505 62,940 2.a.
(1) To U.S. branches and agencies of foreign banks ................. 1506 0 ////////////////// 2.a.(1)
(2) To other commercial banks in the U.S. .......................... 1507 62,940 ////////////////// 2.a.(2)
b. To other depository institutions in the U.S. ....................... 1517 0 1517 0 2.b.
c. To banks in foreign countries ...................................... ////////////////// 1510 0 2.c.
(1) To foreign branches of other U.S. banks ........................ 1513 0 ////////////////// 2.c.(1)
(2) To other banks in foreign countries ............................ 1516 0 ////////////////// 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers ... 1590 114,648 1590 114,648 3.
4. Commercial and industrial loans: ////////////////// //////////////////
a. To U.S. addressees (domicile) ...................................... 1763 3,999,716 1763 3,999,716 4.a.
b. To non-U.S. addressees (domicile) .................................. 1764 9,373 1764 9,373 4.b.
5. Acceptances of other banks: ////////////////// //////////////////
a. Of U.S. banks ...................................................... 1756 668 1756 668 5.a.
b. Of foreign banks ................................................... 1757 1,913 1757 1,913 5.b.
6. Loans to individuals for household, family, and other personal ////////////////// //////////////////
expenditures (i.e., consumer loans) (includes purchased paper) ........ ////////////////// 1975 4,433,987 6.
a. Credit cards and related plans (includes check credit and other ////////////////// //////////////////
revolving credit plans) ............................................ 2008 693,745 ////////////////// 6.a.
b. Other (includes single payment, installment, and all student loans). 2011 3,740,242 ////////////////// 6.b.
7. Loans to foreign governments and official institutions (including ////////////////// //////////////////
foreign central banks) ................................................ 2081 27 2081 27 7.
8. Obligations (other than securities and leases) of states and political ////////////////// //////////////////
subdivisions in the U.S. (includes nonrated industrial development ////////////////// //////////////////
obligations) .......................................................... 2107 70,888 2107 70,888 8.
9. Other loans ........................................................... 1563 135,297 ////////////////// 9.
a. Loans for purchasing or carrying securities (secured and unsecured). ////////////////// 1545 15,669 9.a.
b. All other loans (exclude consumer loans) ........................... ////////////////// 1564 119,628 9.b.
10. Lease financing receivables (net of unearned income) .................. ////////////////// 2165 1,627,626 10.
a. Of U.S. addressees (domicile) ...................................... 2182 1,627,626 ////////////////// 10.a.
b. Of non-U.S. addressees (domicile) .................................. 2183 0 ////////////////// 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ....... 2123 247 2123 247 11.
12. Total loans and leases, net of unearned income (sum of items 1 through ////////////////// //////////////////
10 minus item 11) (total of column A must equal Schedule RC, item 4.a). 2122 17,846,086 2122 17,846,086 12.
-------------------------------------------
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-7
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-C--Continued
Part I. Continued
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands /////// Bil Mil Thou
- ----------------------------------------------------------------------------- --------------------
<S> <C> <C>
1. Not applicable ////////////////////
2. Loans and leases restructured and in compliance with modified terms ////////////////////
(included in Schedule RC-C, part I, above and not reported as past due ////////////////////
or nonaccrual in Schedule RC-N, Memorandum item 1): ////////////////////
a. Loans secured by real estate: ////////////////////
(1) To U.S. addressees (domicile) ................................... RCFD 1687 4,661 M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... RCFD 1689 0 M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans to ////////////////////
individuals for household, family, and other personal expenditures).. RCFD 8691 0 M.2.b.
c. Commercial and industrial loans to and lease financing receivables ////////////////////
of non-U.S. addresses (domicile) included in Memorandum item 2.b ////////////////////
above................................................................ RCFD 8692 0 M.2.c.
3. Maturity and repricing data for loans and leases (excluding those in ////////////////////
nonaccrual status): ////////////////////
a. Closed-end loans secured by first liens on 1-4 family residential ////////////////////
properties in domestic offices with a remaining maturity or ////////////////////
repricing frequency of:(1)(2) ////////////////////
(1) Three months or less ............................................ RCON A564 63,630 M.3.a.(1)
(2) Over three months through 12 months ............................. RCON A565 493,865 M.3.a.(2)
(3) Over one year through five years ................................ RCON A566 208,193 M.3.a.(3)
(4) Over three years through five years.............................. RCON A567 185,069 M.3.a.(4)
(5) Over five years through 15 years................................. RCON A568 216,205 M.3.a.(5)
(6) Over 15 years.................................................... RCON A569 263,191 M.3.a.(6)
b. All loans and leases other than closed-end loans secured by first ////////////////////
liens on 1-4 family residential properties in domestic offices with ////////////////////
a remaining maturity or repricing frequency of:(1)(3) ////////////////////
(1) Three months or less............................................. RCFD A570 7,985,292 M.3.b.(1)
(2) Over three months through 12 months.............................. RCFD A571 1,047,382 M.3.b.(2)
(3) Over one year through three years................................ RCFD A572 3,159,146 M.3.b.(3)
(4) Over three years through five years.............................. RCFD A573 3,372,503 M.3.b.(4)
(5) Over five years through 15 years................................. RCFD A574 759,041 M.3.b.(5)
(6) Over 15 years.................................................... RCFD A575 26,834 M.3.b.(6)
c. Fixed rate AND floating rate loans and leases with a REMAINING /////////////////////
MATURITY of one year or less (included in Memorandum items 3.a and /////////////////////
3.b above)........................................................... RCFD A247 3,008,159 M.3.c.
d. Fixed rate AND floating rate loans secured by nonfarm nonresidential /////////////////////
properties in domestic offices(4) with a REMAINING MATURITY of over /////////////////////
five years (included in Memorandum item 3.b above)................... RCON A577 318,112 M.3.d.
e. Fixed rate AND floating rate commercial and industrial loans(5) with /////////////////////
a REMAINING MATURITY of over three years (included in Memorandum 3.b /////////////////////
above)............................................................... RCFD A578 857,505 M.3.e
-----------------------
</TABLE>
_____________
(1) Report fixed rate loans and leases by remaining maturity and floating rate
loans by repricing frequency.
(2) Sum of Memorandum items 3.a.(1) through 3.a.(6) plus total nonaccrual
closed-end loans secured by first liens on 1-4 family residential
properties in domestic offices included in Schedule RC-N, Memorandum item
3.c.(2), column C, must equal total closed-end loans secured by first liens
on 1-4 family residential properties from Schedule RC-C, part I, item
1.c.(2)(a), column B.
(3) Sum of Memorandum items 3.b.(1) through 3.b.(6), plus total nonaccrual loans
and leases from Schedule RC-N, sum of items 1 through 8, column C, minus
nonaccrual closed-end loans secured by first liens on 1-4 family residential
properties in domestic offices included in Schedule RC-N, Memorandum item
3.c.(2), column C, must equal total loans and leases from Schedule RC-C,
part I, sum of items 1 through 10, column A, minus total closed-end loans
secured by first liens on 1-4 family residential properties in domestic
offices from Schedule RC-C, part I, item 1.c.(2)(a), column B.
(4) As defined for Schedule RC-C, part I, item 1.e, column B.
(5) As defined for Schedule RC-C, part I, item 4, column A.
17
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-8
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----
</TABLE>
Schedule RC-C -- Continued
Part I. Continued
Memoranda (continued)
<TABLE>
<CAPTION>
Dollar Amounts in Thousands ///////// Bil Mil Thou
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4. Loans to finance commercial real estate, construction, and land development activities (not ///////////////////////
secured by real estate) included in Schedule RC-C, part I, items 4 and 9, column A, ///////////////////////
page RC-6(1).................................................................................. RCFD 2746 47,490 M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, page RC-6)................. RCFD 5369 192,948 M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family residential properties ///////////////////////
in domestic offices (included in Schedule RC-C, part I, item 1.c.(2)(a), column B, page RC-6). RCON 5370 353,233 M.6.
-----------------------
</TABLE>
________________
(1) Exclude loans secured by real estate that are included in Schedule RC-C,
part I, item 1, column A.
Schedule RC-D -- Trading Assets and Liabilities
Schedule RC-D is to be completed only by banks with $1 billion or more in total
assets or with $2 billion or more in par/notional amount of off-balance sheet
derivative contracts (as reported in Schedule RC-L, items 14.a through 14.e,
columns A through D).
<TABLE>
<CAPTION>
--------
C420 <-
-----------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS ///////////////////////
1. U.S. Treasury securities in domestic offices................................................. RCON 3531 0 1.
2. U.S. Government agency obligations in domestic offices (exclude mortgage-backed securities).. RCON 3532 0 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices....... RCON 3533 0 3.
4. Mortgage-backed securities (MBS) in domestic offices: ///////////////////////
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA...................... RCON 3534 0 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA ///////////////////////
(include CMOs, REMICs, and stripped MBS).................................................. RCON 3535 0 4.b.
c. All other mortgage-backed securities...................................................... RCON 3536 0 4.c.
5. Other debt securities in domestic offices.................................................... RCON 3537 0 5.
6. Certificates of deposit in domestic offices.................................................. RCON 3538 0 6.
7. Commercial paper in domestic offices......................................................... RCON 3539 0 7.
8. Bankers acceptances in domestic offices...................................................... RCON 3540 3,492 8.
9. Other trading assets in domestic offices..................................................... RCON 3541 0 9.
10. Trading assets in foreign offices............................................................ RCFN 3542 0 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity ///////////////////////
contracts: ///////////////////////
a. In domestic offices....................................................................... RCON 3343 0 11.a.
b. In foreign offices........................................................................ RCFN 3543 0 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5)............ RCFD 3545 3,492 12.
-----------------------
LIABILITIES ///////// Bil Mil Thou
-----------------------
13. Liability for short positions................................................................ RCFD 3546 0 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and ///////////////////////
equity contracts............................................................................. RCFD 3547 0 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b)....... RCFD 3548 0 15.
-----------------------
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-9
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
</TABLE>
Schedule RC-E--Deposit Liabilities
Part I. Deposits in Domestic Offices
<TABLE>
<CAPTION>
----------
C425 (-
--------
Nontransaction
Transaction Accounts Accounts
----------------------------------------- --------------------
(Column A) (Column B) (Column C)
Total transaction Memo: Total Total
accounts (including demand deposits nontransaction
total demand (included in accounts
deposits) column A) (including MMDAs)
-------------------- -------------------- --------------------
Dollar Amounts in Thousands RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
- ---------------------------------------------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Deposits of: ////////////////// ////////////////// //////////////////
1. Individuals, partnerships, and corporations .......... 2201 3,294,753 2240 2,398,743 2346 13,592,444 1.
2. U.S. Government ...................................... 2202 17,065 2280 17,065 2520 0 2.
3. States and political subdivisions in the U.S. ........ 2203 120,338 2290 119,767 2530 300,769 3.
4. Commercial banks in the U.S. ......................... 2206 60,377 2310 60,377 2550 0 4.
5. Other depository institutions in the U.S. ............ 2207 6,557 2312 6,557 2349 0 5.
6. Banks in foreign countries ........................... 2213 1,567 2320 1,567 2236 0 6.
7. Foreign governments and official institutions ////////////////// ////////////////// //////////////////
(including foreign central banks) .................... 2216 0 2300 0 2377 0 7.
8. Certified and official checks ........................ 2330 113,440 2330 113,440 ////////////////// 8.
9. Total (sum of items 1 through 8) (sum of ////////////////// ////////////////// //////////////////
columns A and C must equal Schedule RC, ////////////////// ////////////////// //////////////////
item 13.a) ........................................... 2215 3,614,097 2210 2,717,516 2385 13,893,213 9.
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda ---------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): //////////////////
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ........................ 6835 1,014,289 M.1.a.
b. Total brokered deposits .................................................................... 2365 484,665 M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): //////////////////
(1) Issued in denominations of less than $100,000 .......................................... 2343 0 M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 //////////////////
and participated out by the broker in shares of $100,000 or less ....................... 2344 7,012 M.1.c.(2)
d. Maturity data for brokered deposits: //////////////////
(1) Brokered deposits issued in denominations of less than $100,000 with a remaining //////////////////
maturity of one year or less (included in Memorandum item 1.c.(1) above)................ A243 0 M.1.d.(1)
(2) Brokered deposits issued in denominations of $100,000 or more with a remaining //////////////////
maturity of one year or less (included in Memorandum item 1.b above) ................... A244 484,665 M.1.d.(2)
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. //////////////////
reported in item 3 above which are secured or collateralized as required under state law) .. 5590 18,201 M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must //////////////////
equal item 9, column C above): //////////////////
a. Savings deposits: //////////////////
(1) Money market deposit accounts (MMDAs) .................................................. 6810 2,862,358 M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................ 0352 3,012,115 M.2.a.(2)
b. Total time deposits of less than $100,000 .................................................. 6648 6,111,458 M.2.b.
c. Total time deposits of $100,000 or more .................................................... 2604 1,907,282 M.2.c.
3. All NOW accounts (included in column A above) ................................................. 2398 873,250 M.3.
4. Not applicable ----------------------
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-10
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-E--Continued
Part I. Continued
Memoranda (continued)
<TABLE>
<CAPTION>
---------------------------
Dollar Amounts in Thousands RCON OIL MIL THOU
- -------------------------------------------------------------------------------------------------- ------------------------
<S> <C> <C>
5. Maturity and repricing data for time deposits of less than $100,000: //////////////////
a. Time deposits of less than $100,000 with a remaining maturity or repricing frequency //////////////////
of:(1)(2) //////////////////
(1) Three months or less ................................................................... A579 1,106,790 M.5.a.(1)
(2) Over three months through 12 months..................................................... A580 2,608,153 M.5.a.(2)
(3) Over one year through three years....................................................... A581 2,212,296 M.5.a.(3)
(4) Over three years........................................................................ A582 184,219 M.5.a.(4)
b. Fixed rate AND floating rate time deposits of less than $100,000 with a REMAINING .......... //////////////////
MATURITY of one year or less (included in Memorandum items 5.a.(1) through 5.a.(4) above) A241 3,714,943 M.5.b.
6. Maturity and repricing data for time deposits of $100,000 or more: //////////////////
a. Time deposits of $100,000 or more with a remaining maturity or repricing frequency of:(1)(3) //////////////////
(1) Three months or less ................................................................... A584 955,065 M.6.a.(1)
(2) Over three months through 12 months .................................................... A585 802,464 M.6.a.(2)
(3) Over one year through three years....................................................... A586 143,160 M.6.a.(3)
(4) Over three years........................................................................ A587 6,593 M.6.a.(4)
b. Fixed rate AND floating rate time deposits of $100,000 or more with a REMAINING............. //////////////////
MATURITY of one year or less (included in Memorandum items 6.a.(1) through 6.a.(4) above)... A242 1,757,529 M.6.b.
</TABLE>
_____________
(1) Report fixed rate time deposits by remaining maturity and floating rate
time deposits by repricing frequency.
(2) Sum of Memorandum items 5.a.(1) through 5.a.(4) must equal Schedule RC-E,
Memorandum item 2.b above.
(3) Sum of Memorandum items 6.a.(1) through 6.a.(4) must equal Schedule RC-E,
memorandum item 2.c above.
20
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-11
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-E--Continued
Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
<TABLE>
<CAPTION>
-------------------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- --------------------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C>
Deposits of: //////////////////
1. Individuals, partnerships, and corporations ................................................... 2621 184,135 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ 2623 20,000 2.
3. Foreign banks (including U.S. branches and agencies of foreign banks, including their IBFs) ... 2625 0 3.
4. Foreign governments and official institutions (including foreign central banks) ............... 2650 0 4.
5. Certified and official checks ................................................................. 2330 0 5.
6. All other deposits ............................................................................ 2668 599,369 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... 2200 803,504 7.
-------------------
<CAPTION>
-------------------
Memorandum Dollar Amounts in Thousands RCFN Bil Mil Thou
- -------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
1. Time deposits with a remaining maturity of one year or less (included in Part II, item 7 above) A245 803,504 M.1.
-------------------
</TABLE>
Schedule RC-F--Other Assets
<TABLE>
<CAPTION>
-----
C430 <-
-----------------------
Dollar Amounts in Thousands ///////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C>
1. Income earned, not collected on loans ........................................................ RCFD 2164 89,548 1.
2. Net deferred tax assets(1) ................................................................... RCFD 2148 0 2.
3. Interest-only strips receivable (not in the form of a security) (2) on: ///////////////////////
a. Mortgage loans ............................................................................ RCFD A519 0 3.a.
b. Other financial assets .................................................................... RCFD A520 0 3.b.
4. Other (itemize and describe amounts that exceed 25% of this item) ............................ RCFD 2168 700,797 4.
---------- --------------------------
a. TEXT 3549 Single premium corporate-owned life insurance RCFD 3549 400,000 /////////////////////// 4.a.
----------------------------------------------------------------
b. TEXT 3550 RCFD 3550 /////////////////////// 4.b.
----------------------------------------------------------------
c. TEXT 3551 RCFD 3551 /////////////////////// 4.c.
-----------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... RCFD 2160 790,345 5.
-----------------------
<CAPTION>
-----------------------
Memorandum Dollar Amounts in Thousands ////////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes................................ RCFD 5610 0 M.1.
-----------------------
</TABLE>
Schedule RC-G--Other Liabilities
<TABLE>
<CAPTION>
-------
C435 <-
-----------------------
Dollar Amounts in Thousands ////////// Bil Mil Thou
- -------------------------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(3) ............................ RCON 3645 108,147 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. RCFD 3646 178,124 1.b.
2. Net deferred tax liabilities(1) .............................................................. RCFD 3049 70,489 2.
3. Minority interest in consolidated subsidiaries ............................................... RCFD 3000 (72) 3.
4. Other (itemize and describe amounts that exceed 25% of this item) ............................ RCFD 2938 24,017 4.
---------- -------------------------
a. TEXT 3552 RCFD 3552 /////////////////////// 4.a.
----------------------------------------------------------------
b. TEXT 3553 RCFD 3553 /////////////////////// 4.b.
----------- ----------------------------------------------------
c. TEXT 3554 RCFD 3554 /////////////////////// 4.c.
-------------------------------------------------------------------------------------------
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... RCFD 2930 380,705 5.
-----------------------
</TABLE>
- ------------
(1) See discussion of deferred income taxes in Glossary entry on "income
taxes."
(2) Report interest-only strips receivable in the form of a security as
available-for-sale securities in Schedule RC, item 2.b, or as trading
assets in Schedule RC, item 5, as appropriate.
(3) For savings banks, include "dividends" accrued and unpaid on deposits.
21
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-12
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
<TABLE>
<CAPTION> --------
C440 <-
-------------------
Domestic Offices
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................. 2155 27,818 1.
2. Bank's liability on acceptances executed and outstanding ...................................... 2920 27,818 2.
3. Federal funds sold and securities purchased under agreements to resell ........................ 1350 560,435 3.
4. Federal funds purchased and securities sold under agreements to repurchase .................... 2800 2,703,544 4.
5. Other borrowed money .......................................................................... 3190 2,577,101 5.
EITHER //////////////////
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ................... 2163 N/A 6.
OR //////////////////
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... 2941 806,914 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs). 2192 26,590,074 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and //////////////////
IBFs) ......................................................................................... 3129 24,067,901
--------------------
--------------------
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. RCON Bil Mil Thou
--------------------
10. U.S. Treasury securities ..................................................................... 1779 709,723 10.
11. U.S. Government agency obligations (exclude mortgage-backed //////////////////
securities) .................................................................................. 1785 2,202,080 11.
12. Securities issued by states and political subdivisions in the U.S. ........................... 1786 250,230 12.
13. Mortgage-backed securities (MBS): //////////////////
a. Pass-through securities: //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA .......................................... 1787 1,317,425 13.a.(1)
(2) Other pass-through securities ......................................................... 1869 0 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): //////////////////
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA .......................................... 1877 671,402 13.b.(1)
(2) All other mortgage-backed securities .................................................. 2253 23,895 13.b.(2)
14. Other domestic debt securities ............................................................... 3159 422,450 14.
15. Foreign debt securities ...................................................................... 3160 3,505 15.
16. Equity securities: //////////////////
a. Investments in mutual funds and other equity securities with readily determinable
fair values................................................................................ A513 42 16.a.
b. All other equity securities................................................................ 3169 53,593 16.b.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) ........ 3170 5,708,345 17.
--------------------
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
--------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -------------------------------------------------------------------------------------------------- --------------------
EITHER //////////////////
1. Net due from the IBF of the domestic offices of the reporting bank ............................ 3051 N/A M.1.
OR //////////////////
2. Net due to the IBF of the domestic offices of the reporting bank .............................. 3059 N/A M.2.
--------------------
</TABLE>
22
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-13
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-I--Selected Assets and Liabilities of IBFs
To be completed only by banks with IBFs and other "foreign" offices.
<TABLE>
<CAPTION>
----------
C445 (-
------------ --------
Dollar Amounts in Thousands RCFN Bil Mil Thou
- ----------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. 2133 N/A 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, //////////////////
column A) ...................................................................................... 2076 N/A 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... 2077 N/A 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... 2898 N/A 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, //////////////////
part II, items 2 and 3) ........................................................................ 2379 N/A 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... 2381 N/A 6.
</TABLE>
Schedule RC-K--Quarterly Averages (1)
__________
<TABLE>
<CAPTION>
----------
C455 (-
----------------- --------
Dollar Amounts in Thousands //////// Bil Mil Thou
- ----------------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C>
ASSETS ///////////////////////
1. Interest-bearing balances due from depository institutions ............................... RCFD 3381 5,538 1.
2. U.S. Treasury securities and U.S. Government agency obligations(2) ....................... RCFD 3382 4,808,507 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... RCFD 3383 33,678 3.
4. a. Other debt securities(2) .............................................................. RCFD 3647 621,404 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . RCFD 3648 53,635 4.b.
5. Federal funds sold and securities purchased under agreements to resell ................... RCFD 3365 65,181 5.
6. Loans: ///////////////////////
a. Loans in domestic offices: ///////////////////////
(1) Total loans ....................................................................... RCON 3360 16,285,869 6.a.(1)
(2) Loans secured by real estate ...................................................... RCON 3385 5,925,796 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... RCON 3386 113,519 6.a.(3)
(4) Commercial and industrial loans ................................................... RCON 3387 5,093,524 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... RCON 3388 5,136,916 6.a.(5)
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. RCFN 3360 0 6.b.
7. Trading assets ........................................................................... RCFD 3401 2,901 7.
8. Lease financing receivables (net of unearned income) ..................................... RCFD 3484 1,600,124 8.
9. Total assets(4) .......................................................................... RCFD 3368 25,802,485 9.
LIABILITIES ///////////////////////
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, ///////////////////////
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. RCON 3485 1,735,205 10.
11. Nontransaction accounts in domestic offices: ///////////////////////
a. Money market deposit accounts (MMDAs) ................................................. RCON 3486 1,520,775 11.a.
b. Other savings deposits ................................................................ RCON 3487 3,139,746 11.b.
c. Time deposit of $100,000 or more ....................................................... RCON A514 2,004,284 11.c.
d. Time deposits of less than $100,000 .................................................... RCON A529 6,084,539 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. RCFN 3404 305,502 12.
13. Federal funds purchased and securities sold under agreements to repurchase ............... RCFD 3353 1,846,268 13.
14. Other borrowed money (includes mortgage indebtedness and obligations under capitalized ///////////////////////
leases)................................................................................... RCFD3355 2,925,647 14.
---------------------------
</TABLE>
_____________
(1) For all items, banks have the option of reporting either (1) an average of
daily figures for the quarter, or (2) an average of weekly figures (i.e.,
the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized
cost.
(3) Quarterly averages for all equity securities should be based on historical
cost.
(4) The quarterly average for total assets should reflect all debt securities
(not held for trading) at amortized cost, equity securities with readily
determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
23
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-14
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-L--Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L.
Some of the amounts reported in Schedule RC-L are regarded as volume indicators
and not necessarily as measures of risk.
<TABLE>
<CAPTION> --------
C460 <-
-------------------
Dollar Amounts in Thousands RCED Bil Mil Thou
- --------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
1. Unused commitments: //////////////////
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home equity //////////////////
lines....................................................................................... 3814 1,415,718 1.a.
b. Credit card lines........................................................................... 3815 1,712,298 1.b.
c. Commercial real estate, construction, and land development: //////////////////
(1) Commitments to fund loans secured by real estate........................................ 3816 485,026 1.c.(1)
(2) Commitments to fund loans not secured by real estate.................................... 6550 25,510 1.c.(2)
d. Securities underwriting..................................................................... 3817 0 1.d.
e. Other unused commitments.................................................................... 3818 3,975,235 1.e.
2. Financial standby letters of credit and foreign office guarantees.............................. 3819 583,721 2.
-----------------------
a. Amount of financial standby letters of credit conveyed to others RCFD 3820 11,400 ////////////////// 2.a.
-----------------------
3. Performance standby letters of credit and foreign office guarantees............................ 3821 121,556 3.
-----------------------
a. Amount of performance standby letters of credit conveyed to others RCFD 3822 4,807 ////////////////// 3.a.
-----------------------
4. Commercial and similar letters of credit....................................................... 3411 180,096 4.
5. Participations in acceptances (as described in the instructions) conveyed to others //////////////////
by the reporting (nonaccepting) bank.......................................................... 3428 0 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting //////////////////
(nonaccepting) bank............................................................................ 3429 0 6.
7. Securities borrowed............................................................................ 3432 0 7.
8. Securities lent (including customers' securities lent where the customer is indemnified against //////////////////
loss by the reporting bank).................................................................... 3433 0 8.
9. FINANCIAL ASSETS TRANSFERRED WITH RECOURSE THAT HAVE BEEN TREATED AS SOLD FOR //////////////////
CALL REPORT PURPOSES: //////////////////
a. FIRST LIEN 1-TO-4 FAMILY RESIDENTIAL MORTGAGE LOANS: //////////////////
(1) OUTSTANDING PRINCIPAL BALANCE OF MORTGAGES TRANSFERRED AS OF THE REPORT DATE............ A521 13,563 9.a.(1)
(2) AMOUNT OF RECOURSE EXPOSURE ON THESE MORTGAGES AS OF THE REPORT DATE.................... A522 13,563 9.a.(2)
b. OTHER FINANCIAL ASSETS (EXCLUDING SMALL BUSINESS OBLIGATIONS REPORTED IN ITEM 9.c): //////////////////
(1) OUTSTANDING PRINCIPAL BALANCE OF ASSETS TRANSFERRED AS OF THE REPORT DATE............... A523 0 9.b.(1)
(2) AMOUNT OF RECOURSE EXPOSURE ON THESE ASSETS AS OF THE REPORT DATE....................... A524 0 9.b.(2)
c. Small business obligations transferred with recourse under Section 208 of the //////////////////
Riegle Community Development and Regulatory Improvement Act of 1994: //////////////////
(1) Outstanding principal balance of small business obligations transferred //////////////////
as of the report date................................................................... A249 0 9.c.(1)
(2) Amount of retained recourse on these obligations as of the report date.................. A250 0 9.b.(2)
10. NOTIONAL AMOUNT OF CREDIT DERIVATIVES: //////////////////
a. CREDIT DERIVATIVES ON WHICH THE REPORTING BANK IS THE GUARANTOR............................. A534 0 10.a.
b. CREDIT DERIVATIVES ON WHICH THE REPORTING BANK IS THE BENEFICIARY........................... A535 0 10.b.
11. Spot foreign exchange contracts................................................................ 8765 3,216 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives) (itemize and //////////////////
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital"). 3430 0 12.
---------------- ----------------------- //////////////////
a. TEXT 3555 RCFD 3555 ////////////////// 12.a.
b. TEXT 3556 RCFD 3556 ////////////////// 12.b.
c. TEXT 3557 RCFD 3557 ////////////////// 12.c.
d. TEXT 3558 RCFD 3558 ////////////////// 12.d.
---------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-15
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-L--Continued
<TABLE>
<CAPTION>
-------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) itemize and
describe each component of this time over 25% of Schedule RC, item 28, "Total equity capital") 5591 0 13.
-------------- ------------------------ ///////////////////
a. TEXT 5592 RCFD 5592 /////////////////// 13.a.
b. TEXT 5593 RCFD 5593 /////////////////// 13.b.
c. TEXT 5594 RCFD 5594 /////////////////// 13.c.
d. TEXT 5595 RCFD 5595 /////////////////// 13.d.
----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION> --------
C461 <-
-----------------------------------------------------------------------------
(Column A) (Column B) (Column C) Column D
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
- ------------------------------------------- Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives ----------------- ---------------- ----------------- -----------------
Position Indicators Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou Tril Bil Mil Thou
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
14. Gross amounts (e.g., notional ////////////////// ////////////////// ////////////////// /////////////////
amounts) (for each column, sum of ////////////////// ////////////////// ////////////////// /////////////////
items 14.a through 14.e must equal ////////////////// ////////////////// ////////////////// /////////////////
sum of items 15, 16.a, and 16.b): ////////////////// ////////////////// ////////////////// /////////////////
a. Futures contracts................... 0 0 0 0 14.a
------------------ ------------------ ------------------ -----------------
RCFD 8693 RCFD 8694 RCFD 8695 RCFD 8696
------------------ ------------------ ------------------ -----------------
b. Forward contracts................... 266,500 31,042 0 0 14.b.
------------------ ------------------ ------------------ -----------------
RCFD 8697 RCFD 8698 RCFD 8699 RCFD 8700
------------------ ------------------ ------------------ -----------------
c. Exchange-traded option contracts: ////////////////// ////////////////// ////////////////// /////////////////
------------------ ------------------ ------------------ -----------------
(1) Written options................. 0 0 0 0 14.c.(1)
------------------ ------------------ ------------------ -----------------
RCFD 8701 RCFD 8702 RCFD 8703 RCFD 8704
------------------ ------------------ ------------------ -----------------
(2) Purchased options............... 0 0 0 0 14.c.(2)
------------------ ------------------ ------------------ -----------------
RCFD 8705 RCFD 8706 RCFD 8707 RCFD 8708
------------------ ------------------ ------------------ -----------------
d. Over-the-counter option contracts: ////////////////// ////////////////// ////////////////// /////////////////
------------------ ------------------ ------------------ -----------------
(1) Written options................. 26,510 0 0 0 14.d.(1)
------------------ ------------------ ------------------ -----------------
RCFD 8709 RCFD 8710 RCFD 8711 RCFD 8712
------------------ ------------------ ------------------ -----------------
(2) Purchased options............... 707,510 0 0 0 14.d.(2)
------------------ ------------------ ------------------ -----------------
RCFD 8713 RCFD 8714 RCFD 8715 RCFD 8716
------------------ ------------------ ------------------ -----------------
e. Swaps............................... 3,604,761 35,417 0 0 14.e.
------------------ ------------------ ------------------ -----------------
15. Total gross notional amount of ////////////////// ////////////////// ////////////////// /////////////////
derivative contracts held for trading.. 748,634 31,042 0 0 15.
------------------ ------------------ ------------------ -----------------
RCFD A126 RCFD A127 RCFD 8723 RCFD 8724
------------------ ------------------ ------------------ -----------------
16. Gross notional amount of ////////////////// ////////////////// ////////////////// /////////////////
derivative contracts held for ////////////////// ////////////////// ////////////////// /////////////////
purposes other than trading: ////////////////// ////////////////// ////////////////// /////////////////
------------------ ------------------ ------------------ -----------------
a. Contracts marked to market.......... 497,500 0 0 0 16.a.
------------------ ------------------ ------------------ -----------------
RCFD 8725 RCFD 8726 RCFD 8727 RCFD 8728
------------------ ------------------ ------------------ -----------------
b. Contracts not marked to market...... 3,359,147 35,417 0 0 16.b.
------------------ ------------------ ------------------ -----------------
RCFD 8729 RCFD 8730 RCFD 8731 RCFD 8732
------------------ ------------------ ------------------ -----------------
c. INTEREST RATE SWAPS WHERE THE BANK ////////////////// ////////////////// ////////////////// /////////////////
HAS AGREED TO PAY A FIXED RATE...... 150,000 ////////////////// ////////////////// ///////////////// 16.c.
------------------ ------------------ ------------------ -----------------
RCFD A589 ////////////////// ////////////////// /////////////////
------------------ ------------------ ------------------ -----------------
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-16
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-L--Continued
<TABLE>
<CAPTION>
-------------
C462 <-
----------------------------------------------------------------------------------------
(Column A) (Column B) (Column C) (Column D)
Dollar Amounts in Thousands Interest Rate Foreign Exchange Equity Derivative Commodity and
- ----------------------------------- Contracts Contracts Contracts Other Contracts
Off-balance Sheet Derivatives
Position Indicators
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
17. Gross fair values of //////////////////// ////////////////// ////////////////// ///////////////////
derivative contracts: //////////////////// ////////////////// ////////////////// ///////////////////
a. Contracts held for //////////////////// ////////////////// ////////////////// ///////////////////
trading: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Gross positive //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8733 39,434 8734 448 8735 0 8736 0 17.a.(1)
(2) Gross negative //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8737 38,688 8738 452 8739 0 8740 0 17.a.(2)
b. Contracts held for //////////////////// ////////////////// ////////////////// ///////////////////
purposes other than //////////////////// ////////////////// ////////////////// ///////////////////
trading that are marked //////////////////// ////////////////// ////////////////// ///////////////////
to market: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Gross positive //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8741 8,440 8742 0 8743 0 8744 0 17.b.(1)
(2) Gross negative //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8745 1,346 8746 0 8747 0 8748 0 17.b.(2)
c. Contracts held for //////////////////// ////////////////// ////////////////// ///////////////////
purposes other than //////////////////// ////////////////// ////////////////// ///////////////////
trading that are not //////////////////// ////////////////// ////////////////// ///////////////////
marked to market: //////////////////// ////////////////// ////////////////// ///////////////////
(1) Gross positive //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8749 37,529 8750 132 8751 0 8752 0 17.c.(1)
(2) Gross negative //////////////////// ////////////////// ////////////////// ///////////////////
fair value............. 8753 2,715 8754 0 8755 0 8756 0 17.c.(2)
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
----------------------------
Memoranda Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------- --------------------
<S> <C>
RCFD Bil Mil Thou
1-2. Not applicable //////////////////
3. Unused commitments with an original maturity exceeding one year that are reported in //////////////////
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments //////////////////
that are fee paid or otherwise legally binding) ............................................... 3833 2,884,813 M.3.
a. Participations in commitments with an original maturity //////////////////
exceeding one year conveyed to others ........................... RCFD 3834 374,887 ////////////////// M.3.a.
4. To be completed only by banks with $1 billion or more in total assets: //////////////////
Standby letters of credit and foreign office guarantees (both financial and performance) issued //////////////////
to non-U.S. addressees (domicile) included in Schedule RC-L, items 2 and 3, above ............. 3377 1,350 M.4.
5. Installment loans to individuals for household, family, and other personal expenditures that //////////////////
have been securitized and sold (with servicing retained), amounts outstanding by type of loan: //////////////////
a. Loans to purchase private passenger automobiles (TO BE COMPLETED FOR THE //////////////////
SEPTEMBER REPORT ONLY)...................................................................... 2741 N/A M.5.a.
b. Credit cards and related plans (TO BE COMPLETED QUARTERLY).................................. 2742 0 M.5.b.
c. All other consumer installment credit (including mobile home loans) (TO BE COMPLETED FOR //////////////////
THE SEPTEMBER REPORT ONLY).................................................................. 2743 N/A M.5.c.
----------------------
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-17
City, State Zip: Columbus, OH 43287
FDIC Certificate No.: 06560
</TABLE>
Schedule RC-M--Memoranda
<TABLE>
<CAPTION>
----------
C465 (-
----------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ----------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal //////////////////
shareholders, and their related interests as of the report date: //////////////////
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal //////////////////
shareholders, and their related interests .................................................... 6164 332,236 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all //////////////////
extensions of credit by the reporting bank (including extensions of credit to //////////////////
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number //////////////////
------------------ //////////////////
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 17 ////////////////// 1.b.
------------------ //////////////////
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches //////////////////
and agencies of foreign banks(1) (included in Schedule RC, item 3) .............................. 3405 0 2.
3. Not applicable. //////////////////
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others //////////////////
(include both retained servicing and purchased servicing): //////////////////
a. Mortgages serviced under a GNMA contract ..................................................... 5500 230,304 4.a.
b. Mortgages serviced under a FHLMC contract: //////////////////
(1) Serviced with recourse to servicer ....................................................... 5501 4,549 4.b.(1)
(2) Serviced without recourse to servicer .................................................... 5502 1,428,709 4.b.(2)
c. Mortgages serviced under a FNMA contract: //////////////////
(1) Serviced under a regular option contract ................................................. 5503 8,220 4.c.(1)
(2) Serviced under a special option contract ................................................. 5504 4,041,831 4.c.(2)
d. Mortgages serviced under other servicing contracts ........................................... 5505 2,264,979 4.d.
5. To be completed only by banks with $1 billion or more in total assets: //////////////////
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must //////////////////
equal Schedule RC, item 9): //////////////////
a. U.S. addressees (domicile) ................................................................... 2103 27,818 5.a.
b. Non-U.S. addressees (domicile) ............................................................... 2104 0 5.b.
6. Intangible assets: //////////////////
a. Mortgage servicing rights .................................................................... 3164 66,174 6.a.
-------------------- //////////////////
(1) Estimated fair value of mortgage servicing assets .................. | RCFD A590 | 52,070 ////////////////// 6.a.(1)
-------------------- //////////////////
b. Other identifiable intangible assets: //////////////////
(1) Purchased credit card relationships ...................................................... 5506 0 6.b.(1)
(2) All other identifiable intangible assets ................................................. 5507 1,921 6.b.(2)
c. Goodwill ..................................................................................... 3163 236,304 6.c.
d. Total (sum of items 6.a, 6.b.(1), 6.b.(2), and 6.c) (must equal Schedule RC, item 10) ........ 2143 304,399 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or //////////////////
are otherwise qualifying for regulatory capital purposes ..................................... 6442 0 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to redeem //////////////////
the debt ........................................................................................ 3295 0 7.
----------------------
</TABLE>
_____________
(1) Do not report federal funds sold and securities purchased under agreements
to resell with other commercial banks in the U.S. in this item.
27
<PAGE> 29
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-18
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-M--Continued
<TABLE>
<CAPTION>
----------------------------
Dollar Amounts in Thousands Bil Mil Thou
- -------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C>
8. a. Other real estate owned: ///////////////////////
(1) Direct and indirect investments in real estate ventures ........................ RCFD 5372 0 8.a.(1)
///////////////////////
(2) All other real estate owned:
(a) Construction and land development in domestic offices ...................... RCON 5508 3,107 8.a.(2)(a)
(b) Farmland in domestic offices ............................................... RCON 5509 0 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ...................... RCON 5510 2,465 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices ......... RCON 5511 89 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ...................... RCON 5512 11,954 8.a.(2)(e)
(f) In foreign offices ......................................................... RCFN 5513 0 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ...... RCFD 2150 17,615 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: ///////////////////////
(1) Direct and indirect investments in real estate ventures ........................ RCFD 5374 8,734 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies .. RCFD 5375 0 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ...... RCFD 2130 8,734 8.b.(3)
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, ///////////////////////
item 23, "Perpetual preferred stock and related surplus" .............................. 3778 0 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include ///////////////////////
proprietary, private label, and third party products):
a. Money market funds ................................................................. RCON 6441 10,393 10.a.
b. Equity securities funds ............................................................ RCON 8427 31,014 10.b.
c. Debt securities funds .............................................................. RCON 8428 9,726 10.c.
d. Other mutual funds ................................................................. RCON 8429 10,767 10.d.
e. Annuities .......................................................................... RCON 8430 32,397 10.e.
f. Sales of proprietary mutual funds and annuities (included in items 10.a through ///////////////////////
10.e above) ........................................................................ RCON 8784 2,621 10.f.
11. Net unamortized realized deferred gains (losses) on off-balance sheet derivative ///////////////////////
contracts included in assets and liabilities reported in Schedule RC .................. RCFD A525 752 11.
12. Amount of assets netted against nondeposit liabilities and deposits in foreign ///////////////////////
offices (other than insured branches in Puerto Rico and U.S. territories and ///////////////////////
possessions) on the balance sheet (Schedule RC) in accordance with generally ///////////////////////
accepted accounting principles(1) ..................................................... RCFD A526 0 12.
13. Outstanding principal balance of loans other than 1-4 family residential mortgage ///////////////////////
loans that are serviced for others (to be completed if this balance is more than ///////////////////////
$10 million and exceeds ten percent of total assets) .................................. RCFD A591 0 13.
---------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
--------------------------
Memorandum Dollar Amounts in Thousands RCFD 3836 Bil Mil Thou
- ------------------------------------------------------------------------------------------------ ----------------------------
<S> <C> <C>
1. Reciprocal holdings of banking organizations' capital instruments //////////////////
(to be completed for the December report only) .............................................. 600,000 M.1.
-------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Exclude netted on-balance sheet amounts associated with off-balance sheet
derivative contracts, deferred tax assets netted against deferred tax
liabilities, and assets netted in accounting for pensions.
28
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-19
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets
<TABLE>
<CAPTION>
The FFIEC regards the information reported in
all of Memorandum item 1, in items 1 through 10,
column A, and in Memorandum items 2 through 4,
column A, as confidential.
------------
C470 <-
------------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
Dollar Amounts in Thousands accruing accruing
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Loans secured by real estate: //////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) ................ 1245 158,116 1246 18,711 1247 29,150 1.a.
b. To non-U.S. addressees (domicile) ............ 1248 0 1249 0 1250 0 1.b.
2. Loans to depository institutions and //////////////////// ////////////////// //////////////////
acceptances of other banks: //////////////////// ////////////////// //////////////////
a. To U.S. banks and other U.S. depository //////////////////// ////////////////// //////////////////
institutions ................................. 5377 0 5378 0 5379 0 2.a.
b. To foreign banks ............................. 5380 0 5381 0 5382 0 2.b.
3. Loans to finance agricultural production and //////////////////// ////////////////// //////////////////
other loans to farmers .......................... 1594 535 1597 203 1583 172 3.
4. Commercial and industrial loans: //////////////////// ////////////////// //////////////////
a. To U.S. addressees (domicile) ................ 1251 67,516 1252 15,430 1253 36,318 4.a.
b. To non-U.S. addressees (domicile) ............ 1254 0 1255 0 1256 0 4.b.
5. Loans to individuals for household, family, and //////////////////// ////////////////// //////////////////
other personal expenditures: //////////////////// ////////////////// /////////////////
a. Credit cards and related plans ............... 5383 13,461 5384 4,686 5385 0 5.a.
b. Other (includes single payment, installment, //////////////////// ////////////////// //////////////////
and all student loans) ....................... 5386 81,975 5387 10,273 5388 342 5.b.
6. Loans to foreign governments and official //////////////////// ////////////////// //////////////////
institutions .................................... 5389 0 5390 0 5391 0 6.
7. All other loans ................................. 5459 0 5460 0 5461 0 7.
8. Lease financing receivables: //////////////////// ////////////////// //////////////////
a. Of U.S. addressees (domicile) ................ 1257 27,955 1258 3,638 1259 0 8.a.
b. Of non-U.S. addressees (domicile) ............ 1271 0 1272 0 1791 0 8.b.
9. Debt securities and other assets (exclude other //////////////////// ////////////////// //////////////////
real estate owned and other repossessed assets) . 3505 0 3506 0 3507 0 9.
------------------------------------------------------------------
</TABLE>
================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed
portions of past due and nonaccrual loans and leases. Report in item 10 below
certain guaranteed loans and leases that have already been included in the
amounts reported in items 1 through 8.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
10. Loans and leases reported in items 1 ---------------------------------------------------------------
through 8 above which are wholly or partially /////////////////// ////////////////// //////////////////
guaranteed by the U.S. Government ............... 5612 2,808 5613 2,841 5614 2,059 10.
a. Guaranteed portion of loans and leases /////////////////// ////////////////// //////////////////
included in item 10 above .................... 5615 2,387 5616 2,699 5617 1,363 10.a.
-----------------------------------------------------------------
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-20
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-N--Continued
<TABLE>
<CAPTION>
----------
C473 <-
--------------------------------------------------------------
(Column A) (Column B) (Column C)
Past due Past due 90 Nonaccrual
30 through 89 days or more
days and still and still
Memoranda Dollar Amounts in Thousands accruing accruing
---------------- ---------------- ---------------
RCFD Bil Mil Thou RCFD Bil Mil Thou RCFD Bil Mil Thou
- ------------------------------------------------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C>
1. Restructured loans and leases included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 1 through 8, above ////////////////// ////////////////// //////////////////
(and not reported in Schedule RC-C, part I, ////////////////// ////////////////// //////////////////
Memorandum item 2)............................... 1658 23 1659 28 1661 1,110 M.1.
2. Loans to finance commercial real estate, ////////////////// ////////////////// //////////////////
construction, and land development activities ////////////////// ////////////////// //////////////////
(NOT SECURED BY REAL ESTATE) included in ////////////////// ////////////////// //////////////////
Schedule RC-N, items 4 and 7, above ............. 6558 0 6559 0 6560 0 M.2.
-------------------- -------------------- --------------------
3. Loans secured by real estate in domestic offices RCON Bil Mil Thou RCON Bil Mil Thou RCON Bil Mil Thou
(included in Schedule RC-N, item 1, above): ////////////////// ////////////////// //////////////////
a. Construction and land development ............ 2759 15,417 2769 2,140 3492 5,916 M.3.a.
b. Secured by farmland .......................... 3493 0 3494 0 3495 0 M.3.b.
c. Secured by 1-4 family residential properties: ////////////////// ////////////////// //////////////////
(1) Revolving, open-end loans secured by ////////////////// ////////////////// //////////////////
1-4 family residential properties and ////////////////// ////////////////// //////////////////
extended under lines of credit ........... 5398 11,497 5399 3,330 5400 0 M.3.c.(1)
(2) All other loans secured by 1-4 family ////////////////// ////////////////// //////////////////
residential properties ................... 5401 68,128 5402 6,288 5403 13,811 M.3.c.(2)
d. Secured by multifamily (5 or more) ////////////////// ////////////////// //////////////////
residential properties ....................... 3499 0 3500 0 3501 0 M.3.d.
e. Secured by nonfarm nonresidential properties.. 3502 63,074 3503 6,953 3504 9,423 M.3.e.
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
(Column A) (Column B)
Past due 30 Past due 90
through 89 days days or more
-------------------- --------------------
<S> <C> <C>
RCFD Bil Mil Thou RCFD Bil Mil Thou
4. Interest rate, foreign exchange rate, and other ////////////////// //////////////////
commodity and equity contracts: ////////////////// //////////////////
a. Book value of amounts carried as assets ...... 3522 0 3528 0 M.4.a.
b. Replacement cost of contracts with a ////////////////// //////////////////
positive replacement cost .................... 3529 0 3530 0 M.4.b.
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Person to whom questions about the Reports of Condition and Income should be directed: C477 <-
<S> <C>
BILL TELZEROW, MANAGER OF FINANCIAL REPORTING (614) 480-4563
- --------------------------------------------- ---------------------------------------------------
Name and Title (TEXT 8901) Area code/phone number/extension (TEXT 8902)
</TABLE>
30
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-21
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-O--Other Data for Deposit Insurance and FICO Assessments
__________
<TABLE>
<CAPTION>
----------
C475 (-
---------------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C> <C>
1. Unposted debits (see instructions): //////////////////
a. Actual amount of all unposted debits ...................................................... 0030 0 1.a.
OR //////////////////
b. Separate amount of unposted debits: //////////////////
(1) Actual amount of unposted debits to demand deposits ................................... 0031 N/A 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... 0032 N/A 1.b.(2)
2. Unposted credits (see instructions): //////////////////
a. Actual amount of all unposted credits ..................................................... 3510 3,070 2.a.
OR //////////////////
b. Separate amount of unposted credits: //////////////////
(1) Actual amount of unposted credits to demand deposits .................................. 3512 N/A 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... 3514 N/A 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total //////////////////
deposits in domestic offices) ................................................................ 3520 0 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in //////////////////
Puerto Rico and U.S. territories and possessions (not included in total deposits): //////////////////
a. Demand deposits of consolidated subsidiaries .............................................. 2211 3,753 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. 2351 0 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... 5514 0 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: //////////////////
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. 2229 0 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... 2383 0 5.b.
c. Interest accrued and unpaid on deposits in insured branches //////////////////
(included in Schedule RC-G, item 1.b) ..................................................... 5515 0 5.c.
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on //////////////////
behalf of its respondent depository institutions that are also reflected as deposit liabilities //////////////////
of the reporting bank: //////////////////
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, item 4 or 5 //////////////////
column B) ................................................................................. 2314 0 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, //////////////////
item 4 or 5, column A or C, but not column B) ............................................. 2315 0 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1), (2) //////////////////
a. Unamortized premiums ...................................................................... 5516 127 7.a.
b. Unamortized discounts ..................................................................... 5517 0 7.b.
8. To be completed by banks with "Oakar deposits." //////////////////
a. Deposits purchased or acquired from other FDIC-insured institutions during the quarter //////////////////
(exclude deposits purchased or acquired from foreign offices other than insured branches //////////////////
in Puerto Rico and U.S. territories and possessions): //////////////////
(1) Total deposits purchased or acquired from other FDIC-insured institutions during //////////////////
the quarter ........................................................................... A531 76,106 8.a.(1)
(2) Amount of purchased or acquired deposits reported in item 8.a.(1) above attributable //////////////////
to a secondary fund (i.e., BIF members report deposits attributable to SAIF; SAIF //////////////////
members report deposits attributable to BIF) .......................................... A532 0 8.a.(2)
b. Total deposits sold or transferred to other FDIC-insured institutions during the quarter //////////////////
(exclude sales or transfers by the reporting bank of deposits in foreign offices other than //////////////////
insured branches in Puerto Rico and U.S. territories and possessions) ..................... A533 0 8.b.
----------------------
</TABLE>
- --------------
(1) For FDIC insurance and FICO assessment purposes, "time and savings
deposits" consists of nontransaction accounts and all transaction accounts
other than demand deposits.
(2) Exclude core deposit intangibles.
31
<PAGE> 33
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-22
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-O--Continued
<TABLE>
<CAPTION>
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- -------------------------------------------------------------------------------------------------- -------------------
<S> <C>
9. Deposits in lifeline accounts................................................................. 5596////////////// 9.
10. Benefit-responsive "Depository Institution Investment Contracts: (included in total //////////////////
deposits in domestic offices)................................................................. 8432 0 10.
11. Adjustments to demand deposits in domestic offices and in insured branches in Puerto Rico //////////////////
and U.S. territories and possessions reported in Schedule RC-E for certain reciprocal //////////////////
demand balances: //////////////////
a. Amount by which demand deposits would be reduced if the reporting bank's reciprocal //////////////////
demand balances with the domestic offices of U.S. banks and savings associations //////////////////
and insured branches in Puerto Rico and U.S. territories and possessions that were //////////////////
reported on a gross basis in Schedule RC-E had been reported on a net basis................ 8785 6,557 11.a.
b. Amount by which demand deposits would be increased if the reporting bank's reciprocal //////////////////
demand balances with foreign banks and foreign offices of other U.S. banks (other than //////////////////
insured branches in Puerto Rico and U.S. territories and possessions) that were reported //////////////////
on a net basis in Schedule RC-E had been reported on a gross basis......................... A181 0 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of collection //////////////////
were included in the calculation of the reporting bank's net reciprocal demand balances //////////////////
with the domestic offices of U.S. banks and savings associations and insured branches //////////////////
in Puerto Rico and U.S. territories and possessions in Schedule RC-E....................... A182 0 11.c.
12. Amount of assets netted against deposit liabilities in domestic offices and in insured //////////////////
branches in Puerto Rico and U.S. territories and possessions on the balance sheet //////////////////
(Schedule RC) in accordance with generally accepted accounting principles (exclude amounts //////////////////
related to reciprocal demand balances): //////////////////
a. Amount of assets netted against demand deposits............................................ A527 0 12.a.
b. Amount of assets netted against time and savings deposits.................................. A528 0 12.b.
------------------
</TABLE>
Memoranda (to be completed each quarter except as noted)
<TABLE>
<CAPTION>
-------------------
Dollar Amounts in Thousands RCON Bil Mil Thou
- ------------------------------------------------------------------------------------------------- -------------------
<S> <C>
RCON
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a.(1) and 1.b.(1) //////////////////
must equal Schedule RC, item 13.a): //////////////////
a. Deposit accounts of $100,000 or less: //////////////////
(1) Amount of deposit accounts of $100,000 or less ........................................ 2702 10,887,241 M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number //////////////////
---------------------------
completed for the June report only) ........................ RCON 3779 N/A ////////////////// M.1.a.(2)
---------------------------
b. Deposit accounts of more than $100,000: //////////////////
(1) Amount of deposit accounts of more than $100,000 ........... 2710 6,620,069 M.1.b.(1)
Number //////////////////
---------------------------
(2) Number of deposit accounts of more than $100,000 ........... RCON 2722 19,118 ////////////////// M.1.b.(2)
-------------------------------------------------
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by multiplying the number of
deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2) above by
$100,000 and subtracting the result from the amount of deposit accounts of more than
$100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or procedure for RCON Yes No
-------------------
determining a better estimate of uninsured deposits than the estimate described above ..... 6861 /// X M.2.a.
-------------------
b. If the box marked YES has been checked, report the estimate of uninsured deposits RCON Bil Mil Thou
-------------------
determined by using your bank's method or procedure ....................................... 5597 N/A M.2.b.
-------------------
3. Has the reporting institution been consolidated with a parent bank or savings association
in that parent bank's or parent savings association's
Call Report or Thrift Financial Report?
If so, report the legal title and FDIC Certificate Number of the parent bank or parent
savings association:
FDIC Cert No.
----------- ------------------------
TEXT A545 N/A RCCN A545 N/A M.3.
-------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-23
City, State Zip: Columbus, Ohio 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-R--Regulatory Capital
This schedule must be completed by all banks as follows: Banks that reported
total assets of $1 billion or more in Schedule RC, item 12, for June 30, 1996,
must complete items 2 through 9 and Memoranda items 1 and 2. Banks with assets
of less than $1 billion must complete items 1 through 3 below or Schedule RC-R
in its entirety, depending on their response to item 1 below.
<TABLE>
<S> <C>
------------
C480 (-
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed -----------------
only by banks with total assets of less than $1 billion. Indicate in the appropriate YES NO
box at the right whether the bank has total capital greater than or equal to eight percent -------------------------------
of adjusted total assets ............................................................... RCFD 6056 //// 1.
---------------------------------
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete item 2 and 3 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
NOTE: ALL BANKS ARE REQUIRED TO COMPLETE ITEMS 2 AND 3 BELOW.
SEE OPTIONAL WORKSHEET FOR ITEMS 3.a THROUGH 3.f.
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou
- ------------------------------------------------------------------------------ -------------------- ---------------------
<S> <C> <C> <C>
2. Portion of qualifying limited-life capital instruments (original weighted ////////////////////////////////////
average maturity of at least five years) that is includible in Tier 2 capital: ////////////////////////////////////
a. Subordinated debt (1) and intermediate term preferred stock ............... A515 729,472 2.a
b. Other limited-life capital instruments .................................... A516 0 2.b
3. Amounts used in calculating regulatory capital ratios (report amounts ////////////////////////////////////
determined by the bank for its own internal regulatory capital analyses ////////////////////////////////////
consistent with applicable capital standards): ////////////////////////////////////
a. Tier 1 capital ............................................................ 8274 1,456,305 3.a
b. Tier 2 capital ............................................................ 8275 986,486 3.b
c. Total risk-based capital .................................................. 3792 2,442,791 3.c
d. Excess allowance for loan and lease losses (amount that exceeds 1.25% of ////////////////////////////////////
gross risk-weighted assets) ............................................... A222 0 3.d
e. Net risk-weighted assets (gross risk-weighted assets less excess allowance ////////////////////////////////////
reported in item 3.d above and all other deductions) ...................... A223 22,009,751 3.e
f. "Average total assets" (quarterly average reported in Schedule RC-K, item ////////////////////////////////////
9, less all assets deducted from Tier 1 capital)(2) ....................... A224 25,528,340 3.f
---------------------------------------------
Items 4-9 Memoranda items 1 and 2 are to be completed (Column A) (Column B)
by banks that answered NO to item 1 above and Assets Credit Equiv-
by banks with total assets of $1 billion or more. Recorded alent Amount
on the of Off-Balance
Balance Sheet Sheet Items(3)
----------------------- --------------------
RCFD Bil Mil Thou RCFD Bil Mil Thou
----------------------- --------------------
4. Assets and credit equivalent amounts of off-balance sheet items
assigned to the Zero percent risk category: /////////////////////// ////////////////////
a. Assets recorded on the balance sheet ................................ 5163 1,187,451 //////////////////// 4.a
b. Credit equivalent amount of off-balance sheet items ................. /////////////////////// 3796 0 4.b
</TABLE>
- ---------------
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not deduct excess allowance for loan and lease losses.
(3) Do not report in column B the risk-weighted amount of assets reported in
column A.
33
<PAGE> 35
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-24
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
-----------
</TABLE>
Schedule RC-R--Continued
<TABLE>
<CAPTION>
-----------------------------------------
(Column A) (Column B)
Assets Credit Equiv-
Recorded alent Amount
on the of Off-Balance
Balance Sheet Sheet Items(1)
-------------------- --------------------
Dollar Amounts in Thousands RCFD Bil Mil Thou RCFD Bil Mil Thou
- --------------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 20 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet.................................... 5165 5,496,277 ////////////////// 5.a.
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3801 48,506 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 50 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet .................................. 3802 2,364,548 ////////////////// 6.a.
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3803 61,267 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items ////////////////// //////////////////
assigned to the 100 percent risk category: ////////////////// //////////////////
a. Assets recorded on the balance sheet .................................. 3804 17,531,851 ////////////////// 7.a.
b. Credit equivalent amount of off-balance sheet items ................... ////////////////// 3805 2,156,034 7.b.
8. On-balance sheet asset values excluded from and deducted in ////////////////// //////////////////
the calculation of the risk-based capital ratio(2)........................ 3806 266,959 ////////////////// 8.
9. Total assets recorded on the balance sheet (sum of ////////////////// //////////////////
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, ////////////////// //////////////////
item 12 plus items 4.b and 4.c) .......................................... 3807 26,847,086 ////////////////// 9.
-------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Memoranda Dollar Amounts in Thousands RCFD Bil Mil Thou
- --------------------------------------------------------------------------------------------------- --------------------
<S> <C>
1. Current credit exposure across all off-balance sheet derivative contracts covered by the //////////////////
risk-basked capital standards ................................................................. 8764 73,776 M.1
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
With a remaining maturity of
-----------------------------------------------------------------------------
(Column A) (Column B) (Column C)
One year or less Over one year Over five years
2. Notional principal amounts of through five years
off-balance sheet derivative ----------------------- ----------------------- ---------------------------
contracts(3): RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou RCFD Tril Bil Mil Thou
----------------------- ----------------------- ---------------------------
<S> <C> <C> <C>
a. Interest rate contracts ........... 3809 909,130 8766 1,664,701 8767 742,950 M.2.a.
b. Foreign exchange contracts ........ 3812 31,042 8769 35,417 8770 0 M.2.b.
c. Gold contracts .................... 8771 0 8772 0 8773 0 M.2.c.
d. Other precious metals contracts ... 8774 0 8775 0 8776 0 M.2.d.
e. Other commodity contracts ......... 8777 0 8778 0 8779 0 M.2.e.
f. Equity derivative contracts ....... A000 0 A001 0 A002 0 M.2.f.
-----------------------------------------------------------------------------
</TABLE>
- --------------------
(1) Do not report in column B the risk-weighted amount of assets reported in
column A.
(2) Include the difference between the fair value and the amortized cost of
available-for-sale debt securities in item 8 and report the amortized cost
of these debt securities in items 4 through 7 above. For available-for-sale
equity securities, if fair value exceeds cost, include the difference
between the fair value and the cost in item 8 and report the cost of these
equity securities in items 5 through 7 above; if cost exceeds fair value,
report the fair value of these equity securities in items 5 through 7 above
and include no amount in item 8. Item 8 also includes on-balance sheet asset
values (or portions thereof) of off-balance sheet interest rate, foreign
exchange rate, and commodity contracts and those contracts (e.g., futures
contracts) not subject to risk-based capital. Exclude from item 8 margin
accounts and accrued receivables not included in the calculation of credit
equivalent amounts of off-balance sheet derivatives as well as any portion
of the allowance for loan and lease losses in excess of the amount that may
be included in Tier 2 capital.
(3) Exclude foreign exchange contracts with an original maturity of 14 days or
less and all futures contracts.
34
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610 FFIEC 031
Address: 41 S. High St. Page RC-25
City, State Zip: Columbus, OH 43287 Printed 1/30/98 at 16:39
FDIC Certificate No.: 06560
--------
</TABLE>
Optional Narrative Statement Concerning the Amounts
Reported in the Reports of Condition and Income
at close of business on December 31, 1997
The Huntington National Bank Columbus, Ohio
- -------------------------------------------------------------------------------
Legal Title of Bank City State
The management of the reporting bank may, if it wishes, submit a brief narrative
statement on the amounts reported in the Reports of Condition and Income. This
optional statement will be made available to the public, along with the
publicly available data in the Reports of Condition and Income, in response to
any request for individual bank report data. However, the information reported
in column A and in all of Memorandum item 1 of Schedule RC-N is regarded as
confidential and will not be released to the public. BANKS CHOOSING TO SUBMIT
THE NARRATIVE STATEMENT SHOULD ENSURE THAT THE STATEMENT DOES NOT CONTAIN THE
NAMES OR OTHER IDENTIFICATIONS OF INDIVIDUAL BANK CUSTOMERS, REFERENCES TO
THE AMOUNTS REPORTED IN THE CONFIDENTIAL ITEMS IN SCHEDULE RC-N, OR ANY OTHER
INFORMATION THAT THEY ARE NOT WILLING TO HAVE MADE PUBLIC OR THAT WOULD
COMPROMISE THE PRIVACY OF THEIR CUSTOMERS. Banks choosing not to make a
statement may check the "No comment" box below and should make no entries of
any kind in the space provided for the narrative statement; i.e., DO NOT enter
in this space such phrases as "No statement," "Not applicable," "N/A," "No
comment," and "None."
The optional statement must be entered on this sheet. The statement should not
exceed 100 words. Further, regardless of the number of words, the statement
must not exceed 750 characters, including punctuation, indentation, and
standard spacing between words and sentences. If any submission should exceed
750 characters, as defined, it will be truncated at 750 characters with no
notice to the submitting bank and the truncated statement will appear as the
bank's statement both on agency computerized records and in computer-file
releases to the public.
All information furnished by the bank in the narrative statement must be
accurate and not misleading. Appropriate efforts shall be taken by the
submitting bank to ensure the statement's accuracy. The statement must be
signed, in the space provided below, by a senior officer of the bank who
thereby attests to its accuracy.
If, subsequent to the original submission, material changes are submitted for
the data reported in the Reports of Condition and Income, the existing
narrative statement will be deleted from the files, and from disclosure; the
bank, at its option, may replace it with a statement, under signature,
appropriate to the amended data.
The optional narrative statement will appear in agency records and in release
to the public exactly as submitted (or amended as described in the preceding
paragraph) by the management of the bank (except for the truncation of
statements exceeding the 750-character limit described above). THE STATEMENT
WILL NOT BE EDITED OR SCREENED IN ANY WAY BY THE SUPERVISORY AGENCIES FOR
ACCURACY OR RELEVANCE. DISCLOSURE OF THE STATEMENT SHALL NOT SIGNIFY THAT ANY
FEDERAL SUPERVISORY AGENCY HAS VERIFIED OR CONFIRMED THE ACCURACY OF THE
INFORMATION CONTAINED THEREIN. A STATEMENT TO THIS EFFECT WILL APPEAR ON ANY
PUBLIC RELEASE OF THE OPTIONAL STATEMENT SUBMITTED BY THE MANAGEMENT OF THE
REPORTING BANK.
- -------------------------------------------------------------------------------
No comment // (RCON 6979) C471 C472 <-
BANK MANAGEMENT STATEMENT (please type or print clearly):
(TEXT 6980)
During the quarter ended December 31, 1997, the Huntington National Bank
acquired The Bank of Winter Park, headquartered in Winter Park, Florida. The
acquisition was accounted for using the purchase method of accounting and was
effective October 31, 1997.
-------------------------------------- -----------------
Signature of Executive Officer of Bank Date of Signature
35
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C>
Legal Title of Bank: The Huntington National Bank Call Date: 12/31/97 ST-BK: 39-1610
Address: 41 S. High St.
City, State Zip: Columbus, OH 43287
FDIC Certificate No.: 06560
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- ----------------------------------------------------------------------------------------------------------------------------------
OMB No. For OCC: 1557-0081
NAME AND ADDRESS OF BANK OMB No. For FDIC: 3064-0052
OMB No. For Federal Reserve: 7100-0036
Expiration Date: 3/31/2000
SPECIAL REPORT
(Dollar Amounts in Thousands)
------------------------------------------------------------------
CLOSE OF BUSINESS FDIC Certificate Number
DATE C-700 <-
12/31/97 06560
- ----------------------------------------------------------------------------------------------------------------------------------
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of
Condition. With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of
credit to their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or
other extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert
"none" against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.)
See Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation O) for the
definitions of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to
directors and principal shareholders who are not executive officers.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
----------------------------
a. Number of loans made to executive officers since the previous Call Report date .............. RCFD 3561 37 a.
----------------------------
b. Total dollar amount of above loans (in thousands of dollars) ................................ RCFD 3562 56,887 b.
-----------------------------
c. Range of interest charged on above loans --------------------------------------------------
(example: 9 3/4% = 9.75) .............................................. RCFD 7701 6.63 % to RCFD 7702 18.00% c.
--------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
SIGNATURE AND TITLE OF OFFICER AUTHORIZED TO SIGN REPORT DATE (Month, Day, Year)
- ----------------------------------------------------------------------------------------------------------------------------------
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) AREA CODE/PHONE NUMBER/EXTENSION
(TEXT 8904)
Bill Telzerow, Manager of Financial Reporting (614) 480-4563
- ----------------------------------------------------------------------------------------------------------------------------------
FDIC 8040/53 (6-95)
</TABLE>
36
<PAGE> 1
EXHIBIT 99.1
EMPLOYEE SOLUTIONS, INC.
LETTER OF TRANSMITTAL
OFFER FOR ALL OUTSTANDING
10% SENIOR NOTES DUE 2004 ("ORIGINAL NOTES")
CUSIP NOS. 292166 AA 3 AND 292166 AB 1
IN EXCHANGE FOR
SERIES B 10% SENIOR NOTES DUE 2004 ("EXCHANGE NOTES")
CUSIP NO. 292166 AC 9
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO THE PROSPECTUS DATED APRIL 6, 1998
THE EXCHANGE OFFER AND WITHDRAWAL PERIOD WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MAY 11, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE")
DELIVER TO THE HUNTINGTON NATIONAL BANK, the Exchange Agent:
By Mail, Overnight Courier or Hand Delivery:
The Huntington National Bank
Attn: Corporate Trust
41 South High Street, 11th Floor
Columbus, OH 43215
Facsimile Transmission:
(614) 480-5223
(For Eligible Institutions Only)
Confirm by Telephone:
(614) 480-3888
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER
OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated April 6, 1998
(the "Prospectus") of Employee Solutions, Inc. (the "Company") and this Letter
of Transmittal, which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $85 million of its
newly issued Series B 10% Senior Notes due 2004 (the "Exchange Notes") that have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") for a like amount of its issued and outstanding 10% Senior Notes due 2004
(the "Original Notes") that were issued and sold in a transaction exempt from
registration under the Securities Act.
For each Original Note accepted for exchange, the holder of such Original
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Original Note. The Exchange Notes will bear interest from the
most recent date to which interest has been paid on the Original Notes, or if no
interest has yet been paid, from October 21, 1997. Accordingly, registered
holders of Exchange Notes on the relevant record date for the first interest
payment date following consummation of the Exchange Offer will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from October 21, 1997. Original Notes accepted for
exchange will cease to accrue interest from and after the
<PAGE> 2
date of consummation of the Exchange Offer. Holders whose Original Notes are
accepted for exchange will not receive any payment in respect of interest on
such Original Notes otherwise payable on any interest payment date the record
date for which occurs on or after consummation of the Exchange Offer.
This Letter of Transmittal is to be used (a) if certificates for Original
Notes are to be physically delivered to the Exchange Agent herewith or if a
tender of certificates for Original Notes, if available, is to be made by
book-entry transfer to the account maintained by the Exchange Agent at the
Depository Trust Company (the "Book-Entry Transfer Facility"), or (b) if tenders
are to be made according to the guaranteed delivery procedures set forth in the
Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." Holders
of Original Notes whose certificates are not immediately available, or who are
unable to deliver their certificates or confirmation of the book-entry tender of
their Original Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility (a "Book-Entry Confirmation") and all other documents required
hereby to the Exchange Agent before the Expiration Date, must tender their
Original Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. See
Instruction 1.
The Exchange Offer will expire at 5:00 p.m., New York City time, on May 11,
1998 (the "Expiration Date") unless extended, in which case the term "Expiration
Date" shall mean the last time and date to which the Exchange Offer is extended.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in the Prospectus.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND LETTER OF TRANSMITTAL SHOULD BE DIRECTED TO THE EXCHANGE AGENT AT
(614)480-3888 OR AT ITS ADDRESS SET FORTH ABOVE.
Holders who wish to tender their Original Notes must complete the table in
Box 1 and complete and sign in Box 5.
List below the Original Notes to which this Letter of Transmittal relates.
If the space below is inadequate, the certificate numbers and amount of Original
Notes should be listed on a separate signed schedule attached hereto.
2
<PAGE> 3
PLEASE READ THE ENTIRE LETTER OR TRANSMITTAL, INCLUDING THE
ACCOMPANYING INSTRUCTIONS, CAREFULLY BEFORE CHECKING ANY BOX BELOW.
- --------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF ORIGINAL NOTES TENDERED
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE USE PRE-ADDRESSED LABEL OR FILL IN EXACTLY
AS TENDERED CERTIFICATE(S)
NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH SIGNED ADDITIONAL LIST IF NECESSARY)
------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
AMOUNT AGGREGATE
CERTIFICATE REPRESENTED BY AMOUNT
NUMBER(S)* CERTIFICATE(S)** TENDERED**
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total Principal
Amount*
------------------------------------------------------------------------------------------------------------------
</TABLE>
* DOES NOT need to be completed if Original Notes are tendered by book-entry
transfer.
** Unless otherwise indicated, the holder will be deemed to have tendered the
entire stated face amount of all Original Notes represented by tendered
certificates. See Instruction 3.
- --------------------------------------------------------------------------------
3
<PAGE> 4
------------------------------------------------------------
BOX 2
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, 6 AND 7)
To be completed ONLY if Exchange Notes are to be issued in the name
of someone other than the person whose signature appears in Box 5 of this
Letter of Transmittal, or if Original Notes delivered by book-entry
transfer which are not accepted for exchange are to be returned by credit
to an account maintained at the Book-Entry Transfer Facility other than
the account indicated above.
Issue Exchange Notes to:
Name
--------------------------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------------------------
-------------------------------------------------------------------
(INCLUDE ZIP CODE)
-------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
[ ] Credit undercharged Original Notes delivered by book-entry transfer to
the Book-Entry Transfer Facility account set forth below:
-------------------------------------------------------------------
BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE
(COMPLETE SUBSTITUTE FORM W-9)
====================================================================
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, 6 AND 7)
To be completed ONLY if certificates for Exchange Notes are to be
sent to someone other than the person whose signature appears in Box 2 of
this Letter of Transmittal or such person at an address other than that
shown in Box 1, entitled "Description of Original Notes Tendered."
Mail and Deliver Exchange Notes to:
Name
-----------------------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------------------
------------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
NOTE: SIGNATURES MUST BE PROVIDED UNDER BOX TWO
PLEASE READ CAREFULLY
THE ACCOMPANYING INSTRUCTIONS
-------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with the terms and subject to the conditions set forth in the
Exchange Offer, the undersigned hereby tenders to the Company the
above-described Original Notes. Subject to, and effective upon, acceptance for
exchange of the Original Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to all the Original Notes that are being
tendered hereby and that are being accepted for exchange pursuant to the
Exchange Offer, and hereby irrevocably constitutes and appoints the Exchange
Agent the true and lawful agent and attorney-in-fact of the undersigned with
respect to such Original Notes (with full knowledge that the Exchange Agent also
acts as agent for the Company) with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest), to
(a)(1) deliver such Original Notes to the Company or (2) present such Original
Notes for transfer to the Registrar on the Company's register, together, in each
case, with all accompanying evidences of transfer and authenticity to, or upon
order of, the Company, upon receipt by the Exchange Agent, as the undersigned's
agent, of the certificates representing Exchange Notes to which the undersigned
is entitled upon the acceptance by the Company of such Original
4
<PAGE> 5
Notes pursuant to the Exchange Offer, and (b) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Original Notes, all in
accordance with the terms and subject to the conditions of the Exchange Offer.
The name and address of the registered holder(s) should be printed above in
Box One under "Description of Original Notes Tendered," exactly as they appear
on the certificates representing Original Notes tendered hereby. The certificate
number(s) and Original Notes to which this Letter of Transmittal relates should
be indicated in the appropriate boxes above under "Description of Original Notes
Tendered."
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Original
Notes tendered hereby, and that when the same are accepted for exchange by the
Company, the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances, and such Original
Notes shall not be subject to any adverse claims. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the exchange,
assignment and transfer of the Original Notes tendered hereby.
Further, the undersigned hereby represents and warrants that the
undersigned is acquiring the Exchange Notes in the ordinary course of its
business; the undersigned is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes; the undersigned has no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes; neither the undersigned nor any other such person is an affiliate of the
Company; and, if the undersigned is not a broker-dealer, the undersigned is not
engaged in, and does not intend to engage in, a distribution of the Exchange
Notes. If the undersigned is a broker-dealer, it acknowledges that it will
deliver a copy of the Prospectus in connection with any resale of the Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued in exchange for the Original Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, the SEC has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in other
circumstances. If any holder is an affiliate of the Company, or is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, such holder (i) could not rely on the applicable interpretations of the
staff of the SEC and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
All authority conferred, or agreed to be conferred, in this Letter of
Transmittal shall survive the death or incapacity of the undersigned, and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned. This tender of Original Notes may be withdrawn at any time prior to
the Expiration Date. See "The Exchange Offer -- Withdrawal Rights" in the
Prospectus.
The undersigned understands that tenders of Original Notes pursuant to any
of the procedures described in the Prospectus and in this Letter of Transmittal
will constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Exchange Offer.
Original Notes properly tendered and not withdrawn will be accepted as soon
as practicable after the satisfaction or waiver of all conditions to the
Exchange Offer. The undersigned understands that the Exchange Notes will be
delivered as promptly as practicable following acceptance of the tendered
Original Notes by the
5
<PAGE> 6
Company. The Exchange Offer is subject to a number of conditions, as more
particularly set forth in the Prospectus. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer" in the Prospectus. The undersigned recognizes
that as a result of such conditions the Company may not be required to accept
any of the Original Notes tendered hereby. In such event, the Original Notes not
accepted for exchange will be returned to the undersigned at the address shown
below the undersigned's signature(s), unless otherwise indicated under "Special
Delivery Instructions."
Unless otherwise indicated herein under "Special Issuance Instructions,"
please issue the certificates for the Exchange Notes with respect to the
Original Notes accepted for exchange, or return the Original Notes not accepted
for exchange, in the name(s) of the undersigned at the address set forth above
under "Description of Original Notes Tendered" or in the case of a book-entry
delivery of Original Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please deliver the certificates for the
Exchange Notes with respect to the Original Notes accepted for exchange, or the
Original Notes if not accepted for exchange (and accompanying documents, as
appropriate), to the undersigned at the address set forth above under
"Description of Original Notes Tendered." In the event that both the "Special
Issuance Instructions" and the "Special Delivery Instructions" are completed,
please issue the certificates for Exchange Notes accepted for exchange or in the
case of a book-entry delivery of Original Notes, please credit the account
indicated above maintained at the Book-Entry Transfer Facility, and/or return or
issue any certificates for Original Notes not tendered or not accepted for
exchange, in the name(s) of, and deliver such certificates for Exchange Notes
and/or such certificates for Original Notes not tendered or accepted for
exchange to the person or persons so indicated. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Issuance Instructions" to
make arrangements for the transfer of any Original Notes from the name of the
registered holder(s) thereof if the Company does not accept for exchange the
Original Notes so tendered. Further, the undersigned recognizes that the
undersigned must comply with all terms and conditions of the Indenture, by and
between the Company and the Guarantors and the Trustee dated as of October 15,
1997, as amended or supplemented from time to time in accordance therewith (the
"Indenture"), to transfer Original Notes either not tendered for exchange or not
accepted for exchange from the name of the registered holder(s).
6
<PAGE> 7
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
BOX 4
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT PRIOR
TO THE DATE HEREOF AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------------------------------------------------------------------
Name of Eligible Institution which Guaranteed Delivery:
----------------------------------------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
---------------------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------------------------
NOTE: Signature(s) must be guaranteed by an institution which is a participant
in the Securities Transfer Agent Medallion Program ("STAMP") or similar program.
7
<PAGE> 8
BOX 5
PLEASE SIGN HERE
TO BE COMPLETED BY ALL HOLDERS TENDERING ORIGINAL NOTES (WHETHER OR NOT
CERTIFICATES ARE BEING PHYSICALLY TENDERED HEREBY)
Must be signed by the registered holder(s) exactly as name(s) appear(s) on
the certificate(s) for Original Notes or by person(s) authorized to become
registered holder(s) as evidenced by endorsements and documents transmitted
herewith. See Instructions 4 and 5. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, agent, or
other person acting in a fiduciary or representative capacity, please provide
the following information. See Instruction 4.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY)
Dated:
- --------------------------- , 1998
Name(s):
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity (Full Title):
- --------------------------------------------------------------------------------
Address(es) (including zip code):
- --------------------------------------------------------------------------------
Area Code(s) and Telephone Number(s):
- --------------------------------------------------------------------------------
Tax Identification or Social Security Number(s):
- --------------------------------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 4)
Name of Firm:
- --------------------------------------------------------------------------------
Authorized Signature:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Title:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Dated:
- --------------------------- , 1998
8
<PAGE> 9
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
PAYER'S NAME: [DEPOSITARY]
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX Social Security number
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND DATING OR
DEPARTMENT OF THE TREASURY BELOW ------------------------------
INTERNAL REVENUE SERVICE Employer Identification Number
-------------------------------------------------------------------------------
PAYER'S REQUEST FOR Part 2 -- CERTIFICATION -- Under penalties of perjury, I certify that:
TAXPAYER IDENTIFICATION (1) the number shown on this form is my correct Taxpayer Identification
NUMBER (TIN) Number (or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am
exempt from backup withholding, or (b) I have not been notified by the
Internal Revenue Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or (c) 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 currently subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you are subject
to backup withholding, you received another notification from the IRS
that you are no longer subject to backup withholding, do not cross out
such item (2).
--------------------------------------------------------------------------------
SIGNATURE DATE Part 3 -- Awaiting TIN [ ]
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9
<PAGE> 10
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
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 (a) 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 (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- --------------------------------------------------------------------------------
- ------------------------- ,1998
- --------------------------------- ---------------------
Signature Date
10
<PAGE> 11
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be used if (a)
certificates for Original Notes are to be physically delivered to the Exchange
Agent herewith or tenders are to be made according to the guaranteed delivery
procedures or (b) tenders are to be made pursuant to the procedures for delivery
by book-entry transfer, all as set forth in the Prospectus.
To validly tender Original Notes pursuant to the Exchange Offer, either (a)
a properly completed and duly executed copy of this Letter of Transmittal (or
facsimile thereof) with any required signature guarantees, together with either
a properly completed and duly executed Notice of Guaranteed Delivery or
certificates for the Original Notes, or Book-Entry Confirmation, as the case may
be, and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address or number set forth on the first
page of this Letter of Transmittal, or (b) a holder of Original Notes must
comply with the guaranteed delivery procedures described in the next succeeding
paragraph. Original Notes tendered must be in denominations of principal amount
of $1,000 and any integral multiple thereof.
Holders of Original Notes who desire to tender such Original Notes pursuant
to the Exchange Offer and whose certificates representing such Original Notes
are not lost but are not immediately available, or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date, or who cannot complete the procedure for
book-entry transfer on a timely basis, may tender their Original Notes pursuant
to the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer -- Guaranteed Delivery Procedures." Pursuant to such procedures,
(a) tender must be made by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or by a commercial bank or trust company having an office or correspondent in
the United States and, in each instance, which is a participant in the
Securities Transfer Agent Medallion Program ("STAMP") or similar program (an
"Eligible Institution"), (b) the Exchange Agent must have received from such
Eligible Institution, prior to 5:00 p.m., New York City time, on the Expiration
Date, a properly completed and duly executed Notice of Guaranteed Delivery (by
mail, hand delivery, telegram or facsimile transmission), and (c) the
certificates for all physically tendered Original Notes in proper form for
transfer or Book-Entry Confirmation as the case may be, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and all
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date, all as provided in the Prospectus under the caption "The
Exchange Offer -- Guaranteed Delivery Procedures."
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATES FOR
ORIGINAL NOTES AND OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDER. EXCEPT AS OTHERWISE PROVIDED HEREIN AND IN THE PROSPECTUS,
SUCH DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE PROPERLY
INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of Original Notes tendered for
exchange will be determined by the Company in its sole discretion, whose
determination will be final and binding. The Company reserves the absolute right
to waive any defects or irregularities in the tender or conditions of the
Exchange Offer as to particular Original Notes. The interpretation of the
Company of the terms and conditions of the Exchange Offer (including the
Instructions herein) will be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. No alternative, conditional or contingent tenders will
be accepted. Neither the Company, the Exchange Agent nor any other person will
be under any duty to give notification of any defects or irregularities in any
tender or will incur any liability for failure to give any
11
<PAGE> 12
such notification. Tenders of Original Notes will not be deemed to have been
made until irregularities have been cured or waived. Any certificates of
Original Notes received by the Exchange Agent that are not properly tendered and
as to which irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering holders of such Original Notes, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
Any tendered Original Notes which are not accepted for exchange because of
an invalid tender, the occurrence or nonoccurrence of certain other events set
forth in the Prospectus or otherwise will be returned without expense to the
appropriate tendering holder thereof as promptly as practicable following the
expiration, withdrawal or termination of the Exchange Offer.
2. Withdrawal Rights. Original Notes tendered pursuant to the Exchange
Offer may be withdrawn, as hereinafter provided, at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For the withdrawal of a tender to be effective, a written, telegraphic or
facsimile transmitted notice of withdrawal must be received by the Exchange
Agent at the address or number set forth on the front page of this Letter of
Transmittal prior to the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person who tendered the Original Notes, (ii) identify
the Original Notes to be withdrawn (including the certificate number or numbers
of any physically delivered Original Notes and the principal amount of the
Original Notes), and (iii) be signed in the same manner required by the Letter
of Transmittal by which such Original Notes were tendered (including any
required signature guarantees, endorsements and/or powers). All questions as to
the validity, form and eligibility (including time of receipt) of notices of
withdrawal will be determined by the Company, whose determination will be final
and binding on all parties. The Original Notes so withdrawn, if any, will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Original Notes which have been tendered for exchange but
which are withdrawn will be returned to the holder without cost to such holder
as soon as practicable after withdrawal. Properly withdrawn Original Notes may
be retendered on or prior to 5:00 p.m., New York City time, on the Expiration
Date by following any of the procedures described above under Instruction 1.
Neither the Company, the Exchange Agent nor any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give such notification.
3. Acceptance of Original Notes for Exchange; No Partial Tenders. Tenders
will be accepted in denominations of $1,000 and any integral multiples thereof.
The entire aggregate principal amount of Original Notes will be deemed to have
been tendered unless otherwise indicated. If less than the entire aggregate
principal amount of any Original Notes evidenced by a submitted certificate is
to be tendered, the tendering holder should fill in the aggregate principal
amount of the Original Notes which is to be tendered in column (4) of the table
in Box One above.
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered pursuant to the
Exchange Offer and not withdrawn, and delivery of the Exchange Notes, will be
made promptly after the Expiration Date.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Original Notes when, as and if the
Company has given oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders of Original Notes for
the purpose of receiving the Exchange Notes and transmitting the Exchange Notes
to such holders. Tendered Original Notes not accepted for exchange by the
Company will be returned without expense to tendering holders as soon as
practicable following the Expiration Date.
4. Signatures on this Letter of Transmittal; Stock Powers and Endorsements;
Guarantee of Signatures. With respect to a tender of Original Notes, this Letter
of Transmittal must be signed by the registered holder(s) of the Original Notes
tendered, and such signatures must correspond with the name(s) of such holder(s)
as written on the face of the certificate without alteration, enlargement, or
any change whatsoever. If this Letter of Transmittal is signed by a person other
than the registered holder(s) of the Original Notes tendered hereby, such
Original Notes must be endorsed or accompanied by appropriate stock powers
signed
12
<PAGE> 13
exactly as the name(s) of the registered holder(s) appear(s) on such
certificates. Signatures of endorsement on any such certificate or stock powers
must be guaranteed by an Eligible Institution.
(a) If any of the Original Notes tendered hereby are held of record by two
or more persons, all such persons must sign this Letter of Transmittal.
(b) If any of the Original Notes tendered hereby are registered in
different names, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal and any necessary accompanying documents as
there are different registrations.
(c) If this Letter of Transmittal is signed by the registered holder(s) of
the Original Notes tendered hereby, no endorsements of certificates or separate
stock powers are required, unless the Original Notes are not accepted for
exchange, or the certificates for Exchange Notes are to be issued in the name
of, or delivered to, any person other than the registered holder(s). Signatures
on any such certificate or stock powers must be guaranteed by an Eligible
Institution (unless signed by an Eligible Institution).
(d) If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Original Notes tendered hereby, certificates
representing such Original Notes tendered hereby, certificates representing such
Original Notes must be endorsed or accompanied by appropriate bond powers and
signed exactly as the name(s) of the registered holder(s) appear(s) on such
certificates. Signatures on any such certificate or bond powers must be
guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
(e) If this Letter of Transmittal or any certificates or bond powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of the
authority of such person to so act must be submitted with this Letter of
Transmittal.
5. Brokerage Fees and Transfer Taxes. Holders of Original Notes who tender
Original Notes will not be required to pay transfer taxes with respect to the
exchange of Original Notes pursuant to the Exchange Offer unless the box
entitled "Special Issuance Instructions" herein is marked as described in
Instruction 6. If, however, the box entitled "Special Issuance Instructions" is
marked and Exchange Notes are to be issued in the name of, or delivered to, any
person other than the registered holder(s), or if a transfer tax is imposed for
any reason other than the exchange of Original Notes for Exchange Notes pursuant
to the Exchange Offer, the amount of any transfer taxes (whether imposed on the
registered holder(s), such other person or otherwise) payable on account of the
transfer to such person will be the responsibility of the tendering holder(s).
Unless satisfactory evidence of the payment of such taxes, or exemption
therefrom, is submitted herewith, the amount of such transfer taxes will be
billed directly to the tendering holder(s). EXCEPT AS PROVIDED IN THIS
INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO
THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL.
6. Special Issuance and Delivery Instructions. If (a) certificates for
Exchange Notes are to be issued in the name of a person other than the person(s)
signing this Letter of Transmittal or (b) Original Notes not accepted for
exchange are to be delivered to a person other than the person(s) signing this
Letter of Transmittal, the appropriate boxes on this Letter of Transmittal
should be completed. Further, if Original Notes not accepted for exchange are to
be delivered to a person other than the person(s) signing this Letter of
Transmittal, such Original Notes must be accompanied by such documents as are
required under the terms and conditions of the Indenture.
7. Substitute Form W-9. Federal income tax law requires each holder who
tenders Original Notes to provide the Exchange Agent with such holder's Taxpayer
Identification Number ("TIN") and to certify that such holder is not subject to
backup withholding for underreporting interest or dividend income. These
certifications must be made by entering the TIN in the space provided on the
Substitute Form W-9 herein and signing and dating the form in the appropriate
places.
13
<PAGE> 14
FAILURE TO PROVIDE THE INFORMATION REQUESTED ON THE SUBSTITUTE FORM W-9 MAY
SUBJECT A HOLDER TO A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND TO
BACKUP WITHHOLDING OF 31% OF ANY REPORTABLE PAYMENT TO BE MADE TO SUCH HOLDER.
If backup withholding applies to a holder, the Exchange Agent is required
to withhold 31% of any reportable payments made to such holder. 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.
Certain holders (including, among others, all corporations and certain
foreign individuals that establish their entitlement to an exemption) are not
subject to these backup withholding and reporting requirements. In order for a
foreign individual to qualify as an exempt recipient, that holder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent.
For additional information in this regard, please refer to the enclosed
Guidelines for Certification of TIN on Substitute Form W-9.
8. Waiver of Conditions. The Company reserves the absolute right to waive
the specified conditions to the Exchange Offer, as described in, and to the
extent provided in, the Prospectus under "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
9. Mutilated, Lost, Stolen or Destroyed Certificates. Any holder whose
certificates for Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Expiration Date. The Exchange Offer will expire at 5:00 p.m., New York
City time, on May 11, 1998, unless extended by the Company. The Company
expressly reserves the right, at any time and from time to time, to extend the
Exchange Offer for such period or periods as it may determine in its sole
discretion, in which event the Expiration Date shall be the time and dated on
which such Exchange Offer, as so extended, shall expire. The Company will notify
all holders of any extension by issuing a press release prior to 9:00 a.m., New
York City time, on the next business day following the previously scheduled
Expiration Date. During any such extension, all Original Notes previously
tendered and not accepted for exchange will remain subject to the Exchange Offer
and may, subject to the terms and conditions hereof, be accepted for exchange by
the Company, subject to the withdrawal rights of tendering holders.
11. Requests for Assistance or Additional Copies. Questions and requests
for assistance may be directed to the Exchange Agent at its address and
telephone number set forth above. Additional copies of the Prospectus and this
Letter of Transmittal may be obtained from the Exchange Agent at its address and
telephone number set forth above.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY
HEREOF (TOGETHER WITH CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS) OR THE
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
14
<PAGE> 15
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER 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>
<C> <S> <C>
- -----------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
===========================================================
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, any
one of the
individuals(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. (a) The usual revocable savings The grantor-
trust (grantor is also trustee(1)
trustee)
(b) So-called trust account The actual owner(1)
that is not a legal or valid
trust under state law
5. Sole proprietorship The owner(3)
6. Sole proprietorship The owner(3)
- -----------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- -----------------------------------------------------------
7. A valid trust, estate or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational or
other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district, or prison) that
receives agriculture 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) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your Social Security number or
Employer Identification number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identifying number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
<PAGE> 16
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
Section references are to the Internal Revenue Code.
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
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempted except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers Act
of 1940 who regularly acts as a broker are exempt. Payments subject to reporting
under Sections 6041 and 6041A are generally exempt from backup withholding only
if made to payees described in items (1) through (7), except that a corporation
that provides medical and health care services or bills and collects payments
for such services is not exempt from backup withholding or information
reporting. Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and payments
by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under Section 501(a), or an individual
retirement plan ("IRA"), or a custodial account under Section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under Section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
(15) A trust exempt from tax under Section 664 or described in Section 4947.
Payments of dividends and patronage dividends generally not subject to backup
withholding also include the following:
- Payments to nonresident aliens subject to withholding under Section 1441.
- Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
Payments of interest generally not 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 exempt interest dividends under
Section 852).
- Payments described in Section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under Section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details see Sections 6041, 6041(a), 6042, 6044, 6045,
6049, 6050A and 6050N, and the regulations under such sections.
PRIVACY ACT NOTICE.--Section 6109 requires you to give your correct taxpayer
identification number to persons who must file information returns with the IRS
to report interest, dividends, and certain other income paid to you, mortgage
interest you paid, the acquisition or abandonment of secured property,
cancellation of debt, or contributions you made to an IRA. The IRS uses the
numbers for identification purposes and to help verify the accuracy of your tax
return. You must provide your taxpayer identification number whether or not you
are required to file a tax return. 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.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct 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) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS.--If the requester discloses or
uses your taxpayer identification numbers in violation of federal law, the
requester may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
